The withdrawal of the FRSSE in 2016 will herald significant changes for micro and small entities.
In July 2015, the Financial Reporting Council finalised its overhaul of UK GAAP, introducing a new financial reporting framework for micro and small reporting entities that will be applicable for accounting periods beginning on or after 1 January 2016. The FRSSE is withdrawn and micro and small entities will need to get to grips with the requirements of either:
- FRS 105: The Financial Reporting Standard applicable to the Micro-entities Regime, or
- FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland – Section 1A Small Entities.
Reporting entities that previously followed the FRSSE need to consider which of the new standards they should adopt. The first step is to consider eligibility, which is based on size thresholds and the status of the entity, as shown in the table below. A company meeting the criteria for micro-entity regime may still choose to adopt FRS 102 1A, because the micro-entity regime is optional.
|Micro-entities regime – FRS 105||Small entities regime – FRS 102 1A|
|Eligible entities||Companies only
|Size thresholds||Qualifies if it does not exceed two or more of the following criteria:
||Qualifies if it does not exceed two or more of the following criteria:
Essentially, FRS 105 represents a simplification of financial reporting for the smallest companies. The underpinning characteristics of the micro-entity regime are:
- the amount of information included in the micro-entity accounts is significantly less than that previously reported by small companies. The formats are simplified and only minimum disclosure is given in the notes to the accounts, as required by law
- the only primary statements required are a balance sheet and profit and loss account. There is no requirement to prepare a statement of cash flows, a statement of comprehensive income or a statement of changes in equity
- there is less flexibility and constraints on accounting treatments and disclosures that can be made. There is no choice in accounting policy
- the financial statements are presumed to show a true and fair view despite the limited amount of information contained within them.
FRS 102 IA is based on the recognition and measurement requirements of FRS 102, with the presentation and disclosure requirements based on company law. A complete set of financial statements of a small entity will include all of the following:
- a statement of financial position (balance sheet) as at the reporting date
- an income statement for the reporting period
- notes as required by FRS 102 Section 1A (a limited number of notes in comparison with ‘full’ FRS 102).
There is no requirement to produce a cash flow statement, a statement of comprehensive income, or a statement of changes in equity, though the standard encourages the latter two statements to be produced if the reporting entity has relevant transactions.
A key issue is that the financial statements of a small entity prepared under FRS 102 IA are not presumed to show a true and fair view, so the preparers of the accounts will need to consider whether additional disclosures are necessary in order for a true and fair view to be achieved.
The FRC has produced a document which provides an overview of the new UK GAAP requirements which also contains a useful summary of the key differences between the FRSSE and FRS 105 and FRS 102 IA.