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The new accounting requirements for small companies

From 1st January 2016 the accounting requirements for small companies and micro-entities are changing. After 1st January, the Financial Reporting Standard for Small Entities (FRSSE) will no longer be applicable and small companies will instead need to apply the concepts and principles of FRS 102. Micro-entities will have to refer to FRS105.

What is a Small Company?

As well as the accounting requirements changing for small companies, the company law size thresholds for small companies will also be changing. From January a small company will be any company which meets two of the following criteria…

  • An Annual Turnover of less than £10.2m (was £6.5m)
  • A Balance Sheet Total of less than £5.1m (was £3.26m)
  • Less than 50 employees (unchanged)

There will also be a new threshold to define micro-entities, which will be companies with an annual turnover of £632,000 or less.

What do these changes mean for affected companies?

  1. From 1st January 2016, companies with an annual turnover between £632,000 and £6.5m will still be considered small. Most of these companies will currently be applying FRSSE and will now have to prepare to convert to FRS 102 for their first set of financial statements for the financial year beginning on or after 1st January 2016.

  2. From 1st January 2016, companies with an annual turnover between £6.5m and £10.2m will no longer be considered medium size - they will be considered small. Most of these companies will currently be applying UK GAAP and preparing to convert to FRS 102 for their first set of financial statements for the financial year beginning on or after 1st January 2015. They should continue to do so.

The ramifications for companies with an annual turnover between £6.5m and £10.2m are minimal as they will continue with their conversion from UK GAAP to FRS 102 and in the future will probably benefit from the reduced disclosures for small companies. The companies with an annual turnover between £632,000 and £6.5m will have the biggest changes to consider and will not have a lot of time to prepare for them.

The principles and concepts of FRS 102 are quite different to those within FRSSE. For illustrative purposes, let me refer to those small companies that have a year-end of 31st December. They will need to go back to their FRSSE balance sheet at 31st December 2014 and convert it to an FRS 102 balance sheet as part of the complex procedure to complete the transition from FRSSE to FRS 102. They will also need to carry on to produce a FRSSE profit and loss statement for the year ending 31st December 2015 and, along with the FRSSE balance sheet at that date, convert it to FRS 102 to complete a set of financial statements for comparison purposes for their first full set of FRS 102 financial statements for the year ending 31st December 2016.

When you have produced your first full set of FRS 102 financial statements there are a number of additional disclosures that your company will be required to make to explain the impact of the changes. As many people who are going through a similar process of converting from UK GAAP to FRS 102 will tell you, the process is not easy.

If your company has an annual turnover between £632,000 and £6.5m I suggest that you do not delay in finding out what you might need to do to convert from FRSSE to FRS 102. This October, UK Training will be presenting a half-day course to help these small companies with their conversion. For more details of this course please visit our website.

Stephen Smith
Managing Director
UK Training (Worldwide) Limited

 
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