FRS102 – Small companies
As we draw a close to 2016, we reflect on the transition to the change of accounting framework – FRS102 that effected medium sized companies and above and ultimately both pension schemes and charities with the introduction of a FRS102 compliant SORP.
Small and micro sized companies are bought into this regime from 2017 as the new framework takes effect for these size entities for accounting periods starting on or after 1st January 2016.
The new UK GAAP is inclusive of Financial Reporting Standard (FRS) 100 and FRS 102 which is the key element for most businesses. It also includes FRS 101 which offers reduced disclosures for some EU-IFRS prepares, FRS 105 for micro-entities only and FRS 103 for FRS 102 which issues specific accounting requirements for insurance contracts.
So what can we learn from this year and what changes do we need to be aware of when preparing accounts in 2017?
Firstly, planning is key and we are advising clients to meet with us to discuss the likely changes. If a re-statement is required, this will have to be updated in the comparatives too and the bought forward reserves (there are exemptions to this under 1A, where the transition date can be deemed as the start of the ‘current’ year). However considerable changes will need careful planning and could impact timetables.
The key changes for small companies* are:
The FRSSE has been withdrawn.
Interest rate swaps or forward contracts are shown in the balance sheet at fair value.
Share based payments – share option schemes, previously excluded under FRSSE will need to be measured at fair value.
Compliance with the presentation and disclosure requirements of full FRS102 unless they choose to apply section 1A (which offers reduced disclosures). To name but a few; there is no need for a statement of changes in equity note, a cash flow is not required, the key management remuneration note is not required and less detail on related parties)
Optional to file, full, abridged or ‘filleted accounts’ (without the PL account and/or directors report) at Companies House.
*Small companies – From 1st January 2016 the size limits are: Turnover 10.2m, Balance sheet total 5.1m, Average employees: 50.
Micro entities* can take further disclosure exemptions under FRS105. Please note that, public companies, charitable companies, companies that undertake certain insurance and finance activities and companies that are part of a larger group cannot take advantage of these.
The key points are:
No need to account for deferred tax.
Financial instruments are not measured at fair value.
No need to account for share based payments.
Accounting for defined benefit pension schemes is less onerous.
Requirements to prepare a directors’ report, abridged profit and loss account and balance sheet.
No need for a separate set of notes: but information about directors’ benefits e.g. advances, credit and guarantees and financial commitments and guarantees must appear at the foot of the abridged balance sheet.
No option to capitalise borrowing or development costs.
Micro entities cannot adopt the fair value or alternative accounting rules which in turn means; no revaluation of fixed assets or investment properties.
*Micro entities – Turnover £632,000, Gross assets £316,000, no more than 10 employees.
Please contact your usual Ensors contact to discuss how these changes will affect your accounts.