Christmas (and year end!) is coming…
With Christmas very quickly approaching and various business year-ends not far behind them, we’ve put together a quick review of the new Small Companies Regime for accountants preparing those year-end […]
With Christmas very quickly approaching and various business year-ends not far behind them, we’ve put together a quick review of the new Small Companies Regime for accountants preparing those year-end accounts. Some of the regulations in both FRS 102 and FRS 105 require different disclosures to what was previously required, so accountants should try to be fully up to speed with what they’ll need to do before taking some time off.
Many of you already familiar with the new regulations have been generally positive about the transition and the new regime in general, though there are still a few drawbacks, (particularly regarding financial instruments). We’d encourage practitioners to review the Staff Education Notes issued by the Financial Reporting Council for further clarification before completing those important tax returns coming up, as they are very good for explaining some of the complexities in FRS 102.
We’ve also seen some uncertainty regarding the new company law requirements. The EU Accounting Directive is now reflected in company law which restricts the number of legally required disclosures. However, a “true and fair” view must be given in the financial statements of small companies (there is no true and fair presumption for small companies as there is for micro-entities). Therefore, practitioners will need to present their professional judgement – a distinct change to the old regime – so a sound understanding of Section 1A of FRS 102 cannot be over-emphasised in order to ensure the financial statements are able to stand up to scrutiny.
Things to look out for
Common problems accountants have been facing so far include taking fair value gains and losses on investment property to a revaluation reserve, to the posting of deferred tax for revalued assets. Again, we strongly recommend reading through the guidance to make sure you understand the correct process for accounting for these aspects, especially if your clients’/business’ accounts have complexities in them.
Those working with FRS 105 reporters have encountered fewer difficulties, generally because of the significantly reduced disclosure regime and simplicity of the standard. However, it’s important to remember for micro-entities that application of the Alternative Accounting Rules (giving rise to a revaluation reserve) or the Fair Value Accounting Rules is prohibited for micro-entities. Everything is accounted for under the historical cost accounting rules for micro-entities.
Going beyond the checklists
FRS 102 section 1A paragraph 1A.5 requires the financial statements of a small entity to give a “true and fair” view, yet with the reduction in disclosure under the new Small Companies Regime, accountants should still be mindful of any additional disclosures that could be made to ensure their work is fair and true.
All companies are different and certainly all preparers of financial statements must have regard to the encouraged disclosures in Appendix D of Section 1A. We’d recommend that going concern disclosures should be included when there are material uncertainties relating to going concern, but you would also be wise to document any reasons there might be for disclosing/not disclosing any transactions, events or conditions which may require professional judgement. Don’t simply rely on disclosure checklists!
So that’s our whistle-stop tour through the changes complete – we hope you find it useful in preparing for your wind-down to Christmas and the subsequent year-end accounting!