For accounting periods starting on or after 1 January 2016, small companies face radical reforms to the presentation of their financial reports under Financial Reporting Standard 102 (FRS 102) Section 1A.

Therefore a company with a 31 December 2016 year end will have its accounts prepared under the new rules.

FRS 102 has already been in place for some time for large companies, but now smaller companies with a turnover of up to £10.2m, assets up to £5.1m and with no more than 50 employees will also have to comply with FRS 102.

These changes are the biggest reform to financial reporting for a long time and require small companies to review their accounting policies to understand what numbers in their accounts need to alter.

Key areas affected by these changes will include accruals for holiday pay, treatment of goodwill and long term loans (including directors’ loan accounts). The reforms also spell the end for abbreviated accounts, as new disclosures are required.

Micro companies (FRS 105)

There is some relaxation for the very smallest companies under FRS 105 with sales below £632,000, assets up to £316,000 and with fewer than 10 employees.

These micro companies may find it preferable to report under FRS 105 as these new rules would enable them to file less information than they do now. However, there are number of things that would need to be considered before determining that FRS 105 would be a more appropriate option than FRS 102

Moving to FRS 102

Small companies will no longer have their accounts prepared under the Financial Reporting Standard for Small Entities (FRSSE), but will instead use FRS 102 Section 1A (which has generally less extensive disclosure requirements than the full FRS).

They will still need a balance sheet, a profit and loss account, notes to the accounts and a directors’ report, albeit with a number of reporting changes. There will be fewer available accounts formats, but additional flexibility in terminology and layout.

Although abbreviated accounts can no longer be filed at Companies House, small companies will still have the option of not filing a profit and loss account and directors’ report.

Instead of abbreviated accounts, small companies can file Abridged Accounts, comprising full accounts for members, with a profit and loss account starting at the gross profit line and with reduced balance sheet analysis.

However, to file abridged accounts, all the members of the company must agree to this on an annual basis, and an annual statement to this effect must be delivered to Companies House. In addition, there is an overriding requirement that the abridged accounts show a true and fair view – so extra disclosures may be necessary in order to achieve this.

Filleted accounts

The information disclosed in abridged accounts can be further reduced by filing a fileted version, provided the company’s size allows this.

Filleted accounts have the Profit and Loss account and related notes removed, and only the balance sheet and related notes are filed at Companies House. The balance sheet must disclose, among other things, that the Profit & Loss account has not been filed. 

What to do now

What is really important right now is for directors and owners of small companies to discuss with their advisers what impact the FRS will have on their business, in order that this change is safely navigated during the transitional period.

If you would like to discuss the implications for your business, please contact your usual Bishop Fleming adviser, or a member of our accounts team.

Check out our downloadable factsheet for further details about the changes.


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