The usefulness of FRS 105 and the micro-entity regime
The UK introduced an optional company law reporting regime for micro companies in 2013. While still requiring a balance sheet to be prepared and filed, it allowed for minimal accompanying disclosure requirements in those accounts, subject also to them not being allowed to revalue items to fair value.
It is available to companies falling below two out of three of the size criteria:
turnover of £632,000
balance sheet total of £316,000
employees number of 10.
A number of companies are not eligible – for example charities, some financial entities, members of groups.
In 2015 the FRC provided an accounting standard FRS 105 that is available to be used by those eligible under company law. FRS 105 was based on the minimum note disclosures in the legislation and on the accounting (recognition and measurement) principles of FRS 102, the main accounting standard for the UK and Republic of Ireland (ROI), subject to some simplifications. The accounting simplifications included:
not accounting for deferred tax
not accounting for equity-settled share based payments
not using effective interest rates or imputed market rates for discounting financial instruments
using contracted rates for foreign currency financial assets and liabilities
not allowing development costs of new products or processes to be capitalised
not allowing fair values (for investment and other property, financial instruments).
Some welcomed these proposals as proportionate reduction in administrative burdens for the smallest entities that are not justified by the public interest in them.
Others regretted the potential loss of information about the majority of UK and ROI available on the public record, considered the micro-entity financial statements as not fit for any purpose and considered the reduction in burden as insignificant given that accounting would still be required for tax purposes.
FRS 105 has been available for accounts for periods beginning on or after 1 January 2016.
ACCA recognises the micro-entity regime (including FRS 105) was a fundamental change in the accounting regime. We are interested therefore in the extent to which our practitioners and your clients are taking it up and why or why not.
Please take this survey to help us with an assessment of this significant change. The survey will be open until noon on Tuesday 12 September.