GAAP: Small company limit increases in 2015 or 2016?
Should a company transition to FRS 102 this year, or wait until 2016?
Entities qualifying as large or medium-sized under Companies Act 2006 will need to transition to FRS 102 The Financial Reporting Standard Applicable in the UK and the Republic of Ireland for periods beginning on or after 1 January 2015, unless they opt for application of EU-adopted IFRS.
However, the Department for Business, Innovation and Skills (BIS) has confirmed in January 2015 that the small company thresholds will be increased to:
Balance sheet total
Number of employees
The new thresholds will apply for financial years beginning on or after 1 January 2016 but BIS has also confirmed that companies meeting the thresholds have the option of accessing the small company accounting regime ahead of that date – from 1 January 2015.
In conjunction with the above the Financial Reporting Council (FRC) is proposing to bring small companies within the scope of FRS 102 by adding a new section to the standard (Section 1A Small Entities), which will mandate the same recognition and measurement requirements but also much reduced presentation and disclosure requirements for small entities.
The small company provisions within FRS 102 will replace the FRSSE 2015 for periods beginning on or after 1 January 2016; however, early adoption will be allowed as it will be permitted by company law. The FRC has stated that the final version of FRS 102 including small entity provisions will be published in summer 2015.
Medium-sized entities qualifying as small under the increased thresholds, estimated to be 11,000 by BIS, are therefore able to avoid transition to the full FRS 102 from 1 January 2015 as they are able to apply the small entity provisions in FRS 102 when these are available, effectively avoiding the need to produce a cash flow statement, a statement of changes in equity, a statement of total comprehensive income and consolidated accounts, as well as producing a total of only 13 disclosures. Such entities may alternatively apply full FRS 102 from 1 January 2015 and then have the option of using the small entity provisions in FRS 102 for periods from 1 January 2016.
Small companies need to transition to FRSSE 2015 for periods beginning on or after 1 January 2015 if they do not choose to adopt FRS 102 or EU-adopted IFRS. The FRSSE 2015 is still almost totally based on old UK GAAP and features a limited number of differences with the FRSSE 2008.
The FRSSE 2015 will be replaced by the small entity provisions within FRS 102 for periods beginning on or after 1 January 2016. However, small entities may avoid adopting the FRSSE 2015 from 1 January 2015 as they will be able to apply the small entity provisions in FRS 102 when these are available in summer 2015.
The main differences between the FRSSE 2015 and the small entity provisions in FRS 102 will be in respect of the recognition and measurement of various items in the financial statements, while presentation and disclosures will be broadly consistent. Small entities should consider whether adopting the small entity provisions in FRS 102 as soon as they are available, rather than transitioning to the FRSSE 2015 first, would be a better option in terms of costs and consistency of financial information produced.
In this longer article we provide a comparison of the recognition and measurement treatment of intangibles and goodwill between old UK GAAP and FRS 102, including the potential tax impact of the new standard.