THE FRC is set to scrap FRSSE, the financial reporting standard for Britain’s smallest companies, and replace it with a new standard for micro-entities as part of a raft of changes to UK accounting rules.
In a consultation launched yesterday, the accounting watchdog said it plans to withdraw FRSSE for accounting periods beginning on or after 1 January 2016 and issue a new accounting standard for micro-entities offering “some simplifications in accounting”.
The proposed overhaul of small company accounting follows the government’s decision to implement the EU Accounting Directive in the UK and includes new recognition and measurement requirements for other small companies aligned with new UK GAAP, and disclosure requirements based on the new legal framework; which is set to be enshrined in company law by July.
Other key changes include making the format of the profit and loss account and balance sheet in FRS 101 more flexible and allowing the use of IFRS-based presentation requirements similar to those used for group accounts.
According to the FRC, the proposals will benefit 1.5 million of the smallest companies in the UK by simplifying their reporting requirements, while listed groups will benefit from greater flexibility and greater efficiency in reporting formats.
“They simplify reporting for some entities and are intended to assist the directors of small entities in applying their judgement to the new presentation and disclosure requirements of the Accounting Directive,” said Melanie McLaren, executive director of codes and standards at the FRC [pictured].
Danielle Stewart, head of financial reporting at Baker Tilly, hailed the FRC’s proposals as “quite revolutionary” and said they could herald a wider cut in red tape. “Many micro business owners and freelance workers operating through lifestyle companies with turnovers of less than £632,000 a year will stand to benefit, as they will be released from the most complex aspects of the accounting requirements of the current reporting regime,” she said. “Once adopted, these proposals will end a long period of uncertainty for smaller businesses.”
The proposals are open for comment until 30 April with a final standard expected in the summer, which will be effective for accounting periods beginning on or after 1 January 2016, with early application permitted for accounting periods beginning on or after 1 January 2015.
ICAEW said it is pleased how quickly the FRC issued the planned changes but raised concerns over the proposed timeframe. “This could prove a major challenge for some small businesses and their advisers,” said Nigel Sleigh Johnson, head of the institute’s financial reporting faculty. “Time is short. Any delay in issuing the final revised standards might make the proposed implementation date untenable.”