The Financial Reporting Council (FRC) has introduced new accounting standards designed to simplify reporting for small and micro businesses.
Micro businesses will now have to report to a different standard than small businesses under the new FRS 105, while small businesses will also have to adjust to a new set of standards.
The FRC’s changes are largely a response to the EU Accounting Directive which significantly increased the size thresholds for small companies.
Small and micro companies will have to report in line with the new standards for accounting periods on or after 1 January 2016.
Micro firms now have a separate reporting standard which allows them to submit accounts with reduced disclosure. Key changes include:
- financial statements will be presumed true if they are prepared according to legislation
- simplified balance sheets and profit and loss accounts
- deferred tax does not need to be accounted for.
The standard previously used by small businesses (Financial Reporting Standard for Smaller Entities) has been withdrawn and a new section aimed at small businesses has been added to the FRS 102 standard. Reporting under FRS 102 is more comprehensive than FRS 105 but still contains reduced disclosures for small businesses.
Mandatory reporting under FRS 102 has already been introduced for medium and large companies with accounting periods on or after 1 January 2015.
Melanie McLaren, executive director of codes and standards at the FRC, said:
“These new accounting standards support the implementation of the micro-entities regime, further simplifying accounting requirements for up to 1.5 million of the UK’s smallest entities.
“They also respond to the new legal framework for disclosure in small company reporting, providing guidance for applying it and improving transparency relating to financial instruments, and they further improve the cost-effective reduced disclosure framework for listed groups by permitting IFRS-based presentation requirements in subsidiaries’ financial statements.”