For all small Companies their next set of accounts will look and feel different. This is due to a major change in the legislation which guides what accounts look like, what they contain and how transactions are accounted for.
The previous legislation for small companies required them to apply the FRSSE accounting framework, which was issued in 2001. The FRSSE is now scrapped and we have FRS 105 and FRS 102 to follow.
The reasons behind this are two fold 1) to bring UK accounting framework for small companies into line with the rest of Europe and 2) to simplify accounts.
As you will see below the point we change from the old to new frameworks is anything but simple! But the end result for some companies will be slightly simpler accounts which they file with Companies House.
The first major change is that companies have to decide if they are ‘Micro’ or ‘Small’. Micro companies apply FRS 105 and Small companies apply FRS 102.
However a Micro company can also choose to be ‘Small’ and apply FRS 102 instead.
Based on the size criteria most of our clients will be Micro.
But for many of those clients, we are recommending they apply the ‘Small’ company framework of FRS 102. Why?
- It’s perceived if a company is raising investment or loan finance or grants, then the Small and FRS 102 framework generates accounts which are more useful for lenders/investors/grant bodies.
FRS 105 accounts are so slimmed down it may hamper raising finance within the Company. Although the jury’s out on this as these are new frameworks that lenders etc will only just be seeing so we don’t yet know how they are reacting
2. Some companies may have transactions which are best suited to one or the other framework. So for some companies we may recommend the FRS 102 framework.
Once we’ve decided on the framework to apply, we then need to deal with the Transition from old to new.
Again, this isn’t simple!
The overriding premises is that transactions have to be re-stated to apply the new framework as if the old framework never applied from the date of ‘Transition’ which is 2 years before the year end.
Let’s take an example of a company with a 31 March 2017 year end.
The date of ‘Transition’ is 1 April 2015.
- So we perform an analysis on the Balance Sheet (assets and liabilities) as at
- 31 March 2015
- 31 March 2016 and
- 31 March 2017 year ends.
- We identify transactions which need to be re-calculated to comply with the new framework.
- We calculate any tax impact of these re-calculations (and make sure any negative impact is minimised where possible).
- After performing the calculations, we post adjustments to the previous year and current year accounts to arrive at a set of accounts that comply with the new legislation.
Over the last year we’ve been learning about the new frameworks. We put that learning to the test when carrying out this process for our Dec 2016, Jan 2017, and Feb 2017 year end clients. This has enabled us to set up a streamlined efficient process to complete this transition work with the least amount of pain to clients as possible.