Here in the UK, generally Accepted Accounting Principles include all UK accounting standards, company law and every other piece of guidance that determine how to prepare accounts. UK accounting standards have being changed significantly with the introduction of FRS102. In case you are wondering where the other numbers fit in, there is FRS100, 101 and 103.
For most businesses it’s FRS102 that’s important and here are a few answers to some frequently asked questions:
You can still use EU IFRS as an alternative. Some of you may be using this.
The FRSSE can be applied to companies that qualify as small.
There are a few entities that will have the option of reduced disclosures but these relate mainly to subsidiaries of overseas companies.
The FRSSE is likely to be withdrawn so that all small companies will use FRS102 for accounting periods beginning after 1 January 2016. This means you could apply the FRSSE for a year and then move to FRS102 that will need less disclosures anyway, including not having to have cashflow or a group accounts.
Micro entities have there own definition that excludes public companies, insurance companies and those that have regulated financial activities. Otherwise a company needs to meet two of the following criteria:
The FRSSE was amended so that micro-entities can have exemptions from presentation and disclosure requirements and the proposals for the development of the standard remove most of the complex disclosures on deferred tax and share based payments.
FRSSE changes have removed the ability to revalue tangible fixed assets, measure fixed asset investments and investment properties at market value and current asset investments at cost.
If you are a small group you can still apply the FRSSE except those involving a parent that is listed. The rules are a little complex but in general you need to show a consistent approach and framework which may involve adopting FRS102 and/or the FRSSE or alternatively you could apply EU –IFRS (known as IAS) which is the other framework.
For those of you who happen to have a charity in the group then you can’t adopt IFRS.
The same rules apply. FRS 100 applies to limited liability partnerships so if you are eligible to do so, for now, you may apply the FRSSE. Otherwise you have the choice of applying EU-adopted IFRS, FRS 101 if you are a qualifying entity, or FRS 102.
However as LLP’s are not companies they don’t meet the definition of a micro-entity so they cannot apply the micro-entity regime.
There will be changes to the numbers if you have certain items in your accounts and whether you decide to use the transitional rules. Some common items that need to be reviewed and in conjunction with these rules are:
The tax effect is based primarily on the calculation of accounting profit and the impact on taxable profit and when GAAP changes accounting profit, taxable profit will also change unless there is a tax law which overrides GAAP. Therefore it will depend on what items are in your accounts and which GAAP you follow.
It is probable that although there will be significant differences between the profit on the accounts prepared under FRS102 to the same accounts prepared under the FRSSE, however it is probable that many of these differences will not affect taxable profit.
The issue for micro-entities is that there will be very little disclosure, no accounting policies and no notes supporting the Balance Sheet to assist HMRC in the understanding of the business and assessment of risk on the amounts being presented.
Some items are more tax sensitive and need reviewing such as:
In general, intangibles and in particular goodwill, are likely to be amortised more quickly under FRS102. Under FRS10, where an entity was allowed not to amortise goodwill if the useful life was indefinite and an annual impairment review was carried out, this is no longer permissible under FRS102. The tax impact will depend on whether tax relief is given for goodwill and intangibles. If it is, this change will result in that relief being available more quickly than it would have been.
You need to start now as almost everyone will now be in their comparative period and these will be affected.
So if you have a 30 September year end, you will have to apply the new standards in your annual accounts to 30 September 2016 with comparatives for the year 1 October 2014 to 30 September 2015. The first application of the new standard is for annual accounts ending 31 December 2015 so comparatives will be years ended 31 December 2014.
Early adoption could be a good ideas if its your first year end at 31 December 2015 so you don’t need to change accounting frameworks or if you have a complex group and can take some advantage from reduced disclosures.
At Ward Goodman we offer a range of FRS102 UK account standards reporting packages from a straightforward report on whether the changes affect you through to full production of FRS102 accounts.
Why not consider how these changes affect you by giving us a call on 01202 875900.