The Financial Reporting Council (FRC) published a draft standard on 19 February 2015 that will do away with the FRSSE : Financial Reporting Standard for Smaller Entities (small businesses, companies, enterprises, etc), for accounting periods beginning on or after 1 January 2016.
In its place will come the new FRS 105, ‘The Financial Reporting Standard applicable to the Micro-entities Regime’. Contrary to a widely held belief when the micro-entities regime was first proposed, FRS 105 will require companies to present profit or loss accounts for the period in an “income statement” alongside a balance sheet. The new standard and related amendments to the standards underpinning the new UK standard accountancy practice were necessitated by a European Union directive. This is reported as now being formulated for UK law and financial standards, as a new UK GAAP.
Generally Accepted Accounting Principles (GAAP) underpins and informs the standard framework of guidelines for financial accounting used in any given jurisdiction and industry practice; generally known as accounting standards or standard accounting practice.
Under its roll-out programme for the directive, the FRC plans to bring the new micro-entities standard into effect from 1 January 2016, with early application permitted. According to the FRC, the new standard will bring simplified accounting for micro entities and accounts prepared under the new standard could be a lot more succinct than FRSSE.
However, the new standard could prove to be confusing for those who are attracted by the idea of the minimum possible amount of disclosure. Accounts must still present a “true and fair” view and those preparing accounts will have to make a judgement on whether additional disclosures are needed. In fact, the incoming system could require far more judgement than before and company directors and accounting practitioners should not underestimate this.
Melanie McLaren, Executive Director of Codes and Standards, explained:
“The FRC proposals support the implementation of the new EU Accounting Directive in the UK and the Republic of Ireland. 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.”
The final standards and amendments are expected to be issued in July 2015.