Good news for Small Limited Companies
On 29 April 2014, the Financial Reporting Council (FRC) issued amendments to the FRSSE (Financial Reporting Standard for Smaller Entities) relating to the micro-entities reporting legislation that now applies for financial years ending on or after 30 September 2013.
But do you know what a micro-entity is? Well put simply, a small limited company qualifies as a micro-entity in a year in which it does not exceed two of the following criteria:
- Turnover must not exceed £632,000
- The gross assets in the business must not exceed £316,000
- Employees in the business must not exceed 10
The above conditions must be met for two consecutive years (with the exception of a newly formed company) and where a company does not meet the conditions for two consecutive years it ceases to be a micro-entity.
The micro-entities legislation allows qualifying companies to take advantage of certain exemptions in the preparation of their financial statements. Financial statements prepared under the micro-entities regime are ‘presumed’ to give a true and fair view of the business.
I don’t intend to bore you rigid with the minutiae of the various changes and simplifications, but in essence there is much greater flexibility in how an asset is valued on the Balance sheet, disclosures about Directors and the format of the Accounts has been changed to make them far less complex.
For example, instead of the standard headings on the Profit and Loss Account, which run well into double figures, in future it will only have 8 entries and will look like this:
- Other income
- Cost of raw materials and consumables
- Staff costs
- Depreciation and other amounts written off assets
- Other charges
- Profit or loss
The convoluted way that Limited Company Accounts are prepared and presented has, up to now, been the same whether the business is a multi-national with turnover in the billions or a sole Director company turning over £50K. Some of the requirements have been so far over the top for micro-entities as to make the Accounts difficult to understand unless you’re an accountant; and I for one applaud the simplification.
What do other Accountants Think?
However some of my fellow accountants have fought tooth and nail against these changes and any reasonable person might wonder why, given that one of their roles is to make life less complicated for their clients’ financial affairs.
Has the penny dropped yet? Yes you’re right; it’s all about money and the amount that they charge their clients. Six years ago a Chartered Accountant who then worked for me showed me a memo sent by the ICAEW (The Institute of Chartered Accountants in England and Wales) to all members regarding recommendations for minimum levels of fees for each category of clients. The suggested minimum charge for a small Limited Company (micro-entity) was £1,500+VAT plus add-ons (personal Tax Returns etc). I can only imagine what they charge now but anecdotally, most of them wouldn’t get out of bed for less than £2k.
No wonder they resisted the changes, so if your business falls into the micro-entity bracket ask your accountant what he or she will be charging in future in the light of the FRSSE relaxations. If you’re less than happy with the answer, consider moving your business to an accountant whose charge rates are reasonable and who only charges for work necessary to comply with current legislation.