Changes to Financial Reporting In January
It’s not long now until the proposed changes to Financial Reporting come into play.
But with so much jargon and a reams of documentation, we thought it’d be worth outlining what exactly is happening and what you need to worry about.
The Financial Reporting Council (FRC), the body which sets the standards framework for accountants, auditors, and auditors in the UK, announced changes to the reporting framework in March 2013. These changes will come into effect in January 2015.
Accountants are generally referring to this as the new UK GAAP, with GAAP standing for the General Accepted Accounting Practice, the legislation regarding how company accounts must be prepared.
Of all the proposed changes to the GAAP, FRS 102 is the most important. After the changes in EU law, the FRC will introduce a new section into FRS 102, the financial reporting standard applicable in the UK and Republic of Ireland for small entities, meaning those turning over less than £10.2m.
In future, accounting by small entities will need to be consistent with the standard for financial reporting used by unlisted companies (whose shares are not listed on the stock exchange), subsidiaries of listed companies and public benefit entities such as charities.
The rationale behind the changes is that the presentation and disclosure requirements for small entities will become more straightforward and will translate into a far less onerous reporting regime than the previous one.
From January 2015, small companies will now be permitted to include less information in their accounts and fewer mandatory disclosures. The FRC has proposed issuing a new accounting standard for micro-entities – companies with a turnover of less than £632,000 a year – while the Financial Reporting Standard for Micro-entities (FRSME) will reduce the accounting burden for such businesses.
These changes also mean the end of the financial reporting standard for smaller entities (FRSSE), which has been around since 1997.
Roger Marshall, FRC board member and chairman of its Accounting Council, speaking about the changes, said: “We believe the FRSME will provide significant simplifications for the very smallest companies choosing to apply the micro-entities regime. For other small entities, there will be improvements in some areas of financial reporting – for example, more information about areas of financial risk, and greater consistency with the accounting by larger private entities which should offer benefits to users.”
Some were concerned by the overhaul, however. There had been talk of FRS102 forcing private companies in the UK to book their defined benefit (DB) pension obligations according to IFRIC 14, the international standard that applies to listed companies, which would lead to greater liabilities on their balance sheet.
In response the FRC issued an exposure draft explaining that no additional liabilities would be raised as a result of the change to FRS102 under new GAAP, since the new standard will be “consistent with current practice”.
FRC director of accounting and reporting Anthony Appleton maintains that the amendment was necessary “to clarify that FRS102 will mean companies continue to account for DB pensions under old GAAP”.
The FRC expects to issue the final amendments to FRS 102 in early 2015.
For any advice on the new standards, get in touch with us today.