Small Company Financial Reporting
This is the third edition of Small Company Financial Reporting which has been comprehensively updated to reflect all changes made to UK GAAP since 2018. At the time of writing, the Financial Reporting Council (FRC) were in the early stages of the periodic review of UK and Ireland GAAP. An Exposure Draft of potential amendments from the periodic review is expected in late summer of 2022 and the comment period will not be shorter than three months. The changes arising from the periodic review are not expected to be effective earlier than 1 January 2025.
Feedback on current UK GAAP has been generally positive and small entities appear to have got to grips with the structure and different frameworks that are available to small and micro-entities. For example, micro-entities can choose to prepare their financial statements under FRS 105The Financial Reporting Standard applicable to the Micro-entities Regime or FRS 102The Financial Reporting Standard applicable in the UK and Republic of Ireland. Small entities can choose to apply the presentation and disclosure requirements of FRS 102, Section 1A Small Entities if they wish or they can prepare the financial statements under the full disclosure requirements of FRS 102.
In January 2022, the FRC issued revised editions of UK GAAP (with the exception of FRS 100Application of Financial Reporting Requirements) as this FRS was the subject of an Exposure Draft to change the equivalence requirements. Comments on this Exposure Draft will close in August 2022 and it is expected that FRS 100 will be re-issued following finalisation of the proposals.
The January 2022 editions of UK GAAP essentially consolidate all amendments made to UK GAAP since the March 2018 editions were issued so they do not make wholesale changes to the accounting and disclosure requirements.
At the time of writing, the Companies House reforms were ongoing. Part of these reforms propose to remove the option of small and micro-entities from filing ‘filleted’ or ‘filleted abridged’ financial statements. Hence, all micro-entities and small companies will be required to file a profit and loss account at Companies House. Small entities will also be required to file a directors’ report (although a directors’ report is not required for a micro-entity preparing its financial statements under FRS 105). At the time of writing, there was no implementation date set for this proposal but is something that preparers and management of small and micro-entities need to bear in mind.
Small entities reporting under FRS 102 may apply the provisions in Section 1A. There are five appendices to FRS 102, Section 1A as follows:
- Appendix A: Guidance on adapting the balance sheet formats
- Appendix B: Guidance on adapting the profit and loss account formats
- Appendix C: Disclosure requirements for small entities in the UK
- Appendix D: Disclosure requirements for small entities in the Republic of Ireland
- Appendix E: Additional disclosures encouraged for small entities
Directors of small companies are reminded of the importance of ensuring that the entity’s financial statements give a true and fair view. While a small entity may only be legally obliged to make the disclosures contained in FRS 102, Section 1A, Appendix C or D, potentially anything in FRS 102 is disclosable if doing so enables the financial statements to give a true and fair view. Directors of small companies must also ensure that they consider the encouraged disclosures in Appendix E. For example, if there are material uncertainties related to going concern, they are encouraged to apply the provisions in FRS 102, para 1AE.1(c) in order that the financial statements give a true and fair view. There is more use of professional judgement required under FRS 102 where disclosures for small entities are concerned.
Micro-entities can still choose to report under FRS 105 if they wish to do so, and the uptake of FRS 105 has been extensive. In terms of disclosure requirements, these are much condensed in comparison to FRS 102, Section 1A and micro-entities must keep in mind that there are two appendices to FRS 105, Section 6 Notes to the Financial Statements which are integral parts of Section 6:
- Appendix A: Company law disclosure requirements for micro-entities in the UK
- Appendix B: Company law disclosure requirements for micro-entities in the Republic of Ireland
It is important that the micro-entity’s financial statements comply with the legal requirements in order that the financial statements give a true and fair view. It should also be noted that Irish micro-entities are required to provide more comprehensive disclosures than a UK-based micro-entity.
Key features of this third edition include ‘Signposts’ at the start of each chapter which are designed to highlight, at a glance, important points in each chapter. ‘Focus’ boxes have been included in each chapter with the objective of flagging up important concepts and points which small company directors and their accountants should take on board. This edition also includes a ‘Pitfalls to avoid’ section at the end of each chapter to help reduce the scope for error. Each chapter also contains a ‘Chapter summary’ box at the end which summarises the main content of each chapter as an aide-memoire for readers.
This edition of the book includes several worked examples to help bring the theory within the chapter to life and to aid understanding of the accounting requirements in UK GAAP.
I hope that you find this book useful and we welcome comments or suggestions, via the publisher, for future editions.
I would like to take this opportunity to thank the editors, Dave Wright, Sarah Hastings and Claire Banyard and the rest of the team at Bloomsbury Professional for their help, support and patience during the production of this third edition.
Steve Collings FCCA
Steve Collings FCCA
Steve Collings FCCA is a director at Leavitt Walmsley Associates, Chartered Certified Accountants based in Sale, Cheshire where he trained and qualified. Steve is the author of several titles for Bloomsbury Professional including Group Accounts under UK GAAP, Financial Reporting for Unlisted Companies in the UK and Republic of Ireland and Financial Statements: Presentation and Disclosure Requirements. Steve has close connections with various professional bodies producing authoritative material, articles and courses and represents the Association of Accounting Technicians on the CCAB and Technical Partners Committee at the Financial Reporting Council.