Are you a director of a small company? If so, you need to be aware of major changes to accounting standards that came into force in July 2015 and are set to impact on your business.
As a result of changes to FRS 102, your small company can no longer file abbreviated accounts. Instead, you will have to familiarise yourself with the slightly more complicated abridged accounts, which you now have the option to prepare. These changes are in effect for financial years beginning on or after 1 January 2016.
What are the differences between abridged and full accounts?
So, how do abridged accounts differ from full accounts? Abridged accounts contain a reduced set of information when compared to full accounts. However, the most significant difference is that abridged accounts allow you to combine items that would need to be presented separately in a full set of accounts.
For example, when filing a profit and loss account in a full set of accounts, you are required to list the company turnover, cost of sales and other operating income separately. With abridged accounts you can simply report the gross profit or loss, whilst you are also exempt from producing a cash flow statement.
Though more detail may be presented on the face of the balance sheet in a set of abridged accounts, it contains a sub-set of the information that is included in a full balance sheet, due to the reduced set of accompanying notes required. This is also the case for the profit and loss account.
However, the notes accompanying these items still need to present sufficient information to meet the requirements for the financial statements to provide a true and fair view of your company’s finances.
What does my company need to disclose to Companies House?
The chances are, up until now, your company has traditionally prepared a full set of accounts for its members and an abbreviated set of accounts for Companies House.
This meant you’d been able to gain a complete picture of your company’s performance without giving too much information away to third parties. This flexibility is still available, only the updated FRS 102 has introduced some minor tweaks.
Your small company still has the option not to file the profit and loss account and/or the directors’ report with Companies House, should you wish. The only difference is they must be prepared in the same format as those have has been prepared for your board members, whether that is abridged or not abridged.
Who can prepare abridged accounts?
If you’re a company director, you can choose to abridge the balance sheet, the profit and loss account, or both. However, it’s important to remember that any abridgement must be agreed by every member of the company. Should a single member not consent, abridged accounts can’t be filed.
In order to enforce this rule, the regulations require that a statement that proves that all members consent to the abridgement be provided alongside any set of abridged accounts. This agreement is an annual process, so must be made at the beginning of every accounting period.
What else do I need to know about the new accounting standards?
Before you start considering your options, you’ll want to double-check that your business meets the small company criteria, which has also been subject to change. According to the new rules, to qualify as a small business, your company must fulfil at least two of the following three criteria:
- A turnover limit of £10.2m or less (previously £6.5m)
- A balance sheet total of £5.1m or less (previously £3.26m)
- A maximum of 50 employees (same as before)
Adapt to the new accounting rules with Hillier Hopkins
The accounting changes may not appear significant at first glance, but the devil is in the detail. You need to be fully aware of the new accounting standards and practices,and how your company may be affected.
To help decide whether or not abridged accounts are right for your small company, or for more information and further advice on financial accounting standards, contact the Hillier Hopkins team. We’d be delighted to help.