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UK Accounting Rules Eased For Small Firms

by Robin Pilgrim, LawAndTax-News.com, London

23 February 2015


Following the Government's decision to implement the European Union (EU) Accounting Directive and maximize the number of companies classified as small businesses, the United Kingdom Financial Reporting Council (FRC) has issued its proposals to amend accounting rules.

The FRC confirmed that the proposals will benefit 1.5m of the smallest "micro-entities" in the UK by simplifying their reporting requirements, and there will also be changes for another 1.5m companies that fall within the "small" company size threshold.

Melanie McLaren, Executive Director of Codes and Standards, said: "Our proposals support the implementation of the new 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 judgment to the new presentation and disclosure requirements of the Accounting Directive."

"Overall, we believe our proposals provide a consistent framework for reporting by all entities in the UK and Republic of Ireland, building on the legal framework and proportionately tailored to the size of the entity and users' information needs," she said.

The proposals include the withdrawal of the previous Financial Reporting Standard for Smaller Entities; a new accounting standard for micro-entities, offering some accounting simplifications; new recognition and measurement requirements for other small companies aligned with new UK Generally Accepted Accounting Principles; and greater flexibility in relation to the format of profit and loss accounts and balance sheets.

The EU Accounting Directive sets thresholds for micro, small, medium, and large companies on the basis of the size of a company's workforce, the balance sheet total, and the net turnover on the date the balance sheet is prepared. The UK Government has decided, for accounting purposes, to apply the maximum thresholds for all sizes of companies.

For micro-entities and small companies, respectively, the maximum thresholds are up to GBP632,000 (USD971,400) or GBP10.2m in turnover, a balance sheet total of up to GBP312,000 or GBP5.1m, and no more than 10 or 50 employees.

Danielle Stewart, Head of Financial Reporting at chartered accountants Baker Tilly, said "the significance of the latest proposals from the FRC should not be underestimated. If these proposals are adopted in their current form, around 1.5m of the smallest companies in the UK will benefit from a dramatic simplification in their accounting requirements."

"Many micro-business owners and freelance workers operating through 'lifestyle companies' with turnovers of less than GBP632,000 a year will stand to benefit, as they will be released from the most complex aspects of the accounting requirements of the current reporting regime," she added. "Once adopted, these proposals will end a long period of uncertainty for smaller businesses and bring the UK fully into line with the presentation and disclosure requirements of the new EU Accounting Directive."

TAGS: generally accepted accounting principles (GAAP) | small business | business | Ireland | law | accounting | United Kingdom | micro business | standards | regulation | Europe

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