With FRS 102 (or FRS 105) applying for the first time for small entities (companies and LLPs) from accounting periods beginning on or after 1 January 2016, the thirst for knowledge about new UK GAAP is at an all-time high!
Many of the questions we’re being asked focus on filing options. Here are some of the most common ones:
Abbreviated accounts are being abolished. When from and why?
Abbreviated accounts are abolished for accounting periods beginning on or after 1 January 2016. So accounts prepared for a 12 month accounting period ended on 31 October or 30 November 2016 can still be filed on the old basis, as can accounts for a long accounting period ending in 2017 which started before the beginning of 2016.
The change arises from the new EU Accounting Directive. A statutory instrument (SI 2015/980) has brought in the relevant changes to the Companies Act.
What about medium-sized company abbreviated accounts?
Medium-sized company abbreviated accounts were very similar to full accounts – but they have also been abolished.
I’ve heard that you have to file the accounts prepared for the members at Companies House?
Sort of! Although this is true – and there is thus an important link between accounts prepared for the members and accounts filed – you are allowed to remove three things for filing purposes: the directors’ report, the P&L account and any P&L-related notes. Though not a technical term, this process is sometimes referred to as ‘filleting’.
Exactly which notes gets removed for ‘filleting’ purposes?
A note included in the members’ accounts, explaining ‘the amount and nature of any individual items of income and expense of exceptional size or incidence’ gets removed, as this is clearly a P&L note.
There is some ambiguity about the need to file the employee numbers note, though recent guidance published by ICAEW about filing options suggests that this note would remain in the filed accounts.
The related party transactions note is not a P&L note and will thus remain in the filed accounts. A minority of companies, keen to avoid disclosure at Companies House of directors’ remuneration, are removing this disclosure from the related party transactions note and putting it in a separate (P&L) note, which they are then filleting out for filing. Whilst this is not considered best practice, it’s not specifically prohibited.
However, as discussed in an earlier blog, directors’ remuneration would only need to be disclosed in the members’ accounts if it were considered to be a transaction ‘not concluded under normal market conditions’.
Any reconciliation statement which is included in a small entity’s first FRS 102 financial statements explaining the impact of transition on profit for the comparative period would also be filleted out for the purpose of filing at Companies House.
What about a Statement of Changes in Equity (SOCIE)?
The new company law doesn’t require inclusion of a SOCIE in a set of financial statements for a small company. However, the Financial Reporting Council is keen that transactions with shareholders are disclosed to ensure that a true and fair view prevails – so SOCIEs will be quite common in practice.
Based on discussions with Companies House, ICAEW concluded in its recent guidance paper (see above) that any additional primary statements, included on a discretionary basis (e.g. SOCIE) would not need to be included in the filleted filed set of accounts. This is good news for those keen not to disclose on the public record details of dividends paid.
If I do ‘fillet’, what balance sheet statements are required?
Two key requirements seem to have emerged, based on recent accounts rejections by Companies House.
Firstly, the balance sheet statement in any ‘filleted’ filed set must state that the accounts have been prepared and delivered in accordance with the small companies’ regime.
Secondly, the balance sheet must state that, because the small companies’ filing regime has been adopted, the profit and loss account has been excluded
What’s the difference between ‘filleting’ and ‘abridging’?
Abridging allows a small entity in its members’ accounts to suppress certain P&L and balance sheet information.
Because no small entity is required to file P&L information at Companies House, P&L abridgement is unlikely to prove popular.
Balance Sheet abridgement involves the exclusion of notes that would normally appear in the members’ accounts which provide an analysis of (e.g.) fixed assets, stocks, debtors and creditors.
Balance sheet abridgement will impact directly on what gets filed. If these analyses are excluded from the members’ accounts they will not get filed. If they are included in the members’ accounts they will get filed.
Will abridging take off?
Anecdotal feedback suggests that about 80% of small entities are not considering abridging and about 20% of small companies are.
It will be appealing for those entities who want to avoid disclosing on the public record the breakdown of (e.g.) debtors, creditors and stocks. There may be an appeal here for some small entities because this information was never filed under the abbreviated accounts regime. To achieve an outcome most like abbreviated accounts, balance sheet abridgement will be necessary.
If the members (or other key stakeholders) then need to see the additional, excluded information, this can be provided as ‘non-statutory’ information.
Don’t forget though, that abridgement requires all the members to give their consent annually. Also, a small entity NOT abridging its members accounts can still ‘fillet’. Filleted ‘full’ FRS 102 accounts for small companies are likely to emerge as more common that filleted abridged accounts.
Can micro accounts be filleted?
Filleting of micro entity accounts works the same as filleting of small entity accounts.
However, because there is no requirement for a micro-entity to include a directors’ report in its members accounts or to include any P&L notes, filleting just involves removing the P&L account. This typically leaves one page to file – the balance sheet and three supplementary notes. Easy! Watch out for the balance sheet statements referred to above though.
How should ‘filleted’ accounts be filed?
Proprietary software is being used by many firms of accountants to file filleted accounts on behalf of their clients. We’ve heard anecdotally that it’s taken a little longer in some cases for the micro entity software to come on stream but that’s now generally happening.
The Companies House ‘webfiling’ system is already available for micro entity filing and very easy to use. Webfiling will, we understand, be available for small entities applying FRS 102 later this year.
Alternatively – though clearly less secure – pop the accounts in the post!
Peter Herbert – May 2017