16th May 2017
Why do my accounts look different?
The world of accounting standards, the framework in which accounts are prepared has changed. Significantly. most directors are blissfully unaware of these changes which will now affect every company with accounting periods that began on or after 1 January 2016. This means that every set of accounts ending 31 December 2016 and thereafter will be produced in a different format and to different rules.
There are special rules for micro entities, businesses with (2 of the following):
- Turnover less than £632,000;
- Balance sheet less than £316,000;
- Less than 10 employees;
Serious consideration needs to be given to adopting this micro entity abbreviated framework. Where businesses want to apply for finance from banks etc. attract investors or grant funding, the brief accounts that they are able to file may not provide these organisations with the information that they require and hence they may prefer to follow the rules for "small companies" which are more flexible.
A small company is basically a company that does not need to have a statutory audit due to its size (two of the following turnover less than £10.2m, balance sheet less than £5.1m or less than 50 employees).
The names of these new standards are FRS 102 for small companies and FRS 105 for micro entities.
What does this mean in reality? Over the next year, as the company accounts are prepared, there should be an additional process with the accountants for the directors to decide what information they want to provide in the accounts to show a "True and Fair view". This is a legal requirement. There are mandatory notes that the directors should always show, but if these do not provide sufficient information to prove this true and fair view, then they should show extra information.
Any notes to the balance sheet will be filed at Companies House, so these will need to be carefully considered, as this information is publicly available.
In the past directors have been led by the accountants in terms of providing the standard minimum information required when filing their accounts. Whilst the accountant is still important in an advisory role in providing this assistance, the directors need to be more aware of who the external stakeholders are that rely on the information in their accounts in order to make key decisions. Examples of these would be whether to trade with them or lend them money.
This is the future of accounting and should be embraced. Not feared. We view it as a good thing for giving directors more control. Putting together The next set of accounts may be a little painful as there is an adjustment process to go through but most people should not notice as it will be the accountant doing all of the work!
If you would like to discuss this, please contact either Teresa at CCF on 01423 567499