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Simpler reporting requirements proposed for ‘micro companies’

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10 Sep 2013

The Department for Business, Innovation and Skills (BIS) has published their proposals for the implementation of EU Directive 2012/6/EU (the “Micros Directive”) in the UK. The BIS proposals largely follow those contained within the “Micros Directive” and will result in a reduced level of disclosure for UK businesses meeting certain criteria. The disclosure exemptions which can be taken at the option of owners and directors of micro-companies will come into force for accounting periods ending on or after 30 September 2013.

‘Micro companies’ are defined as those not exceeding two out of three of the following thresholds:

  • Balance sheet total: £316,000
  • Net turnover: £632,000; and
  • Average number of employees during the financial year: 10 (or fewer).

(The sterling equivalent figures are based on the exchange rate ruling when the directive came into force on 19 July 2013).

EU Directive

The “Micros Directive” (link to EU website), published by the EU, provides a number of reduced disclosures and certain recognition exemptions for ‘micro companies’, although these are Member State options (see below for BIS’s proposals for the UK).  Under the “Micros Directive” 'micro companies' need only prepare an abridged balance sheet and abridged profit and loss account and very limited disclosure notes. 'Micro companies' do not need to present prepayments and accrued income and accruals and deferred income.  They are also not required to recognise certain prepayments and accrued income and accruals and deferred income. The resulting accounts ‘shall be regarded as giving a true and fair view’ notwithstanding the omission of many disclosures which would generally be regarded as necessary to give such a view.

UK Implementation

In February 2013, BIS consulted on the implementation of the “Micros Directive” in the UK. The consultation stated that the Government was minded to implement changes to legislation to enable UK companies to take advantage of the exemptions contained within the directive. Views were sought on each separate exemption with a view to determining the correct approach to implementation in the UK.  Whilst many supported the application of the “Micros Directive” in the UK a number of respondents did express concern over certain areas such as:

  • The impact of the changes on the “true and fair” principle, most notably the relationship between accounting standards and the exemptions for 'micro companies';
  • The proposed exemption from the requirement to present certain prepayments and accrued income and accruals and deferred income and partial exemption from the requirement to recognise prepayments and accruals; and
  • The impact of the changes on the accruals accounting framework.

BIS has now prepared their final proposals entitled ‘Simpler Financial Reporting for Micro-entities: The UK’s proposal to implement the “Micros Directive”’ which takes all of the responses into account.

They propose:

  • To incorporate all parts of the “Micros Directive” with the exception of the parts which would remove the obligation to
    • (i) present prepayments and accrued income and accruals and deferred income; and
    • (ii) recognise only certain prepayments and accrued income and accruals and deferred income.
  • To exclude charities from the scope of the exemptions.

BIS have stated that they are “exploring how best to ensure that the directive’s requirement that “Micros” accounts are true and fair can best be reflected in the implementation”.  The Institute of Chartered Accountants in England and Wales (ICAEW) has warned that 'micro companies' will need to weigh up the risks involved in providing reduced financial information to finance providers and other stakeholders before deciding whether to take up the reduced disclosure options. 

BIS intend to lay regulations, based on these proposals, before parliament shortly.  Once approved it is likely that amendments will be required to the FRSSE, at least to disapply those disclosure requirements which go further than the very limited disclosures which will be required by law.

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