The European Union published the EU Accounting Directive 2013/34/EU (‘the Directive’) on 26 June 2013, which amended Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. The Directive aimed to simplify the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union. In the consultation, BIS sought views on the proposed implementation of the accounting and auditing provisions of the Directive into UK law. 

There was “broad support” for the proposals.  As a result of the responses to the consultation, the government will implement chapters 1-9 of the Directive as follows:

• The maximum thresholds permitted under the Directive will be adopted for the size of small companies. A company will be small if it meets at least two of: total assets <£5.1m (up from £3.26m), turnover <£10.2m (up from £6.5m), <50 employees (unchanged). A company will be medium-sized if it meets at least two of: total assets<£18m (up from £12.9m), turnover <£36m (up from £25.9m), <250 employees (unchanged).
• The number of mandatory notes in small company financial statements will be reduced to 13.
• Allowing small companies to prepare an abbreviated profit and loss account and balance sheet for members if the members agree unanimously; this is a change from the current law where full accounts must be prepared for the members with the option to prepare a separate set of abbreviated accounts for filing at Companies House.
• Limited companies (Ltd) that are in the same group as an unlisted public company (a PLC) can have access to the small and medium-sized companies’ regimes. This is a relaxation of the existing position whereby if any member of a group is a PLC the exemptions are not available. The exemptions will not be available to a PLC itself, whether listed or unlisted.
• Financial statements can be prepared under alternative layouts provided that the information given is at least equivalent to the information required by the formats set out in the Regulations. This is aimed at reducing the burden of consolidation for those in a group using international accounting standards – it will be particularly helpful for those adopting Financial Reporting Standard (FRS) 101.
• Goodwill must be written off over no more than ten years (compared to 20 under current UK GAAP and 5 under extant FRS 102) in the exceptional situation where no useful economic life can be estimated.
• Require companies to include the full details of subsidiaries in the consolidated financial statements. The current option to include just the principal subsidiaries with the full list appended to the annual return will be removed.
• Remove the requirement for micro-entities to prepare a directors’ report.
• Permit the use of the equity method in individual company financial statements. 

These changes apply for financial years commencing on or after 1 January 2016. Once the regulations come into force on 6 April 2015, early adoption, with one exception, will be permitted for financial years commencing on or after 1 January 2015. The exception is that the increased size limits cannot be adopted for small company audit exemption until 2016. This is to allow for time for the Government to consider responses to the questions asked on small company audit exemption as part of its consultation on implementing the EU audit reform legislation. These changes only apply to companies and ‘qualifying partnerships’ preparing accounts under the Partnerships (Accounts) Regulations 2008; at present they do not apply to limited liability partnerships. 

The Government has decided that they need to do more work on the accounting and audit for charitable companies; this work is on-going with the Charity Commission and others. 

The government intends to introduce legislation ‘The Companies and Groups (Accounts and Reports) Regulations 2015’ to implement the Directive.

The Financial Reporting Council is expected to issue a consultation document shortly on detailed proposed revisions to the accounting standards for small and micro entities which are also due to come into force on 1 January 2016.

*Update 30/03/2015 - the Companies and Groups (Accounts and Reports) Regulations 2015 were made on 26 March 2015 and come into from 6 April 2015*

Click for:

• Full Government response to the consultation (link to BIS website)
• The draft Companies (Partnerships and Groups (Accounts and Reports) Regulations 2015) as laid before Parliament (link to draft statutory instrument).
• Our previous news story on the original consultation.

*Update 17 September 2015 - link to final Regulations *