Small company reporting issues 29 February 2016 Presented by John Selwood
FRS 102 Holiday pay accrual A. Transitional adjustment B. Correction of an error
“FRS 102 requires companies to provide for all obligations to employees. One area of potentially significant change as a result is that of holiday pay. Currently, many UK companies do not provide in their accounts for the cost of paid annual leave not taken at the year-end. In future they will be obliged to do so. ” ICAEW August 2013
Highlights Small company audit exemption New small company regulations Micro company regime rebooted Directors loans and FRS 102 Filing accounts online Small Business, Enterprise and Employment Act
Small company audit exemption
• PC 1 January 2015 New small • Does not company regulations apply for audit exemption
Small company exemption Total assets regime £5.1m Turnover £10.2m Employees 50
• No early adoption Small company • PC 1 audit January exemption 2016
Small company exemption Total assets audit £3.26m Turnover £6.5m Employees 50
X Ltd formed 31 Dec 31 Dec 31 Dec 31 Dec 1 July 2013 2013 2014 2015 2016 Turnover £3.8M £8M £10M £12M Balance £3M £4M £5M £6M Sheet Total Employees 30 45 49 60
New small company regulations Companies Act 2006
New UK GAAP Medium sized and • PC 1 January 2015 • With earlier adoption from 2012 large entities • PC 1 January 2016 Small and • With earlier adoption from PC 1 micro January 2015 • As part of a package with new entities CA 2006 regime
Small company exemption Total assets regime £5.1m Turnover £10.2m Employees 50
The new filing regime and the auditor Members’ financial Filing of financial statements statements New Abridged Legislation allowing Income Statement abbreviated and Statement of accounts withdrawn financial position Option to file under Option to file under S444 S444
It is worth emphasising that the Regulations require the consent of ALL members when it comes to drawing up the abridged accounts. In addition, such consent can only be given in respect of the balance sheet or profit and loss account in respect of the preceding financial year and hence this consent is required to be given annually.
The new filing regime and the auditor
Replaced with: Special auditors ? report on abbreviated accounts
Replaced with: - S444 – nothing, but Special auditors directors make disclosures about report on the audit. abbreviated - Otherwise – full accounts audit report
The micro regime rebooted
% taking % of eligible micro advantage of companies exemptions 91% 3%
Small companies (not micro) Earlier PC 1 Jan PC 1 Jan periods 2015 2016 FRSSE FRSSE 2008 2015 FRS 102 UK FRS GAAP 102
Microcompany regime Total assets exemption £316k Turnover £632k Employees 10
Small Companies regime Micro Small FRS 105 FRS 102
John’s guess for 2016? 75%
Directors loan accounts and FRS 102
• Shareholder approval i.e. Is Key it legal? • Disclosure issues • FRS 102 & FRS 105!
• Minor loans do not need approval (not more Approval than£10,000) • Larger loans are legal for Section private companies with 197(1) shareholder approval • Separate thresholds for of CA06 credit transactions and guarantees
• its amount • an indication of the interest rate S413 loan • its main conditions disclosures and • any amounts repaid
Simple example ‘During the period, the company made a short-term loan to the director amounting to £50,000 for the purposes of a house purchase. Interest at the rate of 4.5% per annum is payable half- yearly and the loan is repayable on 31 December 2018.’
True & Fair view for CA06 disclosures? Abbreviated Aggregation? accounts? Problems
Pragmatic example £ Opening balance X Plus loans made in the period (advances) X Plus private expenditure in the period X Less undrawn remuneration (X) Less loan repayments in the period (X) Less dividends declared in the period (X) Closing balance X
Pragmatic example £ Opening balance X Plus loans made in the period (advances) X Plus private expenditure in the period X Less undrawn remuneration (X) Less loan repayments in the period (X) Less dividends declared in the period (X) Closing balance X
The disclosure is (sort of) optional!
Section 413(6) says that references to a director in section 413 relate to any persons who were a director at any time
Example – Measurement difference arising on a loan to a director-shareholder Smallco Ltd makes an interest-free loan to a director (who is also a shareholder) amounting to £5,000 on 1 January 2016. The director has agreed to pay this loan back to the company on 31 December 2017 and the market rate for a similar loan would be 5.5% per annum. The net present value of the loan is £4,492 (£5,000/1.055 2 ). The measurement difference is the difference between the fair value and the present value which is £508 (£5,000 - £4,492).
Example – Accounting for a measurement difference Using the example above, the measurement difference of £508 represents a distribution to the director in their capacity as a shareholder (as, in substance, the director-shareholder has benefitted by the company providing a loan at below market rate) and the entity would therefore record the transaction as follows: DR director’s current account £4,492 DR distribution to shareholder (equity) £508 CR cash at bank £5,000 Being loan to director
Example – Loan from a director-shareholder On 1 January 2016, Sarah makes an interest-free loan to her business amounting to £5,000. Sarah is a shareholder in the business and her bank would have charged interest at 5.5% on this loan. The loan terms state that the loan will be repaid on 31 December 2017. A measurement difference has arisen amounting to £508 (£5,000 – (£5,000/1.055 2 )). This measurement difference will be treated as an additional investment by Sarah into the business. This is because Sarah has provided a loan at below market rates and has, in substance, made an additional contribution to the business. The loan will be recorded as follows: DR cash at bank £5,000 CR director’s current account £4,492 CR capital contribution (equity) £508 Being loan from director-shareholder
Creditor due < S197 Approval 1Yr Can terms be No discounting! changed No retrospectively? formal terms agreed
Change at Companies House
Small Business, Enterprise Online and Employment Act Companies Act 2006 changes
Why file accounts on line?
Filing • Efficiency of filing with the on HMRC accounts line • Simplicity The • Reduced rate of rejection issues
Filing • Reduced opportunity for on errors line • Help with new UK GAAP The • Improved credit issues rating
Filing • Avoiding penalties on and couriers fees • Why wouldn’t you line in 2016? • Will it become The mandatory? issues
Small Business, Enterprise and Employment Act
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