Simplified accounting is available for some small companies, but is not suitable for all
SI 2013/3008, The Small Companies (Micro-Entities’ Accounts) Regulations, apply to financial years ending on or after 30 September 2013.
To be regarded as a micro-entity at least two of the following conditions need to apply:
Turnover will need to be proportionately adjusted where the financial year is a period and not in fact a year.
The number of employees calculation is set out in the SI and is determined as follows:
'(a) find for each month in the financial year the number of persons employed under contracts of service by the company in that month (whether throughout the month or not),
(b) add together the monthly totals, and
(c) divide by the number of months in the financial year.'
Some entities cannot qualify as micro-entities if they are, or were at any time during the financial year, one of the following:
Micro-entities accounts will need to include an abridged balance sheet, chosen between two available formats included in the regulations; an abridged profit and loss account, for which only one format is available; and a director’s report.
There is no need to prepare a separate set of notes for micro-entities accounts, and the only additional information required, ie advances and guarantees to directors and other financial commitments and guarantees, must be included at the foot of the abridged balance sheet.
When accounts are prepared using the exemptions for micro-entities, only the historical cost accounting rules in the accounting regulations for small companies (SI 2008/409) can be used, while the alternative accounting rules that allow for the revaluation of assets and the fair value accounting rules for financial instruments and investment property cannot be adopted.
Companies House has also announced that it will include micro-entity accounts on the register.
Micro-entities can file with Companies House only the abridged balance sheet with the required footnotes.
The balance sheet must contain a statement in a prominent position above the director’s signature and printed name that the accounts have been prepared in accordance with the micro-entity provisions. This statement should appear in the original accounts for members as well as the copy sent to Companies House.
If the company has opted not to file a directors’ report and/or a profit and loss account, then a statement should also appear on the balance sheet sent to Companies House that the accounts have been delivered in accordance with the provisions applicable to companies subject to the small company’s regime.
The Financial Reporting Council has issued FRED 52, Draft Amendments to the Financial Reporting Standard for Smaller Entities (effective April 2008) – Micro-entities. The draft amendments to the FRSSE will allow micro-entities taking advantage of the regulations to continue to prepare financial statements in compliance with the FRSSE.
As well as reducing the requirements for disclosures by micro-entities, to bring them in line with the regulations, the draft FRSSE also proposes to withdraw the use of the revaluation model for tangible fixed assets and the choice to measure fixed asset investments at market value for such entities. Additionally, investment property would be accounted for at impaired historic cost rather than at market value at the balance sheet date.
Apart from the changes proposed above and the exemptions in terms of disclosures, the recognition and measurement of items in the accounts of micro-entities will follow the requirements of the FRSSE.
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