Proposed changes to UK accounting standards FREDs 58 to 60

Transcription

1 A new accounting regime for small and micro-entities: FRC proposals 27 April 2015 Proposed changes to UK accounting standards FREDs 58 to April 2015 Background Why amend standards now? New EU Accounting Directive Agreed June 2013 To be implemented by 20 July 2015 To be effective 1 January 2016 Changes now made to UK company law Changes needed to accounting standards 1

2 Background Small companies regime Most significant changes relate to small companies Maximum harmonisation FRSSE Minor amendments only when FRS 102 issued, awaiting EU Accounting Directive Not consistent with changes in company law Background Consultation Document Consultation Document issued September 2014 Set out proposed strategic direction Withdrawal of FRSSE New standard for micro-entities Small entities within scope of FRS 102 Feedback supportive FREDs 58 to 60 FRED 58 Micro-entities regime FRED 59 Small entities regime and other minor amendments FRED 60 Amendments to FRS 100 and FRS 101 Issued February

3 Financial reporting framework Old framework UK GAAP Small entities regime Full UK GAAP Full UK GAAP some exemptions for subsidiaries New framework Micro-entities regime Small entities regime FRS 102 Reduced disclosure framework (FRS 101) Reduced disclosures for subsidiaries and ultimate parents (FRS 102) Related accounting standard(s) Draft FRS 105 Draft Section 1A FRS 102 FRS 101 Paragraphs 1.8 Small Entities of to 1.13 of FRS 102 FRS 102 FRED 58 (Draft FRS 105) Micro-entities regime Minimal disclosures as mandated by law Presumed to give a true and fair view Specific qualifying conditions, companies only, including turnover not exceeding 632,000 Recognition and measurement, simplified and based on FRS 102 FRED 58 (Draft FRS 105) Simplifications include: Legal restrictions No accounting policy choices Financial instruments Deferred tax Equity-settled share-based payments Post-employment benefits No capitalising borrowing costs or development costs 3

4 FRED 59 (FRS 102 Small Entities) Thresholds to increase, turnover 10.2million, balance sheet total 5.1million, 50 employees Must give a true and fair view Specific disclosures as set out in law, linked to equivalent in FRS 102 No additional statements, no group accounts Recognition and measurement as FRS 102 Options for presentation of primary statements FRED 59 (FRS 102 Small Entities) Additional disclosures where necessary for a true and fair view look to FRS 102 Some disclosures encouraged by FRED 59 Judgement will need to be applied Question Do you agree with the proposals for small entities in FRED 59? 4

5 FRED 60 (Amends FRS 100 and FRS 101) FRS 100 Updates framework including withdrawal of FRSSE FRS 101 Formats Removes some amendments to IFRS Effective date and early application FRED 59 Effective accounting periods beginning on or after 1 January 2016 Early application permitted accounting periods beginning on or after 1 January 2015 Early application of law and accounting standards at the same time Early application in 2015 FRED 59 Size Currently small Will be small Turnover turnover < 6.5m 6.5m<turnover< 10.2m No early application FRSSE 2015 FRS 102 (August 2014) Early application FRS 102 for small entities FRS 102 for small entities 5

6 Effective date and early application FRED 58 Effective accounting periods beginning on or after 1 January 2016 Early application permitted not dependent on changes in company law Consultation and next steps Comments by 30 April 2015 Final standards/amendments expected July 2015 Prepare for transition transition date is the beginning of the comparative period A new accounting regime for small and micro-entities ICAEW views on the FRC proposals Danielle Stewart OBE Head of Financial Reporting, Baker Tilly 6

7 Programme Broad support for the micro-standard FRED 58 (FRS 105) Areas of agreement Areas for improvement Programme Broad support for the micro-standard FRED 58 (FRS 105) Areas of agreement Areas for improvement More clarity for small companies, please FRC! FRED 59 (Amendments to FRS 102) Areas of agreement Areas for improvement FRED 58 Broad support for micro standard 7

8 FRED 58 Areas of agreement A separate simplified micro standard is helpful Agree with the decision to develop FRS 105 from FRS 102 Consistent approach allows easy training; good comparability; smooth transition for growing businesses Supportive of three over-arching principles used to determine extra (non legal) accounting simplifications Agree with most of the actual simplifications, including the removal of accounting policy options in light of lack of disclosures Generally agree that cross reference to FRS 102 for complex areas is a good approach FRED 58 Areas for improvement Focus on consistency with FRS 102 has limited overall clarity of the standard Layout makes document unnecessarily long recommend greater emphasis on accessibility and the needs of microentities False similarity eg. s11.15 is a different amortised cost in FRS105 but gives eg.s of basic instruments in FRS102 Inconsistent message re scope should be clearly applicable to non companies- HMRC view should be sought Financial instruments section needs work. Specifically, s.12 could be called Derivatives, or combine s11 & s12 FRED 59 More clarity for small companies, please FRC! 8

9 FRED 59 Areas of agreement Agree with withdrawing FRSSE & adding a new section to FRS 102 Agree with no accounting simplifications at this stage If a small entity has got, say, derivatives, it should have to fair value them ICAEW is broadly happy with the transitional provisions Cautiously agree that no separate small co standard is right, due to difficulties of extra disclosures that might be needed for true & fair view FRED 59 Areas for improvement The proposed structure, layout, and in some places the drafting of section 1A is very unhelpful No up front explanation about need for true & fair view despite legal restrictions on disclosures Should start with summary of new regime, including need for t&f view, then give a clear list of disclosures Give explanations of how disclosures inter relate with FRS 102 current x- reference is confusing! A table might help FRED 59 Further areas for improvement Again, there is a lack of clarity about scope re non companies Amendments to accounting treatments should not be ruled out in the future Question the timetable- if final FRS is not out till Summer 2015, gives very little time for small companies to prepare Urge the FRC to revise the standard at the earliest possible date 9

10 In summary ICAEW is broadly supportive of the FRC s high-level plans They have highlighted some concerns, mainly about: Scope Layout Drafting Timing In summary ICAEW is broadly supportive of the FRC s high-level plans They have highlighted some concerns, mainly about: Scope Layout Drafting Timing ICAEW urges FRC to produce final revised standards as soon as possible! 27 April 2015 Stephanie Henshaw New accounting regime for small and micro companies: Practical impacts and challenges 10

11 Should eligible companies adopt FRS 105? Case by case basis Are owners and managers the same individuals? Nature of activity? Business strategy and objectives? Needs of other users met by micros regime? Is it audited? Information on public record? Discuss and agree with company The early adoption option for FRS 102: how practicable is it? Under the existing legislation the company is medium-sized but early-adoption allows it to qualify as small for year ended 31/12/15 FRS 102 planning already done? YES New small company regime gives additional impact only for disclosure The early adoption option for FRS 102: how practicable is it? The company already qualifies as small but early-adoption allows it to reduce disclosure for year ended 31/12/15 FRS 102 planning already done? NO Need to obtain relevant transition data retrospectively 11

12 Are we ready for the new regime? Sufficient training and education firms and clients? When will accounting software be ready? Impact on terms of engagement? How to ensure quality of output? Review processes Disclosure checklists Model accounts examples Updated representation letters Audit impact? Are companies ready for the new regime? Informed choice Identify and obtain data Awareness and understanding Commercial impact Communication Small companies and the true & fair challenge Overriding requirement to give a true and fair view is not new Relatively infrequent extra disclosure How to judge when extra disclosure is necessary? Case by case Full or abridged accounts? Encouraged disclosure? Extent of transitional impact? Consider significance of information no longer shown? How to present extra disclosure what does the software do? 12

13 Additional disclosure in micro entity accounts? Operating regimes in parallel? Client A: Short accounting period 6m to 30 June 2015 FRS 102 allows access to choice over grant recognition Section 1A disclosure seen as desirable by OMB directors Wants to early adopt the new regime Client B: Makes accounts up to last Saturday in December Next accounting period 29 December December 2016 First period of mandatory adoption FRS 102 begins 1 January 2017 Wants to stick with FRSSE for as long as possible Financial Reporting Faculty resources /micros /smallcompanyreporting 13

14 Financial Reporting Faculty events and webinars Events Find out more at /events 2 Oct Dec 2015 Roadshow New UK GAAP Rising to the challenge 21 Oct 2015 UK GAAP Conference: Implementation issues and challenges /ukgaapconference Nov 2015 IFRS Conference: Major changes on the horizon /ifrsconference2015 Webinars Find out more at /webinars 19 May 2015 The new EU Accounting Directive: what UK companies need to know now /euaccoutingdirectivewebinar 23 Sept 2015 The UK s new small & micro-entities financial reporting regime Financial reporting at your fingertips Download the faculty s free app for iphone, ipad and Android devices. Visit /frfapp for more information. You can also follow to keep up-todate with the latest financial reporting developments and breaking faculty news 140 characters at a time. 14

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