Implementation of the EU Accounting Directive in the UK Vickie Wood Assistant Director, Accounting Policy Business Environment Directorate 2 The European Context Smart Regulation in the European Union Think Small First a Small Business Act for Europe Single Market Act The new Accounting Directive: Revises, repeals and consolidates the 4th & 7th Accounting Directives Incorporates (and repeals) Directive 2012/6/EU, the micros exemption 3 Distinct elements The accounting chapters 1-9, including New definitions, including public interest entity Revised thresholds A mandatory small company The micro exemption Revised scope for mandatory audit Increased harmonisation fewer options Transparency reporting for extractive industries, chapter 10 Accelerated implementation 1
4 Considerations for the UK Impact on company law Primary legislation Regulations Impact on accounting standards Small company restrictions Micro exemption When to implement to effect f/y beginning on or after 1 Jan 2016 at the latest 5 The Government s Approach Maintain the integrity of the UK s accounting framework Implement mandatory changes effectively Consider opportunities for further deregulation Seek views on areas for change Implement to transposition deadline financial years commencing 1 January 2016 6 Consultation topics Date of application Small company thresholds Calculation of thresholds definition of net turnover New small company Exclusions from the small and medium-sized company s Formats Equity method of accounting Goodwill 2
7 Consultation topics cont: Information on subsidiaries inc within consolidated financial statements Micro-entity directors report Application to charitable companies Audit 8 Next steps Encourage business, representative bodies and professional bodies to respond Continue to work with expert Stakeholder Group Begin drafting regulations Analyse responses to inform approach Refine evaluation of the impact Publish Government Response late 2014 Legislation Spring 2015 9 Contact Details: Vickie Wood Assistant Director (Accounting Policy) Department for Business, Innovation and Skills 2 St Paul's Place 125 Norfolk Street Sheffield S1 2FJ vickie.wood@bis.gsi.gov.uk 0114 207 5308 The Department for Business, Innovation and Skills (BIS) is making a difference by supporting sustained growth and higher skills across the economy. BIS: working together for growth 3
Accounting standards for small entities Anthony Appleton, Director of Accounting and Reporting Policy Jenny Carter, Director of UK Accounting Standards 15 September 2014 Accounting standards for small entities Background EU Accounting Directive Financial reporting framework Micro-entities Small entities Other amendments Background EU Accounting Directive Agreed in June 2013, regulatory changes to be made by July 2015 To be effective from 1 January 2016 Significant changes to small companies Micro-entities already implemented in the UK Some other changes required or opportunities arising 4
Financial reporting framework FRSME Small entities FRS 102 EU-adopted IFRS in FRS 102 the micro-entities the micro-entities the micro-entities the micro-entities the small companies the small companies Entities not small and not required to apply EU-adopted IFRS the small companies Entities not small and not required to apply EU-adopted IFRS Available for subsidiaries and parents, usually where group applies EU-adopted IFRS Entities required to apply EU-adopted IFRS Micro-entities Micro-entities already available Limited change to the, but opportunity to consider a more user-friendly standard for the longer term Specific qualifying conditions, companies only, turnover not exceeding 632,000 Form and limited content of financial statements set out in law presumed true and fair view Micro-entities the FRSME Presentation and disclosure requirements from law Recognition and measurement requirements based on FRS 102, but simplified: Legal restrictions Financial instruments Deferred tax Equity-settled share-based payments Post-employment benefits No capitalising borrowing costs 5
Micro-entities Poll Do you agree with the proposal to develop a new FRS for micro-entities? Small entities Significant changes to the Thresholds to increase, turnover not exceeding 10.2million Disclosure only as set out in the Accounting Directive No additional statements Must give a true and fair view FRSSE not consistent, change necessary Small entities why no FRSSE? Not consistent with new legal framework Do nothing not an option Advantages of consistency with FRS 102 Education and training FRSSE based on accounting standards that will be withdrawn Certain financial instruments otherwise unrecognised Fall back to FRS 102 anyway 6
Small entities in FRS 102 Will still apply to all small entities, not just companies Recognition and measurement requirements of FRS 102 Presentation and disclosure from law No cash flow statement, no statement of total comprehensive income No requirement for consolidated financial statements Additional disclosure for true and fair view? Small entities in FRS 102 Key changes compared to FRSSE Financial instruments, fair value and hedging arrangements Investment property changes in value through profit or loss More deferred tax Holiday pay accruals Equity-settled share-based payments Small entities in FRS 102 Poll Do you agree with the proposal for a small entities within FRS 102? 7
Residents Management Companies Consulted twice previously (FRED 50) New sub-section in FRS 102 Key principles No new disclosure requirements Other amendments FRS 102 Not a full review of FRS 102 wait for the triennial review Update legal references Ordinary and extraordinary items Useful economic life of goodwill Reversal of impairment loss for goodwill Other amendments FRS 102 (continued) Options to consider Alternative formats Equity method for participating interests Not including all legal requirements for larger entities 8
Other amendments Can remove two amendments to IFRS Options to consider Alternative formats Consultation and next steps High-level proposals Comment by 30 November 2014 Develop detailed Exposure Drafts and consult again during 2015 Changes effective from 1 January 2016 Radical changes to UK small company reporting Danielle Stewart Head of Financial Reporting Baker Tilly 15 September 2014 www.bakertilly.co.uk 9
A summary of the new The minimum requirements The choices available The Future of UK GAAP T/o 632k B/s 316k 10 employees Micro entities Bal sheet, P&L & only two notes Minimum requirements for MICRO companies FRSME based on FRS 102 with simplifications EC: No fair values, deemed T&F view FRC: no deferred tax? T/o 10.2m B/s 5.1m 50 employees Only 13 notes, but might need more for t&f view. Minimum requirements for SMALL Entities Recognition & measurement per FRS 102, no cash flow, SOTCI or SoCiE No consolidation unless a PIE is a member 10
Non small, non listed, non Public Interest Entity Only 2 P&L formats Minimum requirements for OTHER Entities FRS102 with optional reduced disclosure 6.5m t/o entities will start here & move after 1 year Required by IAS regs or other regs (eg AIM) to use EU-IFRS Consols use IAS accounts so don t have to follow Co s Act formats Requirements for Listed Entities EU-IFRS + optional FRS 101 reduced for solus a/cs. Can mix & FRS 102 for subs Choices for micro companies Micro companies (not entities) Micros + FRSME reduced, EU-IFRS 11
Choices for small entities Micro companies Small entities Micros + FRSME reduced, EU-IFRS reduced, EU-IFRS Choices for non-small, nonlisted entities Micro companies Small entities Micros + FRSME reduced, reduced, Non-small, nonlisted entities FRS 102, with optional reduced EU-IFRS EU-IFRS EU-IFRS So many choices! Micro companies Small entities Micros + FRSME reduced, reduced, Non small, non listed entities FRS 102, with optional reduced Listed entities FRS 102 in solus accounts EU-IFRS EU-IFRS EU-IFRS Must use EU- IFRS for consols can t use in consols 12
The Future of UK GAAP for small companies - 2014 style Deemed true & fair view for small companies? Increase in the micros threshold? Abolish abbreviated accounts? Increasingly divergent measurement? 2013 Baker Tilly UK Group LLP, all rights reserved Baker Tilly Tax and Advisory Services LLP, Baker Tilly UK Audit LLP, Baker Tilly Corporate Finance LLP, Baker Tilly Restructuring and Recovery LLP and Baker Tilly Tax and Accounting Limited are not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide. Baker Tilly & Co Limited is authorised and regulated by the Financial Services Authority to conduct a range of investment business activities. 13