It may not be a major priority for directors of small companies but the format of their accounts is set to change. Small company accounts are currently prepared using the Financial Reporting Standard for Smaller Entities (FRSSE) but for accounting periods starting on or after 1 January 2016 this is being replaced by FRS102.
Whilst this will not impact many company owners there are some significant changes that may affect their balance sheets value and the amount of information that needs to be shown.
The major changes are:
- Goodwill should be written off over five years which is a shorter period than allowed at present
- Revaluation gains or losses on investment properties must be shown in the profit and loss account
- Financial instruments to be shown at “fair value” and any gain or loss shown in the profit and loss account
- FRS102 accounts must include a cashflow statement
There is an alternative for very small companies. Companies that have sales turnover of under £632,000 can elect to prepare “micro entity” FRS105 accounts which have much simpler rules and do not require investments, etc to be included at market value.
Deciding to use the FRS105 format may appear the simpler choice but it may not be right for everyone, particularly where you are looking to grow the business or attract outside investment.We recommend discussing with your accountant before making a decision.