Fortunately this looks set to change for 3 million of the UK’s smallest firms – the UK’s Financial Reporting Council (FDC) has issued some new proposals to simplify its accounting rules, following the Government’s decision to implement the European Union’s Accounting Directive.
In short, this maximises the number of businesses which can classified as “small”, and simplifies the accounting they have to do as a result.
The FRC confirmed that these proposals will benefit around 1.5 million of the smallest “micro-entities” here in the UK, but the impact of this dramatic simplification of the rules, if adopted in their current form, should not be underestimated. Businesses employing less than 50 people will also see benefits from these proposals, as their accounting rules are simplified, too.
Melanie McLaren, Executive Director of Codes and Standards, said: “(Our proposals) simplify reporting for some entities and are intended to assist the directors of small entities in applying their judgment to the new presentation and disclosure requirements of the Accounting Directive. We believe our proposals provide a consistent framework for reporting by all entities in the UK and Republic of Ireland… and (they’re) proportionately tailored to the size of the entity and users’ information needs.”
The proposals include the withdrawal of the previous Financial Reporting Standard for Smaller Entities, and the implementation of greater flexibility in the format of profit and loss accounts and balance sheets.
The EU Accounting Directive sets the thresholds for companies from micro to large based on the company’s workforce, balance sheets and net turnovers; the UK government has decided to apply the maximum thresholds for all company sizes.
For micro-entities and small companies, the maximum turnover thresholds are up to GBP632,000 or £10.2m respectively, with balance sheet totals of up to £312,000 or £5.1m with no more than 10 or 50 employees.
When discussing these proposals a spokesperson for Braant Accounting said: “Many small and micro-business entities stand to gain a lot from these proposals. Not only will it release them from the most complex aspects of their current accounting requirements, freeing up time which could be spent elsewhere, but it will end a long period of uncertainty about the rules and where they stand in regards to them. This is good news for small business owners all over the UK.”