Small Company Accounting

Small Company Accounting: Understanding Reporting Requirements

At AHACCOUNTANTS, we recognize the importance of understanding the reporting requirements for small companies in Nottingham and the surrounding areas. With changes in the format of statutory accounts required by Companies House, it’s crucial for small businesses to be aware of their options and obligations. This factsheet outlines the choices available to small companies, considering their activities, assets, and the need for external scrutiny.

UK GAAP for Small Companies

Small companies in the UK have several accounting standards to choose from, depending on their size:

1. FRS 102: The full accounting standard for non-small UK companies.
2. FRS 102 Reduced Disclosure Regime (Section 1A): This allows smaller disclosures compared to FRS 102.
3. FRS 105: The Financial Reporting Standard applicable to Micro-entities.

Size Limits for Small and Micro-Entities

To qualify as a small entity, a company must meet two out of three of the following criteria for two consecutive years:

• Turnover: Up to £10.2 million
• Total Assets: Up to £5.1 million
• Employees: No more than 50

To qualify as a micro-entity, a company must meet two out of three of these criteria:

• Turnover: Up to £632,000
• Total Assets: Up to £316,000
• Employees: No more than 10

A company only needs to assess its size based on the first year of existence if it’s a new entity. If a financial year is longer or shorter than twelve months, the turnover limit is adjusted accordingly.

Certain types of entities, such as charities, are excluded from preparing micro-entity accounts.

Changes to Filing Requirements

Previously, small companies had the option to file “filleted” accounts, meaning they could exclude their profit and loss account and directors’ report from their filings at Companies House. However, new legislation has been passed, removing these options, which means small companies must now prepare full accounts.

Contents of Micro-Entity Accounts

Micro-entity accounts are simpler and shorter. They no longer require a Directors’ report, and the profit and loss account is not filed at Companies House. Instead, the balance sheet and accompanying footnotes must include:

• Off-balance sheet arrangements
• Average monthly employees
• Directors’ advances, credits, and guarantees
• Guarantees, contingencies, and other financial commitments

Micro-entities cannot apply fair value accounting or revaluations.

Contents of FRS 102 1A Accounts

The financial statements for small entities under FRS 102 must give a true and fair view and include:

• A statement of financial position (balance sheet)
• An income statement (profit and loss account)
• Notes to the accounts

A statement of cash flows is not required, but if a small entity has gains or losses in other comprehensive income, it is encouraged to present a statement of total comprehensive income. Transactions with equity holders may require disclosure in a statement of changes in equity.

Key Exemption: Only material related party transactions that are not conducted under normal market conditions need to be disclosed.

Comparison of FRS 102 1A Accounts and FRS 105

Here’s a comparison of the requirements for FRS 102 (Section 1A) and FRS 105:

Significant Differences:

• Fair Value Accounting: Not permitted under FRS 105, whereas FRS 102 allows fair value measurements for certain assets.
• Deferred Tax: FRS 105 does not allow deferred tax recognition, while FRS 102 requires it for fair value adjustments.