Thousands of companies to be reclassified as ‘small’

Following the approval, last June, of a new European Union (EU) Accounting Directive thousands of companies currently classified as ‘medium’ are to be reclassified as ‘small’ for accounting purposes.

The UK Government must transpose the requirements of the new Accounting Directive into UK company law by July 2015 and it must be in force for accounting periods commencing on or after 1 January 2016.

Whilst the possible maximum values are still estimates they represent significant increases over the current thresholds to qualify as a small business. An entity will meet the size criteria for a small company if it does not exceed at least two out of three of the following criteria in the current and preceding year:

.                                           Current Small UK    Max Possible Small UK*    Micro UK
Net turnover                           £6.5m                           £10.1m                           £632k
Balance sheet total                 £3.26m                          £5m                              £316k
Employees                                 50                                 50                                    10

* Estimate only

One of the key changes under the Directive is that just eight items must, where applicable, be disclosed in small company FRSSE accounts. The Directive also outlines additional disclosures (just five) which member states may choose to adopt into local company law or regulation. As a result, the FRSSE will at the very least need to be amended to reflect the changes made to UK company law once the Directive has been implemented in UK legislation. However, the Financial Reporting Council (FRC) is also expected to use the opportunity to carry out a more comprehensive review of the existing UK small company reporting regime, the results of which may be implemented at the same time as changes arising from the new Directive.

The Financial Reporting Council (FRC) has already announced tentative plans to bring small companies within the scope of FRS 102 The Financial Reporting Standard for the United Kingdom and Republic of Ireland and to propose a new separate, standalone Financial Reporting Standard for Micro-Entities (the FRSME).

For further details see the ICAEW Forthcoming Changes to UK Small Company Reporting.

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