Accountants urged to look at simplified accounting for micros

Accountants should be doing more to encourage the very smallest companies to opt for simplified accounting such as FRS 105, according to a report on the EU’s introduction of a micro-entities accounting regime

The European Federation of Accountants and Auditors for SMEs (EFAA) has published a survey on acceptance of simplified accounting regimes based on responses from over 700 practitioners from seven countries, including the UK.

This found that the level of awareness of the existence of the micro-entities option varies significantly from country to country, while a clear majority of accountants recommended their eligible clients to take up the small companies accounting framework and actual rates of take-up closely mirror this.

The main reasons for using the micro-entities option are cost savings and the benefit of greater privacy from reduced disclosures. While most accountants did not expect to change their view of the micro-entities regime most indicated that adoption rates would increase in the future.

Paul Thompson,  EFAA director, said: ‘The survey findings have various implications for regulators, standard setters and accountants, not least the European Commission in light of the fact in early 2018 it commenced the EU fitness check on public reporting by companies.’

Richard Martin, head of corporate reporting at ACCA, and a co-author of the report, said: ‘The survey reveals that accountants are key drivers of the decision to take up the micro-entity regime.

‘Many eligible micro entities are unaware of the option.

‘If the EU wishes to increase the take-up then it might wish to look at ways of raising awareness including through accountants bringing it to the attention of their eligible clients.’

The report goes on to state that on balance the EU initiative to introduce the micro-entities regime has succeeded if success is measured by take-up rates. Whether it has improved the quality of readily available financial information about limited liability companies, which the EFAA said was important, was not addressed directly in this survey.

In the UK, the standard setter, the Financial Reporting Council (FRC) released FRS 105, Micro Entities Regime, setting out an accounting framework for the smallest entities, which offers a stripped down version of FRS 102, the main UK GAAP standard for the UK and Ireland. 

The eligibility criteria for FRS 105 include a maximum turnover limit of £632,000 (pro rata for a short accounting period), balance sheet total (fixed assets plus current assets) of maximum £316,000 and up to 10 employees.

EFAA report, Take-up of micro entity accounting regime

Pat Sweet, additional reporting Sara White

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Latest guidance on qualifying as a micro entity and the use and application of FRS 105 The Financial Reporting Standard Applicable to the Micro-entities Regime is available in Preparing Small and Micro Company Accounts 2019-20, published by Croner-i

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