EU Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, were adopted in June 2013.  Its aim is to increase the comparability of financial reports by reducing the number of options available to preparers and to limit the amount of information small companies are required to put in their annual statutory accounts.

BIS describes the effects of the EU directive as ‘limited’, saying the UK has already implemented many of the options, and the consultation focuses on a number of specific points.

These include raising the thresholds for determining company size (micro-entity, medium-sized and large) in line with the mandatory thresholds imposed by the Accounting Directive. BIS says it wants to use the maximum threshold for determining what is a small company in order to bring some 11,000 additional companies into small company accounting regime.  Under the proposals, a small company will have to meet two of three criteria:  total assets of under £5.1m, turnover of under £10.2m, fewer than 50 employees. The requirements for medium-sized companies are total assets under £18m; turnover less than £36m; under 250 employees.

In addition, the consultation will consider if the method for determining thresholds for company size should be amended where ‘net turnover’ is not a relevant factor for a company or where it might be more appropriate to consider the thresholds on a consolidated or aggregated basis. It will implement changes to comply with the new largely harmonised small company regime, including changes to the mandatory notes to the accounts.

BIS is also looking at whether small companies should be permitted to prepare an abbreviated balance sheet and abbreviated profit and loss account, and wants to review the exclusion of public companies from the small company regime and the medium-sized company regime.

The consultation will explore the opportunities offered by the option to provide greater flexibility in the layout of the profit and loss account and balance sheet, with BIS seeking views on whether it would be possible to adopt IFRS formats in order to remove further complexity for companies adopting FRS 101.

The consultation considers amending the approach in relation to the writing off of goodwill and development costs as required by the Accounting Directive, with the suggestion that in rare cases where the useful economic life cannot be reliably estimated these should be amortised over a maximum of ten years.

BIS also plans to remove the requirement for micro-entity companies to prepare a Directors Report and says that information on subsidiaries included with the consolidated financial statements need only provided as a note to those statements.

The consultation will seek views on the implications of the revised accounting framework for charitable companies, and on the interaction of the Accounting Directive with the statutory audit framework

BIS says it is not proposing to increase the audit exemption thresholds for the small undertakings as part of the initial implementation of the Accounting Directive. This will mean that the balance sheet and turnover thresholds for the small undertakings will differ for the purposes of the small companies regime for accounting purposes and the small companies audit exemption, requiring amendments to the small companies audit exemption in the Companies Act. The government is to consider ‘in due course’ the possible increase in the audit exemption thresholds for small undertakings.

In its consultation document, BIS says the FRC is simultaneously consulting on the implications for accounting standards of the new legislative requirements, in its consultation Accounting standards for small entities - Implementation of the EU Accounting Directive.

The FRC proposals will include a new Financial Reporting Standard for Micro-entities (FRSME); small entities will apply FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, with a new section setting out the presentation and disclosure requirements for small entities, which will be based on the new legal provisions; and limited changes will be made to FRS 101 Reduced Disclosure Framework and FRS 102, where necessary to reflect changes in legislation or where other options are now permitted.  
 

The UK is required to transpose the Accounting Directive into UK law no later than 20 July 2015. BIS says it will take up the option permitting that the changes may first apply to financial years beginning on or after 1 January 2016.

The BIS consultation closes on 24 October 2014 and the details are here: https://www.gov.uk/government/consultations/eu-accounting-directive-smaller-companies-reporting