Calling time on FRSSE
22 Apr 2014
Wouldn’t having a FRSSE, which would have to be based in the future on FRS 102, be a little odd since it would create a ‘little version’ of already ‘little GAAP’, asks Julia Penny
22 Apr 2014
In January 2014, the Financial Reporting Council (FRC) announced in its newsletter ‘Setting the standard’, that a fundamental review of the Financial Reporting Standard for Smaller Entities (FRSSE) was being undertaken. The FRC said it had made a tentative decision to withdraw the FRSSE and instead have all companies follow FRS 102 (the new UK GAAP standard), but with reduced disclosures for small and micro entities.
In itself this was not really a surprising development. After all, FRS 102 is based on the IFRS for Small and Medium-Sized Entities, so having a FRSSE which would have to be based in the future on FRS 102 always seemed a little odd. It would create a ‘little version’ of already ‘little GAAP’.
What is a more surprising, though, is the timing. The consultation process for new UK GAAP has gone on for years and there were plenty of opportunities to propose that FRSSE companies should migrate to FRS 102 (albeit with reduced disclosures). At the time, the decision was taken to leave the FRSSE in place, but with the expectation that it would be reviewed later. Most of us took this ‘later’ to mean after FRS 102 had been operational for a year or two – allowing time to learn from the experience of larger entities making the transition.
But the FRC does not have an entirely free hand in the matter. The new EU Accounting Directive needs to be implemented in the UK by July 2015 and it contains significant reductions in the disclosures required for small companies. The pressure is on to ensure that there is a standard in place that will not breach the new EU Accounting Directive once it is enacted.
Of course, one way to achieve compliance with the EU rules would be to amend the FRSSE to take out the disclosures not permitted by the Directive. Potentially that would double the work for both standard-setters and preparers as there would likely still be a desire to conduct a full review of the need for the FRSSE within a couple of years.
Think small first
So instead the race is on to get a new draft standard issued in June 2014, which will be FRS 102 with different disclosure requirements for micro and small entities. The micro-entity requirements are effectively already written into FRSSE 2008, so they should be relatively straightforward. But the requirements for small entities might take a little more detailed work, especially if the FRC tries hard to ‘think small first’ to ensure that such entities can easily see the requirements that apply to them.
But what of the impact on those smaller entities which were expecting to be left largely unscathed by the move to new UK GAAP? It would appear that they will be caught by all the recognition and measurement requirements of FRS 102, but not the disclosures. This means that items such as financial instruments, investment property and intangibles might have significant changes to their accounting, while many other areas will have more minor changes or options for treatments not currently available.
If the application date of the new standard is 1 January 2015, or at the latest 1 July 2015, it doesn’t leave long for small entities and their advisers to hop onto the new UK GAAP bandwagon.
Julia Penny, content manager, audit & accounting, CCH www.cch.co.uk