Small company reporting issues 29 February 2016 Presented by John - - PowerPoint PPT Presentation

Small company reporting issues

29 February 2016

Presented by John Selwood

A. Transitional adjustment

• B. Correction
• f an error

FRS 102 Holiday pay accrual

“FRS 102 requires companies to provide for all obligations to

• employees. One area of potentially

significant change as a result is that

• f holiday pay. Currently, many UK

companies do not provide in their accounts for the cost of paid annual leave not taken at the year-end. In future they will be obliged to do so.”

ICAEW August 2013

Highlights

Small company audit exemption New small company regulations Micro company regime rebooted Directors loans and FRS 102 Filing accounts online Small Business, Enterprise and Employment Act

Small company audit exemption

• PC 1 January

2015

• Does not

apply for audit exemption

New small company regulations

Small company regime exemption Total assets

£5.1m Turnover £10.2m Employees 50

• No early

adoption

• PC 1

January 2016

Small company audit exemption

Small company audit exemption Total assets

£3.26m Turnover £6.5m Employees 50

X Ltd formed 1 July 2013

31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016

Turnover

£3.8M £8M £10M £12M

Balance Sheet Total

£3M £4M £5M £6M

Employees

30 45 49 60

New small company regulations Companies Act 2006

• PC 1 January 2015
• With earlier adoption from 2012

Medium sized and large entities

• PC 1 January 2016
• With earlier adoption from PC 1

January 2015

• As part of a package with new

CA 2006 regime

Small and micro entities

New UK GAAP

Small company regime exemption Total assets

£5.1m Turnover £10.2m Employees 50

Filing of financial statements

Legislation allowing abbreviated accounts withdrawn Option to file under S444

Members’ financial statements

New Abridged Income Statement and Statement of financial position Option to file under S444

The new filing regime and the auditor

It is worth emphasising that the Regulations require the consent of ALL members when it comes to drawing up the abridged accounts. In addition, such consent can only be given in respect of the balance sheet

• r profit and loss account in respect
• f the preceding financial year and

hence this consent is required to be given annually.

The new filing regime and the auditor

Special auditors report on abbreviated accounts

Replaced with:

?

Special auditors report on abbreviated accounts

Replaced with:

• S444 –

nothing, but directors make disclosures about the audit.

• Otherwise – full

audit report

The micro regime rebooted

% of eligible micro companies

91%

% taking advantage of exemptions

3%

Earlier periods

FRSSE 2008 UK GAAP

PC 1 Jan 2015

FRSSE 2015 FRS 102

PC 1 Jan 2016

FRS 102

Small companies (not micro)

Microcompany regime exemption

Total assets £316k Turnover £632k Employees 10

Small Companies regime Micro FRS 105 Small FRS 102

John’s guess for 2016?

75%

Directors loan accounts and FRS 102

• Shareholder

approval i.e. Is it legal?

• Disclosure
• FRS 102 & FRS

105!

Key issues

• Minor loans do not need

approval (not more than£10,000)

• Larger loans are legal for

private companies with shareholder approval

• Separate thresholds for

credit transactions and guarantees

Approval Section 197(1)

• f CA06

• its amount
• an indication of the

interest rate

• its main conditions

and

• any amounts

repaid

S413 loan disclosures

Simple example ‘During the period, the company made a short-term loan to the director amounting to £50,000 for the purposes of a house

• purchase. Interest at the rate of

4.5% per annum is payable half- yearly and the loan is repayable

• n 31 December 2018.’

Problems

Aggregation? True & Fair view for CA06 disclosures? Abbreviated accounts?

Pragmatic example £ Opening balance X Plus loans made in the period (advances) X Plus private expenditure in the period X Less undrawn remuneration (X) Less loan repayments in the period (X) Less dividends declared in the period (X) Closing balance X

Pragmatic example £ Opening balance X Plus loans made in the period (advances) X Plus private expenditure in the period X Less undrawn remuneration (X) Less loan repayments in the period (X) Less dividends declared in the period (X) Closing balance X

The disclosure is (sort of) optional!

Section 413(6) says that references to a director in section 413 relate to any persons who were a director at any time

Example – Measurement difference arising

• n a loan to a director-shareholder

Smallco Ltd makes an interest-free loan to a director (who is also a shareholder) amounting to £5,000 on 1 January 2016. The director has agreed to pay this loan back to the company on 31 December 2017 and the market rate for a similar loan would be 5.5% per annum. The net present value of the loan is £4,492 (£5,000/1.0552). The measurement difference is the difference between the fair value and the present value which is £508 (£5,000 - £4,492).

Example – Accounting for a measurement difference Using the example above, the measurement difference

• f £508 represents a distribution to the director in their

capacity as a shareholder (as, in substance, the director-shareholder has benefitted by the company providing a loan at below market rate) and the entity would therefore record the transaction as follows: DR director’s current account £4,492 DR distribution to shareholder (equity) £508 CR cash at bank £5,000 Being loan to director

Example – Loan from a director-shareholder On 1 January 2016, Sarah makes an interest-free loan to her business amounting to £5,000. Sarah is a shareholder in the business and her bank would have charged interest at 5.5% on this loan. The loan terms state that the loan will be repaid on 31 December 2017. A measurement difference has arisen amounting to £508 (£5,000 – (£5,000/1.0552)). This measurement difference will be treated as an additional investment by Sarah into the business. This is because Sarah has provided a loan at below market rates and has, in substance, made an additional contribution to the business. The loan will be recorded as follows: DR cash at bank £5,000 CR director’s current account £4,492 CR capital contribution (equity) £508 Being loan from director-shareholder

No formal terms agreed

No discounting! S197 Approval Creditor due < 1Yr Can terms be changed retrospectively?

Change at Companies House

Small Business, Enterprise and Employment Act Companies Act 2006 changes

Online

Why file accounts on line?

• Efficiency of

filing with the HMRC accounts

• Simplicity
• Reduced rate of

rejection

Filing

• n

line The issues

• Reduced
• pportunity for

errors

• Help with new UK

GAAP

• Improved credit

rating

Filing

• n

line The issues

• Avoiding penalties

and couriers fees

• Why wouldn’t you

in 2016?

• Will it become

mandatory?

Filing

• n

line The issues

Small Business, Enterprise and Employment Act