The government is consulting on implementation of a range of provisions in the EU Accounting Directive which could result in simpler accounting requirements for smaller companies.
The consultation, entitled 'UK Implementation of the EU Accounting Directive: Chapters 1-9', outlines a number of new mandatory EU requirements and sets out the government's proposals where new options are available under the Directive.
The Directive sets out mandatory thresholds for determining size for micro-entity, small, medium-sized and large companies. These are based on balance sheet total, turnover and average number of employees. The government intends to raise the current UK thresholds to bring them in line with the new mandatory EU requirements which the Directive will impose.
The government estimates that the mandatory threshold increase for small companies would mean approximately 1,000 medium sized companies will be re-categorised as small. However, as part of its ongoing commitment to reduce unnecessary administrative burdens on small business, it is also considering whether to invoke an option in the Directive to increase the threshold further for small companies. This will, it says, allow approximately 11,000 additional companies to access the lighter touch financial reporting framework available under the small company accounting regime.
It is not intended at this stage that the increase in the small company threshold should apply for the purpose of exemption from audit. This will therefore result in two thresholds - one for the purposes of the small companies' regime for accounting purposes (which determines, for example, the level of information to be presented in accounts) and one for the small companies' audit exemption (which determines whether a company is required to have its accounts audited). The government has said it will consider raising the audit exemption threshold in due course.
Amongst other proposals, the government is also consulting on whether:
- to retain the full requirement for disclosure notes to the accounts for small companies. The Directive offers member states an option to reduce the number of mandatory notes from 13 to 8, but the government believes that the 5 optional notes are not unduly burdensome on small companies. It is therefore proposing that the full 13 disclosure notes should be retained
- to allow small companies, if they wish, to prepare and circulate abbreviated accounts to their shareholders. Currently, whilst small companies are permitted to publish abbreviated accounts, they must prepare and circulate a full set of accounts to shareholders. The government believes that, having regard to the size and nature of their business, directors and shareholders together should have the choice about the level of detail to be included in the accounts
- to remove the requirement for micro-entities to prepare a directors' report
- to allow public companies to participate in the small and medium sized accounting regime if their shares are not traded on a regulated market
- to provide greater flexibility in the layouts of profit and loss accounts and balance sheets
- to require companies to set out their subsidiary information through their accounts, rather than in annual returns
The consultation closes on 24 October 2014 and the government aims to issue its response within 12 weeks of that date. It is expected that implementing regulations will be introduced in early 2015, with the changes first applying to financial years beginning on or after 1 January 2016.