New Financial Reporting Standards

For accounting periods starting on or after 1 January 2016, which will mainly affect companies with year ends on or after 31 December 2016, all companies will need to follow a different financial reporting format from previously.

Companies satisfying the micro-entity thresholds can choose between FRS105 and FRS102. To be classed as a micro entity and qualify for FRS105, companies must satisfy two of the three size criteria, being:

# turnover < £632K

# balance sheet < £316K

# employees < 10

The main differences between FRS102 and FRS105 are:


# all properties valued at cost less depreciation

# no revaluation of properties necessary

# no deferred tax

# goodwill amotisation period restricted to a maximum of 10 years

# only submit a balance sheet and two notes to companies house

# no related party transaction disclosures


# trading properties valued at either cost less depreciation or fair value

# investments properties valued at fair value

# deferred tax to be accounted for

# goodwill should be amortised over it’s useful economic life

# regular valuations required where fixed assets are held in the balance sheet at fair value

FRS105 has much reduced disclosure requirements and could be preferable to companies not wishing to file much ifnromation with COmpaines House. However, since there is very little information in the FRS105 accounts, the word on the street is that preparing these account could have an adverse effect on your credit rating so you need to think carefully before you decide.

All other companies must use FR102. Small companies satisfying two of the following three criteria can apply section 1A and so reduce the disclosure in their financial statements.

# turnover <£10.2m

# balance sheet total <£5.1m

# Employees <50

With owners, directors and subsidiaries must be disclosed in aggregate.

In the main, the new accounting standards will not change how the balances in your financial statements are calculated but there are some changes which could affect your accounts. These are:

# every company needs to calculate a holiday pay accrual at the year end and account for it, if it is a significant balance;

# long term loans can only be disclosed as such if a loan agreement exists, otherwise loan balances need to be treated as payable on demand and included in creditors due within 1 year. Where an agreement is in place but the loan is not on commercial terms i.e. interest free, a present value calculation must be applied to the balance;

# properties previously classed as land and buildings may have to be reclassified as investment properties, which need to be valued at fair value. This will mean the directors will need to obtain regular independent valuations of the properties; and

# changes in the value of properties will now go through the profit and loss account rather than through reserves.

What do you need to do now?

For companies that will be using FRS102, it would be worthwhile looking at the holiday pay accrual. This needs to be calculated at your year end and also the previous two year ends. Alternatively, we can help you with this when we prepare your accounts.

Also, companies with properties need to consider whether they will need an independent valuation around the year end for use in their next set of accounts. It should be noted that there is a transitional option to recognise the value of trading properties at market value in your first set of accounts without the need to revalue each year after. This is called the “deemed cost”. This may be beneficial as a one off balance sheet value boost. Again, if you would like to do this, you will need to obtain a valuation but it will need to reflect the value at the start of the comparative year i.e. two years before your year end date.

If you would like to discuss the new accounting standards and the impact they may have on your business further, please don’t hesitate to give us a call.

Detailed information on the new standards can be found on the Financial Reporting Council website.