Two Acts of Parliament will lead to changes in the way a company prepares its annual statutory accounts and the subsequent filings it makes at Companies House. The new legislation aims to reduce red tape, increase the quality of information on the public register and enhance transparency. The new obligations placed on businesses should help to boost the economy by making it easier for them to find the valuable information they need and ensure that the UK is seen as a trusted and fair place to do business.
No more abbreviated accounts – From 1 January 2016
For some small companies, the option to file abbreviated accounts provides a useful way of keeping sensitive company information out of the public domain. However, changes introduced within The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 removes this option from 1 January 2016.
A small company currently has some options on which version of their statutory accounts they wish to be put into the public domain. First, they could file their full accounts. Second, they could remove the directors’ report, and/or profit and loss account from the full accounts and file the rest. Third, they could choose to file abbreviated accounts.
The abbreviated accounts option currently permits a small company to prepare full accounts for the members and then file only the highlights at Companies House. These accounts do not require a directors’ report nor profit and loss account, leaving a stripped-back balance sheet and very limited notes.
A lot of small companies still take this third option, and it is this that is being removed.
This means, for example, that whereas current abbreviated accounts disclose limited information on directors’ advances, credit transactions and guarantees; the new rules require that disclosures of certain other related party transactions find their way into the filed accounts as well. There is also more analysis of balance sheet items than seen in an equivalent set of abbreviated accounts.
What about the new abridged accounts option and micro-identities?
Under the new regulations, small companies will have the option of preparing “abridged” accounts for shareholders. This is not the ‘old’ abbreviated accounts filing option – we are talking about the ‘full’ accounts here.
These abridged accounts which include a profit and loss account will have less analysis in them of items like fixed assets, debtors and creditors as these will form the basis for what needs to be filed at Companies House. The preparation of abridged accounts is one way to reduce publicly available information, however, to prepare abridged accounts, approval is required from every shareholder, every year.
Another option for those classed as micro-entities is the preparation of micro-entity accounts. These are rarely seen at the moment, but this may change. This would see companies filing a simplified balance sheet and a couple of limited notes to the accounts. To qualify as a micro-entity, companies will need to satisfy two of the following three criteria:
- Turnover < £632,000
- Balance sheet total < £316,000
- Average employees 10 or less
The option of filing a simplified balance sheet and a couple of limited notes (combined with simplified recognition and measurement requirements when compared to FRS 102) might make these ‘deemed true and fair’ accounts more popular going forward.
Whether you agree with the changes or not (and many won’t); they are happening. This transparency may help smaller companies trade as their access to finance and trading opportunities with businesses not willing to ask (and wait) for full accounts opens up, but it does mean more company information will be publicly visible. Affected companies need to think about the statutory reporting route that best suits their future circumstances. The clock is ticking.
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