Micro-entities: topical issues
- Publish date: 17 April 2018
- Archived on: 17 April 2019
Sarah Dunn considers some emerging questions on the micro-entities regime
The micro-entities regime, together with FRS 105 The Financial Reporting Standard Applicable to the Micro-entities Regime, allows eligible entities to prepare very simple accounts with only limited disclosures required at the foot of the balance sheet. There are also significant accounting simplifications, for example, no revaluations or subsequent measurement at fair value for assets and liabilities, and no accounting for deferred tax. Unusually, accounts prepared in accordance with the micro-entities regime are presumed by law to give a true and fair view.
Are the accounts too simple?
For some, this regime provides a helpful reporting framework which reflects the smaller size and simpler nature of micro-entities. While this may be case, questions continue to emerge regarding the usefulness of these accounts for users. Indeed, one of the key questions received by the Financial Reporting Faculty is whether current and potential creditors and lenders, or other users such as credit agencies, might require more information than that provided by micro-entity accounts.
While it’s too early to draw conclusions, these are important questions, particularly as anecdotal evidence suggest a growing popularity in the regime. Clearly, the decision to apply the micro-entities regime will depend on the individual circumstances of the reporting entity. However, ICAEW continues to encourage members to consider carefully the various implications before deciding whether or not an entity should take advantage of the micro-entity exemptions.
Further guidance on the micro-entities regime can be found in the faculty’s FRS 105 Update: Micro-entities’ Accounts FAQs.
What information should be filed at Companies House?
Other recurring questions relate to the filing requirements for micro-entities. At first glance, the rules are simple – a micro-entity is required to file the same accounts as those prepared for its members. A micro-entity can also choose to not file the profit and loss account ie, it need only file its balance sheet, including the information disclosed at the foot of the balance sheet, at Companies House. However, the devil is in the detail, and there has been some confusion regarding the statements required in the filed accounts, and also what to do in the case of an audited micro-entity.
For example, if a micro-entity chooses not to file the profit and loss account, the balance sheet must contain a statement that the accounts have been delivered in accordance with the small companies regime (as there is no separate micro-entity filing regime). This statement should not be confused with the separate statement required on the balance sheet to note that the accounts have been prepared in accordance with the provisions available to micro-entities. This statement is required by all entities applying the micro-entities regime and should appear in a prominent position on the balance sheet above the signature.
If a micro-entity has been audited and it chooses not to file its profit and loss account, then it is not required to file the audit report at Companies House. Unlike a company in the small companies regime, the micro-entity is not then required to include a note to the balance sheet regarding the audit. Rather surprisingly, there is therefore no indication in the filed accounts that they were subject to audit. Alternatively, if an audited micro-entity does choose to file its profit and loss account then it is required to file the audit report.
Are the triennial review amendments relevant to micro-entities?
It’s worth noting that the recently revised version of FRS 105 includes some important clarifications as a result of the Triennial Review 2017. For example, FRS 105 has been updated to reflect that a micro-entity is required, by law, to disclose details of off-balance sheet arrangements, average employee numbers and certain details about the micro-entity such as its registered address. As this is an update to reflect an existing legal requirement, these amendments to FRS 105 are effective for accounting periods beginning on or after 1 January 2017. FRS 105 has also been updated to reflect, where appropriate, clarifications made to FRS 102 as part of the triennial review. These changes come into effect for accounting periods beginning on or after 1 January 2019.
The Financial Reporting Faculty will continue to monitor any emerging issues or questions regarding the micro-entities regime, and provide guidance to members.
Sarah Dunn, Technical Manager, Financial Reporting Faculty
Practicewire, April 2018