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Can cooperatives use micro-entity regime?

January 2017: In her latest technical reporting update, Julia Penny asks whether FRS 105 can apply for Cooperative and Community Benefit Societies.

Julia Penny

This month we are going to look at whether Cooperative and Community Benefit Societies can use the micro-entity regime in FRS 105 and contrast this with the requirements for Community Interest Companies (CICs).

Cooperative and Community Benefit Societies Act 2014

These entities, which mostly replaced the old Industrial and Provident and Friendly Societies, are required to prepare accounts and in some cases to have an audit. Can they use the FRS 105 micro-entity regime, though? The answer is no; the legislation for micro entities specifically applies only to companies, LLPs or unincorporated entities.

Community Interest Companies (CICs)

CICs are companies and not charities. This might seem a touch pedantic but it is a vital point as charities may not use FRS 105. 

CICs comply with the normal accounting, disclosure and filing rules for companies, but are required to provide extra information about certain areas. This includes a community interest report, which “offers a level of openness and transparency not offered by ordinary companies” according to the CIC’s Regulator guidance.

There is a simplified report or a detailed report, with most CICs using the simplified report. Certain information may also be required to be disclosed in the accounts of a CIC by the Regulator.

So, can a CIC prepare micro-entity accounts? The answer is not necessarily that straightforward. It appears there is nothing to specifically prohibit this, although the extra information described above would still need to be included.

This suggests that while it is theoretically possible to prepare FRS 105 accounts for a CIC it is unlikely to be a good option. It will not be possible to just stick to the FRS 105 requirements and, given the community’s interest in such an entity, it is highly unlikely that such accounts will contain adequate information for the stakeholders.

The best option for such small and micro CICs would be to look at FRS 102 and the requirements for presentation and disclosure in Section 1A, supplementing where necessary with extra information required, either to give a true and fair view, or because the regulator demands it.

Julia Penny is Divisional Director (Technical) at SWAT UK, an ICAEW Council member and Chair of the ICAEW Technical Advisory Committee. For regular technical updates follow Julia Penny @JSPenny

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