Changes in the way small companies prepare accounts. MIP responses needed

Steve Collings

Hi All

Happy new year!

I have prepared an article which outlines the FRC's proposed amendments to the FRSSE relating to 'micro-entities' following the introduction of SI 2013/3008 The Small Companies (Micro-Entities' Accounts) Regulations 2013. The proposals by the FRC are to significantly reduce the levels of disclosures contained in small company financial statements and this will affect all MIPs and AAT staff who work for micro-entities.

I am going to be drafting the response to FRED 32 on behalf of the AAT and am seeking members' opinions on the proposals. Do you think they are viable? If not, why not? Will you see a reduction in fee income? Do you think the proposals will result in the loss of transparency? Those sorts of things. Please do reply to this thread if you're an MIP because I would like to consider your thoughts when I draft the AAT's response.

A copy of the article can be found here

Many thanks in advance
Steve

JodieR

Hi Steve and happy new year to you!

When do you need responses by? Can it go on the February list?

Steve Collings

Ideally by the end of this month I think but don't worry if you're too busy! I know this month is mad!

All the best
Steve

burg

Is it really going to reduce the workload that much? If I have understood correctly the majority of changes are to do with disclosures in the accounts? The time taken to prepare a set of accounts is mainly in the double entry not the disclosures so therefore if the main aim is to reduce costs to micro entities the reduction will be minimal if any. The majority of clients I act for might not have a clue about the required disclosures but most also don't know how to prepare a set of accounts that would balance so most wouldn't be DIY'ing. Just because the notes aren't there doesn't mean they don't exist? If there's no fixed asset note depreciation has still been calculated and the workings still exist they just aren't in the accounts anymore. I think we will most likely be doing exactly for clients but just having accounts that have less in them and look like we have done less. Ultimately clients won't be that bothered. In some ways this may be similar to the cash basis rules that came in for small sole traders. Many said this would see a reduction in the number of self employed using accountants and know DIYing but I have seen no change. I suspect many who were already DIYing were doing cash basis accounts anyway and those who do appoint accountants either don't want to do their accounts for whatever reason or many simply do not know how. Hopefully my rumblings are useful to you Steve but if not I apologise.

paulstafford

There does appear to be a loss of transparency in the balance sheet. No requirement to disclose the bank balances/ bank loans? Those are the first numbers I look for in a set of accounts.

The profit and loss looks ok.

Having said that, it will still be pretty clear if a company is heading for the rocks.

I imagine this is being introduced to encourage business owners to DIY, so there may be a drop in the number of people using accountants, particularly when the cloud book-keeping systems offer the option to produce statutory accounts and corporation tax returns. Whether HMRC and Companies house have the resources to monitor and query the increased rubbish likely to be heading their way is another matter altogether!

However, I believe the vast majority of clients with this size of business will choose to appoint an accountant because they are worried about messing up their tax or have no interest/time to deal with accounts, rather than any concern over the statutory format of the annual accounts.

Also, lets be honest here ,what proportion of accounts produced for these businesses currently meet all the reporting requirements of the current FRSSE? I believe this relaxation will level the playing field in terms of time costs for those of us worried about getting the disclosures right compared to the cowboys. This is a positive for MIPS and other regulated accountants.

Steve Collings

thank you for your comments. They are very useful.

The general concensus thus far is that fees will not see THAT much of a decrease becaue, as Burg quite rightly points out, the proposals will not affect the amounts reported in the financial statements - the proposals are a significant reduction in the disclousre notes. However, many accountants are asking the question "how will such a low level of disclosure achieve a true and fair view?" I think this is a very valid point and there are accountants who are saying that the T&F isn't really an issue for many companies who do their own accounts anyway because there isn't any policing of the concept. However, as professional accountants, I feel we have a duty to uphold protocol regardless of what others do and whether the T&F is policed, or not, shouldn't we be doing things in accordance with the rules? That aside, there are issues that have been identified such as what happens when there are going concern issues. At present companies do make disclosure about going concern if there are uncertainties, but the proposals might "do away" with such disclosures, so how will that achieve a true and fair view? Also, investment properties will be accounted for at cost - what happens if there is a material difference between carrying value and market value?

These are just some of the issues being "bandied around" as well as whether HMRC will open more enquiries and iXBRL tagging issues.

All the best and thanks for your comments.

Steve