Micro entities- what FRS 105 offersFinancial ReportingAccounting & Financial ReportingArticle
The smallest entities are in a lucky position in terms of financial reporting, because they are heavily protected by EU regulation. This severely limits the work that micros can be required to do in their accounts, and has been carried through in the UK both in company law and in the introduction of the new FRS 105 The financial reporting standard applicable to the micro entities regime.
The micros standard is broadly based on FRS 102, the main new UK GAAP standard, following its structure and section numbering. But it pares the accounting and disclosure requirements down to the bone.
The most significant accounting feature is that there are no accounting policy options – for any given area, there is one prescribed way of accounting. This enhances comparability between micro entities, and should in general create easier accounting since the simpler option is always the one selected (e.g. expensing development costs rather than allowing an option to capitalise). There is no option to revalue any asset or liability – so tangible and intangible fixed assets are held at depreciated cost, as are any financial instruments. This cuts out the challenging financial instruments accounting in FRS 102, but also limits options and effectively removes the category of investment properties.
In terms of presentation and disclosure, a micro entity needs to present only a balance sheet (though its income statement would need to have been prepared in order to generate this balance sheet!) with minimal notes, included on the face of the balance sheet. Some of the company law accounts format line items are omitted, and no additional notes are needed beyond those specified on the face.
In all, a set of micro accounts will be expected to be very short, but wading through the standard to prepare them in the first year could still be a moderately arduous task.
For more information about micro-entities anf FRS105, CCH has written "CCH Preparing FRS 105 Accounts for Micro-entities" - find out more here