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New Year New Accounting

18 January 2017

The world of accounting for most small companies has changed forever from 31 December 2016  - the first financial year end date to which the new accounting standards and other changes to Company law apply.

So what is a small company?  Well the definition changed from 1 January 2016 and is now a company that has:

  • turnover of up to £10.2m (previously £6.5m)
  • balance sheet total of up to £5.1m (previously £3.26m)
  • 50 or fewer employees

And what are these new accounting standards? Well the previous accounting rules (UK Generally Accepted Accounting Practice), upon which small company accounts have been prepared for many years, have now been replaced with those based on the EU Accounting Directive (too late to change this now post Brexit!). 

So what do these changes mean?

The key areas impacted by FRS 102 include but are not limited to:

  • Investment properties; valuations and accounting, with the revaluation now being recognised in the profit and loss account, the definition has also changed for properties in use by related parties.
  • Fixed assets; residual values and depreciation charges are to be considered annually. The value of other property used as part of the business requires to be considered.
  • Goodwill and Intangibles; are to be amortised over the life of the assets, and this cannot be more than 10 years for goodwill and other intangibles unless a longer reliable estimate of their lives can be made. There have also been changes to the definition of intangible assets therefore goodwill can now be separated into various components on first accounting for it.
  • Financial instruments; amounts per the accounts are to be separated into ‘basic’ and ‘other’ financial instruments.
  • Foreign currency; all transactions are now to be translated at the exchange rate at the date of the transaction rather than using forward contract rates. Other items carried at fair value are to be retranslated at the closing rate.
  • Financial transactions; require to be accounted for.  They occur if a payment is deferred beyond normal terms or financed at a below market rate of interest.  This can include loans with related parties such as directors.
  • Operating leases; changes to disclosure requirements.
  • Holiday pay accruals; these now explicitly require to be accounted for.
  • Share based payments.
  • Defined benefit pension schemes.
  • Distributable reserves; will be impacted by the requirement to account for deferred tax on an increased number of items including revalued properties. Unrealised property revaluations are not distributable.
  • Deferred tax is to be accounted for on a greater number of items.
  • The current year’s corporation tax charge will be based on the accounts prepared on the new basis of accounting and may be impacted by any transitional adjustments.
  • There are also specific changes for farm accounting, including stock valuations and income recognition.

As you will note, some of these changes are far reaching, with the result that the going concern of an entity may be impacted when the new accounting standards are adopted.  Any bank, loan or other covenant agreements should be reviewed on a timely basis in light of the new accounting standards to ensure no breaches arise.

The changes to the Companies Act also remove the option for small companies to file Abbreviated Accounts at Companies House. New options to prepare and file Abridged and Filleted accounts have been introduced.

(There are other options for small companies via the reporting for Micro Entities but we’ll leave that for another article!)

So, lots of new reporting challenges for small companies to face in this New Year.  However, as FRS 102 was introduced last year for medium sized companies and groups,  Springfords have plenty of experience in this area and we look forward to helping more clients fulfil their statutory compliance requirements in the year ahead.

If you have any queries in relation to this article then please contact Findlay Paul at

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