Are you ready for the switch?
The micro entities regime will allow small companies to file accounts following the requirements set out in FRS 105 (Financial Reporting Standard 105) instead of using FRS 102. It avoids the more complicated recognition and measurement requirements of FRS 102. There is much less disclosure, especially regarding related parties, no deferred tax and you only need to send your balance sheet to Companies House.
It is broadly agreed that the application of the micro entities regime will be a positive thing for small companies who are eligible and decide to apply it.
3 points to consider before switching:
1. Investment properties or assets held at valuation
Under current UK accounting standards, you have the option to carry assets at cost or valuation. Under FRS 105, assets can only be held at cost, less depreciation and impairments. All revaluation reserves must be reversed and the accounts for the prior year restated. Note that any reduction in the value of assets to the original cost should be considered when reviewing the size thresholds for applying the regime.
2. Funding commitments
The above reduction in assets may not be an issue if your company has no external funding commitments. However, if your company has overdraft or loan facilities in place and those are secured over the assets of your company, a reduction in value may impact on any loan to value covenants in place.
3. External debt
If your company has external debt, will the bank or lender accept accounts prepared under the micro entities regime? The information provided in a set of micro entity accounts is significantly reduced.
Further information about the micro-entities regime, including disclosure requirements and example accounts may be found in our guide here.