The Financial Reporting Council (FRC) withdrew the Financial Reporting Standard for Smaller Entities (FRSSE) at the start of 2016, meaning that SMEs will now be expected to follow generally accepted accounting principles (GAAP) reporting. What does the new accounting regime mean for SMEs?
The new system
The overhaul in financial reporting is intended to bring the UK into line with EU accounting rules. Larger private companies were brought within the scope of Financial Reporting Standard (FRS) 102 in 2015, and smaller enterprises will now follow suit for accounting periods beginning on or after 1st January 2016.
Aside from the new Section 1A Small Entities – which sets out simplified disclosure and presentation requirements for SMEs – small companies will find that FRS 102 now applies to them in full. There is also a new standard for micro-entities in the form of FRS 105, which represents a simplified FRS 102 for those companies that are eligible and choose to apply.
Melanie McLaren, Executive Director of Codes and Standards for FRC, stated that GAAP reporting would benefit SMEs by simplifying accounting requirements. Danielle Stewart, Head of Financial Reporting at business advisory firm Baker Tilly, also welcomed the new regime, pointing out that it would release SMEs from the most complex aspects of the FRSSE. On the other hand, the Institute of Chartered Accountants in England and Wales (ICAEW) have warned that over-simplifying accounts could make it harder for small companies to obtain credit.
Implications for SMEs
Even if the system ultimately simplifies financial reporting for SMEs, SWAT UK Divisional Director Julia Penny points out that a new accounting system will take time to get used to, and there is the potential for pitfalls at the outset.
Moving forward, SMEs will need to get to grips with the new financial reporting rules, and in some cases will have to apply them retrospectively. The transition could require significant changes to accounting policies, making it more vital than ever that small businesses have a reliable cash flow. Ethical Enforcement Agents can help small businesses prepare for the new accounting requirements by ensuring any arrears are collected in a fair, transparent and timely manner.
If you own a small business, contact Dukes today to maximise your current assets.