Do I need to prepare Group Accounts? Reply

 

If your Group passes 2 out of 3 of the following tests then you are Medium.

Group Table

In the first year you become Medium you are exempt from preparing Group Accounts but if you are Medium 2 years in a row you will need to prepare Group Accounts.

Group

 

steve@bicknells.net

 

 

 

New reporting regime for Micro Companies – is it a crazy idea? 4

A donut store, bakery, fish and chips store and a pet shop

On the 21st February 2012, the European Union defined a new category of company, the ‘micro-entity’. Micro-entities are very small limited liability companies and qualifying partnerships.

Micro companies are those not exceeding two out of three of:
  1. Balance sheet total: £289,415 (€350,000)
  2. Net turnover: £578,830 (€700,000)
  3. Average number of employees during the financial year: 10 (or fewer)
Subject to certain conditions, the Micros Directive permits Member States to relieve micro-entities, from the obligations to:
  •  present “prepayments and accrued income” and “accruals and deferred income”
  •  recognise certain types of “prepayments and accrued income” and “accruals and deferred income”
  •  draw up notes to the accounts
  •  prepare an annual report
  •  publish annual accounts provided the financial data information contained in balance sheet items is filed with a designated competent authority.
The UK Government (Department for Business Innovation and Skills) issued a consultation document ‘Simpler financial reporting for micro-entities: the UK’s proposal to implement the ‘Micros Directive” the consultation period closed on 22nd March 2013.
The Government is seeking to make changes to the Companies Act 2006, and to the accounting regulations made under that Act and under EU law to implement the EU Directive 2012/6/EU of the European Parliament and of the Council (“the Micros Directive”). It would also make comparable changes to the accounting framework for Limited Liability Partnerships.

The ICAEW believes the lack of transparency and dearth of financial data would lead to more rejections of credit to these smaller organisations.

“We have a number of concerns about the suggested changes, as they may result in less transparency and less useful financial information. This, in turn, can over time have a negative impact on market confidence and on micro businesses’ ability to access finance, at least at the margins,” says Dr Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty.

What do you think?
steve@bicknells.net

Related Parties and Conflicts of Interest – Directors Responsibilities 1

integrity conceptual compassThe disclosure requirements for Related Party Transactions in published accounts are a common cause of confusion, on the face of it, its sounds easy but getting it right is often a balance between compliance and relevance. The rules are set out in the Companies Act 2006, FRS8 and for smaller companies FRSSE (April 2008). The rules apply to both Full and Abbreviated Accounts.

  • FRS 8 defines a related party to include an entity’s subsidiaries, associates, joint venture interests, directors and close family members of directors.
  • The standard requires an entity’s transactions with related parties, regardless of whether a price is charged, to be disclosed in that entity’s financial statements.

FRS 8 section 3 and FRSSE section 15.7 states that disclosure of the following is not required:

  1. Pension contributions paid to a pension fund
  2. Emoluments in respect of services as an employee or the reporting entity
  3. Transactions with parties simply because of their role as:
  • Providers of Finance
  • Utility Companies
  • Government Departments
  • Customer, Supplier, Franchiser, Distributor or Agent

The disclosure under FRS8 and FRSSE should include:

(a)   the names of the transacting related parties
(b)   a description of the relationship between the parties
(c)   a description of the transactions
(d)   the amounts involved
(e)   any other elements of the transactions necessary for an understanding of the financial statements
(f)     the amounts due to or from related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date
(g)   amounts written off in the period in respect of debts due to or from related parties.

Dividends to directors do meet the definition of related party transactions and are disclosable as such.

Trival items don’t require disclosure and the principle of materiality should be applied.

An item of information is material to the financial statements if its misstatement or omission might reasonably be expected to
influence the economic decisions of users of those financial statements, including their assessments of management’s stewardship.

The Companies Act 2006 places a statutory duty on directors in relation to potential conflicts of interest:

A director must “avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company”.

Related Party Transactions will often create a potential conflict of interest.

Authorisation may be given by the directors—

(a)where the company is a private company and nothing in the company’s constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or
(b)where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.

The authorisation is effective only if—

(a)any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and
(b)the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

So it is vital that Directors disclose any potential conflict of interest and seek authorisation from the Board of Directors.

steve@bicknells.net