The Financial Reporting Standard for Smaller Entitles (the FRSSE) applies to the vast majority of companies in the UK. For those companies within its scope that choose to adopt it, the FRSSE prescribes the basis for preparing and presenting their financial statements. They are exempt from complying with all other accounting standards (unless they prepare group accounts) and can take advantage of reduced disclosure requirements. The accounts must still be prepared in accordance with UK generally accepted accounting principles and comply with the Companies Act 2006, but they will not contain, amongst other things, a cash flow statement, a segmental analysis of turnover and profit, earnings per share figures, a detailed review of company activities in the directors' report or key performance indicators.
The FRSSE is regularly updated and the latest version was issued in June 2008. This is effective for all companies within its scope that have a financial year beginning on or after 6th April 2008. The FRSSE applies to all small companies (and groups) as defined in the Companies Act 2006, plus other entities that would have been small companies had they been incorporated (with the exception of building societies). It specifically excludes, amongst others, public companies, large or medium sized companies (or groups), insurance companies, banks and companies using international accounting standards.
Companies classified as small must not exceed 2 or more of the following criteria:
- Aggregate turnover - £6,500,000 net or £7,800,000 gross
- Aggregate balance sheet total - £3,260,000 net or £3,900,000 gross
- Aggregate number of employees - 50
The gross figures shown above are only relevant for group accounts. It is the net figures you need to go by for companies that are not part of a group. The balance sheet total refers to fixed and current assets before deduction of liabilities. It does not refer to the net asset total.
These thresholds only apply to financial periods beginning on or after 6th April 2008, so if you are filing accounts for an earlier period they need to fall below lower thresholds; ie turnover of £5,600,000 and a balance sheet total of £2,800,000. For Limited Liability Partnerships the higher thresholds only apply to financial periods beginning on or after 1st October 2008.
The above criteria must be met for 2 consecutive years (apart from companies in their first year). If a company qualifies as small in one year but does not in the next, it may continue to use the FRSSE provided that it is eligible in the following year. If a company ceases to be eligible for the FRSSE, it must qualify as small for 2 consecutive years before it once again becomes eligible.
It should be noted that you are not permitted to adopt the FRSSE and then make disclosures in your accounts that are not required by the FRSSE. Accounts must be prepared in accordance with either the FRSSE or the full range of other accounting standards. You are not allowed to mix and match. For example, a segmental analysis of turnover should not be included in accounts based on the FRSSE. However, there is one voluntary disclosure that is allowed in addition to the FRSSE. Cash flow statements are encouraged but not required by the latest FRSSE so you can include one of these now if you wish. However, there would be little point unless your bank or investors particularly want to see one.