By Michelle Quince, Senior accountant at Hive Business

Part of the service that we provide for most of our clients involves the preparation of formal statutory accounts. And, as members of the Institute of Chartered Accountants in England and Wales, we are obliged to prepare those accounts in accordance with current accounting standards – these are set of rules that ensure all accountants deal with financial transactions in a consistent way.

These accounting standards have recently had a massive overhaul, and it’s the biggest change to UK financial reporting in over 40 years! All the old ones are being replaced by a single new standard, known as FRS 102, which comes into effect for accounting periods starting on or after 1st January 2016 – so those of you with 31st March year-ends may notice some changes to your accounts this year.

Fundamentally your company accounts will not change. They will still show the income you have earned, the expenses that have been paid, your annual profit and tax liabilities alongside the assets and liabilities of your company.

What this new accounting standard does is provide a one-stop-shop for every possible accounting transaction that an accountant may come across. A lot of these different transactions are unlikely to appear in a set of small limited company accounts, but there are some technical changes and some changes to the way your accounts look that you might like to be aware of – for example:

• As we are moving from one set of accounting standards to something completely new, we are in a period of transition and therefore we will also have to restate the figures for your previous accounting period to ensure we are comparing like-for-like;
• You may notice some terminology changes – for example, the “Profit and Loss Account” has been renamed the “Income Statement”;
• Goodwill is now assumed to have useful economic life of just five years unless a reliable estimate of its life can be made. This may mean that any goodwill you hold is written off over a shorter period of time leading to a larger expense in your accounts;
• FRS 102 requires that all employment benefits are considered and accounted for. An example of such a benefit is holiday pay, where an employee has been allowed to accumulate holiday and carry it forward from one year to the next. The result of the adjustment may mean a further reduction in profits, and will explain why we’re asking a lot more questions in respect of employee holiday allowances this year;
• If your company holds properties, we now need to make a provision in the accounts for the tax due on any property revaluation. This is simply an accounting entry as the tax would only fall due once the property is sold;
• Each year we prepare a set of full accounts for the Directors / Shareholders and a set of abbreviated accounts which are filed with Companies House providing limited information. Under FRS 102, this system will continue however the accounts that are filed with Companies House are now known as “Abridged accounts” and will contain more information – specifically the balance sheet and all of the relevant notes (the income statement does not need to be included). This will mean that slightly more information will be available in the public domain (e.g. a breakdown of your debtors, creditors and share capital).

As mentioned before, we don’t expect these changes to materially affect the way your accounts are prepared or how they look but if you have questions about your individual circumstances please do get in touch with us on 01872 300232 or email us at hello@hivebusiness.co.uk.