The changes to UK financial reporting are partly the result of a new EU Accounting Directive, finalised last year. The UK has until next summer to implement the directive into UK law. However, ICAEW says there are already ‘seismic changes’ to the UK accounting regime underway, with many medium and large private businesses expected to follow the new UK GAAP, FRS 102, from 1 January 2015. 

The institute says it agrees there are some important advantages to bringing small companies also within the scope of FRS 102,  as well as replacing the current accounting standard for small businesses (FRSSE) with a new one developed specifically with micro businesses in mind.   

However, as the revised standards, effective from 1 January 2016, will not be available until half-way through 2015, ICAEW says it is concerned that time is running out for small businesses to plan how they will switch to the new regime.  

Dr Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty, said: ‘The proposed timeframe for transition will be a major challenge for many small businesses. It seems perverse that larger companies moving to the new UK GAAP were given two years to prepare for transition whereas smaller businesses will end up with a quarter of that time.’ 

ICAEW says it is crucial that small businesses are given sufficient support to deal with the accounting changes and that the FRC introduces appropriate transitional rules. 

Sleigh-Johnson said: ‘It is critical that the FRC is very mindful of the challenges facing small businesses and of the need to ensure a smooth and orderly transition. Time is of the essence. Any delay in issuing the revised standard might make the implementation date of 1 January 2016 untenable.’

The FRC is already under fire over its commitment to pushing through plans for a short shelf life FRSSE 2015 accounting framework for small business, which would only be effective for less than 12 months, until the introduction of the EU accounting directive into UK law.

This also formed part of the recent consultation on accounting for small entities, which closed on 30 November.  There have been suggestions that some businesses could face additional compliance costs in implementing the new short-life accounting framework, including one-off training costs, potential software costs and potentially a one-off accounting software upgrade.

An FRC spokesperson said that although FRSSE 2015 would have a ‘short shelf-life’, companies would still have to adopt it unless there are overwhelming objections in the consultation feedback.

In a statement, FRC told Accountancy that ‘for accounting periods beginning on or after 1 January 2015 a small company applying the FRSSE [2008] (effective April 2008) will need to move to the FRSSE [2015] (effective January 2015)’.

The FRC consultation closed on 21 November and it usually takes minimum eight weeks for the accounting regulator to report back on consultation feedback.

Accounting standards for small entities, Implementation of the EU Accounting Directive is here: https://www.frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy/Consultation-Document-Accounting-standards-for-sma-File.pdf