The aim was to create a simplified reporting regime for smaller entities where it was more appropriate. The revised version of FRS 102 published in September 2015 provided for the reduced small entity options within the standard to be applicable for accounting periods beginning on or after 1st of January 2016. Early application of the Small Entity Provisions is permitted for accounting periods beginning on or after 1 January 2015 provided that “The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980)” are applied from the same date. Small entities are small entities as defined by company law. The statutory instrument referred to above is a UK statutory instrument and the Irish equivalent has not yet been drafted or enacted.
UK accountants can avail of the simplified provisions for small entities on their initial implementation of FRS 102 straight away for periods commencing on or after 1st of January 2015, which is the earliest compulsory period for FRS 102 Implementation. However due to delays in enacting the equivalent legislation, which will be, encompassed in the Companies (Accounting) Act 2016 Irish accountants can not avail of the FRS 102 Small Entity Provisions on transition. This is already causing confusion not to talk of the additional costs that will inevitably be incurred by Irish Accountants.
A further issue is the fact that Irish accountants do not have the option to implement FRS 105 for their Micro Companies until such time as the Companies (Accounting) Act 2016 Companies (Accounting) Act 2016 is enacted.
In July 2015 FRS 105 was published by the FRC. This is the Financial Reporting Standard applicable to the Micro Entities Regime. Micro entities are defined in the Directive 2013/34/EU of the European Parliament as entities meeting 2 out of 3 of the following criteria:
- Balance Sheet Total – €350,000
- Turnover – €700,000
- Employees – 10
FRS 105 is a beautifully simple, size appropriate financial reporting standard for smaller entities that do not need complicated financial statements or accounting policies and disclosures. If given the choice large numbers of Irish Accountants would opt to transition their companies with periods commencing after the 1st of January 2015 to FRS 105 rather than the more complicated FRS 102. Irish accountants do not have the same choice as their UK counterparts because we have not passed the relevant legislation.
In December 2015 we surveyed a cross section of Irish Accountants to try and quantify the impact of the failure of the Irish Government to pass the required legislation on a timely basis.
When we asked accountants how familiar they were with FRS 105 43% stated they were not familiar with the financial reporting options for Micro Entities. We then went on to ask them how familiar they were with the small entity provisions as contained in the September 2015 version of FRS 102 and a whopping 45% of them stated they were not familiar with the options. This was both a significant surprise and a cause for concern. The new FRS 105 and the revisions to FRS 102 are of huge practical benefit to accountants yet it does not appear as if the new options have been promoted and communicated to accountants to the extent that there is appropriate awareness. Why have the new simplified options not been comprehensively promoted to the entire profession?
Based on the responses to our survey 87% of accountants stated that in excess of 75% of their client base would meet the definition of small companies based on the Small Company size criteria set out within the Companies Act 2014 (2 out of 3 Criteria – Turnover less than €8.8m; Balance Sheet Total less than €4.4m; less than 50 EE). This means that the vast majority of Irish Companies could avail of the small entity provisions within FRS 102 if the appropriate legislation had been enacted on a timely basis.
Everyone knows that Ireland is a country made of small SMEs but based on our survey not only are they small entities we are a country of micro entities. 45% of respondents to our survey stated that between 50% and 75% of their clients met the EU Micro Entity size criteria of (2 out of 3 Criteria – Turnover less than €700k, Balance Sheet less than €350k and less than 10 EE) with a further 30% stating that in excess of 75% of their company clients would meet the definition of Micro Entities. Given the simplicity and clarity of FRS 105 it is envisaged than many accountants would choose to recommend that their clients opt directly into the Micro entity regime through FRS 105 rather than into the more complex FRS 102 for all periods commencing after 1st of January 2015 if they could. Until such time as the required legislation is enacted Irish Accountants do not have that choice.
Based on the latest available official CRO report (the year ended 31st of December) there are in excess of 192,000 companies on the Register in Ireland. Based on EU statistics in excess of 90% of those companies meet the definition of small. On average our survey respondents estimated that doing a statement of cashflows as required under FRS 102 would add 2 hours to the process of producing financial statements. The average charge out rate across the respondents was €83 per hour. This means that if the required legislation is not enacted and all Irish Companies must prepare a statement of cashflows on the basis that the September 2015 version of FRS 102 cannot be applied that the additional cost for cashflow statements alone will exceed €28.5m.
Many small Irish entities are not likely to pay for the additional time incurred by their accountant implementing the new financial reporting regime and facilitating the transition. The combined cost to the accountancy profession for the failure to enact the required legislation to facilitate the application of the small entity provisions of FRS 102 and FRS 105 for all periods from 1st of January 2015 is huge. The Irish Government regularly talks about reducing unnecessary red tape. This was an ideal opportunity to do it in a very simple way that would not cost anything other than forethought and efficiency.
The Government still can redeem this situation by enacting the legislation as soon as possible, but without a Bill on the table and an election looming that is unlikely to happen in the short term. The accountancy profession needs to lobby and have their voice heard to get these changes through or yet again the accountants will carry the cost.