Small companies may opt to prepare its financial statements in accordance with FRSSE provided its meet the following two out of three thresholds:
- Its turnover is less than £5.6 million
- Its gross assets is less than £2.8 million and/or
- Its employees is less than 50.
However, there are small companies that meet the above thresholds are NOT eligible to apply FRSSE in its financial statements.
- A Plc company which is considered large company.
- A subsidiary company which its parent company is listed on the stock exchange
- A company regulated by Financial Services Authority
- A company classified as not small in the previous financial year
What are the benefits of applying FRSSE vs FRS?
FRRSE is the simplified version of FRS. A small company prepares its financial statements in accordance with FRSSE are exempted from the requirement:
- To prepare cash flow statement,
- To present a reconciliation of factors affecting the tax charge for the financial year
- To show movement in shareholders' funds in the notes to the financial statements
- other statotury disclosure required under FRS.
FRSSE also imply the time and costs associated with the preparations of the financial statements.
How FRSSE will be beneficial to small owner managed businesses?
Small owner managed businesses are expert in their business operations. They do not rely on the financial statements to make their operational decisions. They considered the preparation of the financial statements are for compliance with Companies House and HM Revenue and Customs requirements.
Small businesses will benefit from disclosing less information in their financial statements which are available to public to download from www.companieshouse.gov.uk with a small fee and pay significant less fees to their accountants/auditors to ensure compliance on their behalf.
Is small company exempted from Audit?
Many people get confused with the small company thresholds and the audit exempt thresholds.
A company is subject to audit if its turnover or its gross assets exceeded the thresholds and at the same time still meet the small company thresholds.
The difference on audited small company financial statements is that of the auditors will express their audit opinion on whether the financial statements give a true and fair view.
Audited financial statements add creditibility to the company when come to borrowings from financial institution, sale of the company, recruiting new investors and so on.