The UK Department for Business, Innovation and Skills (BIS) is to implement the EU Directive 2012/6/EU, also known as Micros Directive, which allows micro-businesses to prepare and publish simplified financial statements.
According to the directive, a company can be considered a micro-entity if it meets two of the three following characteristics: balance sheet total of €316,000 ($417,218); net turnover of €632,000 and an average of ten employees during its fiscal year.
BIS published the result of a consultation that was broadly supportive of the reporting exceptions, although two main concerns were raised by respondents.
First, the impact on the simplified financial reporting on the true and fair value principle; and secondly, the effect on the UK’s accrual accounting framework.
The Institute of Chartered Accountants in England and Wales head of financial reporting faculty Nigel Sleigh-Johnson said each micro-business should consider carefully the practical impacts of the exceptions.
Sleigh-Johnson explained micro-entities should assess if there are risks involved in reducing the financial information they make available to finance providers and other stakeholders.
Sleigh-Johnson added: "We are strong supporters of efforts to tackle excess regulation of UK businesses, but have repeatedly cautioned against presenting requirements on businesses to produce important financial information as simply another aspect of ‘red tape’.
BIS said it will implement the Micros Directive and bring forward regulations for parliamentary consideration, but it will exclude those parts of the directive that could clash with the UK’s accrual accounting framework.
"We were seriously worried that proposals – now dropped – to allow a partial exemption from tried and tested accruals accounting would have had a negative impact on market confidence and potentially hamper micro businesses’ ability to access finance," Sleigh-Johnson said.