Faced with continuous change in accounting and auditing standards and guidance, it can be hard for practitioners to remember and make time to explain these to clients.
Taking extracts from our Audit and Accounting Update 2012 course notes, we have prepared a series of tips to assist you when 'Talking to your clients' to provide proactive, responsible and timely advice thereby saving you time.
Micro-entities and tiny accounts
On 21 February 2012 the European Council formally approved limited accounting exemptions for 'micro-entities' which meet two of the following criteria:
- no more than €700k turnover;- no more than €350k balance sheet total; and- no more than 10 employees.
Micro-entities would only need to prepare an abridged balance sheet and profit and loss account (and need not file the latter). Accruals accounting will still be required (unlike the BIS proposals in 2011) except that no accounting will be required for prepayments, accrued income, accruals or deferred income providing these do not relate to cost of raw materials or other consumables, value adjustments, staff costs or tax. For example goods purchased on credit or salaries owing will still need to be accounted for.
Despite their small size, the Accounting Directive regards such accounts as 'true and fair'. This may mean that HMRC will consider such a set of accounts for the basis of a tax computation, despite the lack of some accruals and prepayments.
Although the Directive is still some way from coming into UK law, the UK government may well act to introduce the micro-entity proposals before the rest of the Directive is complete. This is likely to mean that the FRSSE is withdrawn and revised to include micro-entity accounting. This will impact not only your smallest company clients but possibly the tax computations of unincorporated micro-entities too.