Since the implementation of the new Companies Act, 2014 on 1 June 2015, the financial statements of regulated insurance intermediaries and investment brokers will no longer qualify for certain exemptions.
Those affected are those carrying on business under the Insurance Act, 1989 or otherwise authorised by the Central Bank. The full list of entities affected is on the 5th Schedule of the Companies Act, 2014
This applies to financial statements approved by the directors on/after 1 June 2015 and means they:
1. Are not allowed to qualify for the ‘small’ or ‘medium’ thresholds as defined in company law;
2. Cannot abridge their financial statements. They must file full accounts with the CRO;
3. Cannot avail of audit exemption;
4. Cannot avail of the FRSSE (the Financial Reporting Standard for Smaller Entities (January 2015);
5. Must apply FRS 102 in full with effect from financial years commencing on/after 1 January 2015 (including a compulsory cash flow statement);
6. Must disclose auditor remuneration in the four categories required by section 322 of the Companies Act, 2014 (along with comparatives);
7. Cannot use FRS 105, the proposed micro-entities standard, when it is endorsed in Irish company law (expected to be signed off later this year);
8. Will not be allowed adopt section 1A of FRS 102 even after it has been endorsed in Irish company law (expected to be signed off later this year for certain other entities).
9. Will not be allowed use the PASE (Provisions Available for Smaller Entities) as the entity is deemed to be large.
To hear more about financial reporting developments in FRS 102 and in FRS 102 for Charities (and other Not for Profit Entities) including the Charities SORP please come to our upcoming training days in Dublin and Cork. See our CPD courses page for the latest news.
More on Parts of FRS 102 That Are Not Yet Applicable in the RoI
Following on last week’s blog piece about Section 1A Small Entities FRS 102, which as you know, does not yet apply in the Republic of Ireland (RoI). There was an error in the blog which stated that charities that were formed as companies limited by guarantee were precluded from using the FRSSE (Financial Reporting Standard for Smaller Entities). However, with the enactment of the Companies Act 2014, companies limited by guarantee may qualify as ‘small’ and may therefore use the FRSSE. Apologies for any confusion.
Meanwhile we would like to draw your attention to another matter in FRS 102. There are now twenty exemptions (where there were previously 18) in Section 35, which many companies will be trawling through, as they transition to FRS 102 for the first time.
Two additional exemptions in Section 35, namely 35.10 (u) ‘Small entities – fair value measurement of ﬁnancial instruments’ and 35.10 (v) ‘Small entities – ﬁnancing transactions involving related parties’ . These exemptions were included in the September 2015 version of FRS 102, specifically for ‘small’ entities.
The exemptions give some relief from the amortised cost rule on, for example, directors’ loans, but companies in the Republic of Ireland cannot avail of them just yet, because the relevant company legislation underpinning these rules has not been enacted. Hopefully this will follow soon after the forthcoming election.
The mechanics of these exemptions is that they relate to comparative information only. Companies will have to account for the transactions in accordance with FRS 102 for the first reporting period that they are allowed adopt FRS 102 and make an adjustment to opening reserves at the beginning of the first reporting period (as opposed to the date of transition).
For more on FRS 102 see the following:
1. Updated Transition Checklist (February 2016 version), for more information please click here.
To assist you with the transition work – retails for €100+VAT and accompanied by free:
2. FRS 102 Training Course
To learn the latest developments in accounting and the related company law, come along to our FRS 102 Accounting Update on Tuesday 1 March 2016 at the Camden Court Hotel, Dublin 2. Places are limited and are filling steadily.
For booking details please click here.
3. FRS 102 Transition Service
Please ask us about our bespoke FRS 102 Transition Service where we will examine client accounts before/after transition and give you a tailored report explaining the issues arising and whether the transition has been successful or not. To enquire just send an e-mail to email@example.com
Our next blog on Investment Properties and FRS 102 will follow next week.
Section 1A of FRS 102 Not Applicable – Suggested Solution
The unwary reader of the latest version of FRS 102 could be forgiven for not realising that Section 1A Small Entities inserted into FRS 102 in September 2015 to accommodate some exemptions for certain qualifying ‘small’ entities, does not yet apply in the Republic of Ireland (RoI). This is because the necessary amendment to Irish company law has not yet been published nor enacted. We understand the necessary law is in draft but may now be delayed by the forthcoming election.
Three other developments are also delayed because they depend on the same legislation in the RoI:
1. Paragraph 19.23 of FRS 102 regarding the useful life of goodwill was updated in September 2015. This allowed that ‘if in exceptional circumstances, an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall not exceed 10 years.’ This change was made in the UK following their implementation of the EU Accounting Directive. However, the equivalent change has not taken place in the RoI for the same reasons mentioned above. Therefore, the previous version of paragraph 19.23 still applies for the time being in RoI. That stated that the maximum life of goodwill, in the absence of a reliable estimate, shall not exceed 5 years.
2. FRS 105 the Micro-entities Regime, does not yet apply in the Republic of Ireland. It is expected that this legislation, when enacted, will exempt certain private companies (within certain criteria) from the requirement to disclose directors’ remuneration. They may also show all below market interest rate inter-company and directors’ loans at cost instead of amortised cost under FRS 102. The relevant criteria are that turnover must be less than €700,000, Balance Sheet Gross Assets less than €350,000 and less than 10 employees, provided two out of three of the criteria are satisfied for two consecutive years.
3. Appendix VI of FRS 102 which, in previous editions of the standard, listed the relevant RoI company law references, was not included in the September 2015 FRS 102 as the FRC state they will update the legislative references once the EU Accounting Directive is implemented.
To comply with EU Directives, the company legislation is required to be effective for accounting periods beginning on or after 1 January 2016. It is not yet clear whether the legislation or its commencement provisions will allow for application to earlier accounting periods such as those beginning on/after 1 January 2015.
In the meantime, for client companies that qualify (i.e. not regulated insurance intermediaries) the 2015 version of the FRSSE (Financial Reporting Standard for Smaller Entities) is available for periods commencing on/after 1 January 2015 for one year only.
This standard is useful as it:
- Allows for an exemption from the cash flow statement, which FRS 102 does not currently do, unless the company qualifies under FRS 101;
- Allows for below market interest rate inter-company and directors’ loans to be stated at cost;
- Largely retains the old Irish GAAP accounting rules for one last year;
- Avoids the need to transition to FRS 102 for the time being.
FRSSE and Companies Limited by Guarantee
A query came in from a client recently about the application of the FRSSE to charities for 2015. It’s worth repeating here, as general knowledge about the application of the FRSSE. Here is the query ‘I read somewhere that charities in Ireland cannot apply FRSSE and must go to FRS 102 for periods beginning on or after 1st January 2015, because they are classed as public companies, is this correct?’
The Financial Reporting Standard for Small Entities 2015 was published in July 2013. It applies for one year only to financial statements of ‘small’ entities (as defined in company law) for accounting periods commencing on/after 1 January 2015.
In order to understand how to apply any standard, it is always a good idea to read the Scope section. The Scope Section is in Part 1.1 and footnote number 9 explains that companies entitled to the small company criteria can use the FRSSE.
I don’t know the date article of the you are referring to, but since 1 June 2015 (under the CA 2014), companies limited by guarantee (including many charities) may now avail of the ‘small’/’medium’ thresholds and file abridged accounts, among other things. See more below. The way in which the CA 2014 was brought into law was unprecedented, as it was based on the date the accounts are approved by the Directors.
Let’s take two companies ‘A’ and ‘B’, both limited by guarantee, with a 31 December 2014 period end. Company ‘A’’s financial statements are approved on 21 May 2015 (i.e. under the Companies Acts 1963 to 2013), while Company ‘B’’s financial statements are approved on 21 June 2015 (under the Companies Act, 2014).
The effect of these approval dates are that Company ‘A’ cannot avail of:
• Audit exemption
• Exemption from the presentation of the Cash flow statement under FRS 1
• Abridged financial statements
• The FRSSE as it is not deemed to be a ‘small’ entity, but the equivalent of a ‘public’ company as the financial statements were approved before the enactment of the Companies Act, 2014.
Company ‘B’ however can avail of:
• Audit exemption, unless it is a charity with income in excess of €100,000 when the Charities Act, 2009 requires it to have an audit
• Exemption from the presentation of the Cash flow statement as it is a ‘small’ entity
• Abridged financial statements
• The FRSSE as it is now deemed to be a ‘small’ entity, unless it is a financially regulated entity i.e. an insurance broker (as well as certain other companies included in Sections 8 and 9 of the FRSSE 2015) as the financial statements were approved on/after the date of enactment of the Companies Act, 2014.
Why make two moves, when one will do?
Some reaction to our last blog piece – “Will FRS 102 have an impact on my clients given their small size?” Well the answer is Yes. For some reason the demise of the FRSSE has attracted very little attention in Ireland – perhaps it’s because there has been very little uptake of FRSSE in the Republic of Ireland in the past, mainly because of our historically low ‘small’ and ‘medium’ company size thresholds.
Many accountants were hoping it was safe to move their ‘small’’ companies onto this standard in January 2015 but they will not do so now if they have to move again soon afterwards to FRS 102 or FRS 102 Lite. Why make two moves, when one will do?
The demise of the FRSSE was announced by the Financial Reporting Council standard setter in their June 2014 newsletter ‘Setting the Standard’. This will mean that FRS 102 is soon to be the accounting standard for almost all private companies, possibly with the exception of micro companies, that satisfy certain criteria.
The newsletter provides an update on the FRC’s plans for the future of the FRSSE in the light of the significant changes to the small companies regime that are expected to take place when the new EU Accounting Directive is implemented – expected to be by the Summer of 2015.
The FRC has concluded that retaining the FRSSE in its current form is not a realistic option. Their latest thinking is that:
- the FRSSE will be withdrawn;
- small entities will be brought within the scope of FRS 102 with reduced disclosures; and (some call this FRS 102 ‘Lite’)
- there will be a separate standalone standard for micro-entities – to be known as the Financial Reporting Standard for Micro-entities or FRSME – which will be based on a micro-entities regime (already introduced in the UK and due to be introduced in the Republic of Ireland some-time soon) and may include additional recognition and measurement simplifications appropriate to the very smallest entities.
The FRC expect to issue a high-level consultation on these proposals this summer. After considering the feedback to the consultation document, the FRC will issue an exposure draft setting out its proposals in more detail. These, more detailed, proposals are expected towards the end of 2014.
So its hello FRS 102 and farewell FRSSE.