Here, we take a look at the ins and outs of what it means to be a micro-entity.
Some companies and LLPs are not allowed to be micro-entities.
- charitable companies;
- investment undertakings;
- financial institutions;
- subsidiaries that are fully consolidated in group accounts; and
- parent companies that prepare group accounts.
Micro-entities have a separate accounting standard in UK GAAP called FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.
What does this mean for me?
Most smaller companies can prepare accounts with reduced requirements compared to larger companies under Section 1A of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. However, an entity that qualifies as “micro” has a further choice and needs to decide whether it prepares these “small” company accounts or opts instead to prepare “micro” company accounts under FRS 105. This decision needs consideration as there are advantages and disadvantages of each approach.
What are the advantages of micro accounts?
Micro-entities can prepare simpler accounts with fewer disclosures than are required for small companies. Only the balance sheet and a few notes are filed at Companies House.
Micro-entities can take advantage of some accounting simplifications such as being able to account for investment properties at cost less impairment, rather than at ‘fair value’ (which is required under FRS 102 for non-micro entities).
What are the downsides?
Micro-entities have fewer choices in accounting policies than are available to “small” companies. For example they cannot chose to adopt a revaluation accounting policy for fixed assets of the same class. The accounts do not contain very much information, so may not be very useful if you want to provide your accounts to stakeholders. “Small” company accounts are much more informative. Generally, micro accounts are not recommended if you want an audit.
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Please get in touch if you would like to discuss the accounting choices for your company or LLP.