UK government to increase company size thresholds
The UK government is in the final stages of preparing regulations to bring about significant increases to the company size thresholds in the Companies Act 2006. These will also impact the audit exemption threshold as this is directly linked to the definition of a small company.

The Companies (Non-financial Reporting) (Amendment) Regulations 2024 are likely to be laid before the UK Parliament this summer, with the threshold changes expected to take effect for accounting periods beginning on or after 1 October 2024.

Rationale for the changes
The government believes that increasing the monetary thresholds that determine company size, to take account of past and anticipated future inflation, will reduce disproportionate regulatory burdens on “smaller” companies. There are no planned changes to the employee-number criterion in each category.

The thresholds were last updated for accounting periods beginning on or after 1 January 2016, following revisions to the EU Accounting Directive.

The new thresholds
The proposed new company and group size thresholds are as follows:

Proposed group size thresholds calculated on a gross basis are also due to be increased.

Audit exemption
The small company audit exemption threshold in section 477 of the Companies Act 2006 is directly referenced to the small company definition in section 382 of the Act. The audit exemption threshold will therefore rise accordingly, as set out above.

Call to action
Companies will need to consider the potential impact on their reporting and audit requirements. In turn, accountancy advisers may wish to consider the impact on their client portfolios, bearing in mind that these proposals could be subject to change.

FRC publishes periodic review amendments
The Financial Reporting Council (FRC) has issued improvements to financial reporting standards applicable in the UK and Republic of Ireland.

The standards being revised are:
· Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”
· FRS 105 “The Financial Reporting Standard applicable to the micro‑entities regime”
The changes follow extensive stakeholder engagement and consultation on the proposals, with the FRC required to undertake a periodic review of FRS 102 every five years.

Main areas of change
The most significant changes apply to revenue recognition and accounting for leases, to align both FRS 102 and FRS 105 with recent changes to international financial reporting standard IFRS 15 “Revenue from contracts with customers” and to align FRS 102 with recent changes to IFRS 16 “Leases”.

In response to feedback from respondents, including ICAS, to its earlier consultation, the FRC has made improvements to the proposals for lease accounting and revised the recognition exemption for leases of low-value assets to clarify that the focus is to ensure that the most significant leases are recognised on balance sheets.

The FRC has also made a number of improvements and clarifications designed to make it easier for preparers to apply and understand the standards.

Scope for further future alignment with IFRS
As previously suggested by the FRC, these periodic review amendments don’t introduce an expected credit loss model of financial asset impairment (as found in IFRS 9 “Financial Instruments”) or align with any aspects of IFRS 17 “Insurance Contracts”. The FRC intends that any alignment with IFRS 17, or further alignment with IFRS 9, will be part of a future project and subject to consultation.

Effective date
The amendments to the standards will in most cases be effective for accounting periods beginning on or after 1 January 2026. However, the effective date for new disclosures about supplier finance arrangements relating to the statement of cashflows is accounting periods beginning on or after 1 January 2025. Early application is permitted in both cases.

Further resources
During 2024, the FRC intends to publish new editions of the standards and updated staff factsheets with guidance on key aspects of the new requirements.

Call to action
Organisations applying FRS 102 and FRS 105 should now be considering the impact of these revisions on their financial statements, in consultation with their accountancy adviser where appropriate. 

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