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Mini Entities, Major Problems

Some audit firms are receiving requests to audit micro-entity accounts. Audit & Beyond explores some of the associated challenges.

When FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime ( July 2015) was introduced by the Financial Reporting Council as part of (what many of us still refer to as the new) UK GAAP, ICAEW guidance observed that it was “unlikely” that many microentities would choose to have an audit.

Most micro-entities are eligible for audit exemption. In practice, few micro-entities that are eligible and choose to apply the micro-entities regime also choose to have an audit; however, there are exceptions. Some auditors are receiving requests to audit micro-entity accounts prepared under FRS 105 from companies that want to gain some assurance over those accounts, perhaps because of a funder requirement. Some micro-entities may have finance where audited accounts is a condition. Other forms of assurance may be better
suited to the micro-company regime. Some companies are asking firms to perform assurance review engagements on their FRS 105 financial statements, John Selwood in his article points members towards the faculty’s 2013 technical release TEC09/13AAF Assurance reviews on historical financial statements.

WHY FRS 105?

FRS 105 is broadly based on the main new UK GAAP standard FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. FRS 105 follows the structure and section numbering of FRS 102, however, FRS 105 is a much more basic financial reporting regime, which significantly reduces the accounting and
disclosure requirements. Under FRS 105 there is just one prescribed way of accounting for any
given area. For example, without the option to revalue any asset or liability, tangible and intangible assets are held at depreciated cost; so are financial instruments, removing the need to grapple with the associated accounting complexities under FRS 102.

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