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New Irish GAAP for micro companies, a specific category of SME is expected to be introduced from tomorrow, and will provide an option for this size of business to adopt new accounting rules that greatly reduce their financial statement disclosure and could potentially impact their credit rating, funding and wider business relationships.
The Companies Accounting Act 2017 will introduce the new category of micro company providing the ability to produce financial statements that are so abbreviated and lacking in several basic disclosures that they will be unacceptable to many lenders, suppliers and credit agencies.
ACCA Head of Ireland, Liz Hughes says,
'These new accounting principles for micro company’s financial statements are so lacking in information that the law had to include a specific provision that deemed them to be true and fair; something no lender, supplier or credit rating agency would agree with. This is something that presents challenges for micro companies and will not present cost savings from preparing micro entity accounts, although there is a privacy advantage as directors pay is not disclosed.'
Micro companies are businesses that meet 2 of the 3 criteria:
• Sales of less than €700,000
• Gross assets of less than €350,000
• Less than 10 employees.
The new legislation arises from an EU Directive which was enacted into Irish law by the Companies (Accounting) Act 2017. The financial statements for a micro entity will not be required to disclose related party transactions, post balance sheet event, market value of investment property, and details of creditors or a Directors report. Micro entity financial statements will be 2 to 3 pages long compared to the 15 to 20 page long financial statements a small or medium company would usually have.