For Small Companies – Companies eligible
to adopt FRS 102(1A)
This is an area where there is an ambiguity
which either leads to incorrect, under or over disclosure. The ambiguity arises
due to either not being abreast with changes in the legislation or blindly following
disclosures from renowned sources which are purely based on circumstances.
Old Statutory requirement:
Directors’ remuneration disclosure
requirement was stated in Schedule 3 of SI 2008 No.408.
Current Statutory requirement:
Statutory Instrument 2015 No. 980
repealed paragraph 20. So small companies can take advantage of the exemption
to disclose directors’ remuneration for financial years beginning on or after 1
January 2016.
In other words you may NOT disclose
Directors remuneration in the Financial Statements of a company using small companies regime.
FRS 102(1A) Appendix C – Disclosure
requirements for small entities in UK:
Directors’ remuneration requires disclosure under
section 1A-Appendix C, of FRS 102 if it comprises of material transactions the
small entity has entered into that have NOT been concluded under
normal market conditions (paragraph 1AC.35).
The above clearly states that
professional judgement is required in determining the circumstances.
E.g. 1 - If a company has
appointed an employee but also given the responsibility of being a director to
reduce administrative burden then any salary paid to that Director would be
under normal market conditions and hence not necessary to be disclosed in the
accounts of a company adopting small company regime.
E.g. 2 – It is a common practice
in owner managed companies to pay a director, also a shareholder, salary up to
the LE limit of NI and any additional payment in the form of dividends. Though
debatable but can be considered as being done at normal market conditions and
hence not to be disclosed.
FRS 102(1A) Appendix D – Disclosure requirements for small entities in
the Republic of Ireland (RI):
Appendix D which is applicable to all entities in
the Republic of Ireland has a separate paragraph for Directors, paragraph 1AD.38
& 1AD.39, which are in addition to the related party disclosure paragraph. These
paragraphs do not have exemption from restriction hence companies reporting to
the statutory authorities in RI may want to disclose all transactions with the
Directors to ensure compliance with this UK GAAP.
Small Companies under Audit:
If the small company is being
audited then it would be a difficult task to justify to the auditors’, whether
the financial statements give a true and fair view. Further it is the
responsibility of the Directors as per CA 2006 to ensure that the financial
statements are not approved unless they satisfy the test of true and fair view
before being produced for audit.
What should be disclosed in the
financial statements also depends a lot upon the readers as well as third
parties who rely on these financial statements.
For Medium and Large Companies –
Detailed
research was conducted by the University of Portsmouth, on special request from
FRC, on changes in remuneration reporting after changes to the UK Corporate
Governance Code 2018 and published in May 2021. This report provides detailed
analysis of the remuneration policy disclosures, current practice as well as
shareholder dissent and conclusions. Readers can click on the below link to
read the full report which can be helpful in formulating disclosures for your
company.
https://www.frc.org.uk/getattachment/c9347fef-ac65-41f7-85e5-43723c71e448/FRC-UoP_Remuneration-Research-Report_May-2021.pdf
Opinions expressed are those of Mr. Devendraprasad Kankonkar (Deva) as an individual and are his interpretations of the standards. It has no direct or indirect link with views expressed by regulators, such as ICAI/ICAEW, of which he is a member. This material is for general information and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for yourself as the advice may change based on your circumstances. Resemblance to information on any other site or blog would be just a co-incidence and unintentional.
