The ASB published on 22 April 2005 an updated Financial Reporting Standard for Smaller Entities (FRSSE) which is effective for accounting periods beginning on or after 1 January 2005. The standard was developed from the 'one stop shop' proposals set out in the March 2004 Discussion Paper and the recent Exposure Draft.

For the convenience of small companies using the FRSSE, this version reflects the accounting requirements of applicable company law. These are clearly distinguished from the requirements of accounting standards by the use of small capitals throughout the text.

Recent amendments to the Companies Act introduced a requirement, in reporting transactions, to have regard to their substance in accordance with generally accepted accounting principles or practice. One effect of this is that some preference shares will be shown as liabilities. The FRSSE has been amended to reflect this change.

The FRSSE has also been updated to reflect where appropriate the accounting standards and UITF Abstracts issued, or amended, between the last update and October 2004:

• The basic principles of FRS 5 Application Note G 'Revenue recognition' are incorporated into a new section. Guidance on bill and hold arrangements, sales with rights of return and presentation of turnover as principal or as agent is included in an appendix.
  
  
• The section on post balance sheet events has been updated to reflect the language used in FRS 21 'Events after the balance sheet date'.
  
  
• The change to the effective date of the transitional arrangements for accounting for defined benefit pension schemes is incorporated.
  
  
• The treatment of costs incurred in bidding for and securing contracts to supply goods or services set out in UITF Abstract 34 'Pre-contract costs' has been incorporated.

Respondents to the Exposure Draft suggested that the FRSSE should reflect the recently issued UITF Abstract 40 'Revenue recognition and service contracts'. This specific proposal will be subject to consultation in a future update. In the meantime, to assist entities using the FRSSE, the requirements of the Abstract are reflected as guidance in an appendix.

The FRSSE continues to be available for smaller entities to prepare consolidated accounts. The relevant legal requirements for small companies on the form and content of group accounts are summarised together with references to the relevant accounting standards.

In light of comments from respondents the Board intends to consult in a future update on the incorporation of the requirements of FRS 20 'Share-based payment' which requires and entity to recognise chare-based payment transactions (including those with employees or other parties) and the associated assets, liabilities and expenses.

Copies of the FRSSE may be downloaded free of charge from the ASB website.