Reporting entity

What it means

A reporting entity is a subject required to keep accounts. By assets, net turnover and average headcount it falls into a size class: micro, small or large.

Classification rests on meeting two of the three criteria in two consecutive periods. A change of class therefore never happens overnight and can be anticipated.

A reporting entity is not only a trading company. Civic associations, foundations and the branch of a foreign company belong here too. A sole trader who keeps only tax records is not a reporting entity and draws up no financial statements, even though they still file a tax return.

How it works in practice

The class sets the scope of the financial statements: a micro entity files abbreviated forms and brief notes; a large one files detailed forms and extensive notes.

Size also drives the audit requirement and the annual report. As a company grows it pays to know a year ahead that a threshold is near, because an auditor is chosen in advance, not in March.

At every year end we recalculate the size criteria from the balance sheet, the profit and loss statement and the payroll records for the last two years. We then tell the client which class applies for the next period, so they know the scope of statements and notes to expect and whether an auditor is needed.

What to watch out for

Turnover includes income easily overlooked at a glance: asset sales, foreign exchange gains, grants. The threshold is therefore crossed sooner than the sales ledger suggested.

Confusing a micro entity with a micro taxpayer. The first is a size class under the Accounting Act, the second a category under the Income Tax Act with its own conditions and benefits. A company can be one without being the other, and the mix-up leads to the wrong tax rate or a wrong loss deduction.