Preparing accounts for small companies and micro entities

All companies in the UK and the Republic of Ireland are required to prepare a set of statutory accounts for filing at Companies House each year. These accounts are required to meet specific financial reporting standards depending on the size of the company.

If your company is considered a small company or a micro entity, then the statutory accounts can be prepared with reduced disclosure information under Accounting Standard FRS102 and claiming exemption under Section 1A or FRS105 if it is a micro entity.

What is FRS 102 Section 1A?

FRS 102 1A represents simplified financial reporting for SMEs classed as “small and medium-sized” or “private” and “non-publicly accountable”. This general-purpose standard includes some disclosure exemptions. This means there are only certain pieces of information you need to include in your statutory accounts.

The FRS 102 1A Threshold

Your company is considered small if it meets any 2 of the 3 criteria below:

  • Annual turnover not more than £10.2m
  • Gross balance sheet assets not more than under £5.1m
  • Number of employees is not more than 50

The format of the accounts include:

  • Director’s report
  • Statutory Profit and Loss account
  • Balance sheet
  • Notes about the accounts

FRS 102 is a single reporting standard that applies to a broad range of businesses that qualify as small companies.

Small companies benefit from following the FRS 102 1A financial reporting standard as it reduces the amount of information they must prepare as part of their statutory accounts.

The company is also able to file a set of filleted accounts with Companies House instead of a full set of accounts. The filleted accounts do not include a Directors report, nor the profit & loss account and therefore shows the absolute minimum of disclosure and consists of only:

  • Balance sheet
  • Reduced notes

FRS 102 Section 1A Disclosure exemptions

  • No cashflow statement is required.
  • No disclosure of key management remuneration and exemptions from disclosures relating to certain related party transactions.
  • Limited disclosures for financial instruments.

FRS 105 Accounts

FRS 105 is the financial reporting standard for companies classed as micro-entities. It’s based on FRS 102 above but is simplified further. Under the FRS 105 financial reporting standard, the statutory accounts include:

  • Balance sheet
  • Profit and loss account

This simplified format reflects the size and nature of the micro-entities that can use it for their annual accounts.

FRS 105 Thresholds

For your business to qualify as a micro-entity, it must meet two of the following criteria:

  • Annual turnover not more than £632,000
  • Balance sheet total not more than £316,000
  • Not more than 10 employees

FRS 105 vs FRS 102 – Which one is right for your business

Even though the company may qualify for both standards, it is not always clear as to which will be the best one for you. Your choice of financial reporting format should depend on the specific circumstances of your company, and whether you need more complex financial statements to meet reporting requirements for banks and investors.

Reasons for adopting FRS105

  • FRS 105 is an ideal option for preparing and filing your accounts in a simplified fashion.
  • For many small businesses, FRS 105 has become the norm as this can lead to some reduction in fees.
  • There is no requirement to revalue investment properties each year, therefore saves the company from carrying out any external revaluations.

Reason for adopting FR102

  • If you have investment property and want to reflect the property’s fair value each year, this will not be possible under FRS 105 as investment property is measured at cost less depreciation or impairment.
  • If your business is growing fast, you may outgrow the eligibility to use FRS 105 and will need to transition to FR102 1A. this will involve restating the transaction date balances.

Get in Touch

As you can see from the above making the right FRS choice is dependent on many factors based on your business requirements. Whether you decide to adopt FR102 or FR105 you must ensure that you comply with the relevant legal requirements applicable.

For more information on FRS and other compliance matters, or if you require assistance with the preparation of financial statements and reports please get in touch with our Accounting Solutions team who can help.

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