FRS102: Micro-entities in the UK
The Financial Reporting Standard (FRS) 102 is the principal one in a trio of accounting standards that were introduced a couple of years ago, to replace the previously widely adopted UK GAAP regime. It specifies requirements in financial reporting for those companies that are not applying or not required to apply for EU-adopted IFRS, FRS 101 or FRS 105.
This standard that follows an extensive and in-depth consultation process, too effect from periods beginning on or after 1 January 2015.
The introduction of FRS 102 had a major impact on the financial statements of an entity that had been preparing accounts under UK GAAP and has since adoption, lead to accounting changes for most companies in UK and the Republic of Ireland.
In this blog, we set out to give you a summary of FRS 102, including information on exemptions with regards to disclosure, entities required to apply the standard, proposals for change currently in process and past amendments.
FRS 102 is widely accepted as financial statements that give a true and fair view of a reporting entity’s financial position for a particular period. Qualifying subsidiaries and parents have reduced disclosures that are available. Section 1A relating to Small Entities sets out the premise for different disclosure requirements available to small entities.
Largely built on the IFRS for small and medium enterprises, FRS 102 has been modified in some significant aspects so as to:
- Be in compliance with the Companies Act;
- Give scope for choice in accounting policy in such a way that if a policy existed in UK GAAP and was in alignment with IFRS, this same choice is also allowed in FRS 102; and
- Takes in to account consultation feedback
In some situations, certain entities applying FRS 102 will be required to refer to other accounting standards.
- IAS 33 Earnings per Share must be applied by entities with publicly traded ordinary shares.
- IFRS 8 Operating Segments must be applied by companies with publicly traded equity or debt instruments
- Organizations that are engaged in extractive industries must apply IFRS 6 Exploration for and Evaluation of Mineral Resources.
- For those companies that issue insurance contracts, reinsurance contracts or financial instruments the FRS 103 Insurance Contracts regime will apply.
Subsidiary and parent companies that meet particular conditions in their individual accounts may be entitled to some disclosure exemptions while filing using FRS 102:
The main exemptions include:
- preparing of a cash flow statement;
- disclosing related party transactions with and between wholly-owned subsidiaries;
- disclosures relating to financial instruments
In order to apply for Section 1A Small Entities, the following criteria need to be fulfilled:
- a company has to meet the definition of a small company and should not be excluded from the small companies regime;
- a company registered as an LLP, should meet the definition of small and should not be excluded from the small LLPs regime; or
- any other incorporated company that meets the definition of a small company.
Who should apply the standard?
- FRS 102 can be applied by all entities who are not required to and don’t elect to apply for:
- EU-adopted IFRS;
- FRS 101 Reduced Disclosure Framework; or
- FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime
In December last year, the FRC issued FRED 73. This proposes minor amendments to FRS 101, including one to provide an exemption from the disclosure of certain cash flows. Consequential amendments are proposed to FRS 102 to reflect this.