In September 2015, FRS 102 was amended to include a new Section 1A (S1A). With effect from 1 January 2016, this section replaces the FRSSE. Whilst the recognition and measurement requirements of FRS 102 will apply, Section 1A sets out the presentation and disclosure requirements for small entities.
Who can apply Section 1A?
Section 1A may be applied by:
- companies that are not excluded from the small companies regime;
- LLPs that are not excluded from the small LLPs regime*; and
- other unincorporated entities that qualify as small.
An entity will qualify as small if:
- two or more of the thresholds are met in the current financial year; and
- two or more of the thresholds were met in the previous financial year (if the company is not newly incorporated).
Small company thresholds
|Average number of employees||50 or less|
*To the extent that the requirements of Section 1A do not conflict with any statutory framework under which such entities report, for example, from a SORP making body.
What is the difference between FRS 102 and FRS 102 S1A?
If you choose to report under FRS 102 Section 1A you can:
- retain the ability to omit the profit and loss account and directors’ report when filing accounts at the Registrar* but no longer have the option to prepare separate abbreviated accounts;
- potentially reduce the volume of disclosure notes in your accounts compared to applying all the disclosure requirements of FRS 102; and
- prepare abridged accounts as your statutory accounts (if all members agree).
*Does not apply to charitable companies.
In addition, parent companies of small groups continue to be exempt from the consolidation requirement and, together with their subsidiaries, may also be eligible to apply reduced disclosure options under FRS 102, the latter being an alternative to section 1A.
However, directors will still have to comply with the Companies Act and show a true and far view of the company’s assets, liabilities, financial position and performance. You will, therefore, need to include all relevant disclosure notes.
What is the difference between FRS 102 S1A and the FRSSE?
FRS 102 has, at its basis, IFRS which is quite different to old UK GAAP. If there are any transition adjustments arising from changes in recognition or measurement from old UK GAAP to FRS 102, these will be processed at the opening date of the comparative accounts eg 1 January 2015 for a 31 December 2016 year end. This means that your accounts may need to be restated. In addition, the formatting of your accounts will certainly change under FRS 102.
You will need to identify areas in your accounts where transition adjustments are likely to arise. The consequences of these adjustments could affect your ability to pay dividends and the amount and timing of tax due.
It is not all bad news, there may be opportunities on transition to boost your balance sheet if you have fixed assets that are worth more than they are recorded in the accounts for, and this can be recorded as a one off transition adjustment which is treated as deemed cost.
Is early adoption available?
Early adoption of Section 1A is available however care must be taken. Section 1A is brought in as a result of the EU directive which was introduced into UK law via Statutory Instrument 2015/980 Companies, Partnerships And Groups (Accounts And Reports) Regulations 2015. So whilst the option is available, all the other changes brought into the Companies Act 2006 and the Statutory Instrument 2008/409 Small Companies And Groups (Accounts And Directors' Report) Regulations 2008 via SI 2015/980 must also be applied.
Recent changes affecting reporting under FRS 102 S1A
- Company Law changes affecting entities reporting under FRS 102 section 1A
For more information please get in touch with Danielle Stewart.