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FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

Overview

FRS 105 “The Financial Reporting Standard applicable to the Micro-entities Regime (link to FRC website) is a financial reporting standard for entities eligible to apply the Micro-entities Regime set out in UK Company Law. It is based on FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland but the Financial Reporting Council has adapted it significantly to satisfy the legal requirements and to reflect the simpler nature and smaller size of micro-entities.

The application of the micro-entities regime is optional; however, a micro-entity that chooses to prepare its financial statements in accordance with the micro-entities regime is required to apply FRS 105. A company that qualifies for this regime, but chooses not to apply it, is required to apply another accounting standard. The possible options are set out in FRS 100 Application of Financial Reporting Requirements.

In December 2017, FRS 105 was amended as part of the 2017 Triennial review of FRS 102. The majority of the amendments were consequential in nature to ensure FRS 105 maintained consistency with FRS 102; however, other amendments were also made to align the standard with the legal frameworks in the UK and Republic of Ireland.

FRS 105 is structured on a section-by-section basis consistent with FRS 102 but there are considerable simplifications to the accounting treatments and disclosure requirements for entities reporting under FRS 105. The main simplifications available under FRS 105 are:

  • to remove all disclosure requirements other than those required by law, although a micro-entity is not prohibited from providing additional voluntary disclosures and is encouraged to give consideration to these;
  • to remove all choices of accounting treatment because no disclosure is required of accounting policies so, if choices were available, it would not be clear from the accounts which options had been selected; and
  • to exempt micro-entities from having to account for some complex transactions, e.g. equity-settled share-based payments and deferred tax.

Micro-entities are not permitted to use fair value accounting for either investment properties, which under FRS 105 must be measured at cost subject to depreciation or impairment, or financial instruments, which must be measured at cost less impairment or amortised cost.

History of FRS 105

Date Developments Comments
16 July 2015 FRS 105 issued Effective for periods beginning on or after 1 January 2016.
17 May 2016 FRS 105 amended to allow LLPs and qualifying partnerships that meet the qualifying criteria to apply the Standard. Effective for periods beginning on or after 1 January 2016.  Early application is permitted for accounting periods beginning on or after 1 January 2015
14 December 2017 Amended by Amendments to FRS 102 – Triennial review 2017 – Incremental improvements and clarifications

The changes to disclosure requirements in FRS 105 for micro entities in the UK are applicable for accounting periods beginning on or after 1 January 2017; all other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application for UK micro-companies is permitted provided that all the amendments to FRS 105 are applied at the same time.

With respect to the Republic of Ireland, the changes to incorporate FRS 105 are applicable to accounting periods beginning on or after 1 January 2017.  Earlier application is permitted for companies in the Republic of Ireland that apply the Companies (Accounting) Act 2017 is applied from the same date.  All other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application of the other amendments is permitted provided that all of these other amendments are applied at the same time.

28 March 2018 Revised version of FRS 105 issued

Effective for periods beginning on or after 1 January 2016.

See above for effective date for May 2016 and the December 2017 amendments.

Scope

FRS 105 may be applied by entities that satisfy at least two of the following three requirements in relation to a financial year: 

  • Turnover: Not more than £632,000 (pro-rated appropriately where an entity's year is shorter or longer than a calendar year);
  • Balance sheet total (i.e. gross assets): Not more than £316,000; and
  • Average number of employees: Not more than 10. 

An entity must meet at least two of these limits in two consecutive years to qualify as a micro-entity and, once qualified, must exceed at least two of these limits for two consecutive years to cease to qualify.  

Certain types of entity, such as charitable companies and parent companies that are required or choose to prepare consolidated financial statements, are excluded from the micro-entity regime and therefore cannot apply FRS 105.

Amendments to FRS 105 were made in May 2016 to extend its scope to include eligible limited liability partnerships (LLPs) and qualifying partnerships, following a change in legislation.  In December 2017 as part of the triennial review of FRS 102 the FRC made amendments to incorporate FRS 105 in the Republic of Ireland.

Summary

The standard comprises 28 sections, each of which addresses a specific area of accounting, including transitional provisions and specific requirements for specialised entities.  The sections are as follows:

  1. Scope
  2. Concepts and Pervasive Principles
  3. Financial Statement Presentation
  4. Statement of Financial Position
  5. Income Statement
  6. Notes to the Financial Statements
  7. Subsidiaries, Associates, Jointly Controlled Entities and Intermediate Payment Arrangements
  8. Accounting Policies, Estimates and Errors
  9. Financial Instruments
  10. Inventories
  11. Investments in Joint Ventures
  12. Property, Plant and Equipment and Investment Property
  13. Intangible Assets other than Goodwill
  14. Business Combinations and Goodwill
  15. Leases
  16. Provisions and Contingencies
  17. Liabilities and Equity
  18. Revenue
  19. Government Grants
  20. Borrowing Costs
  21. Share-based Payment
  22. Impairment of Assets
  23. Employee Benefits
  24. Income Tax
  25. Foreign Currency Translation
  26. Events after the End of the Reporting Period
  27. Specialised Activities
  28. Transition to this FRS

Effective date

FRS 105 is effective for periods beginning on or after 1 January 2016. Early adoption is permitted.  See above for the effective dates of other amendments to FRS 105.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.