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.
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.
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. |
24 July 2020 | FRED 76 issued |
The proposals in FRED 76 are expected to apply to accounting periods beginning on or after 1 January 2020 with early application permitted. |
October 2020 | Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions |
The effective date for these amendments is accounting periods beginning on or after 1 January 2020, with early application permitted. |
December 2020 | Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period |
The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.
|
April 2021 | FRED 78 Draft amendments to FRS 102 and FRS 105 - COVID-19-related rent concessions beyond 30 June 2021 |
Comments are requested by 11 May 2021. |
June 2021 | Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime - COVID-19-related rent concessions beyond 30 June 2021 issued |
The amendments are effective for accounting periods beginning on or after 1 January 2021, with early application permitted. |
January 2022 | Revised version of FRS 105 issued |
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. |
December 2022 | Financial Reporting Exposure Draft (FRED) 82 ‘Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review’ issued |
Comments are requested by 30 April 2023. |
March 2024 | Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024 issued |
Effective or accounting periods beginning on or after 1 January 2026. Early application is permitted, provided that all the amendments are applied at the same time. When a micro-entity first applies the Periodic Review 2024 amendments, as an exception to retrospective application, it shall apply the revised Section 18 Revenue from Contracts with Customers prospectively to contracts that begin after the date it first applies the Periodic Review 2024 amendments, and therefore shall not change its accounting policy for any contracts in progress at that date |
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.
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:
- Scope
- Concepts and Pervasive Principles
- Financial Statement Presentation
- Statement of Financial Position
- Income Statement
- Notes to the Financial Statements
- Subsidiaries, Associates, Jointly Controlled Entities and Intermediate Payment Arrangements
- Accounting Policies, Estimates and Errors
- Financial Instruments
- Inventories
- Investments in Joint Ventures
- Property, Plant and Equipment and Investment Property
- Intangible Assets other than Goodwill
- Business Combinations and Goodwill
- Leases
- Provisions and Contingencies
- Liabilities and Equity
- Revenue
- Government Grants
- Borrowing Costs
- Share-based Payment
- Impairment of Assets
- Employee Benefits
- Income Tax
- Foreign Currency Translation
- Events after the End of the Reporting Period
- Specialised Activities
- 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.