Reporting under FRS 105

Following the withdrawal of abbreviated accounts and the FRSSE (Financial Reporting Standard for Smaller Entities) at the end of 2016, many business owners have come across changes in their financial reporting format with the adoption of FRS 105 accounting standard.

Why would FRS 105 reporting be applied to your accounts?

First of all, it is because your company has satisfied the size threshold for being classified as a micro-entity.

This means it met with two of the following three conditions:

• Turnover: Not more than £632,000

• Balance sheet total: Not more than £316,000

• Average number of employees: Not more than 10

The regime excludes some types of companies. Among those are public and charitable companies, investment undertakings, financial institutions and insurance businesses.

The primary statements format

Under FRS 105, the requirement for micro-entities to prepare a directors’ report is removed. They are required to prepare a simplified layout of the profit and loss account and balance sheet. The notes to the financial statements are included at the foot of the balance sheet which would be information about directors’ benefits and guarantees and other financial commitments.

The main features of FRS 105

• The format is simple and easy to understand

• There is no fair value revaluation of investment property

• The profit and loss statement does not need to be filed at Companies House

• The use of FRS 105 can be adopted by directors without shareholder approval

• Accounts prepared in accordance with the regulations are presumed by law to give a true and fair view

Is reporting under FRS 105 mandatory or optional?

FRS 105 is not mandatory. In some cases as stated below, it might not be the right reporting regime for some companies. In those cases, they might choose to report under FRS 102 reporting.

The main drawbacks of FRS 105

• The limited information provided might not be very helpful in situations where access to credit or finance is needed from banks or other lenders

• The regime does not permit the use of assets revaluation or the measurement of investment properties and financial instruments at fair value; hence it can be difficult to fully understand the profitability and financial position of the company

• It does not allow the use of some accounting policies such as deferred tax, capitalisation of borrowing costs or development costs

Conclusion

The FRS 105 standard was set out to be a simpler approach to eligible companies in terms of reporting and filing. However, some directors might want to provide more information than the statutory minimum. In those cases, we would ask clients to get in touch with us to decide how we can provide any additional information to assist with the efficient running of your business.