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FRS 102 Section 1A
For a large majority of accountants that had entities that met the thresholds of and therefore applied the FRSSE (Financial Reporting Standard for Smaller Entities) this will be the first year transitioning to FRS 102 as the FRSSE is abolished for all periods beginning on or after 1 January 2016. From that date such entities must transition to either FRS 102 or if applicable FRS 105.
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What is Section 1A (S.1A) of FRS 102?
S.1A provides reduced disclosures for small entities that meet the conditions specified below and therefore do not have to follow the detailed disclosures specified in Sections 4 to 35 of FRS 102. S.1A does not deal with any measurement or recognition criteria instead the measurement and recognition criteria under FRS 102; Sections 2 to 35 of FRS 102 must be complied with (i.e. the accounting treatment required for a S.1A set of financial statements are specified in Sections 9 to 35 of FRS 102).
Which Entities Can Avail of Section 1A of FRS 102?
A company qualifies for the small company’s regime (SCR) and Section 1A of FRS 102 if it fulfils at least two of the three qualifying conditions listed below (note certain entities are excluded from applying SCR and S.1A even if the below thresholds are met – see the FRS 102 S.1A quick guide in the link below for details of those entities which are excluded):
|
|
Small Co |
Holding company for Small Group |
|
Turnover |
≤£10.2 million |
≤£10.2 million-net |
|
Balance Sheet Total |
≤£5.1 million |
≤£5.1 million net |
|
Employees |
≤50 |
≤50 |
Are there any Additional Transition Exemptions for Entities using Section 1A as Opposed to Full FRS 102?
Yes, Section 35(10)(u)(v) of FRS 102 provides two additional exemptions for entities applying S.1A those being the ability to make a transition adjustment at the start of the current period (ordinarily this adjustment would need to be recognised at the date of transition and at the end of the comparative year) where there are:
- loans to and from related parties at non-market rates and not repayable on demand; and
- financial instruments in existence which are required to be fair valued under the rules of Section 11 and 12 of FRS 102 (e.g. listed shares).
What are Some of the Key Points?
The disclosure requirements in Section 1A are a mirror of the Company Law disclosures which were included in law by way of Statutory Instrument 2015/980.
S.1A are the minimum disclosures. Directors are still required to assess whether further disclosures are required in order to show a true and fair view.
Ability to prepare an abridged profit and loss account (start with the gross profit line) and balance sheet (no requirement to include) as the actual full set of financial statements subject to the approval of all members (this is discussed further in the link to the quick guide below).
Judgement required as to whether the directors’ remuneration disclosures are required – only required if remuneration has not been concluded under normal market conditions.
Significantly reduced disclosures. For example there is no requirement to include:
- the turnover note;
- the tax note;
- the interest payable/receivable note;
- rights attaching to shares;
- note splitting out stocks by type;
- cash flow statement;
- details of interests in shares which give more than a 20% interest in a class of shares (or the profit/loss or net assets for the entity in which the shares are held);
Some additional disclosures due to the change in accounting requirements under FRS 102. Examples include:
- increased number of accounting policies and expansion of wording on existing policies (if transitioning from a previous GAAP for the first time);
- for assets held at fair value – requirement to disclose fair value movements recognised in the profit and loss;
- details of the valuation methodology adopted for derivatives recognised on the balance sheet.
Definition of related parties more narrowly defined hence less related party disclosures.
Consolidated financial statements can be prepared under Section 1A.
Requirement to disclose the average number of employees (not previously required for entities applying the old Small Companies Regime).
Although not required under Company Law, Section 1A encourages certain disclosures in order for the financial statements to show a true and fair view including:
- providing disclosures of adjustments made on transition if applicable;
- providing a statement of comprehensive income if items go through ‘other comprehensive income’ – previously called the ‘STRGL’ under old GAAP
- if transactions with equity holders present a statement of changes in equity or a statement of income and retained earnings;
- providing going concern uncertainties disclosures;
- statement of compliance with Section 1A;
- disclosure of dividends declared and paid/payable;
- disclose of the fact that the entity is a public benefit entity if applicable.
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Preparing Financial Statements Under Section 1A of FRS 102 and The Small Companies Regime Quick Guide
For further detail and analysis on Section 1A see our link to our FRS 102 Section 1A quick guide. This quick guide is split out in the following way:
- What companies can avail of Section 1A?
- What is new and common to all entities applying Section 1A for the first time?
- What is new if moving from FRSSE/old UK & Irish GAAP to Section 1A?
- What is new if moving from full FRS 102 to Section 1A?
- What is different when compared to FRSSE (old Small Companies Regime)/full FRS 102?
- What remains the same where an entity previously applied FRSSE or full FRS 102?
- What are the disclosures under Section 1A?
- What do accountants need to do?
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