Section 3 – Financial Statement Presentation

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Section 3 – Overview

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Section Downloads

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Section 3 Detailed Guide

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Section 3: Financial Statement Presentation

Summary

Section 3 explains that the financial statements of an entity shall give a true and fair view once all of the disclosure requirements of Company Law for Companies applying the Small Companies Regime have been met, what a complete set of financial statements is and what compliance with FRS 105 requires.

What is different?

Under FRS 105 it gives a choice to call the primary statements a balance sheet or a statement of financial position and a profit and loss account or income statement. FRSSE/old GAAP, did not permit this. FRS 102 does permit this.

A complete set of financial statements is:

a balance sheet/statement of financial position;
a profit and loss account/income statement; and
notes to the financial statements as stated in Company Law

The above differs significantly from FRS 102 and FRSSE/old GAAP and is discussed in Section 6.

A statement of change in equity is not required (required under FRS 102)

A cash flow statement is not required (required under FRS 102 unless Section 1A of FRS 102 can be applied).

FRS 105 makes it clear when assessing going concern the minimum length of the time the directors need to look at in order to meet the definition of the foreseeable future is 12 months from the date of approval of the financial statements. This was not made explicit under old GAAP/FRSSE, however it was applied in practice. As this was made clear in FRS 102 there is no differences.

The company must include a statement on the face of the balance sheet just above the director’s signature confirming their approval of the financial statements that the financial statements have been prepared under FRS 105 and the Small Companies Regime. This was not specifically required under old GAAP/FRSSE or full FRS 102.

What are the key points?

The fundamental principles for the preparation of financial statements that result in the faithful representation of transactions, other events and conditions, are the going concern assumption, consistency of presentation, comparability and materiality. Where there are doubts about going concern this needs to be stated in the financial statements.

A complete set of financial statements includes each of the following for the current period and the previous comparable period:

a statement of financial position (FRS 105 also allows the use of the word balance sheet);
a profit and loss account/income statement; and
notes to the financial statements which comply with the requirements for the Small Companies Regime.

Financial statements are required to make clear the name of the reporting entity, the presentational currency, date of the end of the reporting period and the level of rounding, if any used.

Comparative and current year results to be given equal importance.

What do accountants need to do?

Be aware of the requirements for FRS 105 financial statements presentation so they can prepare financial statements on this basis and advise clients.

Prepare the coming years staff work plan based on the reduced work required on financial statements where FRS 105 is applied and allocate spare time accordingly.

What do companies need to do?

Be aware of the requirements for FRS 105 financial statements presentation and where necessary consult with the company accountant so that the entity prepares financial statements in compliance with FRS 105.

Recognise the reduced work load as a result of the reduced notes required in the financial statements.

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