[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-3/” type=”big” color=”red”] Return to Section 3 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Section 3-Financial Statement Presentation
Scope
Section 3 requires that financial statements prepared under FRS 102 should show a true and fair view. It also details what is to be included in a set of FRS 102 financial statements.
Small companies
Extract from FRS102: Section 3.1A
3.1A A small entity applying Section 1A Small Entities is not required to comply with paragraphs 3.3, PBE3.3A, 3.9, 3.17, 3.18, 3.19 and 3.24(b).
OmniPro comment
NOTE: small companies in the UK and Northern Ireland as stated in Section 1A of FRS 102 are not required to comply with the above mentioned sections instead these small entities can comply with Section 1A of FRS 102. See guidance in relation to same in Section 1 of this website where full details of the requirements for the statement of comprehensive and income statement for small companies is explained.
However, the exemption for small companies does not apply to companies in the Republic of Ireland at the time of production of this guide as Republic of Ireland registered companies cannot report under Section 1A of FRS 102. A company registered in the Republic of Ireland cannot apply this exemption and therefore adopt Section 1A until the Irish Government enact the EU directive 2013/34 for Ireland. This is expected to be issued in early 2016 however where financial statements are prepared and signed off before the enactment of this directive, Section 1A cannot be applied so therefore Section 3 must be applied in full.
Small companies are not required to comply with the requirements in this section with regard to:
- The requirement to state in the financial statements that the entity has complied with FRS 102. Instead the small entity should state that the financial statements complied with FRS 102 – Section 1A Small Entities;
- The requirement for an entity to state that it is a public benefit entity;
- No need to disclose uncertainties with regard to going concern as required by Section 3.9;
- Section 3.17, 3.18 and Section 3.19 requiring a statement of comprehensive income (Single statement or Two statement approach), statement of changes in equity, statement of financial position, statement of cash flows and notes to the financial statements. Instead Small entities should comply with the requirements in Section 1A (Section 1A.8-Section 1A.11)
- The requirement to provide a description of the entity’s operations and principal activities in the financial statements.
True and fair view
Extract from FRS102: Section 3.2
3.2 The financial statements shall give a true and fair view of the assets, liabilities, financial position, financial performance and, when required to be presented, cash flows of an entity.
(a) The application of this FRS, with additional disclosure when necessary, is presumed to result in financial statements that give a true and fair view of the financial position, financial performance and, when required to be presented, cash flows of entities within the scope of this FRS.
The additional disclosures referred to in (a) are necessary when compliance with the specific requirements in this FRS is insufficient to enable users to understand the effect of particular transactions, other events and conditions on the entity’s financial position and financial performance.
OmniPro comment
The requirement to show a true and fair view are met when financial statements are prepared in accordance with FRS 102 and any other additional company law disclosure requirements.
Compliance with this FRS
Extract from FRS102: Section 3.3-3.3A
3.3 An entity whose financial statements comply with this FRS shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with this FRS unless they comply with all the requirements of this FRS.
PBE3.3A A public benefit entity that applies the ‘PBE’ prefixed paragraphs shall make an explicit and unreserved statement that it is a public benefit entity.
OmniPro comment
An example of the statement of compliance disclosure to be included in the financial statements are detailed below:
Example 1: Statement of compliance with FRS 102
The financial statements have been prepared in accordance with accounting standards issued by the Financial Reporting Council, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the Companies Act.
Also include the below where applicable:
‘The company is a public benefit entity as defined in Financial Reporting standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”).’
Example 2: Statement of compliance with FRS 102 on adoption of FRS 102
This is the first set of financial statements prepared by XXXXX Limited in accordance with accounting standards issued by the Financial Reporting Council, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”). The company transitioned from previously extant UK and Irish GAAP to FRS 102 as at 1 January 2014. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note 2.
Compliance with this FRS – True and fair override
Extract from FRS102: Section 3.4-3.6
3.4 In special circumstances when management concludes that compliance with any requirement of this FRS or applicable legislation (only when it allows for a true and fair override) is inconsistent with the requirement to give a true and fair view, the entity shall depart from that requirement in the manner set out in paragraph 3.5.
3.5 When an entity departs from a requirement of this FRS in accordance with paragraph 3.4, or from a requirement of applicable legislation, it shall disclose the following:
(a) that management has concluded that the financial statements give a true and fair view of the entity’s financial position, financial performance and, when required to be presented, cash flows;
(b) that it has complied with this FRS or applicable legislation, except that it has departed from a particular requirement of this FRS or applicable legislation to the extent necessary to give a true and fair view; and
(c) the nature and effect of the departure, including the treatment that this FRS or applicable legislation would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in Section 2, and the treatment adopted.
3.6 When an entity has departed from a requirement of this FRS or applicable legislation in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraph 3.5(c).
OmniPro comment
The FRC have stated the instances in which the true and fair override would be invoked should be very rare. Where this occurs the above guidance should be followed.
Going concern
Extract from FRS102: Section 3.8-3.9
3.8 When preparing financial statements, the management of an entity using this FRS shall make an assessment of the entity’s ability to continue as a going concern. An entity is a going concern unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the date when the financial statements are authorised for issue.
3.9 When management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.
OmniPro comment
When adopting the going concern concept it is presumed that the company will continue in business for at least 12 months from the date of the approval of the financial statements.
Note this is the minimum period, so for example if the directors knew at the time of signing the financial statements that the company would cease 15 months from that date then the accounts should not be prepared on the going concern basis. Further discussion on accounting for subsequent events has been discussed in Section 32 of this website. Refer to Section 32 for further details.
See example below of a statement included in the basis of preparation paragraph with regard to going concern.
Example 3: Going concern disclosure
Basis of preparation
The Financial Statements are prepared on the going concern basis, under the historical cost convention, [as modified by the revaluation of investment property, the revaluation of land and buildings and intangibles] and the measurement of certain assets and liabilities measured at fair value and comply with the financial reporting standards of the Financial Reporting Council [and promulgated by Chartered Accountants XXXX] and the Companies Act 2014 (for Irish entities)[Companies Act 2006 (for UK Entities)].
The below illustrates some of the requirements where an entity does not prepare financial statements on the going concern basis.
Example 4: Other than Going concern disclosure
Basis of preparation
As explained in the directors’ report on page X, the company intends to cease operations by XXXX and to transfer all its operations to XXXXX.
The financial statements have not been prepared on a going concern basis. Where appropriate, the carrying values of assets have been restated to their recoverable amounts, and liabilities have been restated to their estimated settlement amounts and classified as current. Provision has been made for all closure costs arising from the decision to cease trading.
Preparation of financial statements on a break up basis involves the company making estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually re-evaluated.
Frequency of reporting
Extract from FRS102: Section 3.10
3.10 An entity shall present a complete set of financial statements (including comparative information as set out in paragraph 3.14) at least annually. When the end of an entity’s reporting period changes and the annual financial statements are presented for a period longer or shorter than one year, the entity shall disclose the following:
(a) that fact;
(b) the reason for using a longer or shorter period; and
(c) the fact that comparative amounts presented in the financial statements (including the related notes) are not entirely comparable.
OmniPro comment
In relation to the extension of an entities period end, there are certain legal requirements as to how long a period a set of financial statements are presented for. FRS 102 makes it clear that the financial statements should be prepared on annual basis.
An example of such a disclosure for the first set of financial statements is detailed below.
Example 5: Frequency of reporting disclsoure
‘The financial statements presented for the current period reflect the results for a 15 month period. The period end was extended in order to take advantage of the cost savings from preparing two sets of financial statements up to its first annual return date to which financial statements needed to be enclosed. It was also extended so as to give readers of the financial statements a full assesment of performance as the company did not begin trading until 6 months into the period.’
Consistency of presentation
Extract from FRS102: Section 3.11-3.13
3.11 An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
(a) it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in Section 10 Accounting Policies, Estimates and Errors; or
(b) this FRS, or another applicable FRS or FRC Abstract, requires a change in presentation.
3.12 When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose the following:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and
(c) the reason for the reclassification.
3.13 If it is impracticable to reclassify comparative amounts, an entity shall disclose why reclassification was not practicable.
OmniPro comment
The reclassification of comparative figures has been discussed in Section 10 of this website. The prior year comparative will have to be restated and the word ‘restated’ should be shown over the prior year figures and a note included in the financial statements detailing the basis for the reclassification, the details of the before and after amounts so that the reader of the financial statements can easily reconcile the prior year financial statements to the restated current year financial statements.
Example 6 – sample of a disclosure note to be included in the notes detailing a reclassification adjustment
Comparative information
Extract from FRS102: Section 3.14
3.14 Except when this FRS permits or requires otherwise, an entity shall present comparative information in respect of the preceding period for all amounts presented in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.
OmniPro comment
Although FRS 102 may not require disclosures for both financial years, Company Law requires disclosures for all balances for both years, therefore the comparatives for the items exempt by FRS 102 will be required under Company Law in any event. The only exemption may be with disclosing contingent liabilities and non-adjusting post balance sheet events which do not exist at the end of the current period. Other instances where comparatives may not be required is where the information is no longer relevant e.g. a prior year adjustment is only required to be disclosed in the financial statement when the adjustment occurred.
Where the current period presentation is inconsistent with the prior year, then the comparatives will have to be restated and details disclosed as explained in the section above.
Materiality and aggregation
Extract from FRS102: Section 3.15-3.16A
3.15 An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial.
3.16 Financial statements result from processing large numbers of transactions or other events that are aggregated into classes according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items in the financial statements. If a line item is not individually material, it is aggregated with other items either in those statements or in the notes. An item that may not warrant separate presentation in those statements may warrant separate presentation in the notes.
3.16A An entity need not provide a specific disclosure required by this FRS if the information is not material.
OmniPro comment
Appendix I of FRS 102 defines items as material where ‘omissions or misstatements of items that are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in surrounding circumstances. The size and nature of the item, or a combination of both, could be the determining factor.’
Materiality should be determined based on the perspective of the reader of the financial statements and it should consider both qualitative and quantitative measures.
Specific disclosures are not required where they are deemed immaterial.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]