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FRS 102 OR FRS 105 – which format should I adopt?

The abolition of abbreviated accounts and the FRSSE (Financial Reporting Standard for Smaller Entities) at the end of 2016 may seem like something just for accountants, but small business owners need to be aware of the change as they need to decide what accounting format to use in future.

The most popular options are FRS 102 section 1a (the small entity option of the full FRS 102) or FRS 105.

Companies with annual sales of less than £632,000 and a balance sheet value of less than £316,000 are classed as micro entities and can use the simplified FRS 105 “micro entity” accounts. Whilst this may be tempting they need to decide whether it meets the needs of their business.

Advantages of FRS 105:

  • Directors can decide to use FRS 105 without shareholder approval.
  • The accounts format is clearly defined and easy to follow.
  • No additional information is required although additional lines are permitted
  • There are no “notes to the accounts” required other than those required by other legislation.
  • It allows small businesses to ignore changes to accounting treatments required by FRS 102.
  • The income statement does not need to be filed with Companies House

Disadvantages of FRS 105:

  • Accounting formats are highly prescriptive and different descriptions or layouts are not allowed.
  • Third party users of accounts such as banks or other lenders may want to see accounts that give more information.
  • The business will have to change to FRS 102 section 1a if it exceeds the turnover or balance sheet limits.
  • Revaluations are not allowed so any of these would have to be reversed which could affect the net value of the company and therefore the view of lenders and credit rating agencies.

Company directors therefore need to be aware of the potential implications before making a decision to use FRS 105.

Howell & Co has been assisting Online Profiling Ltd since 2005. They couple efficient service with good practical advice and are always extremely helpful and professional.  
Trevor DawesManaging DirectorOnline Profiling Ltd

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