FRS 102: How will this UK GAAP impact on your small business accounts?

The mandatory implementation of Financial Reporting Standard 102 (FRS 102) for accounts on or after 1 January 2016 is drawing closer. But if you are beginning to worry about what FRS 102 is and the implications it has for your company, or if you are just interested in knowing about this new UK GAAP, here is an overview of the important details.

What is FRS 102?

The Financial Reporting Council (FRC) issued FRS 102 The Financial Standard applicable in the UK and Republic of Ireland, which will replace current the Financial Reporting Standard for Smaller Entities (FRSSE).

This new UK Generally Accepted Accounting Practice (UK GAAP) is applicable to small entities, specifically those with a maximum turnover of £10.2m, balance sheet total of £5.1m and an average of up to 50 employees. However, companies with a turnover of £632,000 or below should refer to FRS 105, which relates to micro-entities.

FRS 102 has undergone numerous amendments since its introduction in March 2013, the most recent being on 16 July 2015. Following its modification, the standard will become effective for accounts on or after 1 January 2016. Nevertheless, entities required to or eligible to apply EU-adopted IFRSs do not have to adopt FRS 102.

What are the significant changes to be aware of?


Compared to FRSSE, FRS 102 requires fewer disclosures from small companies. This is due to legal restrictions on the amount of disclosures, necessitated by the European Union’s Accounting Directive being implemented into UK law and financial standards.

Under FRS 102, disclosures regarding cash flow statements, key management compensation and group related party transactions are exempt, provided that your company is either the parent or subsidiary of a group that prepares publicly available consolidated accounts.

Nonetheless, your company should ensure that sufficient disclosures are provided in your accounts to represent a true and fair view. The Financial Reporting Council encourages additional disclosures (Appendix D of FRS 102) in order for this legal requirement to be met, including:

• a statement of compliance with this FRS as set out in paragraph 3.3;
• a statement that it is a public benefit entity as set out in paragraph PBE3.3A;
• disclosures relating to going concern set out in paragraph 3.9;
• dividends declared and paid or payable during the period;
• on first-time adoption of this FRS, an explanation of how the transition has affected its financial position and financial performance as set out in paragraph 35.13.

Financial instruments

Currently when applying FRSSE it is not necessary for your company to recognise some financial instruments in the balance sheet. However under FRS 102 derivative instruments, such as foreign exchange forward contracts, are required to be recognised at fair value.

Fair value

FRS 102 uses fair value measurement to a greater extent compared to previous standards relating to small entities accounting. Investment in shares, yearly revaluation of investment properties and derivatives are some of the numerous items in your accounts that are subject to this measurement change.

Intangible assets and goodwill

Under the current UK GAAP for business combinations, some intangible assets are included within goodwill. This will change when you apply FRS 102 as intangible assets that can be measured reliably are required to be recognised separately from goodwill.

Further questions

This article provides an overview of FRS 102 and I hope that it is useful for your company when considering your accounts for January 2016. If you have any further queries please do not hesitate to contact Wisteria.