FRS 102 (September 2024), Section 1A Small Entities

The Financial Reporting Council’s (FRC) Periodic Review amendments have now begun to take effect. For years ending 31 December 2026 onwards, the Periodic Review amendments are mandatory so many small entities have yet to implement the amendments.  As we move closer to December 2026 year ends, this article provides a recap on FRS 102, Section 1A together with some of the notable changes that preparers will need to bear in mind following the FRC’s Periodic Review.

In addition, the thresholds that determine the size of a company, limited liability partnership (LLP) and group have been increased for accounting years commencing on or after 6 April 2025. This will mean that more entities will be eligible to prepare financial statements under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, including the presentation and disclosure requirements of Section 1A Small Entities.

Companies excluded from the small companies’ regime

According to section 384(1) of the Companies Act 2006, a company is excluded from the small companies’ regime if it was, at any time, within the financial year to which the financial statements relate:

• A public company.
• A company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company.
• A company that carries on insurance market activity.
• A company that is a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 or section 39(1) of the Pension Schemes Act (Northern Ireland) 2021 (interpretation of part 1).
• A member of an ineligible group (see section 384(2) of Companies Act 2006).

FRS 102, Section 1A

FRS 102, Section 1A outlines the presentation and disclosure requirements for small entities within the scope of the section. It should be noted that FRS 102, Section 1A is an optional section and a small entity may comply with the full disclosure requirements of FRS 102 instead.

FRS 102 requires small entities to apply the recognition and measurement requirements of the standard in full. This means that a small entity will apply the same recognition and measurement requirements as a larger entity which is not within scope of Section 1A. There is, however, one recognition and measurement exception which relates to loans from a director or director’s close family member(s) when at least one of those individuals is a shareholder within entity. Where this applies, the loan to the small entity can be measured at transaction price (ie, there is no requirement to impute a market rate of interest to the loan).

There is an element of overlap between FRS 102, Section 1A and FRS 102, Section 3 Financial Statement Presentation. This overlap requires a small entity applying Section 1A to comply with most of the general principles in Section 3. However, a small entity applying Section 1A is not required to comply with the following in Section:

These scope exemptions from Section 3 were included by the FRC as part of its Periodic Review. FRS 102, paras 3.17 to 3.19 have been specifically scoped out for small entities applying Section 1A because Section 1A has its own requirements in respect of a complete set of financial statements.

Small entities applying Section 1A need not comply with the disclosure requirements of Sections 3, 8 to 35 of FRS 102, unless specifically included in Section 1A. However, this does come with somewhat of a caveat. In order to give a true and fair view, the small entity may need to provide additional disclosures (beyond those required by Section 1A and in compliance with other sections of FRS 102); or it may be required to present further primary statements (eg, a statement of total comprehensive income where the small entity recognises gains or losses in other comprehensive income).  This, of course, will require professional judgement on the part of management of the entity.

In addition, small entities in the UK are mandated to make an explicit and unreserved statement of compliance with FRS 102, stating (where applicable) that Section 1A has been applied. This was an encouraged disclosure under FRS 102 (January 2022), but becomes mandatory for small entities in the UK under FRS 102 (September 2024).

A statement of cash flows is not required for a small entity. This applies even if the small entity does not apply Section 1A.

There are five appendices to Section 1A:

• Appendix A Guidance on adapting the balance sheet formats
• Appendix B Guidance on adapting the profit and loss account formats
• Appendix C Disclosure requirements for small entities in the UK
• Appendix D Disclosure requirements for small entities in the Republic of Ireland
• Appendix E Additional disclosures encouraged for small entities in the Republic of Ireland

Appendices A and B set out the permitted balance sheet and profit and loss account formats. These formats are consistent with the requirements of company law.

Appendix C outlines the disclosure requirements for small entities in the UK. Under FRS 102 (September 2024), these disclosure requirements go beyond the requirements of company law following the FRC’s increase in disclosure requirements for small entities in the UK. Consequently, FRS 102, para 1AC.1 clarifies that a small entity need not provide a specific disclosure set out in Appendix C if the information resulting from that disclosure is immaterial. However, the small entity must provide the disclosure when required by Companies Act 2006, regardless of materiality.

It should also be borne in mind that small entities which are subject to a Statement of Recommended Practice (SORP) may also be required by that particular SORP to present additional disclosures. In addition, a SORP may restrict entities within its scope from taking advantage of certain exemptions within FRS 102, Section 1A.

Under FRS 102 (September 2024), Appendix E is only relevant to small entities in the Republic of Ireland. This is because all of the encouraged disclosures contained in FRS 102 (January 2022), Appendix E, have been elevated into Appendix C. As a reminder, a small entity in the UK will be mandated to make the following additional disclosures:

• A statement of compliance with FRS 102 (adapted to refer to Section 1a) as noted earlier in the article.
• Confirmation that the entity is a public benefit entity (if applicable).
• Disclosures in respect of going concern, such as the use of the going concern basis of accounting (including significant judgements), material uncertainties related to going concern and when a basis other than the going concern basis of accounting is used in preparing the small entity’s financial statements.
• Dividends declared and paid or payable during the period.
• Transitional information on first-time adoption of FRS 102 which must explain how the transition has affected its financial position and performance.
• Additional disclosure requirements in respect of:
  • Leasing arrangements
  • Provisions and contingencies
  • Revenue recognition (performance obligations in contracts with customers)
  • Share-based payment transactions
  • Current and deferred tax

Small entities in the UK will also be required to disclose more comprehensive information concerning transactions with related parties (effectively providing full related party disclosures). These disclosure requirements cover all categories of related parties as those set out in FRS 102, Section 33 Related Party Disclosures as opposed to the restricted categories set out in FRS 102 (January 2022), Section 1A.

In the FRC’s view, mandating additional disclosure requirements for small entities in the UK will reduce the amount of judgement required by preparers. There is no change to the requirement for the small entity’s financial statements to give a true and fair view (this has always been the case, and will continue to be so); hence the FRC expects that this will simplify the process of deciding which disclosures are provided, although the disclosures provided might not change.

Preparation of consolidated financial statements

A small entity applying FRS 102, Section 1A is not usually required to prepare consolidated financial statements (group accounts). However, some entities may not fall within the statutory group accounts exemption and will be required to prepare consolidated financial statements. Some small groups may also decide to voluntarily prepare consolidated financial statements. FRS 102, Section 1A does address the voluntary preparation of consolidated financial statements and requires the consolidation procedures in Section 9 Consolidated and Separate Financial Statements to be followed.

A parent company which is subject to the small companies’ regime (or a parent LLP subject to the small LLPs regime) which applies Section 1A and does not wish to prepare consolidated financial statements will also need to ensure that it meets the exemption contained in section 399(2A) of Companies Act 2006 from preparing consolidated financial statements.

According to section 399(2A) of the Companies Act 2006, company is exempt from the requirement to prepare consolidated financial statements if:

1. at the end of the financial year, the company is:
   1. subject to the small companies’ regime; or
   2. would be subject to the small companies’ regime but for being a public company; and
2. is not a member of a group (ie, it is not a parent undertaking or subsidiary undertaking) which, at any time during the financial year, has an undertaking falling within sub-section 399(2B) as a member.

Sub-section 399(2B) states that an undertaking falls within its scope if:

1. It is established under the law of any part of the United Kingdom.
2. It must prepare financial statements in accordance with the requirements of Part 15 of Companies Act 2006.
3. It:
   1. is an undertaking whose transferable securities are admitted to trading on a UK regulated market;
   2. is a credit institution (within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, which is a CRR firm within the meaning of Article (4)(1)(2A) of Regulation (EU) No. 575/2013); or
4. would be an insurance undertaking (within the meaning given by Article 2(1) of Council Directive 91/674/EEC of the European Parliament and of the Council, were the UK a member State).

There are other exemptions available in sections 400, 401 and 402 of Companies Act 2006.

It should also be noted that in February 2026, the FRC amended FRS 102 (September 2024) to clarify the circumstances under which a parent is exempt from the requirement to prepare consolidated financial statements. These amendments were an extension of the Periodic Review amendments and hence have the same effective date as the Periodic Review amendments (accounting periods commencing on or after 1 January 2026).

Conclusion

There are many subtle technicalities that need to be understood by preparers where the small companies’ regime and the Periodic Review amendments are concerned. Future articles will examine some of these technical issues over the coming months to enable preparers to have a sound understanding of how they impact reporting entities.

Category: Accounting and standards