FRS 102 Periodic Review series: Small companies

Updates to Financial Reporting Standards

On 27 March 2024, the Financial Reporting Council issued amendments to FRS 100 – 105 (known as GAAP, or Generally Accepted Accounting Practice), a suite of accounting standards applicable in the UK and Ireland. These are used by an estimated 3.4 million businesses in preparing their financial statements.

The amendments represent the largest revision of the standards since their launch in 2013. They aim to enhance the alignment of UK and Irish GAAP with International Financial Reporting Standards (IFRS).

Most changes come into effect for periods beginning 1 January 2026. Early adoption will be permitted, provided all amendments are applied at the same time.

This article reviews updates to FRS 102 Section 1A, highlighting new disclosure requirements for small companies and what these changes mean in practice.

You can find the other articles in our FRS 102 Periodic Review series below:

• FRS 102 Periodic Review series: Accounting for Leases
• FRS 102 Periodic Review series: Accounting for Revenues
• FRS 102 Periodic Review series: Other changes

Small companies – section 1A of FRS 102

FRS 102 Section 1A applies to entities choosing to apply the small entities regime. Entities are required to apply the accounting provisions of the whole FRS 102 standard but can avail of a significant number of disclosure exemptions.

For entities incorporated in the UK or in Ireland, the small companies’ regime is defined in law by specific thresholds (UK Companies Act 2006 s381 - 384, Irish Companies Act 2014 s280A – 280C). For entities that do not report under either of these sets of legislation, they may apply the UK Companies Act thresholds as if they were a UK company, unless any local regulations require otherwise. 

The Periodic Review accounting changes, which are explored in the other articles in our series, including the changes to revenue and lease accounting, apply to small companies as well as non-small companies. 

Requirement to give a true and fair view

Despite being able to avail of a significant number of disclosure exemptions, small entities under Section 1A are still required to prepare financial statements that give a true and fair view of the assets, liabilities, financial position and profit or loss of the entity each accounting period. The Standard notes that additional disclosures may be required, over and above those mandated by company law, in order for the financial statements to be true and fair. 

Under the previous version of the Standard, this required significant judgement from management of small entities, and resulted in inconsistencies in the level of disclosures made by small companies. To remedy this, the FRC have now enhanced Section 1A, to provide more mandatory disclosures for entities applying UK GAAP.

It should be noted that there are minimal changes for entities applying Irish GAAP; this is primarily because disclosures by small companies in Ireland are subject to specific legislation, over which the FRC does not have authority. The main change for Irish entities is the inclusion of disclosures surrounding Right-of-Use assets alongside tangible fixed asset disclosures. As such, Irish entities are not likely to notice much change in financial statement disclosures as a result of the revision of Section 1A.

Additional disclosures for UK GAAP entities

Appendix C of the updated Standard now requires additional disclosures for small entities in the UK. We discuss some of the main changes below, but this is not a complete list of all the changes. 

Related parties

One of the most significant changes in Section 1A for UK entities is the expansion of related party disclosures. Previously, disclosures needed only to be given if they had not been conducted under normal market conditions. This provision has been removed, and all related party transactions must now be disclosed, including those with directors or shareholders, unless they are with entities 100% owned within the group. 

Going concern

A small entity must now provide an explicit statement that the financial statements are prepared on a going concern basis (unless another basis is more appropriate), together with confirmation that management has considered information about the future. Where significant judgements are made as part of this assessment, these must be disclosed, and where there are material uncertainties about the entity’s ability to continue as a going concern, these must also be disclosed. 

Leases

Where the small entity is a lessee, it must provide a general description of its significant leasing arrangements; if necessary to allow users to understand the nature of these arrangements, this description should include both quantitative and qualitative information. Movements in Right-of-Use assets should be included alongside other tangible fixed assets.

Amounts, if any, relating to variable lease payments, short-term leases or low-value assets should be disclosed. 

Share-based payments

A UK small entity will now need to include descriptions of each type of share-based payment arrangement that is in place at any time during the year, including key terms and conditions such as vesting conditions, terms of options granted and methods of settlement. These can be aggregated for similar schemes, where applicable. 

The amount of share options outstanding at the beginning and end of the period, those that are exercisable at the year end, and the total expense for the year, should also be disclosed.

Taxation

A small entity is now required to provide an analysis of its tax expense in the P&L, split between current tax, the various circumstances giving rise to deferred tax, and any amounts relating to tax payable or receivable in the prior year. A reconciliation between the total tax charge (including any deferred tax) for the year, and the relevant tax rate for the year, should be provided. 

Any deferred tax balance at the year-end should be analysed between each type of timing difference and amount of unused tax losses/credits. 

Initial application of the new section

As Section 1A relates to disclosures only, and not the underlying accounting treatment, there are no specific transitional arrangements. Any additional disclosures now mandated by Section 1A will require comparative disclosures.

For the impact of adopting the underlying accounting requirements, management should refer to the corresponding Section of FRS102.  

For further information, and to find out how Grant Thornton can assist you in navigating these changes, please contact Louise Kelly, Partner.