Chapter 5
FRS 102 – Small entities

List of examples

Chapter 5
FRS 102 – Small entities

1 INTRODUCTION

1.1 Background

Company law changes implementing the Accounting Directive (Directive 2013/34/EU), which had mandatory effect for financial years beginning on or after 1 January 2016, necessitated changes to the accounting framework for small entities. UK company law changes implementing the Accounting Directive were principally made by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980) (for UK companies and qualifying partnerships) and were extended to LLPs by The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575).

In July 2015, the FRC issued FRS 105 – The Financial Reporting Standard applicable to the Micro-entities Regime – and introduced a new small entities regime, Section 1A – Small Entities – into FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland. FRS 105 and Section 1A of FRS 102 are effective for accounting periods beginning on or after 1 January 2016 (with certain early application provisions).

Section 1A of FRS 102 requires small entities to apply the recognition and measurement requirements of FRS 102 in full. However, the presentation and disclosure requirements of Section 1A are based on the requirements of the CA 2006 and The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 (SI 2008/409), as amended (‘the Small Companies Regulations’), for companies subject to the small companies regime. In particular, Appendix C to Section 1A of FRS 102 closely reflects the UK company law disclosure requirements for small companies.

Following changes made to Irish law to implement the Accounting Directive, the small entities regime in Section 1A also became available to entities in the Republic of Ireland. In December 2017, Amendments to FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial Review 2017 – Incremental improvements and clarifications (Triennial review 2017) – amended Section 1A of FRS 102, principally to reflect the changes made to Irish law. See 4.5 below.

FRS 100 – Application of Financial Reporting Requirements – and FRS 102 (see Chapter 1 at 4.4 and Chapter 3 at 2.1) set out the accounting framework for preparation of an entity's financial statements, as follows: [FRS 100.4, FRS 102.1A.1-2, FRS 102.1.3]

  • entities that are eligible to apply the micro-entities regime may apply FRS 105;
  • other entities (that are not required to apply EU-adopted IFRS) have a choice of applying EU-adopted IFRS, FRS 101 – Reduced Disclosure Framework: Disclosure exemptions from EU-adopted IFRS for qualifying entities (individual financial statements of a qualifying entity only), or FRS 102; and
  • an entity qualifying for the small entities regime that adopts FRS 102 can choose to apply Section 1A or the full standard.

Micro-entities applying the micro-entities regime in the UK or Republic of Ireland must apply FRS 105. [FRS 105.1.4-4A]. See Chapter 1 at 6.4.

1.2 Scope of this chapter

This chapter principally addresses the requirements of Section 1A and the related company law requirements (for companies subject to the small companies regime) and the related LLP law requirements (for LLPs subject to the small LLPs regime).

While Section 1A can now be used by small entities in the Republic of Ireland (‘Irish small entities’), this chapter does not discuss in detail the qualifying criteria for an Irish small entity, nor the presentation and disclosure requirements of Irish law and Section 1A specific to Irish small entities. However, an outline of the changes to Irish law made in 2017 to introduce a small companies regime is included at 4.5 below. The disclosure framework for Irish small entities (set out in a new Appendix D to Section 1A, which largely mirrors Appendix C for UK companies) is briefly discussed at 11.6 below.

References in this chapter to FRS 100 to FRS 102 are to those accounting standards, as amended by the Triennial review 2017, i.e. the compendium versions of those standards issued in March 2018. The changes made by the Triennial review 2017 relevant to small entities are summarised at 1.3 below.

A summary of Section 1A is included at 2 below, and its content is discussed at 6 to 11 below. Key definitions used in this chapter are included at 3 below. The effective dates of Section 1A (and the amendments made to this section by the Triennial review 2017) are discussed at 5 below.

A company subject to the small companies regime (in the UK or Republic of Ireland), an LLP subject to the small LLPs regime, and an entity that would have qualified for the small companies regime had it been a company, are permitted to use Section 1A. [s382-s384, s382 (LLP)–s384 (LLP), FRS 102 Appendix I]. See the definition of a ‘small entity’ at 3 below. The qualifying criteria for UK companies and LLPs are discussed at 4 below.

UK companies subject to the small companies regime apply the Small Companies Regulations and are eligible for certain disclosure exemptions in the CA 2006. Similarly, LLPs subject to the small LLPs regime apply the Small LLP Regulations (as amended) and are eligible for certain disclosure exemptions in the CA 2006 as applied to LLPs. In general, the Small Companies Regulations and Small LLP Regulations contain considerably fewer disclosures than the Regulations and LLP Regulations. Financial statements of a UK company prepared in accordance with FRS 102 are Companies Act accounts. The disclosures required in Companies Act accounts for companies subject to the small companies regime (which have been largely included in Appendix C of Section 1A) are set out at 11 below. Some differences for small LLPs are discussed at 11.5 below.

The presentation requirements of full FRS 102 that are mandatory for entities applying Section 1A are covered in 7 below. These include the overriding requirement for the financial statements to give a true and fair view. If a small entity chooses not to apply Section 1A (or presents additional primary statements), refer to Chapter 6 which addresses the presentation requirements of full FRS 102.

FRS 102 includes transition exemptions for small entities (see 6.4 below). However, these only apply for small entities adopting FRS 102 for accounting periods beginning before 1 January 2017. FRS 102 also exempts small entities from preparing a cash flow statement (see 7.1 below) and provides a concession in accounting for certain loans from a director or his / her close family member (see 6.3 below). These exemptions are available to a small entity, whether or not Section 1A is applied.

This chapter has been cross referred from Chapter 1 (which discusses FRS 100) because it includes the qualifying criteria for the small companies regime and the small LLPs regime. The qualifying criteria apply to companies and LLPs preparing Companies Act accounts (non-IAS accounts, for an LLP) or IAS accounts.

The statutory disclosure and filing exemptions for:

  • the financial statements of UK companies and LLPs, prepared in accordance with the small companies regime and small LLPs regime respectively; and
  • the reports of UK companies taking advantage of the small companies exemption

are discussed at 12 and 13 below.

The disclosure exemptions available in the financial statements of companies subject to the small companies regime differ for Companies Act accounts and IAS accounts. Companies Act accounts include financial statements prepared in accordance with FRS 101, FRS 102 and FRS 105. However, the micro-entity provisions (which apply to financial statements prepared in accordance with FRS 105 by a UK company or LLP) are addressed in Chapter 1 at 6.4 rather than this chapter.

1.3 Changes made by the Triennial review 2017

The main changes made by the Triennial review 2017 to Section 1A are to add Irish legal references and a new Appendix D, which sets out the disclosure requirements for Irish small entities and closely follows the statutory requirements in the Republic of Ireland.

Other changes are to refer to the small LLPs regime (which post-dated the July 2015 amendments to FRS 102 that introduced Section 1A) or are mainly clarifications.

In addition, Appendix III – Note on legal requirements – to FRS 102 has been updated to reflect the changes to LLP law made by SI 2016/575, [FRS 102 Appendix III.43], and a new Appendix IV – Republic of Ireland legal references – has been added (reflecting the changes to Irish law in 2017). [FRS 102 Appendix IV].

2 SUMMARY OF SECTION 1A (AND RELATED CA 2006 REQUIREMENTS)

  • Section 1A sets out accounting requirements for entities subject to the small entities regime (see 4 below), whether or not they report under the CA 2006 (or for small entities in the Republic of Ireland, the Companies Act 2014).
  • Section 1A can be applied by a company qualifying for the small companies regime in the UK (see 4.3 below) or in the Republic of Ireland (see 4.5 below), an LLP qualifying for the small LLPs regime (see 4.4 below), or an entity that would have qualified for the small companies regime had it been a company incorporated under company law. The effective date for when small entities in the UK and Republic of Ireland can apply Section 1A differs, as explained at 5 below.
  • Section 1A is optional and small entities can choose to apply full FRS 102.
  • SORPs may include more restrictive provisions. For instance, it is generally understood that the Charities SORP (FRS 102),1 as amended by Charities SORP – FRS 102 Update Bulletin 1 (February 2016) (‘Update Bulletin 1’) and Charities SORP – FRS 102 Update Bulletin 2 (October 2018) (‘Update Bulletin 2’), does not allow charities within its scope to apply Section 1A (see 4.2 below). The Statement of Recommended Practice – Accounting by Limited Liability Partnerships (January 2017) – also requires small LLPs to make some additional disclosures in their financial statements, as explained at 11.5 below.
  • Section 1A requires that small entities apply the recognition and measurement requirements of FRS 102 in full (see 6 below) and exempts small entities from most of the existing presentation requirements of FRS 102 (although the general principles concerning the presentation of financial statements, such as the requirement for the financial statements to show a true and fair view, still apply – see 7 below).
  • Where Section 1A is applied by a small entity, a complete set of financial statements comprises: a statement of financial position, an income statement, and notes. Small entities are encouraged to but are not required to present a statement of comprehensive income, or statement of changes in equity (or statement of income and retained earnings). See 8 below.
  • Small entities applying FRS 102 are not required to prepare a cash flow statement (even if they do not apply Section 1A). However, small charities with gross income exceeding £500,000 (or €500,000 in the Republic of Ireland) are required by the Charities SORP (FRS 102) to prepare a cash flow statement. See 4.2 and 7.1 below.
  • Section 1A requires the statement of financial position and income statement to be presented in accordance with Part 1 of Schedule 1 to the Small Companies Regulations or Part 1 of Schedule 1 to the Small LLP Regulations (which permit the use of abridged formats, adapted formats or statutory formats). Irish small entities refer instead to Part II of Schedule 3A to the Companies Act 2014. Irish law does not permit use of abridged formats. See 8 to 10 below.
  • Small entities in the UK must provide the disclosures set out in Appendix C to Section 1A, which are based on the statutory disclosures in the CA 2006 and the Small Companies Regulations for companies subject to the small companies regime. Appendix C covers the vast majority of statutory disclosures applicable to individual accounts of companies subject to the small companies regime. In the small number of cases where the disclosures in Section 1A and the statutory disclosures for LLPs differ, LLPs should apply the equivalent disclosures required by the Small LLP Regulations rather than those in Appendix C of Section 1A. Irish small entities should instead provide the disclosures set out in Appendix D to Section 1A, which are based on the statutory disclosures in the Companies Act 2014. See 11 below.
  • Financial statements prepared by small entities are required to give a true and fair view; consequently, additional disclosures beyond those specifically mandated may be required (see 7.2, 8 and 11 below). Appendix E to Section 1A sets out additional disclosures specifically encouraged for small entities. See 11.3 below.
  • Section 1A does not require a small entity that is a parent entity to prepare consolidated financial statements. Section 1A sets out requirements for consolidated financial statements, where prepared. However, changes to UK company law, effective for financial years beginning on or after 1 January 2017, mean that some UK companies eligible for the small companies regime may be required to prepare consolidated financial statements. See 6.2 below.

3 KEY DEFINITIONS AND ABBREVIATIONS

See Chapter 6 at 3.1 for relevant definitions.

In addition, definitions relevant to qualification for the small companies regime (and the small LLPs regime) are included at 4 below.

The terms ‘Irish small entities’ and ‘small entities in the Republic of Ireland’ mean the same and are used interchangeably.

References to the ‘General Rules to the formats’ mean the ‘General Rules’, as included in Section A of Part 1 of Schedule 1 to the Small Companies Regulations or the equivalent requirements in the Small LLP Regulations.

The following statutory instruments are referred to by their statutory instrument number:

  • The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911). This statutory instrument sets out how Parts 15 and 16 of the Companies Act 2006 apply to LLPs and is also referred to as ‘the CA 2006 as applied to LLPs’.
  • The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980). This statutory instrument implemented the Accounting Directive (Directive 2013/34/EU) and made significant amendments to the small companies regime.
  • The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575). This statutory instrument made significant amendments to the small LLPs regime.

References to ‘LLP SORP’ are to The Statement of Recommended Practice – Accounting by Limited Liability Partnerships (January 2017) – issued by the Consultative Committee of Accountancy Bodies (CCAB).

References to the ‘Charities SORP (FRS 102)’ are to Charities SORP (FRS 102): Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) – issued by the Charity Commission and Office of the Scottish Charity Regulator in 2014.

References to ‘Update Bulletin 1’ and ‘Update Bulletin 2’ are to the Charities SORP – FRS 102 Update Bulletin 1 (February 2016) and the Charities SORP – FRS 102 Update Bulletin 2 (October 2018).

4 SCOPE OF SMALL ENTITIES REGIME

This section defines a small entity and discusses the application of Section 1A. It also explains the conditions for the small companies regime (in the UK and Republic of Ireland) and the small LLPs regime (in the UK) which are relevant to determining which entities can apply Section 1A.

4.1 Definition of a small entity

A small entity is defined as: [FRS 102 Appendix I]

  1. a company meeting the definition of a small company as set out in sections 382 or 383 of the CA 2006 and not excluded from the small companies regime by section 384 (see 4.3 below);
  2. an LLP qualifying as small and not excluded from the small LLPs regime, as set out in LLP Regulations (meaning in this context, sections 382 to 384 of CA 2006, as applied to LLPs) (see 4.4 below); or
  3. any other entity that would have met the criteria in (a) had it been a company incorporated under company law.

The Triennial review 2017 added a footnote to (a) above that explains that Irish small entities (including partnerships that are required to comply with Part 6 of the Companies Act 2014, by virtue of the European Communities (Accounts) Regulations 1993 (as amended)) shall refer to sections 280A and 280B of the Companies Act 2014.

4.2 Application of Section 1A

Section 1A sets out the information to be presented and disclosed in the financial statements of a small entity that chooses to apply the small entities regime. Unless specifically excluded (see 7.1 below), all of the requirements of FRS 102, including the recognition and measurement requirements, apply to a small entity applying Section 1A. [FRS 102.1A.1]. While Section 1A does not set out any exemptions from the recognition and measurement requirements, there are some limited reliefs available for small entities in other parts of the standard which are explained in 6.1, 6.3 and 6.4 below.

Unless a small entity chooses to apply EU-adopted IFRS (or, if eligible, FRS 101), a small entity that chooses not to apply the small entities regime shall apply FRS 102, excluding Section 1A. [FRS 102.1A.2]. Section 1A is therefore optional for small entities to apply.

However, as noted in Chapter 1 at 4.4, an entity's choice of financial reporting framework must be permitted by the legal framework or other regulations or requirements that govern the preparation of the entity's financial statements. Other agreements or arrangements (such as shareholders' agreements, banking agreements) may restrict the choice of financial reporting framework.

Entities that are subject to a SORP should confirm the applicability of Section 1A. Most extant SORPs are reviewed annually, and may have published update statements or revisions since original publication. SORPs may restrict entities within their scope from applying Section 1A or require additional disclosures in order to comply with the SORP.

For example, Update Bulletin 1 amended the requirements of the Charities SORP (FRS 102) (2014) (and withdrew The Charities SORP (FRSSE) (2014)), effective for accounting periods beginning on or after 1 January 2016. Update Bulletin 1 also introduced exemptions from preparing a cash flow statement for small charities with a gross income not exceeding £500,000 (or in the Republic of Ireland, €500,000). As Update Bulletin 1 did not amend the SORP to state that small charities can apply Section 1A, it is generally understood that this is not allowed. The LLP SORP also requires small LLPs to make some additional disclosures in their financial statements, as explained at 11.5 below.

References to a small entity in paragraphs 1A.4 to 1A.22 of Section 1A (and its appendices), i.e. in the rest of Section 1A, are to a small entity that chooses to apply the small entities regime. [FRS 102.1A.3].

Section 1A applies to all small entities applying the small entities regime, whether or not they report under the CA 2006. Small entities that do not report under the CA 2006 must comply with Section 1A and with the CA 2006 and the Small Companies Regulations (or, where applicable, the CA 2006 as applied to LLPs and the Small LLP Regulations) where referred to by Section 1A, except to the extent that these requirements are not permitted by any statutory framework under which such entities report. For Irish small entities, references to the CA 2006 are instead references to the Companies Act 2014, and references to the Small Companies Regulations are instead references to Schedule 3A to the Companies Act 2014. [FRS 102.1A.4].

One of the requirements of the CA 2006, included in Section 1A, is for the financial statements of a small entity to give a true and fair view. [s393]. Irish small entities should instead refer to section 289 of the Companies Act 2014. [FRS 102.1A.5]. The requirement for the financial statements of the small entity to give a true and fair view and, where applicable, comply with any statutory requirements may mean that additional disclosures to those listed in Section 1A may be required. [FRS 102.1A.6]. See 7.2 and 11 below for further guidance.

4.3 Small companies regime

The small companies regime applies to a company for a financial year in relation to which the company qualifies as small (see 4.3.1 and 4.3.2 below for the criteria for UK companies) and is not excluded from the regime (see 4.3.3 below for the types of excluded companies in the UK). [s381].

4.3.1 Companies qualifying as small – company is not a parent undertaking (size criteria)

A company qualifies as small in relation to its first financial year if the qualifying conditions (as set out below) are met in that year. [s382(1)].

A company qualifies as small in relation to a subsequent financial year if the qualifying conditions are met in that year except that in relation to a subsequent financial year, where on its balance sheet date a company meets or ceases to meet the qualifying conditions, then that will affect its qualification as a small company only if it occurs in two consecutive years. [s382(1A), s382(2)].

This provision is designed to assist companies which fluctuate in and out of the qualifying conditions. However, if a company fails to meet the criteria in two consecutive years, it will cease to qualify, and then would need to meet the criteria in two later consecutive years to re-qualify for the exemptions.

The qualifying conditions are met in a year in which the company satisfies two or more of the following requirements: [s382(3)]

  • turnover must not exceed £10.2 million;
  • the balance sheet total must not exceed £5.1 million; and
  • the number of employees must not exceed 50.

If the company's financial year is not in fact a full year, the maximum turnover figure should be adjusted proportionately. The ‘balance sheet total’ means the aggregate of the amounts shown as assets in the balance sheet, i.e. total assets. The number of employees means the average number of persons employed under contracts of service by the company in the year (determining for each month, the number of such persons – whether employed throughout the month or not, adding together the monthly totals and dividing by the number of months in the financial year). [s382(4)-(6)].

Although the small size criteria increased, effective for financial years beginning on or after 1 January 2016 (or 1 January 2015, where SI 2015/980 was early adopted), the new size thresholds are applied to all preceding financial years in assessing whether a company is small in a particular financial year.2 This is illustrated in Example 5.1 below.

4.3.2 Companies qualifying as small – company is a parent undertaking (size criteria)

Where the company is itself a parent undertaking, then it only qualifies as small if the group that it heads qualifies as a small group. [s382(7), s383(1)]. This is the case whether or not group accounts are prepared.

A group qualifies as small in relation to the parent's first financial year if the qualifying conditions (as set out below) are met in that year. [s383(2)].

A group qualifies as small in relation to a subsequent financial year if the qualifying conditions are met in that year except that in relation to a subsequent financial year, where on its balance sheet date the group meets or ceases to meet the qualifying conditions, then that will affect the group's qualification as small only if it occurs in two consecutive years. [s383(2A), s383(3)].

The qualifying conditions for a small group are met in a year in which the group headed by the company satisfies two or more of the following requirements: [s383(4)]

  • turnover must not exceed £10.2 million net (or £12.2 million gross);
  • the balance sheet total must not exceed £5.1 million (or £6.1 million gross); and
  • the number of employees must not exceed 50.

The aggregate figures for the above limits are ascertained by aggregating the relevant figures determined in accordance with section 382 for each member of the group. The figures used for each subsidiary undertaking are those included in its individual accounts for the relevant financial year, i.e. where its financial year is coterminous with that of the parent company, the financial year that ends at the same date as the parent company, or where its financial year is not coterminous, the financial year ending last before the end of the financial year of the parent company. If those figures are not obtainable without disproportionate expense or undue delay, the latest available figures are used. The turnover and balance sheet total criteria may be satisfied on either the gross or net of consolidation adjustments basis. For Companies Act accounts (such as FRS 102 financial statements), the consolidation adjustments are determined in accordance with regulations made under section 404, i.e. the Regulations or the Small Companies Regulations. For IAS accounts, the consolidation adjustments are determined in accordance with EU-adopted IFRS. It is permissible to satisfy one limit on the ‘net’ basis and the other on the ‘gross’ basis. [s383(5)-(7)].

4.3.3 Companies excluded from the small companies regime

A company is excluded from the small companies regime if it was at any time in the financial year to which the accounts relate: [s384(1)]

  • 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 an insurance market activity; or
  • a member of an ineligible group.

A group is ineligible if any of its members is: [s384(2)]

  • a traded company;
  • a body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA State;
  • a person (other than a small company) who has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on a regulated activity;
  • an e-money issuer;
  • a small company that is an authorised insurance company, banking company, a MiFID investment firm or a UCITS management company; or
  • a person who carries on an insurance market activity.

A company is a small company for the purposes of section 384(2) if it qualified as small in relation to its last financial year ending on or before the end of the financial year to which the accounts relate. [s384(3)].

A group means a parent undertaking and its subsidiary undertakings. [s474(1)]. Therefore, in determining whether a small company is excluded on the grounds that it is a member of an ineligible group, the term ‘group’ comprises the widest group of which the reporting company is a member. This differs from the scope of a ‘group’ used when evaluating whether the small size criteria are met, which is the group headed by the reporting company.

The definition of an ineligible group may change in the future as a result of draft legislation pursuant to Brexit (see 12.3 below).

4.3.3.A Relevant definitions for small companies regime

The reference to a ‘company’ above is to a company formed and registered (or treated as formed and registered) under the CA 2006. This means a company formed and registered under the CA 2006, or prior to 1 October 2009 under the Companies Act 1985, Companies (Northern Ireland) Order 1986 or former Companies Acts (i.e. the company was an existing company for the purposes of that Act and Order). [s1]. In fact, sections 382 to 384 do also apply to unregistered companies via separate regulations3 (but such companies are outside the scope of this publication).

A traded company is a company any of whose transferable securities are admitted to trading on a regulated market. [s474(1)].

A regulated market is as defined in Directive 2014/65/EC (or in the case of an EEA State that has not implemented that Directive, is as defined in Directive 2004/39/EC). A list of regulated markets is obtainable from the ESMA website.4 [s1173(1)].

A public company means a company limited by shares or limited by guarantee and having a share capital (a) whose certificate of incorporation states that it is a public company and (b) in relation to which the requirements of the CA 2006 or the former Companies Acts as to registration or re-registration as a public company have been complied with (on or after the relevant date, being 22 December 1980 in Great Britain and 1 July 1983 in Northern Ireland). [s4]. Therefore, a public company means any UK-incorporated company that is a ‘plc’ or ‘PLC’ rather than a publicly traded company.

An authorised insurance company is defined in section 1165(2), a banking company in section 1164(2)-(3) and insurance market activity in section 1165(7). See Chapter 6 at 4.2.2 and 4.2.3.

The terms e-money issuer, MiFID investment firm, regulated activity, and UCITS management company are defined in section 474 of the CA 2006. [s474].

A body corporate includes a body incorporated outside the UK but does not include (a) a corporation sole or (b) a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed. [s1173(1)]. Therefore, a body corporate would include an overseas company or a UK LLP.

4.4 Small LLPs regime

The small LLPs regime applies to an LLP for a financial year in relation to which the LLP qualifies as small (see 4.4.1 below for the size criteria for UK LLPs) and is not excluded from the regime (see 4.4.2 below for the types of excluded LLPs in the UK). [s381 (LLP)].

4.4.1 Size criteria

The small size criteria for an LLP that is not a parent and for an LLP that is a parent are the same as the small size criteria applied for a company that is not a parent (see 4.3.1 above) and a company that is a parent (see 4.3.2 above). These size criteria operate in the same way as described for companies above. [s382 (LLP), s383 (LLP)].

4.4.2 Excluded LLPs

An LLP is excluded from the small LLPs regime if it was at any time in the financial year to which the accounts relate: [s384(1) (LLP)]

  • a traded LLP (meaning an LLP any of whose transferable securities are admitted to trading on a regulated market);
  • an LLP that is an authorised insurance company, a banking LLP, an e-money issuer, a MiFID investment firm or a UCITS management company;
  • an LLP that carries on an insurance market activity; or
  • a member of an ineligible group.

A group is ineligible if any of its members is: [s384(2) (LLP)]

  • a traded company;
  • a body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA State;
  • a person (other than a small company or small LLP) who has permission under Part [4A] of the Financial Services and Markets Act 2000 to carry on a regulated activity;
  • an e-money issuer;
  • a small company or small LLP that is an authorised insurance company, banking company or banking LLP, a MiFID investment firm or a UCITS management company; or
  • a person who carries on an insurance market activity.

A company or LLP is a small company or small LLP for the purposes of section 384(2) if it qualified as small in relation to its last financial year ending on or before the end of the financial year to which the accounts relate.

The definition of an ineligible group for small LLPs still refers to ‘a person … who has permission under Part 4 of the Financial Services and Markets Act…’. This appears to be an oversight (since this Part has been replaced) and should, in our view, refer to Part 4A, as in the definition of an ineligible group for companies.

The definitions are the same as discussed at 4.3.3.A above.

The definition of an ineligible group may change in the future as a result of draft legislation pursuant to Brexit (see 12.3 below).

4.5 Companies in the Republic of Ireland

In 2017, the Republic of Ireland transposed the Accounting Directive into Irish law. The Companies (Accounting) Act 2017 amended the Companies Act 2014 to introduce the small companies regime and a micro-companies regime (similar to but not identical to the UK small companies regime and micro-entities regime) into Irish law. These changes were effective for financial years beginning on or after 1 January 2017 (but could be early applied for financial years beginning on or after 1 January 2015, provided the financial statements had not yet been approved). [FRS 102.BC.A53-A56, FRS 105 Appendix IV.4].

The qualifying conditions operate in a similar way to those for UK companies but the size thresholds, as set out in section 280A of the Companies Act 2014, are: turnover of €12 million, balance sheet total of €6 million and average number of employees of 50. As in the UK, a holding company can only qualify as a small company in relation to a financial year if the group that it heads qualified as small (as set out in section 280B of the Companies Act 2014). These sections also detail certain companies that are excluded from the small companies regime. [FRS 102 Appendix IV.6].

The statutory disclosure requirements for companies subject to the small companies regime in the Republic of Ireland differ in certain respects from the UK. Therefore, the Triennial review 2017 introduced a new Appendix D into Section 1A of FRS 102 which sets out the disclosure requirements for small entities in the Republic of Ireland (whereas Appendix C relates to disclosure requirements for small entities in the UK).

There is no equivalent legislation to that for UK LLPs in the Republic of Ireland. However, certain Irish partnerships are required to comply with Part 6 of the Companies Act 2014 by virtue of the European Communities (Accounts) Regulations 1993 (as amended). [FRS 102 Appendix IV.11].

Appendix IV to FRS 102 – Republic of Ireland legal references – has been updated to refer to the Companies Act 2014 in the March 2018 compendium version of FRS 102.

5 EFFECTIVE DATE

FRS 102 (amended July 2015), which introduced Section 1A, was effective for accounting periods beginning on or after 1 January 2016. There were certain early application provisions (explained in Chapter 3 at 1.3 of EY UK GAAP 2017) that were intended to align with the application of SI 2015/980 (for UK companies). [FRS 102.1.15].

The Triennial review 2017 subsequently made changes to Section 1A, principally to reflect the changes made to Irish law in 2017 and to update Section 1A for the small LLPs regime. However, there were a number of other amendments, mainly clarifications.

The Triennial review 2017 (other than the amendments for small entities in the Republic of Ireland – see 5.1 below) is effective for accounting periods beginning on or after 1 January 2019. Early application is permitted provided that all the amendments to FRS 102 are applied at the same time. However, certain amendments to FRS 102 can be early applied separately, as explained in Chapter 3 at 1.3. These include the relief available to a small entity when accounting for certain loans made by a director of the small entity or his / her close family member (see 6.3 below). A small entity applying Section 1A is encouraged to disclose early application. [FRS 102.1.18].

5.1 Small entities in the Republic of Ireland

The amendments to Section 1A for small entities in the Republic of Ireland are effective for accounting periods beginning on or after 1 January 2017 (which aligns with the changes made to the Companies Act 2014). [FRS 102.1.18].

A small entity in the Republic of Ireland may apply the amendments made to Section 1A for accounting periods beginning on or after 1 January 2017, with early application permitted provided the Companies (Accounting) Act 2017 is applied from the same date. If a small entity in the Republic of Ireland applies the amendments to Section 1A before 1 January 2017, it is encouraged to disclose that fact. This is in addition to the statement required in paragraph 1AD.3 as to whether the small entity's financial statements are prepared in accordance with Section 1A of FRS 102, giving the effect of any material departure from Section 1A, the effect of the departure and the reasons for it. [FRS 102.1AD.3].

Otherwise, the Triennial review 2017 is effective for accounting periods beginning on or after 1 January 2019 (with early application available). A small entity applying Section 1A is encouraged to disclose early application. [FRS 102.1.18].

6 RECOGNITION AND MEASUREMENT REQUIREMENTS

Section 1A does not set out a separate recognition and measurement regime for small entities, instead requiring that small entities follow the recognition and measurement requirements of full FRS 102 (although there are some limited reliefs available) – see 6.1 below. It also addresses the requirements where a small entity prepares consolidated financial statements (see 6.2 below).

6.1 Recognition and measurement requirements of FRS 102

All the recognition and measurement requirements of FRS 102 apply to a small entity applying Section 1A. The only exclusions from the remainder of FRS 102 that are set out in Section 1A relate to certain presentation and disclosure requirements. [FRS 102.1A.1, 7]. See 7.1 below.

Having said that, FRS 102 includes certain transition exemptions for small entities (adopting FRS 102 for accounting periods beginning prior to 1 January 2017) – see 6.4 below. In addition, there is a relief allowing small entities to measure certain loans from a director or his / her close family members at transaction price – see 6.3 below.

The LLP SORP reflects both the requirements of Section 1A and the changes to LLP law made by SI 2016/575. The SORP states that small LLPs applying Section 1A must follow the SORP's recognition and measurement requirements in full, but give certain additional disclosures. [LLP SORP.27-28]. See 11.5 below.

6.2 Preparation of consolidated financial statements under Section 1A

A small entity that is a parent entity is not required to prepare consolidated financial statements. [FRS 102.1A.21]. The qualifying criteria for a small parent company and LLP in the UK are set out in 4.3 and 4.4 above.

The exemption from preparing consolidated financial statements, as set out in Section 1A, differs from the current statutory requirements for small companies and small LLPs to prepare group accounts (which also need to be met where a small entity is subject to these requirements). This statutory exemption from preparing group accounts has been included in Section 9 – Consolidated and Separate Financial Statements. [FRS 102.9.3(e)]. See Chapter 8 at 3.1.1.D.

For financial years beginning on or after 1 January 2017, a company is exempt from the requirement to prepare group accounts if: [s399(2A)]

  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 which, at any time during the financial year, has an undertaking falling within section 399(2B) as a member.

An undertaking falls within section 399(2B) if: [s399(2A)-(2B)]

  1. it is established under the law of an EEA State;
  2. it has to prepare accounts in accordance with the Accounting Directive; and
  3. it is:
    1. an undertaking which has been designated by an EEA State as a public-interest entity under the Accounting Directive;
    2. an undertaking whose transferable securities are admitted to trading on a regulated market in an EEA State;
    3. 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, other than one listed in Article 2 of Directive 2013/36/EU of the European Parliament and of the Council); or
    4. 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).

A ‘member of a group’ means a parent undertaking or its subsidiary undertaking. [s474]. Other relevant definitions are at 4.3.3.A above. The list included in section 399(2B) identifies the types of undertakings treated as public interest entities in the UK. However, other EEA States may have designated other types of undertakings as public interest entities.

Similarly, for financial years beginning on or after 1 January 2017, an LLP is exempt from the requirement to prepare group accounts if: [s399(2A) (LLP), (2B) (LLP)]

  1. at the end of the financial year, the LLP is subject to the small LLPs regime (see 4.4 above); and
  2. is not a member of a group which, at any time in the financial year, has an undertaking falling within section 399(2B) (i.e. the same list as above) as a member.

Other statutory exemptions from preparing group accounts are discussed more generally in Chapter 8 at 3.1.1.

A UK company or LLP exempt from the requirement to prepare group accounts may still do so. [s399(4), s399(4) (LLP)]. Such group accounts could be prepared as statutory group accounts, or as non-statutory group accounts for the members.

The definition of the small companies regime and the list of undertakings falling within section 399(2B) may change in the future as a result of draft legislation pursuant to Brexit (see 12.3 below).

6.2.1 Voluntary preparation of consolidated financial statements

If a small entity that is a parent voluntarily chooses to prepare consolidated financial statements, it: [FRS 102.1A.22]

  1. must apply the consolidation procedures set out in Section 9 (see Chapter 8 at 3.5);
  2. is encouraged to provide the disclosures set out in paragraph 9.23 (see 11.4.1 below);
  3. must comply so far as practicable with the requirements of Section 1A as if it were a single entity (Schedule 6 of the Small Companies Regulations, paragraph 1(1)), subject to any restrictions or exemptions set out in legislation; and
  4. must provide any disclosures required by Schedule 6 of the Small Companies Regulations (see 11.4.3 and 11.4.4 below).

6.2.2 Interaction with statutory requirements (where consolidated financial statements are prepared)

Group accounts are drawn up as at the same date as the accounts of the parent company or parent LLP. [6 Sch 2(1A) (SC), 4 Sch 2(1A) (LLP SC)]. Only the adapted formats or statutory formats can be applied in group accounts. The abridged formats are not available in group accounts. [6 Sch 1(1A) (SC), 4 Sch 1(1A) (LLP SC)]. See 8.1 below for further discussion of the formats.

Small companies must comply with Schedule 6 to the Small Companies Regulations (and small LLPs with Schedule 4 to the Small LLP Regulations) which set out further requirements over consolidation procedures, the acquisition method, the conditions for merger accounting and disclosures. The recognition and measurement requirements for consolidated financial statements in the Small Companies Regulations (and Small LLP Regulations) are the same as those in the Regulations (and LLP Regulations). These are discussed in Chapter 8 and Chapter 17.

The conditions for accounting for an acquisition as a merger are: [6 Sch 10 (SC)]

  1. that the undertaking whose shares are acquired is ultimately controlled by the same party both before and after the acquisition;
  2. that the control referred to in paragraph (a) is not transitory; and
  3. that adoption of the merger method accords with generally accepted accounting principles or practice.

The conditions for merger accounting in LLP law are solely that adoption of the merger accounting method accords with generally accepted accounting principles or practice. [4 Sch10 (LLP SC)]. See Chapter 17 at 5.

6.3 Loans from a director or a close member of his / her family

6.3.1 Background to the exemption

Generally, FRS 102 requires that a financial asset or financial liability that is a financing transaction is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument as determined at initial recognition adjusted for transaction costs. [FRS 102.11.13].

The FRC received feedback in the triennial review from many stakeholders concerning the accounting for directors' loans (which were previously required to be measured at present value in accordance with paragraph 11.13). Such loans can often be interest free or at below market rates. The FRC considers that accounting at present value is appropriate since such transactions contain both an interest-bearing loan and a transfer of value.

However, concerns were raised about some of the practicalities of the accounting requirements, in particular that such loans are often made by directors, especially those of small companies, because commercial funding is unavailable and therefore it is difficult to determine an appropriate market rate for a similar debt instrument. Comments were also received concerning the nature of the transaction in the context of a small entity where the same individual is employee, director, shareholder and lender. It was also noted that FRS 102 already included an exemption from the financing transaction requirements for public benefit entity concessionary loans. Generally, the FRC considers that all entities within the scope of FRS 102 should be subject to consistent recognition and measurement requirements, although occasional specific exemptions may be granted in order to meet the principles of providing proportionate and practical solutions. The FRC therefore proposed an exemption that is intended to provide relief to small owner-managed businesses. The background to this exemption is further explained in the Basis of Conclusions to FRS 102. [FRS 102.BC.B11.32-39].

6.3.2 Exemption for certain loans from a director or his/her close family members

The Triennial review 2017 included a relief for certain loans from a director or his / her close family members allowing them to be measured at transaction price. The FRC had previously granted interim relief (with immediate effect) in May 2017 – for loans from a director who is a natural person and a shareholder in the small entity (or a close member of the family of that person). [FRS 102.1.15A].

The Triennial review 2017 removed the amendment made in May 2017 (by deleting paragraph 1.15A) but extended the scope of the exemption. [FRS 102.11.13A(a), 11.13B-C, 11.14(a)(i)]. These paragraphs setting out the exemption are available for separate early application without early application of the rest of the Triennial review 2017 (see Chapter 3 at 1.3) in order to extend the interim relief granted in May 2017 to all circumstances within the scope of the exemption. [FRS 102.BC.A61(a)]. An entity early applying the Triennial review 2017 must disclose this fact (unless it is a small entity applying Section 1A, in which case such disclosure is encouraged). [FRS 102.1.18].

The amendments state that, as an exception to paragraph 11.13, a basic financial liability of a small entity that is a loan from a person who is within a director's group of close family members, when that group contains at least one shareholder in the entity, may be measured initially at transaction price. [FRS 102.11.13A(a)]. The effective interest rate used when subsequently measuring the loan at amortised cost is the interest rate implicit in the contract, which may be zero. [FRS 102.11.14(a)(i)].

A director's group of close family members means, in this context, the director and the close members of the family of that director. This includes a person who is the sole director-shareholder of an entity. For an LLP, the reference to a ‘shareholder’ is read as ‘a member who is a person’. [FRS 102.11.13A(a)]. We believe the exemption is intended to be limited to a director (or member of an LLP) who is a natural person (individual) and would exclude a corporate director-shareholder or corporate member of an LLP.

The close members of the director's family are those family members who may be expected to influence, or be influenced by, that director in their dealings with the entity including: [FRS 102 Appendix I]

  • that director's children and spouse or domestic partner;
  • children of that director's spouse or domestic partner; and
  • dependants of that director or that director's spouse or domestic partner.

Therefore, relief is now available for loans to small entities from the director or close members of the director's family, providing that this group also includes a shareholder in the entity. A loan from a director, who is not a shareholder and has no close family members that are shareholders, will not qualify for the relief. [FRS 102.BC.B11.38].

An example of a situation where the exemption would be available is where the spouse of a director of the small entity is a shareholder in the small entity. The director (or the spouse) makes an interest free loan to the small entity. The amount of the loan £200,000 is repayable after three years by the entity. Where the concession is used, the loan liability is recorded at its transaction price of £200,000 and no interest is charged to profit or loss. The loan is then repaid at £200,000 in three years' time, extinguishing the liability.

The FRC notes that loans from directors or shareholders with a participating interest to a small entity that are non-interest bearing or bear interest at a non-market rate fall within the disclosure requirements of paragraphs 1AC.35 or 1AD.51 (related party transactions) (see 11.1.8.A below). [FRS 102.1AC.35, 1AD.51]. Small entities are encouraged to consider whether disclosures about such loans from other parties is necessary for the purposes of a true and fair view. [FRS 102.BC.B11.40].

6.3.3 Small entity becomes or ceases to be eligible for the exemption in measuring directors' loans at present value

An entity that was not a small entity when the transaction was entered into, but subsequently becomes eligible to take advantage of the above exemption, and chooses to do so, applies the exemption retrospectively. [FRS 102.11.13C].

An entity that has taken advantage of the exemption but subsequently ceases to be a small entity is permitted, when remeasuring the financial liability to present value prospectively from the first reporting date after it ceases to be a small entity, to determine the present value on the basis of the facts and circumstances existing at that time or at the date the financing arrangement was entered into. [FRS 102.11.13B].

This means that in the first reporting period in which the entity ceases to be a small entity, the financial liability is remeasured at its present value at the end of the reporting period – either at the present value required by paragraph 11.13 (using the market rates applicable to a similar transaction at the date the financing transaction was entered into) or on the basis of the facts and circumstances at the end of the reporting period. While the adjustment is to be reflected prospectively, it is not specified where any catch up for any remeasurement required should be reflected. However, in our view, the adjustment should most appropriately be reflected in equity (consistent with the accounting for any difference between the transaction price and the present value of such a loan on initial recognition, if the above exemption available for small entities had not been taken).

6.4 Transition

Section 35 – Transition to this FRS – of FRS 102 includes three transitional exemptions – relating to share-based payment transactions, fair value measurement of financial instruments and financing transactions involving related parties – that apply specifically to small entities (whether applying Section 1A or not). [FRS 102.35.10(b), 10(u)-(v)].

The transition exemptions only applied where a small entity first adopted FRS 102 for an accounting period that commenced before 1 January 2017 and were intended to help with transition from the FRSSE to FRS 102. The transition exemptions are therefore not discussed in Chapter 32 of this publication. However, a full discussion is included in Chapter 32 at 5.4, 5.19 and 5.20 of EY UK GAAP 2017.

Where a small entity has taken a transition exemption relating to share-based payment transactions and / or financing transactions involving related parties, this may impact the accounting in subsequent financial statements of small entities. The transition exemption relating to fair value measurement of financial instruments allowed entities not to restate comparatives in the first FRS 102 financial statements.

Small entities who made use of the transition exemption relating to share-based payments are not required to apply Section 26 – Share-based Payment – to equity instruments granted before the start of the first FRS 102 reporting period. However, such small entities are required to make disclosures in respect of off-balance sheet arrangements in accordance with paragraph 1AC.31 (see 11.1.5.H below). [FRS 102.35.10(b)].

The transition exemption relating to financing transactions involving related parties allowed a small entity applying the requirement in paragraph 11.13 to determine the present value of the financial asset or liability based on the facts and circumstances at the start of the first FRS 102 reporting period, rather than at the date of the original transaction. [FRS 102.35.10(v)]. The approach taken would impact the measurement of the financing transaction under the amortised cost method in later financial statements.

7 PRESENTATION REQUIREMENTS IN SECTION 3 THAT STILL APPLY WHERE SECTION 1A IS APPLIED

A small entity applying Section 1A must still comply with Section 3 – Financial Statement Presentation, except for certain specified paragraphs (see 7.1 below). [FRS 102.1A.7, 3.1A].

This means such an entity must still comply with Section 3's requirements on:

  • the financial statements giving a ‘true and fair view’ (including the provisions for a ‘true and fair override’) (see 7.2 below); [FRS 102.3.2, 3.4-6]
  • assessment of the entity's ability to continue as a going concern (see 7.3 below); [FRS 102.3.8]
  • frequency of reporting (see 7.4 below); [FRS 102.3.10]
  • consistency of presentation, excluding the requirements on reclassification (see 7.5 below); [FRS 102.3.11]
  • comparative information (see 7.5 below); [FRS 102.1A.10, 3.14, 3.20]
  • materiality and aggregation (see 7.6 below); [FRS 102.3.15-16B]
  • requirements to present each financial statement in a complete set of financial statements with equal prominence, and ability to use other titles for the financial statements as long as they are not misleading; [FRS 102.1A.11, 3.21-22]
  • identification of the financial statements, except for paragraph 3.24(b) (see 7.7 below); [FRS 102.3.23, 3.24(a)] and
  • interim financial reports (see 7.8 below). [FRS 102.3.25].

7.1 Exemptions from certain presentation and disclosure requirements in FRS 102 for a small entity applying Section 1A

A small entity applying Section 1A is not required to comply with the following paragraphs of Section 3 (see also discussion below): [FRS 102.1A.7, 3.1A]

  • paragraph 3.3 (statement of compliance with FRS 102 – see 7.1.1 below);
  • paragraph PBE 3.3A (statement of compliance with FRS 102 by a public benefit entity – see 7.1.1 below);
  • paragraph 3.9 (disclosure of material uncertainties over going concern and certain disclosures where the financial statements not prepared on a going concern basis – see 7.3 below);
  • paragraph 3.12 (reclassification of comparatives where the presentation or classification of items in the financial statements has changed, unless impracticable to do so – see 7.5.2 below);
  • paragraph 3.13 (disclosure of the reasons why it is impracticable to reclassify comparatives where the presentation or classification of items in the financial statements has changed);
  • paragraph 3.17 (content of a complete set of financial statements – see 7.1.2 below);
  • paragraph 3.18 (option to present a statement of income and retained earnings, where certain conditions are met);
  • paragraph 3.19 (option to present only an income statement where there are no items of other comprehensive income, or to label the bottom line of the statement of comprehensive income as ‘profit or loss’); and
  • paragraph 3.24(b) (description of the nature of the entity's operations and its principal activities, unless disclosed in the business review (or similar statement) accompanying the financial statements).

In addition, a small entity applying Section 1A is not required to comply with Section 4 – Statement of Financial Position, Section 5 – Statement of Comprehensive Income and Income Statement, Section 6 – Statement of Changes in Equity and Statement of Income and Retained Earnings, Section 7 – Statement of Cash Flows, and the disclosure requirements in Sections 8 to 35. [FRS 102.1A.7, 1A.17].

The above requirements have been disapplied because they relate to disclosures not required by the CA 2006, the Small Companies Regulations or the Small LLP Regulations and because UK company law (and LLP law) only requires presentation of a balance sheet and profit and loss account.

7.1.1 Statement of compliance

The Triennial review 2017 clarified that small entities must make the statement of compliance that the financial statements are prepared in accordance with the small companies regime or small LLPs regime, where required by legislation. Other entities may refer to the small entities regime. This statement is included on the statement of financial position, in a prominent position above the signature (see 9 below). [FRS 102.1A.6A].

Notwithstanding the general exemption available to small entities applying Section 1A from complying with paragraph 3.3 (and making an explicit and unreserved statement of compliance that the financial statements are prepared in accordance with FRS 102), small entities in the Republic of Ireland are required to make a statement of whether the financial statements have been prepared in accordance with Section 1A, giving the effect of and reasons for any material departures from Section 1A (section 291(7) of the Companies Act 2014). [FRS 102.1A.7, 1AD.3, 3.3]. This reflects a disclosure required for Irish companies under Irish law. Appendix E, instead, encourages small entities in the UK to give a statement of compliance with FRS 102, adapted to refer to Section 1A. [FRS 102.1AE.1(a)].

Both Irish and UK small entities are encouraged, where applicable, to make an explicit and unreserved statement that the small entity is a public benefit entity. [FRS 102.1AE.1(b), 1AE.2].

7.1.2 Content of complete set of financial statements

As explained further at 8 below, Section 1A states that a complete set of financial statements includes a statement of financial position and income statement, prepared in accordance with the requirements of Part 1 of Schedule 1 to the Small Companies Regulations (or Part 1 of Schedule 1 to the Small LLP Regulations) – except to the extent that these requirements are not permitted by any statutory framework under which such entities report – together with the required notes. Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014. [FRS 102.1A.4, 1A.8, 1A.12, 1A.14].

However, a small entity is encouraged to present a statement of total comprehensive income, where it has items in other comprehensive income, and to present a statement of changes in equity (or statement of income and retained earnings) where it has transactions with equity holders. Such additional statements may be needed in order for the financial statements to give a true and fair view (see 7.2 below). [FRS 102.1A.5, 1A.9].

The exemption from including a statement of cash flows is available to any small entity, whether or not applying Section 1A. [FRS 102.7.1B]. However, the Triennial review 2017 clarified that a small entity (regardless of the regime applied in the preparation of its financial statements) is not required to include a statement of cash flows in its financial statements unless it is required to do so by an applicable SORP or law or other relevant regulation. [FRS 102.3.1B]. See, for example, the discussion on Update Bulletin 1 to the Charities SORP (FRS 102) (2014) at 4.2 above.

Section 1A requires that a complete set of financial statements prepared by a small entity also includes notes in accordance with paragraphs 1A.16 to 1A.20. [FRS 102.1A.8]. In particular, additional disclosures may be required in order for the financial statements to give a true and fair view. See 7.2, 8 and 11 below. Consequently, the presentation sections of FRS 102, beyond the mandatory paragraphs of Section 3, remain relevant to small entities applying Section 1A that present additional primary statements or disclosures.

More generally, entities subject to SORPs may be subject to additional requirements. See, for example, the discussion on the Charities SORP (FRS 102) (2014) at 4.2 above) and in relation to small LLPs at 11.5 below.

7.2 True and fair view

Section 1A requires that the financial statements of a small entity shall give a true and fair view of the assets, liabilities, financial position and profit or loss of the small entity for the reporting period. [FRS 102.1A.5].

This is consistent with the statutory requirements for a company in the CA 2006 (or in the CA 2006, as applied to LLPs). The directors of a company (or members of an LLP) must not approve accounts unless they are satisfied that the accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of the company (or LLP) (and in respect of any group accounts, the undertakings included in the consolidation as a whole, so far as concerns the members of the company (or LLP)). [s393, s393 (LLP)]. Irish small entities refer to section 289 of the Companies Act 2014,

Section 3 provides further guidance on the requirement that financial statements must give a true and fair view. [FRS 102.3.1]. Application of FRS 102, 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. Additional disclosures are necessary when compliance with the specific requirements in FRS 102 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. [FRS 102.3.2].

The ‘true and fair view’ requirement in paragraph 1A.5 refers to profit or loss (rather than financial performance, as in paragraph 3.2) and excludes reference to cash flows because small entities are not generally required to present a statement of comprehensive income or a cash flow statement (see 7.1.2 above). [FRS 102.1A.5].

Section 1A's similar requirement (to Section 3) to present additional disclosures where necessary to meet the requirement for the financial statements to give a true and fair view [FRS 102.1A.16] is consistent with the statutory requirement that if compliance with the regulations, and any other provision made by or under the CA 2006 as to matters to be included in a company's (or LLP's) individual and / or group accounts or in notes to those accounts, would not be sufficient to give a true and fair view, the necessary additional information must be given in the accounts or in a note to the accounts. [s396(4), s404(4), s396(4) (LLP), s404(4) (LLP)].

A particular issue for small entities relates to the fact that the statutory disclosures for companies subject to the small companies regime (and LLPs subject to the small LLPs regime) – which are the basis for the disclosures included in Section 1A – are considerably more limited than the disclosures required for entities applying full FRS 102. Consequently, a small entity may need to provide disclosures in addition to those set out in Section 1A in order to comply with the requirement in paragraph 1A.5 that the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the small entity. [FRS 102.1A.5, 1A.6]. See 11 below for further guidance.

The LLP SORP requires small LLPs to give certain additional disclosures and also notes that, depending on the individual facts and circumstances, some or all of the disclosures in FRS 102 and the SORP may be necessary in order for the LLP's financial statements to give a true and fair view (judgement will be needed) (see 11.5 below). [LLP SORP.27A-28].

The general principles governing the preparation of financial statements – the going concern presumption, consistency (in applying accounting policies and measurement bases), use of prudence, use of the accruals basis, separate determination of individual assets and liabilities (no offsetting); and the requirement that the opening balance sheet for a financial year corresponds to the closing balance sheet for the previous financial year – are set out in the Small Companies Regulations (and Small LLP Regulations). These general principles are exactly the same as those set out in the Regulations (and LLP Regulations), as discussed in Chapter 6 at 9.1.1. [1 Sch 11-15A (SC), 1 Sch 11-15A (LLP SC)].

Similarly, the Small Companies Regulations (and Small LLP Regulations) set out the historical cost accounting rules, alternative accounting rules and fair value accounting rules. [1 Sch 16-41 (SC), 1 Sch 16-41 (LLP SC)]. These contain the same recognition and measurement requirements as the Regulations (and LLP Regulations), as discussed in Chapter 6 at 10, but have simpler disclosures. Small companies, qualifying partnerships5 and small LLPs that are micro entities preparing accounts in accordance with the micro-entity regime cannot apply the alternative accounting rules or fair value accounting rules (but would apply FRS 105 rather than Section 1A). [Regulations (SC) 3(1A), LLP SC Regulations 3(1A)].

There is further discussion on the true and fair view requirement (including its relationship with accounting standards) in Chapter 1 at 7.2.1 and Chapter 6 at 9.2.

7.2.1 True and fair override

In special circumstances when management concludes that compliance with any requirement of FRS 102 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. [FRS 102.3.4]. Paragraphs 3.5 and 3.6 set out the disclosures required where an entity departs from a requirement of the standard or from a requirement of applicable legislation (see 11.1.4 below). [FRS 102.3.5-6]. In our view, for a small entity applying Section 1A, paragraphs 3.5 and 3.6 should be read with adaptations to refer to ‘profit or loss’ rather than ‘financial performance’, consistent with the concept of ‘true and fair view’ in Section 1A.

FRS 102's requirements for the disclosures in respect of departures from the standard or legislation (for the overriding purpose of the financial statements giving a true and fair view) are consistent with the requirements of the CA 2006 for companies (and the CA 2006 as applied to LLPs) to give the particulars of, reasons for and effect of any departure in a note to the financial statements. [s396(5), s404(5), s396(5) (LLP), s404(5) (LLP)].

Appendix III to FRS 102 highlights certain instances where the requirements of FRS 102 result in a departure from the requirements of the Regulations in order to give a ‘true and fair view’. These examples, which are not exhaustive, are relevant to UK companies preparing Companies Act accounts (and similarly, LLPs preparing non-IAS accounts).

In addition, where it appears to the directors (or the members of the LLP) that there are special reasons for departing from any of the general principles (see 7.2 above) in preparing the accounts for the financial year, the particulars of the departure, the reasons for it and its effect should be disclosed in a note to the accounts. [1 Sch 10(2) (SC), 1 Sch 10(2) (LLP SC)].

There is further discussion of the true and fair override requirement in FRS 102 and company law in Chapter 6 at 9.2.2.

7.3 Going concern

FRS 102 requires management, when preparing financial statements, to make an assessment of an 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. [FRS 102.3.8, FRS 102 Appendix I].

The FRC's Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply The UK Corporate Governance Code (April 2016) (‘2016 FRC Guidance’) similarly requires directors of companies reporting under FRS 102 to consider a period of at least twelve months from the date of authorisation of the financial statements. This is longer than that required by IAS 1 – Presentation of Financial Statements – but the 2016 FRC Guidance, in any event, recommends directors of companies reporting under IFRS to consider a period of at least twelve months from the date of authorisation of the financial statements.6 While small entities are not required to apply the 2016 FRC Guidance, its relevance to small entities is discussed at 7.3.1 below.

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, those uncertainties should be disclosed in the financial statements. [FRS 102.3.9]. While a small entity is not required to comply with paragraph 3.9 (see 7.1 above), Section 1A specifically encourages a small entity to make this disclosure by way of its inclusion in Appendix E to Section 1A which sets out disclosures ‘which may nevertheless be necessary to give a true and fair view’. [FRS 102.1A.7, 1A.20, 1AE.1(c), 1AE.2].

FRS 102 states that an entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading or that it has no realistic alternative but to do so. Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is no longer appropriate. If the going concern assumption is no longer appropriate, the effect is so pervasive that a fundamental change in the basis of accounting rather than an adjustment to the amounts recognised within the original basis of accounting is required, and therefore the disclosures in paragraph 3.9 (as set out below) apply. [FRS 102.32.7A-B].

When financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern. [FRS 102.3.9].

Although a small entity applying Section 1A is not required to comply with paragraph 3.9, the Triennial review 2017 clarified that if a small entity departs from the principle that it is presumed to be carrying on business as a going concern, it must provide the disclosures required by paragraph 1AC.10 or paragraph 1AD.11, as relevant. [FRS 102.1A.7]. This is because preparation of the financial statements on a non-going concern basis would be a departure from one of the general principles (see 7.2 above). Particulars of the departure, the reasons for it and its effect are required to be disclosed by the Small Companies Regulations and Small LLP Regulations (see 11.1.4 below). [1 Sch 10(2) (SC), 1 Sch 10(2) (LLP SC), FRS 102.1AC.10]. In practice, this is likely to require similar disclosures to those set out in paragraph 3.9.

FRS 102 provides no further guidance concerning what impact there should be on the financial statements if it is determined that the going concern basis is not appropriate. Accordingly, entities will need to consider carefully their individual circumstances to arrive at an appropriate basis.

7.3.1 FRC Guidance on Going Concern

FRS 102's requirements are supplemented by the 2016 FRC guidance referred to at 7.3 above.

The 2016 FRC guidance is non-mandatory, best practice guidance which aims to provide a proportionate and practical guide for directors of companies not applying the UK Corporate Governance Code. The 2016 FRC guidance covers factors to consider when determining whether the going concern basis of accounting is appropriate; making an assessment of the solvency and liquidity risks that might constitute principal risks for a company requiring disclosure in the strategic report; guidance on the assessment periods for the going concern basis of accounting and those risks; and guidance on the assessment process. It also includes summaries of the related reporting requirements.

While the 2016 FRC Guidance refers to directors and companies for simplicity, the guidance notes that it is also likely to be relevant to other entities.

Small and micro-companies must assess whether the going concern basis of accounting is appropriate in preparing their financial statements. However, they are excluded from the scope of the 2016 FRC Guidance. For small companies applying Section 1A, this is on the basis that:

  • such entities are not required to provide disclosures on the going concern basis of accounting, although their directors are encouraged to provide such disclosures, where appropriate, in meeting their responsibility to prepare financial statements that give a true and fair view; and
  • they are not required to prepare a strategic report.

The 2016 FRC Guidance includes a table of the requirements in the CA 2006 and accounting standards and highlights the relevant sections in the guidance that may assist directors in meeting the requirements. For completeness, this table includes small micro-entities and small companies. The relevant requirements for small companies are identified, as follows:

  • Assessment of the appropriateness of the going concern basis of accounting [FRS 102.3.8] – addressed in the 2016 FRC Guidance, paragraphs 3.1 to 3.6.
  • Disclosure when there are material uncertainties or when the company does not prepare financial statements on a going concern basis [FRS 102.3.9] – addressed in the 2016 FRC Guidance, paragraphs 3.7 to 3.8.

    The guidance notes that while there is no explicit requirement in the CA 2006 or FRS 102 for companies subject to the small companies regime to report on the going concern basis of accounting and material uncertainties, the directors are required to make such disclosures that are necessary for the financial statements to provide a true and fair view. Appendix E to Section 1A encourages the inclusion of disclosures on material uncertainties in order to meet this requirement (see 11.3 below).

    As discussed in 7.3 above, the disclosures set out in paragraphs 1AC.10 or 1AD.11 must be given where the financial statements are not prepared on a going concern basis (as this is a departure from one of the general principles for preparation of financial statements). [FRS 102.1A.7, 1AC.10].

  • Additional disclosures that may be required to give a true and fair view [s393] – addressed in the 2016 FRC Guidance, paragraphs 3.9 to 3.10.

The 2016 FRC Guidance is discussed further in Chapter 6 at 9.3.1.

7.4 Frequency of reporting

A small entity must present a complete set of financial statements (including comparative information) at least annually. When the end of an entity's reporting period changes and annual financial statements are presented for a period longer or shorter than one year, the entity shall disclose that fact, the reason for using a longer or shorter period, and the fact that comparative amounts presented in the financial statements (including the related notes) are not entirely comparable. [FRS 102.3.10].

Normally, financial statements are consistently prepared covering a one year period. Some entities, particularly in the retail sector, present financial statements for a 52-week period. This practice is permitted by the CA 2006 which allows companies to prepare financial statements to a financial year end, not more than 7 days before or after the end of the accounting reference period (based on the accounting reference date notified to the Registrar). [s390(2)(b), s391, s390(2)(b) (LLP), s391 (LLP)]. While FRS 102 does not explicitly address this issue, we consider that financial statements prepared in accordance with FRS 102 can be made up to a financial year end, not more than 7 days from the end of the accounting reference period.

7.5 Comparative information (including consistency of presentation)

Except when FRS 102 permits or requires otherwise, a small entity presents comparative information in respect of the preceding period for all amounts presented in the current period's financial statements. [FRS 102.1A.10, 3.14]. This means that the requirement to present comparative information applies both to mandatory and voluntary information presented for the current period.

In certain cases, FRS 102 provides specific exemptions from presenting comparatives (as indicated in the disclosures listed at 11 below). The General Rules to the formats (as defined in 3 above) also contain requirements on comparatives (see 8.2 below).

7.5.1 Comparative information for narrative and descriptive information

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. [FRS 102.3.14]. See Chapter 6 at 3.6.1.

7.5.2 Consistency of comparative information

The requirements on consistency of comparative information where Section 1A is applied are the same as under full FRS 102. [FRS 102.3.11]. See Chapter 6 at 3.6.2.

The Triennial review 2017 added paragraphs 3.12 and 3.13 (disclosures in relation to reclassification of comparatives) to the list of exemptions from presentation requirements. However, the General Rules to the formats (see 8.2 below) include disclosures concerning the non-comparability of and any adjustment made to corresponding amounts (i.e. comparatives), as set out in paragraph 1AC.8 for UK small entities and 1AD.10 for small entities in the Republic of Ireland (see 11.1.3 below). [FRS 102.1AC.8, 1 Sch 7(2)].

7.6 Materiality and aggregation

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. [FRS 102.3.16]. When applying FRS 102, an entity must decide, taking into consideration all relevant facts and circumstances, how it aggregates information in the financial statements (including the notes). The understandability of the entity's financial statements must not be reduced by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. [FRS 102.3.16A].

‘Material’ is defined as follows: ‘Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.’ However, it is inappropriate to make, or leave uncorrected, immaterial departures from the standard to achieve a particular presentation of an entity's financial position, financial performance or cash flows. [FRS 102.2.6, Appendix I].

FRS 102 requires an entity to present each material class of similar items separately and to present separately items of a dissimilar nature or function unless they are immaterial. [FRS 102.3.15]. 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 financial statements may warrant separate presentation in the notes. [FRS 102.3.16]. The principle of materiality and level of aggregation is particularly relevant to small entities in determining whether additional information is required to be presented in the notes to the financial statements in order for the financial statements to give a true and fair view (see 7.2 above). [FRS 102.1A.16-17].

A small company (or small LLP) reporting under FRS 102 must comply with the balance sheet and profit and loss account formats set out in the Small Companies Regulations (or Small LLP Regulations) respectively (see 8.1 below).

The General Rules to the formats (see 8.2 below) allow the directors (or members of the LLP) to combine items denoted with Arabic numbers in the statutory balance sheet and profit and loss account formats if:

  • their individual amounts are not material to assessing the state of affairs, or profit or loss, of the company (or LLP) for the financial year in question; or
  • the combination facilitates that assessment (in the latter case, the individual amounts of the line items combined must be disclosed in the notes). [1 Sch 4(2) (SC), 1 Sch 4(2) (LLP SC)].

In respect of the abridged formats, certain line items are permitted to be combined on the face of the balance sheet and profit and loss account (see 9.2 and 10.2 below). Section 1A states that disaggregation of gross profit or loss, disclosure of turnover and disaggregation of information in the balance sheet may be necessary in the notes to the financial statements in order to give a true and fair view. [FRS 102.1AA.2, 1AB.2].

The detailed content of the adapted formats is not set out in the Small Companies Regulations and therefore the adapted formats have no line items denoted with an Arabic number. However, the General Rules still apply ‘so far as is practicable’ – see 8.2.3 below for a discussion of how the above requirements apply to adapted formats.

FRS 102 states that an entity need not provide a specific disclosure required by the standard if the information resulting from that disclosure is not material, except when required by the CA 2006 (for Irish entities, the Companies Act 2014) regardless of materiality. This is the case even if FRS 102 contains a list of specific requirements or describes them as minimum requirements (including those set out in paragraph 1A.18 and Appendix C or Appendix D, as relevant). [FRS 102.1A.17A, 18, 3.16B].

However, certain disclosures required by the CA 2006 must be given regardless of materiality. [FRS 102.3.16B]. Most of the disclosures listed in Appendix C derive from Schedule 1 to the Small Companies Regulations (and there are similar disclosures in Schedule 1 to the Small LLP Regulations). The Small Companies Regulations (and Small LLP Regulations), where applied, also permit that ‘amounts which in the particular context of any provision of Schedule 1 to these Regulations are not material may be disregarded for the purposes of that provision.’ [8 Sch 7 (SC), 5 Sch 7 (LLP SC)]. However, examples of disclosures to which materiality considerations do not apply are the average number of employees, analysed by category (see 11.1.7 below), [s411, FRS 102.1AC.33], and details of directors' advances, credits and guarantees, [s413, FRS 102.1AC.36], (see 11.1.8.C below). In addition, in group accounts, certain information on related undertakings in Part 2 of Schedule 6 to the Small Companies Regulations (and in Part 2 of Schedule 4 of the Small LLP Regulations) are required, even if not material.

7.7 Identification of the financial statements

It is commonly the case that financial statements will form only part of a larger annual report, regulatory filing or other document, but FRS 102 only applies to the financial statements (including the notes). The annual report and accounts for a small UK company, for example, comprise the directors' report and the annual accounts. An LLP is not required to prepare a members' report (with the exception described below). Although the LLP SORP requires certain information to be disclosed, which may be included in a separate members' report, these disclosures are not required to be given by a small LLP (see 11.5 below). [LLP SORP.27A-28, 30-31].

For financial years beginning on or after 17 June 2016, a traded LLP or a banking LLP is required to prepare a strategic report. [s414A(1), s414A(1) (LLP)]. This change to LLP law was made in The Statutory Auditors Regulations 2017 (SI 2017/1164)7 and post-dates the publication of LLP SORP. As discussed in 4.4.2 above, such an LLP would not qualify for the small LLPs regime. [s384(1) (LLP)].

Accordingly, FRS 102 requires that an entity clearly identifies the financial statements and the notes, and distinguishes them from other information in the same document. In addition, the entity must display the following information prominently, and repeat it, when necessary, for an understanding of the information presented: [FRS 102.1A.7, 3.23]

  • the name of the reporting entity and any change in its name since the end of the preceding reporting period;
  • whether the financial statements cover the individual entity or a group of entities;
  • the date of the end of the reporting period and the period covered by the financial statements;
  • the presentation currency, as defined in Section 30 – Foreign Currency Translation (discussed in Chapter 27 at 3.1 and 3.7); and
  • the level of rounding, if any, used in presenting amounts in the financial statements.

In practice, these requirements can be met through the use of appropriate headings for pages, statements, notes and columns. This could include, for example: the inclusion of a basis of preparation note within the accounting policies, the use of appropriate titles for the primary financial statements, distinguishing group and company and the use of appropriate headings in the columns in the primary financial statements (and notes to the financial statements). Entities will need to consider how best to present the required information where financial statements are made available electronically.

Financial statements are usually presented to an appropriate level of rounding, such as thousands or millions of currency units. An appropriate level of rounding can avoid obscuring useful information but entities need to ensure that material information is not omitted. The level of rounding used must be clearly disclosed in the primary statements and notes to the financial statements. Entities are not precluded from using lower levels of rounding in certain notes to the financial statements. In all cases, it is important that the units used are clearly stated.

The legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office) are required to be disclosed in a note to the financial statements. [FRS 102.1A.7, 3.24(a)]. See similar disclosures at 11.1.9 below.

7.8 Interim financial reports

FRS 102 does not address the presentation of interim financial reports. It is unlikely that many small entities will be preparing interim financial reports but, if they do, such reports must describe the basis for preparing and presenting such information. FRS 104 – Interim Financial Reporting – sets out a basis for the preparation and presentation of interim financial reports that an entity may apply. [FRS 102.3.25].

See Chapter 34 if interim reporting is relevant for a small entity.

8 COMPLETE SET OF FINANCIAL STATEMENTS

A complete set of financial statements of a small entity must include all of the following (with comparatives – see 7.5 above): [FRS 102.1A.7-8, 12, 14, 16-20, 3.20]

  • a statement of financial position as at the reporting date, in accordance with paragraph 1A.12 (see 9 below);
  • an income statement for the reporting period in accordance with paragraph 1A.14 (see 10 below); and
  • notes in accordance with paragraphs 1A.16 to 1A.20 (see 11 below).

Small entities (regardless of whether applying Section 1A or not) need not prepare a cash flow statement, unless required to do so by an applicable SORP or law or other relevant regulation. [FRS 102.1A.7, 3.1B, 7.1B].

A small entity may use other titles for the financial statements as long as they are not misleading. [FRS 102.1A.7, 11, 3.22]. Consequently, the terms ‘balance sheet’ or ‘profit and loss account’ remain acceptable for use. In a complete set of financial statements, an entity should present each financial statement with equal prominence. [FRS 102.1A.7, 3.21].

While paragraphs 3.17 to 3.19 (covering the content of a complete set of financial statements in full FRS 102) do not apply to entities applying Section 1A, a small entity is not prohibited from applying any or all of Sections 3 to 7. [FRS 102.1A.7].

In addition to the statement of financial position and income statement (required by company and LLP law, and set out in paragraph 1A.8 above), a small entity is encouraged to present a statement of total comprehensive income when it recognises gains or losses in other comprehensive income, and to present a statement of changes in equity or a statement of changes in retained earnings when it has transactions with equity holders. This is in order to meet the requirements in 1A.5 (for the financial statements to give a true and fair view). [FRS 102.1A.9].

The LLP SORP also encourages but does not require small LLPs applying Section 1A to present the reconciliation of the movement in members' other interests (i.e. the statement of changes in equity. [LLP SORP.27D, 59]. See 11.5 below.

Notes to the financial statements contain information in addition to those presented in the primary financial statements and provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements. [FRS 102 Appendix I]. Consistent with the Small Companies Regulations (and Small LLP Regulations), the notes must be presented in the order in which, where relevant, the items to which they relate are presented in the statement of financial position and in the income statement. [FRS 102.1AC.2, 1 Sch 42(2) (SC), 1 Sch 42(2) (LLP SC)].

The notes must include sufficient information in order to meet the requirement for the financial statements of the small entity to give a true and fair view. Appendix C of Section 1A (for a small entity reporting in the UK) and Appendix D of Section 1A (for a small entity reporting in the Republic of Ireland) set out specific note disclosures to be given by a small entity that are based on the statutory requirements for a small company applying the Small Companies Regulations (and for Irish companies, the Companies Act 2014, as amended). A note on the FRC website explains that there are some slight differences between the disclosure requirements of Section 1A and those in the Small LLP Regulations; LLPs should apply the equivalent requirements of the Small LLP Regulations rather than Section 1A. However, additional disclosures may be needed in order for the financial statements to give a true and fair view. Appendix E of Section 1A includes a list of disclosures that are specifically encouraged (and which may nevertheless be necessary for the financial statements to give a true and fair view). Small entities are also encouraged to consider and provide other disclosures from full FRS 102 that are relevant to material transactions, other events or conditions of the small entity in order for the financial statements to give a true and fair view. Specific disclosures are not required if the information is not material, except where required by the CA 2006 regardless of materiality. [FRS 102.1A.16-20]. See 7.2 and 11 below.

While 8.1 to 10 below refer to the formats applicable to LLPs, detailed guidance on LLPs is outside the scope of this chapter.

8.1 Formats

A small entity must present a statement of financial position and an income statement (showing its profit or loss for the period) in accordance with the requirements for a balance sheet and profit and loss account set out in Part 1 of Schedule 1 to the Small Companies Regulations (or Part 1 of Schedule 1 to the Small LLP Regulations). Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014. [FRS 102.1A.4, 12, 14].

Small entities that do not report under the CA 2006 (or for Irish small entities, the Companies Act 2014) also comply with these requirements, except to the extent that these requirements are not permitted by any statutory framework under which such entities report. [FRS 102.1A.4]. Therefore, such entities may have a more restricted choice (or need to make certain modifications to the formats adopted).

A UK company subject to the small companies regime must follow one of the formats included in Part 1 of Schedule 1 to the Small Companies Regulations. An LLP subject to the small LLPs regime must follow one of the formats included in Part 1 of Schedule 1 to the Small LLP Regulations.

Part 1 of Schedule 1 to the Small Companies Regulations (and Part 1 of Schedule 1 to the Small LLP Regulations) allow a choice of:

for the statement of financial position (referred to as ‘the balance sheet’ in company and LLP law) and income statement (referred to as ‘the profit and loss account’ in company and LLP law).

The statutory formats for a small entity in the UK are set out in Section B of Part 1 of Schedule 1 to the Small Companies Regulations (and Section B of Part 1 of Schedule 1 to the Small LLP Regulations). The abridged formats and adapted formats allow certain abridgements and adaptations to be made to the statutory formats.

Further discussion relevant to formats can be found in the following sections:

  • 8.1.4 below addresses the modifications to the formats required in consolidated financial statements (where prepared – see 6.2 above). Abridged formats are not available for use in consolidated financial statements;
  • 8.1.5 below addresses changes in formats;
  • 8.2 below addresses the General Rules to the formats; and
  • 9 and 10 below cover the content of the statement of financial position and income statement respectively, depending on the format adopted.

8.1.1 Statutory formats

UK companies and LLPs have a choice of two balance sheet and two profit and loss account statutory formats, with the line items required set out in Section B of Part 1 of Schedule 1 to the Small Companies Regulations (and Section B of Part 1 of Schedule 1 to the Small LLP Regulations). [1 Sch 1 (SC), 1 Sch 1 (LLP SC)]. See 9.1 and 10.1 below.

The General Rules to the formats (see 8.2 below) apply to the statutory formats.

Statutory formats, as modified by Schedule 6 to the Small Companies Regulations (or Schedule 4 to the Small LLP Regulations), can also be used in group accounts (see 8.1.4 below). [6 Sch 1(1A) (SC), 4 Sch 1(1A) (LLP SC)].

Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014.

8.1.2 Abridged formats

Abridged formats, where appropriate to the circumstances of the company's (or the LLP's) business, can be used in individual financial statements. Abridged formats are not available in group accounts, [6 Sch 1(1A) (SC), 4 Sch 1(1A) (LLP SC)], and are not permitted under Irish law (and so cannot be used by Irish small entities). [FRS 102.1AA.1(b), 1AB.1(b)].

FRS 102 does not provide guidance on in what circumstances it may be appropriate to use abridged formats (which would show less information in the profit and loss account and balance sheet).

The abridged formats derive from the statutory formats but show fewer headings (i.e. those denoted by roman numerals or letters) in the balance sheet and combine line items (by presenting a single line item for ‘gross profit or loss’) in the profit and loss account. [1 Sch 1A(1)-(2) (SC), 1 Sch 1A(1)-(2) (LLP SC)]. See 9.2 and 10.2 below.

Abridged formats cannot be applied by a company that was a charity at any time within that year. There is no similar statutory exclusion for an LLP (although it would be unlikely that an LLP would be a charity). [1 Sch 1A(4) (SC), 1 Sch 1A (LLP SC)]. However, Appendix III to FRS 102 extends this restriction beyond charitable companies and states that abridged formats are not available to small entities that are charities. [FRS 102 Appendix III.11E].

To use abridged formats, all of the members of the company (or the LLP) must have consented to the drawing up of the abridged balance sheet and / or abridged profit and loss account. Consent may only be given as regards the preparation of, as appropriate, the balance sheet or profit and loss account in respect of the preceding financial year. [1 Sch 1A(1)-(3) (SC), 1 Sch 1A(1)-(3) (LLP SC)]. The implication is that consent is required to be obtained each year in respect of the preceding financial year, before the date of approval of the financial statements for the preceding financial year. The Small Companies Regulations and Small LLP Regulations provide no further requirements on how such consent is obtained.

Appendix III to FRS 102 explains that when a small entity that is not a company chooses to prepare abridged financial statements, it should ensure that: [FRS 102 Appendix III.11E]

  • similar consent is obtained from the members of its governing body, taking into account its legal form; and
  • abridged financial statements would not be prohibited by relevant laws or regulation.

Where the balance sheet or profit and loss account is abridged pursuant to paragraph 1A of Schedule 1 to the Small Companies Regulations (or paragraph 1A of Schedule 1 to the Small LLP Regulations), the directors of the company (or designated members of the LLP) must deliver to the Registrar a statement by the company (or by the LLP) that all the members of the company (or of the LLP) have consented to the abridgement. [s444(2A), s444(2A) (LLP)]. While there is no specific requirement to do so, we consider it would also be helpful for annual accounts that include abridged formats to include a statement that all the members of the company (or of the LLP) have consented to the abridgement in the statements made below the balance sheet (and above the directors' signature).

So far as is practicable, the provisions of paragraphs 2 to 9A of the General Rules to the formats (see 8.2 below) apply to the balance sheet or profit or loss account of a company (or an LLP), notwithstanding any such abridgment pursuant to paragraph 1A. [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

8.1.3 Adapted formats

Paragraph 1B of Schedule 1 to the Small Companies Regulations (and paragraph 1B of Schedule 1 to the Small LLP Regulations) set out the adaptations to the statutory formats permitted for the balance sheet and profit and loss account. These provide limited guidance on the content of the adapted formats, leaving the detail to UK accounting standards. Irish small entities applying adapted formats refer to paragraph 2(2) and paragraph 2(3) of Schedule 3A to the Companies Act 2014. [FRS 102.1AA.4, 1AB.3].

A company's directors (or the members of an LLP) may adapt one of the balance sheet formats in Section B of Part 1 of Schedule 1 to the Small Companies Regulations (or Section B of Part 1 of Schedule 1 to the Small LLP Regulations), so to distinguish between current and non-current items in a different way, provided that: [1 Sch 1B(1) (SC), 1 Sch 1B(1) (LLP SC)]

  1. the information given is at least equivalent to that which would have been required by the use of such format had it not been thus adapted; and
  2. the presentation of those items is in accordance with generally accepted accounting principles or practice.

Similarly, a company's directors (or the members of an LLP) may adapt, otherwise than pursuant to paragraph 1A(2), one of the profit and loss account formats in Section B of Part 1 of Schedule 1 to the Small Companies Regulations (or Section B of Part 1 of Schedule 1 to the Small LLP Regulations), provided that: [1 Sch 1B(2) (SC), 1 Sch 1B(2) (LLP SC)]

  1. the information given is at least equivalent to that which would have been required by the use of such format had it not been thus adapted; and
  2. the presentation is in accordance with generally accepted accounting principles or practice.

The reference to ‘otherwise than pursuant to paragraph 1A(2)’ means that an entity making an adaptation to combine specified line items as a single line item for ‘gross profit’ must apply the abridged format requirements in paragraph 1A (including obtaining the consent of all the members each year and filing the required statement of consent with the Registrar). See 8.1.2 above.

So far as is practicable, the provisions of paragraphs 2 to 9A of the General Rules to the formats (see 8.2 below) apply to the balance sheet or profit or loss account of a company (or an LLP), notwithstanding any such adaptation pursuant to paragraph 1B. [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

Small entities applying adapted formats for the balance sheet and profit and loss account follow the requirements for adapted formats in Section 1A which allow a presentation of the balance sheet and profit and loss account which is much closer to IAS 1. Section 1A specifies that, at a minimum, certain line items are presented on the face of the statement of financial position and income statement, with further sub-classifications of items in the statement of financial position in the notes to the financial statements (see 9.3 and 10.3 below). In general, few difficulties should arise over classification of line items where adapted formats are applied since the required line items are aligned with the categories of assets and liabilities discussed in FRS 102. Some areas to watch on classification are, however, discussed at Chapter 6 at 5.1 and 6.5.

In our view, small entities applying Section 1A could also choose to follow the adapted formats set out in Sections 4 and 5 as these simply require more detailed analysis. See Chapter 6 at 4 to 6.

In addition, Schedule 1 to the Small Companies Regulations (and Schedule 1 to the Small LLP Regulations) require supplementary information in respect of certain line items in the balance sheet and profit and loss account to be given in the notes to the accounts. See 11.1 below. One complexity is that this information is in respect of line items found in the statutory formats, which may not align completely with the line items used where the adapted formats are applied. See discussion at 9.3 below.

Adapted formats, as modified by Schedule 6 to the Small Companies Regulations (or Schedule 4 to the Small LLP Regulations), can also be used in group accounts (see 8.1.4 below).

8.1.4 Consolidated financial statements

Section 1A does not require an entity to prepare group accounts. [FRS 102.1A.21]. A small entity may be required by other regulations (or may choose) to prepare group accounts. For accounting periods beginning on or after 1 January 2017, there are circumstances where a company subject to the small companies regime (or an LLP subject to the small LLPs regime) may be required to prepare group accounts under the CA 2006 (or SI 2008/1911). See 6.2 above.

Part 1 of Schedule 6 to the Small Companies Regulations (and Part 1 of Schedule 4 to the Small LLP Regulations) address the balance sheet and profit and loss account formats applicable to group accounts of UK companies (or of LLPs), modifying the formats applicable for individual accounts, as set out in Part 1 of Schedule 1 to the Small Companies Regulations (or Part 1 of Schedule 1 to the Small LLP Regulations).

The group accounts must comply so far as practicable with the provisions of Schedule 1 to the Small Companies Regulations (or Schedule 1 to the Small LLP Regulations), as if the undertakings included in the consolidation (the group) were a single company (or LLP). The group accounts are treated as so complying with any provision of the schedules listed above if they comply instead with the corresponding provision of Schedule 6 to the Regulations (or Schedule 3 to the LLP Regulations). [Regulations (SC) 8, 6 Sch 1(1) (SC), LLP SC Regulations 6, 4 Sch 1(1) (LLP SC)].

Irish small entities refer to Schedule 4A to the Companies Act 2014. [FRS 102.1A.22]. The discussion below relates to the formats applicable to small entities in the UK.

8.1.4.A Modifications to formats for purposes of consolidated financial statements

The formats required in group accounts (relevant to both adapted formats and statutory formats) must identify non-controlling interests (see 8.1.4.B below).

In addition, certain modifications (which are the same for UK companies and LLPs) are made to the statutory formats for the group balance sheet and profit and loss account.

In the group balance sheet statutory formats, the line items in B.III ‘Investments in participating interests’ (or the line items in A.III for an LLP) presented in the individual balance sheet statutory formats are replaced with the line items in Figure 5.1 below. [6 Sch 1(2) (SC), 4 Sch 1(2) (LLP SC)]. Shares and loans to group undertakings will only be relevant in consolidated financial statements for those subsidiary undertakings excluded from consolidation (see Chapter 8 at 3.4). Group undertakings, associated undertakings and participating interests are defined in Chapter 6 at 5.3.4.C to 5.3.4.E.

B Fixed assets
III Investments
1 Shares in group undertakings
2 Interests in associated undertakings
3 Other participating interests
4 Loans to group undertakings and undertakings in which a participating interest is held
5 Other investments other than loans
6 Others

Figure 5.1 Analysis of investments

In the group profit and loss account statutory formats, the line item ‘income from participating interests’ presented in the individual profit and loss account statutory formats is replaced by two items: ‘Income from interests in associated undertakings’ and ‘Income from other participating interests’. [6 Sch 1(3) (SC), 4 Sch 1(3) (LLP SC)].

8.1.4.B Non-controlling interest

Under FRS 102, non-controlling interest is defined as ‘the equity in a subsidiary not attributable, directly or indirectly, to a parent’. [FRS 102 Appendix I]. See Chapter 8 at 3.7.

The requirements for non-controlling interest in Section 9 (or indeed Section 22 – Liabilities and Equity) also apply to a small entity. [FRS 102.1A.1, 22(a)]. An entity shall present non-controlling interest in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent [FRS 102.9.20] and shall disclose non-controlling interest in the profit or loss of the group separately in the statement of comprehensive income (or income statement, if presented). [FRS 102.9.21].

Schedule 6 to the Small Companies Regulations (and Schedule 4 to the Small LLP Regulations) modify the balance sheet and profit and loss account formats to reflect non-controlling interest as follows: [6 Sch 17 (SC), 4 Sch 17 (SC LLP)]

  • ‘(1) The formats set out in Section B of Part 1 of Schedule 1 to these Regulations have effect in relation to group accounts with the following additions.
  • (2) In the Balance Sheet Formats there must be shown, as a separate item and under the heading “non-controlling interests”, the amount of capital and reserves attributable to shares in subsidiary undertakings included in the consolidation held by or on behalf of persons other than the parent company [LLP] and its subsidiary undertakings.
  • (3) In the Profit and Loss Account Formats there must be shown, as a separate item and under the heading “non-controlling interests”, the amount of any profit or loss attributable to shares in subsidiary undertakings included in the consolidation held by or on behalf of persons other than the parent company [LLP] and its subsidiary undertakings.'

The heading used in the balance sheet is treated as one which has a letter assigned, meaning that it must be included on the face of the balance sheet. However, the heading used in the profit and loss account is treated as one which has an Arabic number assigned (allowing the adaptations permitted by the General Rules to the formats, as described at 8.2 below). [6 Sch 17(4) (SC), 4 Sch 17(4) (LLP SC)].

The statutory requirements for presentation of non-controlling interests would permit a presentation consistent with the requirements of FRS 102. In most cases, the amounts shown as non-controlling interest under FRS 102 and the amounts required by the Small Companies Regulations or Small LLP Regulations will be the same. There is a theoretical possibility that the amounts required by FRS 102 and the Small Companies Regulations or Small LLP Regulations may differ (see Chapter 6 at 4.5 and Chapter 8 at 3.7). In such a case, two totals are strictly required to be presented to meet the requirements of both FRS 102 and the statutory requirements.

The above paragraph refers to modifications to the statutory formats (in Section B of Part 1 of Schedule 1 to the Small Companies Regulations and Section B of Part 1 of Schedule 1 to the Small LLP Regulations) (see 8.1.1 above). In our view, the same requirements for presentation of non-controlling interest apply to adapted formats (see 8.1.3 above) because the General Rules to the formats require that any adaptations made need to be ‘at least equivalent’ to the information required in the statutory formats. [1 Sch 1B (SC), 6 Sch 1 (SC), 1 Sch 1B (LLP SC), 4 Sch 1 (LLP SC)].

In our view, these requirements also apply to a small entity (other than a UK company or LLP), to the extent permitted by its statutory framework. While Section 1A does not explicitly refer to the formats required for consolidated financial statements (which are not required to be prepared by a small entity), it does require that a small entity that prepares consolidated financial statements shall comply so far as practicable with the requirements of Section 1A as if it were a single entity (Schedule 6 of the Small Companies Regulations, paragraph 1(1)), subject to any restrictions or exemptions set out in legislation. [FRS 102.1A.22(c)].

Figure 5.2 below illustrates the presentation of non-controlling interest in the statement of financial position for a company subject to the small companies regime. Figure 5.3 below illustrates the allocation of profit or loss to owners of the parent and to non-controlling interest where a separate income statement is presented by a company subject to the small companies regime. The terminology ‘non-controlling interests’ in the Small Companies Regulations (rather than ‘non-controlling interest’ in FRS 102) is used.

£'000
Capital and reserves
Called up share capital 12,075
Share premium account: 493
Capital redemption reserve 500
Merger reserve 6,250
Profit and loss account 27,882
Equity attributable to owners of the parent 47,200
Non-controlling interests 360
47,560

Figure 5.2 Presentation of non-controlling interest in statement of financial position – small UK company

£'000
Profit before taxation 7,786
Tax on profit: (3,339)
Profit after taxation and profit for the financial year 4,447
Profit for the financial year attributable to:
      Owners of the parent 4,209
      Non-controlling interests 238

Figure 5.3 Presentation of non-controlling interest in income statement (where presented separately) – small UK company

A small entity is not required to prepare a statement of changes in equity or a statement of comprehensive income (although this is encouraged where there are transactions with equity holders or items of other comprehensive income – see discussion at 8 above). [FRS 102.1A.9, 5.1A, 6.1A]. See Chapter 6 at 4.5 for guidance on the presentation of non-controlling interest in such statements, if presented.

8.1.5 Changes in formats

The General Rules to the formats (see 8.2 below) require that once a company's (or an LLP's) balance sheet or profit and loss account has been prepared for any financial year using one of the formats (in Section B of Part 1 of Schedule 1 to the Small Companies Regulations or Section B of Part 1 of Schedule 1 to the Small LLP Regulations), the company's directors (or members of the LLP) must use the same format in preparing Companies Act accounts (non-IAS accounts, for an LLP) for subsequent financial years, unless in their opinion there are special reasons for a change. Particulars of any such change must be given in a note to the accounts in which the new format is first used, and the reasons for the change must be explained. [1 Sch 2 (SC), 6 Sch 1(1) (SC), 1 Sch 2 (LLP SC), 4 Sch 1(1) (LLP SC)].

While this paragraph refers to the statutory formats (see 8.1.1 above), the General Rules apply so far as is practicable to abridged formats (which are derived from the statutory formats) (see 8.1.2 above) and adapted formats (see 8.1.3 above). Therefore, in our view, the same requirements apply to changes in the statutory format used and also changes between abridged, adapted and statutory formats. [1 Sch 1C (SC), 1 Sch 2 (SC), 6 Sch 1(1) (SC), 1 Sch 1C (LLP SC), 1 Sch 2 (LLP SC), 4 Sch 1(1) (LLP SC)].

A change in the format applied would be regarded as a change in accounting policy for the purposes of FRS 102 and, therefore, would be retrospectively effected. See Chapter 9 at 3.4 for the requirements on changes in accounting policy.

8.2 General Rules to the formats

The following discussion relates to the General Rules to the formats (see definition in 3 above) which apply to balance sheet and profit and loss account formats included in Schedule 1 to the Small Companies Regulations (and Schedule 1 to the Small LLP Regulations).

The General Rules to the formats also cover changes in formats (see 8.1.5 above).

8.2.1 General Rules governing the form of the statutory formats

Subject to the following provisions of the Schedule:

  • every balance sheet of a company (or an LLP) must show the items listed in either of the balance sheet formats; and
  • every profit and loss account of a company (or LLP) must show the items listed in either of the profit and loss account formats

in Section B of Part 1 of Schedule 1 to the Small Companies Regulations (or Section B of Part 1 of Schedule 1 to the Small LLP Regulations), i.e. the statutory formats. References in the Schedule to the items listed must be read together with any of the notes following the formats in Section B which apply to those items, which may also permit alternative positions for any particular items.

Subject to paragraph 1A, the items in the balance sheet and profit and loss account statutory formats must be shown in the order and under the headings and sub-headings given in the particular format used, but the letters or numbers assigned to that item in the format do not need to be given (and are not in practice). [1 Sch 1 (SC), 1 Sch 1 (LLP SC)].

While the Small Companies Regulations and Small LLP Regulations refer to ‘Subject to paragraph 1A’ (which provides for abridged formats), it seems likely that this is a drafting error and should read ‘Subject to paragraphs 1A and 1B’ to cover both the abridged formats and the adapted formats (see 8.2.2 below). This would be consistent with the Regulations and LLP Regulations, where the equivalent paragraph reads ‘Subject to paragraph 1A’ (which refers to the adapted formats, since the abridged formats are not available under the Regulations or LLP Regulations). [1 Sch 1(3), 1 Sch 1(3) (LLP)].

While there are two statutory formats – format 1 and format 2 – available for the balance sheet, only format 1 is commonly used. Both format 1 and format 2 profit and loss accounts are commonly used. There are some differences in detail in the line items required in the LLP statutory formats compared to the company statutory formats.

See Figures 5.4 and 5.5 at 9.1 and 9.1.2 below for the format 1 balance sheet and Figures 5.10 to 5.13 at 10.1 below for the format 1 and 2 profit and loss accounts applicable for the individual accounts of a UK company and an LLP. Each of the headings and sub-headings denoted with a capital letter or Roman numeral must be presented on the face of the balance sheet.

The individual line items in the statutory balance sheet and profit and loss account formats (and their related notes), which are similar to those in the Regulations and LLP Regulations, are discussed in Chapter 6 at 5.3 and 6.6.

8.2.2 Abridged formats and adapted formats

Paragraph 1A sets out the requirements for abridged formats (see 8.1.2 above and 9.2 and 10.2 below) and paragraph 1B sets out the requirements for adapted formats (see 8.1.3 above and 9.3 and 10.3 below).

8.2.3 General Rules applying to statutory, abridged and adapted formats

The following provisions in the General Rules to the formats apply to the statutory formats (in Section B of Part 1 of Schedule 1 to the Small Companies Regulations and Section B of Part 1 of Schedule 1 to Small LLP Regulations). [1 Sch 1 (SC), 1 Sch 1 (LLP SC)]. These provisions also apply so far as is practicable, to the abridged formats and adapted formats. [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

The Small Companies Regulations and Small LLP Regulations do not provide further guidance on how ‘so far as is practicable’ is to be interpreted, but in our view, this phrase is needed because the General Rules to the formats have been written from the perspective of the statutory formats, e.g. they refer to items given an Arabic number which may not have a direct counterpart in the abridged formats or adapted formats. In other cases, such as in relation to corresponding amounts (meaning comparatives), there are no difficulties in applying the requirements. We do not consider that ‘so far as is practicable’ allows small companies or small LLPs flexibility to regard the General Rules to the formats as optional, where abridged formats or adapted formats are used.

The Small Companies Regulations and Small LLP Regulations require that every profit and loss account must show ‘profit or loss before taxation’ as a line item on the face of the profit and loss account. [1 Sch 6 (SC), 1 Sch 6 (LLP SC)]. This line item is not required for a qualifying partnership preparing statutory accounts.8

The General Rules to the formats allow any item to be shown in a company's (or an LLP's) balance sheet or profit and loss account in greater detail than required by the particular format used. The balance sheet or profit and loss account may include an item representing or covering the amount of any asset or liability, income or expenditure not otherwise covered by any of the items listed in the format used. However, preliminary expenses; the expenses of, and commission on, any issue of shares (relevant for a company only); the expenses of, and commission on, any issue of debentures; and the costs of research may not be treated as assets in the balance sheet. [1 Sch 3 (SC), 1 Sch 3 (LLP SC)]. A qualifying partnership preparing statutory accounts is not subject to the above rules on which types of costs may not be treated as assets in the balance sheet.9

Where the special nature of the company's (or the LLP's) business requires it, the company's directors (or the members of the LLP) must adapt the arrangement, headings and sub-headings otherwise required in respect of items given an Arabic number in the balance sheet or profit and loss account format used. The directors (or the members of the LLP) may combine items to which Arabic numbers are given in the formats if their individual amounts are not material to assessing the state of affairs or profit or loss of the company (or the LLP) for the financial year in question; or the combination facilitates that assessment. In the latter case, the individual amounts of any items combined must be disclosed in a note to the accounts. [1 Sch 4 (SC), 1 Sch 4 (LLP SC)].

Where adapted formats are used, any amendments made would need to comply ‘so far as is practicable’ with the General Rules to the formats. An entity may amend the descriptions used in the line items required in the statement of financial position (or the sub-classifications of those line items required), the ordering of items or aggregation of similar items in the statement of financial position, according to the nature of the small entity and its transactions to provide information that is relevant to an understanding of the small entity's financial position, providing that the information given is at least equivalent to that required by the balance sheet format had it not been adapted. [FRS 102.1AA.5]. Similarly, a small entity may include additional line items in the income statement, amend the descriptions used, and the ordering of items, when this is necessary to explain the elements of financial performance, providing the information given is at least equivalent to that required by the profit and loss account format had it not been adapted. [FRS 102.1AB.4].

FRS 102's requirements on materiality and aggregation are discussed at 7.6 above.

A corresponding amount (i.e. comparative) for the immediately preceding financial year must be shown for every item shown in the balance sheet or profit and loss account. Where that corresponding amount is not comparable with the amount shown in the current financial year, the corresponding amount may be adjusted. Particulars of the non-comparability and of any adjustment must be disclosed in a note to the accounts. [1 Sch 7 (SC), 1 Sch 7 (LLP SC)]. This statutory requirement would permit FRS 102's requirements on restatement of comparatives to be followed. Where amounts are not restated, e.g. due to transitional provisions in accounting policies or where it is impracticable to determine the effects of a change in accounting policies on earlier periods, [FRS 102.10.11-12], a note to the accounts will need to disclose the non-comparability. FRS 102's requirements on comparatives are discussed at 7.5 above.

The heading or sub-heading required for a particular item in the balance sheet or profit and loss account format must be presented where there is an amount for that item in either the current or immediately preceding financial year; otherwise, the heading or sub-heading must be omitted. [1 Sch 5 (SC), 1 Sch 5 (LLP SC)].

Amounts in respect of items representing assets or income may not be set off against amounts in respect of items representing liabilities or expenditure (as the case may be), or vice versa. [1 Sch 8 (SC), 1 Sch 8 (LLP SC)]. FRS 102's requirements on offset are discussed in Chapter 6 at 9.1.1.C.

The company's directors (or the members of an LLP) must, in determining how amounts are presented within items in the profit and loss account and balance sheet, have regard to the substance of the reported transaction or arrangement, in accordance with generally accepted accounting principles or practice. [1 Sch 9 (SC), 1 Sch 9 (LLP SC)].

Where an asset or liability relates to more than one item in the balance sheet, the relationship of such asset or liability to the relevant items must be disclosed either under those items or in the notes to the accounts. [1 Sch 9A (SC), 1 Sch 9A (LLP SC)].

Examples of situations where this may be relevant include:

  • items which are partly reported in debtors: amounts falling due within one year and debtors: amounts falling due after more than one year, where reported separately on the balance sheet (in the statutory or abridged formats);
  • items which are partly reported in creditors: amounts falling due within one year and creditors: amounts falling due after more than one year (in the statutory or abridged formats); and
  • items which are partly reported as current and non-current assets or liabilities (in the adapted formats).

This disclosure requirement does not appear to extend to reporting the relationship between assets and liabilities that derive from a single transaction (e.g. an asset acquired on a finance lease has an impact both on tangible fixed assets and lease creditors) nor, say, to identifying the associated deferred tax consequences of an asset or liability. Where a single asset or liability is required to be reported as more than one line item in the statement of financial position, e.g. split accounting for a convertible loan between equity and liability elements, or a loan at off-market rates made by a parent to its subsidiary is split between investment and loan asset, it would seem appropriate, in our view, to disclose the relationship between these line items.

9 STATEMENT OF FINANCIAL POSITION

A small entity must present a statement of financial position in accordance with the requirements for a balance sheet set out in either Part 1 General Rules and Formats of Schedule 1 to the Small Companies Regulations or Part 1 General Rules and Formats of Schedule 1 to the Small LLP Regulations. Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014.

Small entities that do not report under the CA 2006 (or for Irish small entities, the Companies Act 2014) must also comply with the above requirement, except to the extent not permitted by any statutory framework under which such entities report. [FRS 102.1A.4, 12].

As noted at 8.1 above, a small entity applying Schedule 1 to the Small Companies Regulations (or Schedule 1 to the Small LLP Regulations) has the following three alternatives: [FRS 102.1AA.1]

  • apply the required statutory balance sheet formats (subject to any permitted flexibility – see the General Rules to the formats at 8.2 above) – see 9.1 below;
  • draw up an abridged balance sheet – see 9.2 below; or
  • adapt one of the balance sheet formats – see 9.3 below.

Irish law does not provide for the preparation of abridged statutory financial statements. Consequently, the option to prepare an abridged balance sheet is not available to small entities in the Republic of Ireland. This is not the same as abridgement for filing purposes. [FRS 102.1AA.2].

The financial statements of a small entity choosing to apply Section 1A shall contain on the statement of financial position in a prominent position above the signature(s) of the director(s) (or designated member(s) of the LLP), a statement that the financial statements are prepared in accordance with the provisions applicable to companies subject to the small companies regime (or for LLPs, that the financial statements are prepared in accordance with the provisions applicable to LLPs subject to the small LLPs regime). For Irish small entities, this is required by section 324(4A) of the Companies Act 2014. Other entities may refer to the small entities regime. [FRS 102.1A.6A, s414(3), s414(3) (LLP)]. This statement will be required if Section 1A is applied and also if any of the statutory exemptions available to the small companies regime (in the UK or Republic of Ireland) or small LLPs regime are taken.

The financial statements of an Irish small entity must also include a statement as to whether the financial statements have been prepared in accordance with Section 1A of FRS 102. The effect of any material departure from Section 1A and the reasons for it must be noted in the financial statements (section 291(7) of the Companies Act 2014). [FRS 102.1AD.3]. A small entity in the UK is encouraged (but is not required) to give a statement of compliance with Section 1A. [FRS 102.1AE.1].

Example 5.2 provides an example of the statutory statement which combines it with the statement of compliance with FRS 102. While the statement that the financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime (or to LLPs subject to the small LLPs regime, or to the small entities regime) is to be made on the face of the balance sheet, the statement of compliance with Section 1A could instead be made in the notes to the financial statements.

9.1 Statutory balance sheet (format 1)

Schedule 1 to the Small Companies Regulations (and Schedule 1 to the Small LLP Regulations) provide a choice of two statutory formats for the balance sheet. Format 1 is a vertical format and is adopted by virtually all UK companies and LLPs. Format 2 presents assets separately from liabilities (including capital and reserves) and is rarely used.

This chapter only discusses the format 1 balance sheet. Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014. [FRS 102.1A.12].

Figure 5.4 below sets out the format 1 individual balance sheet for a small UK company. This needs to be read together with the notes to the formats discussed at 9.1.1 below.

A Called up share capital not paid*
B Fixed assets
I Intangible assets
1 Goodwill
2 Other intangible assets
II Tangible assets
1 Land and buildings
2 Plant and machinery etc.
III Investments**
1 Shares in group undertakings and participating interests
2 Loans to group undertakings and undertakings in which the company has a participating interest
3 Other investments other than loans
4 Other investments
C Current assets
I Stocks
1 Stocks
2 Payments on account
II Debtors
1 Trade debtors
2 Amounts owed by group undertakings and undertakings in which the company has a participating interest
3 Other debtors*
III Investments
1 Shares in group undertakings
2 Other investments
IV Cash at bank and in hand
D Prepayments and accrued income*
E Creditors: amounts falling due within one year
1 Bank loans and overdrafts
2 Trade creditors
3 Amounts owed to group undertakings and undertakings in which the company has a participating interest
4 Other creditors*
F Net current assets (liabilities)
G Total assets less current liabilities
H Creditors: amounts falling due after more than one year
1 Bank loans and overdrafts
2 Trade creditors
3 Amounts owed to group undertakings and undertakings in which the company has a participating interest
4 Other creditors*
I Provisions for liabilities
J Accruals and deferred income*
K Capital and reserves**
I Called up share capital
II Share premium account
III Revaluation reserve
IV Other reserves˜
V Profit and loss account

* The notes to format 1 provide alternative positions for prepayments and accrued income, and accruals and deferred income. Prepayments and accrued income may be shown within sub-heading C.II.3 and accruals and deferred income may be shown within E.4, H.4 or both (as the case may require). Called up share capital not paid may also be shown within C.II.3.

** Modifications are required in group accounts (see discussion below and 8.1.4 above).

˜ There is no breakdown of ‘Other reserves’ in the formats in the Small Companies Regulations (unlike the Regulations).

Figure 5.4 Format 1 individual balance sheet – small UK company

In particular, amounts falling due after more than one year must be shown separately for each item included under debtors (items C.II.1-3). Section 4 of FRS 102 requires that where the amount of debtors due after more than one year is so material in the context of the total net current assets that in the absence of disclosure of the debtors due after more than one year on the face of the statement of financial position readers may misinterpret the financial statements, the amount should be disclosed on the face of the statement of financial position within current assets. In most cases, it will be satisfactory to disclose the amount due after more than one year in the notes to the financial statements. [FRS 102.4.4A]. While this paragraph does not directly apply to small entities applying Section 1A, we would generally expect this practice to continue to be followed by a small entity applying Section 1A and using the statutory formats.

The main modifications required for the group balance sheet format are the identification of non-controlling interests and changes to item B.III in Figure 5.4 above. See 8.1.4 above.

The balance sheet statutory formats set out in the Small Companies Regulations (and Small LLP Regulations) distinguish between fixed assets and current assets. ‘Fixed assets’ are assets of a company (or an LLP) which are intended for use on a continuing basis in the company's (or the LLP's) activities, and ‘current assets’ are assets not intended for such use. FRS 102 broadens the definitions to refer to ‘an entity’. [8 Sch 3 (SC), 5 Sch 3 (LLP SC), FRS 102 Appendix I]. See Chapter 6 at 5.2.2.

In addition, the balance sheet statutory formats distinguish between creditors: amounts falling due within one year; and creditors: amounts falling due after more than one year. In distinguishing amounts between the two categories of creditor, the deciding factor is the earliest date of payment. Section 4 provides further guidance, which while not directly scoped into Section 1A is relevant as the same distinction would be made for the statutory formats under the Regulations. A creditor is classified as due within one year when the entity does not have an unconditional right, at the end of the reporting period, to defer settlement of the creditor for at least 12 months after the reporting date. [FRS 102.4.7]. This is consistent with the statutory requirements that a loan is treated as falling due for repayment, and an instalment of a loan is treated as falling due for payment, on the earliest date on which the lender could require repayment or (as the case may be) payment, if the lender exercised all options and rights available to him. [8 Sch 6 (SC), 5 Sch 6 (LLP SC), FRS 102.4.7]. See Chapter 6 at 5.2.3.

The headings for the format 1 balance sheet in the Small Companies Regulations (and Small LLP Regulations) are slightly more simplified than the headings for the format 1 balance sheet in Schedule 1 to the Regulations (and LLP Regulations) but the guidance on the headings included in the latter at Chapter 6 at 5.3 remains relevant. However, the disclosures in the notes to the accounts required by the Small Companies Regulations (and Small LLP Regulations) are fewer than those required by the Regulations (and LLP Regulations).

Each of the headings and sub-headings denoted with a capital letter or Roman numeral, as set out in Figure 5.4 above, must be presented on the face of the format 1 balance sheet for the individual accounts of a company in the order and under the headings and sub-headings given. The format 1 balance sheet includes sub-headings, denoted with an Arabic number. The General Rules to the formats (see 8.2 above), which must be complied with, explain further the presentation of line items with an Arabic number.

Where an asset or liability relates to more than one item in the balance sheet, the relationship of such asset or liability to the relevant items must be disclosed either under those items or in the notes to the accounts. [1 Sch 9A (SC), 1 Sch 9A (LLP SC)]. See discussion of this requirement at 8.2 above.

FRS 102 has accounting requirements for various items that do not have separate line items in format 1, but which would be presented separately on the face of the statement of financial position under IAS 1. Such items include investment property, financial assets, biological assets, cash and cash equivalents and deferred tax. FRS 102's requirement (in Section 4) to present additional line items on the face of the statement of financial position where relevant to an understanding of the entity's financial position does not apply to small entities applying Section 1A, [FRS 102.1A.7, 4.3], but the General Rules to the formats provide flexibility to present line items in additional detail (see 8.2 above). So, for example, a property company may distinguish its investment property from other tangible fixed assets. The presentation of additional line items might require use of boxes and subtotals in order to comply with the balance sheet formats.

9.1.1 Notes to the formats

Certain alternative positions for line items are indicated in Figure 5.4 above. In addition, the notes on the balance sheet formats clarify that:

  • amounts representing goodwill (item B.I.1) must only be included to the extent that the goodwill was acquired for valuable consideration. This is consistent with the requirements of FRS 102 that internally generated goodwill is not recognised; [FRS 102.18.8C(f)]
  • amounts in respect of concessions, patents, licences, trademarks and similar rights and assets must only be included at item B.I.2 if either the assets were acquired for valuable consideration and are not required to be shown under goodwill or the assets in question were created by the company itself. FRS 102 has more restrictive requirements over recognition of internally developed intangible assets (where a policy of capitalisation is adopted, instead of a policy of expensing internally developed intangible assets). See Chapter 16 at 3.3.3;
  • amounts falling due after more than one year must be shown separately for each item included under debtors (items C.II.1-3);
  • within other creditors (items E4, H4 and J), there must be shown separately:
    1. the amount of any convertible loans; and
    2. the amount for creditors in respect of taxation and social security.

      Payments received on account of orders must be included in so far as they are not shown as deductions from stocks. In our view, the offset rules in FRS 102 would not permit payments received on account to be shown as deductions from stocks;

  • in determining the amount shown as net current assets (liabilities) (item F), any prepayments and accrued income must be taken into account, wherever shown; and
  • the amount of allotted share capital and amount of called up share capital which has been paid up must be shown separately (item K.1).

The notes to the formats also require that where other investments (at item B.III.4 or C.III.2) include own shares, the nominal value of such shares must be shown separately. This accounting treatment is not permitted by FRS 102, which requires own shares to be accounted as a deduction against equity. [FRS 102.22.16].

9.1.2 Modifications of the format 1 balance sheet for small LLPs

The format 1 balance sheet in the Small LLP Regulations differs in the following respects:

  • A – Called up share capital is omitted so the headings above are A – Fixed Assets to I – Accruals and deferred income;
  • A.III.2 (B.III.2 in company formats) is loans to group undertakings and undertakings in which the LLP has a participating interest;
  • B.II.2 (C.II.2 in company formats) is amounts owed by group undertakings and undertakings in which the LLP has a participating interest;
  • D.3 and G.3 (E.3 and H.3 in company formats) are amounts owed to group undertakings and undertakings in which the LLP has a participating interest;
  • there is an additional item, J – Loans and other debts due to members. Note (7) to the LLP balance sheet formats requires that the following amounts must be shown separately under this item – the aggregate amount of money advanced to the LLP by the members by way of loan; the aggregate amount of money owed to members by the LLP in respect of profits; and any other amounts; and
  • K – Capital and reserves is replaced with K – Members' other interests (with sub-headings: K.I – Members' capital, K.II – Revaluation reserve and K.III – Other reserves).

The notes to the LLP format 1 balance sheet are the same as detailed at 9.1.1 above for companies except for the additional requirement in note (7) to analyse loans and other debts due to members discussed above and the omission of items relating to shares. In particular, the amount falling due after more than one year must be shown separately for each item included under debtors (items B.II.1 to B.II.3).10 See the further discussion of the presentation of debtors: amounts falling due after more than one year at 9.1 above.

Figure 5.5 below sets out the format 1 individual balance sheet for a small LLP. This needs to be read together with the notes to the formats.

A Fixed assets
I Intangible assets
1 Goodwill
2 Other intangible assets
II Tangible assets
1 Land and buildings
2 Plant and machinery etc.
III Investments**
1 Shares in group undertakings and participating interests
2 Loans to group undertakings and undertakings in which the LLP has a participating interest
3 Other investments other than loans
4 Other investments
B Current assets
I Stocks
1 Stocks
2 Payments on account
II Debtors
1 Trade debtors
2 Amounts owed by group undertakings and undertakings in which the LLP has a participating interest
3 Other debtors*
III Investments**
1 Shares in group undertakings
2 Other investments
IV Cash at bank and in hand
C Prepayments and accrued income*
D Creditors: amounts falling due within one year
1 Bank loans and overdrafts
2 Trade creditors
3 Amounts owed to group undertakings and undertakings in which the LLP has a participating interest
4 Other creditors*
E Net current assets (liabilities)
F Total assets less current liabilities
G Creditors: amounts falling due after more than one year
1 Bank loans and overdrafts
2 Trade creditors
3 Amounts owed to group undertakings and undertakings in which the LLP has a participating interest
4 Other creditors*
H Provisions for liabilities
I Accruals and deferred income*
SORP Net assets attributable to members Represented by:#
J Loans and other debts due to members
K Members' other interests
I Members' capital
II Revaluation reserve
III Other reserves˜

* The notes to format 1 provide alternative positions for prepayments and accrued income, and accruals and deferred income. Prepayments and accrued income may be shown within sub-heading B.II.3 and accruals and deferred income may be shown within D.4, G.4 or both (as the case may require).

** Modifications required in group accounts (see discussion below and 8.1.4 above).

˜ There is no breakdown of ‘Other reserves’ in the formats in the Small LLP Regulations (unlike the LLP Regulations).

# The LLP SORP requires a total for net assets attributable to members, and total members' interests (as a memorandum item) to be disclosed on the face of the balance sheet. See the discussion below this figure (and Figure 5.6 below).

Figure 5.5 Format 1 individual balance sheet – small LLP

The main modifications required for the group balance sheet format are the identification of non-controlling interests and changes to item A.III in Figure 5.5 above (see 8.1.4 above).

The LLP SORP provides further guidance on members' interests and the application of the statutory formats for LLPs. The SORP requires the face of the balance sheet to show a total for ‘net assets attributable to members’ (i.e. a balance sheet total before ‘loans and other debts due to members’ (item J) and ‘members’ other interests' (item K)). In addition, ‘total members’ interests' (i.e. ‘loans and other debts due to members’ (item J) and ‘members’ other interests' (item K) less any amounts due from members included in debtors) should be disclosed as a memorandum item on the balance sheet. The SORP also provides illustrations of LLP balance sheets for different situations (depending on whether the partnership interests are classified as equity or a liability or part equity / part liability). [LLP SORP.58, Appendix 1, Appendix 2]. As explained at 11.5 below, small LLPs are not subject to all the disclosure requirements in the LLP SORP. However, in our view, it would be helpful for a small LLP to present these subtotals on the face of the balance sheet, where statutory formats are used.

This format is illustrated in Figure 5.6 below (the capital letters for the line items are not required to be shown but are presented for convenience).

£'000
………………….
Net assets attributable to members x
Represented by: £'000
J Loans and other debts due to members within one year
Members' capital classified as liability x
Other amounts x
x
K Members' other interests
Members' capital classified as equity x
Members' other interests – other reserves classified as equity x
x
x
Total members' interests
Amounts due from members (x)
Loans and other debts due to members x
Members' other interests x
x

Based on the example in Exhibit B of Appendix 1 of the LLP SORP for an LLP (with some equity). See discussion above this figure.

Figure 5.6 Presentation of small LLP balance sheet (following LLP SORP)

LLPs with no equity, e.g. because of the classification of the partnership interests in the LLP, will not have items to report for ‘Members’ other interests' in the balance sheet.

Detailed guidance on issues specific to LLPs is outside the scope of this chapter.

9.2 Abridged balance sheet (format 1)

Where appropriate to the circumstances of a company's (or an LLP's) business, the company's directors (or members of the LLP) may, with reference to one of the formats in Section B of Part 1 to Schedule 1 to the Small Companies Regulations (or Section B of Part 1 to Schedule 1 to the Small LLP Regulations), draw up an abridged balance sheet showing only those items in that format preceded by letters and Roman numerals provided that: [1 Sch 1A(1) (SC), 1 Sch 1A(1) (LLP SC)]

  1. in the case of format 1, note (5) (for companies) and note (3) (for LLPs) of the notes to the formats is complied with;
  2. in the case of format 2, notes (5) and (10) (for companies) and notes (3) and (8) (for LLPs) of those notes are complied with (not discussed in this chapter); and
  3. all of the members of the company (or LLP) have consented to the drawing up of the abridged balance sheet.

See 8.1.2 above for discussion of when abridged formats, which are only available in individual accounts of a small entity in the UK, are permitted to be used.

Note (5) (for companies) and note (3) (for LLPs) require separate disclosure of the amount falling due after more than one year for each item included under debtors in Figure 5.7 below (i.e. items C.II.1 to C.II.3 for companies and items B.II.1 to B.II.3 for LLPs).

A Called up share capital not paid*
B Fixed assets
I Intangible assets
II Tangible assets
III Investments
C Current assets
I Stocks
II Debtors* **
III Investments
IV Cash at bank and in hand
D Prepayments and accrued income*
E Creditors: amounts falling due within one year*
F Net current assets (liabilities)
G Total assets less current liabilities
H Creditors: amounts falling due after more than one year*
I Provisions for liabilities
J Accruals and deferred income*
K Capital and reserves
I Called up share capital
II Share premium account
III Revaluation reserve
IV Other reserves˜
V Profit and loss account

* The notes to format 1 provide alternative positions for prepayments and accrued income, and accruals and deferred income. Prepayments and accrued income may be shown within sub-heading C.II and accruals and deferred income may be shown within E or H or both (as the case may require). Called up share capital not paid may also be shown within C.II.

** Amounts falling due after more than one year for each item included under debtors (item C.II) must be shown separately (Note (5) to the balance sheet format).

˜ There is no breakdown of ‘Other reserves’ in the formats in the Small Companies Regulations (unlike the Regulations).

Figure 5.7 Format 1 abridged balance sheet – small UK company

Therefore, the abridged balance sheet must include the headings denoted by letters and Roman numerals in the statutory balance sheet format (see 9.1 above), with separate disclosure required of the amounts falling due after more than one year for each item included under debtors. As discussed at 9.1 above, Section 4 provides guidance on when it may be appropriate to present this information on the face of the balance sheet. While this paragraph does not directly apply to small entities applying Section 1A, we would expect this practice to continue to be followed by a small entity applying Section 1A and using the abridged formats.

So far as is practicable, the provisions of paragraphs 2 to 9A of the General Rules to the formats (see 8.2 above) apply to the balance sheet or profit or loss account of a company (or an LLP), notwithstanding any such abridgement pursuant to paragraph 1A of Schedule 1 to the Small Companies Regulations (or paragraph 1A of Schedule 1 to the Small LLP Regulations). [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

Where an asset or liability relates to more than one item in the balance sheet, the relationship of such asset or liability to the relevant items must be disclosed either under those items or in the notes to the accounts. [1 Sch 9A (SC), 1 Sch 9A (LLP SC)]. See 8.2 above.

Figure 5.7 below sets out an abridged format 1 balance sheet for a small UK company taking full advantage of the permitted abridgements. We only discuss the format 1 balance sheet in this publication as format 2 is rarely used.

Figure 5.8 below sets out an abridged format 1 balance sheet for an LLP taking full advantage of the permitted abridgements. As explained at 9.1.2 above, the LLP SORP requires a total for ‘net assets attributable to members’, and ‘total members’ interests' (as a memorandum item) to be disclosed on the face of the balance sheet. [LLP SORP.58, Appendix 1, Appendix 2]. As explained at 11.5 below, small LLPs are not subject to all the disclosure requirements in the LLP SORP. However, in our view, it would be helpful for a small LLP to present these subtotals on the face of the balance sheet, where abridged formats are used.

A Fixed assets
I Intangible assets
II Tangible assets
III Investments
B Current assets
I Stocks
II Debtors* **
III Investments
IV Cash at bank and in hand
C Prepayments and accrued income*
D Creditors: amounts falling due within one year*
E Net current assets (liabilities)
F Total assets less current liabilities
G Creditors: amounts falling due after more than one year*
H Provisions for liabilities
I Accruals and deferred income*
SORP Net assets attributable to members Represented by#
J Loans and other debts due to members
K Members' other reserves
I Members' capital
II Revaluation reserve
III Other reserves˜

* The notes to format 1 provide alternative positions for prepayments and accrued income, and accruals and deferred income. Prepayments and accrued income may be shown within sub-heading B.II and accruals and deferred income may be shown within D or G or both (as the case may require).

** Amounts falling due after more than one year for each item included under debtors (item B.II) must be shown separately (Note (3) to the balance sheet format).

˜ There is no breakdown of ‘Other reserves’ in the formats in the Small LLP Regulations (unlike the LLP Regulations).

# The LLP SORP requires a total for net assets attributable to members, and total members' interests (as a memorandum item) to be disclosed on the face of the balance sheet (see the discussion above this figure and Figure 5.6 at 9.1.2 above).

Figure 5.8 Format 1 abridged balance sheet – small LLP

As all the headings set out in Figures 5.7 and 5.8 above are preceded with a capital letter or Roman numeral, they must be presented on the face of the format 1 balance sheet for the individual accounts in the order and under the headings and sub-headings given.

The only difference to the statutory formats is the abridgement. The disclosures required by the Small Companies Regulations and Small LLP Regulations are still required. Therefore, the guidance on statutory formats at 9.1 above remains relevant where abridged formats are used.

A small entity choosing to apply paragraph 1A(1) of Schedule 1 to the Small Companies Regulations (or paragraph 1A(1) of Schedule 1 to the Small LLP Regulations) and draw up an abridged balance sheet must still meet the requirement for the financial statements to give a true and fair view. A small entity must therefore also consider the requirements of paragraph 1A.16 (see 7.2 and 8 above, and 11 below) and provide any additional disclosure that is necessary in the notes to the financial statements, for example in relation to disaggregating the information in the balance sheet. [FRS 102.1A.16, 1AA.2]. In considering what level of disaggregation may be appropriate in order for the financial statements to give a true and fair view, in our view, entities should have regard to FRS 102's requirements on materiality and aggregation (see 7.6 above).

9.3 Adapted balance sheet

Adapted formats may be used to distinguish between current and non-current items in a different way (to the statutory formats), provided that the information given is at least equivalent to that which would have been required by the use of the statutory format had it not been thus adapted and the presentation of those items is in accordance with generally accepted accounting principles or practice. [1 Sch 1B(1) (SC), 1 Sch 1B(1) (LLP SC)]. The detail, however, is left to accounting standards, namely Section 1A.

An entity choosing to apply paragraph 1B(1) of Schedule 1 to the Small Companies Regulations (or paragraph 1B(1) of Schedule 1 to the Small LLP Regulations) and adapt one of the balance sheet formats shall, as a minimum, include in its statement of financial position the line items presented in Figure 5.9 below, distinguishing between those items that are current and those that are non-current (see 9.3.1 and 9.3.2 below). Irish small entities instead refer to paragraph 2(2) of Schedule 3A to the Companies Act 2014. [FRS 102.1AA.3]. To comply with this requirement, an entity must present as separate classifications: current assets and non-current assets, and current liabilities and non-current liabilities. [FRS 102.1AA.6].

(a) Property, plant and equipment
(b) Investment property carried at fair value through profit or loss
(c) Intangible assets
(d) Financial assets (excluding amounts shown under (e), (f), (j) and (k))
(e) Investments in associates
(f) Investments in jointly controlled entities
(g) Biological assets carried at cost less accumulated depreciation and impairment
(h) Biological assets carried at fair value through profit or loss
(i) Inventories
(j) Trade and other receivables
(k) Cash and cash equivalents
(l) Trade and other payables
(m) Provisions
(n) Financial liabilities (excluding amounts shown under (l) and (m))
(o) Liabilities and assets for current tax
(p) Deferred tax liabilities and deferred tax assets (classified as non-current)
(q) Non-controlling interest, presented within equity separately from the equity attributable to the owners of the parent#
(r) Equity attributable to the owners of the parent˜

˜ For LLPs, additional line items are required on the face of the balance sheet – see the discussion below this figure and Figure 5.6 at 9.1.2 above.

# Not required in individual financial statements.

Figure 5.9 Balance sheet – line items included in adapted formats

Where adapted formats are used, there is no requirement to disclose debtors: amounts falling due after more than one year or to classify creditors: amounts falling due within or after more than one year. [FRS 102.4.4A, 4.7]. Section 4 clarifies this in respect of adapted formats under full FRS 102. While Section 1A is silent on this matter, this will also be the case where adapted formats are used in accordance with Section 1A.

The LLP SORP states that, in order for the adapted formats to show the equivalent information to the statutory formats, ‘loans and other debts due to members’ (item J in the statutory formats) and ‘members’ other interests' (item K in the statutory formats) must be separately disclosed on the face of the balance sheet. Balance sheet item K includes ‘Members’ capital', ‘Revaluation reserve’ and ‘Other reserves’ insofar as they are classified as equity, which are also required to be disclosed separately on the face of the balance sheet. [LLP SORP.26C, 55]. In our view, these requirements also apply to small LLPs as they are required to present equivalent information to the statutory formats.

The face of the balance sheet should also show the ‘net assets attributable to members of the LLP (i.e. a balance sheet total before ‘loans and other debts due to members’ (item J) and ‘members’ other interests’ (item K)). In addition, ‘total members’ interests' (being the total of ‘loans and other debts due to members’ (item J) and ‘members’ other interests' (item K) less any amounts due from members in debtors) should be disclosed as a memorandum item on the face of the balance sheet. [LLP SORP.26C, 58]. These are the same additional disclosures required by the LLP SORP where statutory formats are used – see 9.1.2 above. As explained at 11.5 below, small LLPs are not subject to all the disclosure requirements in the LLP SORP. However, in our view, it would be helpful for a small LLP to present these subtotals on the face of the balance sheet, where adapted formats are used.

Detailed guidance on issues specific to LLPs is outside the scope of this chapter.

The line items for the balance sheet, where adapted formats are used under Section 1A, are the same as those required where the full standard FRS 102 is applied. [FRS 102.1AA.3, 4.2A]. See Chapter 6 at 5.1 for application issues on the above line items. In addition, an illustrative statement of financial position (using adapted formats) relevant to both Section 1A and Section 4 is included in Example 6.3 in Chapter 6 at 5.1.14.

While line items (o) and (p) appear to combine liabilities and assets for current tax and deferred tax respectively, the assets will need to be shown separately from the liabilities. Deferred tax is always classified as non-current.

The line item (q) for non-controlling interest (see 8.1.4.B above) is relevant only where consolidated financial statements are prepared.

So far as is practicable, the provisions of paragraphs 2 to 9A of the General Rules to the formats (see 8.2 above) apply to the adapted formats. [1 Sch 1C (SC), 1 Sch 1C (LLP SC)]. Where an asset or liability relates to more than one item in the balance sheet, the relationship of such asset or liability to the relevant items must be disclosed either under those items or in the notes to the accounts. [1 Sch 9A (SC), 1 Sch 9A (LLP SC)].

In addition, the following sub-classifications of the line items presented must be disclosed either in the statement of financial position or in the notes: [FRS 102.1AA.4]

  • property, plant and equipment in classifications appropriate to the entity;
  • goodwill and other intangible assets;
  • investments, showing separately shares and loans;
  • trade and other receivables showing separately amounts due from related parties, and amounts due from other parties;
  • trade and other payables, showing separately amounts payable to trade suppliers, and amounts payable to related parties; and
  • classes of equity, such as called up share capital, share premium, retained earnings, revaluation reserve, fair value reserve and other reserves.

The sub-classifications of line items required in the notes to the financial statements are less extensive than those required under Section 4.

The descriptions of the line items in the statement of financial position set out in paragraph 1AA.3 (and of the sub-classifications of those line items set out in paragraph 1AA.4) and the ordering of items or aggregation of similar line items, may be amended according to the nature of the small entity and its transactions, to provide information that is relevant to an understanding of the entity's financial position, providing the information given is at least equivalent to that required by the balance sheet format had it not been adapted. [FRS 102.1AA.5].

While the adapted formats are closely based on IAS 1, Section 1A does not require IAS 1's disclosure of the amount expected to be recovered or settled after more than twelve months for each asset and liability line that combines amounts expected to be recovered or settled: [IAS 1.61]

  1. no more than twelve months after the reporting period; and
  2. more than twelve months after the reporting period.

The Small Companies Regulations (and Small LLP Regulations) set out supplementary information to be given in the notes to the accounts which apply where statutory formats, abridged formats or the adapted formats are used. One complexity is that the information required sometimes refers to items found in the statutory formats (which may differ to the line items identified where the adapted formats are used). For example, the adapted formats do not refer to fixed assets, creditors: amounts falling due within one year, creditors: amounts falling due after more than one year, investments, land or buildings, or turnover. A UK company (or an LLP) using adapted formats in Companies Act accounts (non-IAS accounts, for an LLP) will, therefore, need to identify which of its assets, liabilities or revenue streams must be included in the required disclosures. While the classification of non-current assets and current assets used in adapted formats differs to the fixed assets and current assets classification required in statutory formats, the statutory definition of ‘fixed assets’ is relevant for the purposes of disclosures in respect of fixed assets in the Small Companies Regulations (and Small LLP Regulations). See Chapter 6 at 5.2.2.

In addition, the Small Companies Regulations (and Small LLP Regulations) frequently require analyses and reconciliations to be given for Arabic-numbered sub-headings found in the statutory balance sheet formats. Section 1A includes nearly all the statutory disclosures in the Small Companies Regulations (which are similar to those in the Small LLP Regulations) but restates these disclosures in a way that can be applied even if statutory formats are not used (see 11 below).

Where Section 1A refers to, say, ‘In respect of each item which is shown under the general item fixed assets’, in our view, it may be appropriate to give the information required for each of the sub-classifications of fixed assets required to be presented by paragraph 1AA.4 (as listed above). This is because these sub-classifications in effect stand in place of the Arabic-numbered headings identified in the statutory formats.

9.3.1 Current and non-current assets

The definitions of current and non-current assets discussed below apply only where an entity chooses to use adapted formats in accordance with paragraph 1B(1) of Schedule 1 to the Small Companies Regulations (or paragraph 1B(1) of Schedule 1 to the Small LLP Regulations). Irish small entities instead refer to paragraph 2(2) of Schedule 3A to the Companies Act 2014.

FRS 102 defines non-current assets as assets of the entity which: [FRS 102 Appendix I]

  1. it does not expect to realise, or intend to sell or consume, in its normal operating cycle (see Chapter 6 at 5.1.1.A);
  2. it does not hold primarily for the purpose of trading (see Chapter 6 at 5.1.1.B);
  3. it does not expect to realise within 12 months after the reporting period; or
  4. are cash or cash equivalents restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

The adapted formats also require that deferred tax assets are always classified as non-current. [FRS 102.1AA.3].

‘Cash or cash equivalents’ are also defined in the FRS 102 Glossary, and should be interpreted in a manner consistent with Section 7 (see Chapter 7 at 3.3).

FRS 102 defines current assets as ‘assets of an entity which are not non-current assets’. [FRS 102 Appendix I]. This differs to IAS 1, which defines current assets, with non-current assets as the residual. IAS 1 requires an entity to classify an asset as current if the asset meets any of the conditions in (a) to (d) of paragraph 66 of IAS 1. The conditions in (a) to (d) above of FRS 102's definition of ‘non-current assets’ are broadly the converse of the conditions (a) to (d) in IAS 1's definition of a current asset. In our view, the FRC intended that the classification of assets as non-current and current should be consistent with the requirements of paragraph 66 of IAS 1. However by choosing to define non-current assets, rather than current as in IAS 1, there are potential ambiguities in the wording of the definition, which we consider are unintended. For example, if meeting any of (a) to (d) below would qualify an asset as a non-current asset under FRS 102, this would not in fact be aligned with IAS 1. For instance, an asset may not be held primarily for the purpose of trading (so meets (b) in the definition) but if it is expected to be realised within twelve months after the reporting period (so does not meet (c) in the definition), IAS 1 would require this asset to be classified as current. [IAS 1.66].

FRS 102 provides no additional guidance beyond the definition above. However, since the intention is to provide a format more aligned with IAS 1, management may consider, as permitted by the hierarchy in Section 10 – Accounting Policies, Estimates and Errors, the requirements of IAS 1 for further guidance. See Chapter 6 at 5.1.1 for further discussion of the classification of current and non-current assets.

9.3.2 Current and non-current liabilities

The definitions of current liabilities and non-current liabilities discussed below apply only where an entity chooses to use adapted formats in accordance with paragraph 1B(1) of Schedule 1 to the Small Companies Regulations (or paragraph 1B(1) of Schedule 1 to the Small LLP Regulations). Irish small entities instead refer to paragraph 2(2) of Schedule 3A to the Companies Act 2014.

FRS 102 defines current liabilities as liabilities of the entity which: [FRS 102 Appendix I]

  1. it expects to settle in its normal operating cycle (see Chapter 6 at 5.1.2.A);
  2. it holds primarily for the purpose of trading (see Chapter 6 at 5.1.2.B);
  3. are due to be settled within 12 months after the reporting period (see Chapter 6 at 5.1.2.C); or
  4. it does not have an unconditional right to defer settlement for at least 12 months after the reporting period. (See Chapter 6 at 5.1.2.D).

Meeting any one of (a) to (d) leads to the liability being required to be classified as current.

The FRS 102 Glossary defines non-current liabilities as liabilities of the entity which are not current liabilities (i.e. the residual). [FRS 102 Appendix I]. This approach is consistent with IAS 1. [IAS 1.69]. The adapted formats also require that deferred tax liabilities are always classified as non-current. [FRS 102.1AA.3].

10 INCOME STATEMENT (OR PROFIT AND LOSS ACCOUNT)

A small entity must present its profit or loss for a period in an income statement in accordance with the requirements for a profit and loss account set out in either Part 1 General Rules and Formats of Schedule 1 to the Small Companies Regulations or Part 1 General Rules and Formats of Schedule 1 to the Small LLP Regulations. Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014. [FRS 102.1A.14].

Small entities that do not report under the CA 2006 (or for Irish entities, the Companies Act 2014) must also comply with the above requirement except to the extent that these requirements are not permitted by any statutory framework under which such entities report. [FRS 102.1A.4. 14].

As noted at 8.1 above, a small entity applying Schedule 1 to the Small Companies Regulations (or Schedule 1 to the Small LLP Regulations) has the following three alternatives: [FRS 102.1AB.1]

  • apply the required statutory profit and loss formats (subject to any permitted flexibility – see the General Rules to the formats at 8.2 above) – see 10.1 below;
  • draw up an abridged profit and loss account – see 10.2 below; or
  • adapt one of the profit and loss account formats – see 10.3 below.

Irish law does not provide for the preparation of abridged statutory financial statements. Consequently, the option to prepare an abridged profit and loss account is not available to small entities in the Republic of Ireland. This is not the same as abridgement for filing purposes. [FRS 102.1AB.2].

An income statement presents all items of income and expense recognised in a reporting period, excluding the items of other comprehensive income. This is referred to as the profit and loss account in the CA 2006. [FRS 102 Appendix I]. Consequently, the income statement must include line items that add down to the profit or loss for the year. This is the case, even if the detailed analysis of certain line items is presented in the notes to the accounts, where this is permitted by the General Rules to the formats (where statutory or abridged formats are used) (see 8.2 above) or the line items are not required on the face of the income statement (where adapted formats are used).

A small company (or small LLP) is not required to present a separate line item (and columnar analysis) for discontinued operations on the face of the separate income statement (or profit or loss section of a single statement of comprehensive income, if any). This is required where adapted formats or statutory formats are used in full FRS 102 (see Chapter 6 at 6.8). [FRS 102.1A.7, 5.7E-F].

FRS 102 includes additional requirements on presentation of the profit and loss account that are relevant whatever format is used. For instance:

  • guidance on operating profit, where this is presented (see Chapter 6 at 6.7.3); [FRS 102.5.9B]
  • incoming dividends and similar income receivable are recognised at an amount that includes any withholding tax but excludes other taxes, such as attributable tax credits. Any withholding tax suffered is shown as part of the tax charge (see Chapter 26 at 3.3 and 8.1.2); [FRS 102.29.19]
  • Section 28 – Employee Benefits – does not specify how the cost of a defined benefit plan should be presented in the income statement. Therefore, entities may present the cost as a single item or disaggregate the cost into components presented separately; and
  • Section 23 – Revenue – includes guidance on measurement of revenue, including principal versus agent considerations. See Chapter 20 at 3.2.

Where Sections 8 to 35 require further analyses of items included in the income statement to be disclosed, these requirements do not apply to financial statements prepared in accordance with Section 1A. [FRS 102.1A.7].

There is no requirement for a small entity to present a full statement of comprehensive income (although, as explained at 8 above, this is encouraged, where gains or losses are recognised in other comprehensive income). [FRS 102.1A.9].

10.1 Statutory profit and loss account

Schedule 1 to the Small Companies Regulations (and Schedule 1 to the Small LLP Regulations) provide a choice of two statutory formats for the profit and loss account. Irish small entities instead refer to Part II of Schedule 3A to the Companies Act 2014. [FRS 102.1A.14].

Format 1 analyses expenses by function and is illustrated at Figure 5.10 below (for a small UK company) and at Figure 5.11 below (for a small LLP). Format 2 analyses expenses by nature and is illustrated at Figure 5.12 below (for a small UK company) and at Figure 5.13 below (for a small LLP).

The main modifications required for group profit and loss account formats are the identification of non-controlling interests and replacing ‘income from participating interests’ with ‘income from interests in associated undertakings’ and ‘income from other participating interests’ (see 8.1.4 above). [6 Sch 1(3), 6 Sch 17 (SC), 4 Sch 1(3) (LLP SC), 4 Sch 17 (LLP SC)].

Figure 5.10 below sets out the profit and loss account, analysing expenses by function (format 1) for a small UK company.

1 Turnover
2 Cost of sales
3 Gross profit or loss
4 Distribution costs
5 Administrative expenses
6 Other operating income
7 Income from shares in group undertakings
8 Income from participating interests†
9 Income from other fixed asset investments
10 Other interest receivable and similar income
11 Amounts written off investments
12 Interest payable and similar expenses
Profit or loss before taxation*
13 Tax on profit or loss
14 Profit or loss after taxation
19 Other taxes not shown under the above items
20 Profit or loss for the financial year†

* While not in format 1, every profit and loss account must show the amount of a company's profit or loss before taxation (1 Sch 6, Small Companies Regulations).

† See discussion above (and 8.1.4 above) for modifications in group accounts.

Figure 5.10 Format 1 individual profit and loss account – small UK company

Figure 5.11 below sets out the profit and loss account, analysing expenses by function (format 1) for a small LLP.

1 Turnover
2 Cost of sales
3 Gross profit or loss
4 Distribution costs
5 Administrative expenses
6 Other operating income
7 Income from shares in group undertakings
8 Income from participating interests†
9 Income from other fixed asset investments
10 Other interest receivable and similar income
11 Amounts written off investments
12 Interest payable and similar expenses
Profit or loss before taxation*
13 Tax on profit or loss
14 Profit or loss after taxation
19 Other taxes not shown under the above items
20 Profit or loss for the financial year before members' remuneration and profit shares
SORP Members' remuneration charged as an expense˜
SORP Profit or loss for the financial year available for discretionary division among members˜

* While not in format 1, every profit and loss account must show the amount of an LLP's profit or loss before taxation (1 Sch 6, Small LLP Regulations).

† See discussion above (and 8.1.4 above) for modifications in group accounts.

˜ Supplementary presentation requirements in the LLP SORP. See discussion above this figure.

Figure 5.11 Format 1 individual profit and loss account – small LLP

The LLP SORP provides further guidance on application of the statutory and formats for LLPs. The SORP requires that the ‘profit or loss for the financial year before members’ remuneration and profit shares' (the final line item in the statutory formats), ‘members’ remuneration charged as an expense' (including related employment costs) and the ‘profit or loss for the financial year available for discretionary division among members’ are separately presented on the face of the profit and loss account (or statement of comprehensive income). The basis on which each element of remuneration (as defined) has been treated in the financial statements should be disclosed and explained by way of note. The SORP provides guidance and illustrations of LLP profit or loss accounts for different situations, including where the partnership interest is classified as equity, liability or part equity / part liability. [LLP SORP.20, 21, 51-54, Appendix 1, Appendix 2].

In our view, small LLPs should also present these additional line items on the face of the profit and loss account (or statement of comprehensive income, if any).

Figure 5.12 below sets out the profit and loss account, analysing expenses by nature (format 2) for a small UK company.

1 Turnover
2 Change in stocks of finished goods and in work in progress
3 Own work capitalised
4 Other operating income
5
  1. Raw materials and consumables
  2. Other external charges
6 Staff costs
  1. wages and salaries
  2. social security costs
  3. other pension costs
7
  1. depreciation and other amounts written off tangible and intangible fixed assets
  2. amounts written off current assets, to the extent that they exceed write-offs which are normal in the undertaking concerned
8 Other operating expenses
9 Income from shares in group undertakings
10 Income from participating interests†
11 Income from other fixed asset investments
12 Other interest receivable and similar income
13 Amounts written off investments
14 Interest payable and similar expenses
Profit or loss before taxation*
15 Tax on profit or loss
16 Profit or loss after taxation
21 Other taxes not shown under the above items
22 Profit or loss for the financial year†

* While not in format 2, every profit and loss account must show the amount of a company's profit or loss before taxation (1 Sch 6, Small Companies Regulations).

† See discussion above (and 8.1.4 above) for modifications in group accounts.

Figure 5.12 Format 2 individual profit and loss account – small UK company

Figure 5.13 below sets out the profit and loss account, analysing expenses by nature (format 2) for a small LLP. See comments on the requirements of the LLP SORP discussed immediately above Figure 5.11.

1 Turnover
2 Change in stocks of finished goods and in work in progress
3 Own work capitalised
4 Other operating income
5
  1. Raw materials and consumables
  2. Other external charges
6 Staff costs
  1. wages and salaries
  2. social security costs
  3. other pension costs
7
  1. depreciation and other amounts written off tangible and intangible fixed assets
  2. amounts written off current assets, to the extent that they exceed write-offs which are normal in the undertaking concerned
8 Other operating expenses
9 Income from shares in group undertakings
10 Income from participating interests†
11 Income from other fixed asset investments
12 Other interest receivable and similar income
13 Amounts written off investments
14 Interest payable and similar expenses
Profit or loss before taxation*
15 Tax on profit or loss
16 Profit or loss after taxation
21 Other taxes not shown under the above items
22 Profit or loss for the financial year before members' remuneration and profit shares
SORP Members' remuneration charged as an expense˜
SORP Profit or loss for the financial year available for discretionary division among members˜

* While not in format 2, every profit and loss account must show the amount of an LLP's profit or loss before taxation (1 Sch 6, Small LLP Regulations).

† See discussion above (and 8.1.4 above) for modifications in group accounts.

˜ Supplementary presentation requirements in the LLP SORP. See discussion above Figure 5.11.

Figure 5.13 Format 2 individual profit and loss account – small LLP

The line items in the formats need to be read together with the notes to the formats. [1 Sch 1(2) (SC), 1 Sch 1(2) (LLP SC)]. These require that:

  • cost of sales, distribution costs and administrative expenses (format 1, items 2, 4 and 5) are stated after taking into account any necessary provisions for depreciation or diminution in value of assets;
  • in income from other fixed asset investments and other interest receivable and similar income (format 1, items 9 and 10, format 2, items 11 and 12), income and interest derived from group undertakings must be shown separately from income and interest derived from other sources. In addition, for LLPs, interest receivable from members must not be included under this item; and
  • in interest payable and similar expenses (format 1, item 12 and format 2, item 14), the amount payable to group undertakings must be shown separately. In addition, for LLPs, interest payable to members must not be included under this item.

The individual line items in the profit and loss account formats in the Small Companies Regulations (and Small LLP Regulations) are the same as in the Regulations (and LLP Regulations) and are discussed in Chapter 6 at 6.6 (although disclosures in other sections of FRS 102, as referred to in that discussion, are generally not mandated for small entities applying Section 1A). [FRS 102.1A.7].

The General Rules to the formats (see 8.2 above) apply. As all of the line items are denoted with Arabic numbers, these allow a degree of flexibility in the profit and loss account formats.

10.2 Abridged profit and loss account

Where appropriate to the circumstances of a company's (or an LLP's) business, the company's directors (or members of the LLP's) may, with reference to one of the formats in Section B of Part 1 to Schedule 1 to the Small Companies Regulations (or Section B of Part 1 to Schedule 1 to the Small LLP Regulations), draw up an abridged profit and loss account, combining under one item called ‘Gross profit or loss’:

  1. items 1, 2, 3 and 6 in the case of format 1; and
  2. items 1 to 5 in the case of format 2

provided that, in either case, all of the members of the company (or of the LLP) have consented to the drawing up of the abridged profit and loss account. [1 Sch 1A(2) (SC), 1 Sch 1A(2) (LLP SC)].

See 8.1.2 above for discussion of when abridged formats, which are only available in individual accounts, are permitted to be used.

So far as is practicable, the provisions of paragraphs 2 to 9A of the General Rules to the formats (see 8.2 above) apply to the profit or loss account, notwithstanding any such abridgement pursuant to paragraph 1A of Schedule 1 to the Small Companies Regulations (or paragraph 1A of Schedule 1 to the Small LLP Regulations). [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

Figure 5.14 below sets out an abridged format 1 profit and loss account for a small UK company taking full advantage of the permitted abridgements.

1, 2, 3, 6* Gross profit or loss (combines: turnover, cost of sales, gross profit or loss, other operating income)
4 Distribution costs
5 Administrative expenses
7 Income from shares in group undertakings
8 Income from participating interests
9 Income from other fixed asset investments
10 Other interest receivable and similar income
11 Amounts written off investments
12 Interest payable and similar expenses
Profit or loss before taxation**
13 Tax on profit or loss
14 Profit or loss after taxation
19 Other taxes not shown under the above items
20 Profit or loss for the financial year

* Disaggregation of gross profit or loss and disclosing turnover may be necessary in the notes to the financial statements in order to give a true and fair view (see FRS 102.1AB.2).

** While not in format 1, every profit and loss account must show the amount of a company's profit or loss before taxation (1 Sch 6, Small Companies Regulations).

Figure 5.14 Abridged format 1 profit and loss account – small UK company

Figure 5.15 below sets out an abridged format 2 profit and loss account for a small UK company taking full advantage of the permitted abridgements.

1-5* Gross profit (combines items 1 to 5 in format 2)
6 Staff costs
  1. wages and salaries
  2. social security costs
  3. other pension costs
7
  1. depreciation and other amounts written off tangible and intangible fixed assets
  2. amounts written off current assets, to the extent that they exceed write-offs which are normal in the undertaking concerned
8 Other operating expenses
9 Income from shares in group undertakings
10 Income from participating interests
11 Income from other fixed asset investments
12 Other interest receivable and similar income
13 Amounts written off investments
14 Interest payable and similar expenses
Profit or loss before taxation**
15 Tax on profit or loss
16 Profit or loss after taxation
21 Other taxes not shown under the above items
22 Profit or loss for the financial year

* Disaggregation of gross profit or loss and disclosing turnover may be necessary in the notes to the financial statements in order to give a true and fair view (see FRS 102.1AB.2).

** While not in format 2, every profit and loss account must show the amount of a company's profit or loss before taxation (1 Sch 6, Small Companies Regulations).

Figure 5.15 Abridged format 2 profit and loss account – small UK company

The abridged formats for LLPs are exactly the same as for UK companies, except that the final line is ‘profit or loss for the financial year before members’ remuneration and profit shares'. Since abridged formats are the same as statutory formats (with certain line items combined), the discussion in connection with the statutory formats of an LLP, immediately above Figure 5.11 at 10.1 above, is also relevant to abridged formats. In our view, small LLPs should also present the additional line items for ‘members’ remuneration charged as an expense' and ‘profit or loss for the financial year available for discretionary division among members’ on the face of the abridged profit and loss account (or statement of comprehensive income, if any).

Figure 5.16 below sets out an abridged format 1 profit and loss account for a small LLP taking full advantage of the permitted abridgements and illustrating the supplementary presentation requirements in the LLP SORP.

1, 2, 3, 6* Gross profit or loss (combines: turnover, cost of sales, gross profit or loss, other operating income)
4 Distribution costs
5 Administrative expenses
6 Other operating income
7 Income from shares in group undertakings
8 Income from participating interests
9 Income from other fixed asset investments
10 Other interest receivable and similar income
11 Amounts written off investments
12 Interest payable and similar expenses
Profit or loss before taxation**
13 Tax on profit or loss
14 Profit or loss after taxation
19 Other taxes not shown under the above items
20 Profit or loss for the financial year before members' remuneration and profit shares
SORP Members' remuneration charged as an expense˜
SORP Profit or loss for the financial year available for discretionary division among members˜

* Disaggregation of gross profit or loss and disclosing turnover may be necessary in the notes to the financial statements in order to give a true and fair view (see FRS 102.1AB.2).

** While not in format 1, every profit and loss account must show the amount of an LLP's profit or loss before taxation (1 Sch 6, Small LLP Regulations).

˜ Supplementary presentation requirements in the LLP SORP. See discussion above this figure.

Figure 5.16 Abridged format 1 profit and loss account – small LLP

Figure 5.17 below sets out an abridged format 2 profit and loss account for a small LLP taking full advantage of the permitted abridgements and illustrating the supplementary presentation requirements in the LLP SORP.

1-5* Gross profit (combines items 1 to 5 in format 2)
6 Staff costs
  1. wages and salaries
  2. social security costs
  3. other pension costs
7
  1. depreciation and other amounts written off tangible and intangible fixed assets
  2. amounts written off current assets, to the extent that they exceed write-offs which are normal in the undertaking concerned
8 Other operating expenses
9 Income from shares in group undertakings
10 Income from participating interests
11 Income from other fixed asset investments
12 Other interest receivable and similar income
13 Amounts written off investments
14 Interest payable and similar expenses
Profit or loss before taxation**
15 Tax on profit or loss
16 Profit or loss after taxation
21 Other taxes not shown under the above items
22 Profit or loss for the financial year before members' remuneration and profit shares
SORP Members' remuneration charged as an expense˜
SORP Profit or loss for the financial year available for discretionary division among members˜

* Disaggregation of gross profit or loss and disclosing turnover may be necessary in the notes to the financial statements in order to give a true and fair view (see FRS 102.1AB.2).

** While not in format 2, every profit and loss account must show the amount of an LLP's profit or loss before taxation (1 Sch 6, Small LLP Regulations).

˜ Supplementary presentation requirements in the LLP SORP. See discussion above Figure 5.16.

Figure 5.17 Abridged format 2 profit and loss account – small LLP

The only difference to the statutory formats is the abridgement. The disclosures required by the Small Companies Regulations (for a UK company) and by the Small LLP Regulations (for an LLP) are still required. Therefore, the guidance on statutory formats at 10.1 above remains relevant where abridged formats are used.

A small entity choosing to apply paragraph 1A(2) of Schedule 1 to the Small Companies Regulations (or paragraph 1A(2) of Schedule 1 to the Small LLP Regulations) and draw up an abridged profit and loss account must still meet the requirement for the financial statements to give a true and fair view. A small entity must therefore also consider the requirements of paragraph 1A.16 (see 7.2 and 8 above, and 11 below) and provide any additional disclosure that is necessary in the notes to the financial statements, for example in relation to disaggregating gross profit or loss and disclosing turnover. [FRS 102.1A.16, 1AB.2]. In considering what level of disaggregation may be appropriate in order for the financial statements to give a true and fair view, in our view, entities should have regard to FRS 102's requirements on materiality and aggregation (see 7.6 above).

10.3 Adapted profit and loss account

Adapted formats may be used provided that the information given is at least equivalent to that which would have been required by the use of the statutory format had it not been thus adapted and the presentation is in accordance with generally accepted accounting principles or practice. [1 Sch 1B(2) (SC), 1 Sch 1B(2) (LLP SC)]. The detail, however, is left to accounting standards, namely Section 1A.

A small entity choosing to apply paragraph 1B(2) of Schedule 1 to the Small Companies Regulations (or paragraph 1B(2) of Schedule 1 to the Small LLP Regulations) and adapt one of the profit and loss account formats shall, as a minimum, include in its income statement line items that present amounts (a) to (f) for the period (as set out in Figure 5.18 below). Irish small entities instead refer to paragraph 2(3) of Schedule 3A to the Companies Act 2014. [FRS 102.1AB.3].

  1. Revenue
  2. Finance costs
  3. Share of the profit or loss of investments in associates and jointly controlled entities accounted for using the equity method
  4. Profit or loss before taxation
  5. Tax expense (excluding tax allocated to other comprehensive income or equity)
  6. Profit or loss˜

˜ The LLP SORP requires further line items for LLPs. See discussion below this figure.

Figure 5.18 Profit and loss account – line items included in adapted formats

The main modification required for group profit and loss account formats is the identification of non-controlling interests (see 8.1.4.B above).

The LLP SORP provides guidance on adapted formats which we would expect to apply to all LLPs (including small LLPs) as the adaptations are intended to provide equivalent information to the statutory formats. Therefore, adapted formats show a line item for ‘profit or loss for the financial year before members’ remuneration and profit shares'. ‘Members’ remuneration charged as an expense' (which would include related employment costs) must then be deducted as an additional expense, [LLP SORP.26C, 51-54, Appendix 1], presumably coming to the final line item of ‘profit or loss for the financial year available for discretionary division among members’ (which would correspond to item (f) in Figure 5.18 above). This would be the same presentation on the face of the profit or loss account (or statement of comprehensive income) as discussed for statutory formats at 10.1 above.

So far as is practicable, the provisions of paragraphs 2 to 9A of Section A of the General Rules to the formats (see 8.2 above) apply to the profit or loss account, notwithstanding any such adaptation pursuant to paragraph 1B of Schedule 1 to the Small Companies Regulations (or paragraph 1B of Schedule 1 to the Small LLP Regulations). [1 Sch 1C (SC), 1 Sch 1C (LLP SC)].

A small entity may include additional line items in the income statement and should amend the descriptions used in the line items set out in (a) to (f) in Figure 5.18 above, and the ordering of items, when this is necessary to explain the elements of financial performance, providing the information given is at least equivalent to that required by the profit and loss account format had it not been adapted. [FRS 102.1AB.4].

Example 6.4 in Chapter 6 at 6.5.2 illustrates a statement of comprehensive income for an entity using adapted formats in the full standard which provides an analysis of expenses. A small entity presenting only an income statement would omit the lines after ‘profit for the year’ in Example 6.4.

An analysis of expenses is not explicitly required by Section 1A (since Section 5 does not apply), [FRS 102.1A.7, 5.5B], but a small entity may consider additional analysis necessary to explaining elements of financial performance. In this regard, it is notable that, where abridged formats are used, Section 1A requires a small entity to provide any additional disclosure that is necessary for a true and fair view in the notes to the financial statements, for example, in relation to disaggregating gross profit or loss (see 10.2 above). [FRS 102.1AB.2].

The Small Companies Regulations and Small LLP Regulations set out disclosures to be given in the notes to the financial statements which apply where statutory formats, abridged formats or the adapted formats are used. One complexity is that the information required sometimes refers to items found in the statutory formats (which may differ to the line items identified where the adapted formats are used). See discussion at 9.3 above.

11 INFORMATION TO BE PRESENTED IN THE NOTES TO THE FINANCIAL STATEMENTS

A small entity must present sufficient information in the notes to the financial statements to meet the requirement for the financial statements to give a true and fair view of the assets, liabilities, financial position and profit or loss of the small entity for the reporting period. [FRS 102.1A.16].

A small entity is not required to comply with the disclosure requirements of Section 3 (to the extent set out in paragraph 1A.7 – see 7.1 above) and Sections 8 to 35. However, because those disclosures are usually considered relevant to giving a true and fair view, a small entity is encouraged to consider and provide any of those disclosures that are relevant to material transactions, other events or conditions of the small entity in order to meet the requirement (for the financial statements to give a true and fair view) set out in paragraphs 1A.5 (see 7.2 above) and 1A.16. [FRS 102.1A.17].

Appendix C of Section 1A sets out certain minimum requirements, based on the statutory requirements for UK companies subject to the small companies regime (see 11.1 below). [FRS 102.1A.18].

The list is not quite exhaustive and some additional statutory disclosures are noted at 11.2 below. Section 1A also specifically encourages a small entity to give certain FRS 102 disclosures listed in Appendix E of Section 1A which may nevertheless be necessary to give a true and fair view (see 11.3 below). [FRS 102.1A.20]. Statutory disclosures relevant to consolidated financial statements are noted at 11.4 below.

In accordance with paragraph 3.16B, a small entity need not provide a specific disclosure (including those set out in paragraph 1A.18 and Appendix C or Appendix D to Section 1A, as relevant) if the information resulting from that disclosure is not material, except when required by the CA 2006 (for Irish entities, the Companies Act 2014) regardless of materiality. [FRS 102.1A.17A].

Entities subject to a SORP may find that the SORP recommends additional disclosures.

11.1 Minimum requirements – Appendix C

A small entity in the UK must provide, at a minimum, when relevant to its transactions, other events and conditions, the disclosures in Appendix C. Disclosures that are immaterial need not be given, except when required by the CA 2006 regardless of materiality (see 7.6 above for examples of such disclosures). [FRS 102.1A.17A, 1A.18, 1AC.1].

Appendix C, which is an integral part of Section 1A, sets out the disclosure requirements for small entities based on the requirements of UK company law, i.e. the statutory requirements in the Small Companies Regulations. The disclosure requirements are shown below in italicised font, consistent with Appendix C. Other than substituting company law terminology with the equivalent terminology used in FRS 102 (as set out in Appendix II – Table of equivalence for company law terminology – of FRS 102), the FRC states that the drafting is as close as possible to that set out in company law.

A note on the FRC website explains that there are some slight differences between the disclosure requirements of Section 1A and those in the Small LLP Regulations; LLPs should apply the equivalent requirements of the Small LLP Regulations rather than Section 1A. See 11.5 below.

Appendix C highlights disclosures in Sections 8 to 35 of FRS 102 that are similar to its requirements, noting that in many cases compliance with the similar requirement of FRS 102 will result in compliance with the requirements in Appendix C. However, a small entity in the UK must ensure it complies with all the disclosure requirements of Appendix C. Paragraphs in FRS 102 that have been cross referenced in Appendix C are also highlighted in the other sections of the standard with an asterisk. Appendix D takes a similar approach (note that the asterisk by paragraph 6.3(c) of FRS 102 relates to a legal requirement in the Republic of Ireland only). [FRS 102.1A.19, 1AC.1].

11.1.1 Structure of notes

  • The notes must be presented in the order in which, where relevant, the items to which they relate are presented in the statement of financial position and in the income statement. [1 Sch 42(2) (SC), 1 Sch 42(2) (LLP SC)].

    Paragraphs 8.3 and 8.4 address similar requirements (see Chapter 6 at 8.1). [FRS 102.1AC.2].

11.1.2 Accounting policies

  • The accounting policies adopted by the small entity in determining the amounts to be included in respect of items shown in the statement of financial position and in determining the profit or loss of the small entity must be stated (including such policies with respect to the depreciation and impairment of assets). [1 Sch 44 (SC), 1 Sch 44 (LLP SC)].

    Paragraph 8.5 addresses similar requirements for disclosing significant accounting policies. Including information about the judgements made in applying the small entity's accounting policies, as set out in paragraph 8.6, may be useful to users of the small entity's financial statements (see Chapter 6 at 8.2 and 8.3). [FRS 102.1AC.3].

  • If any amount is included in a small entity's statement of financial position in respect of development costs, the note on accounting policies must include the following information:
    1. the period over which the amount of those costs originally capitalised is being or is to be written off; and
    2. the reasons for capitalising the development costs in question. [1 Sch 21(2) (SC), 1 Sch 21(2) (LLP SC)].

      Paragraph 18.27(a) addresses similar requirements to paragraph 1AC.4(a) (see Chapter 16 at 3.5.2). [FRS 102.1AC.4].

  • Where development costs are shown or included as an asset in the small entity's financial statements and the amount is not treated as a realised loss because there are special circumstances justifying this, a note to the financial statements must state the reasons for showing development costs as an asset and that it is not a realised loss. [s844, FRS 102.1AC.5].

    See Chapter 6 at 10.1.3 for discussion of this disclosure requirement. This disclosure does not apply to a small LLP.

  • Where in exceptional cases, the useful life of intangible assets cannot be reliably estimated, there must be disclosed in a note to the financial statements the period over which those intangible assets are being written off and the reasons for choosing that period. [1 Sch 22(4) (SC), 1 Sch 22(4) (LLP SC)].

    Intangible assets include goodwill. Paragraphs 18.27(a) (see Chapter 16 at 3.5.2) and 19.25(g) (see Chapter 17 at 4.1) address similar disclosure requirements. [FRS 102.1AC.6].

11.1.3 Changes in presentation and accounting policies and corrections of prior period errors

  • Where there is a change in the presentation of a small entity's statement of financial position or income statement, particulars of any such change must be given in a note to the financial statements in which the new presentation is first used, and the reasons for the change must be explained. [1 Sch 2(2) (SC), 1 Sch 2(2) (LLP SC)].

    Paragraphs 3.12 and 3.13 address similar requirements (see 7.5.2 above), [FRS 102.1AC.7], but the statutory reference given is strictly for changes in formats (see 8.1.5 above).

  • Where the corresponding amount for the immediately preceding reporting period is not comparable with the amount to be shown for the item in question in respect of the reporting period, and the corresponding amount is adjusted, the particulars of the non-comparability and of any adjustment must be disclosed in a note to the financial statements. [1 Sch 7(2) (SC), 1 Sch 7(2) (LLP SC)].

    This is likely to be relevant where there has either been a change in accounting policy or the correction of a material prior period error. Paragraphs 10.13, 10.14 and 10.23 address similar requirements (see 7.5.2 and 8.2.3 above, and Chapter 9 at 3.7.1 and 3.7.3). [FRS 102.1AC.8].

    The statutory disclosures require particulars of the non-comparability, whether or not any adjustment is made. However, in most cases, a change in accounting policy, a correction of a prior period error or a reclassification would be retrospectively effected.

  • Where any amount relating to a preceding reporting period is included in any item in the income statement, the effect must be stated. [1 Sch 61(1) (SC), 1 Sch 59(1) (LLP SC), FRS 102.1AC.9].

11.1.4 True and fair override

  • If it appears to the small entity that there are special reasons for departing from any of the principles set out in company law in preparing the small entity's financial statements in respect of any reporting period, it may do so, in which case particulars of the departure, the reasons for it, and its effects must be given in the notes to the financial statements. [1 Sch 10(2) (SC), 1 Sch 10(2) (LLP SC)].

    This is only expected to occur in special circumstances. Paragraphs 3.4 and 3.5 address similar requirements. [FRS 102.1AC.10].

    See 7.2 above and Chapter 6 at 9.2. The general principles – the going concern presumption, consistency (in applying accounting policies and measurement bases), use of prudence, use of the accruals basis, separate determination of individual assets and liabilities (no offsetting); and the requirement that the opening balance sheet for a financial year corresponds to the closing balance sheet for the previous financial year– in the Small Companies Regulations and Small LLP Regulations are the same as those set out in the Regulations and LLP Regulations, as discussed in Chapter 6 at 9.1. [1 Sch 11-15A (SC), 1 Sch 11-15A (LLP SC)].

There is an additional related statutory requirement for companies and LLPs not separately identified in Appendix C to Section 1A. [s396(5), s404(5), s396(5) (LLP), s404(5) (LLP)]. However, this appears to be because it is required by paragraphs 3.5 and 3.6, which are not scoped out for a small entity applying Section 1A. Therefore, the following disclosures of paragraphs 3.5 and 3.6 apply to all entities applying Section 1A making use of the ‘true and fair override’. See 7.2.1 above.

  • When an entity departs from a requirement of FRS 102 (in special circumstances, in order to give a true and fair view – see paragraph 3.4) or from a requirement of applicable legislation, it shall disclose:
    1. 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;
    2. that it has complied with FRS 102 or applicable legislation, except that it has departed from a particular requirement of the standard or applicable legislation to the extent necessary to give a true and fair view; and
    3. the nature and effect of the departure, including the treatment that FRS 102 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. [FRS 102.3.5].
  • When an entity has departed from a requirement of FRS 102 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 (c) above. [FRS 102.3.6].

11.1.5 Notes supporting the statement of financial position

11.1.5.A An asset or liability relating to more than one item in the statement of financial position
  • Where an asset or liability relates to more than one item in the statement of financial position, the relationship of such asset or liability to the relevant items must be disclosed either under those items or in the notes to the financial statements. [1 Sch 9A (SC), 1 Sch 9A (LLP SC), FRS 102.1AC.11].

    See discussion at 8.2 above concerning situations where this disclosure requirement may apply.

11.1.5.B Fixed assets (general)
  • In respect of each item which is shown under the general item ‘fixed assets’ in the small entity's statement of financial position, the following information must be given: [FRS 102.1AC.12]
    1. the aggregate amounts (on the basis of cost or revaluation) in respect of that item as at the date of the beginning of the reporting period and as at the reporting date respectively;
    2. the effect on any amount shown in the statement of financial position in respect of that item of:
      1. any revision of the amount in respect of any assets included under that item made during the reporting period as a result of revaluation;
      2. acquisitions during the reporting period of any assets;
      3. disposals during the reporting period of any assets; and
      4. any transfers of assets of the small entity to and from that item during the reporting period. [1 Sch 48(1)-(2) (SC), 1 Sch 47(1)-(2) (LLP SC)].
  • In respect of each item within paragraph 1AC.12 above, there must also be stated: [FRS 102.1AC.13]
    1. the cumulative amount of provisions for depreciation and impairment of assets included under that item as at the date of the beginning of the reporting period and as at the reporting date respectively;
    2. the amount of any such provisions made in respect of the reporting period;
    3. the amount of any adjustments made in respect of any such provisions during the reporting period in consequence of the disposal of any such assets; and
    4. the amount of any other adjustments made in respect of any such provisions during the reporting period. [1 Sch 48(3) (SC), 1 Sch 47(3) (LLP SC)].

These two paragraphs apply to all fixed assets, including investment property, plant and equipment, intangible assets (including goodwill), fixed asset investments, biological assets and heritage assets recognised in the statement of financial position.

Each item refers to a class of fixed assets shown separately either in the statement of financial position or in the notes to the financial statements. These reconciliations need not be presented for prior periods.

FRS 102 addresses similar requirements for investment property (paragraph 16.10(e)), property, plant and equipment (paragraphs 17.31(d) and (e)), intangible assets other than goodwill (paragraphs 18.27(c) and (e)), goodwill (paragraph 19.26), biological assets (paragraphs 34.7(c) and 34.10(e)) and heritage assets (paragraphs 34.55(e) and (f)), recognised in the statement of financial position. [FRS 102.1AC.13]. These are discussed in Chapter 14 at 3.6.1, Chapter 15 at 3.9.1, Chapter 16 at 3.5.2, Chapter 17 at 4.2, Chapter 31 at 2.6.3 and 2.7.2, and Chapter 31 at 5.2.4 respectively. [FRS 102.1AC.13].

‘Fixed assets’ means assets of an entity which are intended for use on a continuing basis in the entity's activities, and ‘current assets’ means assets not intended for such use. [8 Sch 3 (SC), 5 Sch 3 (LLP SC), FRS 102 Appendix I]. (See 9.1 above and Chapter 6 at 5.2.2). However, the above disclosures are still required even if adapted formats with a non-current and current analysis of assets and liabilities are applied (see 9.3 above).

11.1.5.C Fixed assets (measured at revalued amounts)

Section 1A clarifies that the following disclosure requirements in paragraphs 1AC.14 to 1AC.18 apply where:

  • investments in subsidiaries, associates and joint ventures are measured at fair value with changes in fair value recognised in other comprehensive income;
  • property, plant and equipment are revalued using the revaluation model set out in paragraphs 17.15B to 17.15F; and
  • intangible assets other than goodwill are revalued using the revaluation model set out in paragraphs 18.18B to 18.18H.

These requirements do not apply to investment property and biological assets measured at fair value through profit or loss. [FRS 102.1AC.14-18]. This is because such accounting for investment property and biological assets is in accordance with the fair value accounting rules (see Chapter 6 at 10.4) rather than being a revaluation under the alternative accounting rules (see Chapter 6 at 10.2), which is what the disclosures in paragraphs 1AC.14 to 1AC.18 below concern.

The disclosures in respect of fixed assets (measured at revalued amounts using the alternative accounting rules) are as follows:

  • Where fixed assets are measured at revalued amounts the items affected and the basis of valuation adopted in determining the amounts of the assets in question in the case of each such item must be disclosed in the note on accounting policies. [1 Sch 34(2) (SC), 1 Sch 34(2) (LLP SC), FRS 102.1AC.14].

    Paragraphs 9.27(b), 17.31(a) and 18.29A(c) address similar disclosure requirements (see Chapter 8 at 4.6.1, Chapter 15 at 3.9.1 and Chapter 16 at 3.5.4).

  • Where any fixed assets of the small entity (other than listed investments) are included under any item shown in the small entity's statement of financial position at a revalued amount, the following information must be given:
    1. the years (so far as they are known to the directors) in which the assets were severally valued and the several values;
    2. in the case of assets that have been valued during the reporting period, the names of the persons who valued them or particulars of their qualifications for doing so (and whichever is stated), the bases of valuation used by them. [1 Sch 49 (SC), 1 Sch 48 (LLP SC)].

      Paragraphs 17.32A(a) and (c), 18.29A(a) and (c), and 34.55(e)(ii) address similar requirements (see Chapter 15 at 3.9.1, Chapter 16 at 3.5.4 and Chapter 31 at 5.2.4). These paragraphs do not require the names or qualifications of the persons who valued the fixed assets to be disclosed. [FRS 102.1AC.15].

      A ‘listed investment’ means an investment as respects which there has been granted a listing on (a) a recognised investment exchange other than an overseas investment exchange (both as defined in Part 18 of the Financial Services and Markets Act 2000) or (b) a stock exchange of repute outside the UK. [8 Sch 5 (SC), 5 Sch 5(LLP SC)]. A list of recognised investment exchanges (and recognised overseas investment exchanges) is available on the Financial Conduct Authority website. AIM is not a recognised investment exchange.

  • In the case of each item in the statement of financial position measured at a revalued amount, the comparable amounts determined according to the historical cost accounting rules must be shown in a note to the financial statements. [1 Sch 34(3) (SC), 1 Sch 34(3) (LLP SC)].

    The comparable amounts refers to the aggregate amount of cost and the aggregate of accumulated depreciation and accumulated impairment losses that would have been required according to the historical cost accounting rules (see Chapter 6 at 10.1). [1 Sch 34(4) (SC), 1 Sch 34(4) (LLP SC)].

    Paragraphs 17.32A(d) and 18.29A(d) address similar requirements (see Chapter 15 at 3.9.1 and Chapter 16 at 3.5.4). [FRS 102.1AC.16].

  • Where fixed assets are measured at revalued amounts, the following information must be given in tabular form:
    1. movements in the revaluation reserve in the reporting period, with an explanation of the tax treatment of items therein; and
    2. the carrying amount in the statement of financial position that would have been recognised had the fixed assets not been revalued. [1 Sch 54(2) (SC), 1 Sch 53(2) (LLP SC)].

      Paragraphs 6.3A (see Chapter 6 at 7.1), 17.32A(d), 18.29A(d), and 29.27(a) (see Chapter 15 at 3.9.1, Chapter 16 at 3.5.4 and Chapter 26 at 11.2) address similar requirements. [FRS 102.1AC.17].

  • The treatment for taxation purposes of amounts credited or debited to the revaluation reserve must be disclosed in a note to the financial statements. [1 Sch 35(6) (SC), 1 Sch 35(3) (LLP SC)].

    Paragraph 29.27(a) (see Chapter 26 at 11.2) addresses similar requirements. [FRS 102.1AC.18].

11.1.5.D Capitalisation of borrowing costs
  • Where a small entity adopts a policy of capitalising borrowing costs, the inclusion of interest in determining the cost of the asset and the amount of the interest so included is disclosed in a note to the financial statements. [1 Sch 27(3) (SC), 1 Sch 27(3) (LLP SC)].

    Paragraph 25.3A(a) addresses a similar requirement to the second part of this (see Chapter 22 at 3.7.1). [FRS 102.1AC.19].

11.1.5.E Impairment of assets
  • Provisions for impairment of fixed assets (including fixed asset investments) must be disclosed separately in a note to the financial statements if not shown separately in the income statement. [1 Sch 19(3) (SC), 1 Sch 19(3) (LLP SC)].

    Paragraph 27.32(a) (see Chapter 24 at 8) addresses similar requirements. [FRS 102.1AC.20].

  • Any provisions for impairment of fixed assets that are reversed because the reasons for which they were made have ceased to apply must be disclosed (either separately or in aggregate) in a note to the financial statements if not shown separately in the income statement. [1 Sch 20(2) (SC), 1 Sch 20(2) (LLP SC)].

    Paragraph 27.32(b) (see Chapter 24 at 8) addresses similar requirements. [FRS 102.1AC.21]. The statutory disclosure requirement states that any amounts written back must be recognised in the profit and loss account and disclosed separately in a note to the accounts if not shown separately in the profit and loss account. [1 Sch 20(2) (SC), 1 Sch 20(2) (LLP SC)]. It is not clear why Section 1A refers to ‘either separately or in aggregate’ for the disclosure of impairment reversals (it does not do so for the disclosure of impairment provisions).

11.1.5.F Fair value measurement
  • Where financial instruments or other assets have been measured in accordance with the fair value accounting rules there must be stated:
    1. the significant assumptions underlying the valuation models and techniques used to determine the fair values;
    2. for each category of financial instrument or other asset, the fair value of assets in that category and the change in value:
      1. included directly in the income statement; or
      2. credited to or (as the case may be) debited from the fair value reserve,

        in respect of those assets. [1 Sch 51(2)(a)-(b) (SC), 1 Sch 50(2)(a)-(b) (LLP SC)].

      This does not apply where financial instruments or other assets are measured at fair value only on initial recognition. This applies where financial instruments, certain inventories, investment property, and biological assets are subsequently measured at fair value through profit or loss, which is permitted or required by paragraphs 9.26(c), 11.14(b), 11.14(d)(iii), 11.14(d)(iv), 12.8, 13.4A, 14.4(d), 15.9(d), 16.7 and 34.4.

      Paragraphs 11.41, 11.43, 11.48(a)(i), 11.48(a)(ii), 12.28, 12.29(c) and 12.29(e) address similar disclosure requirements for financial instruments. See Chapter 10 at 11.2.

      Paragraphs 16.10(a) and 16.10(e)(ii) address similar disclosure requirements for investment property. See Chapter 14 at 3.6.1.

      Paragraphs 34.7(b) and 34.7(c)(i) address similar disclosure requirements for biological assets. See Chapter 31 at 2.6.3. [FRS 102.1AC.22].

      The requirement in paragraph 51(2)(b) of Schedule 1 to the Small Companies Regulations, and paragraph 50(2)(b) of Schedule 1 to the Small LLP Regulations and Section 1A refers to ‘change in value … in respect of those assets’ [emphasis added]. This looks like a drafting error, when compared to both Directive 2013/34/EU (the Accounting Directive) and the previous disclosure requirement for financial instruments. In our view, the disclosure is intended to be ‘in respect of those financial instruments or other assets’.

  • Where financial instruments or other assets have been measured in accordance with the fair value accounting rules there must be stated for each class of derivatives, the extent and nature of the instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows. [1 Sch 51(2)(c) (SC), 1 Sch 50(2)(c) (LLP SC), FRS 102.1AC.23].
  • Where any amount is transferred to or from the fair value reserve during the reporting period, there must be stated in tabular form:
    1. the amount of the reserve as at the beginning of the reporting period and as at the reporting date respectively; and
    2. the amount transferred to or from the reserve during that year. [1 Sch 51(3) (SC), 1 Sch 50(3) (LLP SC)].

      Paragraphs 6.3A (see Chapter 6 at 7.1), 12.29(c) and 12.29(d) (see Chapter 10 at 11.2) address similar requirements. [FRS 102.1AC.24]. See Chapter 6 at 10.3 for use of the fair value reserve, where certain financial instruments are held at fair value.

11.1.5.G Financial instruments measured at fair value
  • Financial instruments which under international accounting standards may be included in accounts at fair value, may be so included, provided that the disclosures required by such accounting standards are made. [1 Sch 36(4) (SC), 1 Sch 36(4) (LLP SC)].

    This only applies in certain circumstances, for example, it does not apply to derivatives. It applies where investments in subsidiaries, associates and joint ventures are measured at fair value through profit or loss. When it applies, the disclosures required by Section 11 – Basic Financial Instruments – that relate to financial assets and financial liabilities measured at fair value, including paragraph 11.48A, shall be given. [FRS 102.1AC.26].

    The explanatory guidance above is consistent with our view that this disclosure applies only to financial instruments that are held at fair value subject to the requirements of paragraph 36(4) to Schedule 1 to the Small Companies Regulations (or paragraph 36(4) to Schedule 1 to the Small LLP Regulations). Therefore, the disclosures would not apply to all financial instruments held at fair value but would apply to those financial instruments held at fair value that are listed in paragraphs 36(2) and (3) of those Schedules but are permitted to be held at fair value in accordance with EU-adopted IFRS. [s474(1), s474(1) (LLP)].

    See Chapter 6 at 10.3.1 and Chapter 10 at 6.4 for further explanation of this disclosure requirement.

    We consider that this disclosure applies to all small entities applying Section 1A with such financial instruments, whether or not subject to the statutory disclosure requirements of paragraph 36(4). [FRS 102.1A.4].

11.1.5.H Indebtedness, guarantees and financial commitments
  • For the aggregate of all items shown under ‘creditors’ in the small entity's statement of financial position there must be stated the aggregate of the following amounts: [FRS 102.1AC.27]
    1. the amount of any debts included under ‘creditors’ which are payable or repayable otherwise than by instalments and fall due for payment or repayment after the end of the period of five years beginning with the day next following the reporting date; and
    2. in the case of any debts so included which are payable or repayable by instalments, the amount of any instalments which fall due for payment after the end of that period. [1 Sch 55(1) (SC), 1 Sch 54(1) (LLP SC)].
  • In respect of each item shown under ‘creditors’ in the small entity's statement of financial position there must be stated the aggregate amount of any debts included under that item in respect of which any security has been given by the small entity with an indication of the nature and form of any such security. [1 Sch 55(2) (SC), 1 Sch 54(2) (LLP SC)].

    Paragraphs 11.46, 13.22(e), 16.10(c), 17.32(a) and 18.28(c) address similar requirements. [FRS 102.1AC.28]. See Chapter 10 at 11.2, Chapter 11 at 3.6.2, Chapter 15 at 3.9.1 and Chapter 16 at 3.5.2.

  • The total amount of any financial commitments, guarantees and contingencies that are not included in the balance sheet must be stated. [1 Sch 57(1) (SC), 1 Sch 55(1) (LLP SC)].

    The total amount of any commitments concerning pensions must be separately disclosed. [1 Sch 57(3) (SC). 1 Sch 55(3) (LLP SC)].

    The total amount of any commitments which are undertaken on behalf of or for the benefit of:

    1. any parent, fellow subsidiary or any subsidiary of the small entity (see definition in Chapter 3 at 3.1.2); or
    2. any undertaking in which the small entity has a participating interest (see definition in Chapter 6 at 5.3.4.D);

      must be separately stated and those within (a) must also be stated separately from those within (b). [1 Sch 57(4) (SC), 1 Sch 55(4) (LLP SC)].

      Such commitments can arise in a variety of situations including in relation to group entities, investments, property, plant and equipment, leases and pension obligations. Paragraphs 15.19(d), 16.10(d), 17.32(b), 18.28(d), 20.16, 21.15, 28.40A(a), 28.40A(b), 28.41A(d), 33.9(b)(ii) and 34.62 address similar requirements. [FRS 102.1AC.29]. See Chapter 13 at 3.11, Chapter 14 at 3.6.1, Chapter 15 at 3.9.1, Chapter 16 at 3.5.2, Chapter 18 at 3.11.1.B, Chapter 19 at 3.10.3 and 3.10.7, Chapter 25 at 3.12.3 and 3.12.4.B, and Chapter 30 at 3.2.3.A.

  • An indication of the nature and form of any valuable security given by the small entity in respect of commitments, guarantees and contingencies within paragraph 1AC.29 must be given. [1 Sch 57(2) (SC), 1 Sch 55(2) (LLP SC)].

    Paragraphs 11.46, 13.22(e), 16.10(c), 17.32(a) and 18.28(c) address similar requirements. [FRS 102.1AC.30]. See Chapter 10 at 11.2.2, Chapter 11 at 3.6.2, Chapter 15 at 3.9.1 and Chapter 16 at 3.5.2.

  • If in any reporting period a small entity is or has been party to arrangements that are not reflected in its statement of financial position and at the reporting date the risks or benefits arising from those arrangements are material, the nature and business purpose of the arrangements must be given in the notes to the financial statements to the extent necessary for enabling the financial position of the small entity to be assessed. [s410A, s410A (LLP)].

    Examples of off-balance sheet arrangements include risk and benefit-sharing arrangements or obligations arising from a contract such as debt factoring, combined sale and repurchase arrangements, consignment stock arrangements, take or pay arrangements, securitisation arranged through separate entities, pledged assets, operating lease arrangements, outsourcing and the like. In many cases, the disclosures about financial commitments and contingencies required by paragraphs 1AC.29 and 1AC.30 will also address such arrangements. [FRS 102.1AC.31].

    See Chapter 6 at 8.7 for discussion of off-balance sheet arrangements, and 11.4.2.D below (in respect of any consolidated financial statements).

11.1.6 Notes supporting the income statement

  • The amount and nature of any individual items of income or expenses of exceptional size or incidence must be stated. [1 Sch 61(2) (SC), 1 Sch 59(2) (LLP SC)].

    Paragraph 5.9A addresses a similar requirement in relation to material items. [FRS 102.1AC.32]. See Chapter 6 at 6.7.5.

11.1.7 Information about employee numbers

  • The notes to a small entity's financial statements must disclose the average number of persons employed by the small entity in the reporting period. [s411(1), s411(1) (LLP), FRS 102.1AC.33].

    The average number is ascertained by determining the number of persons employed under contracts of service by the company for each month in the financial year (whether throughout the month or not – so including both part- and full-time employees), adding together all the monthly numbers and dividing by the numbers of months in the financial year. [s411(3)-(4), s411(3)-(4) (LLP)]. See Chapter 6 at 8.6 and 11.4.2.B below (in respect of any consolidated financial statements).

11.1.8 Related party disclosures

  • Where the small entity is a subsidiary, the following information must be given in respect of the parent of the smallest group for which consolidated financial statements are drawn up of which the small entity is a member:
    1. the name of the parent which draws up the consolidated financial statements;
    2. the address of the parent's registered office (whether in or outside the UK); or
    3. if it is unincorporated, the address of its principal place of business. [1 Sch 65 (SC), 1 Sch 63 (LLP SC)].

      Paragraph 33.5 addresses a similar requirement to paragraph (a). [FRS 102.1AC.34]. See Chapter 30 at 3.2.1. In the Small LLP Regulations (c) reads ‘if it is incorporated, the address of its principal place of business’. This differs to the Small Companies Regulations and appears to be a drafting error.

11.1.8.A Related party transactions
  • Particulars must be given of material transactions the small entity has entered into that have not been concluded under normal market conditions with:
    1. owners holding a participating interest (see definition in Chapter 6 at 5.3.4.D) in the small entity;
    2. companies in which the small entity itself has a participating interest; and
    3. the small entity's directors [or members of its governing body].

    Particulars must include:

    1. the amount of such transactions;
    2. the nature of the related party relationship; and
    3. other information about the transactions necessary for an understanding of the financial position of the small entity.

      Information about individual transactions may be aggregated according to their nature, except where separate information is necessary for an understanding of the effects of the related party transactions on the financial position of the small entity.

      Particulars need not be given of transactions entered into between two or more members of a group provided that any subsidiary which is a party to the transaction is wholly-owned by such a member. [1 Sch 66 (SC), 1 Sch 64 (LLP SC)].

    Although disclosure is only required of material transactions with the specified related parties that have not been concluded under normal market conditions, small entities disclosing all transactions with such related parties would still be compliant with company law.

    Transactions with directors, or members of an entity's governing body, include directors' remuneration (see 11.1.8.B below) and dividends paid to directors.

    Paragraphs 33.9 and 33.14 address similar requirements for all related parties. [FRS 102.1AC.35]. See Chapter 30 at 3.2.3. However, the categories of related party that information must be reported for and details required under full FRS 102 differ slightly to the requirements of paragraph 1AC.35.

    LLP law specifies that particulars must be given of material transactions the small LLP has entered into that have not been concluded under normal market conditions with: (a) members of the LLP that are related parties; and (b) undertakings in which the LLP itself has a participating interest. A note on the FRC website clarifies that where the statutory disclosure requirements in the Small LLP Regulations differ, the statutory requirements for small LLPs (rather than the disclosures in Section 1A) should be followed. Not all members of LLPs may qualify as related parties. The LLP SORP provides further guidance on identifying related parties. [LLP SORP.128-131].

    See Chapter 30 at 1.1.2 for discussion on the meaning of the exemption from disclosing transactions involving wholly owned subsidiaries. The formats themselves require certain information containing transactions and balances with group undertakings and participating interests.

    While the disclosure in Section 1A is only required for transactions ‘not concluded under normal market conditions’, the FRC has clarified that disclosure of all transactions with the related parties concerned would meet the requirements. [FRS 102.1AC.35]. This would avoid the difficulties in assessing whether a transaction, say with a director, is ‘concluded under normal market conditions’.

11.1.8.B Directors' remuneration disclosures

There are no statutory directors' remuneration disclosures required by the Small Companies Regulations. However, paragraph 1AC.35 (see 11.1.8.A above) confirms that directors' remuneration (or where the entity is not a company, the remuneration of the entity's governing body) still requires disclosure as a related party transaction. Section 1A contains no further detail as to the basis on which this remuneration should be disclosed. However, it is clear that the disclosures may be given for the small entity's directors (or members of its governing body) in aggregate.

Small entities applying Section 1A are not required to provide disclosure of key management personnel compensation in total. Key management personnel may include persons other than directors of the reporting entity. In addition, key management personnel compensation may include amounts paid on behalf of the reporting entity or its parent (and therefore include transactions not entered into, or where the cost is not borne, by the small entity). [FRS 102.33.6-7A]. In our view, one approach to disclosing directors' remuneration might be to disclose the element of key management compensation in total that relates to the directors, separately disclosing compensation that is not provided by the reporting entity. Where necessary for an understanding of the financial position of the reporting entity, other information about the transactions might be required. This might sometimes be the case, for example, where long-term incentive plan or share-based payment awards have been made to a director and the amount of the transaction disclosed (say, the expense recognised) does not fully provide an understanding of the effect on the financial position of the reporting entity (which could include commitments). See Chapter 30 at 3.1.1.B and 3.2.2 for a discussion of key management personnel compensation. Since the Small Companies Regulations are not specific, other approaches may be acceptable.

11.1.8.C Advances, credits and guarantees
  • Details of advances and credits granted by the small entity to its directors and guarantees of any kind entered into by the small entity on behalf of its directors must be shown in the notes to the financial statements.

    The details required of an advance or credit are:

    1. its amount;
    2. an indication of the interest rate;
    3. its main conditions;
    4. any amounts repaid;
    5. any amounts written off; and
    6. any amounts waived.

    There must also be stated in the notes to the financial statements the totals of amounts stated under (a), (d), (e) and (f).

    The details required of a guarantee are:

    1. its main terms;
    2. the amount of the maximum liability that may be incurred by the small entity; and
    3. any amount paid and any liability incurred by the small entity for the purpose of fulfilling the guarantee (including any loss incurred by reason of enforcement of the guarantee).

    There must also be stated in the notes to the financial statements the totals of amounts stated under (b) and (c). [s413].

    Paragraph 33.9 addresses similar requirements for all related parties. See Chapter 30 at 3.2.3.

    A small entity that is not a company shall provide this disclosure in relation to members of its governing body. [FRS 102.1AC.36]. For this reason, we believe that a small LLP should give this disclosure (although there is no equivalent statutory requirement).

    See Chapter 6 at 8.8 for discussion of the scope and content of this disclosure and 11.4.2.C below (in respect of any consolidated financial statements).

11.1.9 Other requirements

  • The financial statements must state:
    1. the part of the UK in which the small entity is registered;
    2. the small entity's registered number;
    3. whether the small entity is a public or a private company and whether the small entity is limited by shares or by guarantee;
    4. the address of the small entity's registered office; and
    5. where appropriate, the fact that the entity is being wound up. [s396, s396 (LLP)].

    Paragraph 3.24(a) (which is actually scoped in by Section 1A – see 7 above) has similar disclosure requirements, i.e. the legal form of the entity, its country of incorporation, and the address of its registered office (or principal place of business, if different). [FRS 102.1AC.37].

    Paragraph 1AC.37(c) above is not required for a small LLP.

    This disclosure is discussed further in Chapter 6 at 8.5.

    See also 7.7 above which addresses the general requirements of FRS 102 on identification of the financial statements.

  • Where items to which Arabic numbers are given in the formats have been combined, unless they are not material, the individual amounts of any items which have been combined must be disclosed in a note to the financial statements. [1 Sch 4(3) (SC), 1 Sch 4(3) (LLP SC), FRS 102.1AC.38].

    See the discussion on the General Rules to the formats at 8.2 above.

  • The nature and financial effect of material events arising after the reporting date which are not reflected in the income statement or statement of financial position must be stated. [1 Sch 64 (SC), 1 Sch 62 (LLP SC)].

    Paragraphs 32.10 and 32.11 address similar requirements. See Chapter 29 at 3.2.2 and 3.5.2. [FRS 102.1AC.39].

11.2 Statutory disclosures not noted in Section 1A

Financial statements of a small entity will also need to comply with any statutory requirements arising from the CA 2006 and applicable regulations, or other legal framework that applies to the small entity.

Section 1A does not contain a complete list of all statutory requirements for a small company (or LLP) applying the small companies regime (or small LLPs regime). Some additional disclosures are noted below. The statutory disclosures in group accounts (where voluntarily prepared) are set out at 11.4 below.

11.2.1 Audited financial statements only

A company subject to the small companies regime and an LLP subject to the small LLPs regime is not required to disclose remuneration receivable by the company's auditor. [s494, s494 (LLP)].11

A small company which has entered into a liability limitation agreement (that purports to limit the liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of the accounts, of which the auditor may be guilty in relation to the company [s534]) must disclose its principal terms, the date of the resolution approving the agreement or the agreement's principal terms or, in the case of a private company, the date of the resolution waiving the need for such approval. This disclosure is required in a note to the annual accounts for the financial year to which the agreement relates, unless the agreement was entered into too late for it to be reasonably practicable for the disclosure to be made in those accounts (in which case, the disclosure is made in a note to the company's next following accounts).12 This disclosure does not apply to a small LLP.

11.2.2 Audit exemption statement

If a small company takes advantage of an exemption from audit of its annual accounts, its balance sheet will need to contain a statement by the directors to the effect that:

  1. the company is exempt from audit under section 477 (small companies), section 479A (subsidiary companies) or section 480 (dormant companies) or under section 482 (non-profit-making companies subject to public sector audit) of the CA 2006, stating the relevant exemption;
  2. the members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476 of the CA 2006; and
  3. the directors acknowledge their responsibilities for complying with the requirements of the CA 2006 with respect to accounting records and the preparation of accounts.

The statement must appear above the signature of the director required by section 414 of the CA 2006 (see 11.2.5 below). [s475, s414].

LLPs have a similar but not identical audit exemption statement.

If a small LLP takes advantage of an exemption from audit of its annual accounts, its balance sheet will need to contain a statement by the members of the LLP to the effect that:

  1. the LLP is exempt from audit under section 477 (small LLPs), section 479A (subsidiary LLPs) or section 480 (dormant LLPs) of the CA 2006 (as applied to LLPs), stating the relevant exemption; and
  2. the members acknowledge their responsibilities for complying with the requirements of the CA 2006 (as applied to LLPs) with respect to accounting records and the preparation of accounts.

The statement must appear above the signature of the designated member of the LLP required by section 414 of the CA 2006, as applied to LLPs (see 11.2.5 below). [s475 (LLP), s414(LLP)].

Companies House guidance Company accounts guidance and LLP accounts, available on the Companies House website includes suitable wordings of the audit exemption statements.

11.2.3 Group accounts not prepared by a parent company

A parent company applying the small companies regime (or a parent LLP applying the small LLPs regime) need not disclose use of the exemption from preparing group accounts. [s399(2A)-(2B), s399(2A)-(2B) (LLP)].

Since a company subject to the small companies regime (or an LLP subject to the small LLPs regime) are exempt from preparing group accounts, the disclosures required where the exemptions from preparing group accounts in sections 400 and 401 of the CA 2006 are taken are not noted here.

11.2.4 Other disclosures

Where fixed asset investments (falling under item B.III in the statutory balance sheet format for companies and item A.III for LLPs – see 9.1 above) are included at a value determined on any basis which appears to the directors to be appropriate in the circumstances of the company, particulars of the method of valuation adopted and of the reasons for adopting it must be disclosed in a note to the accounts. [1 Sch 32(3) (SC), 1 Sch 32(3) (LLP SC)].

This disclosure only applies where the valuation is in accordance with the alternative accounting rules. FRS 102 only permits use of the alternative accounting rules for fixed asset investments that are investments in subsidiaries, associates or jointly controlled entities carried at fair value with changes in value recognised in other comprehensive income (except where required to be recognised in profit or loss). This is an accounting policy choice, to be applied consistently to all investments in a single class. See Chapter 8 at 3.4.1, 4.1 and 4.2. Following the Triennial review 2017, an entity may also adopt this accounting policy choice for measuring investments in another group entity in scope of Section 11 (thus the investments are not subsidiaries, associates or jointly controlled entities to the reporting entity). [FRS 102.11.7, 14(d)]. See Chapter 10 at 8.3.2. However, as such fixed asset investments are carried at fair value, this disclosure would not apply.

However, the alternative accounting rules may also be used where investments in subsidiaries, associates or jointly controlled entities are carried using a deemed cost in individual or separate financial statements on transition. [FRS 102.35.10(f)]. See Chapter 32 at 5.9. In such circumstances, the above disclosure will be required.

11.2.5 Approval of annual accounts

The annual accounts of a company must be approved by the board of directors and the company's balance sheet signed on behalf of the board by a director of the company. [s414(1)-(2)]. The annual accounts of an LLP must be approved by the members and the balance sheet is signed on behalf of all the members by a designated member. [s414(1)-(2) (LLP)].

Where this is the case, the balance sheet must contain, in a prominent position above the signature(s) of the director(s) (or designated member(s) of the LLP), a statement that the financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime (or for LLPs, that the financial statements are prepared in accordance with the provisions applicable to LLPs subject to the small LLPs regime). [s414(3), s414(3) (LLP)]. See 12 below. Following the Technical Review 2017, this statutory requirement has been included in Section 1A and adapted for other small entities. [FRS 102.1A.6A]. See 7.1.1 and 9 above, which also discuss the related statement of compliance.

11.3 Specifically encouraged disclosures – Appendix E

A small entity is also encouraged to make the disclosures set out in Appendix E to Section 1A, which may nevertheless be necessary to give a true and fair view and meet the requirements of paragraph 1A.5. [FRS 102.1A.20]. While the FRC cannot mandate disclosures not included in the Accounting Directive (as implemented into UK and Irish law), this statement implies that the disclosures below should generally be given, where relevant, since they may be necessary to give a true and fair view.

When relevant to its transactions, other events and conditions, a small entity in the UK is encouraged to provide the following disclosures: [FRS 102.1AE.1]

  1. a statement of compliance with FRS 102 as set out in paragraph 3.3, adapted to refer to Section 1A (see 7.1.1 and 9 above);
  2. a statement that it is a public benefit entity as set out in paragraph PBE 3.3A (see 7.1.1 above);
  3. the disclosures relating to material uncertainties related to events or conditions that cast significant doubt upon the small entity's ability to continue as a going concern as set out in paragraph 3.9 (see 7.3 above and Chapter 6 at 9.3);
  4. dividends declared and paid or payable during the period (for example, as set out in paragraph 6.5(b)); and
  5. on first-time adoption of FRS 102, an explanation of how the transition has affected its financial position and financial performance as set out in paragraph 35.13 (see Chapter 32 at 6.2 and 6.3).

Paragraph 6.5(b) requires the information on dividends to be presented in the statement of income and retained earnings (which may not be presented by a small entity applying Section 1A). In our view, this disclosure could be presented in the notes to the financial statements. Paragraph 1AC.35 may require dividends to certain categories of related parties (such as directors) to be disclosed separately. [FRS 102.1AC.35].

Where relevant to its transactions, other events and conditions, a small entity in the Republic of Ireland is encouraged to give the disclosures in items (b), (c) and (e) above. [FRS 102.1AE.2]. Appendix D (which is based on the statutory disclosure requirements for small entities in the Republic of Ireland) already requires disclosures similar to items (a) and (d) above. [FRS 102.1AD.3, 1AD.35].

11.4 Disclosures in consolidated financial statements

FRS 102 does not require a small entity that is a parent entity to prepare consolidated financial statements. [FRS 102.1A.21]. However, some small entities may choose to (or may be required, for example, by their statutory framework) to prepare consolidated financial statements.

Section 1A addresses the preparation of consolidated financial statements, including the disclosures required (see 6.2.1 above). A small entity: [FRS 102.1A.22(b)-(d)]

  • is encouraged to provide the disclosures set out in paragraph 9.23 (see 11.4.1 below) (small entities in the Republic of Ireland are required to provide certain of these disclosures);
  • must comply with the disclosure requirements specified in Section 1A as if the group were a single entity (as required by Schedule 6 of the Small Companies Regulations, paragraph 1(1), or for small entities in the Republic of Ireland, by Schedule 4A to the Companies Act 2014, paragraph 2(1)), subject to any restrictions or exemptions set out in legislation (see 11.1 and 11.3 above, and 11.4.2 below); and
  • must provide any disclosures in Schedule 6 to the Small Companies Regulations (see 11.4.3 and 11.4.4 below). Small entities in the Republic of Ireland refer instead to Schedule 4A to, and sections 294, 296, 307 to 309, 317, 320, 321 and 323 of, the Companies Act 2014.

A UK company subject to the small companies regime must comply with the statutory disclosure requirements of the CA 2006 and Schedule 6 to the Small Companies Regulations.

Similarly, an LLP subject to the small LLPs regime must comply with the statutory disclosure requirements in the CA 2006 as applied to LLPs (set out in SI 2008/1911) and Schedule 4 to the Small LLP Regulations. These largely overlap with the disclosures required by Section 1A alone (although some additional disclosures are noted at 11.2 above and 11.4.2 below).

The modifications made to the formats for group accounts in the Small Companies Regulations and Small LLP Regulations are addressed at 8.1.4 above.

11.4.1 FRS 102 disclosures encouraged

Section 1A encourages a small entity to provide the following disclosures in consolidated financial statements: [FRS 102.1A.22(b), FRS 102.9.23]

  • the fact that the financial statements are consolidated financial statements;
  • the basis for concluding that control exists when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power;
  • any difference in the reporting date of the financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements;
  • the nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans;
  • the name of any subsidiary excluded from consolidation and the reason for exclusion; and
  • the nature and extent of its interests in unconsolidated special purpose entities, and the risks associated with those interests (this was added by the Triennial review 2017).

11.4.2 Statutory disclosures – Part 15 of CA 2006

11.4.2.A General disclosures

Companies Act group accounts (for an LLP, non-IAS group accounts) must state, in respect of the parent company (or parent LLP): [s404(A1), s404(A1) (LLP)]

  • the part of the UK in which the company (or LLP) is registered;
  • the company's (or LLP's) registered number;
  • whether the company is a public or a private company and whether it is limited by shares or by guarantee (no equivalent disclosure for an LLP);
  • the address of the company's (or LLP's) registered office, and
  • where appropriate, the fact that the company (or LLP) is being wound up.

These are the same as the disclosures required by a company (or an LLP) preparing Companies Act individual accounts (for an LLP, non-IAS individual accounts). Those disclosures are included in paragraph 1AC.37 (see 11.1.9 above). [FRS 102.1A.22, 1AC.37]. See Chapter 6 at 8.5 for further discussion.

11.4.2.B Section 408 exemption from presenting the individual profit and loss account

Parent companies (or parent LLPs) preparing group accounts in accordance with the CA 2006 (for LLPs, the CA 2006 as applied to LLPs) can take advantage of the section 408 exemption not to present the individual profit and loss account (providing the conditions for use of the exemption are met).

References in Part 15 to the profit and loss account include notes to the accounts giving information required by any provision of the CA 2006 and that is required or allowed by any such provision to be given in a note to the company's accounts. [s472, s472 (LLP)].

The company's (or LLP's) individual balance sheet must show the profit or loss for the financial year. While section 408, as amended, now refers to showing the ‘profit and loss’ [emphasis added] for the financial year on the balance sheet, we believe this is intended to mean ‘profit or loss’, as before.

The disclosures of certain information supplementing the profit and loss account in paragraphs 1AC.9 and 1AC.32 – see 11.1.3 and 11.1.6 above – must be given in the individual accounts as well as for the group. [1 Sch 61, 1 Sch 59 (LLP), FRS 102.1A.22, 1AC.9, 1AC.32].

In addition, the notes to the accounts of a company subject to the small companies regime (or an LLP subject to the small LLPs regime) must disclose the average number of persons employed: [s411, s411(LLP), FRS 102.1A.22, 1AC.33]

  1. by the company (or LLP) (in the individual accounts – see paragraph 1AC.33 at 11.1.7); and
  2. by the company (or LLP) and its consolidated subsidiary undertakings (in the group accounts).

This disclosure is discussed further in Chapter 6 at 8.6.

The section 408 exemption would not extend to individual financial statements prepared under other statutory frameworks, unless explicitly permitted by these frameworks. See Chapter 1 at 6.3.2.

11.4.2.C Advances, credits and guarantees granted to directors

In the case of a parent company preparing group accounts, the notes to the group accounts must include details of:

  • advances and credits granted to the directors of the parent company, by that company or by any of its subsidiary undertakings (as defined in section 1162 of the CA 2006); and
  • guarantees of any kind entered into on behalf of the directors of the parent company, by that company or by any of its subsidiary undertakings.

The details required in respect of advances, credits and guarantees are those set out in sections 413(3) to 413(5). The information required is the same as that discussed at 11.1.8.C above which sets out the equivalent statutory disclosure required in individual accounts (where group accounts are not prepared). Where group accounts are prepared, only the disclosure required in the group accounts is given. [s413, FRS 102.1A.22, 1AC.36].

While paragraph 1AC.36 incorporates the disclosure required in individual accounts into Section 1A, in our view, the reference in paragraph 1A.22(c) to ‘subject to any restrictions or exemptions set out in legislation’ allows a small entity applying Section 1A to only give the information required by section 413 in the group accounts. This is particularly because the FRC does not intend to mandate disclosures for companies subject to the small companies regime beyond those required by law.

While this statutory disclosure requirement does not apply to LLPs, the same disclosures are required in respect of the members of an LLP's governing body by virtue of paragraph 1AC.36 and paragraph 1A.22(c) (see (c) at 6.2.1 above). In our view, parent LLPs preparing group accounts need only give the equivalent information to that required in group accounts of a parent company.

This disclosure is discussed further in Chapter 6 at 8.8.

11.4.2.D Off-balance sheet arrangements

In group accounts, the disclosures required by section 410A for off balance sheet arrangements (paragraph 1AC.31) (see 11.1.5.H above) apply as if the undertakings included in the consolidation were a single company. Therefore, the disclosures are required for both the consolidated group and the company. [s410A, s410A (LLP), FRS 102.1A.22, 1AC.31]. This disclosure is discussed further in Chapter 6 at 8.7.

11.4.2.E Audited financial statements

A company subject to the small companies regime and an LLP subject to the small LLPs regime is not required to disclose remuneration receivable by the company's auditor for auditing the annual accounts for financial years beginning on or after 1 January 2016. [s494, s494 (LLP)].13

See 11.2.1 above for disclosures of limited liability limitation agreements in individual accounts. [s538]. Only the disclosures required in individual accounts are required where group accounts are also prepared.

11.4.2.F Audit exemption statement

See 11.2.2 above for the disclosures required in respect of the audit exemption. [s475, s475 (LLP)]. Only the disclosures required in individual accounts are required where group accounts are also prepared.

11.4.3 Statutory disclosures (CA 2006) – Small Companies Regulations and Small LLP Regulations

The group accounts of a UK company (or an LLP) must comply so far as practicable with the requirements of Schedule 1 to the Small Companies Regulations (or Schedule 1 to the Small LLP Regulations) as if the undertakings included in the consolidation were a single company (or LLP). [FRS 102.1A.22(c)]. There are certain modifications to the formats (see 8.1.4 above).

Therefore, where group accounts are prepared, the Schedule 1 disclosures (see 11.1 and 11.2.4 above) are given for both the individual company (or LLP) and for the consolidated group (i.e. the parent and the undertakings included in the consolidation, as a single unit).

Part 1 of Schedule 6 to the Small Companies Regulations (and Part 1 of Schedule 4 to the Small LLP Regulations) require certain disclosures specific to group accounts (unless not material). [6 Sch 5(SC), 4 Sch 5 (LLP SC)]. The disclosures are as follows:

  • Where assets and liabilities to be included in the group accounts have been valued or otherwise determined by undertakings according to accounting rules differing from those used for the group accounts, the values or amounts must be adjusted so as to accord with the rules used for the group accounts (unless not material for the purposes of giving a true and fair view). If it appears to the directors of the parent company (or parent LLP) that there are special reasons for departing from this requirement, particulars of any such departure, the reasons for it and its effect must be given in a note to the accounts. [6 Sch 3 (SC), 4 Sch 3 (LLP SC)].

    Since Section 9 requires consolidation adjustments to be made to align with the group accounts, disclosure of departures would not be expected in practice. [FRS 102.9.17].

  • Any differences of accounting rules as between a parent company's (or parent LLP's) individual accounts for a financial year and its group accounts must be disclosed in a note to the group accounts and the reasons for the difference given. [6 Sch 4 (SC), 4 Sch 4 (LLP SC)].
  • Unless the exemption in paragraph 16 of Schedule 6 to the Small Companies Regulations (paragraph 16 of Schedule 4 to the Small LLP Regulations) applies (see below), the following information with respect to acquisitions taking place in the financial year must be stated in a note to the accounts: [6 Sch 13 (SC), 4 Sch 13 (LLP SC)]
    1. the name of the undertaking acquired or, where a group was acquired, the name of the parent undertaking of that group;
    2. whether the acquisition has been accounted for by the acquisition or the merger method of accounting; and
    3. in relation to an acquisition which significantly affects the figures shown in the group accounts:
      1. the composition and fair value of the consideration for the acquisition given by the parent company (or parent LLP) and its subsidiary undertakings; and
      2. where the acquisition method of accounting has been adopted, the book values immediately prior to the acquisition and the fair values at the date of the acquisition, of each class of assets and liabilities of the undertaking or group acquired (in tabular form), including the amount of any goodwill or negative consolidation difference arising on the acquisition together with an explanation of any significant adjustments made.

        In respect of an acquired group, the above amounts are disclosed after any set-offs and other adjustments required by Schedule 6 to the Small Companies Regulations (or Schedule 4 to the Small LLP Regulations) in respect of group accounts.

  • Unless the exemption in paragraph 16 of Schedule 6 to the Small Companies Regulations (paragraph 16 of Schedule 4 to the Small LLP Regulations) applies, a note to the accounts must state the cumulative amount of goodwill (net of any goodwill attributed to subsidiary undertakings or businesses disposed of prior to the balance sheet date) resulting from acquisitions in that and earlier financial years which has been written off otherwise than in the consolidated profit and loss account for that or any earlier financial year. [6 Sch 14 (SC), 4 Sch 14 (LLP SC)].

    In our view, this would apply to any cumulative goodwill taken to reserves prior to application of FRS 10 – Goodwill and intangible assets, even though the goodwill, in effect, ceases to exist for accounting purposes on transition to FRS 102.

  • Unless the exemption in paragraph 16 of Schedule 6 to the Small Companies Regulations (paragraph 16 of Schedule 4 to the Small LLP Regulations) applies, where during the financial year there has been a disposal of an undertaking or group which significantly affects the figure shown in the group accounts, a note to the accounts must state: [6 Sch 15 (SC), 4 Sch 15 (LLP SC)]
    1. the name of that undertaking or, as the case may be, of the parent undertaking of that group, and
    2. the extent to which the profit or loss shown in the group accounts is attributable to profit or loss of that undertaking or group.

The information required by paragraphs 13 to 15 of Schedule 6 to the Small Companies Regulations (paragraphs 13 to 15 of Schedule 4 to the Small LLP Regulations) need not be disclosed with respect to an undertaking which: (a) is established under the law of a country outside the UK, or (b) carries on business outside the UK, if in the opinion of the directors of the parent company (or the members of the parent LLP), the disclosure would be seriously prejudicial to the business of that undertaking or to the business of the parent company (or the parent LLP) or any of its subsidiary undertakings; and the Secretary of State agrees that the information should not be disclosed. [6 Sch 16 (SC), 4 Sch 16 (LLP SC)].

A parent company and parent LLP have slightly different disclosures where the merger method of accounting is applied, reflecting the different requirements for use of the merger method in the Small Companies Regulations and Small LLP Regulations.

  • Where an acquisition has taken place in the financial year and the merger method of accounting has been adopted, the notes to a company's accounts must also disclose: [6 Sch 16A (SC)]
    1. the address of the registered office of the undertaking acquired (whether in or outside the UK);
    2. the name of the party referred to in paragraph 10(a) of Schedule 6 to the Small Companies Regulations, i.e. the ultimate controlling party;
    3. the address of the registered office of that party in (b) (whether in or outside the UK); and
    4. the information required by paragraph 11(6) of Schedule 6 to the Small Companies Regulations, i.e. the adjustment to consolidated reserves made in applying the merger accounting method. This adjustment (explained further in Chapter 17 at 5.3.3) is the difference between:
      1. the aggregate of (1) the fair value of consideration (except in respect of shares covered by (2)) for the acquisition of shares in the undertaking acquired, determined at the date of acquisition of those shares and (2) the ‘appropriate amount’ for shares issued by the parent company or its subsidiary undertakings in consideration for the acquisition of shares in the undertaking acquired (where merger relief or group reconstruction relief is taken).

        The ‘appropriate amount’ used in (2) is nominal value (in relation to shares where merger relief is taken) and nominal value together with any minimum premium value (in relation to shares where group reconstruction relief is taken); and

      2. the nominal value of the issued share capital of the undertaking acquired held by the parent company and its subsidiary undertakings. [6 Sch 11(5)-(7) (SC)].

    Where a group is acquired, references to ‘shares of the undertaking acquired’ are construed as references to ‘shares of the parent undertaking of the group’. [6 Sch 12 (SC)].

  • Where an acquisition has taken place in the financial year and the merger method of accounting has been adopted, the notes to the accounts of an LLP must also disclose the names and the addresses of the registered offices of the undertakings concerned (whether in or outside the UK). [4 Sch 16A (LLP SC)].

The requirements of paragraphs 17 to 20 and 22 of Schedule 1 to the Small Companies Regulations (paragraphs 17 to 20 and 22 of Schedule 1 to the Small LLP Regulations) apply to any goodwill relating to an interest in an associated undertaking shown by the equity method of accounting. [6 Sch 20(1) (SC), 4 Sch 20(1) (LLP SC)]. In our view, this would include the disclosures of the amortisation period used and the reasons (where the useful life of the goodwill cannot be reliably estimated); and of any provision for diminution or write-back of provision for diminution of goodwill relating to an interest in an associated undertaking (see commentary at 11.4.4.C below on meaning of associated undertaking). [FRS 102.1AC.6, 20-21]. See 11.1.2 and 11.1.5.E above for details of the disclosures.

The statutory disclosures on related party transactions (see 11.1.8.A above) apply in group accounts to transactions which the parent company or other undertakings included in the consolidation have entered into with certain categories of related parties, unless they are intra-group transactions. [1 Sch 66 (SC), 6 Sch 20B (SC), 1 Sch 64 (LLP SC), 4 Sch 20B (LLP SC), FRS 102.1AC.35]. This clarification appears to simply be an application of the general requirement to present disclosures required by Schedule 1 in individual accounts for the consolidated group.

11.4.4 Statutory disclosures (CA 2006) – information about related undertakings

Disclosures in respect of related undertakings are still required in group accounts and are set out in Part 2 of Schedule 6 to the Small Companies Regulations and Part 2 of Schedule 4 to the Small LLP Regulations. The previous requirements for individual accounts set out in Schedule 2 to the Small Companies Regulations and Schedule 2 to the Small LLP Regulations were removed for financial years beginning on or after 1 January 2016.

Information need not be disclosed in relation to an undertaking that is established under the law of a country outside the UK or carries on business outside the UK if the conditions in section 409(4) of the CA 2006 are met, i.e. disclosure would be seriously prejudicial (to the business of: that undertaking, the parent company (or the parent LLP), any of its subsidiary undertakings, or other consolidated undertakings), in the opinion of the directors or the members of the LLP; and the Secretary of State agrees that the information need not be disclosed. Where this is the case, disclosure is required in the notes to the accounts of the fact that this exemption is taken. [Regulations (SC) 10, LLP SC Regulations 7, s409(4)-(5), s409(4)-(5) (LLP)].

In respect of the discussion below, references to ‘group’ means the parent company (or parent LLP) and its subsidiary undertakings. [6 Sch 21 (SC), 4 Sch 21 (LLP SC)]. A ‘group’ therefore includes subsidiary undertakings excluded from consolidation.

References in the disclosure requirements below to shares held by the parent company or the group are to be construed as follows:

  • for the purposes of paragraphs 23, 27(4), 27(5), 28 to 30 of Schedule 6 to the Small Companies Regulations (information about holdings in subsidiary and other undertakings) (paragraphs 23, 26(4), 26(5), 27 to 29 of Schedule 4 to the Small LLP Regulations), there must be attributed to the parent company (or parent LLP) shares held on its behalf by any person. Shares held on behalf of a person other than the company (or LLP) must be treated as not held by the parent company (or parent LLP);
  • references to shares held by the group are to any shares held by or on behalf of the parent company (or parent LLP) or any of its subsidiary undertakings. Any shares held on behalf of a person other than the parent company (or parent LLP) or any of its subsidiary undertakings are not to be treated as held by the group; and
  • shares held by way of security must be treated as held by the person providing the security: [6 Sch 37 (SC), 4 Sch 35 (LLP SC)]
    1. where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in accordance with his instructions, and
    2. where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in his interests.

Part 2 of Schedule 6 to the Small Companies Regulations (Part 2 of Schedule 4 to the Small LLP Regulations) requires the following disclosures (at 11.4.4.A to 11.4.4.G below) to be given. These disclosures must be presented in full in the financial statements.

11.4.4.A Subsidiary undertakings

The following information must be stated with respect to the undertakings that are subsidiary undertakings of the parent company at the end of the financial year:

  • the name of each undertaking;
  • the address of the undertaking's registered office (whether in or outside the UK);
  • if the undertaking is unincorporated, the address of its principal place of business;
  • whether the subsidiary undertaking is included in the consolidation (i.e. consolidated), [s474(1), s474(1) (LLP)], and, if it is not, the reasons for excluding it from consolidation; and
  • for each subsidiary undertaking, by virtue of which of the conditions specified in section 1162(2) or (4) of the CA 2006 it is a subsidiary undertaking of its immediate parent undertaking. This is not required to be given where the relevant condition is section 1162(2)(a) (holding a majority of voting rights) and the immediate parent undertaking holds the same proportion of shares in the undertaking as it holds voting rights. [6 Sch 22 (SC), 4 Sch 22 (LLP SC)].

The following information must be given with respect to the shares of a subsidiary undertaking held (a) by the parent company (or parent LLP) and (b) by the group (separately, if the information for (a) and (b) is different):

  • the identity of each class of shares held; and
  • the proportion of the nominal value of the shares of that class represented by those shares. [6 Sch 23 (SC), 4 Sch 23 (LLP SC)].

There must be shown with respect to each subsidiary undertaking not included in the consolidation, unless not material:

  • the aggregate amount of capital and reserves as at the end of its relevant financial year; and
  • its profit or loss for that year.

The relevant financial year is the subsidiary's financial year (where this ends on the same date as the company's (or LLP's) financial year); otherwise, it is the subsidiary's financial year that ends last before the end of the company's (or LLP's) financial year.

This information need not be given if:

  • the group's investment in the undertaking is included in the accounts by way of the equity method of valuation; or
  • the undertaking is not required by any provision of the CA 2006 to deliver a copy of its balance sheet for its relevant financial year and does not otherwise publish that balance sheet in the UK or elsewhere and the holding in the group is less than 50% of the nominal value of the shares in the undertaking. [6 Sch 24 (SC), 4 Sch 24 (LLP SC)].
11.4.4.B Shares of company held by subsidiary undertakings

The number, description and amount of the shares in the company held by or on behalf of its subsidiary undertakings must be disclosed.

However, this disclosure does not apply in relation to shares where the subsidiary undertaking is concerned as:

  • personal representative; or
  • trustee (unless the company or any of its subsidiary undertakings is beneficially interested under the trust, otherwise than by way of security only for the purposes of a transaction entered into by it in the ordinary course of business which includes the lending of money). Part 2 of Schedule 2 to the Small Companies Regulations provides interpretation on a beneficial interest under a trust (although this schedule now appears to have been removed). [6 Sch 25 (SC)].

This disclosure does not apply to an LLP.

11.4.4.C Associated undertakings

Where an undertaking included in the consolidation has an associated undertaking, the following information must be stated:

  • the name of the associated undertaking;
  • the address of the undertaking's registered office (whether in or outside the UK);
  • if the undertaking is unincorporated, the address of its principal place of business;
  • with respect to the shares of the undertaking held (a) by the parent company (or parent LLP) and, separately, (b) by the group:
    1. the identity of each class of shares held; and
    2. the proportion of the nominal value of the shares of that class represented by those shares.

    This information is required even if paragraph 20(3) applied to the group accounts (which allows that the equity method need not be applied if the amounts are not material). [6 Sch 27 (SC), 4 Sch 26 (LLP SC)].

An ‘associated undertaking’ is defined in paragraph 19 of Schedule 6 to the Small Companies Regulations (paragraph 19 of Schedule 4 to the Small LLP Regulations) (see Chapter 6 at 5.3.4.E). This will generally include a jointly controlled entity and an associate under FRS 102. However, the definition includes a requirement for a ‘participating interest’ (not a feature of the definitions of a jointly controlled entity or an associate in FRS 102).

There are additional disclosures in relation to joint ventures (as defined in paragraph 18 of Schedule 6 to the Small Companies Regulations (paragraph 18 of Schedule 4 to the Small LLP Regulations)) that are included in the group accounts by the method of proportional consolidation. [6 Sch 26 (SC), 4 Sch 25 (LLP SC)]. These are not discussed in this chapter because jointly controlled entities are equity accounted under FRS 102 and accordingly the disclosures are unlikely to apply.

11.4.4.D Other significant holdings of parent company or group

A holding is significant for the purpose of the disclosures in paragraphs 29, 30, 32 and 33 of Schedule 6 to the Small Companies Regulations if:

  • it amounts to 20% or more of the nominal value of any class of shares in the undertaking; or
  • for the disclosures for (a) the parent company / LLP, the amount of the holding (as stated or included in the company's / LLP's individual accounts) exceeds 20% of the amount of the company's / LLP's assets (as so stated); or
  • for the disclosures for (b) the group, the amount of the holding (as stated or included in the group accounts) exceeds 20% of the amount of the group's assets (as so stated). [6 Sch 28, 31 (SC), 4 Sch 27, 30 (LLP SC)].

Separate disclosures are required for where (a) the parent company / LLP has a significant holding and (b) the group has a significant holding in an undertaking.

Where at the end of the financial year, (a) the parent company / parent LLP or (b) the group has a significant holding in an undertaking which is not one of its subsidiary undertakings and does not fall within paragraph 26 (joint ventures) or paragraph 27 (associated undertakings) of Schedule 6 to the Small Companies Regulations (paragraphs 24 and 26 of Schedule 4 to the Small LLP Regulations) (see 11.4.4.A and 11.4.4.C above), the following information must be stated: [6 Sch 28-33 (SC), 4 Sch 27-32 (LLP SC)]

  • the name of the undertaking;
  • the address of the undertaking's registered office (whether in or outside the UK);
  • if the undertaking is unincorporated, the address of its principal place of business;
  • with respect to the shares of the undertaking held by the parent company / LLP (for the disclosures for (a) the parent) and, separately with respect to the shares of the undertaking held by the group (for the disclosures for (b) the group):
    1. the identity of each class of shares held;
    2. the proportion of the nominal value of the shares of that class represented by those shares; and
    3. if material, the aggregate amount of the capital and reserves of the undertaking as at the end of its relevant financial year and its profit or loss for that year.

      The relevant financial year is the undertaking's financial year (where this ends on the same date as the company's / LLP's financial year); otherwise, it is the undertaking's financial year that ends last before the end of the company's / LLP's financial year.

      This information need not be given in respect of an undertaking if the undertaking is not required by any provision of the CA 2006 to deliver a copy of its balance sheet for its relevant financial year and does not otherwise publish that balance sheet in the UK or elsewhere and the company's / LLP's holding (in respect of the disclosures for (a) the parent) or group's holding (in respect of the disclosures for (b) the group) is less than 50% of the nominal value of the shares in the undertaking.

11.4.4.E Parent company's or group's membership of qualifying undertakings

The following information must be stated where, at the end of the financial year, the parent company or group is a member of a qualifying undertaking: [6 Sch 34 (SC)]

  • the name and legal form of the undertaking (if the information is material);
  • the address of the undertaking's registered office (whether in or outside the UK) or if it does not have such an office, its head office (whether in or outside the UK) (if the information is material); and
  • where the undertaking is a qualifying partnership, either:
    1. that a copy of the latest accounts of the undertaking has been or is to be appended to a copy of the company's accounts sent to the registrar under section 444 of the CA 2006; or
    2. the name of at least one body corporate (which may be the company) in whose group accounts the undertaking has been or is to be dealt with on a consolidated basis (this means full consolidation, proportional consolidation or the equity method of accounting). This information need not be given if the notes to the company's accounts disclose that advantage has been taken of the exemption conferred by regulation 7 of the Partnerships (Accounts) Regulations 2008.

    A qualifying undertaking is a qualifying partnership or an unlimited company meeting the criteria in paragraph 34(7) of Schedule 6 to the Small Companies Regulations. A qualifying partnership (and a member thereof) are as defined in the Partnerships (Accounts) Regulations 2008. Full details of these definitions are not provided here.

This disclosure does not apply to an LLP.

11.4.4.F Parent undertaking drawing up accounts for a larger group

Where the parent company / parent LLP is itself a subsidiary undertaking, with respect to that parent undertaking of the company which heads:

  1. the largest group of undertakings for which group accounts are drawn up and of which that company is a member, and
  2. the smallest such group of undertakings,

the following information must be stated:

  • the name of the parent undertaking;
  • if the undertaking is incorporated outside the UK, the country in which it is incorporated;
  • if it is unincorporated, the address of its principal place of business; and
  • if copies of the group accounts referred to above are available to the public, the addresses from which copies of those group accounts can be obtained. [6 Sch 35 (SC), 4 Sch 33 (LLP SC)].

This is similar to but not the same as the disclosure required in individual accounts by paragraph 1AC.34 (see 11.1.8 above).

11.4.4.G Identification of ultimate parent

Where the parent company / parent LLP is itself a subsidiary undertaking, the following information must be stated: [6 Sch 36 (SC), 4 Sch 34 (LLP SC)]

  • the name of the company or body corporate (if any) regarded by the directors as being the company's / LLP's ultimate parent company (for an LLP, ultimate parent); and
  • its country of incorporation, if outside the UK (if known to the directors or to the members of the LLP).

11.5 Limited liability partnerships – considerations

A note on the FRC website explains that there are some slight differences between the disclosure requirements of Section 1A and those in the Small LLP Regulations. LLPs should apply the equivalent requirements of the Small LLP Regulations rather than Section 1A. Where differences for an LLP have been identified in the disclosures included in Appendix C, these are noted in the detailed disclosures at 11.1 above.

An LLP subject to the small LLPs regime remains in scope of the LLP SORP which addresses recognition and measurement, presentation and disclosure considerations specific to LLPs. See Chapter 1 at 4.7 and Chapter 3 at 2.3 on application of SORPs.

Small LLPs applying Section 1A are required to comply with the disclosure requirements of Section 1A rather than those of the SORP except that small LLPs must give the disclosures about how loans and other debts due to members rank in relation to unsecured creditors, as required by paragraphs 63 and 64 (information on members' interests) of the SORP. With this exception, the SORP should not be interpreted as removing or not permitting exemptions for certain smaller entities in legislation or accounting standards (which take precedence over the SORP in the event of conflicting requirements), including those from the need to prepare group accounts or cash flow statements.

The SORP also encourages small LLPs applying Section 1A to present a reconciliation of the movement in ‘members’ other interests' (statement of changes in equity).

The financial statements of small LLPs must give a true and fair view. Judgement will therefore be required in determining whether further disclosures beyond those included in Section 1A of FRS 102 are needed to ensure that the financial statements give a true and fair view. Depending on the individual facts and circumstances, some or all of the disclosures in the SORP and the rest of FRS 102 may be needed in order for the LLP's financial statements to give a true and fair view. [LLP SORP.27-28, 59, 63-64].

Detailed guidance on LLPS is outside the scope of this chapter.

11.6 Small entities in the Republic of Ireland – considerations

A small entity in the Republic of Ireland must provide, at a minimum, when relevant to its transactions, other events and conditions, the disclosures in Appendix D (unless not material, except when required by the Companies Act 2014 regardless of materiality). [FRS 102.1A.17A, 18, 1AD.1].

Appendix D, which is an integral part of Section 1A, sets out the disclosure requirements for small entities based on the requirements of the Companies Act 2014 (as amended by the Companies (Accounting) Act 2017. Other than substituting company law terminology with the equivalent terminology used in FRS 102 (as set out in Appendix II – Table of equivalence for company law terminology– of FRS 102), the FRC states that the drafting is as close as possible to that set out in company law. References in Appendix D to sections of the Companies Act 2014 are to the sections of that Act, as amended by the Companies (Accounting) Act 2017 and references to Schedule 3A are to Schedule 3A of the Companies Act 2014.

Appendix D highlights disclosures in Sections 8 to 35 of FRS 102 that are similar to its requirements, noting that in many cases compliance with the similar requirement of FRS 102 will result in compliance with the requirements in Appendix D. However, a small entity in the Republic of Ireland must ensure it complies with all the disclosure requirements of Appendix D. Paragraphs in FRS 102 that have been cross referenced in Appendix D are also highlighted in the other sections of the standard with an asterisk. [FRS 102.1A.19, 1AD.1].

In general, the disclosures in Appendix D are similar to those in Appendix C, although the detailed wording may differ as the drafting has been kept as close as possible to that set out in Irish law. Therefore, a small entity in the Republic of Ireland should refer directly to Appendix D in order to identify the disclosures required.

A small entity in the Republic of Ireland that is subject to Irish law must also ensure that it complies with any statutory requirements, including disclosures. A detailed discussion of Irish law is outside the scope of this publication.

12 SMALL COMPANIES AND LLPS – STATUTORY EXEMPTIONS

There are two sets of exemptions available for small companies (and small LLPs):

  • the small companies regime (and small LLPs regime) – which applies to the preparation and / or filing of the financial statements; and
  • the small companies exemption – which applies to the preparation and / or filing of the strategic report and directors' report. There is no equivalent for small LLPs (as LLPs are not generally required to prepare a strategic report or directors' report).

A traded LLP or a banking LLP is required to prepare a strategic report. [s414A(1), s414A(1) ((LLP)].14 As discussed at 4.4.2. above, such an LLP would not qualify for the small LLPs regime. [s384(1) (LLP)].

These exemptions are available in both Companies Act accounts and IAS accounts. The discussion in this section sets out the requirements in the CA 2006 and Small Companies Regulations and small LLPs regime. This section is not intended to cover companies or LLPs applying the micro-entity provisions. See Chapter 1 at 6.4.

A company subject to the small companies regime (or an LLP subject to the small LLPs regime) must meet certain small size criteria and not be excluded from the small companies regime (or small LLPs regime), i.e. it must not be one of the types of ineligible company (or LLP) nor a member of an ineligible group. See 4 above.

A company entitled to the small companies exemption must meet the same small size criteria as for the small companies regime and must not be an ineligible company (although it may be a member of an ineligible group). The criteria to be subject to the small companies regime are, therefore, more onerous than for the small companies exemption; companies subject to the small companies regime will also qualify for the small companies exemption. See 12.2 below.

These exemptions operate independently from each other – a company entitled to both the small companies regime and the small companies exemption may choose to apply both, neither, the small companies regime only or the small companies exemption only.

A company that is subject to the small companies regime is entitled to apply the Small Companies Regulations, which require fewer disclosures in the financial statements and the directors' report than the Regulations. Similarly, an LLP that is subject to the small LLPs regime is entitled to apply the Small LLP Regulations, which require fewer disclosures in the financial statements than the LLP Regulations. See 12.1 below.

The exemptions from preparing group accounts available for small companies and LLPs are discussed at 6.2 above.

A company that takes advantage of the small companies exemption is not required to prepare a strategic report and is entitled to certain disclosure exemptions in the directors' report. [s414A(2), s414B, s415A]. See 12.2 below.

Companies subject to the small companies regime or taking advantage of the small companies exemption are also entitled to certain (but different) filing exemptions. [s444, s444A]. LLPs subject to the small LLPs regime have the same filing exemptions as companies subject to the small companies regime. [s444 (LLP)]. See 13 below.

If a company's accounts are prepared in accordance with the small companies regime, the company's balance sheet must contain, in a prominent position above the signature(s) of the director(s), a statement to the effect that the accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies regime. A similar statement on the balance sheet is required above the signature(s) of the designated member(s) of the LLP, where the accounts of an LLP are prepared in accordance with the small LLPs regime. This statement does not apply where the company or LLP applies the micro-entity provisions (see Chapter 1 at 6.4). [s414(3)(b), s414(3)(b) (LLP)]. This requirement has been included in Section 1A (and adapted for other small entities). See 7.1.1 and 9 above.

Where a company has taken advantage of the small companies exemption in preparing the directors' report, a statement to this effect is required in the directors' report, in a prominent place above the signature of the director (or secretary) signing on behalf of the board. [s419(2)]. The statement made in the directors' report refers to the small companies exemption even if the company is also subject to the small companies regime.

12.1 Use of the small companies and small LLPs regimes

Companies subject to the small companies regime (see 4.3 above), whether preparing Companies Act accounts or IAS accounts, must provide the disclosures required by the CA 2006, the Small Companies Regulations and other applicable regulations, but are exempt from certain disclosures required by companies not subject to the small companies regime.

Similarly, LLPs subject to the small LLPs regime (see 4.4 above), whether preparing Companies Act accounts or IAS accounts, must provide the disclosures required by the CA 2006 (as applied to LLPs by SI 2008/1911), the Small LLP Regulations and other applicable regulations, but are exempt from certain disclosures required by LLPs not subject to the small LLPs regime.

The disclosures of the relevant accounting standard followed should also be given.

12.1.1 Small Companies Regulations and Small LLP Regulations

The Small Companies Regulations (and Small LLP Regulations) contain significantly fewer disclosures than the Regulations (and LLP Regulations).

The statutory disclosures required for a company applying Section 1A are set out at 11 above (and where group accounts are prepared, at 11.4 above). The disclosures for LLPs are generally the same as those for companies, although there are a few differences and LLPs preparing FRS 102 financial statements are also subject to the LLP SORP. Special considerations for LLPs are highlighted at 11.5 above.

SI 2015/980 and SI 2016/575 removed a number of schedules from the Small Companies Regulations and Small LLP Regulations, significantly reducing the disclosures required. Figure 5.19 below sets out the schedules that continue to apply.

Small Companies Regulations Small LLP Regulations
Schedule 1 (Companies Act individual accounts) Schedule 1 (Non-IAS individual accounts)
Schedule 5 (Matters to be dealt with in directors' report)*
Schedule 6 (Group accounts) Schedule 4 (Group Accounts)
– Part 1
– Part 2* 		– Part 1
– Part 2*
Schedule 7 (Definition of ‘provision’)
Schedule 8 (General interpretation)* Schedule 5 (General interpretation)*
Note this includes the definition of a provision.
* Applies to both Companies Act accounts and IAS accounts * Applies to both non-IAS accounts and IAS accounts

Figure 5.19 Schedules that apply in the Small Companies Regulations and Small LLP Regulations (as amended)

The following schedules in the Small Companies Regulations have been removed:

  • Schedule 2 (Information about related undertakings where company not preparing group accounts (Companies Act or IAS individual accounts)) – but disclosures of related undertakings are still required in group accounts and are included in Part 2 of Schedule 6 (see 11.4.4 above);
  • Schedule 3 (Information about directors' benefits: remuneration (Companies Act or IAS accounts)) – but disclosures may still be required as related party transactions under company law or accounting standards (see 11.1.8.A and 11.1.8.B above for the requirements under Section 1A); and
  • Schedule 4 (Companies Act abbreviated accounts for delivery to Registrar of Companies).

The following schedules in the Small LLP Regulations have been removed:

  • Schedule 2 (Information about related undertakings where LLP not preparing group accounts (non-IAS or IAS individual accounts)) – but disclosures of related undertakings are still required in group accounts and are included in Part 2 of Schedule 4 to the Small LLP Regulations (see 11.4.4 above); and
  • Schedule 3 (Non-IAS abbreviated accounts for delivery to Registrar of Companies).

A company subject to the small companies regime preparing Companies Act accounts must comply with all applicable requirements of the Small Companies Regulations. Similarly, an LLP subject to the small LLPs regime preparing non-IAS accounts must comply with all applicable requirements of the Small LLP Regulations.

A company subject to the small companies regime preparing IAS accounts need not comply with Schedule 1 nor, where group accounts are prepared, Part 1 of Schedule 6 to the Small Companies Regulations. These schedules set out the formats for the profit and loss account and balance sheet, recognition and measurement principles, and disclosure requirements in Companies Act accounts. Similarly, an LLP subject to the small LLPs regime preparing IAS accounts need not comply with Schedule 1 nor Part 1 of Schedule 4 to the Small LLP Regulations.

However, both Companies Act group accounts (non-IAS group accounts for an LLP) and IAS group accounts must give the information on related undertakings in Part 2 of Schedule 6 to the Small Companies Regulations (Part 2 of Schedule 4 to the Small LLP Regulations).

For Companies Act accounts (non-IAS accounts for an LLP), the schedules in the Small Companies Regulations (and Small LLP Regulations) provide simpler formats and reduced disclosures compared to the corresponding schedules in the Regulations (and LLP Regulations). However, companies are treated as complying with Schedule 1 and, in respect of group accounts, Part 1 of Schedule 6 to the Small Companies Regulations if they comply with the corresponding provision of Schedule 1 and / or Part 1 of Schedule 6 to the Regulations. [Regulations (SC) 3(3), 8(2)]. Similarly, LLPs are treated as complying with Schedule 1 and, in respect of group accounts, Part 1 of Schedule 4 to the Small LLP Regulations if they comply with the corresponding provision of Schedule 1 and / or Schedule 3 to the LLP Regulations. [LLP SC Regulations 3(3), 6(2)].

FRS 101 and full FRS 102 (where Section 1A is not applied) require use of the formats included in the Regulations (or LLP Regulations). Our view is that companies subject to the small companies regime (and LLPs subject to the small LLPs regime) can still apply FRS 101 or full FRS 102 but must use the formats in Schedule 1 to the Regulations or Schedule 1 to the LLP Regulations (rather than the formats in Schedule 1 to the Small Companies Regulations or Schedule 1 to the Small LLP Regulations). However, this does not preclude the small company or small LLP taking advantage of other exemptions applicable to companies subject to the small companies regime (or LLPs subject to the small LLPs regime).

Companies subject to the small companies regime (and LLPs subject to the small LLPs regime) are entitled to apply Section 1A (see 4 above). Companies subject to the small companies regime that choose to apply Section 1A should follow the formats in Schedule 1 to the Small Companies Regulations or Small LLP Regulations.

12.1.2 Disclosure exemptions for small companies and small LLPs regime in IAS accounts and Companies Act accounts

UK companies subject to the small companies regime (and LLPs subject to the small LLPs regime) benefit from the following disclosure exemptions:

  • the financial impact of off-balance sheet arrangements on the company / LLP (and where group accounts are prepared, on the consolidated group) is not required. However, the nature and business purpose of the arrangements, to the extent necessary for enabling the financial position of the company / LLP (and where group accounts are prepared, of the consolidated group) to be assessed, must be disclosed. [s410A, s410A (LLP)]. See 11.1.5.H and 11.4.2.D above and Chapter 6 at 8.7);
  • information analysing employee numbers by category and staff costs is not required, although the total average number of persons employed by the company / LLP (and where group accounts are prepared, the consolidated group) must be disclosed (see 11.1.7 and 11.4.2.B above and Chapter 6 at 8.6); [s411, s411 (LLP)] and
  • remuneration receivable by the company's (or LLP's) auditor. The disclosure is removed entirely for financial years beginning on or after 1 January 2016.15 [s494, s494 (LLP)]. See 11.2.1 and 11.4.2.E above.

The above exemptions from certain disclosures included in Part 15 of the CA 2006 apply both to Companies Act accounts (non-IAS accounts, for an LLP) and IAS accounts.

In addition, the disclosures in Schedule 1 to the Small Companies Regulations and Schedule 1 to the Small LLP Regulations are significantly fewer than those required for companies applying the Regulations, and are largely set out in Appendix C of Section 1A (see 11.1 above). These disclosures only apply to Companies Act accounts (for a company) and non-IAS accounts (for an LLP).

The disclosures at 11.2 above (except for 11.2.4), and in respect of group accounts, at 11.4.2 and 11.4.4 above, apply both to IAS accounts and Companies Act accounts (or non-IAS accounts for an LLP). A company preparing IAS individual and / or group accounts gives the same disclosure as that set out at 11.1.9 and 11.4.2.A above but must also state that the individual accounts (and any group accounts) are prepared in accordance with international accounting standards, i.e. EU-adopted IFRS. [s397(1), s406(1), s474, s397 (LLP), s406 (LLP), s474 (LLP)].

A company (or LLP) is not required to comply with Schedule 2 to the Small Companies Regulations, although disclosures for related undertakings (set out in Part 2 of Schedule 6 to the Small Companies Regulations and Part 2 of Schedule 4 to the Small LLP Regulations) are required in any group accounts (see 11.4.4 above). These disclosure exemptions apply to both Companies Act accounts (non-IAS accounts for an LLP) and IAS accounts.

As Schedule 3 (directors' remuneration) has been removed, the previous statutory directors' remuneration disclosures are not required for a small company. There was no equivalent of the disclosure required by Schedule 3 in the Small LLP Regulations; particulars of members and members' remuneration are required for large and medium-sized LLPs only.

However, Section 1A (and the related statutory disclosure requirement in the Small Companies Regulations) require separate disclosure of related party transactions, where not concluded under normal market conditions, for the small entity's directors (or members of the entity's governing body) and certain other categories of related parties. Paragraph 1AC.35 of Section 1A clarifies that such transactions include directors' remuneration and dividends paid to directors (see 11.1.8.A above).

An entity applying full FRS 102, FRS 101 or IFRS would need to comply with related party disclosures in those accounting standards. However, certain disclosure exemptions are available under the reduced disclosure framework in individual financial statements under FRS 101, [FRS 101.7, 8(j), 8(k)], and FRS 102. [FRS 102.1.8, 1.9, 1.12(e)]. See Chapter 2 at 6.1 and 6.1.10, Chapter 3 at 3.3.4 and 3.5. Intra-group transactions involving wholly owned subsidiaries of a group are exempt from disclosure in both FRS 102 individual and consolidated financial statements. [FRS 102.1AC.35, 33.1A]. Use of this exemption – unlike the same exemption in FRS 101 – does not use the reduced disclosure framework and need not be disclosed. See Chapter 30 at 1.1.2. There are no disclosure exemptions under IAS 24 – Related Party Disclosures.

12.1.3 Disclosure exemptions for small companies – directors' report and strategic report

Where a company is subject to the small companies regime, it will also qualify for the small companies exemption. Therefore, the company is not required to prepare a strategic report and is entitled to disclosure exemptions set out in the CA 2006 in relation to the directors' report. See 12.2.1 and 12.2.2 below.

In addition, a company subject to the small companies regime would prepare a directors' report in accordance with Schedule 5 to the Small Companies Regulations. [5 Sch (SC)]. Schedule 5 requires disclosure in respect of political donations and expenditure and the employment of disabled persons. As discussed below, Schedule 5 excludes many of the directors' report disclosures required by Schedule 7 to the Regulations (which applies to companies not applying the small companies regime).

Where any of the above exemptions are taken, the required statement in the directors' report that the company has taken advantage of the small companies exemption in preparing the directors' report must be made. See 12 above.

Companies subject to the small companies regime are not required to give the following disclosures in the directors' report (that would be required where a company instead applies Schedule 7 to the Regulations):

  • use of financial instruments – financial risk management objectives, policies and risk exposures;
  • details of important post balance sheet events;
  • an indication of likely future developments;
  • an indication of research and development activities;
  • an indication of branches outside the UK;
  • information about employee involvement;
  • engagement with employees;*
  • engagement with suppliers, customers and others in a business relationship with the company;* and
  • a statement of corporate governance arrangements.*

* These requirements (which are subject to certain exemptions, including size criteria) have been introduced into Schedule 7 to the Regulations for financial years beginning on or after 1 January 2019. There are no equivalent directors' report requirements in Schedule 5 to the Small Companies Regulations.16

The above list excludes those disclosures in Schedule 7 to the Regulations that are applicable to quoted companies, companies with securities admitted to trading on a regulated market or public companies acquiring their own shares. This is because such companies are likely to be public companies and therefore not to qualify for the small companies regime.

12.2 Criteria for use of the small companies exemption

A company is entitled to the small companies exemption in relation to the directors' report (see 12.2.1 below) and the strategic report (see 12.2.2 below) for a financial year if it is entitled to prepare financial statements for the year in accordance with the small companies regime (see 4.3 above) or would be so entitled but for being or having been a member of an ineligible group. [s415A(1), s414B].

The company must, therefore, meet the same small size criteria as for the small companies regime (and if the company is a parent company, it must head a small group). The company must also not have been an ineligible company itself at any time during the financial year to which the accounts relate (but may still use the small companies exemption if it was a member of an ineligible group at any time during that financial year).

The small companies exemption is available both to companies preparing Companies Act accounts and companies preparing IAS accounts (i.e. prepared using EU-adopted IFRS).

12.2.1 Disclosure exemptions for the small companies exemption – directors' report

There are relatively few disclosure exemptions remaining for companies entitled to the small companies exemption contained in the CA 2006 itself.

Companies entitled to the small companies exemption are exempt from including the amount recommended by the directors to be paid by way of dividend (required by section 416(3)). [s415A(2)].

If a company is entitled to the small companies exemption, the directors' report must still include:

  • the names of persons who were, at any time during the financial year, directors of the company; [s416(1)(a)] and
  • the statement as to disclosure of relevant information to auditors (unless the company has taken advantage of an audit exemption). [s418].

Where the company is entitled to the small companies exemption (but not subject to the small companies regime), the company must comply with the more extensive content requirements for the directors' report in Schedule 7 to the Regulations. [Regulations 10, 7 Sch]. Where the company is entitled to the small companies regime, it may comply with Schedule 5 to the Small Companies Regulations which has fewer disclosures for the directors' report, as explained at 12.1.3 above.

Where any of the above exemptions are taken, the required statement in the directors' report that the company has taken advantage of the small companies exemption in preparing the directors' report must be made. See 12 above.

12.2.2 Small companies exemption from preparing strategic report

A company entitled to the small companies exemption is not required to prepare a strategic report. [s414A(2)].

While there is no statutory requirement to do so, we would recommend that, where a company entitled to the small companies exemption takes advantage of the exemption not to prepare a strategic report, a statement is included in the directors' report, above the signature of the director or secretary to explain that it has done so.

12.3 Potential impact of Brexit on UK small companies regime

At the time of writing this chapter, the company law requirements have not been altered as a result of Brexit. However, the government has published draft legislative proposals – The Accounts and Reports (Amendment) (EU Exit) Regulations 2018. Based on the content of these draft proposals, the principal changes are as follows:

  • The definition of an ineligible group in section 384 for the purposes of the small companies regime (see 4.3.3 and 4.4.2 above) will refer to a body corporate (other than a company) whose shares are admitted to trading on a UK regulated market (rather than, as now, a regulated market in an EEA State). In addition, a ‘traded company’ is to be redefined as a company any of whose transferable securities are admitted to trading on a UK regulated market. There are also changes to the definition of a MIFID investment firm.
  • There are changes to the list of undertakings in section 399(2B) excluded from using the small group accounts exemption (see 6.2 above). These undertakings must be established under the law of any part of the UK (rather than, as now, an EEA State), and must have to prepare accounts in accordance with Part 15 of the CA 2006 (rather than, as now, the Accounting Directive). The list of undertakings now includes an undertaking whose transferable securities are admitted to trading on a UK regulated market, a credit institution (as defined in the draft legislation) or insurance undertaking (as defined in the draft legislation).

The draft legislation proposes that these changes come into effect for financial years beginning on or after exit day. The draft legislation is subject to Parliamentary approval and may be impacted by any transitional arrangements negotiated with the EU.

13 FILING REQUIREMENTS – SMALL COMPANIES AND SMALL LLPS

13.1 Small companies and small LLPs regimes

Companies subject to the small companies regime have two choices:

  • to deliver a copy of the full accounts and reports sent to members and a copy of the auditor's report (unless the company has taken advantage of an audit exemption) to the Registrar; or
  • to deliver a copy of the balance sheet but choose to omit a copy of the profit or loss account and / or the directors' report.

This exemption not to deliver a copy of the directors' report or profit and loss account is available to both IAS accounts and Companies Act accounts. [s444(1), s444(3)].

In addition, Companies Act group accounts delivered to the Registrar need not give the information required by paragraph 25 of Schedule 6 to the Small Companies Regulations, i.e. shares of the company held by subsidiary undertakings (see 11.4.4.B above). [Regulations (SC) 11(b), 6 Sch 25 (SC)].

The requirements for LLPs subject to the small LLPs regime are similar, although as there is no equivalent of the directors' report in LLP law, there are no related filing exemptions. LLPs subject to the small LLPs regime have two choices:

  • to deliver a copy of the full accounts sent to members and a copy of the auditor's report (unless the LLP has taken advantage of an audit exemption) to the Registrar; or
  • to deliver a copy of the balance sheet but choose to omit a copy of the profit or loss account.

This exemption not to deliver a copy of the profit and loss account is available to both IAS accounts and non-IAS accounts. [s444(1) (LLP), s444(3) (LLP)].

Where the balance sheet or profit and loss account is abridged pursuant to paragraph 1A of Schedule 1 to the Small Companies Regulations (or paragraph 1A of Schedule 1 to the Small LLP Regulations), the directors of the company (or members of the LLP) must deliver to the Registrar a statement by the company (or the LLP) that all the members of the company (or all the members of the LLP) have consented to the abridgement. [s444(2A), s444(2A) (LLP)]. See 8.1.2, 9.2 and 10.2 above. While there is no specific requirement to do so, we consider it would also be helpful for annual accounts that include abridged formats to include a statement that all the members of the company (or of the LLP) have consented to the abridgement in the statements made below the balance sheet (and above the directors' signature).

References to the ‘profit or loss account’ above include its related notes. References in Part 15 to the profit and loss account include notes to the accounts giving information which is required by any provision of the CA 2006 or EU-adopted IFRS, and required or allowed by any such provision to be given in a note to the company's accounts. [s472, s 472 (LLP)].

13.2 Statements required in accounts delivered to Registrar

Where the directors of a company deliver to the Registrar a copy of the company's profit or loss account under section 444(1)(b)(i) of the CA 2006, the directors of the company must also deliver a copy of the auditor's report on the accounts (and any directors' report) delivered, unless the company is exempt from audit and the directors have taken advantage of the audit exemption. [s444(2)].

Similarly, where the designated members of an LLP deliver to the Registrar a copy of the LLP's profit or loss account under section 444(1)(b) of the CA 2006, the members of the LLP must also deliver a copy of the auditor's report on the accounts delivered, unless the LLP is exempt from audit and the members have taken advantage of the audit exemption. [s444(2) (LLP)].

Where the directors of a company (or designated members of an LLP) do not deliver a copy of the company's (or LLP's) profit or loss account, the copy of the company's (or LLP's) balance sheet delivered to the Registrar must disclose that fact and the notes to the balance sheet must:

  • state whether the auditor's report was qualified or unqualified;
  • where that report was qualified, disclose the basis of the qualification (reproducing any statement under section 498(2)(a) or (b) or section 498(3), if applicable);
  • where that report was unqualified, include a reference to any matters to which the auditor drew attention by way of emphasis; and
  • state:
    • the name of the auditor and (where the auditor is a firm) the name of the person who signed the auditor's report as senior statutory auditor (where more than one person is appointed auditor, the reference to ‘name of the auditor’ refers to the ‘names of all the auditors’); or
    • if the conditions in section 506 (circumstances in which names may be omitted) are met, that a resolution has been passed (LLPs instead state that a determination has been made) and notified to the Secretary of State in accordance with that section.

The above disclosures do not apply if the company (or LLP) is exempt from audit and the directors of the company (or members of the LLP) have taken advantage of the audit exemption, or if the company (or LLP) qualifies as a micro-entity and the accounts are prepared in accordance with any of the micro-entity provisions. [s444(5A)-(5C), s444(5A)-(5C) (LLP)].

Where the directors of a company do not deliver a copy of the company's profit or loss account or a copy of the directors' report, the copy of the company's balance sheet delivered to the Registrar must contain in a prominent position that the company's annual accounts [and reports] have been delivered in accordance with the provisions applicable to the small companies regime. [s444(5)]. Similarly, where the designated members of an LLP do not deliver a copy of the company's profit or loss account, the copy of the LLP's balance sheet delivered to the Registrar must contain in a prominent position that the LLP's annual accounts have been delivered in accordance with the provisions applicable to the small LLPs regime. [s444(5) (LLP)].

This statement should be included above the directors' signature and printed name of the director signing on behalf of the board (or for an LLP, the signature of the designated member of the LLP signing on behalf of the members). See Example 5.3 below for a company subject to the small companies regime, where a copy of the company's profit and loss account has not been delivered to the Registrar (and therefore, a copy of the auditor's report is not delivered to the Registrar). In this example, the auditor's report was unqualified and did not contain an emphasis of matter reference. While the statement is not required to state that there was no emphasis of matter reference, it may be helpful to do so. Had the auditor's report contained a qualification or emphasis of mater, disclosure of the basis of qualification and the emphasis of matter reference would be required (as explained above).

This statement (and if applicable, the note to the balance sheet concerning the auditor's report) are required in the copy of the accounts and reports delivered to the Registrar (but not in the accounts and reports prepared for members).

This statement is in addition to any statements required in the accounts and reports prepared for members (and consequently also included in the copy of the accounts and reports delivered to the Registrar), where the accounts for members are prepared in accordance with the small companies regime (or small LLPs regime) (see 7.1.1, 11.2.5 and 12 above – example wording is at 9 above) or where the company has taken advantage of the small companies exemption in preparing the directors' report (see 12.2.1 above).

While there is no specific requirement to do so, we consider it would also be helpful for annual accounts that include abridged formats to include a statement that all the members of the company (or of the LLP) have consented to the abridgement in the statements made below the balance sheet (and above the directors' signature). See 13.1 above.

In all cases, the copies of the balance sheet and, for a company, any directors' report delivered to the Registrar must be signed by and state the name of the person who signed it on behalf of the board (or the members, in the case of an LLP). [s444(6), s444A(3), s444(6) (LLP)].

13.3 Small companies exemption

A company entitled to the small companies exemption only (see 12.2 above) is not required to deliver a copy of the directors' report but must deliver a copy of the annual accounts and a copy of the auditor's report on the accounts (and any directors' report that it delivers), unless the company has taken advantage of an audit exemption. [s444A(1)-(2)]. While there is no statutory requirement to make a statement, it may be helpful to explain that the company is taking advantage of the small companies exemption in not delivering the directors' report.

The copies of the balance sheet and, for a company, any directors' report delivered to the Registrar must be signed by and state the name of the person who signed it on behalf of the board (or the members, in the case of an LLP). [s444A(3)].

References

  1. 1 Charities SORP (FRS 102): Accounting and Reporting by Charities: Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102), Charity Commission and Office of the Scottish Charity Regulator, 2014.
  2. 2 The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980), para. 2(4).
  3. 3 The Unregistered Companies Regulations 2009 (SI 2009/2436).
  4. 4 https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_upreg
  5. 5 The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575), para. 63.
  6. 6 Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply The UK Corporate Governance Code, FRC, April 2016, para. 3.5.
  7. 7 The Statutory Auditors Regulations 2017 (SI 2017/1164), para. 2(5)(a), Schedule 3 para. 4.
  8. 8 Partnerships (Accounts) Regulations 2008 (SI 2008/569), para. 4 and Schedule, para. 2(1)(a).
  9. 9 Partnerships (Accounts) Regulations 2008 (SI 2008/569), para. 4 and Schedule, para. 2(1)(a).
  10. 10 Note 3 to the balance sheet formats in Section B of Part 1 of Schedule 1 to SI 2008/1913.
  11. 11 The Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649), paras. 1(4)(a), 18(2)(a).
  12. 12 Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 (SI 2008/489), para. 8.
  13. 13 The Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649), paras. 1(4)(a), 18(2)(a).
  14. 14 The Statutory Auditors Regulations 2017 (SI 2017/1164), para. 2(5)(a), Schedule 3 para. 4.
  15. 15 The Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649), paras. 1(4)(a), 18(2)(a).
  16. 16 The Companies (Miscellaneous Reporting) Regulations 2018 (SI 2018/860), paras. 1(4), 13-14.
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