1.1 Applicability to UK companies, LLPs, and other entities

Except where otherwise stated, the rest of this chapter covers the presentation requirements for UK companies and for LLPs and highlights the main changes to the presentation requirements made by 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).

UK GAAP (prior to implementation of FRS 100 – Application of Financial Reporting Requirements, FRS 101 – Reduced Disclosure Framework – Disclosure exemptions from EU-adopted IFRS for qualifying entities – and FRS 102) is referred to as ‘previous UK GAAP’.

While this chapter (see 4 below) addresses which profit and loss account and balance sheet formats are applied by a UK banking company (applying Schedule 2 to the Regulations – see definition at 4.2.2 below), a UK insurance company (applying Schedule 3 to the Regulations – see definition at 4.2.3 below) or, in group accounts, by the holding company of a banking or insurance group, it does not address the content of such formats in detail.

LLPs, qualifying partnerships (unless exempt under regulation 7 of The Partnerships (Accounts) Regulations 2008) and certain other entities preparing annual accounts in accordance with Part 15 of the CA 2006 (see 4.2.4 and 4.2.5 below) are subject to similar requirements to those for UK companies preparing Companies Act accounts, modified as necessary by the regulations that govern the content of their annual accounts. The formats for qualifying partnerships are based on those required for UK companies with the modifications discussed at 4.2.4. The formats applicable to LLPs are addressed throughout this chapter, but the main focus of the chapter is on UK companies. The Statement of Recommended Practice – Accounting by Limited Liability Partnerships (January 2017) (‘LLP SORP’) issued by Consultative Committee of Accounting Bodies (CCAB) provides additional guidance on the requirements of both FRS 102 and the LLP Regulations. The LLP SORP applies to accounting periods beginning on or after 1 January 2016. The LLP SORP is referred to, where relevant, but its requirements are not covered in detail in this publication.

The presentation requirements in Sections 4 and 5 apply to all entities, whether or not they report under the CA 2006. Entities that do not report under the CA 2006 shall comply with these requirements and with the Regulations (or, where applicable, the LLP Regulations), where referred to, except to the extent that these requirements are not permitted by any statutory framework under which such entities report. [FRS 102.4.1, 5.1].

1.2 Irish companies

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). The Triennial review 2017 amended Section 1A to reflect these changes. See Chapter 5 at 4.5.

1.3 Other entities

Other entities that apply FRS 102 may include entities required by their governing legislation, or other regulation or requirement to prepare financial statements that present a true and fair view. Entities that are not UK companies need to satisfy themselves that FRS 102 does not conflict with any relevant legal obligations. [FRS 102 Appendix III.41].

The FRC sets out summary information concerning the statutory frameworks for certain entities whose financial statements are required to present a true and fair view, including: building societies; UK, Scottish and Northern Ireland charities (accruals accounts), friendly societies; industrial and provident societies; occupational pension schemes. The FRC also comment on how application of FRS 102 relates to the required statutory framework. [FRS 102 Appendix III.42]. However, in some cases, these statutory frameworks, particularly for charities, may have changed so entities should make sure that the current legal requirements are referred to.

3.1 Key definitions

The following definitions, included in the Glossary to FRS 102, are relevant to presentation: [FRS 102 Appendix I]

This chapter also makes many references to certain concepts in the Regulations and LLP Regulations. Unless otherwise indicated, these references should be interpreted as follows:

• ‘General Rules to the formats’ means the General Rules included in Section A of Part 1 of Schedule 1 to the Regulations and Section A of Part 1 of Schedule 1 to the LLP Regulations;
• ‘Statutory formats’ means the formats in Section B of Part 1 of Schedule 1 to the Regulations and Section B of Part 1 of Schedule 1 to the LLP Regulations; and
• ‘Adapted formats’ means the formats permitted by paragraph 1A of Schedule 1 to the Regulations and paragraph 1A of Schedule 1 to the LLP Regulations (as an alternative to the ‘statutory formats’).

3.2 Objectives of sections in FRS 102 addressing presentation of financial statements

The objective of financial statements is to provide information about the financial position, performance and, when required to be presented, cash flows of an entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs. Financial statements also show the results of the stewardship of management – the accountability of management for the resources entrusted to it. [FRS 102.2.2-3].

Sections 3 to 8, which address presentation of financial statements, include the following objectives:

• to set out the requirement that the financial statements of an entity shall give a true and fair view, what compliance with FRS 102 requires and what is a complete set of financial statements; [FRS 102.3.1]
• to set out the information that shall be presented in a statement of financial position (referred to as the ‘balance sheet’ under the CA 2006) and how to present it; [FRS 102.4.1]
• to require an entity to present total comprehensive income for a period, being its financial performance for the period – in one or two statements – and to set out the information that shall be presented in those statements and how to present it; [FRS 102.5.1]
• to set out requirements for presenting the changes in an entity's equity for a period either in a statement of changes in equity, or if specified conditions are met and an entity chooses, in a statement of income and retained earnings; [FRS 102.6.1]
• to set out the information required in a statement of cash flows and how to present it. See Chapter 7 for further details; [FRS 102.7.1] and
• to set out the principles underlying information to be presented in the notes to the financial statements and how to present it. In addition, nearly every section of FRS 102 requires disclosures that are normally presented in the notes. [FRS 102.8.1].

3.3 Interim financial reports and segmental reporting

3.4 Frequency of reporting and period covered

An 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, which, for a UK company or LLP, will generally end with the last day of the accounting reference period (based on the accounting reference date notified to the Registrar).

Some entities, particularly in the retail sector, present financial statements for a 52-week period. This practice is permitted by the CA 2006 – companies (and LLPs) may prepare financial statements to a financial year end, not more than 7 days before or after the end of the accounting reference period, as the directors (or members of the LLP) may determine. [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.

3.5 Components of a complete set of financial statements

A complete set of financial statements under FRS 102 (for an entity not applying Section 1A) includes all of the following, each of which should be presented with equal prominence: [FRS 102.3.17, 3.21]

• a statement of financial position as at the reporting date (see 4 and 5 below);
• a statement of comprehensive income for the reporting period (see 4 and 6 below) to be presented either as:
  • a single statement of comprehensive income, displaying all items of income and expense recognised during the period including those items recognised in determining profit or loss (which is a subtotal in the statement of comprehensive income) and items of other comprehensive income; or
  • a separate income statement and a separate statement of comprehensive income. In this case, the statement of comprehensive income begins with profit or loss and then displays the items of other comprehensive income;
• a statement of changes in equity for the reporting period (see 7 below);
• a statement of cash flows (unless exempt) for the reporting period (see Chapter 7); and
• notes, comprising significant accounting policies and other explanatory information (see 8 below).

In addition to information about the reporting period, FRS 102 also requires comparative information in respect of the preceding period for all amounts presented in the current period's financial statements. Therefore, a complete set of financial statements includes, at a minimum, two of each of the required financial statements and related notes. [FRS 102.3.14, 3.20]. Comparative information, including the statutory requirements of the Regulations and LLP Regulations, is discussed at 3.6 below.

Chapter 7 at 3.1 sets out exemptions from preparing a cash flow statement. Qualifying entities (see Chapter 3 at 3.1 and 3.3.2) using the reduced disclosure framework in individual financial statements are also exempt. FRS 102 further exempts a small entity (as defined in Chapter 5 at 4) from preparing a cash flow statement. This cash flow exemption is available both to small entities applying Section 1A and to small entities applying the full version of FRS 102, unless it is required to prepare one by an applicable SORP or law or other relevant regulation. [FRS 102.3.1B].

Sections 4 and 5 require that the balance sheet and profit and loss account formats in Part 1 of the applicable schedule of the Regulations or LLP Regulations are followed in presenting the statement of financial position and the ‘profit and loss’ section of the statement of comprehensive income. These formats include both the statutory formats and the adapted formats available as an alternative to statutory formats under Schedule 1 to the Regulations and Schedule 1 to the LLP Regulations. [FRS 102.4.2, FRS 102.5.5, 7]. See 4 below for further discussion of the formats.

Other titles for the financial statements can be used, as long as they are not misleading. [FRS 102.3.22]. For instance, an entity may wish to refer to a balance sheet (for the statement of financial position) or the profit and loss account (instead of an income statement, where total comprehensive income is presented in two statements).

If an entity has no items of other comprehensive income in any of the periods presented, it may present only an income statement (or a statement of comprehensive income in which the ‘bottom line’ is labelled profit or loss). [FRS 102.3.19].

If the only changes to equity during the periods presented in the financial statements arise from profit or loss, payments of dividends, corrections of prior period errors and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement of comprehensive income and statement of changes in equity. [FRS 102.3.18].

FRS 102 explains that notes contain information in addition to that presented in the primary statements above, 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 102.8.1].

3.6 Comparative information

Except when FRS 102 permits or requires otherwise, an entity presents comparative information in respect of the preceding period for all amounts presented in the current period's financial statements. [FRS 102.3.14]. This means that the requirement to present comparative information applies both to mandatory and voluntary information presented for the current period.

The Regulations and LLP Regulations also require only one comparative period to be presented for the balance sheet and profit and loss account formats. [1 Sch 7, 1 Sch 7 (LLP)]. The Regulations and LLP Regulations do not specifically require comparative note disclosures but, as noted above, these are required by FRS 102 (unless specifically exempted). Other statutory or regulatory frameworks may require further periods to be presented.

In certain cases, FRS 102 provides specific exemptions from presenting comparatives. For example, there is no requirement to present comparatives for the reconciliations of movements in the number of shares outstanding, or of the movements in the carrying amounts of investment property, property, plant and equipment, intangible assets, goodwill, negative goodwill, provisions or biological assets. [FRS 102.4.12(a)(iv), 16.10(e), 17.31(e), 18.27(e), 19.26-19.26A, 21.14, 34.7(c), 34.10(e)]. These exemptions are addressed in the relevant chapters of this publication. The Triennial review 2017 clarified that an entity providing reconciliations of items of fixed assets in accordance with paragraph 51 of Schedule 1 to the Regulations, need not present these reconciliations for prior periods. [FRS 102.3.14A].

The General Rules to the formats (see 4.4 below) require that for each item presented in the balance sheet and profit and loss account, the corresponding amount for the immediately preceding financial year (i.e. the comparative) must also be shown. [1 Sch 7(1), 1 Sch 7(1) (LLP)].

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)].

3.7 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). Chapter 1 at 6 addresses the content of the statutory annual report and accounts for a UK company (and Chapter 5 addresses this for a UK company applying the small companies regime). An LLP is not required to prepare a members' report, but the LLP SORP requires certain information to be disclosed which may be included in a separate members' report. [LLP SORP.30-31]. A traded LLP or a banking LLP is also required to prepare a strategic report. [s414A(1), s414A(1) (LLP)]. This requirement post-dates the publication of the LLP SORP.¹

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 102.3.23]

• the name of the reporting entity and any change in its name from 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 etc., 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 (and hence ‘cut clutter’ – see 9.4.1 below) 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. For example, where the financial statements are presented in millions of units of the presentation currency, it may be appropriate to include information on directors' remuneration at a lower level of rounding. In all cases, it is important that the units used are clearly stated.

FRS 102 requires disclosures in the notes to the financial statements concerning 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). [FRS 102.3.24(a)]. See 8.5 below.

The statutory accounts of a UK company or LLP must also include certain disclosures concerning its legal form and registration. [s396(A1), s404(A1), s396(A1) (LLP), s404(A1) (LLP)]. See 8.5 below.

3.8 Statement of compliance

A set of financial statements prepared in accordance with FRS 102 must contain an explicit and unreserved statement of compliance with FRS 102 in the notes to the financial statements. Financial statements must not be described as complying with FRS 102 unless they comply with all the requirements of the standard. [FRS 102.3.3, FRS 100.9]. This is similar to the requirement in IAS 1 for an entity preparing its financial statements to give an explicit and unreserved statement of compliance with IFRSs. [IAS 1.16].

FRS 102 additionally requires a public benefit entity (see Chapter 31 at 6 for the definition of a public benefit entity) that applies the ‘PBE’ prefixed paragraphs to make an explicit and unreserved statement that it is a public benefit entity. [FRS 102.PBE3.3A]. This is because FRS 102 has specific requirements reserved for public benefit entities (prefixed with ‘PBE’), which must not be applied directly, or by analogy by entities that are not public benefit entities (other than, where specifically directed, entities within a public benefit entity group). [FRS 102.1.2]. See Chapter 3 at 2.5.2.

FRS 103 requires that an entity whose financial statements comply with FRS 103 shall, in addition to the statement of compliance made in accordance with FRS 102, make an explicit and unreserved statement of compliance with FRS 103 in the notes to the financial statements. [FRS 103.1.12].

An example (for an entity not applying Section 1A) is presented at Example 6.1 below. See Chapter 5 at 11.2.5 and 11.3 for an example where an entity applies Section 1A.

In special circumstances when management concludes that compliance with any requirement of FRS 102 or applicable legislation (only where 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 to the extent necessary to give a true and fair view, giving the required disclosures set out in paragraph 3.5 of FRS 102. [FRS 102.3.4-5]. See 9.2 below for further discussion of the ‘true and fair override’ under FRS 102 (and where applicable, the CA 2006) together with the implications for the statement of compliance.

4.1 Required formats – balance sheet and profit and loss account

4.2 Which formats should be applied?

4.3 Changes in formats

The General Rules to the formats (see 4.4 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 Regulations or Section B of Part 1 of Schedule 1 to the LLP Regulations), the company's directors (or the members of an 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, 6 Sch 1, 1 Sch 2 (LLP), 3 Sch 1 (LLP)].

There are similar rules for changes in statutory profit and loss account formats for banking companies in Schedule 2 to the Regulations. [2 Sch 3, 6 Sch 1]. There is no choice of statutory balance sheet formats in Schedule 2 to the Regulations. There is no choice of statutory formats in Schedule 3 to the Regulations.

While this paragraph refers to the statutory formats, the General Rules apply so far as is practicable to adapted formats. [1 Sch 1A(3), 1 Sch 1A(3) (LLP)]. Therefore, in our view, the same requirements apply to changes in the statutory format used and a change between statutory formats and adapted formats.

A change in the format applied would also be regarded as a change in accounting policy for the purposes of FRS 102 and, therefore, would be retrospectively effected. Accounting policies are defined as ‘the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements’. [FRS 102 Appendix I, FRS 102.10.2]. See Chapter 9 at 3.4 for the requirements on changes in accounting policy.

4.4 General Rules to the formats

The following discussion relates to the General Rules to the formats which apply to balance sheet and profit and loss account formats included in Schedule 1 to the Regulations (and Schedule 1 to the LLP Regulations). The General Rules to the formats applicable to Schedule 2 (banking companies) and Schedule 3 (insurance companies) to the Regulations, not addressed here, are more restrictive.

The General Rules to the formats also cover changes in formats (see 4.3 above).

4.5 Non-controlling interests in consolidated financial statements

FRS 102, the Regulations and LLP Regulations address the presentation of non-controlling interest. These requirements are relevant to consolidated financial statements, prepared using statutory or adapted formats.

Under FRS 102, a non-controlling interest is defined as ‘the equity in a subsidiary not attributable, directly or indirectly, to a parent’. Equity is ‘the residual interest in the assets of the entity after deducting all its liabilities’. Owners (as referred to below) are ‘holders of instruments classified as equity’. [FRS 102 Appendix I].

FRS 102 requires that non-controlling interest is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. [FRS 102.9.20].

The statement of changes in equity (see 7.1 below) presents: [FRS 102.6.3]

• total comprehensive income, showing separately the total amounts attributable to owners of the parent and non-controlling interests; and
• since non-controlling interest is a component of equity, a reconciliation of the changes in the carrying amount of non-controlling interest.

In addition, the statement of comprehensive income (or separate income statement, where presented) shows as allocations of profit or loss and total comprehensive income: [FRS 102.5.6, 5.7A-C, 9.21]

• the profit or loss for the period attributable to the owners of the parent separately from the profit or loss for the period attributable to non-controlling interest; and
• the total comprehensive income attributable to the owners of the parent separately from the total comprehensive income attributable to non-controlling interest.

The statutory requirements for presentation of non-controlling interests (see 4.5.1 below) would permit a presentation consistent with the requirements of FRS 102. In most cases, the amounts shown as non-controlling interest under FRS 102 (see Chapter 8 at 3.7) and the amounts required by the Regulations (or LLP Regulations) (see 4.5.1 below) will be the same. There is a theoretical possibility that the amounts required by FRS 102 (which has a wider definition) and the Regulations (or LLP Regulations) may differ. In such a case, two totals are strictly required to be presented to meet both the requirements of FRS 102 and the Regulations (or LLP Regulations).

5.1.1 Definitions of current and non-current assets (adapted formats only)

The definitions of current and non-current assets discussed below apply only where an entity chooses to use adapted formats in accordance with paragraph 1A(1) of Schedule 1 to the Regulations (or paragraph 1A(1) of Schedule 1 to the LLP Regulations).

FRS 102 defines non-current assets. Current assets are the assets of the entity which are not non-current assets (i.e. the residual). [FRS 102 Appendix I]. This differs to IAS 1 which defines current assets and non-current assets are the residual. [IAS 1.66].

We have set out below the definition of ‘non-current assets’, as included in the FRS 102 Glossary.

Non-current assets are defined 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 5.1.1.A below);
2. it does not hold primarily for the purpose of trading (see 5.1.1.B below);
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 102.4.2A(p)].

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

IAS 1 requires an entity to classify an asset as current if it 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 in (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) above 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(c)].

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, the requirements of IAS 1 for further guidance. The guidance presented at 5.1.1.A to E below refers to IAS 1's requirements, where appropriate.

The current portion of non-current financial assets would be classified as current, consistent with IFRS. [IAS 1.68].

5.1.2 Definitions of current liabilities and non-current liabilities (adapted formats only)

FRS 102 defines current liabilities, with non-current liabilities being ‘liabilities of the entity which are not current liabilities’ (i.e. the residual). [FRS 102 Appendix I].

Current liabilities are defined as liabilities of the entity which:

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

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

The adapted formats also require that deferred tax liabilities are always classified as non-current. [FRS 102.4.2A(p)].

5.1.3 Property, plant and equipment

FRS 102 defines ‘property, plant and equipment’ as tangible assets that:

• are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
• are expected to be used during more than one period. [FRS 102 Appendix I].

See Chapter 15 at 3.2 and 3.3. Investment property is a separate classification from property, plant and equipment but sometimes an investment property may have mixed use, e.g. partly used for rental and partly for owner occupation. A component for property, plant and equipment may be required to be separated (see 5.1.4 below).

Specific types of assets that may be recorded as property, plant and equipment in certain circumstances are discussed below. Chapter 15 at 3.3.1.B, 3.3.1.E and 3.3.1.F also addresses other less common classification issues including: environmental and safety equipment; the classification of items as inventory or property, plant and equipment where minimum levels are maintained; and the production stripping costs of mines.

Where adapted formats are used, FRS 102 requires that sub-classifications of property, plant and equipment that are appropriate to the entity are presented, either on the face of the statement of financial position or in the notes. [FRS 102.4.2B(a)].

5.1.4 Investment property

The definition of investment property is explained in Chapter 14 at 3.1. As this definition differs from that in previous UK GAAP, some entities may have reclassified items on transition to FRS 102. Sometimes, also, property may have mixed use (e.g. partly owner-occupied and partly held for rental) which may be required to be split into components for investment property and property, plant and equipment. See Chapter 14 at 3.1.7 and Chapter 15 at 3.3.4.

Only investment property at fair value through profit and loss is required to be presented as a separate line item on the face of the statement of financial position in adapted formats (see Figure 6.3 at 5.1 above). [FRS 102.4.2A(b)]. It is not clear whether the standard intends that investment property accounted for using the cost model (in Section 17) is subsumed within the line item for property, plant and equipment or not. However, since investment property accounted for using the cost model does not strictly fall within FRS 102's definition of property, plant and equipment and has a different function, in our view, it may be appropriate, where material, to include additional line items or headings in the statement of financial position to distinguish investment property accounted for at cost. [FRS 102.4.3].

5.1.5 Intangible assets

FRS 102's definition of an intangible asset is discussed in detail in Chapter 16 at 3.2. Specific types of assets that may sometimes fall to be classified as intangible assets and sometimes as property, plant and equipment are discussed at 5.1.3.A to 5.1.3.D above.

Where adapted formats are used, FRS 102 requires that sub-classifications of intangible assets and goodwill appropriate to the entity are presented, either on the face of the statement of financial position or in the notes. [FRS 102.4.2B(b)].

5.1.6 Financial assets and financial liabilities

FRS 102 requires the following line items to be presented on the face of the statement of financial position (see Figure 6.3 at 5.1 above): [FRS 102.4.2A]

4. financial assets (excluding items shown under (e), (f), (j) and (k)) (see Chapter 10);
5. investments in associates (see Chapter 12);
6. investments in jointly controlled entities (see Chapter 13);

10. trade and other receivables;
11. cash and cash equivalents (see Chapter 7);
12. trade and other payables; and

14. financial liabilities (excluding items shown under (l) and (m)) (see Chapter 10).

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

FRS 102 requires that investments in associates and investments in jointly controlled entities are presented as separate line items in adapted formats for both individual and consolidated financial statements. Unlike IAS 1, ‘investments in associates and jointly controlled entities accounted using the equity method’ (which is only permitted in FRS 102 consolidated financial statements) are not required to be separately presented. However, the ‘share of the profit or loss of investments in associates and jointly controlled entities accounted for using the equity method’ is a separate line item in the adapted formats for the statement of comprehensive income (or separate income statement, where the two-statement form is used) (see 6.5 below). [FRS 102.5.5B(c), 5.7A].

FRS 102 requires additional line items, headings and sub-headings (where material) to be presented in the statement of financial position, where relevant to an understanding of the financial position. [FRS 102.4.3]. This might be the case, for example, where investments in associates and investments in jointly controlled entities are required to be held as part of an investment portfolio at fair value through profit or loss in consolidated financial statements. [FRS 102.14.4A-B, 15.9A-B]. See Chapter 12 at 3.3.1.B and Chapter 13 at 3.6.3.B.

Where adapted formats are used, FRS 102 requires that further sub-classifications are presented, either on the face of the statement of financial position or in the notes, for: [FRS 102.4.2B(c), (d), (f)]

1. investments, showing separately shares and loans;
2. trade and other receivables, showing separately amounts due from related parties (same definition as for Section 33 – Related Party Disclosures – as discussed in Chapter 30 at 3.1), amounts due from other parties, prepayments and receivables arising from accrued income not billed; and
3. trade and other payables, showing separately amounts payable to trade suppliers, payable to related parties, deferred income and accruals.

FRS 102 does not define ‘investment’. Nevertheless, (a) above requires the reporting entity to disclose financial assets constituting investments, distinguishing between shares and loans. Where loans are involved, this is likely to require judgement as to whether the loan is in the nature of an investment or is an ‘other receivable’ (see 5.3.4.A below).

The sub-classifications at (b) and (c) are similar to but not the same as the line items required where the statutory formats are applied. See 5.1.13.B below for discussion of the classification of contract assets and liabilities. FRS 102 further requires the carrying amounts at the reporting date of financial assets and financial liabilities measured at fair value through profit or loss to be disclosed either in the statement of financial position or in the notes. The disclosure may be made separately by category of financial instrument. Financial liabilities that are not held as part of a trading portfolio and are not derivatives shall be shown separately. [FRS 102.11.41].

This analysis only applies to financial assets and liabilities that are in scope of Sections 11 or 12, or IFRS 9, or IAS 39 whichever standard is applied to the recognition and measurement of financial instruments. [FRS 102.11.2, 11.7, 12.2, 12.3-5]. See Chapter 10 at 11.2.3. The above disclosures (with the exception of those relating to measurement at fair value through profit and loss) are not required in individual financial statements of a qualifying entity that is not a financial institution using the reduced disclosure framework, providing that the equivalent disclosures required by the standard are given in the publicly available consolidated financial statements of the group in which the qualifying entity is consolidated. [FRS 102.1.8, 1.12(c)].

5.1.7 Biological assets

FRS 102 defines a biological asset as ‘a living animal or plant’. [FRS 102 Appendix I]. Section 34 – Specialised Activities – provides an accounting policy choice, for each class of biological asset (and its related agricultural produce), to apply the fair value model or cost model (see Chapter 31 at 2).

Where adapted formats are applied, an entity must present separately on the face of the statement of financial position: [FRS 102.4.2A(g)-(h)]

• biological assets carried at cost less accumulated depreciation and impairment; and
• biological assets carried at fair value through profit and loss.

5.1.8 Inventories

Where adapted formats are used, FRS 102 requires that inventories are shown on the face of the statement of financial position. [FRS 102.4.2A(i)].

An analysis of inventories, sub-classified between (a) to (c) below, is presented either on the face of the statement of financial position or in the notes. [FRS 102.4.2B(e)].

FRS 102 defines inventories as assets: [FRS 102 Appendix I, FRS 102.13.1]

1. held for sale in the ordinary course of business; or
2. in the process of production for such sale; or
3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

See Chapter 11 at 3.2 which addresses scope issues relevant to classification of inventories such as:

• classification of core inventories as property, plant and equipment or inventories;
• classification of broadcast rights as intangible assets or inventory;
• spare parts and servicing equipment (see below); and
• real estate inventory held for short term sale.

Inventories also include ‘inventories held for distribution at no or nominal consideration’, which could include items distributed to beneficiaries by public benefit entities (such as charities) and some advertising and promotional material (such as brochures not despatched). [FRS 102.13.4A, 18.8C(d), Appendix III.36]. See Chapter 11 at 3.3.11.

Inventories also include agricultural produce harvested from biological assets (e.g. grapes, milk or felled trees – see Chapter 11 at 3.3.12 and Chapter 31 at 2.3) and work in progress arising under construction contracts, including directly related service contracts (see 5.1.13.B below). [FRS 102.13.2]. Service providers may also have inventories, effectively their work in progress (see Chapter 11 at 3.3.10).

Spare parts and servicing equipment are carried as inventory and recognised in profit or loss as consumed unless they meet the definition of property, plant and equipment. [FRS 102.17.5].

Sometimes, assets not categorised as inventories are later transferred to inventories. An example is a property previously held as an investment property, which is transferred to inventory because it is reclassified as property under development with a view to sale. While FRS 102 is not as explicit as IFRSs, properties under development with a view to sale would fall within its definition of inventories. [FRS 102.16.9, 16.10(e)(iv), IAS 40.57(b)]. Another example is where a car rental company acquires vehicles with the intention of holding them as rental cars for a limited period and then selling them. Chapter 15 at 3.7.1 addresses the accounting for such transfer, based on the requirements of IFRS, i.e. they are transferred to inventories at their carrying amount when they cease to be rented and become held for sale. The subsequent sale of such assets is presented gross (i.e. revenue and cost of sales). [IAS 16.68A].

5.1.9 Provisions

A provision is defined as a liability of uncertain timing or amount. [FRS 102 Appendix I]. See Chapter 19 at 3.

Provisions that are current and non-current will need to be reported as separate classifications in adapted formats (unlike for balance sheet statutory formats, where there is a single line item for provisions for liabilities).

5.1.10 Current tax

Current tax assets and current tax liabilities must be shown as separate line items on the face of the statement of financial position, classified as appropriate as current and / or non-current.

FRS 102 includes rules on offset of current tax assets and liabilities (see Chapter 26 at 10.1.1). [FRS 102.29.24].

FRS 102 defines current tax as the amount of income tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods. [FRS 102.29.2, FRS 102 Appendix I]. See Chapter 26 at 3 for discussion of what is ‘income tax’ under FRS 102, which is relevant to classification.

5.1.11 Deferred tax

Deferred tax assets and liabilities must be shown as separate line items on the face of the statement of financial position, but classified as non-current. [FRS 102.4.2A].

FRS 102 includes rules on offset of deferred tax assets and liabilities (see Chapter 26 at 10.1.1). [FRS 102.29.24A].

Section 29 – Income Tax – requires deferred tax liabilities to be presented within provisions for liabilities and deferred tax assets to be presented within debtors unless an entity has chosen to adopt the adapted formats in which case they are required to be disclosed separately and classified as non-current. [FRS 102.29.23].

Certain of the statutory disclosures in the Regulations (and LLP Regulations) may cause particular complexity because under the statutory formats, deferred tax is included as a line item within provisions. In particular, UK companies preparing Companies Act accounts must state the provision for deferred tax separately from any other tax provisions and reconcile movements in deferred tax (as it is a line item under provisions). [1 Sch 59-60, 1 Sch 57-58 (LLP)]. See 5.3.11 and 5.3.13.B below. In our view, this disclosure is also likely required where adapted formats are used, even though deferred tax is not shown as a provision in the balance sheet.

5.1.12 Equity

Equity attributable to the owners of the parent, and to non-controlling interest (see 4.5 above) must be presented as separate line items within equity.

Where adapted formats are used, separate sub-classifications for classes of equity such as: share capital, share premium, retained earnings, revaluation reserve, fair value reserve and other reserves are required, either on the face of the statement of financial position or in the notes. [FRS 102.4.2B(g)]. This list mirrors the classes of equity that are required to be shown on the face of the balance sheet (or in respect of the fair value reserve, may be presented in the notes) where the statutory formats are applied. See 5.3.12 below for further explanation of these reserves.

The amount of the revaluation reserve must be shown in the balance sheet under a separate sub-heading in the position given for the item ‘revaluation reserve’ under ‘Capital and reserves’ of the statutory balance sheet formats. [1 Sch 35(2)]. The adapted formats do not include the same headings as set out in the format 1 or format 2 balance sheets in the statutory formats (see 5.2 below). However, in our view, this requirement means that the revaluation reserve should be presented on the face of the statement of financial position (in order to give equivalent information to the statutory formats). Indeed, for the same reason, we would encourage entities to present on the face of the statement of financial position the classes of equity that would be so required, if statutory formats were used.

FRS 102's requirement to present a statement of changes in equity and the disclosures in the Regulations and LLP Regulations relating to reserves are discussed at 7 below.

5.1.13 Other application issues

5.1.14 Illustrative statement of financial position (adapted formats)

Example 6.3 illustrates a statement of financial position using the adapted formats. This includes some additional line items to those listed in Figure 6.3 at 5.1 above. Situations when additional line items may be or are required to be presented are explained at 5.1 above.

5.2.1 Modifications of format 1 balance sheet for LLPs

The main headings in the format 1 balance sheet in the LLP Regulations differ to those in Figure 6.4 at 5.2 above in the following respects:

• A – Called up share capital is omitted so the main headings are A – Fixed Assets to I – Accruals and deferred income.
• There is an additional item J – Loans and other debts due to members. 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.
• In addition, 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, including the fair value reserve).

The subheadings in format 1 for LLPs are generally similar to format 1 for companies (apart from referring to LLPs and differences related to above).

As explained at 5.2 above, the format 1 balance sheet includes sub-headings denoted with an Arabic number, which though shown in Figure 6.5, can be (and often are in practice) presented in the notes to the accounts.

The modifications required to format 1 in group accounts are:

• the identification of non-controlling interests (see 4.5 above);and
• the sub-heading ‘Participating interests’ (item A.III.3 in format 1) is replaced by ‘Interests in associated undertakings’ and ‘Other participating interests’ (see 5.3.4.D and 5.3.4.E below). [3 Sch 17 (LLP), 3 Sch 20 (LLP)].

The LLP SORP provides further guidance on members' interests and application of the statutory formats for LLPs. The LLP SORP requires that the face of the statement of financial position shows a total for net assets attributable to members. In addition, total members' interests (being the total of ‘loans and other debts due to members’ and ‘members’ other interests', i.e. the amounts in items J and K in the statutory formats, less any ‘amounts due from members’ in debtors) should be disclosed as a memorandum item on the face of the statement of financial position. [LLP SORP.58].

The SORP provides illustrative examples of LLP balance sheets (using statutory formats) 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 I, Appendix 2]. In these illustrative examples, a subtotal labelled ‘Net assets attributable to members’ is drawn in the formats before items J and K and items J and K are then presented below this subtotal, as shown in Figure 6.6 below (the capital letters for the line items are not required to be shown but are presented for convenience below). As discussed at 5.1 above, we expect that this presentation will also be required where adapted formats are used.

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.

5.2.2 Fixed assets and current assets

The balance sheet statutory formats set out in the Regulations and LLP Regulations distinguish between fixed assets and current assets, defining ‘fixed assets’ with ‘current assets’ as the residual.

‘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’. [10 Sch 4, 4 Sch 3 (LLP), FRS 102 Appendix I].

Current assets include debtors, even if due after more than one year. In instances 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]. This requirement does not apply where an entity uses the adapted formats. Since LLP law now permits the use of adapted formats, this dispensation extends to LLPs.

Note (5) on the balance sheet formats in Section B of Part 1 of Schedule 1 to the Regulations (and the equivalent requirement for LLPs)⁶ state that the amount falling due after more than one year must be shown separately for each item included under debtors.

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must disclose the following in the notes to the accounts, for each category of fixed assets shown in the balance sheet (or would be so shown, if Arabic-numbered line items were not combined as permitted by paragraph 4(2)(b) of the General Rules to the formats – see 4.4 above): [1 Sch 51, 1 Sch 49 (LLP)]

• the gross cost (based on the historical cost – see 10.1 below) or valuation (using the alternative accounting rules – see 10.2 below) at the beginning and end of the financial year;
• the effects on the amounts shown for gross cost / valuation of:
  • any revaluations of any assets made during the financial year;
  • acquisitions of any assets during the financial year;
  • disposals of any assets during the financial year; and
  • any transfers of assets (to and from that category) during the financial year;
• the cumulative amount of provisions for depreciation or diminution in value at the beginning and end of the financial year;
• the amount of any provisions for depreciation and diminution made in respect of the financial year;
• the amount of any adjustments to such provisions arising from the disposal of any assets; and
• the amount of any other adjustments in respect of such provisions for depreciation and diminution.

Where the Regulations (or LLP Regulations) require disclosures in respect of fixed assets or current assets, in our view, these disclosures need to be given where statutory formats or adapted formats are used. See 5.1 above for discussion on applying these requirements where adapted formats are used.

The above statutory requirements overlap with FRS 102's requirements to provide reconciliations of changes in the carrying amounts for each class of property, plant and equipment [FRS 102.17.31(e)] (see Chapter 15 at 3.9.1); each class of intangible asset [FRS 102.18.27(e)] (see Chapter 16 at 3.5.2); goodwill and negative goodwill (separately) [FRS 102.19.26, 26A] (see Chapter 17 at 4.2); investment property at fair value through profit or loss [FRS 102.16.10(e)] (see Chapter 14 at 3.6); and biological assets (separately for each class carried under the cost model and each class carried under the fair value model) [FRS 102.34.7(c), 34.10(e)] (see Chapter 31 at 2.6.3 and 2.7.2).

The Regulations (and LLP Regulations) require separate fixed asset reconciliations for cost and cumulative provision for depreciation and diminution whereas FRS 102 only requires reconciliation of the carrying amounts.

Comparatives are not required for the reconciliations required by FRS 102, the Regulations (and LLP Regulations). This is because comparatives are specifically exempted under the equivalent reconciliation requirement in FRS 102 (and the Regulations and LLP Regulations do not specify whether comparatives are required for notes disclosures). See 3.6 above.

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must also give additional disclosures in the notes to the accounts where the alternative accounting rules are applied. See 10.2.4 below.

5.2.3 Creditors: amounts falling due within one year and creditors: amounts falling due after more than one year

The Regulations (and LLP Regulations) distinguish between:

• Creditors: amounts falling due within one year; and
• Creditors: amounts falling due after more than one year.

These two line items are shown on the face of the balance sheet in the format 1 balance sheet. In distinguishing amounts between the two categories of creditor, the deciding factor is the earliest date of payment.

FRS 102 states that an entity shall classify a creditor 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 twelve months after the reporting date. For example, this would be the case if the earliest date on which the lender, exercising all available options and rights, could require repayment or (as the case may be) payment was within twelve months after the reporting date. [FRS 102.4.7]. This requirement does not apply where an entity uses the adapted formats. Since LLP law now permits the use of adapted formats, this dispensation extends to LLPs.

FRS 102's requirements are intended to be consistent with the requirements in the Regulations (and LLP Regulations) which state that a loan or advance (including a liability comprising a loan or advance) is treated as falling due for repayment, and an instalment of a loan or advance 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 he exercised all options and rights available to him. [10 Sch 9, 4 Sch 6 (LLP)]. However, without the full statutory definition, the final sentence of paragraph 4.7 of FRS 102 might appear confusing because it is not clear why a distinction between repayment and payment is being made. This sentence is intended to illustrate when an entity does not have an unconditional right to defer settlement of the creditor (which must be assessed as at the end of the reporting period). A loan is not classified as a creditor: amounts falling due within one year merely because it happens to have been repaid within twelve months of the reporting date.

IAS 1 also includes detailed guidance on the impact of refinancing liabilities that management may consider, as permitted by the hierarchy in Section 10. While IAS 1 requires classification between current and non-current liabilities (which is a different determination), one part of IAS 1's definition of a current liability is that a liability is current if the entity ‘does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period’. This is consistent with the definition of a creditor due within one year in FRS 102, the Regulations (and the LLP Regulations). [IAS 1.69(d)]. See 5.1.2.D above.

5.3.1 Called up share capital not paid

This line item can be presented in the position of Called up share capital not paid (item A) on the face of the balance sheet. Alternatively, this line item can be presented either on the face of the balance sheet or in the notes to the accounts as item 5 within Current assets – Debtors (C.II) (see 5.3.6.E below).⁷

Called up share capital and paid up share capital are explained at 5.3.12.A below. Called up share capital not paid can arise, for example, because calls made on the shares have not been paid, or where the share capital is ‘paid up’ because the amounts are payable on a specified future date under the articles or terms of allotment or other arrangement for payment of those shares (and therefore is called up share capital), but has not yet been settled. [s547].

5.3.2 Intangible assets

Figure 6.7 shows the analysis required in respect of intangible assets (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) under format 1.

Intangible assets are not defined in the Regulations (or LLP Regulations), but include the line items listed in Figure 6.7 above. Note (2) on the balance sheet formats (and the equivalent requirement for LLPs)⁸ state that amounts are only included in the balance sheet as concessions, patents, licences, trade marks and similar rights and assets 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 (or the LLP) itself.

FRS 102 financial statements must apply the more restrictive requirements of the standard (see 5.1.5 above and Chapter 16). Specific types of assets that may sometimes fall to be classified as intangible assets and sometimes as property, plant and equipment are discussed at 5.1.3.A to 5.1.3.D above. The format 1 balance sheet includes a line item for payments on account, i.e. advance payments made for intangible fixed assets.

Note (3) on the balance sheet formats (and the equivalent requirement for LLPs)⁹ state that amounts representing goodwill are only included to the extent that the goodwill was acquired for valuable consideration. Therefore, consistent with FRS 102, internally generated goodwill cannot be capitalised. [FRS 102.18.8C(f)].

The Regulations and LLP Regulations do not address the presentation of negative goodwill, but FRS 102's requirements on presentation of negative goodwill, which also apply to statutory formats, are addressed at 5.1.5.A above.

FRS 102, the Regulations (and the LLP Regulations) require reconciliations of movements in intangible assets (comparatives are not required). FRS 102 requires reconciliations of changes in the carrying amounts to be given for each class of intangible asset, for goodwill, and for negative goodwill. [FRS 102.18.27(e), 19.26, 19.26A]. See Chapter 16 at 3.5.2 and Chapter 17 at 4.2. See 5.2.2 above for the requirements for reconciliations of movements in fixed assets in the Regulations (and the LLP Regulations) for UK companies preparing Companies Act accounts (and LLP accounts preparing non-IAS accounts). These disclosures apply where statutory formats or adapted formats are used.

5.3.3 Tangible fixed assets

Figure 6.8 shows the analysis required (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) in respect of tangible fixed assets under format 1.

The Regulations (and LLP Regulations) define fixed assets (see 5.2.2 above) but not tangible fixed assets. While FRS 102 does not define the term ‘tangible assets’, these differ from intangible assets in that they are assets ‘with physical substance’.

The distinction between fixed assets and current assets is usually clear and the statutory definition is not normally interpreted to mean that individual assets are transferred to current assets when a decision to dispose of them has been made. See 5.3.13.C below.

The format 1 balance sheet includes a line item for payments on account, i.e. advance payments made for tangible fixed assets.

Tangible fixed assets would include property, plant and equipment, as defined in FRS 102. The definition of property, plant and equipment and some classification issues are discussed at 5.1.3 above and Chapter 15 at 3.2 and 3.3. Investment property would also be classified within tangible fixed assets in the statutory formats (see 5.3.3.A below). However, in our view, it would be appropriate to report an upfront operating lease premium as a prepayment under FRS 102 (see 5.1.13.A above), classified as appropriate between debtors: amounts falling due within one year and debtors: amounts falling due after more than one year.

In practice, most UK companies relegate the sub-headings within tangible assets denoted by an Arabic number to the notes to the accounts, showing only the net book value of tangible assets on the face of the balance sheet.

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must also disclose, in the notes to the accounts, ‘land and buildings’ analysed between freehold land and leasehold land, with leasehold land analysed between land held on a long lease (meaning the unexpired term at the end of the financial year is not less than 50 years) and leasehold land held on a short lease (i.e. a lease that is not a long lease). [1 Sch 53, 10 Sch 7, 1 Sch 51 (LLP)]. This disclosure applies where adapted formats or statutory formats are used.

FRS 102, the Regulations (and the LLP Regulations) require reconciliations of movements in tangible fixed assets (comparatives are not required). FRS 102 requires reconciliations of changes in the carrying amounts to be given for each class of property, plant and equipment [FRS 102.17.31(e)] (see Chapter 15 at 3.9.1); investment property at fair value through profit or loss [FRS 102.16.10(e)] (see Chapter 14 at 3.6); and biological assets (separately for each class carried under the cost model and each class carried under the fair value model) [FRS 102.34.7(c), 34.10(e)] (see Chapter 31 at 2.6.3 and 2.7.2). See 5.2.2 above for the requirements for reconciliations of movements in fixed assets in the Regulations (and the LLP Regulations) for UK companies preparing Companies Act accounts (and LLP accounts preparing non-IAS accounts). These disclosures apply where statutory formats or adapted formats are used.

5.3.4 Investments

Figure 6.9 shows the analysis required in respect of investments (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) under format 1.

5.3.5 Stocks

Figure 6.10 shows the analysis required in respect of stocks (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) under format 1.

The items reported under stocks in the balance sheet formats will generally correspond with inventories under FRS 102, which are assets: [FRS 102.13.1, FRS 102 Appendix I]

• held for sale in the ordinary course of business; or
• in the process of production for such sale; or
• in the form of materials or supplies to be consumed in the production process or in the rendering of services.

See also 5.1.8 above and Chapter 11 at 3.2, which discuss certain classification issues in respect of inventories (including transfers to inventories from other categories of assets), which are also relevant to classification under format 1.

Note (8) on the balance sheet formats (and the equivalent requirement for LLPs)¹² state that payments on account of orders must be shown within creditors in so far as they are not shown as deductions from stocks. We would not expect payments on account to be deducted from stock (or inventory) as this would not meet the offset requirements of FRS 102, and therefore all payments on account must be shown within creditors.

The presentation of construction contracts (which is not specifically addressed in the Regulations (or LLP Regulations)) is discussed at 5.3.13.A below.

5.3.6 Debtors (including prepayments and accrued income)

Figure 6.11 shows the analysis required in respect of debtors (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) under format 1.

While all debtors are reported within current assets, debtors include amounts falling due within and amounts falling due after more than one year.

As discussed at 5.2.2 above, where the amount of debtors due after more than one year is so material in the context of 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 the financial statements may be misinterpreted, 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].

Note (5) on the balance sheet formats (and the equivalent requirement for LLPs)¹³ state that the amount falling due after more than one year must be shown separately for each item included under debtors.

5.3.7 Cash at bank and in hand

The Regulations (and LLP Regulations) do not define cash at bank and in hand. This line item would include bank deposits with notice or maturity periods. Such bank deposits may or may not meet FRS 102's definition of ‘cash’ (i.e. cash on hand and demand deposits) or ‘cash equivalents’ (i.e. short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value). [FRS 102.7.2, Appendix I]. See Chapter 7 at 3.2 and 3.3 for the definitions of cash and cash equivalents.

Care is needed with applying the requirements on offset of financial assets and financial liabilities, particularly in group arrangements with a bank (such as cash pooling arrangements) where there are rights of offset. The contractual terms and conditions, and how these operate in practice can vary widely. A right of offset alone is insufficient to meet the requirements on offset of financial assets and financial liabilities. Offset of a financial asset and liability is required when, and only when, an entity currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. [FRS 102.11.38A, 12.25B]. See Chapter 10 at 11.1.

5.3.8 Creditors: amounts falling due within one year. Creditors: amounts falling due after more than one year

Figure 6.12 shows the analysis required in respect of creditors (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) under format 1.

The same line items are required for creditors: amounts falling due within one year, and creditors: amounts falling due after more than one year. See 5.2.3 above for discussion of these two categories of creditors.

In addition, the General Rules to the formats (see 4.4 above) require that, in determining how amounts are presented within items in the balance sheet, the directors of the company (or the members of the LLP) must have regard to the substance of the reported transaction or arrangement, in accordance with generally accepted accounting principles or practice. [1 Sch 9, 1 Sch 9 (LLP)]. This provision facilitates the presentation of shares (such as certain preference shares), which are required to be classified as liabilities under accounting standards, to be shown as creditors rather than as called up share capital under the balance sheet statutory format. See Chapter 10 at 5. Note, however, that disclosures required by the Regulations in the notes to the accounts in relation to share capital (see, for example, the disclosures listed in 5.4.2 below) still apply, even if the shares are classified as a liability.

The General Rules to the formats allow or, where the special nature of the company's business requires this, require certain adaptations to the balance sheet formats, as well as allowing line items to be shown in greater detail. The analysis of creditors is another area where entities may need to be mindful that FRS 102 requires additional line items, headings and subtotals when relevant to an understanding of the entity's financial position. For example, it may be appropriate to present preference shares classed as a liability, finance lease creditors and other items separately from other creditors.

UK companies preparing Companies Act accounts (and LLPs preparing non-IAS accounts) must state in the notes to the accounts, for the aggregate of all items shown under ‘creditors’ in the balance sheet, the aggregate of:

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 end of the financial year; and
2. for debts included under ‘creditors’ which are payable or repayable by instalments, the amount of any instalments which fall due for payment after the end of that period.

In relation to each debt which is taken into account in (a) or (b) above, the terms of payment or repayment and rate of any interest payable on the debt must be stated. If the number of debts is such that, in the opinion of the directors (or the members of the LLP), the statement required would be of excessive length, a general indication of the terms of payment or repayment and the rates of any interest payable on the debts can be given.

For each item shown under ‘creditors’ in the balance sheet, the aggregate amount of any debts included under that item in respect of which any security has been given by the company (or by the LLP), and an indication of the nature and the form of the securities given must also be stated. [1 Sch 61, 1 Sch 59 (LLP)]. This disclosure applies where adapted formats or statutory formats are used.

Where any outstanding loans made under the authority of section 682(2)(b), (c) or (d) of the CA 2006 (various cases of financial assistance by a company for the purchase of its own shares) are included under any item shown in the company's balance sheet, the aggregate amount of those items must be disclosed for each item in question. [1 Sch 64(2)]. This disclosure applies where adapted formats or statutory formats are used.

5.3.9 Net current assets / (liabilities)

The format 1 balance sheet requires a subtotal to be shown for net current assets / (liabilities) on the face of the balance sheet.

Note (11) on the balance sheet formats (and the equivalent requirement for LLPs)¹⁸ state that any amounts shown under ‘prepayments and accrued income’ must be taken into account in determining net current assets / (liabilities), wherever shown (see 5.3.6.F above). Therefore, net current assets / (liabilities) for a company will represent the amounts reported at item C in format 1 plus prepayments and accrued income (at item D, if shown separately) less creditors: amounts falling due within one year (at item E). For LLPs, net current assets / (liabilities) is the sum of the amounts reported at item B in format 1 plus prepayments and accrued income (at item C, if shown separately) less creditors: amounts falling due within one year (at item D). See Figure 6.4 at 5.2 and Figure 6.5 at 5.2.1 above.

5.3.10 Total assets less current liabilities

The format 1 balance sheet requires a subtotal to be shown for total assets less current liabilities on the face of the balance sheet. This subtotal would be the sum of fixed assets and net current assets / (liabilities) (see 5.3.9 above).

While the format 1 balance sheet does not require a net assets subtotal (with a balancing subtotal for capital and reserves), most companies give this. Sometimes companies have presented a balancing subtotal for ‘capital and reserves’ together with ‘creditors: amounts falling due within one year’, a practice not precluded by the Regulations (or LLP Regulations).

5.3.11 Provisions for liabilities

Figure 6.13 shows the analysis required (on the face of the balance sheet or in the notes to the accounts – see 4.4 above) in respect of provisions for liabilities under format 1.

References to ‘provisions for liabilities’ in the Regulations (and LLP Regulations) are ‘to any amount retained as reasonably necessary for the purpose of providing for any liability the nature of which is clearly defined and which is either likely to be incurred, or certain to be incurred but uncertain as to amount or as to the date on which it will arise’. [9 Sch 2, 4 Sch 10 (LLP)]. FRS 102 defines a provision more succinctly as ‘a liability of uncertain timing or amount.’ [FRS 102 Appendix I].

The General Rules to the formats (see 4.4 above) allow or, where the special nature of the company's business requires this, require certain adaptations to the balance sheet formats, as well as allowing line items to be shown in greater detail. The analysis of provisions is an area where entities may need to be mindful that FRS 102 requires additional line items, headings and subtotals when relevant to an understanding of the entity's financial position.

FRS 102 requires an entity to present a reconciliation of each class of provision (comparatives are not required) and requires further narrative disclosures for each class of provision. [FRS 102.21.14, 21.17, 21.17A]. See Chapter 19 at 3.10.2.

UK companies preparing Companies Act accounts (and LLPs preparing non-IAS accounts) must give:

• particulars of each material provision included in the line item ‘Other provisions’ in the notes to the accounts; [1 Sch 59(3), 1 Sch 57(3) (LLP)]
• particulars of any pension commitments included in the balance sheet, giving separate particulars of any commitment relating wholly or partly to pensions payable to past directors of the company (or past members of the LLP); [1 Sch 63(5)-(6), 1 Sch 60(4) (LLP)]
• where there have been transfers to provisions, or from any provisions (otherwise than for the purpose for which the provision was established) relating to any of the provisions required to be shown as separate line items in the balance sheet (or would be so shown, if Arabic-numbered line items were not combined as permitted by paragraph 4(2)(b) of the General Rules to the formats – see 4.4 above), the company (or the LLP) must disclose the following in tabular form, in the notes to the accounts, in respect of the aggregate of provisions included in the same item:
  • the amount of the provisions as at the beginning and end of the financial year;
  • any amounts transferred to or from the provisions during that year; and
  • the source and application respectively of any amounts transferred.

    Comparatives are not required (since these are specifically exempted under the equivalent reconciliation requirement in FRS 102). [1 Sch 59(1)-(2), 1 Sch 57(1) (LLP)-(2)].

The above reconciliation required by the Regulations (and LLP Regulations) is similar to that required by FRS 102. However, the statutory requirement would also apply to movements in deferred tax provisions (see 5.3.13.B below) and pension provisions, as these are line items under ‘provisions for liabilities’. In respect of pension provisions, FRS 102 already requires reconciliations of defined benefit obligations and plan assets, which provide similar information, albeit not for the net balance. [FRS 102.28.41(e)-(f)]. See Chapter 25 at 3.12.4.

The above disclosures apply where adapted formats or statutory formats are used.

5.3.12 Capital and reserves

Figure 6.14 shows the analysis required in respect of capital and reserves under format 1 for a UK company.

For an LLP, 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, including the fair value reserve). The items shown in K – Members' other interests are equity for an LLP. However, members' interests classified as a liability would be shown in J – Loans and other debts due to members (see 5.2.1 above), which does not have an equivalent in the format 1 balance sheet for a UK company.

The capital and reserves section of the balance sheet includes a number of line items denoted by a Roman numeral which must be presented on the face of the balance sheet, with no adaptation of the order of the headings or description used permitted. The analysis of other reserves may be presented in the notes to the accounts, where permitted by the General Rules to the formats (see 4.4 above).

FRS 102's requirement to present a statement of changes in equity; the disclosures in the Regulations and LLP Regulations relating to capital and reserves, the disclosures in the LLP Regulations relating to loans and other debts due to members; and the LLP SORP's related requirement to show a reconciliation of members' interests, are discussed at 5.4 and 7 below.

5.3.13 Other application issues

5.4.1 FRS 102 disclosures in respect of share capital (or equivalent)

FRS 102 requires an entity with share capital to disclose the following information, either in the statement of financial position or in the notes: [FRS 102.4.12]

1. for each class of share capital:
   1. the number of shares issued and fully paid, and issued but not fully paid;
   2. par value per share, or that the shares have no par value;
   3. the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;
   4. shares in the entity held by the entity or by its subsidiaries, associates or joint ventures;
   5. shares reserved for issue under options and contracts for the sale of shares, including the terms and amounts; and
2. a description of each reserve within equity.

The Triennial review 2017 removed the requirement to present a reconciliation of the number of shares outstanding at the beginning and at the end of the period, for each class of share capital. Therefore, this reconciliation is only required for accounting periods beginning before 1 January 2019 and where the Triennial review 2017 amendments have not been early adopted.

An entity without share capital, such as a partnership or trust, must disclose information equivalent to that required by (a) above, showing changes during the period in each category of equity, and the rights, preferences and restrictions attaching to each category of equity. [FRS 102.4.13].

5.4.2 Information required by the Regulations in respect of share capital

Some of the FRS 102 disclosure requirements overlap with the disclosure requirements in relation to share capital included in the Regulations for UK companies preparing Companies Act accounts.

The Regulations require the following disclosures in the notes to the accounts:

• the amount of allotted share capital and, separately, the amount of called up share capital which has been paid up (this may be given on the face of the statement of financial position or in the notes);¹⁹
• where shares of more than one class have been allotted, the number and aggregate nominal value of shares of each class allotted; [1 Sch 47(1)(a)]
• where shares are held as treasury shares, the number and aggregate nominal value of the treasury shares and, where shares of more than one class have been allotted, the number and aggregate nominal value of the shares of each class held as treasury shares; [1 Sch 47(1)(b)]
• where any part of the allotted share capital consists of redeemable shares: [1 Sch 47(2)]
  • the earliest and latest dates on which the company has power to redeem those shares;
  • whether those shares must be redeemed in any event or are liable to be redeemed at the option of the company or of the shareholder; and
  • whether any (and if so, what) premium is payable on redemption.
• if the company has allotted any shares during the financial year: [1 Sch 48]
  • the classes of shares allotted; and
  • for each class of shares, the number allotted, their aggregate nominal value, and the consideration received by the company for the allotment.
• with respect to any contingent right to the allotment of shares in the company (i.e. any option to subscribe for shares and any other right to require the allotment of shares to any person whether arising on the conversion into shares of securities of any other description or otherwise), particulars of: [1 Sch 49]
  • the number, description and amount of the shares in relation to which the right is exercisable;
  • the period during which it is exercisable; and
  • the price to be paid for the shares allotted;
• if any fixed cumulative dividends on the company's shares are in arrear: [1 Sch 62]
  • the amount of the arrears; and
  • the period for which the dividends or, if there is more than one class, each class of them are in arrear; and
• the number, description and amount of the shares in the company held by, or on behalf of, its subsidiary undertakings (except where the subsidiary undertaking is concerned as personal representative, or, subject to certain exceptions, as trustee). [4 Sch 3].

The LLP Regulations do not include the above disclosures (as not relevant) although the following information is required in the notes to the accounts in respect of loans and other debts due to members: [1 Sch 47 (LLP)]

• the aggregate amount of loans and other debts due to members as at the date of the financial year;
• the aggregate amounts contributed by members during the financial year;
• the aggregate amounts transferred to or from the profit and loss account during that year;
• the aggregate amounts withdrawn by members or applied on behalf of members during that year;
• the aggregate amount of loans and other debts due to members as at the balance sheet date; and
• the aggregate amount of loans and other debts due to members that fall due after more than one year.

The LLP SORP provides further guidance on this disclosure, adding further related disclosures, and requires a reconciliation of the movement in members' interests analysed between ‘members’ other interests' and ‘loans and other debts due to members’ (which would meet the requirements of paragraph 4.13 of FRS 102 (see 5.4.1 above) and the statutory requirements in paragraph 47 of Schedule 1 to the LLP Regulations). [LLP SORP.60].

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

The LLP SORP made changes to the disclosures required for small LLPs (see Chapter 5 at 11.5).

6.1.1 Section 408 exemption in group accounts

Where a UK company (or an LLP) prepares group accounts in accordance with the CA 2006, the company (or the LLP) can take advantage of the exemption in section 408 of the CA 2006 not to present the individual profit and loss account and certain related notes (providing the conditions for use of the exemption are met). See Chapter 1 at 6.3.2.

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].

The section 408 exemption, where used, provides that:

• the company's (or the LLP's) individual profit and loss account need not contain the information specified in paragraphs 65 to 69 of Schedule 1 to the Regulations (or paragraphs 62 to 67 of Schedule 1 to the LLP Regulations); [Regulations 3(2), 1 Sch 65-69, LLP Regulations 3(2), 1 Sch 62-67 (LLP)] and
• the company's (or the LLP's) individual profit and loss account must be approved by the directors (or the members of the LLP) in accordance with section 414(1) of the CA 2006, but may be omitted from the company's (or the LLP's) annual accounts. [s414(1), s414(1) (LLP)].

The exemption is conditional on the company's (or the LLP's) individual balance sheet showing the company's (or LLP's) profit or loss for the financial year (determined in accordance with the CA 2006) and disclosing use of the section 408 exemption in the annual accounts.

6.2.1 Items reported in other comprehensive income where an entity chooses to apply the recognition and measurement provisions of IAS 39 or IFRS 9

Where the recognition and measurement requirements of IAS 39 or IFRS 9 are applied to financial instruments, as permitted by FRS 102, the following items would also be reported in other comprehensive income in accordance with the requirements of the applicable accounting standard:

1. gains and losses on remeasuring available-for-sale financial assets (if the entity chooses to apply IAS 39); [IAS 39.55(b)]
2. gains and losses on remeasuring investments in equity instruments designated as measured at fair value through other comprehensive income (if the entity chooses to apply IFRS 9 – see 10.2 below); [IFRS 9.4.1.4, 5.7.1(b), 5.7.5-6]
3. the effective portion of gains and losses on hedging instruments in a cash flow hedge or hedge of a net investment in a foreign operation (if the entity chooses to apply IAS 39 or IFRS 9); [IAS 39.95-102, IFRS 9.6.5.11-14]
4. for liabilities designated as at fair value through profit or loss, fair value changes attributable to changes in the liability's credit risk, unless this would create or enlarge an accounting mismatch in profit and loss (if the entity chooses to apply IFRS 9). [IFRS 9.4.2.2, 5.7.1(c), 5.7.7-9, FRS 102 Appendix III.12C].

   This accounting treatment will usually require use of a ‘true and fair override’ for a UK company or LLP since it breaches the requirements of the Regulations, Small Companies Regulations, LLP Regulations or Small LLP Regulations – see 10.3 below); and

5. gains and losses on financial assets that are debt instruments (meeting the specified criteria) that are carried at fair value through other comprehensive income (if the entity chooses to apply IFRS 9 – see 10.3 below). [IFRS 9.4.1.2A, 5.7.1(d), 5.7.10-11].

Only items (a), (e) and the effective portion of gains and losses on hedging instruments in a cash flow hedge at (c) above may be reclassified to profit or loss in a subsequent period. The amounts taken to equity in respect of the hedge of the foreign exchange risk in a net investment in a foreign operation are not reclassified to profit or loss on disposal or partial disposal of the foreign operation. [FRS 102.9.18A, 30.13].

The requirements of IAS 39 and IFRS 9 are discussed in Chapters 42 to 54 of EY International GAAP 2019. However, EY International GAAP 2019 reflects the reduced applicability of IAS 39 by covering its requirements only at a high level. IAS 39 is covered in more detail in EY International GAAP 2018.

6.2.2 Impact of realised and unrealised profits on items reported in other comprehensive income

UK companies preparing Companies Act accounts (and LLPs preparing non-IAS accounts) need to be mindful of the statutory requirement that ‘only profits realised at the balance sheet are to be included in the profit and loss account’ (see 9.1.1 below). [1 Sch 13(a), 1 Sch 13(a) (LLP)].

Notwithstanding this restriction, changes in the value of a financial instrument or in the value of an investment property or a living animal or plant measured using the fair value accounting rules (in paragraphs 36, 38 and 39 of Schedule 1 to the Regulations and the same paragraphs in the LLP Regulations) must be reflected in the profit and loss account. This is subject to the requirements of paragraphs 40(3) and (4) of Schedule 1 to the Regulations (and the same paragraphs in the LLP Regulations) for available-for-sale financial assets, hedge accounting and for exchange differences on monetary items forming part of the net investment in a foreign entity, which permit or require certain movements on financial instruments to be reflected in a statutory ‘fair value reserve’. [1 Sch 40(2)-40(4), 1 Sch 40(2) (LLP)-40(4) (LLP)]. See 10.3.2 and 10.4.1 below.

While UK companies and LLPs may now measure stocks at fair value using the fair value accounting rules (see 10.4 below), paragraph 40 above does not specify where fair value changes arising on stock are presented. FRS 102 allows stock to be measured at fair value less costs to sell in restrictive circumstances; in such circumstances, the fair value changes are recognised in profit or loss. [FRS 102.13.3]. See 10.3 and 10.4 below for a fuller discussion of the fair value accounting rules.

FRS 101 requires that ‘an entity shall recognise all items of income and expense arising in a period in profit or loss unless an IFRS requires or permits otherwise or unless prohibited by the Act’ [emphasis added]. [FRS 101.AG1(k)]. The Triennial review 2017 added this same requirement into FRS 102. [FRS 102.5.8]. Whilst FRS 102 prior to the Triennial review 2017, did not include the words above, there are reasons to believe that the same treatment was intended. For example, FRS 102's requirements for exchanges of businesses and non-monetary assets for an interest in a subsidiary, jointly controlled entity or an associate state that ‘any unrealised gain arising on the exchange shall be recognised in other comprehensive income’. [FRS 102.9.31(c)].

Where the standard is explicit that it requires that a particular gain must be reported in profit or loss but this would conflict with the Regulations or LLP Regulations, the entity should consider whether a ‘true and fair override’ of the requirements of the CA 2006 is appropriate (see 9.2 below). Where the standard is not explicit, notwithstanding that profit and loss is the default location for gains and losses, in our view, entities should look to Appendix III, which highlights the company law requirements on realised profits. However, such considerations are only relevant to entities subject to the Regulations or LLP Regulations (or corresponding requirements in another statutory or regulatory framework that applies to the entity).

Whether profits are available for distribution must be determined in accordance with applicable law. TECH 02/17BL provides guidance on the determination of the profits available for distribution (under the CA 2006). [FRS 102 Appendix III.29]. See Chapter 1 at 6.8.

6.5.1 Other implementation issues (adapted formats)

Schedule 1 to the Regulations (and Schedule 1 to the LLP Regulations) state that 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 1A(2), 1 Sch 1A(2) (LLP)].

The detail of adapted formats is left to accounting standards. The minimum items that FRS 102 requires to be presented in the statement of comprehensive income (in one or two statements), the ability to adapt the headings, and the requirement to present additional line items where relevant to an understanding of financial performance are discussed at 6.5 above.

Section 5 includes additional requirements relevant to the statement of comprehensive income (see 6.7 below) that apply to adapted formats and statutory formats. These include the presentation of turnover, guidance on operating profit (if presented), presentation of an analysis of expenses (see 6.5.2 and 6.7.4 below) and disclosure of the nature and amount of material items included in total comprehensive income (often called ‘exceptional items’, although that term is not used in the standard). FRS 102's requirements for presentation of discontinued operations are discussed at 6.8 below, and for earnings per share (for those entities required to or choosing to present this) at 6.9 below.

These requirements are generally self-explanatory. However, adapted formats must present revenue on the face of the income statement (or single statement of comprehensive income) (see 6.5 above). [FRS 102.5.5B]. FRS 102's requirement to present turnover on the face of the income statement (or statement of comprehensive income, if presented) [FRS 102.5.7D] (see 6.7.1 below) implies that an additional analysis of revenue between turnover and other components of revenue (if any) is required on the face of the income statement (or single statement of comprehensive income). FRS 102 also requires a detailed sub-analysis of revenue, which can be presented in the notes. [FRS 102.23.30(b)]. See Chapter 20 at 3.12.

Other sections of FRS 102 require supplementary analyses of certain line items presented on the face of the income statement (or profit or loss section of the statement of comprehensive income), which may be included in the notes to the financial statements. See relevant chapters of this publication.

FRS 102 also includes further guidance relevant to presentation in the statement of comprehensive income. For instance:

• 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 further discussion at Chapter 26 at 3.3 and 8.1.2; [FRS 102.29.19] and
• Section 28 – Employee Benefits – does not specify how the cost of a defined benefit plan should be presented in the profit and loss account. Therefore, entities may present the cost as a single item or disaggregate the cost into components presented separately;
• Section 23 – Revenue – includes guidance on measurement of revenue, including principal versus agent considerations. See Chapter 20 at 3.2. [FRS 102.23.4].

The Regulations (and LLP Regulations) require UK companies preparing Companies Act accounts (and LLPs preparing non-IAS accounts) to give further supplementary information in respect of certain line items in the notes to the accounts. These disclosures are relevant where adapted formats or statutory formats are used. One complexity is that the information required by the Regulations (or LLP Regulations) is generally framed in respect of line items required in the statutory formats (e.g. turnover), whereas the headings used in the statutory formats may differ to those included where the adapted formats are used. Further information on certain of these statutory disclosures is given in 6.6 below.

FRS 102, the Regulations and LLP Regulations require numerous further disclosures (which may be given in the notes) concerning items recognised in profit or loss. Refer to the disclosure sections of the relevant chapters in this publication.

6.5.2 Illustrative statement of comprehensive income (adapted formats)

Example 6.4 below illustrates a single statement of comprehensive income, where the adapted formats are used. This is based on an illustrative example in IAS 1's Implementation Guidance, modified to illustrate the requirements of FRS 102. In particular,

• FRS 102 does not require separate presentation in other comprehensive income between items that will not be reclassified to profit or loss and items that may be reclassified subsequently to profit or loss;
• earnings per share information has not been illustrated (see 6.9 below for entities required to present earnings per share information); [FRS 102.1.4]
• where there are discontinued operations, FRS 102 requires a line-by-line analysis with columns for continuing, discontinued and total operations (see 6.8 below). Example 6.4 shows only the ‘total column’ required; [FRS 102.5.5B, 5.7E] and
• an analysis of expenses should be presented, either in the income statement or in the notes to the financial statements, which is equivalent to what would have been presented if statutory formats had been used (see 6.6 below). [FRS 102.5.5B].

The Triennial review 2017 added the requirement in the final bullet point above into FRS 102, where adapted formats are being used. We do not expect this change to significantly affect the amounts presented in the financial statements as, prior to the Triennial review 2017, FRS 102 already required an analysis of expenses by nature or by function. This requirement, which was in paragraph 5.11 of the previous version of FRS 102, has now been removed (see 6.7.4 below).

Example 6.5 below shows the statement of comprehensive income using the two-statement form. This is relevant for both adapted formats and statutory formats because the requirements for the statement of comprehensive income derive from Section 5 (rather than the formats in the Regulations (or LLP Regulations)). As in Example 6.4, the items in other comprehensive income may alternatively be presented net of tax.

The separate income statement (not presented in Example 6.5) would follow the requirements for adapted formats (see 6.5 above) (where permitted for use) or statutory formats (see 6.6 below) and would show the allocation of profit between owners of the parent and non-controlling interest.

Example 6.5 is adapted from an illustrative example in IAS 1, but modified to illustrate the requirements of FRS 102. Example 6.5 looks the same as the latter part of the single statement of comprehensive income presented in Example 6.4 above but only shows the allocation of total comprehensive income between owners of the parent and non-controlling interest. The footnotes included in Example 6.5 relate to the same footnotes as in Example 6.4.

6.6.1 Turnover (format 1 and format 2)

Turnover, in relation to a company (or LLP), is defined as ‘the amounts derived from the provision of goods and services, after deduction of:

1. trade discounts,
2. value added tax, and
3. any other taxes based on the amounts so derived.’ [s474(1), s474(1) (LLP), FRS 102 Appendix I].

FRS 102 has the same definition as in section 474(1).

FRS 102 further requires that turnover is presented on the face of the income statement (or statement of comprehensive income, if presented). [FRS 102.5.7D]. See 6.7.1 below.

Not all income reported in the profit and loss account is turnover, nor is the concept of turnover synonymous with revenue. For example, a company may receive rental or interest income – while these would be types of revenue under FRS 102, these may or may not fall to be reported as turnover. Similarly, an entity whose business includes renting out properties to tenants would include rental income within turnover, but this may be ‘other operating income’ for another entity. An entity whose business is as a lessor and receives finance lease income would report that interest income in the position of the turnover line (although it may well be described as finance lease income), but an entity that merely receives interest income on its bank deposits or other investments would report that interest income as ‘other interest receivable and similar income’. Where significant judgement is applied in determining which sources of revenue qualify as turnover, it may be appropriate to include an accounting policy for turnover and explain these judgements.

See 3.3.2.A above for the segmental disclosures of turnover required in Companies Act accounts (or non-IAS accounts, for an LLP).

6.6.2 Cost of sales. Distribution costs. Administrative expenses (format 1)

The format 1 profit and loss account requires a functional classification of expenses – between cost of sales, distribution costs and administrative expenses. These categories of cost are not defined in the Regulations (or LLP Regulations). The allocation of costs will depend on the particular circumstances of an entity's business, and should be applied consistently. Judgement may be required in allocating costs to certain functions and, where this is the case, it may be appropriate to include an accounting policy for the allocation of expenses explaining significant judgements taken (see 8.3 below). The following discussion provides guidance for the types of items that often fall within these headings.

Cost of sales for a manufacturer would generally include production costs (including direct material, payroll and other costs and direct and indirect overheads attributable to the production function) and adjustments for opening and closing inventory. For a service provider, these would include the costs of providing the service.

Distribution costs would generally include transport and warehousing costs for the distribution of finished goods. Selling and marketing costs (such as advertising, payroll costs of the selling, marketing and distribution functions, sales commission and overheads attributable to the selling, marketing and distribution functions) are often included in this heading.

Administrative expenses would generally include payroll costs of general management and administrative staff, general overheads, property costs not classified within cost of sales or distribution costs, bad debts, professional fees and often goodwill amortisation and impairment.

Note (14) on the profit and loss account formats (format 1) (and the equivalent requirement for LLPs)²⁰ require that cost of sales, distribution costs and administrative expenses are stated after taking into account any necessary provisions for depreciation or diminution in value of assets.

UK companies and LLPs sometimes show other line items (e.g. research and development costs) or amend or combine other line items, taking advantage of the flexibility available in the Regulations. FRS 102 requires additional line items, headings and subtotals when relevant to an understanding of the entity's financial performance (see 6.7.2 below). [FRS 102.5.9].

6.6.3 Gross profit (format 1)

The format 1 profit and loss account requires gross profit or loss, i.e. turnover less cost of sales, to be shown as a separate line item.

6.6.4 Other operating income (format 1 and format 2)

Other operating income is not defined in the Regulations (or LLP Regulations). In practice, this line item would often include government grant income, operating lease income, other rental income or negative goodwill amortisation.

This line item may include exchange gains arising from trading transactions, following previous UK GAAP practice. While this has not been included in FRS 102, the Legal Appendix to SSAP 20 – Foreign currency translation – stated that ‘Gains or losses arising from trading transactions should normally be included under “Other operating income or expense” while those arising from arrangements which may be considered as financing should be disclosed separately as part of “Other interest receivable / payable and similar income / expense”. …’. [SSAP 20.68].

6.6.5 Income from shares in group undertakings. Income from participating interests (format 1 and format 2)

The formats for the individual profit and loss account include ‘income from shares in group undertakings’, and ‘income from participating interests’. Dividend income from shares in group undertakings and from participating interests would be included within these line items.

For the group profit and loss account statutory formats, ‘income from participating interests’ is replaced with ‘income from associated undertakings’ and ‘income from other participating interests’. Income from associated undertakings would usually include the share of the profit or loss of associates and jointly controlled entities. Income from shares in group undertakings will not arise in consolidated financial statements unless there are unconsolidated subsidiaries.

The meanings of group undertakings, participating interests and associated undertakings are explained at 5.3.4.C to 5.3.4.E above.

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. [FRS 102.29.19]. See 6.6.9 below.

FRS 102 requires separate disclosure of the entity's share of the profit or loss of associates accounted for using the equity method and the entity's share of any discontinued operations of such associates. [FRS 102.14.14]. The same information is required for jointly controlled entities. [FRS 102.15.20]. There is no requirement to present this information on the face of the statement of comprehensive income (or separate income statement). However, entities may consider adapting the heading ‘income from associated undertakings’ to show the share of the profit or loss of investments in associates and jointly controlled entities (even if the analysis of this between investments in associates and jointly controlled entities is relegated to the notes).

FRS 102 does not address where fair value movements are presented in the profit and loss account formats when investments in subsidiaries, associates and jointly controlled entities are carried at fair value through profit and loss in consolidated and / or individual financial statements. [FRS 102.9.9-9B, 9.26, 9.26A, 14.4-4B, 15.9-9B]. Chapter 8 at 3.4 and 4, Chapter 12 at 3.3.1, and Chapter 13 at 3.6.2 and 3.6.3 discuss the situations where this accounting is required or permitted. In our view, entities may present fair value gains and fair value losses on such investments, where material, adjacent to income from shares in group undertakings and income from participating interests (but disclosed separately). FRS 102 would require additional line items on the face of the statement of comprehensive income (or separate income statement), where relevant to an understanding of the entity's financial performance (see 6.7.2 below). Where this accounting is used, all the disclosures in Section 11 in respect of such investments will be required, as explained at 10.3.1 below. [FRS 102.9.27B].

6.6.6 Income from other fixed asset investments. Other interest receivable and similar income (format 1 and format 2)

The formats have two line items – ‘income from other fixed asset investments’, and ‘other interest receivable and similar income’. Note (15) on the profit and loss account formats (format 1 and format 2) (and the equivalent requirement for LLPs)²¹ state that income and interest derived from group undertakings must be shown separately from income and interest derived from other sources. For LLPs, interest receivable from members must also not be included under these line items.

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. [FRS 102.29.19]. See 6.6.9 below.

In our view, entities may present fair value gains and fair value losses on other fixed asset investments, where material, adjacent to income from other fixed asset investments, but disclosed separately.

Section 28 does not specify how the net interest on the net defined benefit liability should be presented in the profit and loss account (see Chapter 25 at 3.6.10.A). The net interest could be either a positive or negative figure. In our view, net interest could be presented in either ‘other finance income’, ‘interest payable’ or another component of profit or loss provided the basis of allocation is explained.

‘Other interest receivable and similar income’ may include exchange gains arising from financing arrangements, e.g. loans, following previous UK GAAP practice. See 6.6.4 above.

The presentation of gains on settlement of financial liabilities is not addressed by FRS 102. In our view, entities may show the gains on settlement within ‘other interest receivable and similar income’, or where material, present the gains adjacent to interest receivable and similar income but disclosed separately.

FRS 102 requires, inter alia, further analyses of income, expense and net gains or net losses (including fair value changes) by specified category of financial instrument. Interest expense and interest income (calculated using the effective interest method) for financial assets and financial liabilities not at fair value, and impairment losses for each class of financial asset must also be disclosed. There are also extensive disclosures for financial instruments at fair value through profit or loss (that are not financial liabilities held as part of a trading portfolio nor derivatives). These can be disclosed in the notes to the financial statements. [FRS 102.11.48-48A, 12.26]. Certain of these disclosures are not required where the reduced disclosure framework is applied in individual financial statements of a qualifying entity that is not a financial institution. [FRS 102.1.8, 1.12(c)]. See Chapter 10 at 11.

6.6.7 Amounts written off investments (format 1 and format 2)

The line item ‘amounts written off investments’ would be used for impairments of fixed asset investments (including investments in subsidiaries, associates and jointly controlled entities) carried at cost less impairment in the individual financial statements. It would be usual to present a write-back of a previous provision under the same heading as where the provision was originally recognised (in the same way as an adjustment to reverse a bad debt provision would also be shown within administrative expenses).

The positioning of this line item between ‘other interest income receivable and similar income’ and ‘interest payable and similar charge’ is below where many entities would position operating profit, where presented (see 6.7.3 below). FRS 102 is silent on where impairments of investments should be presented. Nevertheless, some entities may find it appropriate, based on the nature of their business, to report ‘amounts written off investments’ within operating profit.

FRS 102 requires disclosure of impairment losses for each class of financial asset, i.e. a grouping that is appropriate to the nature of the information disclosed and that takes into account the characteristics of the financial assets. [FRS 102.11.48(c)]. In addition, disclosure of impairment losses and reversals of impairment losses (and the line items in which those impairment losses are included) is required separately for investments in associates and investments in jointly controlled entities. [FRS 102.27.33(e)-(f)].

In addition, a UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must disclose separately in a note to the accounts (if not shown separately in the profit and loss account): [1 Sch 19(3), 1 Sch 20(2), 1 Sch 19(3) (LLP), 1 Sch 20(2) (LLP)]

• provisions for diminution in value; and
• any amounts written back in respect of such provisions.

These disclosures apply where the fixed asset investment is accounted for using the historical cost rules (see 10.1 below). The application of the historical cost depreciation and diminution rules (including these disclosures) to fixed assets accounted for using the alternative accounting rules (i.e. at revaluation) is explained at 10.2.2 below. The disclosures do not apply to fixed asset investments held at fair value using the fair value accounting rules (see 10.3 below).

6.6.8 Interest payable and similar expenses (format 1 and format 2)

‘Interest payable and similar expenses’ would include finance costs on financial liabilities (including shares classified as a financial liability or where a component of the share is classified as a financial liability).

Note (16) on the profit and loss account formats (format 1 and format 2) (and the equivalent requirement for LLPs)²² states that interest payable to group undertakings must be shown separately from income and interest derived from other sources. For LLPs, interest payable to members must also not be included under these line items. The LLP SORP explains how interest payable to members is treated (and when it falls to be treated as part of members' remuneration as an expense). [LLP SORP.21, 54].

The presentation of losses on settlement of financial liabilities is not addressed by FRS 102. In our view, entities may show the losses on settlement within other interest payable and similar expenses, or, where material, present the losses adjacent to other interest payable and similar expenses but disclosed separately.

Section 28 does not specify how the net interest on the net defined benefit liability should be presented in the profit and loss account (see Chapter 25 at 3.6.10.A). The net interest could be either a positive or negative figure. In our view, net interest could be presented in either ‘other finance income’, ‘interest payable’ or another component of profit or loss provided the basis of allocation is explained.

This line item may also include exchange losses arising from financing arrangements, such as loans, following previous UK GAAP practice. See 6.6.4 above.

FRS 102 does not address the presentation of unwind of discounts on provisions. However, FRS 12 – Provisions, contingent liabilities and contingent assets – required this to be disclosed as other finance costs adjacent to interest. [FRS 12.48]. In our view, entities can continue to follow this previous UK GAAP presentation of unwind of discounts under FRS 102.

FRS 102 requires, inter alia, further analyses of income, expense and net gains or net losses (including fair value changes) by specified category of financial instrument. Interest expense and interest income (calculated using the effective interest method) for financial assets and financial liabilities not at fair value, and impairment losses for each class of financial asset must also be disclosed. There are also extensive disclosures for financial instruments at fair value through profit or loss (that are not financial liabilities held as part of a trading portfolio nor derivatives). These can be disclosed in the notes to the financial statements. [FRS 102.11.48-48A, 12.26]. Certain of these disclosures are not required where the reduced disclosure framework is applied in individual financial statements of a qualifying entity that is not a financial institution. [FRS 102.1.8, 1.12(c)]. See Chapter 10 at 11.

In addition, a UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must state in the notes to the accounts: the amount of interest on or any similar charges in respect of: (1) bank loans and overdrafts, and (2) loans of any other kind made to the company (or the LLP). This analysis is not required in relation to interest or charges on loans to the company (or the LLP) from group undertakings but applies to all other loans, whether made on security of debentures or not. [1 Sch 66, 1 Sch 63 (LLP)].

6.6.9 Tax on profit (or loss) (format 1 and format 2)

Tax includes current and deferred tax. FRS 102 states that income tax includes all domestic and foreign taxes that are based on taxable profit. Income taxes also include taxes, such as withholding tax on distributions payable by a subsidiary, associate or joint venture to the reporting entity. [FRS 102.29.1]. In some situations, entities may need to apply judgement in determining whether a particular tax or tax credit is an income tax and whether to classify interest and penalties as tax. See Chapter 26 at 3.2. FRS 102 requires disclosures of judgements in applying accounting policies with the most significant effect on the financial statements – see 8.3 below.

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. [FRS 102.29.19].

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must give further disclosures in respect of tax on profit or loss in the notes to the accounts. [1 Sch 67, 1 Sch 64 (LLP)]. FRS 102's disclosures in respect of current and deferred tax are discussed in Chapter 26 at 11.

6.6.10 Own work capitalised (format 2)

The format 2 profit and loss account includes a line item for ‘own work capitalised’.

Own work capitalised may arise, for example, where an entity capitalises the directly attributable costs of constructing its own property, plant and equipment. [FRS 102.17.10]. The costs are reported in the relevant line items and a credit item is shown in own work capitalised.

6.6.11 Staff costs (format 2)

The format 2 profit and loss account has a line item for ‘staff costs’, to be analysed between wages and salaries, social security costs and pension costs (see 8.6 below for the definitions). The format 1 profit and loss account does not have a line item for staff costs.

UK companies and LLPs, whether preparing Companies Act accounts (non-IAS accounts, for an LLP) or IAS accounts, must disclose information on staff numbers and on staff costs in the notes to the accounts (insofar as not stated elsewhere in the accounts). [s411, s411(LLP)]. See 8.6 below. There are certain disclosure exemptions for UK companies subject to the small companies regime and LLPs subject to the small LLPs regime.

6.6.12 Depreciation and other amounts written off tangible and intangible fixed assets and amounts written off current assets to the extent that they exceed write-offs which are normal in the undertaking concerned (format 2)

The format 2 profit and loss account has separate line items for ‘depreciation and other amounts written off tangible and intangible fixed assets’ and ‘amounts written off current assets to the extent that they exceed write offs which are normal in the undertaking concerned’.

Entities may also show provisions against current assets under different headings, e.g. changes in stocks / raw materials and consumables (for inventory – see 6.6.13 below) or ‘other operating expenses’ (e.g. this heading might be used for bad debts – see 6.6.14 below). Judgement is needed as to whether such provisions exceed write offs that are normal and fall to be presented as amounts written off current assets to the extent that they exceed write offs which are normal in the undertaking concerned.

6.6.13 Changes in stocks of finished goods and work in progress and raw materials and consumables (format 2)

The format 2 profit and loss account includes separate line items for the ‘change in stocks of finished goods and work in progress’ and for ‘raw materials and consumables’.

‘Raw materials and consumables’ would include purchases of raw materials and consumables, adjusted for changes in stocks of raw materials and consumables.

6.6.14 Other external expenses and other operating expenses (format 2)

The format 2 profit and loss account includes separate line items for: ‘other external expenses’ and for ‘other operating expenses’. The Regulations and LLP Regulations do not define these terms. There is therefore likely to be diversity in practice in the allocation of costs between these headings, but a consistent policy should be followed.

‘Other operating expenses’ may include exchange losses arising from trading transactions, following previous GAAP practice. See 6.6.4 above.

6.7.1 Disclosure of turnover on the face of the statement of comprehensive income (or separate income statement)

Turnover must be disclosed on the face of the income statement (or statement of comprehensive income, if presented). [FRS 102.5.7D].

However, not all income reported in the profit and loss account is turnover, nor is the concept of turnover synonymous with revenue. See 6.6.1 above.

FRS 102 also requires a detailed analysis of revenue (which may be included in the notes to the financial statements) showing at a minimum: revenue arising from the sale of goods, the rendering of services, interest, royalties, dividends, commissions, grants and any other significant type of revenue. Contract revenue recognised as revenue must also be disclosed. [FRS 102.23.30(b), 23.31].

6.7.2 Additional line items, headings and subtotals

An entity shall present additional line items, headings and subtotals in the statement of comprehensive income (and in the income statement, if presented) when such presentation is relevant to an understanding of the entity's financial performance. [FRS 102.5.9]. Judgement is needed in determining whether additional items should be presented, where material and relevant. Factors to be considered, highlighted by IAS 1 (which has a similar requirement), include materiality and the nature and function of the items of income and expense. [IAS 1.86].

While any amendments to the income statement (or profit and loss section of the statement of comprehensive income) would need to comply with the General Rules to the formats (see 4.4 above), the statutory formats provide flexibility since the profit and loss account line items are denoted with Arabic numbers.

Where adapted formats are used, any amendments made would need to comply so far as is practicable with the General Rules to the formats. FRS 102 explains that an entity may include additional line items in the income statement and amend the descriptions used in paragraph 5.5B (i.e. for the line items (a) to (j)) (see Figure 6.15 at 6.5 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 102.5.5C]. The effect of this is to clarify the extent of flexibility available in the presentation requirements where adapted formats are used (for statutory formats, the General Rules to the formats clearly set out the flexibility for Arabic numbered items, but Arabic numbers do not appear in the adapted formats). While this requirement is included under the single statement approach, in our view, this is intended to also apply where the two statement approach is applied.

6.7.3 Disclosure of operating profit

FRS 102 does not require disclosure of ‘operating profit’. If an entity elects to disclose operating profit, the entity should ensure that the amount disclosed is representative of activities that would normally be regarded as ‘operating’, e.g. it would be inappropriate to exclude items clearly related to operations (such as inventory write-downs and restructuring and relocation expenses) because they occur irregularly or infrequently or are unusual in amount. The Triennial review 2017 further adds that it would be inappropriate to exclude profits or losses on the sale of property, plant and equipment, investment property and intangible assets. Similarly, it would be inappropriate to exclude items on the grounds that they do not involve cash flows, such as depreciation and amortisation expenses. However, the Triennial review 2017 added that profits or losses on the disposal of a discontinued operation should be excluded from operating profit. [FRS 102.5.9B]. The illustrative example of a statement of comprehensive income presented in the Appendix to Section 5, has been amended accordingly.

The income statement (or profit and loss section of the statement of comprehensive income) identifies separate line items for the share of the profit or loss of investments in associates and jointly controlled entities accounted for using the equity method in adapted formats (see 6.5 above). For entities presenting a measure of operating profit using the adapted formats, in our view, it is acceptable for an entity to determine which investments form part of its operating activities and include their results in that measure, with the results of non-operating investments excluded from it. Another acceptable alternative would be to exclude the results of all associates and jointly controlled entities from operating profit.

6.7.4 Analysis of expenses by nature or function

The statutory formats in Schedule 1 to the Regulations (and Schedule 1 to the LLP Regulations) (see 6.6 above) require an analysis of expenses by nature (where the format 2 profit and loss account is adopted) or by function (where the format 1 profit and loss account is adopted), and where the adapted formats available in those schedules are used (see 6.5 above), FRS 102 requires an analysis of expenses to be presented either in the income statement or in the notes to the financial statements, which is equivalent to what would have been presented if the statutory formats had been adopted. [FRS 102.5.5B]. The Triennial review 2017 removed from FRS 102 the previous requirement to, unless otherwise required under the Regulations, present an analysis of expenses using a classification based on either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant. However, this change in the Triennial review 2017 was made to reduce duplication of what is already a requirement of the Regulations. [FRS 102.BC.B5.5]. Therefore, we do not expect this change to affect the amounts presented in financial statements,

Where an entity applies FRS 102 but is not required to prepare its accounts in accordance with the CA 2006, we consider that the entity must comply with the formats (and disclosures in the notes to the statutory formats, where the statutory formats are applied) but is not required to give the other statutory disclosures.

Schedule 1 to the Regulations (and the LLP Regulations) require certain information about the nature of expenses to be provided as line items in format 2 and in the notes to the accounts where format 1 is applied:

• the format 2 profit and loss account includes line items for staff costs (see 6.6.11 above) and ‘depreciation and other amounts written off tangible and intangible fixed assets’ (see 6.6.12 above);
• all UK companies (and LLPs), except companies subject to the small companies regime (and LLPs subject to the small LLPs regime) must present the analysis of staff costs in the notes to the accounts, insofar as not stated elsewhere in the accounts (see 8.6 below). This requirement applies both to Companies Act accounts (non-IAS accounts, for an LLP) and IAS accounts; and
• note (17) on the profit and loss account formats (and the equivalent requirement for LLPs)²⁵ state that the amount of depreciation and other amounts written off tangible and intangible fixed assets must be disclosed in a note to the accounts where the format 1 profit and loss account is used.

In addition, a UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must disclose separately in a note to the accounts (if not shown separately in the profit and loss account): [1 Sch 19(3), 1 Sch 20(2), 1 Sch 19(3) (LLP), 1 Sch 20(2) (LLP)]

• provisions for diminution in value of fixed assets; and
• any amounts written back in respect of such provisions.

These disclosures must be given where statutory or adapted formats are used. These disclosures apply where the fixed assets in question are accounted for using the historical cost rules (see 10.1 below). The application of the historical cost depreciation and diminution rules (including these disclosures) to fixed assets accounted for using the alternative accounting rules (i.e. at revaluation) is explained at 10.2.2 below. The disclosures do not apply to fixed asset investments held at fair value using the fair value accounting rules (see 10.3 below).

The statutory disclosures overlap with disclosures in FRS 102 of depreciation, amortisation and impairment charges (see Chapter 15 at 3.9, Chapter 16 at 3.5.2, Chapter 17 at 4.2, Chapter 24 at 8 and Chapter 31 at 2.7.2), [FRS 102.17.31(e), 18.27(e), 19.26-26A, 27.32-33, 34.10], defined contribution expense, [FRS 102.28.40], and the cost of defined benefit plans (see Chapter 25 at 3.12). [FRS 102.28.41(g)].

6.7.5 Presentation of ‘exceptional items’

FRS 102 does not use the phrase ‘exceptional items’ nor does the standard contain prescriptive presentation requirements for exceptional items. When items included in total comprehensive income are material, their nature and amount must be disclosed separately in the statement of comprehensive income (and in the income statement, if presented) or in the notes. [FRS 102.5.9A]. The level of prominence given to such items is left to the judgement of the entity concerned. Materiality is discussed at 9.4 below.

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must state the amount, nature and effect of any individual items of income and expenditure which are of exceptional size or incidence in the notes to the accounts. [1 Sch 69(2), 1 Sch 67(2) (LLP)].

Many UK companies preparing financial statements using EU-adopted IFRS (to which the statutory disclosure above does not apply) continue to refer to ‘exceptional items’ and this is likely to be the case under FRS 102 as well. Since FRS 102 does not use the term ‘exceptional items’, it is important that entities clearly define what items are considered to be an ‘exceptional item’ (or other similar term used) and state this in the accounting policies included in the financial statements. The FRC published a press release on exceptional items in December 2013 (see 6.7.5.B below).

FRS 102 does not give examples of such items, but IAS 1 states that circumstances that would give rise to the separate disclosure of items of income and expense include: [IAS 1.98]

1. write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs;
2. restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;
3. disposals of items of property, plant and equipment;
4. disposals of investments;
5. discontinued operations;
6. litigation settlements; and
7. other reversals of provisions.

See 6.8 below for FRS 102's requirements on presentation of discontinued operations.

6.7.6 Presentation of extraordinary items

An entity applying the adapted formats or statutory formats in Schedule 1 to the Regulations shall not present or describe any items of income or expense as extraordinary items in the statement of comprehensive income (or in the income statement, if presented) or in the notes. [FRS 102.5.10]. This requirement also applies to LLPs. The concept of extraordinary items also does not appear in Schedule 1 to the Regulations and Schedule 1 to the LLP Regulations.

However, Schedules 2 and 3 to the Regulations do refer to extraordinary items, so theoretically the concept of an extraordinary items still exists in those schedules. FRS 102 states that ‘extraordinary items are material items possessing a high degree of abnormality which arise from events or transactions that fall outside the ordinary activities of the reporting entity and which are not expected to recur.’ The additional line items required to be disclosed by paragraph 5.9 (see 6.7.2 above) and material items required to be disclosed by paragraph 5.9A (see 6.7.5 above) are not extraordinary items when they arise from the entity's ordinary activities. In addition, extraordinary items do not include prior period items merely because they relate to a prior period. [FRS 102.5.10B].

Ordinary activities are defined as ‘any activities which are undertaken by a reporting entity as part of its business and such related activities in which the reporting entity engages in furtherance of, incidental to, or arising from, these activities. Ordinary activities include any effects on the reporting entity of any event in the various environments in which it operates, including the political, regulatory, economic and geographical environments, irrespective of the frequency or unusual nature of the events’. [FRS 102.5.10A].

While this guidance has not been included in FRS 102, Appendix II to FRS 101 (which has similar requirements to FRS 102 in respect of extraordinary items) states that ‘entities should note that extraordinary items are extremely rare as they relate to highly abnormal events or transactions’. [FRS 101 Appendix II.11]. Consequently, we do not anticipate that banking and insurance companies still permitted to disclose extraordinary items will do so in practice under FRS 102.

6.8.1 Definition of discontinued operation

FRS 102 defines a discontinued operation as a component of an entity (i.e. operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes from the rest of the entity) that has been disposed of and: [FRS 102 Appendix I]

1. represented a separate major line of business or geographical area of operations;
2. was part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
3. was a subsidiary acquired exclusively with a view to resale.

The definition of discontinued operations in FRS 102 differs to that included in IFRS 5 in that it refers to ‘a component of an entity that has been disposed of’ whereas IFRS 5 refers to a ‘component of an entity that either has been disposed of or is classified as held for sale’ [emphasis added]. As noted at 6.8 above, the presentation of discontinued operations relates to operations disposed of at the reporting date.

IFRS 5, which has the same definition of a component as in FRS 102, clarifies that ‘a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use’. [IFRS 5.31]. Under both IFRSs and FRS 102, a cash generating unit is ‘the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets’. [IFRS 5 Appendix A, FRS 102.27.8, FRS 102 Appendix I]. See Chapter 24 at 4.2. Management may consider IFRS 5's guidance on a component, as permitted by the hierarchy in Section 10. [FRS 102.10.4-6].

FRS 102 does not clarify the phrase ‘has been disposed of’. In our view, the phrase ‘has been disposed of’ may be interpreted more widely than a sale. An entity's management must use judgement in developing and applying an accounting policy and may consider the requirements and guidance in IFRS 5. IFRS 5's requirements would be consistent with a view that a component meeting any of the criteria (a) to (c) is discontinued if, at the end of the reporting period, the component is an abandoned operation, or the entity has partially disposed of (but lost control of) the operation or has distributed the operation. However, since the phrase ‘has been disposed of’ has not been explained further in FRS 102, different interpretations of what this means may be sustained.

6.8.2 Adjustments to amounts previously presented in discontinued operations in prior periods

FRS 102 does not address adjustments to amounts previously presented in discontinued operations. Given the absence of specific requirements in FRS 102, management may consider the requirements and guidance of IFRSs in this area.

IFRS 5 requires that adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period are classified separately in discontinued operations. The nature and amount of such adjustments must be disclosed. Examples given of circumstances in which these adjustments may arise include the following: [IFRS 5.35]

• the resolution of uncertainties that arise from the terms of the disposal transaction, such as the resolution of purchase price adjustments and indemnification issues with the purchaser;
• the resolution of uncertainties that arise from and are directly related to the operations of the component before its disposal, such as environmental and product warranty obligations retained by the seller; and
• the settlement of employee benefit plan obligations, provided that the settlement is directly related to the disposal transaction.

6.8.3 Trading between continuing and discontinued operations

Discontinued operations remain consolidated in group financial statements and therefore, any transactions between discontinued and continuing operations are eliminated as usual in the consolidation. As a consequence, the amounts ascribed to the continuing and discontinued operations will be income and expense only from transactions with counterparties external to the group. Importantly, this means the results presented on the face of the income statement will not necessarily represent the activities of the operations as individual entities, particularly when there has been significant trading between the continuing and discontinued operations. Some might consider the results for the continuing and discontinued operations on this basis to be of little use to readers of accounts. An argument could be made that allocating external transactions to or from the discontinued operations would yield more meaningful information.

One approach would be to fully eliminate transactions for the purpose of presenting the income statement then provide supplementary information.

6.8.4 First-time adoption

There is no longer an exception for discontinued operations on first time adoption. The first-time adoption exception for discontinued operations was removed by the Triennial review 2017. However, this exception remains applicable for accounting periods beginning before 1 January 2019 (or before adoption of the Triennial review 2017 amendments, if earlier) The exception stated that, on first-time adoption of FRS 102, an entity shall not retrospectively change the accounting that it followed under its previous financial reporting framework for discontinued operations. See Chapter 32 at 4.3 of EY UK GAAP 2017 for discussion of the (eliminated) transition exception.

6.8.5 Example of presentation of discontinued operations

The above example is taken from the Appendix to Section 5 (which accompanies but is not part of that section, and provides guidance on application of paragraph 5.7E for presenting discontinued operations). In our view, it would also be good practice to include ‘as restated’ in the total column in the comparatives.

7.1.1 Related disclosures in the Regulations and LLP Regulations

Where there have been transfers to or from any reserves (and the reserves are shown as separate line items in the balance sheet, or would be so shown, if Arabic-numbered line items were not combined as permitted by paragraph 4(2)(b) of the General Rules to the formats – see 4.4 above), a UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must disclose, in the notes to the accounts, in respect of the aggregate of reserves included in the same item:

• the amount of the reserves at the beginning and end of the financial year;
• any amounts transferred to or from the reserve during that year; and
• the source and application respectively of any amounts transferred.

This information must be presented in tabular form. [1 Sch 59(1)-(2), 1 Sch 57(1) (LLP)-(2)]. Comparatives are required under the general requirements of FRS 102 (as there is not a specific exemption). [FRS 102.3.14].

This disclosure requirement is relevant to both statutory formats and adapted formats. For statutory formats, the movements in reserves will include the headings and sub-headings listed in the statutory formats (see 5.3.12 above). For adapted formats, in our view, it would be appropriate to present the movements in reserves for the classes of equity identified on the face of the statement of financial position or in the notes to the financial statements (see 5.1.12 above), which would normally be the same components of equity identified when presenting the statement of changes in equity. [FRS 102.4.2B(g)].

UK companies preparing Companies Act accounts (relevant to adapted formats and statutory formats) are required to state in the notes to the accounts: [1 Sch 43]

• any amount set aside to (or proposed to be set aside to), or withdrawn from (or proposed to be withdrawn from) reserves;
• the aggregate amount of dividends paid in the financial year (other than those for which a liability existed at the immediately preceding balance sheet date);
• the aggregate amount of dividends that the company is liable to pay at the balance sheet date; and
• the aggregate amount of dividends that are proposed before the date of approval of the accounts, and not otherwise disclosed above.

The LLP Regulations only require LLPs preparing non-IAS accounts to state in the notes to the accounts any amount set aside to (or proposed to be set aside to), or withdrawn from (or proposed to be withdrawn from) reserves. [1 Sch 43 (LLP)].

Particulars must be given of the proposed appropriation of profit or treatment of loss or, where applicable, particulars of the actual appropriation of profits or treatment of the losses. [1 Sch 72B, 1 Sch 70B (LLP)].

Where an entity declares dividends to holders of its equity instruments after the end of the reporting period, those dividends are not recognised as a liability because no obligation exists at that time, but FRS 102 permits an entity to show the dividend as a segregated component of retained earnings at the end of the reporting period. [FRS 102.32.8]. However, the Triennial review 2017 has introduction an exception to this requirement to allow the tax effects of dividends which qualify as gift aid payments by subsidiaries to their charitable parents to be taken into account at the reporting date when it is probable that the gift aid payment will be made in the following nine months; [FRS 102.29.14A]. See Chapter 26 at 7.6.1.

FRS 102 requires an entity to disclose the fair value of non-cash assets distributed to its owners in the reporting period (except when the non-cash assets are ultimately controlled by the same parties before and after the distribution). [FRS 102.22.18].

7.1.2 Example of statement of changes in equity

FRS 102 does not include an illustrative statement of changes in equity. Example 6.7 illustrates the requirements below.

An analysis is required of other comprehensive income by item in the statement of changes in equity or in the notes to the accounts. [FRS 102.6.3A]. The detail in which this analysis must be presented is not specified.

The LLP SORP provides detailed guidance on the statement of changes in equity (and on the SORP's requirement for an LLP to present, either as a primary statement or in the notes, a reconciliation of members' interests). The SORP defines members' interests as comprising both ‘other members’ interests' and ‘loans and other debts due to members’ less any amounts due from members in debtors and specifies the format for the reconciliation of members' interests. Comparatives, i.e. the full table reconciling movements in the comparative year, are required, where this reconciliation is presented as a primary statement. [LLP SORP.59-60A].

Not all LLPs have equity (e.g. if the LLP's partnership interests are classified entirely as liabilities). The LLP SORP clarifies that no statement of changes in equity is required in such circumstances (unless a reconciliation of members' interests is presented as a primary statement) but requires that a statement should be made on the face of one of the primary statements or in the notes to the accounts that the LLP has no equity and consequently a statement of changes in equity is not given. [LLP SORP.59A].

8.7.1 Guarantees, contingencies and commitments

A UK company preparing Companies Act accounts (or an LLP preparing non-IAS accounts) must give the following information in a note to the accounts: [1 Sch 63, 1 Sch 60 (LLP)]

1. particulars must be given of any charge on the assets of the company (or the LLP) to secure the liabilities of any other person, including the amount secured;
2. particulars and the total amount of any financial commitments, guarantees and contingencies that are not included in the balance sheet must be disclosed, together with an indication of the nature and form of any valuable security given by the company (or the LLP) in respect of such commitments, guarantees and contingencies;
3. the total amount of any pension commitments (within (b) above) that are not included in the balance sheet must be separately disclosed;
4. separate particulars of any pension commitment (within (c) above) relating wholly or partly to pensions payable to past directors of the company (or to past members of the LLP) must be given;
5. the total amount of any commitments, guarantees and contingencies (within (b) above) that are not included in the balance sheet undertaken on behalf or for the benefit of:
   1. any parent undertaking or fellow subsidiary undertaking of the company (or LLP);
   2. any subsidiary undertaking of the company (or LLP); or
   3. any undertaking in which the company (or LLP) has a participating interest

      must be separately stated and those within each of paragraphs (i), (ii) and (iii) must also be stated separately from those within any other of those paragraphs; and

6. particulars must also be given of any pension commitments which are included on balance sheet, with separate particulars given for any pension commitment relating wholly or partly to pensions payable to past directors of the company.

Part (e) above appears to require the totals for (i), (ii), (iii) (and the sum of the totals for (i) to (iii)) to be separately stated.

See 5.3.4.C and 5.3.4.D above and Chapter 3 at 3.1.2 for guidance on the relevant definitions.

Where group accounts are prepared, the disclosures are given for both the consolidated group (i.e. the company (or LLP) and its consolidated subsidiary undertakings) and the individual company (or LLP). [6 Sch 1(1), 3 Sch 1(1) (LLP)].

8.8.1 Banking companies and holding companies of credit institutions

A banking company or the holding company of a credit institution is only required to disclose: [s413(8)]

• the total amounts of advances and credits granted by the company (or in group accounts, by the company and its subsidiary undertakings); [s413(5)(a)] and
• the total amounts of the maximum liability that may be incurred by the company (or its subsidiary) in respect of guarantees entered into by the company (or in group accounts, by the company and its subsidiary undertakings). [s413(5)(c)].

9.1.1 General principles for preparation of financial statements

The general principles set out in the Regulations and the LLP Regulations for the preparation of financial statements are: [1 Sch 10-15A, 1 Sch 10-15A (LLP), 1 Sch 40(2), 1 Sch 40(2) (LLP)]

• the company (or the LLP) is presumed to be carrying on business as a going concern (see 9.3 below);
• accounting policies (and measurement bases) must be applied consistently within the same accounts and from one financial year to the next (see 3.6.2 above);
• the amount of any item must be determined on a prudent basis, and in particular:
  • only profits realised at the balance sheet date are to be included in the profit and loss account (except where fair value changes of financial instruments, investment property or living animals or plants are required to be included in the profit and loss account by the fair value accounting rules – see 10.3 and 10.4 below);
  • all liabilities which have arisen in respect of the financial year to which the accounts relate or a previous financial year must be taken into account, including those which only became apparent between the balance sheet date and the date on which it is signed on behalf of the Board (or the members of the LLP) in accordance with section 414 of the CA 2006; and
  • all provisions for diminution of value must be recognised, whether the result of the financial year is a profit or loss;
• all income and charges relating to the financial year to which the accounts relate must be taken into account without regard to the date of receipt or payment (i.e. accruals basis);
• in determining the aggregate amount of any item, the amount of each individual asset or liability that falls to be taken into account must be determined separately (i.e. no offsetting); and
• the opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding financial year.

In addition, at the balance sheet date, any provision made must represent the best estimate of the expenses likely to be incurred or, in the case of a liability, of the amount required to meet that liability; and provisions must not be used to adjust the values of assets. [9 Sch 2A-2B, 1 Sch 13(d) (LLP)-(e) (LLP)]. This requirement has been included within the general principles in the LLP Regulations but in Schedule 9 to the Regulations (see 10.1.5 below).

The above principles apply in both individual and group accounts. [6 Sch 1(1), 3 Sch 1(1) (LLP)].

Schedules 2 and 3 to the Regulations (and the Small Companies Regulations, which are addressed in Chapter 5) have the same requirements. However, the prohibition on presenting unrealised profits in the profit and loss account (unless permitted by the fair value accounting rules) in Schedule 3 to the Regulations is also subject to note (9) to the profit and loss account formats in that schedule concerning the presentation of unrealised gains and losses on investments. Only the references in Schedule 1 to the Regulations and Schedule 1 to the LLP Regulations are noted below.