The Periodic Review 2024 amendments to UK GAAP have been effective since 1 January 2026 and affect small entities reporting under Section 1A of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. For many small entities, while the significant changes to revenue and leases apply, the most noticeable impact of the amendments may not be changes in accounting treatment but changes to disclosures.
Moving from encouraged to required
Historically, one of the challenges facing small entity preparers has been determining what disclosures should be included above and beyond the minimum requirements of the standard.
Although Section 1A has always been designed to provide a simplified disclosure framework, it has also required entities to consider whether additional information is necessary to provide a true and fair view. In practice, this often involved significant judgement. Similar entities could produce significantly different disclosures while both claiming compliance with Section 1A.
The Financial Reporting Council has sought to address this issue by moving a number of disclosures into the mandatory category. The result should be improved consistency between small entity financial statements and reduced uncertainty for preparers and advisors while still providing a true and fair view.
Additional mandatory disclosures
The revised Section 1A framework introduces mandatory disclosures in several areas that many small entities have previously either disclosed only briefly or not at all.
These include information relating to revenue recognition, leases, going concern, expanded related party disclosures, current and deferred tax, share-based payments, provisions and contingencies and dividends declared and paid or payable.
While the extent of disclosure required will vary depending on the nature of the business, many entities are likely to find that their statutory accounts become more detailed. For instance, companies may be required to present a Statement of Total Comprehensive Income, a Statement of Changes in Equity or a Statement of Income and Retained Earnings depending on the transactions during the period, whereas previously this was only encouraged.
The challenge for many businesses will be understanding the accounting requirements but also ensuring that the information needed for disclosure purposes is captured throughout the year. The comparatives will also be required to meet the revised requirements.
Revenue disclosures required for small entities
The introduction of the new five-step revenue recognition model is also expected to affect small entity disclosures.
Under the revised framework, businesses may need to provide additional information about performance obligations arising from contracts with customers. This could be particularly relevant where contracts involve multiple deliverables, staged performance obligations, or long-term service arrangements.
Software companies, construction businesses, professional service firms, and subscription-based businesses could all find themselves needing to provide more narrative information than they have historically included in their financial statements.
For many smaller entities, obtaining this information may require collaboration between finance, operational and commercial teams to ensure contracts are assessed appropriately. Limited internal resources and technical expertise may mean that additional support is required.
Leases
Lease disclosures are another area where many small entities are likely to see a noticeable increase in reporting requirements. The move to on-balance sheet lease accounting for lessees is accompanied by disclosures about significant leasing arrangements, lease exemptions utilised and, in some cases, movements in right-of-use assets.
Small entities applying the short-term lease or low-value asset exemptions must also provide additional information about the related lease commitments. As a result, entities may need to gather and retain more detailed information about lease arrangements throughout the year than has previously been necessary.
Greater focus on going concern
One area likely to receive particular attention is going concern. Many small entities currently provide limited commentary when management concludes that preparation on a going concern basis is appropriate. The revised requirements place greater emphasis on transparency around management's assessment and any significant judgements made in reaching that conclusion.
For businesses operating in sectors facing economic uncertainty, refinancing activities, or significant customer concentration, this may require a more robust assessment process and more comprehensive supporting documentation.
The quality of the underlying assessment and documentation will become increasingly important to meet the revised requirements.
Related party disclosures: the biggest practical change?
Arguably, the most significant practical change relates to related party disclosures.
Prior to the amendments to UK GAAP, small entities were generally required to disclose only material related party transactions that were not conducted under normal market conditions. This often involved considerable judgement and, in some cases, resulted in relatively limited disclosures.
Now that the amendments to UK GAAP are effective, the position has changed significantly. UK small entities applying FRS 102 are required to disclose related party transactions in accordance with paragraphs 33.9 and 33.14 but are not required to provide the key management personnel compensation disclosures in paragraph 33.7. As a result, there is no explicit requirement within FRS 102 for a small entity to disclose directors’ remuneration. However, disclosure may still be necessary in certain circumstances. Directors’ remuneration that is not concluded under normal market conditions must be disclosed under UK company law, while the requirement for financial statements to give a true and fair view may mean that additional disclosure of directors’ remuneration is necessary where this is material to users’ understanding of the accounts. In addition, transactions with directors that are not considered key management personnel compensation will generally fall within the related party transaction requirements of paragraph 33.9 and may therefore require disclosure.
For owner-managed businesses, the increased disclosure requirements could include disclosing director loan accounts, rent paid to shareholder-owned property companies, management charges between connected entities, shared service arrangements, and intra-group funding arrangements.
Many businesses that currently make minimal related party disclosures may therefore experience a substantial increase in reporting requirements.
What should businesses be doing now?
Although the amendments do not become effective until accounting periods beginning on or after 1 January 2026, businesses should start considering their implications now. Practical steps businesses may wish to take include:
Conduct a disclosure gap analysis
A useful starting point is to compare current statutory accounts with the revised Section 1A requirements. Identifying disclosure gaps early will help avoid last minute implementation challenges.
Establish a related party register
Given the expanded disclosure requirements, businesses should consider maintaining a formal register of related parties and related party transactions throughout the year rather than attempting to compile the information at the year end.
Review governance documentation
Board minutes, shareholder agreements, loan agreements, and other legal documents often contain information relevant to the new disclosures. Early review of this documentation can help identify information that may otherwise be overlooked.
Reassess going concern procedures
Management should evaluate whether existing going concern processes and documentation are sufficient to support the enhanced disclosure requirements.
Consider data collection requirements
Some of the information required under the revised framework may not currently be captured within accounting systems. Businesses should assess whether additional processes are needed to gather information relating to revenue contracts, lease arrangements, related parties, or contingent arrangements. This will be required for both comparatives and current year data.
Educate key stakeholders
The success of implementation is unlikely to rest solely with finance teams. Directors, shareholders, and operational management may all hold information relevant to the new disclosures and should understand their responsibilities.
Document key judgements as they arise
Rather than waiting until the year end, management should consider documenting significant judgements throughout the accounting period. This may include conclusions on related party relationships, going concern assessments, revenue recognition decisions and the evaluation of contingent liabilities.
Perform a dry run of the new disclosures
Businesses may benefit from preparing a set of sample disclosures using current year information. A trial run can help identify information gaps, highlight areas where additional judgement is required, and provide greater clarity on the level of detail expected.
Looking ahead
The revised Section 1A framework represents one of the most significant changes to small entity disclosures since the introduction of the current regime. While the amendments are intended to improve consistency and reduce uncertainty around what constitutes a true and fair view, they are also likely to increase the amount of information disclosed in many sets of small company accounts.
For most entities, the greatest implementation challenge is unlikely to be technical accounting but identifying, gathering and documenting the information needed to support the expanded disclosures. Businesses that start preparing now and take practical steps are likely to find the transition significantly smoother when the new requirements take effect.
For further resources, these ICAEW’s resources on small entities which are part of our resources on changes to UK GAP, which provides access to a range of guidance and supporting materials.
