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Small and micro-entity reporting compared

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Published: 21 Aug 2019 Updated: 15 Sep 2022 Update History

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In this guide, the Financial Reporting Faculty outlines the differences between FRS 102 and FRS 105 and other factors to consider when deciding whether to prepare accounts using the small or micro-entities regime.

An entity entitled to and choosing to apply the micro-entities regime must apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. The micro-entities regime is optional and therefore entities may wish to consider the differences between applying FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 when deciding the most suitable regime when preparing their financial statements.

Users of the accounts

The level of information required can vary significantly according to the accounting standards applied. The level of detail required by FRS 105 is very limited by comparison with other standards.

When considering which standard to apply an entity should consider the needs of the different stakeholders which, typically, will vary depending on the size and complexity of the entity and its operations. For example, creditors, banks and credit rating agencies may require more information than is provided by micro-entity accounts.

Future growth plans

An entity that is entitled to either the small or micro-entities regime but is close to the size limits should consider carefully any decision on which regime to adopt. This is particularly relevant for a micro-entity if the business is expected to grow to the extent that it will be necessary to switch to the small entities regime in the near future. Transition from FRS 105 to FRS 102 Section 1A will involve significant changes to the presentation of the accounts and the accounting policies applied (see below).

Accounting differences between FRS 102 and FRS 105

Outlined below are some of the key accounting differences between FRS 102 and FRS 102:


FRS 102

FRS 105

Investment properties

With the exception of investment property rented to another group entity, a revaluation each year is required, with changes recognised in profit or loss. 

Measured at cost less depreciation and impairment.

Property, plant and equipment

Measured at cost less depreciation and impairment, but can choose to adopt a revaluation accounting policy for fixed assets of the same class.

Measured at cost less depreciation and impairment.

Intangible assets

Measured at cost less amortisation and impairment, but can choose in limited circumstances to adopt a revaluation accounting policy for intangible assets of the same class.

Measured at cost less amortisation and impairment.

Development costs and borrowing costs

These costs can, subject to certain conditions, be capitalised.

No option to capitalise. Must be expensed to the profit and loss account in the period in which they are incurred.

Trade and asset acquisition

An intangible asset purchased with a business is normally recognised as an asset when separable and arises from contractual or other legal basis.



An intangible asset purchased with a business must not be recognised separately from goodwill.

Financial instruments

Financial instruments are divided into ‘basic’ and ‘other’ instruments. The former are mostly measured at amortised cost, the latter mostly at fair value with movements generally recognised in profit or loss. Entities can instead choose to apply the recognition and measurement requirements of IAS 39 Financial Instruments; Recognition and Measurement and/or IFRS 9 Financial Instruments.

The exception is directors’ loans which may be measured initially at transaction price.  

No distinction between ‘basic’ and ‘other’ with all financial instruments initially recognised at cost, which will be the transaction price.

Subsequent revaluation or measurement of financial instruments at fair value not permitted. 

For lending arrangements, simplifications made in relation to the allocation of interest and transaction costs, and no requirement to calculate an effective interest rate. Also, no requirement to impute a market rate of interest in arrangements conducted at non-market rates.


Equity-settled share based payments

Recognised at the fair value of the goods or services when received. For arrangements with employees, fair value is measured at the grant date and the expense recognised over the vesting period.


Not recognised in the accounts until the shares are issued. 

Foreign exchange forward contract

Recognised on the balance sheet as a financial instrument at fair value and the associated debtor or creditor retranslated at the year-end rate. Hedge accounting can be applied in certain circumstances.


When a trading transaction is covered by a related or matching forward contract, requirement to use the rate specified in the contract. If not matched to a trading transaction the cost of the foreign exchange forward contract will be recognised as a financial asset, unless it is not material in which case it will be recognised immediately as an expense in profit or loss.


Deferred tax

Based on timing differences.

No deferred tax.

Defined benefit pension plans

Net interest on the net defined benefit asset or liability is recognised in the profit and loss account, and is calculated with reference to high quality corporate bonds ie, the same rate is applied to both the plan assets and liabilities.

Recognition of the surplus or deficit of the plan on the balance sheet not permitted. Agreed funding of deficit must, however, be recognised as a liability. Contributions payable to the plan accounted for as an expense.

Government grants

Government grants can be accounted for using either the performance model or the accruals model.

Requirement to use the accruals model.

To confirm whether an entity is eligible for the micro-entity regime visit Entitlement to the Micro-entities regime.

To find out more about FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime visit:

An overview of the UK’s financial reporting framework and the options that are available to different types of entity is available in the faculty’s factsheet The UK Financial Reporting Regime.


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