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Small entity reporting – simplifications

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Published: 21 Aug 2019 Update History

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In this guide, the Financial Reporting Faculty sets out the financial reporting simplifications available to companies that are entitled to apply the Small Companies Regime.

Small companies, as defined by law, can choose to prepare and file simpler, less detailed accounts than those required for large and medium-sized companies.

Section 1A Small Entities of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland sets out the simpler presentation and disclosure requirements of the small companies regime.

There are certain simplifications that are available to all entities entitled to the small companies regime, irrespective of whether they choose to apply Section 1A of FRS 102.

To find out whether an entity is entitled to the small companies regime visit Entitlement to the small companies regime.

Overview of simplifications available for all small entities

Topic

Exemption/simplification

Comments

Strategic report


A small company is not required to prepare a strategic report.
(CA 2006 s414B)

This exemption is available also to a company that would be entitled to the small companies regime save for being a member of an ineligible group.

Directors’ report

A small company is exempt from presenting certain information in the directors’ report, including amounts that the directors recommend be paid by way of dividend.
(CA 2006 s415-418, Small Companies Regulations Sch 5)

As above, this exemption is available also to a company that would be entitled to the small companies regime save for being a member of an ineligible group.

Find out more

Group accounts

A parent company that is entitled to use the small companies regime is generally exempt from the requirement to prepare group accounts. 

Similar criteria apply to other types of entity adopting FRS 102.
(CA 2006 s399(2A), FRS 102.1A.21)

This exemption is also available to a company that would be entitled to the small companies regime but for being a public company.

More information on the restrictions on the exemption can be found in the faculty’s factsheet UK Regulation for Company Accounts.

If a parent entity chooses to prepare group accounts, it must apply the requirements of FRS 102 and any related regulations. When an entity acquires a trade and net assets of a business in its individual accounts, the requirements of Section 19 Business Combinations will apply. 

Cash flow statement

A small entity is not required to prepare a statement of cash flows and the accompanying notes eg, an analysis of changes in net debt. (FRS 102.1A.7 and 7.1B)

Filing of accounts

A small company has the option not to file a copy of the profit and loss account and/or the directors’ report with the Registrar of Companies.(CA 2006 s444)

Additional statements are required if the company chooses not to file a profit and loss account and/or directors’ report, and if it chooses to prepare and file abridged accounts (see further simplifications table). 

For more information see our Small company filing FAQs.

Directors’ loans

Small entities have the option to measure a loan from a director, or a director’s group of close family members, initially at transaction price, provided that group contains at least one shareholder in the entity.(FRS 102.11.13A)

 

This is the only simplification to the recognition and measurement requirements of FRS 102 available to small entities. 

 

Overview of simplifications available to entities applying Section 1A of FRS 102

FRS 102 includes a section (Section 1A) for companies and other entities entitled and choosing to apply the small entities regime. It sets out the different presentation and disclosure requirements for such entities. The general recognition and measurement requirements are the same as for larger entities applying FRS 102.

Topic

Exemption/simplification

Comments

Abridged accounts

A small entity applying Section 1A of FRS 102 has the option to prepare an abridged balance sheet and/or abridged profit or loss account (unless prohibited by other regulations).(FRS 102.1AA.2 and 1AB.2)

An abridged balance sheet and/or profit and loss account has fewer line items than is usually required. The option is available for the individual accounts of a small entity only when it is appropriate to the circumstances of the business.

All members (or equivalent, depending on the type of entity) must consent to the drawing up of the abridged balance sheet and or/profit and loss account. 

The UK Government intend to introduce legislation to remove the option to prepare abridged accounts – see Companies House reform.

Other primary statements

A small entity applying Section 1A of FRS 102 is not required to prepare:

  • a statement of comprehensive income; and/or
  • a statement of changes in equity or a statement of income and retained earnings.

(FRS 102.1A.7, 4.1A and 6.1A)

Although these statements are not required, entities are encouraged to prepare them in certain circumstances.

Fewer mandated disclosures

Section 1A’s disclosure requirements reflect those mandated by company law. These are fewer than the disclosures required by ‘full’ FRS 102. (FRS 102.1A.17)

Small entity accounts must include sufficient information for the accounts to give a true and fair view. In addition there are a number of disclosures which are encouraged.