In our earlier post, we looked at the changes that FRS 105 and FRS 102 will have on our end of year reporting formats.

See:  New UK GAAP: FRS 102 and FRS 105 Reporting Changes

In this article, we will look at the differences in accounting treatment between the old FRSSE regime and FRS 105  or FRS 102 and what this will mean in your accounts.

The Difference in Accounting Treatment

The table below highlights the key differences between the old FRSSE and the new reporting standards. This is a very high-level snapshot to give you an idea of the changes. You will need to talk to your accountant to understand how these changes will impact your business.

 Old FRSSE (Now retired!) FRS 105 – MicroFRS 102 section 1A – Small
 Investments in sharesMeasured at cost less impairment or fair value. Changes recognised in SRGL.Measured at cost less depreciation and impairment.Recognise at fair value IF it can be measured reliably so the challenge is to establish a reliable measure of the share value at year-end.

Changes in fair value should be recognised in the P&L.

Property Plant and Equipment Fair value accounting or revaluation.Measured at cost less depreciation and impairment.

No fair values, present values or revaluations required or permitted.

Write back previous re-valuations of fixed assets.

Measured at cost less depreciation and impairment.


Fair value – changes in fair value should be recognised in the P&L.

Investment PropertyAnnual revaluation to market value with changes recognised in SRGLCost accounting with no fair values, present values or revaluations required or permitted.

Write back previous revaluations.

 Recognise at fair value.

Changes at fair value should be recognised in the P&L.

Deferred TaxBased on timing differencesNot recognised in the accountsTiming differences recognised in the balance sheet
R&D Costs Could be capitalisedR&D Costs cannot be capitalised, costs booked to P&LChange in the definition of software and development costs allows capitalisation of R&D costs.

Measure at cost or fair value

Basic Financial Instruments – non market value loans

(0% and Directors loans)


Valued at cost, no interest needs to be charged or disclosed.Valued at cost, no interest needs to be charged or disclosed.A commercial interest rate must be recognised in the accounts. This impacts interest charged / received in the P&L and the loan value in the balance sheet.


Loan must be accounted for at fair value. Discounted to account for the ‘cost’ of the interest not paid.

(In practice, most off-rate loans in a small company (intra-group loans and loans to directors) will have no terms attached and are considered repayable on demand. These are often presented as current assets/liabilities under FRS 102 at cost).


Borrowing costs Could be capitalisedBorrowing costs cannot be capitalised, costs booked to P&L Option to capitalise borrowing costs that are directly attributable to the loan.
Long term loansNo need to calculate market value of long-term loan arrangements
GoodwillMust have a finite life. 5 years assumed if no reliable estimate available.Must have a finite life. 10 years assumed if no reliable estimate available. Must have a finite life. 10 years assumed if no reliable estimate available.
Impairment of goodwillCan be reversed under certain circumstancesCannot be reversed Cannot be reversed
 Intangible Assets Must have a finite life. 5 years assumed if no reliable estimate available. Other than goodwill, intangible assets are not recognised
 Lease incentivesSpread over shorter of the lease term and the period until the next market rent reviewSpread over full lease termSpread over full lease term

Leases in existence at transition date – can stick with old accounting treatment.

 Foreign currency transactionsContracted rates, when relevant, MAY be used  to translate foreign currency transactionsContracted rates, when relevant, MUST be used  to translate foreign currency transactionsContracted rates, when relevant, MUST be used  to translate foreign currency transactions.

Unrealised gains or losses should be reflected in the P&L.

Defined benefit pension plansSurplus or deficit of the plan recognised in the balance sheetPension contributions accounted for as expense to P&L.

Surplus or deficit  of the plan is not recognised in the balance sheet

Agreed funding for a deficit must be recognised as a liability.

Holiday PayNo specific requirement to include a holiday pay accrualNot measuredRequires unpaid holiday to be accrued and overtaken holiday to be prepaid.

if the holiday pay is paid within 9 months of the year end, the accrual is an allowable tax deduction.

Employee numbersNot requiredMust be disclosedMust be disclosed
 Employee benefits Not required Not required

 What is Fair Value?

We’ve mentioned this a couple of times, but what is fair Value?

Fair value is a market valuation of an asset theat seeks to determine:

  • A quoted price for an identical asset in an active market
  • Price of a recent transaction for an identical asset provided there is no significant change to economic circumstances

Fair valuawould be carried out as at the reporting date.

Should I choose FRS 105 or FRS 102 Section 1A for my small business?

FRS 105 is a massively simplified regime:

  • Presents very little commercially sensitive data to companies house
  • Simplified balance sheet
  • Despite the simplicity of the new reporting regime, the actual amount of work that has to be done in the background to prepare your accounts will not change – so your accountant’s fees will probably not be reduced from previous years.

It’s hard to see why a micro company would not want to publish micro-entity accounts, having said that the rating agencies have not quite got to grips with FRS 105 micro company accounts just yet and some company owners have reported that their credit ratings have dropped which has impacted their ability to borrow. In that case, the company has to provide detailed management accounts to support the application.

FRS 102 – Section 1A is the simplified version of FRS 102. If you are a mico-entity you can still choose to file FRS 102 accounts. these provide a more detailed view. Why might you do that?

  • You might prefer to present a fuller view of your accounts.
  • You are a Community Interest Company. Although theoretically fine to produce CIC accounts under FRS 105, given the nature of a CIC and it being a community interest company, it is generally considered to be more appropriate to produce more detailed FRS 102 accounts.
  • You might want to fair value your assets which you cannot do under FRS 105
  • You might be looking for future investment or borrowing and FRS 102 accounts provide more meaningful information for investors/lenders to base their decision on.
  • Accounting fees may be higher as there is more due diligence to perform and disclosure requirements to comply with than in the FRSSE.

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