FRSSE & FRS 102 1A Comparison

If you are a ‘small company’ (as defined under UK Company Law) operating in the UK, you will be required to adopt the new accounting standard FRS 102 1A for periods commencing on or after 1 January 2016.

If you are a 'small company' (as defined under UK Company Law) operating in the UK, you will be required to adopt the new accounting standard FRS 102 1A for periods commencing on or after 1 January 2016.

Small Company Definition

According to UK Company Law, a small company is broadly one with (i) revenue of less than £10.2m, (ii) a balance sheet total of less than £5.1m and (iii) fewer than 50 employees. There are nuances and exclusions to this, which we will be happy to advise on

Financial Reporting Standards for Smaller Entities (FRSSE) will be withdrawn

Where applicable, the new FRS 102 1A regime will need to be applied retrospectively (as though the new rules had always applied).

This means restating:

  • the opening balance at the start of the first year in which FRS 102 is applied;
  • the profit and loss account for the comparative year; and
  • the opening balance sheet at the start of the comparative year (which is known as the transition date).

Some of the notable differences between the FRSSE and FRS 102 1A are below

  FRSSE FRS 102 1A
Financial Instruments Generally measured at cost with gains or losses on settlement recognised in profit and loss. Divides financial instruments 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 and loss.
Investments in Shares Measured at either cost or fair value. When fair value is used, changes are recognised in the Statement of Total Recognised Gains and Losses (STRGL) in most cases. Requires the use of fair value when it can be measured reliably (e.g. when the investee is listed or the fair value of shares can otherwise be reliably measured). Changes in fair value are recognised in profit and loss.
Investment Properties Requires revaluation to open market value each year with changes in market value going to a revaluation reserve. Depreciation is not permitted. In most cases requires revaluation each year but with changes recognised in profit and loss. In the absence of fair value, can be held at depreciated cost.
Software & Website Development Costs Classified as tangible fixed assets. Classified as intangible assets.
Acquisition of Trade & Net Assets of a Business An intangible asset purchased with a business is recognised separately from purchased goodwill if its value can be measured reliably (rare). An intangible asset purchased with a business is normally recognised as an asset because its fair value can generally be identified and measured with sufficient reliability.
Amortisation of Goodwill & Intangible Assets Must have a finite life and useful life shall not exceed five years when no reliable estimate can be made. Must have a finite life; in exceptional cases when no reliable estimate can be made, useful life shall not exceed ten years.
Lease Incentives Spread over the shorter of the lease term and the period ending on the date from which it is expected the prevailing market rental will be payable. Spread over the lease term.
Equity-Settled Share-Based Payments Requires disclosure of the principle terms and conditions but not recognition. Requires a charge to profit and loss based on grant date fair value.
Deferred Tax Based on timing differences with certain exceptions e.g. revaluations of property, plant and equipment (PPE) and investment properties. Based on timing differences but with fewer exceptions compared to FRSSE 2015.
Holiday Pay No requirement Companies must provide for the cost of any unused holiday entitlement earned by the year end.

For more information, contact:

Louise Morriss
Director & RI
+44 (0)20 7430 5892
lmorriss@fitzandlaw.com

Updated October 2016. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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