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  • Writer's pictureRayanne Armand

FRS 102 1A vs FRS 105

FRS 102 1A is for small entities.

Who can apply FRS 102 1A?

  • companies that are not excluded from the small companies regime;

  • LLPs that are not excluded from the small LLPs regime; and

  • other unincorporated entities that qualify as small.

An entity will qualify as small if:

  • two or more of the thresholds are met in the current financial year; and

  • two or more of the thresholds were met in the previous financial year (if the company is not newly incorporated).

Small company thresholds

Annual turnover £10.2m

Gross assets £5.1m

Average number of employees 50 or less

FRS 105 is for micro-entities.

It’s a much simpler standard than FRS 102 (for example, there are no accounting choices in FRS 105) and entities are only required to prepare an income statement and balance sheet, alongside limited disclosures.

An entity is a micro-entity if it meets at least two of the three following criteria:

  • Turnover of £632,000 or less (adjusted for periods longer or shorter than 12 months)

  • A balance sheet of £316,000 or less

  • 10 employees or fewer

As a result, only the smallest of entities can qualify for the micro-entities regime.

How is FRS 105 different to FRS 102?

FRS 105 is based on FRS 102 but has been adapted to reflect the simpler nature and smaller size of micro-entities and their legal requirements.

Differences include:

  • no requirements to account for deferred tax and equity-settled share-based payments;

  • simplified accounting for defined benefit pension schemes; and’

  • mandatory statutory disclosure requirements restricted to a maximum of three.


  • assets cannot be revalued (ie PPE);

  • investment properties and financial instruments cannot be measured at fair value;

  • development costs and borrowing costs cannot be capitalised;

  • the accruals model must be used to account for grants; and

  • are not permitted to account for deferred tax.

Given the simplified nature of these statutory accounts, you will need to consider whether the minimum disclosure requirements meet the needs of the users. If not then you may decide to present further disclosures in addition to the statutory minimum.

Which is better – FRS 105 or FRS 102 1A?

In short, there is no “better” reporting standard for a micro-entity.

Instead, the choice of whether to use FRS 105 or FRS 102 1A will depend on several factors, including, but not limited to, the following:

Whether detailed notes to financial statements are required

Under FRS 105, far fewer disclosures are required in the financial statements than under FRS 102 1A.

Broadly, under FRS 105, the only disclosures that need be made are in relation to:

  • Advances, credit and guarantees granted to directors

  • Financial commitments, guarantees and contingencies

  • Off-balance sheet arrangements

  • The average number of employees

If a micro-entity reporting under FRS 105 wishes, additional disclosures can be made, but they are not necessary.

As a result, if a micro-entity would benefit from having additional disclosures in its accounts, perhaps due to unusual or complex accounting treatments that could be better understood through the presence of a disclosure note, FRS 102 1A may be a better choice of reporting standard.

Whether an entity relies on external financing

Accounts prepared under FRS 105 may not provide sufficient information for certain lenders.

In such cases, it’s not uncommon for the lender to request additional information to support any application for finance.

As such, if an entity is likely to apply for financing from a third-party, it may be easier to prepare financial statements under FRS 102 1A, which requires fuller disclosures.

Whether an entity is expected to remain “micro”

As FRS 105 is only available to micro-entities, it may be easier for an entity to start with FRS 102 1A if it is only likely to fall within the definition of a micro-entity for a short time.

Whether simplicity is a priority

FRS 105 is far less complex than FRS 102 1A. For example, deferred tax is not even accounted for under FRS 105, and there are also simpler accounting treatments for items such as financial instruments.

If an entity doesn’t need to make use of more complex accounting treatments, such as a revaluation reserve, then it can save a lot of difficulty by keeping things simple and opting for FRS 105.

Ultimately, the decision of whether an entity should adopt FRS 102 1A or FRS 105 is best decided on a case by case basis, taking into consideration both the current requirements of the entity as well as future growth and lending prospects.

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