Section 1 – Scope – FRS102.com IE

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Section 1 – Overview

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Section 1 – Analysis Part 1

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Section 1 – Analysis Part 2

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Section 1 Detailed Guide

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Section 1: Scope

Section 1 deals with the scope of FRS 105 and from when the standard can be applied from.

What are the key points?

FRS 105 can only be applied by Companies and, limited liability partnerships that meet the requirements of the micro entities regime (MCR) as stated in Company Law (Sections 280D-280E of Companies Act 2014 in the Republic of Ireland and Section 384A of Companies Act 2006 in the United Kingdom).

If the company’s results are included in the parent’s consolidated financial statements FRS 105/MCR cannot be availed of.

Where consolidated financial statements are prepared, FRS 105/MCR cannot be availed of.

The Company has the choice to apply the micro entity regime, the company does not have to apply it.

Where the micro entity regime is applied the company must prepare the financial statements in accordance with FRS 105 ‘The Financial Reporting Standard Applicable to the Micro-entities Regime.

Company Law requirement for the micro companies/entities regime

Under Section 280D of Companies Act 2014 in the Republic of Ireland and under Section 384A of Companies Act 2006 in the UK, a company qualifies for the micro companies/entities regime if it fulfils at least two of the three qualifying conditions listed below (subject to note 1):

In relation to its first financial year; or
In relation to its current financial year and the preceding financial year; or
In relation to its current financial year and it qualified as a small/medium company in the preceding financial year; or
In relation to the preceding financial year and it qualified as a small/medium company in the preceding financial year.

	Micro Co United Kingdom	Micro Co Republic of Ireland
Turnover	≤ £632,000	≤ €700,000
Balance Sheet Total	≤ £316,000	≤ €350,000
Employees	≤10	≤10

Note 1: Exception even where the above thresholds are met:

Section 280D(3)(4) of Companies Act 2014 (for ROI companies) and section 384B of Companies Act 2006 (for UK companies) excludes the following companies from applying the MCR and hence FRS 105:

ROI only – a company falling within any provision of Schedule 5 of the Companies Act 2014 (e.g. Authorised investment firm, insurance intermediary of any other company carrying on of business by which is required to be authorised by the Central Bank); or
a company that is a credit institution or insurance undertaking; or
a MIFID/UCITS company; or
a company with securities regulated on a regulated market; or
UK Only – a public company; or
UK Only – An e-money issuer; or
ROI only -a holding company of a small group as defined in Section 280B of CA 2014 (i.e. meets two of the three T/O <= €12 million net/€14.4 million gross; total assets <= €6 million net/€7.2 million gross; <= 5o employees) even where the group meets the thresholds in Section 280B of CA 2014 where any of the entities in the group come within points 1, 2, 3 and 4 above (this only effects the holding company and not the other companies within the group (other than a company that comes within the remit of points 1-4 above)); or
UK Only – a holding company of a small group as defined in Section 383 of CA 2006 (i.e. meets two of the three T/O <= £10.2 million net/£12.2 million gross; total assets <= £5.1 million net/£6.1 million gross; <= 50 employees) even where the group meets the thresholds in Section 384A of CA 2006 where any of the entities in the group come within points 2,3 ,4, 5 and 6 above (this only effects the holding company and not the other companies within the group (other than a company that comes within the remit of points 2-6 above)); or
an investment undertaking; or
a financial holding undertaking; or
a holding company that prepares consolidated financial statements; or
a subsidiary that is included in the consolidated financial statements of a parent for that year; or
any company excluded from the small companies regime; or
a charity; or
a company that prepares financial statements under FRS 102/IFRS.

What do accountants need to do?

Review their client listing to assess which companies can apply FRS 105 and plan the practice schedule accordingly. When reviewing the list assess whether companies which have assets held at fair value/revaluation will meet the requirements of a micro company once these revaluations/fair values have been stripped out.

Advise clients of the fundamental changes required as soon as possible and meet with the clients to discuss FRS 105 so that the client can determine if they would favour the use of FRS 105 as opposed to FRS 102.

Accountants that have prepared financial statements in accordance with the FRSSE ‘effective 1 January 2015’, FRS 102 or old GAAP if still applicable for the previous period end will need to assess the transition adjustments required on transition to FRS 105 to derecognise certain assets and liabilities due to the simplistic nature of this standard.

Advices clients of the Issues to consider when deciding whether to apply FRS 105 or not assuming the company is eligible to utilise FRS 105 some of those being:

If the company increases in size the company will then no longer meet the requirements of the micro companies regime and as a result will have to go through the pain of transitioning to a new accounting standard all over again;
Given the simplicity of the financial statements, for an external party reviewing these financial statements, they may not provide enough detail e.g. banks, potential customers.
The company’s balance sheet only shows cost and does not allow entities to show fair values.
Does the company wish to capitalise development costs, if so FRS 105 should not be utilised (some companies do)?
If the results are included in the parent company consolidated financial statements, FRS 105 financial statements cannot be prepared.
The balance sheet of the company may be significantly impacted as a result of a revaluation policy/fair value policy not being permitted. Possibility it could impact banking covenants.
What are the growth prospects for the company? If the company expects to grow significantly then it may be better to apply FRS 102 from the outset.

What do companies need to do?

Arrange for training of staff on FRS 105

Assess what reporting framework will be applicable for the company and what impact this may have on the profit for the entity going forward.

Assess whether FRS 105 suits the company’s needs based on the long term strategy of the company.

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