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Section 3: Financial Statement Presentation
Section 3 details what is required to be included in a set of financial statements prepared under FRS 105.
Presumed true and fair value
Extract from FRS 105 – Section 3.2
3.2 The financial statements of a micro-entity that comply with this FRS are presumed in law to give a true and fair view of the financial position and profit or loss of the micro- entity in accordance with the micro-entities regime.
OmniPro comment
Once a company meets the requirements of this Section and the disclosures requirement of the Companies Act for companies applying the Small Companies Regime as defined in Section 280D-280E of CA 2014 in the Republic of Ireland and Section 384A in Companies Act 2006 in the UK, then the financial statements are presumed to show a true and fair view. No additional disclosures are required. This is also stated in Section 290 of CA 2014 in ROI.
FRS 105 disclosures mirror the disclosures of Company Law. See Section 6 for notes required to be disclosed in the financial statements.
Going Concern
Extract from FRS 105 – Section 3.3
3.3 When preparing financial statements using this FRS, the management of a micro-entity shall make an assessment of whether the going concern basis of accounting is appropriate. The going concern basis of accounting is appropriate unless management either intends to liquidate the micro-entity or to cease trading, or has no realistic alternative but to do so. In assessing whether the going concern basis of accounting is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, 12 months from the date when the financial statements are authorised for issue.
OmniPro comment
When adopting the going concern concept it is presumed that the company will continue in business for at least 12 months from the date of the approval of the financial statements.
Note this is the minimum period, so for example if the directors knew at the time of signing the financial statements that the company would cease 15 months from that date then the accounts should not be prepared on the going concern basis. Further discussion on accounting for subsequent events has been discussed in Section 21 of this manual. Refer to Section 21 for further details. See example below of a statement included in the basis of preparation paragraph with regard to going concern.
Example 1: Going concern disclosure
Basis of preparation
The Financial Statements are prepared on the going concern basis[1], under the historical cost convention and comply with the financial reporting standards of the Financial Reporting Council [and promulgated by Chartered Accountants Ireland] including ‘The Financial Reporting Standard applicable to the Micro-Entities Regime – ‘FRS 105’ and the Companies Act 2014 (for ROI entities) or the Companies Act 2006 (for UK Entities).
[1] Para 12, Sch 3B, CA 2014 – A company is deemed to be carrying on business as going concern. Where the entity has made a decision to wind up the entity that is required to be disclosed, there is no choice.
The below illustrates some of the requirements where an entity does not prepare financial statements on the going concern basis (these disclosures are not specifically required in the UK).
Example 2: Other than going concern disclosure
Basis of preparation
The company intends to cease operations by XXXX and to transfer all its operations to XXXXX.
The financial statements have not been prepared on a going concern basis. Where appropriate, the carrying values of assets have been restated to their recoverable amounts, and liabilities have been restated to their estimated settlement amounts and classified as current. Provision has been made for all closure costs arising from the decision to cease trading.
Preparation of financial statements on a break up basis involves the company making estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually re-evaluated.
Frequency of reporting
Extract from FRS 105 – Section 3.4
3.4 A micro-entity shall present a complete set of financial statements (including comparative information as set out in paragraph 3.7) at the end of each reporting period.
OmniPro comment
Section 3.4 does not specifically state how long a reporting period must be. However Company Law makes it clear that the financial statements should be prepared on annual basis with a small few exceptions.
In Ireland and the UK a company must submit financial statements that is prepared up to a date not later than 9 months from the annual return date. Therefore the maximum length for any financial statements is 18 months depending on the annual return date of the entity. The exceptions with regard to preparing financial statements for a length in excess of or less than a year under Section 288 of CA 2014 (for ROI entities) are:
- A period which is plus or minus 7 days of a year;
- The company has not changed its year end date in the previous 5 years
- It changes its period end to allow it to coincide with the year end of its parent company which is registered in any EEA undertaking or is being wound up.
An example of such a disclosure for the first set of financial statements is detailed below.
Example 3: Frequency of reporting disclosure
‘The financial statements presented for the current period reflect the results for a 15 month period. The period end was extended in order to take advantage of the cost savings from preparing two sets of financial statements up to its first annual return date to which financial statements needed to be enclosed. It was also extended so as to give readers of the financial statements a full assessment of performance as the company did not begin trading until 6 months into the period.’
Consistency of presentation
Extract from FRS 105 – Section 3.5 – 3.6
3.5 A micro-entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
(a) it is apparent, following a significant change in the nature of the micro-entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in Section 8 Accounting Policies, Estimates and Errors; or
(b) this FRS requires a change in presentation.
3.6 When the presentation or classification of items in the financial statements is changed, a micro-entity shall reclassify comparative amounts unless the reclassification is impracticable.
OmniPro comment
The reclassification of comparative figures has been discussed in Section 8 of this manual. In essence the prior year comparative will have to be restated and the word ‘restated’ should be shown over the prior year figures and a note included in the financial statements detailing the basis for the reclassification, the details of the before and after amounts so that the reader of the financial statements can easily reconcile the prior year financial statements to the restated current year financial statements. This is also required by Company Law
Example 4: Sample of a disclosure note to be included in the notes detailing a reclassification adjustment
| Prior year adjustment | |||||
| The directors thought it appropriate to reclassify certain prior period expenses to improve comparability with the current period these expenses more appropriately reflect cost of sales as they are directly related to the cost of production. The effects of these changes on the profit and loss account for the year ended 31 December 2014 are as follows |
|||||
| Turnover | Cost of Sales | Administrative Expenses | Other operating income | Operating Profit | |
| € | € | € | € | € | |
| As previously reported | 2,404,972 | (841,167) | (157,616) | 25,067 | 1,431,256 |
| Reclassification of prior year expenses | (289,658) | (13,614,697) | 14,155032 | (250,677) | |
| As restated | 2,115,314 | (14,455,864) | 13,977,416 | (225,610) | 1,431,256 |
Comparative information
Extract from FRS 105 – Section 3.7
3.7 Except when this FRS permits or requires otherwise, a micro-entity shall present comparative information in respect of the preceding period for all amounts presented in the current period’s financial statements.
OmniPro comment
Company Law requires disclosures for all balances for both years. The only exemption may be with disclosing contingent liabilities and non-adjusting post balance sheet events which do not exist at the end of the current period. Other instances where comparatives may not be required is where the information is no longer relevant e.g. a prior year adjustment is only required to be disclosed in the financial statement when the adjustment occurred.
Where the current period presentation is inconsistent with the prior year, then the comparatives will have to be restated and details disclosed as explained in the section above.
Materiality
Extract from FRS 105 – Section 3.8
3.8 A micro-entity need not provide a specific disclosure required by this FRS if the information is not material. This exemption does not apply to the disclosures required by paragraph 6.2(a).
OmniPro comment
Appendix I of FRS 105 defines items as material where ‘omissions or misstatements of items that are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in surrounding circumstances. The size and nature of the item, or a combination of both, could be the determining factor.’
Materiality should be determined based on the perspective of the reader of the financial statements and it should consider both qualitative and quantitative measures.
Specific disclosures are not required where they are deemed immaterial.
Complete set of financial statements
Extract from FRS 105 – Section 3.9 – 3.12
3.9 A complete set of financial statements of a micro-entity shall include the following:
(a) a statement of financial position as at the reporting date with notes included at the foot of the statement; and
(b) an income statement for the reporting period.
3.10 Because paragraph 3.7 requires comparative amounts in respect of the previous period for all amounts presented in the financial statements, a complete set of financial statements means that a micro-entity shall present, as a minimum, two of each of the required financial statements and related notes.
3.11 In a complete set of financial statements, a micro-entity shall present each financial statement with equal prominence.
3.12 A micro-entity may use titles for the financial statements other than those used in this FRS as long as they are not misleading.
OmniPro comment
A complete set of financial statements comprise:
- Balance sheet;
- Profit and loss account;
- Notes to the accounts in line with the requirements of the Companies Act with regard to entitles preparing accounts under the Micro Companies Regime. Notes these are required to be included on the foot of the balance sheet.
- Comparatives required
See Section 4 and 5 for the layout of the financial statements. See Section 6 for the disclosures to be included in the financial statements.
Section 3.12 makes it clear that entities can name the primary statements under the companies Act or IFRS language as long as they are not misleading.
Income statement= profit and loss account
Statement of financial position = balance sheet
An entity cannot bold one year’s results over another, both years must be shown consistently.
Identification of the financial statements
Extract from FRS 105 – Section 3.13
3.13 A micro-entity shall clearly identify each of the financial statements and the notes. In addition, a micro-entity shall display the following information prominently, and repeat it when necessary for an understanding of the information presented:
(a) the name of the reporting entity and any change in its name since the end of the preceding reporting period;
(b) the date of the end of the reporting period and the period covered by the financial statements;
(c) the presentation currency; and
(d) the level of rounding, if any, used in presenting amounts in the financial statements.
OmniPro comment
In order to meet the requirements of Section 3.13, the name of the entity and the period end date should be included on the top of every page of the financial statements and also on the cover page of the financial statements. Where a change of name has occurred this should also be included on the top of every page e.g. ‘XXXX Limited (Formerly XXX Limited)’ and on the cover page of the financial statements.
The basis of preparation note should disclose the currency in which the financial statements are presented and the currency they are presented in. See example below:
Example 5: Basis of Preparation Policy
The financial statements are prepared in Euro which is the functional currency of the company.
Where the current and comparative year is not of equal length a disclosure should be included similar to what was illustrated above. It should also be detailed on the face of the profit and loss account.
See below an illustration of the requirements of Section 3.13 above. Section 291-295 of Company Law also requires disclosure of the legal form of the company, the registered office, the registered number, the principal place of business,
Example 6: Basis of Preparation Policy
The company’s’ registered office is Construction Place, Builders Lane, Dunblock, Any City. The company is a limited liability company incorporated in the Republic of Ireland and its company registration number is XXX.
Statement of compliance with the micro-entity provisions
Extract from FRS 105 – Section 3.14
3.14 In accordance with section 414(3) of the Act, financial statements prepared in accordance with the micro-entity provisions shall on the statement of financial position, in a prominent position above the signature, contain a statement that the financial statements are prepared in accordance with the micro-entity provisions.
OmniPro comment
See below an example disclosure for insertion in the financial statements. Note as the notes are required to be included on the foot of the balance sheet this statement will be included under the notes.
Example 7: Sample statement of compliance with the micro entity provisions
These financial statements have been prepared in accordance with the provisions applicable to companies subject to the micro companies/entities regime and in accordance with Financial Reporting Statement 105 ‘The Financial Statement Reporting Standard applicable to Micro Entities Regime’. The financial statements were approved by the Board of Directors on (insert date) and authorised for issue on (insert date). They were signed on its behalf by
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