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Section 1: Scope
1. Scope
1.1 Section 1 provides details on the applicability of FRS 105. It also provides the date from which FRS 105 becomes effective.
Extract from FRS 105: Section 1.1-1.5
1.1 This FRS applies to the financial statements of a micro-entity. The financial statements of a micro-entity prepared in accordance with this FRS that include the micro-entity minimum accounting items are presumed in law to show a true and fair view of the micro-entity’s financial position and profit or loss in accordance with the micro-entities regime.
1.2 References to a micro-entity in this FRS are to a micro-entity that chooses to apply the micro-entities regime.
1.3 This FRS permits, but does not require, a micro-entity to include information additional to the micro-entity minimum accounting items in its financial statements. If a micro- entity includes additional information it shall have regard to any requirement of Section 1A Small Entities of FRS 102 that relates to that information.
1.4 A micro-entity applying the micro-entities regime shall apply this FRS for accounting periods beginning on or after 1 January 2016. Early application is permitted.
1.4A A micro-entity applying the micro-entities regime in the Republic of Ireland shall apply this FRS for accounting periods beginning on or after 1 January 2017. Early application is permitted provided the Companies (Accounting) Act 2017 is applied from the same date.
1.5 In May 2016 amendments were made to this FRS to extend its scope to include limited liability partnerships (LLPs) and qualifying partnerships following a change in UK legislation. An LLP or a qualifying partnership which qualifies as a micro-entity in the UK and is applying the micro-entities regime shall apply this FRS for accounting periods beginning on or after 1 January 2016. Early application by a micro-entity that is an LLP or a qualifying partnership is:
(a) permitted for accounting periods beginning on or after 1 January 2015 provided that The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575) are applied from the same date; and
(b) required if the LLP or qualifying partnership applies The Limited Liability Partnerships, Partnerships and Groups (Accounts and Audit) Regulations 2016 (SI 2016/575) to a reporting period beginning before 1 January 2016.
1.6 In December 2017 amendments were made to this FRS as a result of the triennial review 2017.
(a) A micro-entity in the UK shall apply the amendments to this FRS as set out in the Triennial review 2017 amendments for accounting periods beginning on or after 1 January 2019, except for the amendments to paragraph 3.13A and Section 6 Notes to the Financial Statements (including its appendices) which shall apply for accounting periods beginning on or after 1 January 2017[1]. Early application is permitted provided that all the amendments to this FRS are applied at the same time.
(b) A micro-entity in the Republic of Ireland shall apply the amendments to this FRS that incorporate the micro-entities regime in the Republic of Ireland in accordance with paragraph 1.4A, and shall apply the other amendments set out in the Triennial review 2017 amendments for accounting periods beginning on or after 1 January 2019. Early application of the other amendments is permitted provided that all of these other amendments are applied at the same time.
1.2 OmniPro comment
1.2.1. Overview
Sections 1.1 to 1.6 of FRS 105 provides details on the applicability of FRS 105. It also provides the date from which FRS 105 becomes effective.
1.2.2 What is the earliest date that FRS 105 be applied from?
FRS 105 can be applied by micro entities for all periods beginning on or after 1 January 2016. For periods beginning before that date FRSSE effective 1 January 2015 can be applied or alternatively FRS 102. An entity can early adopt FRS 105 before 1 January 2016 is also permitted but not for periods beginning before 1 January 2015.
1.2.3 What form of entities can apply FRS 105
FRS 105 can only be applied in the following circumstances:
- The entity is a company established under Company Law; and
- It is a limited liability partnership or qualifying partnership (UK only).
- It qualifies as a micro entity as it meets the requirements to prepare financial statements under the micro companies regime under Company Law (the micro companies regime in the UK is Section 384A of Companies Act 2006 and in the Republic of Ireland is contained in Sections 280D-280E of Companies Act 2014) – See below for further detail; and
- It is not a charity (for UK entities only).
1.2.4 Optionality in applying FRS 105 and the micro companies regime
A micro entity is not required to apply FRS 105, it can apply FRS 102 in full or FRS 102-Section 1A or IFRS if it so wishes.
1.2.5 Overview of the requirements of FRS 105 where an entity elects into the framework
A micro entity that prepares accounts under FRS 105 must meet the disclosure requirements stated in Company Law. The entity can provide further disclosures if it wishes but if it does, that entity must follow the requirements of Section 1A of FRS 102. See Sections 4 to 6 of this manual for further details on the financial statement disclosure requirements under FRS 105.
A partnership meeting the definition of a qualifying partnership as set out in the Partnerships (Accounts) Regulations 2008 (SI 2008/569) in the UK can also avail of the micro entities regime.
1.2.6 What entities can apply the micro companies regime and FRS 105 in the United Kingdom?
Under Section 384A of Companies Act 2006, a company qualifies for the micro 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 micro company in the preceding financial year; or
- In relation to the preceding financial year and it qualified as a micro company in the preceding financial year
| Micro Co | |
| Turnover | ≤ £632,000 |
| Balance Sheet Total | ≤ £316,000 |
| Employees | ≤10 |
Note 1: Exception even where the above thresholds are met:
Section 384B of Companies Act 2006 excludes the following companies from applying the MER and hence FRS 105:
1. an authorised insurance company; or
2. an insurance undertaking; or
3. an investment undertaking; or
4. a credit institution; or
5. a banking company; or
6. an e-money issuer; or
7. a MiFID investment firm; or
8. a UCITS management company; or
9. an investment undertaking; or
10. an entity that carries on insurance market activity, or
11. a public company (traded company); or
12. a company with securities regulated on a regulated market; or
13. an investment undertaking See definition of such an entity at INSET LINK; or
14. a financial holding undertaking See definition of such an entity at INSET LINK; or
15. 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 1 to 14 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 1-14 above)); or
16. a holding company that prepares consolidated financial statements; or
17. a subsidiary that is included in the consolidated financial statements of a parent for that year; or
18. any company excluded from the small companies regime; or
19. a charity; or
20. a company that prepares financial statements under FRS 102/IFRS.
1.2.7 What entities can apply the micro companies regime and FRS 105 in the Republic of Ireland Company Law requirement for the micro companies regime – Republic of Ireland
Under Section 280D of Companies Act 2014, a company qualifies for the micro companies 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 | |
| Turnover | ≤ €700,000 |
| Balance Sheet Total | ≤ €350,000 |
| Employees | ≤10 |
Note 1: Exception even where the above thresholds are met:
Section 280D(3)(4) of Companies Act 2014 excludes the following companies from applying the MCR and hence FRS 105:
1. a company falling within any provision of Schedule 5 of the Act (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
2. a company that is a credit institution or insurance undertaking; or
3. a company with securities regulated on a regulated market; or
4. 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; <= 50 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 and 3 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 1-3 above)); or
5. an investment undertaking – See definition of such an entity at INSET LINK; or
6. a financial holding undertaking – See definition of such an entity at INSET LINK; or
7. a holding company that prepares consolidated financial statements; or
8. a subsidiary that is included in the consolidated financial statements of a parent for that year; or
9. any company excluded from the small companies regime; or
10. a company that prepares financial statements under FRS 102/IFRS.
1.2.8 What should entities consider when deciding whether to apply FRS 105 or not?
Issues to consider when deciding whether to apply FRS 105 or not assuming the company is eligible to utilise FRS 105:
- 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, etc.
- 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.
[1] These reflect legal requirements that are applicable in the UK for accounting periods beginning on or after 1 January 2016.
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