FRS 105 or FRS 102 (section 1a)

What are you using?

Didn't find your answer?

I'd be interested to hear whether people are using FRS 105 of FRS 102 (s1A) for very small businesses that are not expected to exceed the micro entity threshold.   I can see the advantage of simplicity with FRS 105 - but I think the inflexible formats are poor eg: accruals shown outside current liabilities.  

I'd just like to get a sense of what people are doing.

Replies (30)

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By Matrix
19th Jun 2017 15:44

I have swapped to FRS105 for all clients within the limit so far. I had to explain a few things to clients on the changes and the new format and had to reverse deferred tax though. The main reason is because corporation tax is disclosed in the BS notes under FRS102.

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Replying to Matrix:
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By thomas34
20th Jun 2017 07:17

Matrix wrote:

I have swapped to FRS105 for all clients within the limit so far. I had to explain a few things to clients on the changes and the new format and had to reverse deferred tax though. The main reason is because corporation tax is disclosed in the BS notes under FRS102.


Glad you raised the point about the corporation tax disclosure. Certainly my software (VT) separates CT as a separate line item from "other taxes and social security".

However I was advised by an eminent lecturer on the subject that the only disclosure required was "tax and social security" which would include a mix of CT, VAT, PAYE etc.

This aspect of FRS 102/105 will be central to my decision on the subject so the views of any cleverer brains than mine would be welcomed.

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Replying to thomas34:
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By Matrix
20th Jun 2017 07:43

I have now actually got to the same place as you. VT said that the corporation tax disclosure was required. ICAEW technical support said that one number is required for the taxes as you mention. So I may just move the corporation tax creditor within VT so it is not on a separate line.

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By Wanderer
19th Jun 2017 15:59

FRS 105 when (almost) ever possible.

When you include the 'encouraged' (approximates to mandatory) disclosure FRS102 1A accounts often effectively disclose profitability, directors' rem & dividends.

Most clients (who are within the limits) go for minimum disclosure FRS105 accounts when you explain this.

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Caroline
By accountantccole
19th Jun 2017 16:46

FRS 105 where we can. Got a few who are larger or have opted to go for the FRS 102 1a version as they are expecting to grow in the near future.

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Danny Kent
By Viciuno
19th Jun 2017 20:18

It appears that we are the exception here but we have actually opted to do all of our clients accounts as FRS102 1A.

None of of our clients will be effected with treatment of revaluations etc so apart from the disclosure requirements there was little to separate the two.

We eventually went for the FRS102 1A as ultimately if anyone has any need for the accounts (banks or other creditors) they will want more detailed accounts than the 105's - which would ultimately cause us more work in the long run. If we prepare all accounts using the same standards we will all become more proficient at doing each set of accounts in the office. Also helps that the S1A set of accounts actually partly justify our fee (the 105 sets are so bare a lot of clients would probably question what we are doing! - well I would in their position)

Should probably mention though that I was in no position to influence this decision and these were the reasons that I was given - if there was a more substantial reason I was not made aware of this!

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Teignmouth
By Paul Scholes
20th Jun 2017 08:54

I think one deciding factor is whether the client is able to access regular internal accounts or not.

Cloud accounting clients have access to monthly/quarterly detailed accounts and so the year end accounts are irrelevant, they are like a 5th VAT return, whereas the only accounts two of my clients see are the year end ones and so are more important.

Having said that however, using Iris, and now Taxfiler, I tack on a detailed balance sheet at the back of the 105 accounts to explain in more detail the summary figures on the stat balance.

With regard to doing more detailed accounts for banks & creditors I've been doing ME accounts for 3 years now and none of my clients have had problems with mortgage applications.

The same thing was said when they did away with the audit requirement for small companies in the early 90s. My view is it's the government and stat bodies that sets the law for accounts disclosure and lenders need to keep up and if they don't want the business there's another lender out there that will.

Again, if there is a problem just send them a detailed balance sheet and it's OK to laugh if they tell you they must know the deferred tax liability or see accounting policies!

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By David_Lewis
20th Jun 2017 11:58

Thanks for the replies. It does seem to me that businesses that need trade credit would need to think carefully. The lack of detail in the balance sheet, means that you can't even see what's in the bank -the liquidity of the assets can't be assessed.

The company I'm looking at has no need for any credit and there is a preference to keep disclosures on the public record to a minimum -so I think FRS105 -is the answer. Having said that as someone who was (in the dim & distant past) a technical partner I do think the FRS 105 formatting is garbage.

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Replying to David_Lewis:
Teignmouth
By Paul Scholes
20th Jun 2017 16:24

If, like me, you've grown up believing that our art is in creating a XX page set of accounts once a year, that comply with all the accounting standards and GAAP, then I understand why the concept of an irrelevant page or two being the norm, makes you feel like you've been wasting your time.

On the other side of the coin however, after 40 years of changes in standards and company law, and still they can't get it right, plus, let's be honest, we have always valued the art many times more than any client, I see this as a breath of reality finally hitting, freeing up my time to do more valuable and interesting stuff.

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By arthvirg230
21st Jun 2017 10:20

FRS102 (1a) all the way - all the client receives at the end of the day for their fee is the set of accounts. Better to look like a set of accounts than a couple of sheets of scrap paper!
What cockwomble even designed these layouts? They are just complete nonsense!

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Replying to arthvirg230:
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By RICHARDBIBBY
21st Jun 2017 10:54

I agree. FRS102(1a) was the easiest way to go to provide a consistent set of Accounts to our clients. Disclosures are pretty much the same as before. At an Accounts update lecture I attended the Lecturer was similarly scathing of the simplified Accounts that are a dogs dinner.

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Replying to arthvirg230:
Teignmouth
By Paul Scholes
21st Jun 2017 12:20

If all the client gets from you is a set of accounts at the end of the year then, yes, the 105 simplification is a bit of a worry, because, unless your client takes a particular interest in accounting policies and deferred tax, you are the only one with a vested interest in bulking out the pages.

Such has been the case with all compliance work over the past few decades, and it continues.

The same issues arose in the early 90s when firm's were forced to plan for a huge reduction in compliance work and fees when small company audits went. I seem to remember my firm going from over 60 audits to perhaps 6-7 in a matter of a couple of years.

Many firms were up in arms over the "complete nonsense" of doing away with audits and many convinced their clients that having an audit was still worthwhile and of benefit to them and I even heard that some delayed telling clients in an attempt to spread the "loss".

Like audits or even the original small company accounting exemptions, you can see this latest change as either a threat or an opportunity, enabling you to start doing more interesting or valuable stuff.

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By KELVINSMITH
21st Jun 2017 12:48

I also use VT and in their Final Accounts software the option to use FRS 102 automatically includes FRS105, so in the iXBRL file the balance sheet only shows all liabilities due in one year as just one amount. Or am I missing something?

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Morph
By kevinringer
21st Jun 2017 13:20

I've decided 100% 102 1A as have some colleagues but others have decided 105.

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By cfield
21st Jun 2017 15:08

Always FRS105 unless there are revalued properties, development costs or high deferred tax balances. Yes, the layout is a nonsense, but if you send the client a detailed set of management accounts at the same time, they can see how much work has gone into them and how much they are slimmed down for the public record.

The name of the game now is advisory work, such as tax planning, and we should all be spending a lot more time on that. Compliance is dead in the water as a fee earner, or soon will be.

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Replying to cfield:
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By arthvirg230
21st Jun 2017 16:23

but why send management accounts? total waste of time - just send 102 accounts and its the same thing?

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Replying to arthvirg230:
By cfield
21st Jun 2017 17:01

Rubbish. There are certain disclosures you need to do with FRS 102 (deferred tax for one) which you can avoid with FRS 105. The management accounts are there already if you've done a proper job and can be displayed in a trice. At least the client can see where the figures have come from.

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Replying to arthvirg230:
Teignmouth
By Paul Scholes
22nd Jun 2017 12:32

In my case I just get the clients to login to their cloud accounts to look at P&L and balance sheet, explain the stuff they may not understand and ask if they are OK with them. If/when they are I just export them to my software to produce the ME accounts for them to approve, without further explanation.

Many accountants forget that accounts are there to record how the business is doing and to help the client run the business.

As more and more businesses are keeping accurate and up to date books, the extract that goes to Companies House and HMRC once a year is of increasing insignificance (not sure if you can have increasing insignificance, but hopefully you get my drift.)

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Replying to Paul Scholes:
Glenn Martin
By Glenn Martin
22nd Jun 2017 14:47

I totally agree as I have a more business background (as opposed to heavy tax client base) most of my work is done during the year using various tools to work with my clients so they understand there numbers better.

Stat accounts have limited interest to the client, FRS and accounts disclosure is of even less interest to them (and me) Its something we just have to do at the year end.

The OP was what is your choice between FRS 102 & 105, I prefer the FRS102 route as have never been a fan of the ME accounts.

I have explained the options to clients who are not interested or dont understand, so will be filing FRS102 unless someone asks otherwise.

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Replying to cfield:
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By ShayaG
22nd Jun 2017 12:42

I actually think MTD means compliance is a growth area, but yes, there never has, and never will be, much value to OMBs in their year end accounts.

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Glenn Martin
By Glenn Martin
21st Jun 2017 16:33

I am in the FRS102 camp. As said above its the only thing the clients get at the end of the year so they look the part.

Doing the bare minimum is not my bag man, micro entity just sounds like they are a [***] client.

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Replying to Glennzy:
By cfield
21st Jun 2017 17:12

But they don't have to be the only thing the client gets. As already mentioned, a basic set of Manacs will at least show where the figures come from.

For more sophisticated clients you can do more advanced work like benchmarking. For contractors at risk of IR35 there are PAYE provisions (or in a more optimistic light, IR35 savings).

It's all about finding ways to add value. I don't regard doing needless FRS102 accounts as adding value.

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Replying to Glennzy:
Teignmouth
By Paul Scholes
21st Jun 2017 18:05

No No No it's the micro accounts that are crap, the clients and the accounts in their software are brill.

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By Wanderer
21st Jun 2017 16:57

Some seem to be saying FRS102 1A on the basis of fee justification / nicer looking accounts etc. Surely these can't be valid reasons unless discussed & agreed with clients & we should be assisting clients to make an informed choice?

For all those going the FRS102 1A route who have clients with the typical 'low rem' 'high dividends' scenario are you explaining to your clients that these items will be placed on the public record for all to see whereas with FRS105 they won't??

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Replying to Wanderer:
By cfield
21st Jun 2017 17:25

Quite right, it's the client who should decide (although most will go by by what we say) and the vast majority would choose the least possible disclosure at Companies House.

With FRS102 reduced disclosures you have to kick off the Income Statement with gross profit and there is no analysis of debtors or creditors, so that hardly tells the client any more than FRS105.

If you do abridged accounts instead (which are much the same as the reduced disclosures) you need to get approval from the shareholders every year, which is a bit of a chore for all concerned.

Best bet is to keep compliance as simple as possible and add value in other areas. There are plenty of other ways to justify your fee.

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Replying to cfield:
Morph
By kevinringer
22nd Jun 2017 09:46

I don't know anyone who has done abridged accounts. Whilst I can appreciate the 102(1A) v 105 argument I see no merit in abridged.

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Replying to Wanderer:
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By David_Lewis
22nd Jun 2017 10:55

This had occurred to me but I'd refrained from commenting. It does strike me that if the client places the accountant in a position of trust then the client should be made aware of the pros & cons.

I tend to focus on non compliance work and when I needed to look at this was pretty appalled at how poor and inflexible FRS105 is; but as you point out the alternative is putting remuneration and dividends on public record.

My thinking is that unless there is a commercial reason for having 'proper' accounts that FRS105 would be preferable for most micro entities on the grounds that reduced disclosure would outweigh the presentational defects (which most clients wouldn't care about).

I do think that dependency on supplier credit should be a commercial consideration as I can't see how a credit reference agency can glean useful information from a FRS105 balance sheet.

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By mcecazo
23rd Jun 2017 15:13

A UK limited company (only one director and one shareholder) is just holding listed shares investments (Vodafone, BP, Investment trusts OEIC , ETF etc.). The company does not offer any services to third parties and/or trading any goods. The company does meet 2 conditions: Turnover less than 632K and less than 10 employees. Considered it holding financial assets but it is a MiFID investment firm. Which type of accounts should it use FRS102 or FRS105?

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All Paul Accountants in Leeds
By paulinleeds
24th Jun 2017 13:28

FRS 102 (1A) section 1AA3(o) says you have to show liability and asset for current tax'. ACCA tells me that is the CT creditor and therefore the CT creditor must be shown separate to other taxes and creditors.

I use FRS105, BUT I add 'management pages' at the end of the account. These show the usual Balance Sheet notes that I want to show to be helpful, and not 'silly' notes that are of no real value.

Clients therefore get some sensible accounts that shows Fixed Assets, debtors and creditors notes etc... helpful for credit reasons.

You can always add extra details to FRS 105 account eg profit before tax line, show all current assets line on the face of the Balance Sheet with stock, cash etc

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Replying to paulinleeds:
RLI
By lionofludesch
25th Jun 2017 11:26

paulinleeds wrote:

I use FRS105, BUT I add 'management pages' at the end of the account. These show the usual Balance Sheet notes that I want to show to be helpful, and not 'silly' notes that are of no real value.

So do I. And the advantage of that is that you can produce accounts that are in a format which suits the client company, rather than shohorn them into a one-size-fits-all template.

Horses for courses, obviously. If these was a need for FRS102, I'd do it. Haven't found such a case yet, though.

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