FRS 105
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FRS 105 – The Financial Reporting Standard Applicable to the Micro-entities Regime | Extended Reference
FRS 105 is the micro-entities regime, providing the lightest-touch tier of UK GAAP for the smallest qualifying companies with turnover not more than £632,000 and balance sheet total not more than £316,000.
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Conceptual Framework Linkage
The lightest-touch tier of the entire UK GAAP hierarchy
FRS 105 exists to provide the SMALLEST qualifying UK/Irish companies – "MICRO-ENTITIES" – with a genuinely SIMPLIFIED accounting and disclosure regime, reflecting that the COST and COMPLEXITY of full FRS 102 compliance can be disproportionate for very small businesses with limited external users of their accounts. It sits at the BOTTOM of the FRS 100 decision tree – a further step DOWN in complexity even from FRS 102's own Section 1A small-entity relief.
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Scope – the Micro-entity Size Thresholds
Meeting at least two of three Companies Act size criteria
A company QUALIFIES as a micro-entity if it meets AT LEAST TWO of the following THREE thresholds (subject to periodic UK statutory updates): TURNOVER not more than approximately £632,000; BALANCE SHEET total (gross assets) not more than approximately £316,000; and an AVERAGE of not more than 10 EMPLOYEES during the financial year. Certain entities (e.g. public companies, most financial institutions, charities) are EXCLUDED from the micro-entities regime REGARDLESS of size.
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Simplified Recognition and Measurement
A deliberately minimal, prescriptive set of accounting choices
FRS 105 SIMPLIFIES recognition and measurement RELATIVE to FRS 102 in several ways: it does NOT offer the fair value ACCOUNTING OPTIONS available under FRS 102 for certain assets (Section 4); deferred TAX is recognised on a SIMPLIFIED basis; and OVERALL, FRS 105 removes many of the ELECTIVE policy choices FRS 102 offers, presenting micro-entities with a more PRESCRIBED, less judgement-intensive set of requirements.
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Fixed Asset Investments and Investment Property – Cost, Not Fair Value
A notable simplification relative to FRS 102's fair value option
Under FRS 102, INVESTMENT PROPERTY is generally measured at FAIR VALUE through profit or loss (a genuinely different treatment from ordinary owner-occupied property). Under FRS 105, however, investment property (and fixed asset investments generally) are measured SIMPLY at COST LESS DEPRECIATION and any IMPAIRMENT – WITHOUT the fair value remeasurement option FRS 102 provides. This is a DELIBERATE simplification, sparing micro-entities the COST and JUDGEMENT burden of obtaining regular fair value assessments.
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Minimal Mandatory Disclosure Notes
Only a small number of specific footnote disclosures are required
FRS 105 requires only a SMALL, SPECIFIC set of mandatory notes – broadly, guarantees/commitments not otherwise recognised, advances/credits to directors, and financial support/off-balance-sheet arrangements – a DRAMATICALLY reduced disclosure burden compared to even FRS 102's Section 1A small-entity regime, reflecting the assumption that micro-entity accounts serve a NARROWER range of external users.
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Filing Simplifications – Filleted and Abridged Accounts
Reduced public filing requirements at Companies House
Micro-entities preparing accounts under FRS 105 may take advantage of FURTHER Companies Act FILING simplifications – for example, filing only a Balance Sheet (with limited notes) at Companies House, WITHOUT the Profit and Loss Account or Directors' Report being made PUBLICLY available – reflecting a policy balance between transparency and the PROPORTIONATE administrative burden appropriate for very small companies.
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Worked Example – Confirming Micro-entity Eligibility
Meeting two of three thresholds
Example: A small consultancy company
A consultancy has turnover of £480,000, a balance sheet total of £210,000, and an average of 6 employees during the year.
The company meets ALL THREE thresholds (turnover under £632,000; balance sheet total under £316,000; employees under 10) – comfortably qualifying as a MICRO-ENTITY, and may elect to prepare its accounts under FRS 105 instead of the fuller FRS 102 (with or without Section 1A relief).
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Worked Example – Investment Property at Cost, Not Fair Value
Foregoing FRS 102's fair value option
Example: A micro-entity holding a rental property
A micro-entity holds an investment property purchased for £250,000, with a current market value of £310,000.
Under FRS 105, the property remains at its £250,000 COST (less any depreciation and impairment) – the entity CANNOT elect to remeasure it to the £310,000 FAIR VALUE, unlike an equivalent entity reporting under FULL FRS 102, which would generally measure investment property at fair value through profit or loss.
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Disclosure Requirements
What FRS 105 requires
A statement that the accounts have been prepared in accordance with the micro-entities regimeGuarantees, commitments, and contingencies not otherwise recognisedAdvances and credits granted to directors
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Critical Judgments
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether the entity meets the micro-entity size thresholds and is not otherwise excluded from the regimeWhether to elect FRS 105 if eligible, versus remaining on FRS 102
SIGNIFICANT ESTIMATES
Generally minimal – FRS 105's prescriptive, simplified approach limits the scope for significant estimation
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FRS 105 vs FRS 102 vs IFRS – Comparison
Comparison – FRS 105 vs FRS 102 vs full IFRS
FeatureFRS 105FRS 102 / Full IFRS
Investment propertyCost less depreciation/impairment ONLYFair value option available (FRS 102) / IAS 40 fair value or cost model choice (IFRS)
Accounting policy electionsMinimal – largely prescribedMultiple genuine policy choices available (development costs, borrowing costs under FRS 102)
Mandatory disclosure notesVery limited, specific set onlyConsiderably more extensive
FRS 105 is genuinely the SIMPLEST tier of the entire UK GAAP hierarchy – deliberately trading away flexibility and disclosure depth in exchange for PROPORTIONATE simplicity for the smallest companies.
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Statement Mapping
Where every FRS 105 event lands
EventStatement(s) affectedNotes
Investment propertyBS / SOFPHeld at cost less depreciation/impairment, not fair value
Filing at Companies HousePublic recordMay be limited to a Balance Sheet with minimal notes
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Related Standards
Cross-reference map
StandardConnection
FRS 100Directs eligible micro-entities toward FRS 105 within the overall UK GAAP hierarchy
FRS 102The standard a micro-entity would otherwise apply if not electing FRS 105
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Quick-Reference Glossary
Micro-entity
A company meeting at least two of three Companies Act size thresholds (turnover, balance sheet total, employee numbers), eligible for the FRS 105 simplified regime.
Filleted accounts
A simplified filing option allowing certain statements (e.g. the Profit and Loss Account) to be omitted from the publicly filed version of a small company's or micro-entity's accounts.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Nov-2012
FRS 105 The Financial Reporting Standard Applicable to the Micro-entities Regime issued
Operative for periods beginning on or after 1 January 2015
2015
Effective as part of the new UK GAAP suite