FRS 102: Small entity amendments

The majority of UK businesses meet the definition of a small entity within the Companies Act 2006. Small businesses adopt the recognition and measurement rules within FRS 102, and a small number of disclosures are required within their statutory financial statements which are set out in Section 1A of the Standard. This article focuses on the changes to disclosures for small businesses rather than the recognition and measurement changes introduced by the periodic review, notably revenue recognition and leases which apply to all entities. Gaining an understanding of the additional disclosure requirements as soon as possible is a must for small businesses.

Mandated disclosures are increasing

The number of mandated disclosures required by FRS 102 for small entities within the UK is increasing. The UK is no longer constrained by the EU’s Accounting Directive. The Accounting Directive prescribed the disclosures for small entities and the type and number of disclosures could not be increased by member countries. The no “gold-plating” rule resulted in the Financial Reporting Council including a number of ‘encouraged’ disclosures within Section 1A of the Standard.

The FRC has taken the opportunity to mandate going concern disclosures, as this accounting policy could previously only be encouraged. All companies and LLPs, including small entities, will be required to disclose that their financial statements are prepared on a going concern basis, confirming that management has considered information which is at least, but not limited to, 12 months from the date when the financial statements are authorised for issue. Significant judgements made in assessing going concern status will also be required to be disclosed. When management is aware there is a material uncertainty which may cast significant doubt upon the business’ going concern status, this needs to be disclosed. The factors behind the material uncertainty must also be disclosed.

Related party disclosures likely to increase

Related party disclosures within small business accounts are highly likely to increase. Small entities are currently only required to disclose transactions with related parties which are not undertaken under normal market conditions. For accounting periods commencing on or after 1 January 2026, the disclosures will include items such as the nature of the related party relationships, outstanding balances, and the value of the transactions.

Share-based payments

Share-based payments are used by many small companies as part of their incentives and remuneration for employees and directors. The potential dilution of ownership has previously not been a mandated disclosure. When the amendments apply, the company will be required to give a description in the notes to the accounts of the share-based arrangements which existed during the period, including their general terms and conditions. In addition they will be required to disclose the number of options and their average exercise price at the beginning of the reporting period, outstanding at the end of the period and exercisable at the end of the period. The total expense recognised in the period and the carrying amount for liabilities from share-based payment transactions will also be disclosed.

Significant leasing arrangements

With changes to the recognition and measurement of revenue and leases, additional information on both of these areas will have to be disclosed. For contracts with customers, additional information will be required regarding performance obligations, including a description of when the performance obligation is satisfied, significant payment terms and the nature of services or goods that have been promised to be transferred. Businesses acting as an agent will also be required to disclose any promises to arrange for another party to transfer goods or services. A general description of significant leasing arrangements must be disclosed. Businesses will have to consider if additional qualitative and quantitative details should be disclosed to enable users to understand those significant leasing arrangements. The lease expense for short-term leases, which can exclude leases with a term up to one month, low-value assets and any variable lease payments which have been expensed will also be disclosed.

Our recommendations for small businesses

Small businesses must obtain an understanding of the additional disclosure requirements as soon as possible. With this knowledge, businesses can determine the impact on their accounting records, such as separate nominal ledger expenditure codes for short-term leases and leases of low-value assets which may be needed in their chart of accounts. Appropriate training and updating of internal guidance documentation, such as your accounting manual, can be planned and occur before the impact of these amendments take effect for accounting periods commencing on or after 1 January 2026.

For more information on FRS 102 and the small entity amendments, please contact us.