With effect from 1 January 2016, FRS 105 can be applied by micro entities. FRS 105 replaces the FRSSE and micro-entities will have to choose a different framework.

Who can apply FRS 105?

FRS 105 may be applied by companies that do not exceed two of the following criteria in the current year and in the prior year (unless the entity is newly incorporated):

Turnover  £632,000
Total assets £316,000
Average number of employees 10

The 'two years in, two years out rule' for determining an entity’s size.

The micro entity provisions are not available to the following categories of entity:

  • public limited companies;
  • charitable companies;
  • limited partnerships;
  • overseas companies;
  • unregistered companies;
  • parent companies who head up a group which does not qualify as a small group;
  • a company authorised to register under section 1040 Companies Act 2006; and
  • a company that is excluded from the small company’s regime under section 384 Companies Act 2006;
  • parent companies that choose to prepare consolidated accounts when there is no legal requirement to do so; and
  • companies that are included in consolidated group accounts for that year.

How is FRS 105 different to FRS 102?

FRS 105 is based on FRS 102 but has been adapted to reflect the simpler nature and smaller size of micro-entities and their legal requirements.

Differences include:

  • no requirements to account for deferred tax and equity-settled share-based payments;
  • simplified accounting for defined benefit pension schemes; and’
  • mandatory statutory disclosure requirements restricted to a maximum of three.


  • assets cannot be revalued (ie PPE);
  • investment properties and financial instruments cannot be measured at fair value;
  • development costs and borrowing costs cannot be capitalised; 
  • the accruals model must be used to account for grants; and
  • are not permitted to account for deferred tax.

Despite the limited disclosures, accounts prepared in accordance with the micro-entities regime are presumed to show a true and fair view.

How is FRS 105 different to the FRSSE?

The micro entities regime does not allow departure from historical cost accounting, and FRS 105 similarly does not allow this departure. This means there will be no fair value accounting for items such as listed investments, investment properties or derivatives and so it may become a more favourable option for lifestyle companies or asset rich stand alone entities.

In FRS 105, micro companies can continue to:

  • prepare much reduced accounts;
  • apply historical cost accounting (with no fair value options available); and
  • omit the profit and loss account and directors’ report when lodging with the Registrar.

Given the simplified nature of these statutory accounts, you will need to consider whether the minimum disclosure requirements meet the needs of the users. If not then you may decide to present further disclosures in addition to the statutory minimum.

For more information please get in touch with Danielle Stewart.