Following the UK’s departure from the EU, the Financial Reporting Council (FRC) is now able to require more disclosure for small companies in the UK. Before Brexit, the FRC had stated that it was constrained by the requirements of the EU Accounting Directive, but this is no longer the case.
As part of the periodic review amendments issued on 27 March 2024, the FRC has made amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Section 1A Small Entities, Appendix C Disclosure requirements for small entities in the UK by extending the disclosure requirements. The FRC is of the view that this will be helpful to small entities as there will not be as much reliance needed on professional judgment to enable a true and fair view to be presented in the financial statements. However, there will be some element of this required and additional disclosures may still be required to achieve a true and fair view.
These amendments apply mandatorily for accounting periods commencing on or after 1 January 2026 with early adoption permissible (provided all of the periodic review amendments are applied at the same time).
The amendments to FRS 102, Section 1A, Appendix C are as follows (where appropriate, references to other relevant paragraphs have been reproduced for convenience).
General changes
FRS 102, para 1AC.1 has been amended to clarify that a small entity need not provide a specific disclosure set out in Appendix C if the information resulting from that disclosure is not material. The exception to this rule would be where the disclosure is required by company law.
This additional clarification has been included because the revised Appendix C now mandates the disclosure of information that may not necessarily be required by law. If that disclosure information is required by law, it must be made regardless of materiality.
Statement of compliance
A small entity must make an explicit and unreserved statement of compliance with FRS 102 (adapted to refer to Section 1A) in the notes to the financial statements.
Keep in mind that a small entity will not be able to make such an explicit and unreserved statement of compliance unless the financial statements comply with all the requirements of FRS 102 (including Section 1A).
Public benefit entities that apply the “PBE” prefixed paragraphs must also make an explicit and unreserved statement of compliance that it is a public benefit entity.
Going concern
A new paragraph 1AC.2C is included that requires a small entity to provide the disclosures set out in paragraphs 3.8A and 3.9. For clarity, here are paragraphs 3.8A and 3.9.
When an entity prepares financial statements on a going concern basis, it shall disclose that fact, together with confirmation that management has considered information about the future as set out in paragraph 3.8. It shall also disclose, per paragraph 8.6, any significant judgements made in assessing the entity’s ability to continue as a going concern. [FRS 102, para 3.8A]
When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. [FRS 102, para 3.9]
Current and deferred tax
Small entities are required to provide the disclosures relating to deferred tax set out in paragraph 29.27(e). For clarity, this paragraph is as follows.
The amount of deferred tax liabilities and deferred tax assets at the end of the reporting period for each type of timing difference and the amount of unused tax losses and tax credits. [FRS 102, para 29.27(e)]
In addition, FRS 102, para 1AC.32C requires a small entity to provide information relating to current tax and deferred tax as set out in paras 29.26 and 29.27(b). Paragraphs 29.26 and 29.27(b) are as follows.
An entity shall disclose separately the major components of tax expense (income). Such components of tax expense (income) may include:
a) current tax expense (income);
b) any adjustments recognised in the period for current tax of prior periods;
c) the amount of deferred tax expense (income) relating to origination and reversal of timing differences;
d) the amount of deferred tax expense (income) relating to changes in tax rates or the imposition of new taxes;
e) adjustments to deferred tax expense (income) arising from a change in the tax status of the entity or its shareholders; and
f) the amount of tax expense (income) relating to changes in accounting policies and material errors (see Section 10 Accounting Policies, Estimates and Errors). [FRS 102, para 29.26]
A reconciliation between:
i. the tax expense (income) included in profit or loss; and
ii. the profit or loss on ordinary activities before tax multiplied by the applicable tax rate. [FRS 102, para 29.27(b)]
Leasing
Given the significant changes to lease accounting in FRS 102, it was unsurprising that the FRC included additional disclosure requirements for small entities in the UK concerning a small entity’s leasing arrangements as follows.
a) Where the small entity is a lessee, a general description of its significant leasing arrangements must be made. There is a similar disclosure requirement in FRS 102, para 20.76.
b) Where necessary to enable users to understand the small entity’s significant leasing arrangement, a lessee must provide additional qualitative and quantitative information. There is a similar disclosure requirement in FRS 102, para 20.77, which requires the following minimum information:
- information concerning future cashflows to which the lessee is potentially exposed that are not reflected in the measurement of the lease liability
- information concerning restrictions or covenants imposed by leases
- the type of discount rate used in the calculation of lease liabilities, and
- specific information concerning sale and leaseback transactions.
c) A small entity must provide the disclosures concerning short-term leases, leases of low-value assets and variable lease payments as set out in paragraphs 20.80(b) to 20.80(d).
For clarity revised paragraphs 20.80(b) to 20.80(d) are as follows.
The expense relating to short-term leases is accounted for by applying paragraph 20.6. This expense need not include the expense relating to leases with a lease term of one month or less. [FRS 102, para 20.80(b)]
The expense relating to leases of low-value assets is accounted for by applying paragraph 20.6. This expense shall not include the expense relating to short-term leases of low-value assets included in paragraph 20.80(b). [FRS 102, para 20.80(c)]
The expense relating to variable lease payments is not included in the measurement of lease liabilities. [FRS 102, para 20.80(d)]
Provisions and contingencies
A small entity is required to provide the disclosures concerning provisions and contingencies as set out in paragraphs 21.14 to 21.17A. For clarity, here are these paragraphs.
Disclosures about provisions
For each class of provision, an entity shall disclose the following:
a) a reconciliation showing:
- the carrying amount at the beginning and end of the period;
- additions during the period, including adjustments that result from changes in measuring the discounted amount;
- amounts charged against the provision during the period; and
- unused amounts reversed during the period.
b) a brief description of the nature of the obligation and the expected amount and timing of any resulting payments;
c) an indication of the uncertainties about the amount or timing of those outflows; and
d) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.
Comparative information for prior periods is not required. [FRS 102, para 21.14]
Disclosures about contingent liabilities
Unless the possibility of any outflow of resources in settlement is remote, an entity shall disclose, for each class of contingent liability at the reporting date, a brief description of the nature of the contingent liability and, when practicable:
a) an estimate of its financial effect, measured per paragraphs 21.7 to 21.11;
b) an indication of the uncertainties relating to the amount or timing of any outflow; and
c) the possibility of any reimbursement.
If it is impracticable to make one or more of these disclosures, that fact shall be stated. [FRS 102, para 21.15]
Disclosures about contingent assets
If an inflow of economic benefits is probable (more likely than not) but not virtually certain, an entity shall disclose a description of the nature of the contingent assets at the end of the reporting period, and, when practicable, an estimate of their financial effect, measured using the principles set out in paragraphs 21.7 to 21.11. If it is impracticable to make this disclosure, that fact shall be stated. [FRS 102, para 21.16]
Prejudicial disclosures
In extremely rare cases, disclosure of some or all of the information required by paragraphs 21.14 to 21.16 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose all of the information required by those paragraphs insofar as it relates to the dispute, but shall disclose at least the following:
a) a table showing the reconciliation required by paragraph 21.14(a) in the aggregate, including the source and application of any amounts transferred to or from provisions during the reporting period;
b) particulars of each provision in any case where the amount of the provision is material; and
c) the fact that, and the reason why, the information required by paragraph 21.14 has not been disclosed.
Concerning contingent liabilities, the following information shall be given:
a) particulars and the total amount of any contingent liabilities (excluding those which arise out of insurance contracts) that are not included in the statement of financial position;
b) the total amount of contingent liabilities which are undertaken on behalf of or for the benefit of:
- any parent or fellow subsidiary of the entity;
- any subsidiary of the entity; or
- any entity in which the reporting entity has a participating interest, shall each be stated separately; and
c) the fact that, and the reason why, the information required by paragraph 21.15 has not been disclosed. [FRS 102, para 21.17]
Disclosure of financial guarantee contracts
An entity shall disclose the nature and business purpose of the financial guarantee contracts it has issued. If applicable, an entity shall also provide the disclosures required by paragraphs 21.14 and 21.15. [FRS 102, para 21.17A]
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