Micro Entities and applying FRS105

The much-awaited Companies (Accounting) Act 2017 (CA 2017) was passed into law in June 2017, making FRS105 and FRS102 1A available to Irish companies for the first time. Companies can elect to early adopt FRS105 for accounting periods commencing on, or after 1 January 2017. A company qualifies as a micro entity where it falls within 2 of the 3 following thresholds in the current and proceeding years;

Micro Entities
Turnover <€700k
Balance sheet total i.e. total assets <€350k
Average number of employees <10

However, FRS105 cannot be adopted by some types of companies, even where it meets the size criteria, for example, investment companies, financial holding companies and companies that form part of a group that prepares consolidated accounts.

Format of Financial Statements

The main benefits of applying FRS105 include a more concise set of financial statements, simplified accounting policies and reduced note disclosure requirements.  The financial statements include the primary statements only, with a profit and loss account and balance sheet presented. A Directors’ report is not required.

Limited note disclosures are available to micro entities and notes previously required to be presented by companies under FRS102 can now be excluded, including the details of related party transactions, directors’ remuneration details and directors’ pension contributions made during the year.

A micro entity is permitted to include additional information within its financial statements although it has to be consistent with the requirements of Section 1A of FRS 102 in doing so.

Differences in Recognition and Measurement

Some of the key features of FRS 105 include the following in relation to recognition and measurement:

  • Assets are measured at cost – fair value accounting is not permitted under FRS 105.
  • Deferred tax is not recognised.

Comparatives are required to be re-stated in the first year of transition to FRS105.

While the reduced reporting requirements and disclosures may be appealing to many small businesses and business owners, there are instances where more detailed accounts are recommended to be prepared. An example would be where the financial statements are being presented to a financial institution as part of a loan application, more detailed financial statements including related party transaction details are likely to be requested for credit committees.

Management may also require more detailed financial statements or alternatively elect to have detailed management accounts prepared for decision making purposes, to be used on conjunction with the FRS105 Financial Statements.

For more information, please contact Linda Doran at;

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