FRS 102 and FRS 105 are one of the biggest changes to accounting regulations for a long time, certainly in my time as an accountant!
FRS 102 and FRS 105 are based on international standards, but have been written to better fit with smaller companies, with previous standards deemed to be excessive and over costly.
Some key changes that will effect smaller companies are as follows:
Holiday pay accrual: An accrual will be mandatory for unpaid holiday pay, which are paid in a subsequent accounting period.
Investment property: Revaluation surpluses will be moved to the profit and loss reserve on transition and in comparative years to profit and loss.
Deferred tax: Where investment properties are carried at fair value and other assets are carried at revaluation value, then additional deferred tax is required. Under FRS 105 however, deferred tax is not required and on transition the balances will be reversed.
Some of the adjustments will be made to the opening balance sheet and will give rise to additional tax payable or refundable.
Each company needs to be reviewed to see how the new standards relate to them directly and whether they use FRS 102 or FRS 105.
FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. If the micro-entity is a business which is not prohibited from using FRS 105, then the thresholds for applying FRS 105 are as follows:
1. Turnover not more than £632,000 (pro rata for a short accounting period)
2. Balance sheet total (fixed assets plus current assets) not more than £316,000
3. Not more than 10 employees
If a new company falls into the threshold for FRS 105, however expects to exceed this through fast growth, then it should use FRS 102 from the start.