FRS 105 User Guide

Overview

FRS 105 “THE FINANCIAL REPORTING STANDARD APPLICABLE TO THE MICRO-ENTITIES REGIME” is a financial reporting standard for companies eligible to apply the Micro-entities Regime set out in UK Company Law, effective for periods beginning on or after 1 January 2016. It is based on FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland but the Financial Reporting Council has adapted it significantly to satisfy the legal requirements and to reflect the simpler nature and smaller size of micro-entities.

Some of the most significant differences between FRS 105 and FRS 102 are:

• Micro-entities are only required to prepare a balance sheet and profit and loss account and not any of the other primary statements required for larger companies.
• No assets can be measured at fair value or a revalued amount.
• No deferred tax or equity-settled share-based payments are recognised
• All of the accounting policy choices set out in FRS 102 are removed.
• Micro-entities' accounts are only required to provide very limited disclosures and are presumed to give a true and fair view by doing so.

Eligibility criteria

Different criteria apply in the UK and the Republic of Ireland as set out below:

United Kingdom

FRS 105 may be applied by companies that satisfy at least two of the following three requirements in relation to a financial year:

• Turnover: Not more than £632,000 (pro-rated appropriately where a company’s year is shorter or longer than a calendar year)
• Balance sheet total (ie gross assets): Not more than £316,000
• Average number of employees: Not more than 10.

A company must meet at least two of these limits in two consecutive years to qualify as a microentity and, once qualified, must exceed at least two of these limits for two consecutive years to cease to qualify. Certain types of company, such as charitable companies and parent companies that are required or choose to prepare consolidated financial statements, are excluded from the micro-entity regime and therefore cannot apply FRS 105. A subsidiary of an FRS 102 Parent Company may not use FRS 105.

Republic of Ireland

• The size thresholds are the maximum amounts provided for under Directive 2013/34/EU. A micro company must satisfy 2 out of 3 conditions:-
• The amount of turnover of the company does not exceed €700,000
• The balance sheet total does not exceed €350,000

The average number of employees of the company does not exceed 10 A company must meet at least two of these limits in two consecutive years to qualify as a microentity and, once qualified, must exceed at least two of these limits for two consecutive years to cease to qualify. Certain types of company, such as charitable companies and parent companies that are required or choose to prepare consolidated financial statements, are excluded from the micro-entity regime and therefore cannot apply FRS 105. A subsidiary of an FRS 102 Parent Company may not use FRS 105.

The Companies (Accounting) Act 2017 applies to financial years commencing on or after 1 January 2017, but it allows qualifying companies to adopt the new accounting provisions for financial years commencing on or after 1 January 2015.

iXBRL Tagging

The FRS 105 pack has been enhanced for iXBRL tagging and once the accounts are loaded into CCH Review & Tag, you should not need to apply any additional manual tagging. Please note that if you choose not to file the Directors’ Report at Companies House, when using CCH Review & Tag a validation error will be displayed. Simple steps to resolving this are:
“Missing mandatory tag Description of Principal Activities”:

1. Double-click the error message to open the Taxonomy panel
2. Untick “minimum tagging list” to reveal the specific tag you need to apply
3. Click the Other Data option in the Ribbon to display the Other Data panel
4. Left click and drag the tag from the Taxonomy panel onto the Other Data panel, and drop the tag to add a row to the grid
5. Fill in the Value as required

Tax Link : This pack contains the link to share balances with CCH Corporation Tax, via the Tax Link screen.

Create new client in CCH Central

When setting up an FRS 105 Client, in the Create Client Wizard Main Details tab, the Contact Type is Limited. In the Accounts tab, the options to choose are under Type, select Company and under Entity please select Limited (FRS 105).

Create FRS 105 accounting period for an existing client

Open the Client and select the Accounts Production tab, click in the grid to create a new accounting period:

Type: select "Company".
Entity: select "Limited (FRS 105)". Set other fields as required and click OK.
Double-click the accounting period row on the grid to load the accounts production screen.

Convert an existing UK GAAP or IE GAAP job to FRS 105

If you have an existing accounting period using the UK GAAP or IE GAAP limited company master pack, during the year end process you can convert this to use the FRS 105 master pack.

• In step 1 Select the option to “Adopt FRS 102/105/IFRS now”.
• In step 2 Select the row for FRS 105:
  
• In step 3 verify the nominal code mapping and make any adjustments necessary.
• Click Finish.

The new accounting period created will use FRS 105. You can convert any existing job to FRS 105, the job does not have to have “Micro-entity” selected already. You will need to ensure the job is eligible to apply FRS 105 (see criteria on page 2). You have the ability to convert from FRS 105 to FRS 102 and vice versa, for occasions when the company moves above/below the micro thresholds.

Transition adjustments on the first application of FRS 105

There may (rarely) be transitional changes when moving to FRS 105. The transition date will normally be the opening day of the prior year. The effects of the changes do not need to be disclosed in the financial statements or the notes and there is no reconciliation to the previous balances. The financial statements are produced as if the new accounting basis had always applied.
Where transition adjustments are required, the user should do this by entering ordinary journals as required in the current, comparative and pre-comparative periods to restate:  the closing balances of the pre-comparative period;

• the opening balances of the comparative;
•  the closing balances of the comparative;
• the opening balances of the current year.

Nominal ledger

The nominal ledger for FRS 105 is based on the 4 digit FRS 102 chart of accounts, modified to cater for the different requirements of FRS 105.

The nominal chart has the following key identifiers:

• Code ranges that group similar items together
• Descriptions that enable the user to understand the posting
• Category information which identifies where a posting will end up in the financial statements

The nominal chart is searchable both by browsing through codes and by entering text, and displays the 3 identifiers above, in data entry and information screens. Therefore, the entry of information is normally straightforward.

Statutory database

Period dates

The requirements of FRS 105 are:

3.13 A micro-entity shall clearly identify each of the financial statements and the notes. In addition, a micro-entity shall display the following information prominently, and repeat it when necessary for an understanding of the information presented:
(b) the date of the end of the reporting period and the period covered by the financial statements

The requirements of FRS 105 with regard to dates and period will normally be met by the identification of the period end(s) in column headings, page headings and lines that reference the dates or period. Where the period end changes, the column headings will automatically add the day and month above the year. (See FRS 102 user guide for more information).

However, where this is not sufficiently clear (eg where this is a first period), there is a specific paragraph which can be chosen and amended to give the required information. 

"Accounts" vs "Financial statements"

The default description used in this pack is "financial statements" and this has been used in the formats. However, the wording can be changed throughout by changing the default for "aw3" in the system "Maintenance" menu, within "Word items".

Filing copy

The ‘filing copy’ for filing with the Registrar can be obtained in AP by selecting ‘Filing Copy’ within the Print Selection drop down on the Financial Statements screen:

By default, the following are excluded:

• The directors' report, if prepared.
• The profit and loss account.  Where the profit and loss account has been excluded, the audit report is also excluded. Note that for micro-entities, when the audit report is excluded there is no requirement to refer to it within a note to the financial statements.
• The company information page.
• The contents page.

For all the above, there are option flags set up that permit the user to include them. Note that if the profit and loss account is included, the audit report (if applicable) will be included as well.

Profit and loss account 

The profit and loss account format is set out within legislation and FRS 105. It follows a similar layout to the small companies profit and loss format 2, simplified by grouping amounts and omitting subtotals.

Balance sheet

There are two balance sheet formats set out within legislation and FRS 105 and users can choose between format 1 and format 2, both of which are simplified versions of the small companies formats.  As previously stated, the notes to the accounts are required to be included at the foot of the Balance Sheet.

Other information

• In the management collection, there is a detailed profit and loss format, based on the micro entity layout. Most of the management pages can be set to print/not print within the management collection section of the statutory database.
• An exception report is included in the main collection.
• A set of lead schedule formats have been included in the lead schedule collection.

Conversion

Existing UK Limited Farm jobs (old ukgaap) can adopt the new FRS 105 master pack. This can be done during the Year End process, and will convert the Trial Balance and the relevant entries from the Statutory Database, to minimise the amount of re-keying required to process the first FRS 105 Farm set of accounts.

Limitations

The following items are not yet supported:

• Management Accounts such as harvest accounts
• In a future release the ability to convert from farm FRS 102 to farm FRS 105 and vice versa will be provided, for occasions when the company moves above/below the micro thresholds.

Create new farm client in CCH Central

When setting up a Farm FRS 105 Client, in the Create Client Wizard Main Details tab, the Contact Type is Limited, same as standard limited company. In the Accounts tab, the options to choose are under Type, select Company and under Entity please select Limited (FRS 105) and under Chart select Limited Farm (FRS 105).

Create FRS 105 farm accounting period for an existing client

Open the Client and select the Accounts Production tab, click in the grid to create a new accounting period:

Type: select "Company". Entity: select "Limited (FRS 105)".
Chart: select "Limited Farm (FRS 105)" (Note: tooltip message appears to remind user to choose the farm chart).
Set other fields as required and click OK.
Double-click the accounting period row on the grid to load the accounts production screen.

Convert an existing UK GAAP Farm job to Farm FRS 105

If you have an existing accounting period using the UK GAAP limited farm company master pack, during the year end process you can convert this to use the FRS 105 master pack.

• In step 1 Select the option to “Adopt FRS 102/105/IFRS now”.
• In step 2 Select the row for FRS 105:

In step 3 verify the nominal code mapping and make any adjustments necessary.

• Click Finish.

The new accounting period created will use FRS 105.

Additional features for farm clients

Farm specific requirements have been incorporated within the existing FRS 105 standard limited pack to enable the production of compliant FRS 105 Limited Farm accounts. By selecting the farm chart of accounts on accounting period creation you are activating a hidden flag called #farm1, we use this flag in various places to trigger rows, formats or statutory database items to appearing if the Client is a farm.

Nominal ledger

The chart of accounts for Farms FRS 105 is completely new and does not resemble the old UK GAAP 3 or 4 digit Farm charts. It has been based on the existing limited FRS 105 Chart of Accounts but it has been substantially revised to incorporate the disclosures required for farming. Broadly speaking we have made use of sub-codes to enhance the chart to provide the detail required for recording farm specific transactions. The main changes have been applied to the following sections:

• Revenue (0010 to 0499)
• Cost of sales (0500 to 0999)
• Biological assets (FRS 105 6650 to 6669/FRS 102 6650 to 6679)
• Stocks/Inventories (7000 to 7099)

For example Revenue has been divided into groupings with sub-coded further analysis:

• Revenue - sales of livestock (main code 0010)
  • Revenue - sales of livestock (main code 0010)
  • Livestock – Dairy (subcode – 01)
  • Livestock – Beef (subcode – 02)
  • Livestock – Sheep (subcode – 03)
  • Etc
• Revenue - agricultural harvested produce (main code 0015)
  • Milk (subcode – 01)
  • Etc
• Revenue - arable (main code 0020)
  • Wheat (subcode – 01)
  • Etc
• Revenue – food crops (main code 0030)
  • Potatoes
  • Etc
• Revenue – feed crops (main code 0040)
  • Hay
  • Etc

To review the new Farm chart of accounts in more detail you may prefer to export to Excel. Once you have created a Farm FRS 105 accounting period, navigate to Chart of Accounts and click on the Export to Excel option.

Nominal mappings

For those users converting existing accounting periods from UK GAAP “UK Limited Farm” to FRS105 farms, a nominal mapping has been provided. This minimises the need to re-key any Trial Balance data. A copy of this nominal mapping may be viewed from the Maintenance menu within CCH Accounts Production. Navigate to Maintenance > Accounts > Import/Export Definition then choose Nominal Mappings. Then perform the following steps:

1. Select - Entity Limited (FRS105)
2. Select - Chart – Limited Farm (FRS105)
3. Select - Edit System Mapping file (radio button at top of screen)
4. Mapping name – click in drop down menu and choose 3 digit/4 digit chart
5. Click on Export.
If needed, the default nominal mapping can be amended. You may wish to do this if it makes converting existing farm jobs more efficient.

Rounding account: As we have new farm chart of accounts and the main revenue accounts have been sub-coded, this could have an impact on the profit and loss account in terms of rounding. The default rounding account for our Farm chart has been changed to: 001001 – Revenue – sales of livestock - Livestock Dairy

Quantities

As mentioned in the beginning of this appendix, this initial master pack for farms does not support detailed management information. It is our intention to provide more comprehensive analysis in a future release and we will look to enhance the product with some statutory database grids to support recording of top level quantity/yield information.

It is possible to record quantity balances as part of the journal entry process in CCH Accounts Production. The quantity data can then be viewed in the trial balance screen, on reports and presented on the face of formats if required. However our standard formats do not contain the formula to present this information, the user would be required to edit the format and add the commands as shown below:
=APQTY("a,001001") This will display the current accounting period quantity balance for nominal code 001001 RevenueLivestock - Dairy.
=APQTY("[a,*TOTREV]")
This will display the current accounting period quantity balance for name range TOTREV.
=APQTYCODE("[*TOTREV],S,a,-1,0,ab")
This will display a list of all the current year quantity balances for nominal codes within name range TOTREV, which have activity in the current or comparative periods. By deleting the "S" parameter, individual sub code balances will be combined into their parent nominal code.

Quantity data is also available from a Saved Trial Balance, using the above commands but substituting the period reference “a” for the specific User Defined Reference (g to z) assigned to the Saved Trial Balance. For more detail on Support for “Quantity data” please see item 57234 in the 2014.1 release notes.

Statutory database

As FRS 105 has no requirement for notes, there are no farm changes required for this pack. We will enhance this area in future pack to enable more detailed management information. Formats The full accounts format collection is not new or unique to farms, it is the same collection used for FRS 105 Limited entities. There are no specific farm disclosures required for FRS 105 to be compliant for farms. There are new biological asset lead schedules in this release, together with support schedules.

Introduction

A Company Limited by Guarantee (CLG) is a private company that does not have shareholders or share capital. It has members, called guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) towards the winding up of the company in the event of a shortfall upon cessation of business. It cannot distribute its profits and these are generally reinvested back into the company. Because of this CLGs may apply for charitable status. Common uses of guarantee companies include clubs, membership organisations, including student unions, sports associations, workers’ co-operatives, other social enterprises, nongovernmental organisations (NGOs), charities and property management companies.

Key points

The key differences between a Company Limited by Guarantee and a normal Limited Company are as follows:

• Most companies that are guaranteed do not trade for profit; therefore you refer to the Income and Expenditure Account rather than Profit and Loss Account.  Terms such as surplus/deficit are used rather than profit or loss.
• No share capital will appear on the Balance Sheet or within the notes.  Since the company has no shareholders, the reconciliation of movements in shareholders’ funds is not required.
• A Members' liability note is disclosed.
• CLG's are both applicable to the UK and Republic of Ireland.
• The application does not support CLG’s for Charities.

Statutory database

Implementing Companies Limited by Guarantee: To implement CLGs, within the statutory database access, there is an option to select whether the accounting period is a company limited by guarantee (CLG). To implement CLGs (Statutory Database Item #clg1), within the statutory database access; General > Client Preferences > Companies Limited by Guarantee (CLGs):

We have updated the Contents, Profit and Loss and Balance sheet formats to refer to CLG terminology i.e. ‘Income and Expenditure’ rather than Profit and loss and ‘Reserves’ rather than Capital and Reserves.

In addition we have edited various paragraphs to refer to Income and Expenditure, Companies Limited by Guarantee and used new statutory database items #profit and #loss to automatically refer to surplus and deficit rather than profit and loss.

Additional disclosures for Republic of Ireland

Republic of Ireland users have to produce notes to their FRS 105 accounts, so we have implemented some changes to support CLG, mostly wording changes to accounting policies. Conversion of existing CLG jobs in CCH Accounts Production (VAP) Sites in Ireland may already have CLG jobs set up in VAP. These may be converted into CCH Accounts Production in the normal way, but after converting you must remember to go into the Statutory Database and re-select the CLG option, as described above.