Section 1A updates to FRS 102: The key changes firms might overlook
The September 2024 update to FRS 102 has introduced significant changes with much of the discussion focusing on areas like leases and revenue recognition. However, the quieter updates to Section 1A should not be overlooked.
Here is a summary of the changes to Section 1A that we need to keep in mind:
Compliance statements
Small entities must now include a clear and unreserved statement of compliance with FRS 102, explicitly confirming the application of Section 1A. For public benefit entities (PBE), a similar statement is required confirming the application of PBE-specific paragraphs.
Materiality in disclosures
A new provision allows small entities to omit disclosures that are not material unless specifically required by law. While this offers some flexibility, careful judgment will be required to ensure all relevant and material information is still disclosed.
This should not lead to any changes in practice but adds clarity to Section 1A.
Tax disclosures
Small companies will now be required to include some of the detail seen in a medium or large entity by the inclusion of three additional disclosures:
- Deferred tax balances at the period end by type of timing difference.
- Disclosure to enable the reader to understand the major components of tax expense.
- A reconciliation between the tax expense in profit or loss and the expected tax charge/ credit when applying the applicable tax rate to profit before tax.
Dividends declared
Section 1A has introduced a new requirement for the disclosure of dividends declared, paid, or payable during the reporting period.
Leasing arrangements
Small entities must now disclose:
- A general description of significant leasing arrangements.
- Qualitative and quantitative information to help users understand these arrangements.
- Detail about future cashflows to which the company is potentially exposed to that are not reflected in the measurement of lease liabilities.
- Detail about restrictions or covenants imposed by leases.
- The types of discount rate used in calculating lease liabilities and the proportion of the total lease liability calculated using each of those types of discount rate.
- Information about sale and leaseback transactions, see FRS 102 para 20.77(d).
Share-based payments
Some share-based payment disclosures are now explicitly required. Even though share-based payments may be rare for small entities, their inclusion highlights the importance of identifying and reporting them where relevant.
Revenue recognition
Small entities are required to disclose information about performance obligations in contracts with customers, aligning with updates to Section 23 of FRS 102.
Related-party transactions
The requirements for disclosing related-party transactions have been updated to align more closely with those in Section 33 for medium and large entities. Small entities must disclose the nature of the related-party relationship, the amounts involved, outstanding balances at the year end date, and details of any bad debts relating to those balances.
Small entities will need to now use the full FRS 102 definition of related parties. Therefore, disclosures will need to include persons related to a reporting entity, their close family and any entities related to those persons.
Certain exemptions to related-party disclosures are still available under the updated requirements.
Going concern basis for preparation
Small entities will be required to include disclosures regarding the use of going concern basis of preparation, particularly if there are material uncertainties that cast significant doubt on the entity’s ability to continue as a going concern.
Provisions and contingencies
Small entities will need to include more detailed information about provisions in the form of a reconciliation between the opening and closing position. The disclosure will also need to include a description of the provision, the expected timing of outflows and any significant uncertainties affecting the amounts or timing.
Small entities will also need to disclose for each class of contingent liability at the reporting date, a brief description of the nature of the contingent liability and where practicable:
- an estimate of its financial effect
- indication of uncertainties surrounding the amount or timing
- the possibility of any reimbursement.