If you are preparing company accounts in the UK, you should understand that your company’s size eligibility and circumstances can affect which accounting framework and reporting requirements apply. Choose the right UK accounting standard can affect how your business prepares and presents its financial statements. However, small UK businesses often confuse FRS 105 vs FRS 102: what are the main differences, and which standard applies?
The answer depends on the size and circumstances of your business. It is crucial to learn the differences for your business. Selecting the wrong framework can cause excessive administrative strain.
Read this blog thoroughly to understand the difference between FRS 105 and FRS 102.
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What is FRS 105?
Before getting into FRS 105 vs FRS 102 differences, let’s understand what FRS 105 is. FRS 105 is formally called “The Financial Reporting Standard applicable to the Micro-entities Regime.” It is a simplified UK accounting standard for eligible micro-entities.
FRS 105 is based on FRS 102 (the main accounting rulebook for standard UK companies). However, FRS 105 has accounting requirements adapted to meet the legal requirements applying to micro-entities. It is a simple version of those rules made just for the smallest businesses.
So, FRS 105 contains specific recognition, measurement and disclosure requirements designed for entities that qualify for the micro-entities regime.
What is FRS 102?
FRS 102 is the main UK GAAP accounting standard used to prepare financial statements for most UK private companies and organisations.
FRS 102 Section 1A simplifies financial reporting for qualifying small entities in the UK and Ireland. It allows small companies to prepare statutory accounts with fewer disclosures and presentation requirements than entities applying the full requirements of FRS 102.
This distinction is important when considering FRS 105 vs FRS 102. Note that a small company is not automatically an FRS 105 micro entity because it is small. FRS 105 is specifically connected with eligibility for the micro-entities regime.
Eligibility Criteria for Small vs Micro-Entities
You should understand that you cannot simply choose the easiest standard. Your chosen accounting standard must legally fit within the threshold limits. To qualify for either regime, your company must satisfy at least two out of the three following criteria over two consecutive financial years:
| Measurable standard | FRS 105 – Micro-entity | FRS 102 Section 1A – Small company |
| Annual turnover | £1 million or less | £15 million or less |
| Balance sheet total | £500,000 or less | £7.5 million or less |
| Number of employees | 10 or fewer | 50 or fewer |
Disclaimer: These thresholds apply to accounting periods beginning on or after 6 April 2025. They are also subject to the detailed statutory rules and exclusions.
FRS 105 vs FRS 102: What Are the Accounting Differences?
The simplest way to understand the FRS 105 vs FRS 102 for small companies and micro-entities is to consider their scope and level of accounting complexity.
The key differences between FRS 105 and FRS 102 relate to asset measurement, investment property, deferred tax, development costs, and borrowing costs.
Deferred Tax
FRS 105 does not recognise deferred tax. This removes a layer of calculation complexity for micro-entities and simplifies the accounting requirements.
In contrast, FRS 102 requires deferred tax. It uses a temporary-difference approach, subject to specific recognition rules and exceptions.
Valuation and Fair Value
Valuation and fair value accounting in FRS 105 vs FRS 102 shows profound divergence.
Generally, FRS 105 uses a cost-based measurement approach. It has specific measurement requirements and does not provide for revaluation options.
On the other hand, under FRS 102, investment property is generally measured at fair value. Under FRS 102, investment property is generally measured at fair value at each reporting date, with changes in fair value generally recognised in profit or loss.
Investment Property
When it comes to FRS 105, investment property is usually measured at cost less accumulated depreciation and impairment.
Whereas, under FRS 102, investment property is usually measured at fair value at each reporting date, with changes in fair value recognised in profit or loss.
Borrowing Costs and Development Costs
FRS 105 vs FRS 102 shows contrasting rules for borrowing and development costs. Under FRS 105, development and borrowing costs are recognised as expenses when incurred.
However, under FRS 102, qualifying borrowing and development costs may be capitalised as part of the cost of a qualifying asset. This means you can choose to add the interest costs of a loan directly to the value of a large asset while it is being made.
These differences can lead to significant differences in reported asset values and profits between FRS 102 and FRS 105.
Which is the Right Choice Between FRS 105 vs FRS 102?
There is no universal answer to which accounting standard is better. The right choice depends on your company’s circumstances, eligibility and reporting needs.
For an eligible micro-entity, FRS 105 offers a simpler accounting framework. It has reduced presentation and disclosure requirements. This can make it suitable for smaller, owner-managed businesses that want to minimise accounting complexity.
Conversely, FRS 102 provides a more comprehensive reporting framework. It may be appropriate where the entity is not eligible for FRS 105 or where its circumstances, financing arrangements, or stakeholder information needs make it more suitable.
When choosing between FRS 105 vs FRS 102, you should also consider future growth, group reporting, borrowing or investment requirements, and the complexity of your transactions.
FRS 105 vs FRS 102: What Changed for 2026?
The most significant recent development is the implementation of the FRS 102 Periodic Review 2024 amendments.
Moreover, most of these changes apply to accounting periods beginning on or after 1 January 2026. The major amendments to FRS 102 include revised requirements for leases and revenue recognition, together with a new Section 2A on fair value measurement.
However, the similar amendments do not apply to FRS 105. For example, the new lease requirements apply to FRS 102, but FRS 105 does not adopt the equivalent lease accounting changes.
In February 2026, the FRC issued amendments relating primarily to adapted financial statement formats. These amendments are effective for accounting periods beginning on or after 1 January 2027. The FRC also issued limited clarifications relating to the Periodic Review 2024 amendments affecting both FRS 102 and FRS 105.
These amendments mainly update financial statement formats, for accounting periods beginning on or after 1 January 2027.
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The Bottom Line
In conclusion, understanding FRS 105 vs FRS 102 is essential to make an informed financial decision for your business. Choosing an appropriate option depends mainly on reporting requirements, eligibility, and the accounting treatments applicable to the business.
FRS 105 is specifically designed for eligible micro-entities, providing a simplified accounting framework. FRS 102 is the broader UK GAAP framework and includes reduced disclosure requirements for qualifying small entities under Section 1A.
Before selecting any accounting standard, review your company’s legal size and eligibility. If you need help assessing your company’s eligibility and reviewing your existing accounting policies, we are here to assist.
At CAIL, our qualified accountants can help you navigate the 2026 FRS 102 changes. We can also help you ensure your financial statements are prepared in line with the applicable UK requirements.