FRS 105 is a single accounting standard for use by entities that are eligible for, and choose to apply, the micro-entities regime. It is based on ‘FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland’, although it has been adapted to accommodate the legal requirements of the micro-entities regime, for example, the prohibition on revaluing or subsequently measuring assets or liabilities at fair value. Further simplifications have also been made to reflect the nature and size of micro-entities. For example, no deferred tax or equity-settled share-based payment amounts are recognised and accounting choices set out in FRS 102 are removed.

The standard comprises 28 sections, each dealing with a specific area of accounting. FRS 105 requires that micro-entities prepare a balance sheet and profit and loss account, however other primary statements are not required. The standard requires only limited disclosures.

FRS 105 is applicable to entities that are eligible for, and choose to apply, the micro-entities regime.

An entity meets the qualifying conditions for a micro-entity if it meets at least two out of three of the following thresholds:

• Turnover not more than £632,000 (adjusted for periods longer or shorter than 12 months)
• Balance sheet total not more than £316,000
• Average number of employees not more than 10.

After the first financial year of the entity, the criteria must be met in two consecutive years for an entity to qualify as a micro-entity and must be exceeded in two consecutive years to cease to qualify.

Any entity that is excluded from the small companies regime (or small LLPs regime) may not apply FRS 105. In addition the following types of entity are excluded from being treated as a micro-entity:

• charitable companies;
• investment undertakings;
• financial institutions;
• subsidiaries that are fully consolidated in group accounts; and
• parent companies that prepare group accounts.

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