A GUIDE TO DISCLOSURE EXEMPTIONS IN FRS 102 SECTION 1A

A Guide to Disclosure Exemptions in FRS 102 Section 1A

A Guide to Disclosure Exemptions in FRS 102 Section 1A

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For small businesses in the UK, navigating financial reporting requirements can be a challenging process. FRS 102—the principal financial reporting standard under UK GAAP—can be complex and detailed, especially for entities with limited financial and accounting resources. 

Fortunately, Section 1A of FRS 102 offers disclosure exemptions specifically tailored for small entities. These exemptions significantly reduce the reporting burden while maintaining the integrity of financial statements. Many businesses turn to FRS 102 services to ensure proper implementation of these exemptions and to remain compliant with both FRS 102 and the Companies Act 2006.

What Is FRS 102 Section 1A?


Section 1A is an integral part of FRS 102, introduced to offer a simplified financial reporting framework for companies classified as “small” under the Companies Act. This section applies to companies that meet at least two of the following three conditions:

  • Annual turnover of £10.2 million or less

  • Balance sheet total of £5.1 million or less

  • No more than 50 employees


If a business meets these criteria for two consecutive financial years, it qualifies as a small entity and may choose to prepare its financial statements under Section 1A. The main appeal of Section 1A is the reduction in disclosure requirements compared to the full FRS 102 standard.

Purpose of Disclosure Exemptions


The disclosure exemptions under Section 1A aim to reduce the compliance costs and administrative burden on small businesses. The logic is simple: small entities typically have fewer external users of their financial statements, and the shareholders are often the same individuals managing the business. As such, extensive disclosures found in larger companies’ reports may not be necessary.

Nevertheless, financial statements prepared under Section 1A must still present a true and fair view. Directors must exercise judgment and provide additional disclosures if omitting them would mislead users of the financial statements.

Key Disclosure Exemptions


Section 1A includes a variety of disclosure exemptions that simplify the preparation of financial statements. Below are the primary exemptions available:

1. Cash Flow Statement


Small entities under Section 1A are exempt from preparing a cash flow statement. This exemption alone can save a significant amount of time and effort during the year-end process.

2. Statement of Changes in Equity


Instead of a standalone statement of changes in equity, small companies can present this information in the notes to the accounts, thereby simplifying the layout and structure of their reports.

3. Detailed Notes on Financial Instruments


Disclosure of detailed financial instrument information—such as fair value measurement, risk exposure, and hedging policies—is not required under Section 1A.

4. Employee Benefit Disclosures


Companies are exempt from disclosing detailed information about employee benefits, such as pension obligations or share-based payments, unless they are material to the understanding of the accounts.

5. Segment Reporting


The requirement to report financial information by segment (geographical, business line, etc.) does not apply under Section 1A.

6. Income Statement Analysis


A detailed analysis of income and expenses is not required beyond what is shown in the profit and loss account, unless further information is necessary to ensure the financial statements are not misleading.

Mandatory Disclosures Still Required


Despite the exemptions, Section 1A does impose certain mandatory disclosure requirements to maintain the credibility and reliability of financial statements. These include:

  • Accounting policies

  • Directors’ benefits and remuneration

  • Principal activities of the company

  • Details of post-balance sheet events

  • Contingent liabilities and commitments

  • Related party transactions where relevant

  • Any off-balance sheet arrangements


These disclosures are essential to copyright transparency and allow stakeholders—such as banks, investors, or tax authorities—to make informed decisions.

The Importance of Professional Judgment


One of the core principles underpinning Section 1A is the “true and fair view” requirement. Just because an exemption is available does not mean it should always be used. Directors must evaluate whether excluding a disclosure would hinder users’ understanding of the financial statements.

Professional judgment plays a vital role in ensuring that the financial statements remain useful and relevant while taking advantage of the available exemptions.

Risks of Misapplication


Incorrect application of Section 1A or over-reliance on exemptions can have consequences, including:

  • Non-compliance with accounting standards or company law

  • Rejection of financial statements by auditors or regulatory bodies

  • Damage to the company’s reputation with stakeholders


This is why seeking advice from professionals familiar with small entity reporting standards is highly recommended.

Who Should Use Section 1A?


Section 1A is ideal for companies that:

  • Meet the small entity criteria

  • Have limited external stakeholders

  • Prefer simplified financial reporting

  • Are not part of a group required to report under full FRS 102 or IFRS


For companies anticipating future growth, it may be worth considering whether sticking with full FRS 102 is more appropriate to ease the transition when they exceed the small entity thresholds.

Choosing the Right Support


Whether adopting Section 1A for the first time or refining existing reporting processes, working with qualified accounting professionals can make a significant difference. Providers of GAAP Services can guide businesses in selecting relevant exemptions, ensuring all mandatory disclosures are included, and maintaining overall compliance with the applicable frameworks.

Their role is not just technical but strategic—helping businesses align their reporting with operational needs and long-term objectives.

FRS 102 Section 1A offers a powerful tool for small UK businesses seeking to reduce the administrative burden of financial reporting without sacrificing transparency or compliance. The range of disclosure exemptions available allows for streamlined financial statements, but they must be applied with care and responsibility.

While Section 1A removes many detailed requirements, the fundamental obligation to present a true and fair view remains intact. By combining the right exemptions with sound professional advice, companies can tailor their reporting in a way that supports both regulatory compliance and efficient business management.

If your business qualifies as a small entity, exploring Section 1A could be a smart move—especially when supported by reliable FRS 102 services and expert guidance tailored to your industry and structure.

Related Topics:

A Quick Guide to FRS 102 and FRS 102 1A Reporting Differences
Comparing FRS 102 and FRS 102 1A for Financial Reporting
Understanding the Main Differences Between FRS 102 and 1A
Understanding FRS 102 Section 1A Disclosure Exemptions
Key FRS 102 Section 1A Exemptions for Small Entity Reporting

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