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FRS Factsheet 13 - The Going Concern Basis of Accounting for Small Companies and Micro-entities

This factsheet has been prepared by FRC staff to aid preparers of small company and micro-entity accounts in applying FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland or FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. It should not be relied upon as a definitive or complete statement on the application of the standards and associated legislation, nor is it a substitute for reading the detailed requirements of both standards and that legislation.

The FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it. This document contains copyright material of the IFRS® Foundation (Foundation) in respect of which all rights are reserved. No rights are granted to third parties other than as permitted by the Terms of Use (http://www.frc.org.uk/FRStermsofuse) without the prior written permission of the FRC and the Foundation. Material issued in respect of the application of Financial Reporting Standards in the UK and the Republic of Ireland has not been prepared or endorsed by the International Accounting Standards Board. © The Financial Reporting Council Limited 2025 The Financial Reporting Council Limited is a company limited by guarantee. Registered in England number 2486368. Registered Office:13th Floor, 1 Harbour Exchange Square, London, E14 9GE

1. Introduction

1.1.This factsheet has been prepared to aid preparers of small company and micro-entity accounts in the UK in applying the going concern basis of accounting under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland or FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

Background

1.2.The assumption that a company is and will continue as a going concern is a fundamental concept in accounting standards and company law that underlies the preparation of financial statements for all UK companies,¹ including small companies and micro-entities.

1.3.Directors of all companies, regardless of size are required to assess the appropriateness of the going concern basis of accounting when preparing the financial statements.

1.4.In many cases, small companies and micro-entities have straightforward business activities and fewer lenders and creditors. As a result, the assessment process for these companies is likely to be simpler than for larger, more complex companies. Nevertheless, it is still important that the assessment is carried out.

1.5.As a result of the Periodic Review 2024 completed in March 2024, changes were made to the disclosure requirements in UK accounting standards relating to going concern, which include new disclosures for small companies. These changes are effective for periods beginning on or after 1 January 2026.

Purpose

1.6.This factsheet is intended to help directors of small companies and micro-entities in performing going concern assessments and in preparing financial statements disclosures about their conclusions and how those conclusions were reached, to the extent required by accounting standards and company law.

1.7.It brings together the requirements of company law and accounting standards for small companies and micro-entities relating to reporting on the going concern basis of accounting and any material uncertainties in the financial statements.

Scope

1.8.Small companies and micro-entities are defined in the Companies Act 2006 (the Act) in sections 381 to 384 and sections 384A to 384B, respectively.

1.9.Small companies that prepare Companies Act individual accounts² could choose to apply FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, which includes an option for more limited disclosures as set out in Section 1A Small Entities of FRS 102 (the small companies regime).³

1.10.Section 2 and Section 3 of this factsheet apply to small companies that choose to apply FRS 102 including the small companies regime, rather than all companies that meet the definition of a small company under the Act. For example, this factsheet does not address the requirements for small companies that choose to prepare IAS accounts or that apply FRS 101 Reduced Disclosure Framework.

1.11.Micro-entities may prepare Companies Act individual accounts² using FRS 102, the small companies regime or FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime.

1.12.Micro-entities that voluntarily choose to prepare their financial statements under FRS 102 or the small companies regime instead of FRS 105 should refer to Section 2 and Section 3 of this factsheet. Section 4 is intended for micro-entities preparing financial statements under FRS 105.

1.13.The table below summarises the scope of this factsheet and highlights the specific sections applicable to each company based on the accounting standards used:

Accounting standards	Size category	Relevant section of the factsheet
FRS 102 or Section 1A Small Entities of FRS 102 (small companies regime)	Small company or micro-entity	Section 2 and Section 3
FRS 105	Micro-entity	Section 4

1.14.The factsheet is also likely to be helpful for other types of entities (for example, LLPs) of the same size category and applying the same accounting standards. Such entities may be subject to other requirements not covered in this factsheet depending on their legal form.

1.15.The factsheet may also be helpful to small companies and micro-entities in the Republic of Ireland that are preparing their financial statements in accordance with FRS 102 or FRS 105, as applicable. However, the disclosure requirements are different and companies in the Republic of Ireland should refer to FRS 102, FRS 105 and the Companies Act 2014 for the relevant requirements.

How to use the factsheet

1.16.The factsheet uses the following terms to distinguish between mandatory requirements (in law or accounting standards), good practice and other suggestions or examples:

Terminology

'Must' or 'required to' are used to refer to mandatory requirements derived from law or accounting standards for companies within their scope. Such requirements might be mandatory only when resulting disclosures would be material.

'Should' is used throughout this document to refer to good practice and recommended ways of applying the requirements in law or accounting standards.

'Could' or 'may' is generally used when preparers may wish to consider alternative ways to perform assessments and present information, or when providing examples of issues, techniques or disclosures which may be applicable depending on the company's specific circumstances.

2. The going concern basis of accounting and material uncertainties

Assessment

Adoption of the going concern basis of accounting

Summary of requirements

2.1.All companies, including small companies and micro-entities, must assess the appropriateness of the going concern basis of accounting when preparing their financial statements.

2.2.Financial statements are normally prepared on the assumption that the company is a going concern and will continue in operation for the foreseeable future.⁴

2.3.Companies are required to adopt the going concern basis of accounting, except in circumstances when the directors determine at the date of approval of the financial statements either that they intend to liquidate the company or to cease trading or have no realistic alternative to liquidation or cessation of operations.⁵

2.4.The threshold for departing from the going concern basis of accounting is very high, as there are often realistic alternatives to liquidation or cessation of operations. Such realistic alternatives can exist even if they depend on uncertain future events.

2.5.The assessment process carried out by the directors (see Section 3 for more information) should be proportionate to the size, complexity and the particular circumstances of the company.

2.6.The assessment must take into account all relevant facts and circumstances at the date of approval of the financial statements.⁶ It is not appropriate to prepare the financial statements using the going concern basis of accounting if the directors determine after the reporting period that they intend to liquidate the company or to cease trading or have no realistic alternative but to do so.⁷

2.7.Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern basis of accounting is still appropriate. If it is no longer appropriate, the effect is so pervasive that it requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting.⁸

2.8.When making the assessment, directors might apply significant judgement in:

the determination of the assumptions used in the assessment (see Section 3); and
the determination of whether the going concern basis of accounting is appropriate and whether there are material uncertainties (see below).

2.9.The assessment should be sufficiently robust and documented in sufficient detail to explain the basis of the directors' conclusion with respect to the going concern basis of accounting at the date of approval of the financial statements. The documentation should include any significant judgements made and assumptions used, which should usually be consistent with those used in other forward-looking parts of the financial statements (such as impairment reviews) unless FRS 102 permits or requires otherwise in specific circumstances.

Material uncertainties

Summary of requirements

2.10.FRS 102⁹ requires directors to assess the company's ability to continue as a going concern. As part of their assessment, the directors must determine if there are any material uncertainties relating to events or conditions that may cast significant doubt upon the company's ability to continue as a going concern.

2.11.In performing this assessment, the directors must consider all available information about the future.

2.12.Events or conditions could result in the going concern basis of accounting being inappropriate in future reporting periods.

2.13.In assessing material uncertainties, directors should:

identify any events or conditions by reviewing an appropriate assessment period;
consider the realistically possible outcomes of these events and changes in conditions by assessing the magnitude of the potential impacts and the likelihood of their occurrence;
consider the realistic availability and likely effectiveness of any mitigating actions to such events and conditions that would be available to the directors; and
consider whether the uncertain future events or changes in conditions are unusual, rather than occurring with sufficient regularity for the directors to make predictions about them with a high degree of confidence.

2.14.Section 3 sets out factors to consider when identifying events or conditions, and techniques that may be used in the assessment, while paragraphs 2.17 to 2.20 cover the assessment period.

2.15.Uncertainties relating to such events or conditions are considered material if their disclosure could reasonably be expected to affect the economic decisions of owners and other users of the financial statements. This is a matter of judgement. In making this judgement, the directors should consider the uncertainties arising from their assessment, both individually and in combination with others.

2.16.Uncertainties should not usually be considered material if the likelihood that the company will not be able to continue to use the going concern basis of accounting is assessed to be remote, however significant the assessed potential impact is.

The assessment period

Summary of requirements

2.17.FRS 102¹⁰ provides for a minimum period that must be reviewed by directors as part of their assessment of the going concern basis of accounting and any material uncertainties. It requires companies to consider a period of at least, but not limited to, 12 months from the date the financial statements are authorised for issue.

2.18.The minimum period for the going concern assessment does not mean that the outlook should be limited to 12 months. A longer assessment period may be more appropriate, if significant events or conditions (such as large debt repayments, debt covenant tests, significant capital commitments or expiry dates for key contracts or licences) are identified beyond that minimum period that may cast significant doubt upon the continuing use of the going concern basis of accounting.

2.19.Determining the appropriate assessment period is a matter of judgement for the directors. Directors must consider all available information about the future when determining the assessment period, which includes the company's specific circumstances, risks and factors relevant to the assessment (see Section 3). If the directors choose to perform an initial assessment over 12 months, they still need to carry out a robust assessment of material uncertainties as set out in paragraphs 2.10 to 2.16 considering events and conditions that are evident up to the date of approval of the financial statements, including any events and conditions identified over a longer period.

2.20.If a longer assessment period has been selected or when the determination of the assessment period involves significant judgement, companies should clearly identify in their going concern disclosures the period covered by the assessment and the reason for selecting that duration.

Reporting requirements

Summary of requirements

2.21.FRS 102 requires a company that prepares financial statements on a going concern basis to disclose that fact, together with confirmation that the directors have considered all available information about the future.¹¹

2.22.When a company does not prepare financial statements on a going concern basis, it must disclose that fact, together with the basis on which it prepared the financial statements and the reason why it is not regarded as a going concern.¹²

2.23.FRS 102 requires disclosure when the directors are aware of material uncertainties related to events or conditions that may cast significant doubt upon the company's ability to continue to adopt the going concern basis of accounting.¹²

2.24.A company must also disclose, in accordance with FRS 102 paragraph 8.6, any significant judgements made in assessing the company's ability to continue as a going concern.¹¹

Basis of preparation

2.25.All financial statements must describe the basis of preparation, including material accounting policy information.¹³ This includes the adoption of the going concern basis of accounting or any alternative basis adopted if the going concern basis of accounting is not appropriate.

2.26.The explicit statement about the adoption of the going concern basis of accounting and confirmation that the directors have considered all available information about the future as required by FRS 102 forms part of the basis of preparation.¹¹

2.27.Companies could include a summary of how the directors reached their conclusions, for example, with reference to their profitability, cash flows, liquidity position, available borrowing facilities or other sources of financing including the techniques applied in the analysis. This may be particularly relevant for users at times of greater economic uncertainty.

2.28.The amount of information provided should be proportionate to the uncertainties to which the company is exposed and to its financial and liquidity position. A company facing greater uncertainty and with less financial headroom may need to provide more detail than one without such challenges.

2.29.For example, a small company with a material uncertainty or significant judgement relating to its borrowing facilities, might disclose information about its levels of drawn and undrawn facilities, repayment terms, covenants, headroom, and whether the company expects any breaches of covenants or waivers of covenants during the going concern assessment period. The greater the uncertainty the company faces, the more likely such information is to be material and relevant to users in understanding how such matters might affect the company's financial and liquidity position.

Material uncertainties

2.30.When there are material uncertainties that may cast significant doubt upon the company's ability to continue to adopt the going concern basis of accounting, the financial statements must disclose them. The financial statements should clearly disclose the existence and nature of the material uncertainty, including:

a description of the principal events or conditions that may cast significant doubt; and
the directors' plans to deal with these events or conditions.

2.31.Disclosures about material uncertainties should be company-specific, and should identify the specific issue and how it could affect the company's financial position and liquidity.

Significant judgements, assumptions and true and fair view

2.32.Disclosures about significant judgements related to going concern assessments should be company-specific and should clearly identify the judgement made. For example, companies could explain the company-specific factors considered (see Section 3) and how they affected the assessment, such as the events or conditions that are subject to significant judgement, or the feasibility and effectiveness of the directors' plans or mitigating actions in response to those events or conditions.

2.33.Examples of situations that could involve significant judgement in determining whether the going concern basis of accounting is appropriate or whether a material uncertainty exists (if they have a significant effect on the overall assessment either individually or when considered together with other factors) may include:

when a significant borrowing facility may need to be restructured or renewed;
when a waiver of a covenant by a lender of a significant borrowing facility may be needed; or
if other types of significant business changes, asset disposals or cost reductions are planned during the assessment period and these have been assumed in the assessment based on the directors' expectations of achieving them.

Summary of requirements

2.34.Other disclosures may be required by accounting standards or company law; for example, to comply with requirements to disclose key assumptions concerning the future and other key sources of estimation uncertainty,¹⁴ or for the financial statements to give a true and fair view.

2.35.The directors are responsible for ensuring that the financial statements give a true and fair view.¹⁵

2.36.The financial statements of a company must give a true and fair view of the assets, liabilities, financial position and profit or loss of the company for the reporting period.¹⁶

2.37.In order to give a true and fair view, financial statements may need to provide disclosures in addition to those set out in FRS 102.¹⁷

2.38.Any disclosures about key assumptions should be company-specific and provide sufficient information about the directors' basis for their assessment. This allows users to understand whether the assumptions are consistent with those applied in other areas of the financial statements (such as impairment reviews) or if not, the reason why; for example, if another section of FRS 102 permits or requires otherwise.

2.39.Directors must consider whether additional disclosures relating to the going concern basis of accounting and any material uncertainties are necessary for the financial statements to present a true and fair view.

2.40.This involves considering whether additional company-specific information is necessary to understand the particular circumstances.

2.41.For example, a small company may be heavily loss-making or have substantial net liabilities. The financial statements of the small company might therefore give the impression that the company is experiencing significant financial difficulties. However, the existence of ongoing support from its owners may, in some circumstances, mean that no material uncertainty exists. Disclosure of this ongoing support as a key assumption made in the assessment may be necessary to give a true and fair view.

3. The assessment process

3.1.This section sets out factors to consider and techniques that may be applied in assessing whether the going concern basis of accounting is appropriate and whether there are any material uncertainties that may cast significant doubt that it will continue to be so.

3.2.As set out in Section 2, the directors must consider all available information about the future in performing these assessments. Examples of internal and external factors to consider are set out in the table after paragraph 3.14.

3.3.Directors should assess which factors are likely to be relevant to their company. These factors will vary according to the company's particular circumstances including its business activities, sources of finance, industry, and how it is affected by the general economic and wider external environment.

Extent of assessment

3.4.The extent of the directors' assessment process will depend on the size, complexity and particular circumstances of the company. The process is likely to be simpler and less extensive for companies that depend on fewer providers of finance and are readily able to access finance, have more straightforward business activities with a history of profitable and cash-generating operations, and are less affected by the economic and wider external environment. However, it is still important that the assessment is carried out and addresses, to the extent necessary, the directors' plans to manage the company's borrowing requirements, the timing of cash flows and the company's exposure to contingent liabilities.

3.5.In contrast, directors of companies with more complex circumstances may need to consider a wider range of factors including those related to current and expected profits and cash flows, debt covenants and maturities, potential alternative sources of finance, potential changes to the business model and various market and other external conditions that could affect the business and its financial and liquidity position.

3.6.The assessment of the going concern basis of accounting is an integral process in managing the business. The assessment should be robust and appropriately documented.

3.7.In many cases, the directors of small companies and micro-entities are also its owners and there may not be any independent oversight or review of the going concern assessments. However, sufficient time should be allowed for performing and documenting the assessment, and preparing disclosures.

3.8.The level of detail applied in the analysis will depend on the scale and nature of the risks and uncertainties a company faces. In many cases, small companies and micro-entities may not have a detailed method to assess going concern, but instead may rely on the directors' in-depth knowledge of the business and anticipated future prospects which might be documented less formally compared to larger companies.

3.9.The going concern assessment and related disclosures may need to be updated to reflect any developments occurring after the end of the reporting period but before the financial statements are authorised for issue.

Forecasts and budgets

3.10.For the purposes of assessing whether the going concern basis of accounting is appropriate, directors could prepare a budget, trading estimate, cash flow forecast or other equivalent analysis covering the appropriate assessment period (as described in Section 2). The directors could also review previous forecasts or other analyses against actual results and make appropriate adjustments to the analysis for the current assessment.

3.11.Cash flow forecasts and other financial plans can indicate whether there is an adequate matching (of both the timing and the amount) of projected cash inflows with projected cash outflows, including those for the settlement of different liabilities, such as loan repayments, payment of tax and other commitments.

3.12.Preparing forecasts often involves significant judgement and various assumptions, which must be reasonable and supportable, reflect conditions at the date of authorisation of the financial statements and should usually be consistent with other forward-looking parts of the annual report such as any impairment reviews, unless FRS 102 permits or requires otherwise in specific circumstances. Both internal and external factors and sources of information are relevant when making these judgements and assumptions. Directors should be aware of their own potential bias when making judgements and assumptions in forecasts: for example, overestimation of positive outcomes and underestimation of negative effects. As discussed in Section 2, significant judgements and assumptions may need to be disclosed in the financial statements.

3.13.Small companies and micro-entities could use information from reputable external sources (e.g. from the Bank of England or statistical reports from reputable, authoritative sources) in determining assumptions that are both appropriate and relevant to the company's specific circumstances. These assumptions may include inflation rates, growth rates and discount rates.

Factors to consider

3.14.Directors should consider both internal and external factors in the assessment. When evaluating which factors to consider, directors should think broadly of the uncertain future events or conditions most relevant to them. Examples of factors to consider in the assessment include but are not limited to those set out in the table that follows.

Factors	Factors
Expected sales volumes and prices	Working capital risks
Raw material, energy, labour, transportation and other costs	Availability of borrowings
Inflation rates	Compliance with borrowing covenants
Exchange rates	Interest rates
Acquisitions, disposals, restructuring or other planned changes to the business activities	Alternative sources of finance
Technological, sustainability-related or other external developments affecting products and services	Support from government bodies
Geopolitical and economic events	Capital commitments
A customer or supplier failing (counterparty and supply chain risks)	Penalties or damages from claims or legal judgements (contingent liabilities)
Business disruption or systems failure including from digital or cybersecurity threats	Changes in legislation, government policy or public finance
Availability of cash balances	Changes in taxation rates

3.15.When relevant, directors could read paragraphs 5.15 to 5.30 of the FRC's Guidance on the Going Concern Basis of Accounting and Related Reporting (including Solvency and Liquidity Risks), issued in February 2025, on specific factors and apply these proportionately.

Common considerations for small companies and micro-entities

3.16.The above factors apply as much to small companies and micro-entities as they do to larger companies. However, certain considerations may be particularly relevant or more common for small companies and micro-entities.

3.17.For example, the size of a company may affect its ability to withstand adverse conditions. Small companies and micro-entities may be able to respond quickly to exploit opportunities but may lack reserves to sustain operations.

3.18.Conditions of particular relevance to small companies and micro-entities include the risk that banks and other lenders may cease to support the company, exposure to significant legal claims or litigation, as well as the possible loss of a principal supplier, major customer, key employee, or the right to operate under a licence, franchise or other legal agreement. Small companies and micro-entities may be more vulnerable to these events or conditions due to their typically focused resources and narrower scope of operations.

Owner-supported financing

3.19.Continued support by owners is often important to the ability of small companies and micro-entities to continue as a going concern. If a company is largely financed by a loan from the owner, it may be important that these funds are not withdrawn. For example, a company in financial difficulty may be dependent on the owner subordinating a loan to the company in favour of banks or other creditors, or the owner supporting a loan for the company by providing a guarantee with their personal assets as collateral. In such circumstances, the directors should consider the ability of the owner to provide adequate support and maintain appropriate documentation for such arrangements as part of the going concern assessment.

Group considerations

3.20.Directors of small companies and micro-entities applying FRS 102 or the small companies regime that are members of a group should consider the following when relevant:

the need for support from the parent company or fellow subsidiaries;
the ability and intention of the parent company or fellow subsidiaries to provide adequate support over the period covered by the going concern assessment; and
the risks to the company arising from support that it has undertaken to provide to other members of the group.

3.21.Directors could read Section 7 Group considerations of the FRC's Guidance on the Going Concern Basis of Accounting and Related Reporting (including Solvency and Liquidity Risks), issued in February 2025.

Techniques

3.22.In more complex circumstances, directors of small companies and micro-entities could also consider additional techniques to tailor the analysis to support their assessment.

3.23.Additional techniques that may assist directors in preparing their assessments include different types of sensitivity analysis, stress tests and scenario analysis.

3.24.Directors could refer to paragraphs 5.31 to 5.36 of the FRC's Guidance on the Going Concern Basis of Accounting and Related Reporting (including Solvency and Liquidity Risks), issued in February 2025, to understand what these techniques involve and determine whether to use them. These different techniques could be applied in a way that is proportionate to the circumstances.

3.25.For example, to support an uncomplicated going concern assessment based on a cash flow forecast, the directors could choose to prepare a simple sensitivity analysis by changing the most critical assumption (such as the growth rate) to assess its impact on the forecast.

3.26.In contrast, to support a more complex going concern assessment for a business that is more susceptible to a variety of uncertainties, the techniques used may be more complex and may require significant judgement.

4. The micro-entities regime: the going concern basis of accounting under FRS 105

4.1.This section is intended for micro-entities choosing to prepare financial statements under FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime. It addresses some key questions for directors of micro-entities to consider in relation to the going concern basis of accounting.

Adoption of the going concern basis of accounting

Question 1: When is a micro-entity considered a going concern?

Answer

4.2.FRS 105 financial statements are normally prepared on the assumption that the micro-entity is a going concern and will continue in operation for the foreseeable future. However, if the directors either intend to liquidate the company or cease trading, or have no realistic alternative but to do so, the financial statements must be prepared on a different basis.¹⁸

4.3.FRS 105 (consistent with other accounting standards applicable in the UK) sets a very high threshold for departing from the going concern basis of accounting, as there are often realistic alternatives to liquidation or cessation of operations. Such realistic alternatives can exist even if they depend on uncertain future events.

Question 2: Are directors of micro-entities required to assess the appropriateness of the going concern basis of accounting?

Answer

4.4.Yes. When preparing financial statements under FRS 105, the directors of a micro-entity must make an assessment of whether the going concern basis of accounting is appropriate. The going concern basis of accounting is appropriate unless the directors either intend to liquidate the micro-entity or to cease trading, or have no realistic alternative but to do so.¹⁹

4.5.The assessment must take into account all available information about the future, including all relevant facts and circumstances at the date of approval of the financial statements.¹⁹

4.6.The assessment process carried out by the directors of a micro-entity should be proportionate to its size, complexity and particular circumstances.

4.7.FRS 105 does not prescribe any factors to consider or any particular approach for the going concern assessment of a micro-entity. The directors of micro-entities could read the information in Section 2 and Section 3 about the assessment process, including the factors to consider.

Period of assessment

Question 3: What is the minimum period of assessment for micro-entities?

Answer

4.8.FRS 105 states that in assessing whether the going concern basis of accounting is appropriate, the directors must take into account all available information about the future, which is at least, but is not limited to, 12 months from the date when the financial statements are authorised for issue.²⁰

4.9.This 12-month period is a minimum assessment period and not a cap which means that a longer assessment period could be more appropriate in some circumstances. Refer to paragraphs 2.18 to 2.19 for further information.

Disclosures

Question 4: Are there any reporting requirements for micro-entities relating to the going concern basis of accounting under FRS 105?

Answer

4.10.No. Under FRS 105, micro-entities are not required to make specific disclosures about the going concern basis of accounting. This is different from FRS 102 which requires specific disclosures about the going concern basis of accounting, including any material uncertainties and significant judgements.

4.11.However, if a micro-entity is being wound up, FRS 105 requires that fact to be disclosed in the financial statements.²¹

Question 5: How does the true and fair view concept apply to the going concern basis of accounting for micro-entities?

Answer

4.12.The financial statements of a micro-entity that comply with FRS 105 are presumed in law to give a true and fair view of the financial position and profit or loss of the micro-entity in accordance with the micro-entities regime.²²

4.13.The following provisions of the Act apply to the directors of a micro-entity that choose to apply the micro-entities regime when considering whether the financial statements give a true and fair view:

Where the financial statements comprise only micro-entity minimum accounting items (as set out in FRS 105 and in company law), the directors must disregard any provision of an accounting standard which would require the financial statements to contain information additional to those items.

In relation to a micro-entity minimum accounting item in the financial statements, the directors must disregard any provision of an accounting standard which would require the financial statements to contain further information in relation to that item.

Where the financial statements contain an item of information additional to the micro-entity minimum accounting items, the directors must have regard to any provision of an accounting standard which relates to that item.²³

4.14.FRS 105 does not require disclosures in addition to the micro-entity minimum accounting items.

4.15.If the directors of a micro-entity provide additional disclosures beyond the micro-entity minimum accounting items in FRS 105, they must have regard to any requirements of Section 1A Small Entities of FRS 102 that relate to that information or disclosure.²⁴

4.16.As there are no disclosure requirements in FRS 105 relating to the going concern basis of accounting, if the directors of a micro-entity provide any additional information they must have regard to the disclosure requirements in FRS 102. Examples of disclosures that are addressed by Section 1A Small Entities of FRS 102 include when:

the going concern basis of accounting is not appropriate and a different basis of accounting has been used;
the going concern basis of accounting is appropriate but there are material uncertainties;
the going concern basis of accounting is appropriate but the assessment involved significant judgement; or
the going concern basis of accounting is appropriate and there are no material uncertainties.²⁵

The going concern basis of accounting is not appropriate

Question 6: What are the implications to the financial statements when the directors conclude that the micro-entity is not a going concern?

Answer

4.17.If at the end of the reporting period, or if after the end of the reporting period but before the financial statements are authorised for issue, the directors either intend to liquidate the micro-entity or to cease trading, or have no realistic alternative but to do so, the financial statements must be prepared on a basis other than the going concern basis of accounting.²⁶

4.18.Deterioration in operating results and financial position after the reporting period may lead the directors to determine that they intend to liquidate the micro-entity or to cease trading or that they have no realistic alternative but to do so. If the going concern basis of accounting is no longer appropriate, the effect is so pervasive that it requires a fundamental change in the basis of accounting.²⁷

4.19.For micro-entities that are no longer considered a going concern, FRS 105 does not prescribe a different basis of accounting. This is for the directors to determine.

4.20.As mentioned above in 4.11, under FRS 105 micro-entities are required to disclose in their financial statements the fact that the company is being wound up.²⁸

Financial Reporting Council

London office: 13th Floor, 1 Harbour Exchange Square, London, E14 9GE

Birmingham office: 5th Floor, 3 Arena Central, Bridge Street, Birmingham, B1 2AX +44 (0)20 7492 2300

www.frc.org.uk

Footnotes

For simplicity, this factsheet uses the terms 'director' and 'company'. The factsheet is also likely to be relevant to other entities. ↩
Under section 395 of the Act, a company's individual accounts may be prepared in accordance with (a) section 396 (Companies Act individual accounts), or (b) UK-adopted international accounting standards (IAS individual accounts). ↩↩
FRS 102 paragraph 1A.1. Section 1A of FRS 102 sets out the presentation and disclosure requirements for a small company that chooses to apply the small companies regime. Unless excluded by Section 1A, all of the requirements of FRS 102 apply to a company applying the small companies regime, including the recognition and measurement requirements. ↩
FRS 102 paragraph 2.30 and paragraph 11 of Schedule 1 to The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 (SI 2008/409) ↩
FRS 102 paragraphs 2.30 and 3.8 ↩
FRS 102 paragraph 3.8 ↩
FRS 102 paragraph 32.7A ↩
FRS 102 paragraph 32.7B ↩
FRS 102 paragraphs 3.8-3.9 ↩
FRS 102 paragraph 3.8 ↩
FRS 102 paragraphs 1AC.2C and 3.8A (effective for periods beginning on or after 1 January 2026) ↩↩↩
FRS 102 paragraphs 1AC.2C and 3.9 (effective for periods beginning on or after 1 January 2026) ↩↩
FRS 102 paragraphs 1AC.3, 8.5 and 8.5A ↩
FRS 102 paragraph 8.7. This is not explicitly required for companies choosing to apply Section 1A of FRS 102. ↩
Companies Act 2006, section 393. The FRC paper True and Fair (June 2014) provides further information. ↩
FRS 102 paragraphs 1A.5 and 3.2 ↩
FRS 102 paragraphs 1A.6 and 3.2 ↩
FRS 105 paragraph 2.7 ↩
FRS 105 paragraphs 3.3, 26.8 and 26.9 ↩↩
FRS 105 paragraph 3.3 ↩
FRS 105 paragraph 3.13A (e) ↩
FRS 105 paragraph 3.2 ↩
Companies Act 2006, section 393 (1A) ↩
FRS 105 paragraph 1.3 ↩
FRS 102 paragraphs 3.8, 3.8A and 3.9 ↩
FRS 105 paragraphs 2.7 and 26.8 ↩
FRS 105 paragraph 26.9 ↩
FRS 105 paragraph 3.13A(e) ↩

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Name FRS Factsheet 13 - The Going Concern Basis of Accounting for Small Companies and Micro-entities

Publication date 28 August 2025

Type Information sheet

Format PDF, 355.9 KB

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FRS Factsheet 13 - The Going Concern Basis of Accounting for Small Companies and Micro-entities

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