Changes to FRS 102 have been widely discussed – particularly the updates to lease accounting and revenue recognition. However, another important area is the revised disclosure framework for small entities applying Section 1A.
For accounting periods beginning on or after 1 January 2026, small UK entities will need to consider enhanced disclosures to ensure their financial statements continue to give a true and fair view.
In this article, Ian Orgill explains what’s changed and what it means for your business.
What’s changed – and why it matters
Section 1A has always required entities to include sufficient information to present a true and fair view, supported by a set of minimum disclosures.
The updated standard does not introduce a fully prescriptive disclosure regime for small entities. Instead, it clarifies expectations and increases alignment with full FRS 102, meaning that additional disclosures may be required where they are material to understanding the financial statements.
In practice, this means businesses may need to provide more detailed disclosures in areas such as:
- Going concern
- Provisions and contingencies
- Income taxes (current and deferred)
- Leasing arrangements
- Revenue and customer contracts
- Share-based payment transactions
The key principle remains unchanged: disclosures should be sufficient to achieve a true and fair view.
A major shift: Related party disclosures
One of the most significant changes relates to related party transactions.
Previously, small entities were exempt from disclosing related party transactions conducted at normal market rates. This exemption has now been removed.
What does this mean in practice?
Small entities will now need to disclose all material related party transactions, including:
- the nature of the relationship;
- transaction amounts;
- outstanding balances and commitments at the reporting date;
- key terms and conditions (including whether secured), and guarantees;
- any provisions for doubtful debts or amounts written off.
This brings Section 1A closer to full FRS 102 requirements in this area, although the overall disclosure regime remains less extensive.
What about directors?
Certain disclosures continue to be specifically required, including:
- Directors’ loans and guarantees (amounts, terms, interest, repayments, write-offs, and maximum exposure).
There is still no explicit requirement within Section 1A to disclose directors’ remuneration. However, additional disclosure may be necessary where needed to give a true and fair view.
Importantly, transactions with directors that are not remuneration (for example, property rentals, service arrangements, or loans) fall within related party disclosures and must be included.
What are the implications of the updated related party rules?
These changes mean that financial statements may now include information that was previously not disclosed, such as:
- shareholder and director loan arrangements;
- intra-group transactions;
- other connected party dealings.
This may have wider implications for stakeholder relationships, financing discussions, and expectations around transparency.
Dividend disclosure – a new requirement
A further key change is the introduction of a specific requirement to disclose dividends declared and paid (or payable) during the period.
Where an entity presents a statement of changes in equity, dividends should be clearly presented, and where relevant, shown by share class.
What are the implications for remuneration strategy?
For many owner-managed businesses that have historically favoured dividends over salary or bonuses, the total dividends paid will now be visible within the financial statements.
As a result, some businesses may wish to reconsider the balance between:
- salary and bonuses;
- pension contributions;
- dividends.
Any changes should be considered in light of tax, cash flow, and commercial objectives.
Other points to be aware of
- Section 1A is not available to public interest entities, banks, insurers, or certain regulated businesses.
- A company may apply Section 1A if it qualifies as small under the Companies Act, even if it is part of a larger group (subject to eligibility criteria).
- Entities choosing to apply full FRS 102 must comply with its full disclosure requirements; moving between frameworks should be carefully considered in light of consistency and comparability.
Where should small entities start?
As with any reporting change, early preparation is key. Practical steps include:
- reviewing current disclosures to identify gaps;
- identifying related party relationships and transactions early;
- considering the interaction with other FRS 102 updates;
- engaging advisers ahead of the year-end.
Final thoughts
The aim of these updates is to improve transparency while retaining a proportionate reporting framework for small entities.
While the changes may appear incremental, the practical impact – particularly in relation to related parties and dividends – can be significant. A more proactive and structured approach to disclosures will be increasingly important.
If you’re looking for advice you can visit the Cowgills website here, along with the Cowgills LinkedIn page.
