Section 3 of FRS 102 requires financial statements to give a true and fair view, sets out what a complete set contains, requires comparatives for every amount, and requires an explicit and unreserved statement of compliance with the standard. It also contains the going concern disclosures and the rules on materiality, consistency and identifying the accounts. Small entities using Section 1A are excused some, but not all, of it.

What does Section 3 cover?

Paragraph 3.1 says Section 3 sets out the requirement that financial statements give a true and fair view, what compliance with FRS 102 requires, and what a complete set of financial statements is. It sits between the concepts in Section 2 and the detailed statement sections that follow. Paragraph 3.1A lists the parts a small entity applying Section 1A can ignore: the disclosure requirements of paragraphs 3.12, 3.13 and 3.24(b), and paragraphs 3.17 to 3.19 on the full set of statements. Paragraph 3.1B says any small entity, under whichever regime, need not produce a cash flow statement unless a SORP, law or regulation requires one.

What does true and fair mean under FRS 102?

Paragraph 3.2 says the financial statements shall give a true and fair view of the assets, liabilities, financial position, financial performance and, where presented, cash flows. Applying FRS 102, with additional disclosure when necessary, is presumed to achieve that. The additional disclosure is needed when following the specific requirements is not enough for users to understand the effect of particular transactions or conditions.

This mirrors company law. Section 393 of the Companies Act 2006 says directors must not approve accounts unless satisfied they give a true and fair view, and section 396(4) requires extra information in the accounts or notes where the regulations alone would not achieve it. The FRC’s basis for conclusions records that “true and fair” and “presents fairly” are synonymous, being different ways of expressing the same concept, as confirmed by legal opinion.

When can an entity depart from a requirement?

Paragraph 3.4 allows a departure only in special circumstances, where management concludes that complying with a requirement of FRS 102, or of legislation that allows an override, would be inconsistent with a true and fair view. Section 396(5) of the Act is the legal basis for companies. Paragraph 3.5 then requires disclosure that:

  • management has concluded the accounts give a true and fair view;
  • the entity has complied with FRS 102 or the legislation except for a particular departure made to the extent necessary; and
  • the nature and effect of the departure, the treatment that would otherwise be required, why that treatment would be so misleading that it conflicts with the objective in Section 2, and the treatment adopted.

Paragraph 3.6 requires the paragraph 3.5(c) disclosures again in later periods while the departure still affects the amounts recognised. How the override works for small companies is covered under FRS 102 Section 1A.

What is the statement of compliance?

Paragraph 3.3 requires an entity whose accounts comply with FRS 102 to make an explicit and unreserved statement of that compliance in the notes, and says accounts must not be described as complying unless they meet all its requirements. A public benefit entity using the PBE paragraphs must also say it is a public benefit entity (PBE3.3A). For UK small entities, paragraph 1AC.2A of Appendix C requires the same statement and says it must make clear that Section 1A has been applied.

This note is different from the statements on the balance sheet. Section 414(3) of the Act requires a small company’s balance sheet to carry, above the director’s signature, a statement that the accounts are prepared under the small companies regime, and audit exempt companies give further statements covered in audit exemption for small companies.

What makes up a complete set of financial statements?

Paragraph 3.17 lists five components:

  1. a statement of financial position at the reporting date;
  2. either a single statement of comprehensive income, or a separate income statement and statement of comprehensive income;
  3. a statement of changes in equity;
  4. a statement of cash flows; and
  5. notes, comprising material accounting policy information and other explanatory information.

Two simplifications are available. Under paragraph 3.18, if the only changes in equity come from profit or loss, dividends, prior period error corrections and accounting policy changes, a single statement of income and retained earnings can replace the statement of comprehensive income and statement of changes in equity. Under paragraph 3.19, an entity with no other comprehensive income can present only an income statement. Paragraph 3.21 requires each statement to be presented with equal prominence, and paragraph 3.22 allows other titles, such as balance sheet and profit and loss account, provided they are not misleading. Small entities using Section 1A need only a balance sheet, income statement and notes under paragraph 1A.8.

How do comparatives and consistency work?

Paragraph 3.14 requires comparative information for the preceding period for all amounts in the current period’s statements, and for narrative information where it helps understanding. Paragraph 3.20 draws the conclusion that a complete set means at least two of each statement and the related notes. Paragraph 3.14A gives one relief: the reconciliation of fixed asset movements required by paragraph 51 of Schedule 1 to the Regulations need not be shown for the prior period.

Paragraph 3.11 requires presentation and classification to be kept the same from one period to the next unless a significant change in operations or a review shows another presentation is more appropriate, or a standard requires the change. Paragraph 3.12 then requires the comparatives to be reclassified, with the nature, amount and reason disclosed, unless that is impracticable, in which case paragraph 3.13 asks for the reason. Company law adds its own rule in paragraph 7 of Schedule 1: where a prior year figure is not comparable and is adjusted, the particulars must be disclosed.

Paragraph 3.10 requires a complete set at least annually. Where the reporting date changes and the accounts cover a period longer or shorter than a year, the entity must disclose that fact, the reason, and that the comparatives are not entirely comparable. This often follows changing a company’s year end.

What does Section 3 say about going concern and materiality?

Paragraph 3.8 requires management to assess the entity’s ability to continue as a going concern, looking at all available information about at least, but not limited to, 12 months from the date the accounts are authorised for issue. Paragraph 3.8A, added in the Periodic Review 2024 for periods beginning on or after 1 January 2026, requires disclosure that the going concern basis has been used, confirmation that management has considered that information, and any significant judgements. Paragraph 3.9 requires disclosure of material uncertainties and, where the going concern basis is not used, the basis adopted and why.

On materiality, paragraph 3.15 requires each material class of similar items to be presented separately. Paragraph 3.16A warns against obscuring material information with immaterial detail, and paragraph 3.16B allows a specific disclosure to be omitted if the information is not material, even where the standard lists it as a minimum. Its footnote cautions that some disclosures required by the Act must be given regardless of materiality.

What must identify the financial statements?

Paragraph 3.23 requires each statement and the notes to be clearly identified, with the entity’s name and any change of name, whether they cover a single entity or a group, the period end and period covered, the presentation currency and the level of rounding. Paragraph 3.24 requires the legal form, country of incorporation and registered office address, and a description of the entity’s operations. For companies, section 396(A1) of the Act requires the part of the UK in which the company is registered, its registered number, whether it is public or private and limited by shares or guarantee, its registered office address and, where relevant, that it is being wound up.

Illustration only. A company changes its year end from 31 March to 31 December and prepares nine month accounts. Its notes must state the shorter period, why it changed, and that the twelve month comparatives are not entirely comparable.

What goes wrong most often?

  • A compliance statement claiming full compliance when a departure or omission exists.
  • Reclassifying items in the current year without restating and explaining the comparatives.
  • Omitting the new going concern basis statement because no material uncertainty exists.
  • Dropping a legally required disclosure on materiality grounds.
  • Leaving out the registered number or registered office required by section 396(A1).

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.