Section 8 of FRS 102 sets the framework for the notes to the accounts: a statement of compliance, the material accounting policy information, supporting detail for each line in the primary statements, then other disclosures. It also requires two disclosures that readers rely on most: the significant judgements management made in applying its policies, and the key sources of estimation uncertainty that could materially change the carrying amount of assets and liabilities within the next financial year.

What are the notes for?

Paragraph 8.1 says the notes contain information in addition to the primary statements. They give narrative descriptions or breakdowns of items presented in those statements, and information about items that do not qualify for recognition at all, such as contingent liabilities. Almost every other section of FRS 102 adds its own disclosures, and these normally appear in the notes too.

Paragraph 8.2 gives the notes three jobs: to present the basis of preparation and the specific accounting policies used, to disclose information FRS 102 requires that is not presented elsewhere, and to give information that is not presented elsewhere but is relevant to understanding the accounts. The third limb is open ended. A company that meets every specific disclosure requirement can still fall short if a reader cannot understand a material transaction.

What order should the notes follow?

Paragraph 8.3 requires the notes to be presented, as far as practicable, in a systematic manner, with each item in the primary statements cross referenced to the related note. Paragraph 8.4 sets the normal order:

  1. a statement that the financial statements comply with FRS 102;
  2. a summary of material accounting policy information;
  3. supporting information for items in the primary statements, in the order in which each statement and each line item is presented; and
  4. any other disclosures.

Company law is firmer. Paragraph 42(2) of Schedule 1 to SI 2008/410, and the same paragraph of SI 2008/409 for small companies, says the notes must be presented in the order in which, where relevant, the items they relate to appear in the balance sheet and the profit and loss account. Small companies are reminded of the same rule at paragraph 1AC.2.

The compliance statement under paragraph 3.3 must be explicit and unreserved, and accounts cannot be described as complying with FRS 102 unless they comply with all of it. A small company using Section 1A must also state clearly that Section 1A has been applied (paragraph 1AC.2A).

What goes in the accounting policies note?

Paragraph 8.5 requires disclosure of material accounting policy information, including the measurement basis or bases used, such as historical cost or fair value. Policy information is material if, taken together with the rest of the accounts, it could reasonably be expected to influence the decisions of users. Company law sets a floor: paragraph 44 of Schedule 1 requires the policies used to determine balance sheet amounts and profit or loss to be stated, including those for depreciation and diminution in value of assets.

FRS 102 then helps preparers cut the note down. Paragraph 8.5A says policy information about immaterial transactions is generally immaterial and need not be given, subject to company law, which requires some policies regardless of materiality, such as for development costs. Paragraph 8.5B lists situations where policy information is likely to be material because it relates to material items and:

  • the policy changed during the period and the change had a material effect;
  • the policy was chosen from options FRS 102 allows, such as the cost or revaluation model for property;
  • the policy was developed under Section 10 because no section of FRS 102 specifically applies;
  • the area requires significant judgements or assumptions that are disclosed under paragraphs 8.6 and 8.7; or
  • the accounting is complex, for example where more than one section applies to the same class of transaction.

Paragraph 8.5C adds that policy information explaining how the entity has applied FRS 102 to its own circumstances is more useful than standardised wording that only repeats the standard. A turnover policy that says “revenue is recognised when performance obligations are satisfied” tells the reader nothing; one that says when a building contractor recognises revenue on a fixed price contract and how it measures progress does.

What is the difference between a judgement and an estimate?

FRS 102 separates the two and asks for different disclosures.

  • Judgements (paragraph 8.6) are decisions management makes in applying its accounting policies, other than those involving estimation, that have the most significant effect on the amounts recognised. Examples include deciding whether a property is investment property or owner occupied, whether a company controls an entity in which it holds less than half the votes, whether a lease arrangement exists, and whether the business is a going concern. Paragraph 3.8A specifically requires significant judgements made in the going concern assessment to be disclosed under paragraph 8.6.
  • Key sources of estimation uncertainty (paragraph 8.7) are assumptions about the future and other sources of uncertainty at the reporting date that carry a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year. For each such asset or liability, the notes must give its nature and its carrying amount at the year end.

The test for paragraph 8.7 is narrow: a significant risk of a material adjustment within the next financial year. An estimate that is uncertain but stable, or whose effect would only emerge over many years, may not qualify. Equally, a long list of every estimate in the accounts dilutes the disclosure that readers need.

What does a good judgements and estimates note look like?

Illustration only. A manufacturer has a stock provision and a property it lets to a group company.

Judgement
The company owns a warehouse let to a fellow subsidiary. The directors have judged that it is held to earn rental income and not for the company’s own use, so it is classified as investment property and carried at fair value with changes in profit or loss.
Estimate
Stock includes finished goods of £420,000 for a product line being discontinued. The directors have estimated selling prices using recent clearance sales. If prices achieved are 10% lower than estimated, a further write down of about £42,000 would be required. The carrying amount of this stock at the year end is £420,000.

The estimate note works because it names the asset, gives its carrying amount as paragraph 8.7 requires, and shows the sensitivity. For how stock is measured, see stock valuation.

What notes does a small company applying Section 1A need?

Paragraph 1A.16 requires a small entity to give enough information in the notes for the accounts to show a true and fair view. As a minimum, paragraph 1A.16A requires a UK small entity to give the disclosures in Appendix C to Section 1A where relevant to its transactions. Paragraph 1A.17 says a small entity is not specifically required to follow the disclosure requirements of Sections 8 to 35, but may need to give any of them that relate to material transactions in order to give a true and fair view. Paragraph 1A.17A allows an immaterial disclosure to be omitted, except where the Companies Act requires it regardless of materiality.

Appendix C includes, among others:

  • the explicit statement of compliance and that Section 1A has been applied (1AC.2A);
  • going concern disclosures under paragraphs 3.8A and 3.9 (1AC.2C);
  • the accounting policies, including depreciation and impairment (1AC.3), with a pointer that disclosing the paragraph 8.6 judgements may be useful;
  • the average number of employees, from section 411 of the Companies Act 2006 (1AC.33);
  • the company’s registered number, place of registration, legal form and registered office, from section 396 (1AC.37); and
  • dividends declared and paid or payable (1AC.40).

Section 444 of the Companies Act 2006 lets a small company deliver only its balance sheet to Companies House, but the accounts prepared for members still need the full notes. See small company accounts filing options.

What mistakes come up in the notes?

  • Boilerplate policies. Copying the wording of the standard fails paragraph 8.5C and buries the policies that are actually material.
  • Policies for things the company does not have. Hedge accounting or government grant policies for a company with neither add length without information.
  • Mixing judgements and estimates. Paragraphs 8.6 and 8.7 ask different questions; an estimate disclosure without a carrying amount does not meet paragraph 8.7.
  • Notes out of order or without cross references. Schedule 1 paragraph 42(2) and FRS 102 paragraph 8.3 both apply.
  • A qualified compliance statement. “Prepared in accordance with FRS 102 except for” is not an explicit and unreserved statement under paragraph 3.3.
  • Thin going concern wording. Paragraph 3.8A requires confirmation that management has considered information about the future. See going concern assessment.
  • Not explaining policy changes. A changed policy or a prior period restatement needs the Section 10 disclosures; see policies, estimates and errors.

For the standard as a whole, see FRS 102 explained.

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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.