The Hidden Failure Points in FRS 102 and FRS 105 Accounts (And Why Most Reviews Miss Them)

Most sets of accounts that “go wrong” don’t fail because someone misunderstood a complex accounting standard. They fail quietly, predictably, and in the same places year after year.

Overdrawn director loan accounts that no one paused to challenge.
Revenue recognised because an invoice was raised, not because work was done.
Accounts filed to Companies House that don’t quite match the version that was actually signed.

These aren’t rookie errors. They appear in firms of all sizes — including experienced teams working under pressure, juggling volume, deadlines, and tight fee constraints.

The uncomfortable truth is this: the real issue isn’t technical knowledge. It’s where attention is applied.

The shift from technical mastery to operational risk

UK accounting hasn’t become simpler. FRS 102 and FRS 105 are well understood frameworks. But the margin for error has narrowed.

Regulators, insurers, and clients now expect:

• Consistency across years
• Clear, defensible judgement
• Evidence that risks were actually considered

And that expectation applies even to relatively small companies and micro-entities.

At the same time, review processes in many firms still treat every line of the accounts as equal. They aren’t.

A £10 rounding difference does not carry the same risk as an overdrawn director loan account. A formatting issue does not carry the same consequence as revenue recognised without considering cut-off. Yet both often receive the same level of review effort.

That’s where problems begin.

Where accounts really fail: a risk-based view

In practice, there are a small number of areas that carry disproportionate risk — both in terms of frequency and impact.

Director loan accounts sit at the intersection of accounting, tax, and governance. Get them wrong and you don’t just have a disclosure issue; you have a credibility problem.

Revenue recognition is similar. Turnover is not just a number. It’s a statement about how well the business understands its own activity. Recognising income purely on invoice date may feel efficient, but it quietly undermines the integrity of the accounts.

Tax is another fault line. Not because the rules are impossible, but because the handoff between accounts and tax computations is too often assumed rather than verified. When the corporation tax charge doesn’t reconcile cleanly to the CT600, confidence erodes fast — internally and externally.

And then there are the process failures. The quietest and most dangerous of all.

Accounts filed without clear client approval.
Wrong frameworks applied because “that’s what we used last year”.
Final versions that don’t quite match what was signed.

These errors don’t announce themselves. They surface months later — usually when someone external starts asking questions.

A practical heatmap of FRS 102 & FRS 105 risk

Rather than treating every checklist item equally, modern firms increasingly take a risk-weighted approach to preparation and review.

Below is a practical heatmap showing where mistakes most commonly occur, and where their impact is highest.

This kind of visual risk mapping reflects how experienced reviewers actually think:

• Scan high-risk areas first
• Apply judgement where it’s genuinely required
• Avoid wasting time over-documenting routine, low-risk items

It’s not about doing more work. It’s about doing the right work.

Why “more documentation” is not the answer

When firms encounter problems, the instinctive response is often to add more checklists, more sign-offs, more documentation.

That approach rarely works.

Over-documentation:

• Kills margins
• Slows down reviews
• Burns out good staff
• Encourages box-ticking rather than thinking

Good firms don’t try to document everything. They document risk.

Judgment is written down when judgment is applied. Exceptions are recorded when exceptions exist. Routine areas are reviewed efficiently and signed off with confidence.

This isn’t cutting corners. It’s professionalism.

What defensible accounts actually look like

The goal of modern accounts preparation isn’t perfection. It’s defensibility.

Defensible accounts:

• Tell a coherent story
• Are internally consistent
• Show that risky areas were clearly considered
• Allow someone, months later, to explain not just what was done – but why

That is what regulators respect. It’s what insurers look for. And increasingly, it’s what good clients expect.

The quiet difference between compliance and quality

Compliance is about meeting minimum requirements.
Quality is about exercising judgement proportionately and transparently.

The firms that thrive under FRS 102 and FRS 105 aren’t the ones with the longest checklists. They’re the ones that understand where mistakes actually happen — and design their processes around that reality.

That quiet shift, from uniform checking to risk-based thinking, is where modern accounting practices are increasingly drawing the line.

And it’s where the real difference between “acceptable” accounts and good accounts is made.

Frequently Asked Questions: FRS 102 & FRS 105 Accounts

What are the most common mistakes in FRS 102 and FRS 105 accounts?

The most common mistakes are not obscure technical errors. They tend to cluster around a few high-risk areas: director loan accounts, revenue recognition, tax reconciliation, and filing processes.

In practice, many issues arise because accounts are prepared and reviewed uniformly, rather than proportionately. High-risk areas receive the same level of attention as low-risk ones, which increases the chance that important judgement calls are missed.

Are FRS 102 and FRS 105 mistakes usually technical or process-related?

Most problems are process-related rather than technical.

Examples include:

• Accounts filed without clear client approval
• Wrong accounting framework used because it “matched last year”
• Final filed accounts not matching the signed version
• Judgement applied but not documented

These issues rarely stem from lack of knowledge. They arise from time pressure, volume, and weak review controls.

Do small companies and micro-entities really need this level of scrutiny?

Yes- but proportionately.

A £500–£600 micro-entity does not need the same documentation as a complex SME. However, regulators and insurers still expect evidence that:

• High-risk areas were considered
• Obvious issues (such as overdrawn director loan accounts) were not ignored
• Judgement was exercised where required

Good firms scale controls by risk, not by client size alone.

How should reviews be structured under FRS 102 and FRS 105?

Effective reviews are risk-based, not checklist-heavy.

Modern best practice focuses on:

• High-risk areas first (e.g. DLAs, revenue, tax, going concern)
• Clear reviewer sign-off rather than excessive notes
• Documenting judgement only when judgement is actually applied

This approach improves quality while protecting margins and reviewer time.

What changes are coming to FRS 102 that firms should prepare for?

The Financial Reporting Council has confirmed significant amendments to FRS 102, expected to apply for accounting periods beginning on or after 1 January 2026.

The most impactful changes include:

• Revenue recognition moving closer to an IFRS 15-style, performance-based model
• Lease accounting requiring many leases to be brought onto the balance sheet
• Expanded disclosure and judgement requirements in certain areas

These changes will increase the importance of documented judgement and clear review trails, even for smaller entities.

Will FRS 105 (micro-entities) be affected by these changes?

FRS 105 is expected to remain simpler than FRS 102, but it will not be immune to knock-on effects.

As FRS 102 evolves, the gap between micro-entity accounts and small company accounts is likely to widen. This increases the risk of:

• Using the wrong framework
• Applying FRS 102 logic incorrectly to FRS 105 accounts
• Over-disclosure or under-disclosure

Clear framework selection and reviewer oversight will become more important, not less.

How should accounting firms prepare for the upcoming FRS changes now?

The biggest mistake firms make is waiting until the rules formally change.

Best preparation steps include:

• Moving to risk-based review processes now
• Training teams to identify judgement areas early
• Improving documentation of assumptions and decisions
• Ensuring accounts, tax, and filings reconcile cleanly

Firms that already operate defensibly will find the transition far smoother.

Does better documentation always mean more paperwork?

No. In fact, excessive documentation often reduces quality.

High-performing firms document:

• Exceptions, not routine activity
• Judgement, not mechanics
• Risk, not repetition

The goal is not longer files. It’s files that clearly show why key decisions were made.

How does Experlu help firms reduce risk in accounts preparation?

Experlu focuses on intelligent, proportionate control, not box-ticking.

That includes:

• Risk-led review frameworks
• Clear judgement prompts
• Scalable controls for different client types
• Practical tooling that fits real accounting workflows

The aim is simple: defensible accounts, efficient reviews, and fewer unpleasant surprises after filing.