The accounting policies note tells readers which rules the company used to prepare its accounts: how assets are depreciated, when turnover is recognised, how stock is valued, and so on. In FRS 102 Section 1A accounts it is always note 3, "Accounting Policies". This article explains the Policies screen and then each policy Tax Optimiser offers, with its templates.
What this note shows
FRS 102 Section 1A requires a small company to disclose its significant accounting policies. In practice that means a statement of the basis of preparation and a short policy for each material area of the accounts: turnover, fixed assets, stock, tax, leases and so on. A policy is only needed where it matters to the figures. A company with no stock does not need an inventories policy.
FRS 105 micro-entity accounts have no accounting policies note. Micro-entities are presumed to follow FRS 105 and do not disclose policies, so the Policies screen applies only to periods set to FRS 102 Section 1A. See the statutory accounts guide for the difference between the two.
Completing the policies in Tax Optimiser
- Open the period, choose View Accounts, then Policies in the left Actions menu. The Accounting Policies window opens.
- The left-hand list shows every policy category in print order. Policies already switched on carry a green in use badge. Type in Search policies… to filter the list.
- Click a policy to open it in the rich-text editor on the right. You can use bold, italics, lists and tables.
- Tick Use this policy to include it in the accounts, or untick it to leave it out without losing the wording. Typing into an empty policy, or applying a template, ticks the box for you.
- Click Use Template to choose standard wording (the button is greyed out when a policy has no templates).
- Learn more about this policy opens the matching section of this article.
- Click Save changes to save all policies and rebuild the accounts preview.
Wording templates and placeholders
Use Template opens the Policy Templates list for the selected policy. Click Use to insert one. Firm-specific policy templates, where your practice has added them, appear in the same list.
Two things to know:
- Applying a template replaces the existing wording for that policy.
- Policy templates are inserted exactly as written. Unlike note templates, they do not ask you for values. Placeholders such as {{UsefulLife}}, {{CostBasis}}, {{BuildingsRate}} or {{DirectorName}} stay in the text, including the director’s name. Replace each one, curly brackets included, with the real value before you save. For example, change "useful life of {{UsefulLife}} years" to "useful life of 10 years". Otherwise the placeholder will print in the accounts.
After inserting a template, read it through and adapt it to the company. Templates are a starting point, not a substitute for judgement.
How it appears in the accounts
Policies print as note 3, headed Accounting Policies, straight after Statutory Information and Compliance with Accounting Standards. Each policy that is in use and has wording becomes a sub-heading with its text, in the order of the list. Unticked or empty policies are left out. If no policy is in use, the note does not print and the later notes move up.
2026 FRS 102 periodic review
The FRC’s periodic review of FRS 102 introduced a five-step model for revenue recognition and brought most leases onto the balance sheet for lessees. The amendments apply to accounting periods beginning on or after 1 January 2026. Tax Optimiser includes templates for them: Five-step model (periods from 1 January 2026) under Revenue recognition, Lessee accounting (periods from 1 January 2026) under Leased assets, and FRS 102 periodic review - first application under Changes in accounting policies. Use them only for periods that start on or after that date. A year ending 31 December 2026 qualifies; a year ending 31 March 2026 does not.
Policy by policy
The policies below are listed in the order they appear on screen and print in the accounts.
Basis of preparation
When it is needed: Every set of FRS 102 Section 1A accounts. It states the measurement basis and the framework.
- Historical cost / FRS 102 1A: The standard statement for most small companies.
- Historical cost modified for investment property: Use when the company holds investment property at fair value.
Tip: If the company has investment property, choose the "modified" template so the basis matches the Investment property policy.
Presentation currency
When it is needed: Almost always. It confirms the accounts are in sterling and rounded to the nearest pound.
- Sterling: Presented in sterling, the functional currency, rounded to the nearest pound.
Tip: Only change this if the company genuinely operates in another currency, and speak to your accountant first.
Revenue recognition
When it is needed: Whenever the company has turnover. It explains when sales are recognised.
- Goods and services: Recognition when the risks and rewards pass (goods) or as services are performed.
- Long-term contracts: Stage-of-completion accounting. Replace {{StageOfCompletionMethod}}.
- Rental income: Rent recognised on a straight line basis over the lease term.
- Five-step model (periods from 1 January 2026): The revised FRS 102 revenue model, which recognises turnover as performance obligations are satisfied.
Tip: The five-step model template is for periods beginning on or after 1 January 2026. A year ended 31 March 2026 began on 1 April 2025, so it still uses the earlier wording. If the company has more than one income stream, combine the relevant templates in the editor.
Investment property
When it is needed: When the company holds property to earn rent or for capital growth.
- Fair value through profit or loss: Measured at fair value each year, with no depreciation.
- Fair value, with deferred tax and fair value reserve: As above, also explaining deferred tax on fair value gains and the separate reserve.
Tip: Pair this with the "Historical cost modified for investment property" basis of preparation and the Investment property note.
Inventories
When it is needed: When the company holds stock or work in progress.
- Lower of cost and selling price: Lower of cost and estimated selling price, cost on a first-in, first-out basis.
- Lower of cost and selling price - stated cost basis: The same, but you state the cost basis. Replace {{CostBasis}} (for example "weighted average").
Tip: Make sure the cost basis matches how stock is actually valued.
Property, plant and equipment
When it is needed: When the company has tangible fixed assets.
- Cost less depreciation: A general statement without rates.
- Cost less depreciation - rates by class: Lists rates for land and buildings, plant and machinery, fixtures and fittings and motor vehicles. Replace {{BuildingsRate}}, {{PlantRate}}, {{FixturesRate}} and {{VehiclesRate}}.
Tip: Delete any asset class the company does not have, and state each method (straight line or reducing balance) alongside the rate. The rates should match the depreciation charged in the Tangible fixed assets note.
Intangible fixed assets
When it is needed: When the company has intangible assets other than goodwill, such as software, trademarks or licences.
- Cost less amortisation: Straight line amortisation over each asset’s useful life.
- Cost less amortisation - stated useful life: The same with a stated life. Replace {{UsefulLife}}.
Tip: Goodwill has its own policy (below). If goodwill is the only intangible, you can use that instead of this one.
Deferred taxation
When it is needed: When there is a deferred tax balance or charge.
- Timing differences: Deferred tax on timing differences, at enacted or substantively enacted rates.
Tip: Use it alongside the Deferred taxation note.
Dividends
When it is needed: When the company has paid or declared dividends.
- Recognition when payable: Final dividends recognised when declared and legally payable; interim dividends when paid.
Tip: A dividend declared after the year end is not a liability at the year end. Mention it in Events after the reporting date.
Research and development
When it is needed: When the company spends money on research and development.
- Written off as incurred: R&D costs expensed in the year.
Tip: If any development costs are capitalised, edit the wording to say so.
Foreign exchange
When it is needed: When the company has transactions or balances in foreign currencies.
- Transaction and closing rates: Transactions at the rate on the day; monetary balances retranslated at the year-end rate.
Tip: Exchange gains and losses are shown in the Operating profit note.
Government grants
When it is needed: When the company has received grants.
- Accruals model: Revenue grants matched to the related costs; capital grants recognised over the asset’s life.
Tip: FRS 102 also allows a performance model. Edit the wording if the company uses it.
Leased assets
When it is needed: When the company leases assets as a lessee.
- Operating leases: Rentals charged on a straight line basis over the lease term.
- Lessee accounting (periods from 1 January 2026): The revised FRS 102 lessee model, with a right-of-use asset and lease liability. Replace {{BorrowingRateBasis}}.
Tip: The lessee accounting template is for periods beginning on or after 1 January 2026. Earlier periods use "Operating leases" (plus "Hire purchase and finance leases" where relevant).
Pension costs
When it is needed: When the company pays into a pension scheme for staff or directors.
- Defined contribution: Contributions charged as they fall due; scheme assets held separately.
Tip: See also the Pension commitments note.
Going concern
When it is needed: Advisable for every company, and expected when the company has net liabilities or net current liabilities, or has ceased trading.
- Going concern basis: The directors consider the company has adequate resources.
- Net liabilities – support of the director(s): Going concern supported by a director. Replace {{NetLiabilities}} and {{DirectorName}}.
- Basis other than going concern – trade ceased: The company has ceased trading. Replace {{CessationDate}}.
Tip: Tax Optimiser warns you when the balance sheet shows net liabilities, or the company is marked as having ceased trading, and no going concern policy is in use.
Provisions
When it is needed: When the company has provisions for liabilities.
- Recognition and measurement: When a provision is recognised and how it is measured.
Tip: Use it with the Provisions for liabilities note.
Discontinued operations
When it is needed: When the company sold or closed part of its business in the year.
- Discontinued operation: Describes the operation. Replace {{OperationDescription}}, {{SoldOrClosed}} and {{DiscontinuanceDate}}.
Tip: For {{SoldOrClosed}} type "sold" or "closed".
Employee benefits
When it is needed: When the company has employees (including directors on the payroll).
- Short-term benefits: Wages, salaries and paid leave expensed as the service is rendered.
Tip: Add holiday pay accrual wording if the company accrues for untaken leave.
Share capital
When it is needed: When the company has shares.
- Ordinary shares as equity: Ordinary shares classified as equity, with issue costs deducted from equity.
Tip: See the Share capital note for the share details.
Changes in accounting policies
When it is needed: When policies have changed, or to confirm they have not.
- No changes: There were no changes in the year.
- FRS 102 periodic review - first application: First application of the 2026 FRS 102 amendments (revenue and leases). Replace {{TransitionDate}} and {{TransitionImpact}}.
Tip: The periodic review amendments apply to periods beginning on or after 1 January 2026. Use {{TransitionImpact}} to describe the effect on the opening figures.
Exclusion of prepared consolidated financial statements
When it is needed: When the company is the parent of a small group and does not prepare group accounts.
- Small group exemption: Relies on the small group exemption in section 399(2A) of the Companies Act 2006.
Tip: Use it with the Investments note for the subsidiary.
Financial instruments
When it is needed: Most companies, since trade debtors, creditors and loans are financial instruments.
- Basic financial instruments: Only basic instruments, at transaction price and amortised cost.
- Trade debtors and impairment: Trade debtors at amortised cost less any impairment provision.
Tip: Use "Basic financial instruments" unless the company holds derivatives or other complex instruments.
Taxation
When it is needed: Whenever the company has a tax charge.
- Current and deferred tax: The tax charge comprises current and deferred tax.
- Current tax: Current tax only, based on taxable profit.
Tip: Choose "Current and deferred tax" if there is a deferred tax balance.
Impairment of assets
When it is needed: Where assets could be worth less than their carrying amount.
- Annual impairment review: Assets reviewed at each reporting date; any impairment charged to profit or loss.
Tip: Impairment charges are shown in the Operating profit note.
Judgements and key sources of estimation uncertainty
When it is needed: When the directors have made significant judgements or estimates, or to confirm there are none.
- Key judgements and estimates: Describes them. Replace {{JudgementsAndEstimates}}.
- None significant: No critical judgements or key estimates.
Tip: Typical estimates are useful lives, stock provisions, bad debt provisions and property valuations.
Fixed asset investments
When it is needed: When the company holds shares in subsidiaries or other investments as fixed assets.
- Subsidiaries at cost, other shares at fair value: Subsidiaries at cost less impairment; other shares at fair value where measurable.
Tip: Match it to the Investments note.
Hire purchase and finance leases
When it is needed: When the company has assets on hire purchase or finance leases.
- Hire purchase and finance leases: The assets are capitalised and depreciated; the finance charge is spread over the term.
Tip: For periods beginning on or after 1 January 2026, consider the lessee accounting template under Leased assets.
Goodwill
When it is needed: When the company has bought a business and carries goodwill.
- Amortised over useful life: Straight line amortisation (not more than ten years where the life cannot be estimated reliably). Replace {{UsefulLife}}.
Tip: The life should match the amortisation in the Intangible fixed assets note. In the demo company, goodwill is written off over 10 years.
Frequently asked questions
Do micro-entity (FRS 105) accounts need accounting policies?
No. FRS 105 accounts do not include an accounting policies note, and the Policies screen is only used for FRS 102 Section 1A periods.
Why does {{UsefulLife}} appear in my accounts?
Policy templates are inserted word for word and do not prompt for values. Open the policy, replace the placeholder (including the curly brackets) with the real figure, and click Save changes.
How many accounting policies does a small company need?
Only those relevant to its figures. Most trading companies need basis of preparation, revenue recognition, tangible fixed assets, taxation and financial instruments, plus others such as inventories, leases or going concern where they apply.
Can I change the order the policies print in?
No. Policies print in the fixed order of the list. You control which ones print with Use this policy.
When do I need a going concern policy?
It is good practice in all accounts, and Tax Optimiser warns you if the company has net liabilities or net current liabilities, or has ceased trading, and no going concern policy is in use.