Any crown copyright material is reproduced with the permission of the Comptroller of Her Majesty's Stationery Office. The importance of price sensitive information 589 Underlying principles of the listing rules and disclosure rules 589.
The External Audit Requirement
Audit Exemption for Dormant Companies
The exemption granted by section 249AA of CA 1985 only covers the annual audit requirement: a dormant company must still prepare annual accounts in accordance with the accounting provisions of the legislation and provide a copy to the Registrar.
Definition of ‘Dormant’
Eligibility for Audit Exemption as a Dormant Company
In February 2006, the DTI issued a clarification that there was no intention to change the provisions on the audit exemption for dormant companies due to the implementation of SI 2005/1011 and that the references would be corrected when the opportunity arose. In the meantime, they should be interpreted as referring to the new provisions of Article 247A.
Members Requiring an Audit to be Carried Out
Directors’ Statement
Dormant Company Acting as Agent
Audit Exemption for Small Companies
Eligibility for Exemption
The exemption for certain appointed representatives applies to accounts filed with the Registrar on or after 5 September 2005 and generally allows small businesses involved in insurance brokerage or mortgage advice to take advantage of the audit exemption. The Financial Services Authority (FSA) has also issued a consultation paper outlining proposals to bring all small firms and appointed representatives within the scope of the audit exemption on the basis that suitable alternative arrangements are already in place to protect consumers dealing with them. small businesses.
Small Groups and Dormant Subsidiaries
The FSA notes that the proposals are supported by the DTI and, if they meet with general acceptance, the relevant legal changes could be implemented by the end of 2006. The draft company law reform bill published in May 2006 contained a proposal to increase the group turnover threshold to £700,000 net or £840,000 gross in the case of a small charitable company registered in England and Wales.
Conditions for Audit Exemption
Total Exemption Conditions
Charitable Companies
It should be noted that in the case of full exemption from audit the balance sheet threshold was raised to £2.8m by the Companies Act 1985 (Financial Statements of Small and Medium-sized Enterprises and Exemption from Audit) (Amendment) Regulations 2004 (SI 2004 /16) for charities as well as other companies, although the DTI initially indicated that it did not intend to do so. This creates the slight anomaly that for a charity the balance sheet threshold for full exemption from audit is significantly higher than the equivalent threshold under the terms of the report (see 1.14 below).
Report Conditions
Special Report by Reporting Accountants
Members Requiring an Audit to be Carried Out
Directors’ Statement
Has members who do not own more than 10% of the share capital (or any class of share capital).
Appointment of External Auditors
Appointment of First Auditors
Appointment in Subsequent Years
Election to Dispense with the Annual Appointment of Auditors
Once appointed, the auditors shall hold office until the end of that 28-day period or, if applicable, until the conclusion of the meeting. If the directors are not appointed in accordance with section 385(3) or 385A(3) CA 1985, the auditors may be appointed by the company at a general meeting.
Failure to Appoint Auditors
Casual Vacancies
Resolutions in Respect of Casual Vacancies
Change in Eligibility for Audit Exemption
Once appointed, the auditors remain in office until the conclusion of the meeting or the end of the 28-day period, as the case may be. If the directors do not make an appointment under these sections, auditors may be appointed by the company in general meeting.
Eligibility for Appointment as Company Auditor
Auditor Independence
Professional Requirements on Independence
Ethical Issues and the Smaller Company
Annual Disclosures on Independence
Post-Enron Developments
Audit firms with listed and public clients should disclose in this annual report any fee representing more than 5% of the total fee and should also ensure that the audit committee or board of the relevant audit client is aware of their potential financial dependence on the appointment. . The entity responsible for monitoring the performance of audit firms with listed clients should continue to develop inspection themes (such as auditor independence) and should publish annual information on how it monitors the independence requirements and aggregate information on the effectiveness of the management of such . conditions from the larger audit firms.
Provision of Non-Audit Services
The review decided against the mandatory rotation of audit firms because it could have a negative impact on the quality and effectiveness of the audit, especially in the early years of an auditor's appointment, and would entail significant additional costs, especially in terms of management time. and has not had a strong positive impact in the countries where it has been introduced. These include giving the audit committee specific responsibility for periodically considering whether a change of external auditors is necessary, and professional requirements regarding the rotation of key audit partners on a regular basis.
Rotation of Audit Partners
Regulation of Auditors
Action when Auditor becomes Ineligible for Appointment
Power of the Secretary of State to Require a Second Audit
Changes in External Audit Appointments
Regular Review of Audit Arrangements
Resignation of Auditors
Provided that the relevant conditions are met, the resignation of the auditors takes effect from the date on which the notice is filed or from any later date specified in the notice. The company must send a copy of the notice to the Registrar of Companies within 14 days of its filing at the registered office.
Rights of Resigning Auditors
Obligations of the Company and its Directors
If the auditor's statement is received too late for the company to comply with these requirements, or if the company simply fails to comply, the auditors may request that their statement be read at the meeting. This is without prejudice to the auditors' right to speak at the meeting about any part of the business that concerns them as former auditors.
Auditors Not Seeking Reappointment
Special provisions allow the statement not to be served or read where the court is satisfied that the rights conferred by section 392 of CA 1985 have been abused.
Removal of Auditors During Term of Office
Failure to Reappoint Retiring Auditors
If the company decides in writing to appoint someone other than the outgoing auditors, a copy of the decision must be sent immediately to the outgoing auditors.
Rights of Auditors Who Have Been Removed or Not Reappointed
Obligations of the Company and its Directors
Termination of Appointment Where Auditors are Not Appointed Annually
Additional Rights of Member Who Deposited Notice
Statement Required from Auditors Ceasing to Hold Office
Action Required by the Company
Action Required by the Former Auditor
Auditors are therefore generally advised to send copies of all statements to the registrar, unless they have been notified of a court application. If the company applies to the court and the court decides that the auditor is not using the statement for undue publicity, the auditors must send a copy of their statement to the registrar within seven days of the company receiving notice of the court's decision. .
Professional Requirements on a Change of Auditor
It is not entirely clear whether this requirement applies only when there are circumstances that the auditors consider should be brought to the attention of members and creditors, or whether it applies equally to statements that there are no such circumstances. Auditors who fail to comply with these requirements are liable to fines, although it is a defense for auditors to show that they took all reasonable steps and exercised all due care to prevent the breach.
Rights and Duties of External Auditors
Rights in Respect of General Meetings
Rights to Information
Furthermore, where the company's accounts are subject to audit, section 234ZA of CA 1985 requires the directors' report to include a formal statement that, at the date on which the report is approved, no director has withheld information from the auditors that he or she . knows, or should know, would be relevant to the audit. As with similar provisions of company law, whether a director ought to know a matter must be assessed on the basis of whether it would be known to a reasonably diligent person with the knowledge, skill and experience expected of a person who performs the functions of a director and also the specific knowledge, skills and experience that the individual director has.
Rights in Relation to Overseas or Unincorporated Subsidiary Undertakings
This disclosure requirement applies to accounting periods beginning on or after 1 April 2005 and ending on or after 6 April 2005.
Rights in Relation to Written Resolutions
The accountants are also entitled to receive any communications in relation to a written resolution required to be provided to a member of the company under Schedule 15A to CA 1985. However, the clauses on the duties and rights of accountants reserve the right of the accountant . to receive all communications relating to a written decision provided to members of the company.
Duty to Report on the Annual Accounts
There are penalties for failure to comply with this requirement, although it is a defense to show that it was not feasible to comply or that there were reasonable grounds to believe that the auditors had been informed of the proposed solution. The recent review of company law recommended a simplification of the procedures for written resolutions, and the draft Company Law Reform Act published in May 2006 no longer includes the obligation for directors to provide a copy of a proposed written decision to send to the accountants.
Duties in Respect of Accounting Records
Duty in Respect of Information and Explanations Not Received
Duty in Respect of Disclosure of Directors’
Duty in Respect of Exemption from Preparing Group Accounts
Duty to Report Directly to Regulators
Duty to Report Known or Suspected Money Laundering
Fraud, tax evasion and breaches of other legislation will potentially be covered by the reporting requirement (for example, money saved by failing to comply with health and safety requirements will be considered to constitute the proceeds of crime) and there is no triviality threshold, so any offense must be considered, regardless of the amount.
Statutory Reporting by External Auditors
Report on Annual Accounts
Most of the above requirements were introduced by the Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004 (SI and the Companies Act 1985 (Operational and Financial Review and Directors' Report etc.) Regulations 2005 (SI 2005/1011). it included in the legislation similar requirements for the auditors to express an opinion on whether the accounts present a true and fair view and were properly prepared in accordance with CA 1985 and for the auditors of listed companies to report on certain elements of the directors' remuneration report but, in the case of the directors' report, requires the auditors to report only on any discrepancy with the accounts.
The True and Fair View and IAS Accounts
Names of the Auditors
Signature of the Report
Requirements of Auditing Standards
Although the ISA contains illustrative language for audit reports, in November 2005 the APB issued Bulletin 2005/4 Auditor's Reports on Financial Statements in Great Britain and Northern Ireland, which provides the latest examples of auditors' reports on the accounts for use in the United Kingdom. . This applies to financial years beginning on or after 1 April 2005 and is instead addressed in ISA (UK and Ireland) 720 (Revised), which was published in April 2006.
Financial Framework
However, in December 2005, the APB issued a press release explaining that the European Commission's Accounting Regulatory Committee had subsequently expressed support for the phrase 'in accordance with IFRSs as adopted by the EU'. The APB noted that the difference was not considered sufficiently significant at this stage to warrant revision of Bulletin 2005/4, but the EC's wording has been added as a footnote to the electronic version of the document for auditors to use. if they want.
Compliance with Full IFRSs
There were concerns that the wording 'as adopted for use in the EU' could imply that the standards are only intended for use in the EU, which is not necessarily the case.
Parent Company’s Individual Accounts
This report is addressed solely to the members of the company, as a whole, in accordance with section 235 of the Companies Act 1985. Our audit work has been carried out so that we can communicate to the members of the company the matters we are required to disclose. in an auditor's report and for no other purpose.
Date of Auditors’ Report
To the fullest extent permitted by law, we accept or assume no responsibility to anyone other than the Company and its members as a body for our audit work, for this report or for the judgments we have made.'
Qualified Opinions, Adverse Opinions and Disclaimers
Significant Uncertainty
In these circumstances, the auditors should consider adding an explanatory paragraph to their report, drawing attention to the uncertainty but making it clear that their opinion is not qualified in this respect. The standard specifically requires that such a paragraph be added to the auditor's report where the significant uncertainty involves a going concern problem.
Directors’ Report
Summary Financial Statements
The summary of financial statements must be derived from the annual accounts and other reports and must comply with the requirements of section 251 CA 1985 as to their form and content. Instructions on the procedures to be carried out by the auditors are given in Bulletin APB 1999/6. The auditor's statement on the summary of the financial statements and the last example of the auditor's report on the summary of the financial statements is given in the APB Bulletin 2002/2. UK Directors.
Shorter Form Accounts
The APB is currently consulting on whether to update Bulletin 1999/6 to take account of recent legislative changes in relation to summaries of financial statements, or on a UK and Irish version of ISA 800 'The Independent Auditor's Report on Summary Audited Financial Statements' should be adopted instead. Shorter accounts are still required to present a true and fair view, although they are not required to provide all the information provided for other companies.
Abbreviated Accounts
Accountants are therefore still required to express an opinion on whether the shorter financial statements give a true and fair view, unless the company qualifies for audit exemption (see 1.1–1.17 above).
Impact of Qualified Audit Report on the Full Accounts
The legislation does not cover the situation where the auditor's report on the complete financial statements relates to a material uncertainty, but APB Bulletin 2006/3 (see 1.81 above) notes that the details set out in the legislation are minimum disclosure requirements that do not preclude the inclusion of other information to the report, which the auditor considers to be important for a correct understanding of the report. The bulletin also includes guidance on including an 'other matters' paragraph in the auditor's report (for example, the auditor's opinion on the consistency between the directors' report and the financial statements) and whether this should be repeated in the special report. .
Revised Annual Accounts
In particular, the APB considers it necessary for the auditor to include each emphasis of matter paragraph from the full audit report in the special report, together with any other material necessary to understand it.
Revised Directors’ Report or Directors’
1990 (SI 1990/2570 as amended by subsequent SIs), the auditors are required to state whether, in their opinion, the information provided in the revised report is consistent with the financial statements for the year in question. Where the directors' remuneration report has been revised, the auditors are required to express an opinion on whether any auditable part of the revised report has been properly prepared.
Distribution Where the Audit Report is Qualified
If there has been a change of auditors, the directors may decide that the report on the revised directors' report should be made by the auditors who reported on the accounts issued with the original directors' report, provided they agree to make this report and that they would still be eligible for appointment as auditors.
Distribution by Public Company Based on Initial Accounts
The auditor's report (and the statement, where relevant) must be delivered to the Registrar of Companies with the initial accounts before the distribution takes place.
Re-registration of a Private Company as a Public Company
Redemption or Purchase of Own Shares Out of Capital
The legislation does not provide for the possibility of qualifying this report, so if the accountants cannot make these statements, the redemption or purchase cannot proceed.
Financial Assistance for the Purchase of Own Shares
Allotment of Shares by a Public Company Other Than for Cash
The legislation makes no provision that the independent accountant's report is qualified. Additional requirements apply in terms of section 108(7) of CA 1985 where the consideration for the transfer of a non-cash asset is only partially satisfied by the allocation of shares.
Transfer of Non-cash Assets to a Public Company by a Member of the Company
Additional requirements apply under section 108(7) of CA 1985, where the consideration for the transfer of a non-cash asset is only partially met by the allocation of shares. 1.91 Transfer of Non-Cash Assets to a Public Company by a Member of the Company . over). Additional requirements apply under section 109(3) of CA 1985, where the consideration is only partially given for the transfer of a non-cash asset.
Other Reporting by External Auditors
Reporting to Management
Auditing standards require that auditors report significant weaknesses in accounting and internal control systems to the directors or senior management in a timely manner, unless the weakness has already been identified by the entity and appropriate corrective action has been taken. The auditors will usually ask directors or senior management to respond to the points raised in their report, indicating the actions to be taken.
Scope of Report
If the company has an audit committee, these matters can be reported to the directors through the committee (see below). It is normal practice for auditors to follow up on all matters that have been reported, usually during their subsequent audit, to confirm that the action agreed in response to the points raised has actually been taken.
Confidentiality of Reports
Less important issues are usually discussed in a meeting with directors or senior management, and the points raised are documented for future reference, along with any agreed actions.
Reporting Under the Combined Code
There is no requirement in the listing rules that auditors must prepare a formal report on the results of their review, or that such a report must be published. If the auditors are not satisfied with the adequacy of the corporate governance information and cannot resolve the issues through discussion with the board, they are required to report their concerns in a separate section as part of their opinion on the financial statements, but this will not constitute a reservation for their report on the annual accounts.
Agreement of Scope of Review
The latest APB guidelines now require that the scope of the auditors' review of corporate governance statements be explained in the section of the audit report explaining the auditors' responsibilities. Examples can be found in APB Bulletin 2005/4 Auditor's Reports on Financial Statements in Great Britain and Northern Ireland (copies can be downloaded from the APB website at http://www.frc.org.uk/apb/publications/).
Reporting on Interim Reports
The reports also recommend disclosing the extent to which the information in the interim report has been revised or reviewed (see the ASB website at www.frc.org.uk/asb/publications/ for information on obtaining copies). The most up-to-date guidance on review report wording can be found in APB Bulletin 2001/02 Revisions to the Text of Auditors' Reports on Financial Statements and the Interim Review Report (copies can be downloaded from the APB website at www.frc.org.uk/apb/publications/) .
Remuneration of External Auditors and their Associates
However, the new disclosure requirements make a number of changes to the disclosure of audit fees in group accounts. The amount to be disclosed is the compensation payable in respect of the current year.
1.111 Internal Audit
The purpose, authority and scope of the internal audit department's work should be recorded in a formal document. If the internal audit function is a separate department within the organization, the head of internal audit will be a management appointment.
1.135 Audit Committees
The audit committee must assess the results of the external audit in conjunction with the annual report and annual accounts. The chairman of the audit committee is usually appointed by the entire board.
Useful Websites on Audit Related Matters
Specimen Terms of Reference for an Audit Committee
Overview
The purpose of managing working capital is to ensure that sufficient funds are available to meet the daily cash flow needs of the business. There are a number of common weaknesses that need to be addressed when managing working capital.
Importance of Cashflow Management
Business growth always puts pressure on cash flow, but careful management can help minimize the need for working capital.
Managing Working Capital
To effectively manage working capital and cash flow, management must have regular and reliable information about what is happening in every aspect of the business.
Common Weaknesses
Managing Cash Resources
Key Aspects
Need for Cashflow Forecasts
Preparing a Detailed Cashflow Forecast
Depending on the nature of the business, it may be possible or desirable to prepare cash flow forecasts for a longer period. Another useful option is to prepare the forecast on a rolling basis, so that projections for an additional period are added on a monthly or quarterly basis as appropriate, and the detailed forecast always looks twelve months ahead.
Assumptions
For example, in the case of sales, in addition to predicting the total amount of goods or services that will be sold over the period, it will also be necessary to assess when the company's customers will actually pay for the goods and services that they have received. , taking into account the company's standard payment terms and also previous experience of doing business with those customers.
Sensitivity Analysis
Using a Cashflow Forecast
Regular Comparison of Actual with Forecast
Relationship with Bank
Monitoring Bank Balances
Investment of Surplus Funds
Internal Controls Over Cash
Managing Debtors
Prompt Conversion into Cash
Deposits and Interim Payments
Invoicing
Disputed Items
Customer Credit Terms
Incentives for Prompt Payment
Use of Customer Credit Limits
Effective Debt Collection Procedures
Debt Factoring and Invoice Discounting
Depending on the precise terms of the agreement, the control over the debtor bookkeeping and the responsibility for collecting the amounts due (and for any losses on debtors) can be taken over by the factoring company or remain with the company. The precise terms of the factoring or discounting agreement will determine the accounting treatment to be adopted in the company's accounts.
Charging Interest on Overdue Debts
Where invoice discounting is used, funds are advanced against the company's outstanding invoices, and the company retains control and responsibility for collecting the amounts due. In both cases, interest will be charged on the amounts advanced and various service charges may also be payable.
Managing Creditors
Fees may be fixed in advance or may be adjusted to reflect the actual level of debt collection. Entities that adopt international accounting standards will have to meet the requirements of IAS 39 "Financial Instruments: Recognition and Measurement".
Relationship with Suppliers
Internal Control Over Purchases and Expenses
Particular care must also be taken when setting up new accounts with suppliers and about the terms of trade agreed with them – both the opening of the account and terms of trade must be authorized at an appropriate level. There should also be a formal tender process for all major purchases so that the company can ensure it gets the best deal possible, and regular checks should be carried out to confirm that the tender process is being used in practice.
Regular Monitoring of Creditors
Taking Advantage of Discounts
Other Creditors
Managing Stock
Costs of Holding Stock
Monitoring and Control
For each major inventory line, reasonable order quantities and reorder levels should be determined based on updated information on usage levels and lead times, which should be continually reviewed. A system should be put in place to identify and track slow and potentially obsolete items so that they can be disposed of as quickly and efficiently as possible.
Physical Stock Checks
Useful Websites on Cashflow Management and Related Issues
Maintenance and Retention of Accounting Records
If the preparation of accounts is outsourced, care should be taken to ensure that the arrangements meet CA 1985 requirements. CA 1985 also prescribes where records must be kept and for how long they must be kept.
Legal Requirement to Keep Accounting Records
Memorandum entries should be made of any adjustments not entered in the accounting records before the end of the accounting year (eg provisions for bad debts). A parent company must also take all reasonable steps to ensure that its subsidiaries keep adequate accounts.
Interpretation of the Requirement
Insolvency Act 1986 - it is essential that the directors of the company always have access to accurate information to determine the company's solvency.
Impact of Provisions and Adjustments
Outsourcing
Contents of Accounting Records
Statements of Stock and Stocktakings
Additional Duties of Parent Company
Location and Inspection of Accounting Records
Retention of Accounting Records
What Needs to be Retained?
Computerised Records
Documents Retained in Other Forms
Consequences of Non-compliance
Requirement to Prepare Annual Accounts
Special provisions on the preparation of accounts apply to an overseas company (ie a company incorporated outside the UK but with a branch or place of business here). A company's financial year is determined by its accounting reference date – CA 1985 contains detailed provisions for determining and changing the accounting reference date.
Individual Company Accounts
A company's financial year is determined by its accounting reference date – CA 1985 contains detailed provisions for determining and changing the accounting reference date. remuneration and interests in related companies), and these continue to apply to both the Companies Act and IAS accounts.
Group Accounts
Exemption from Group Accounts Requirement
Oversea Companies
Delivery of Accounts to Registrar
Company with Branch in the UK
If the home state does not have accounting requirements, the entity must prepare and deliver accounts as if it were an overseas company to which section 700 applied (see 3.19 above).
Proposed Changes
Accounting Reference Date
First Financial Period
Subsequent Financial Years
This can e.g. used to ensure that the end of the financial year falls on a weekend to simplify the accounting procedures.
Change of Accounting Reference Date
Shortened First Financial Period
Laying and Delivering Accounts
Laying of Accounts
Requirement to Send Out Accounts
Use of Electronic Communication
It clarifies that references to the sending of accounts and reports to those entitled to receive them include:. sending copies by electronic communication to the address notified to the company for that purpose by the person entitled to receive the documents; or. where the company and the person entitled to receive the accounts so agree, the publication of the documents on a website, to notify the person in the agreed manner that they have been published in this way and to him/her both provide the address of the website and details of where and how to access the documents on the website. Where the information is published on a website, it must remain on the website for a period beginning at least 21 days before the date of the meeting at which the accounts are to be laid and ending with the conclusion of the meeting, and the notice to the person entitled to receive the information must be given not less than 21 days before the date of the meeting.
Proposed Changes
Additional provisions will apply if a general meeting is held before the statutory deadline for issuing accounts and reports. The White Paper also proposes to remove the requirement to send annual accounts and reports to holders of debentures issued only after the revised legislation comes into force, on the grounds that holders of debentures must be able to obtain the information they need under to the conditions of the new law. promissory note.
Right to Demand Accounts
There will be an additional requirement for quoted companies to publish their annual accounts and reports on the internet as soon as practicable after they have been approved, and in any case no later than four months after the end of the financial reporting period. Where an AGM has to be held, it will have to be done within six months of the financial year-end in the case of a public company and within ten months of the financial year-end in the case of a private company.
Special Election for Private Companies
In the event of default, the company and any officer in default will be guilty of an offense and liable to a fine. The company law reform bill contains changes that will automatically free most private companies from the obligation to hold an annual general meeting and remove the legal obligation to submit annual accounts and reports to members (see 3.32 up here).
Members’ Right to Require Accounts to be Laid
Delivering Accounts to the Registrar
First Accounting Period
Change of Accounting Reference Date
Business Interests Outside UK
Strict Interpretation of Due Date
Document Quality
Signatures
Delivery by Electronic Means
Preparation of Accounts in Euros
Unlimited Companies
Submit annual accounts and Within seven months after Within seven months Within ten months after reports before the members the end of the of the end of the end of the general meeting's accounting period. In this case, copies must be issued no later than 28 days before the expiry of the deadline for the preparation and delivery of accounts and reports (see 3.34 above).
Small Companies and Groups
Distribute annual Not less than 21 days Not less than 21 days Not less than 21 days accounts and reports before the date of the before the date of the before the meeting to the members and meeting on which copies meeting on which on which copies other persons are entitled must be laid before copies must be laid to be laid.*. Deliver annually Within seven months Within seven months Within ten months of accounts and reports from the end of the of the end of the the end of the to the Registrar accounting period.
Qualification as a Small Company
Qualifying Conditions – Small Company
Accounts Exemptions for Small Companies
Both exemptions are optional and a small company may continue to prepare and file full accounts if it wishes, or may file shorter form accounts if it does not wish to prepare abbreviated accounts for filing purposes. For accounting periods beginning on or after 1 January 2005, the option to prepare shorter form accounts and the full shortened accounts regime only apply when the company prepares Companies Act accounts (see 3.16 above).
Ineligible Companies
However, certain filing exemptions continue to apply to small companies preparing IAS accounts (see 3.56 below).
Shorter Form Accounts
Directors’ Statement – Shorter Form Accounts
True and Fair View – Shorter Form Accounts
Financial Reporting Standard for Smaller Entities (‘FRSSE’)
Approval of FRSSE is optional and, when approved, this fact must be disclosed in the accounts. If a small company decides not to adopt IFRS, its accounts must be prepared in accordance with all other applicable accounting standards.
Modified Directors’ Report
Abbreviated Accounts
Directors’ Statement – Abbreviated Accounts
Auditors’ Statement – Abbreviated Accounts
True and Fair View – Abbreviated Accounts
Qualification as a Small Group
A group that meets the qualification conditions in the parent company's first financial year qualifies as a small group for that year. Just as for individual companies, this means that a group continues to qualify as small, even if it exceeds the qualification conditions in a financial year.
Qualifying Conditions – Small Group
If it exceeds the criteria for two consecutive business years, then it no longer qualifies as a small group under CA 1985.
Accounts Exemptions Available to Small Groups
A parent company is not entitled to the exemption from the requirement to prepare group accounts if the group it heads is an unqualified group.
Medium-sized Companies and Groups
Qualification as a Medium-sized Company
Qualifying Conditions – Medium-sized Company
The number of employees should be calculated by adding together the number of persons employed by the company each month (regardless of whether they were employed for the full month) and dividing this by the number of months in the financial period. The above limits were introduced by the Companies Act 1985 (Small and Medium-sized Enterprises Accounts and Audit Exemption) (Amendment) Regulations 2004 (SI 2004/16) and generally apply to accounting periods ending on or after 30 January 2004 certain transitional conditions).
Accounts Exemption for Medium-sized Companies
The term "balance sheet total" is defined as the sum of the amounts shown as assets on the balance sheet, before deductions for liabilities. For accounting periods beginning on or after 1 January 2005, qualification can be assessed on the basis of either the Companies Act or IAS accounts (see 3.16 above).
Ineligible Companies
In the case of an intermediate parent company, it is therefore necessary to consider the wider group and not just the group led by the intermediate parent. However, as explained at 3.66 above, for accounting periods beginning on or after 1 April 2005, a company that qualifies as medium-sized can still benefit from the limited exemptions in respect of the directors' report, even if it is not entitled to other accounts- exemptions for being a member of an ineligible group.
Abbreviated Accounts
A UK subsidiary of a foreign parent company will be a member of a non-qualifying group if the foreign parent company has the power to issue shares or debentures to the public (and it is the power to issue such shares or debentures, rather than their actual issue, that is the decisive factor). Under section 247A(3), a parent company is also not treated as a medium-sized company unless the group it heads qualifies as a medium-sized group (see 3.72-3.73 below).
Directors’ Statement – Abbreviated Accounts
Auditors’ Statement – Abbreviated Accounts
True and Fair View – Abbreviated Accounts
Qualification as a Medium-sized Group
Qualifying Conditions – Medium-sized Group
Accounts Exemptions Available to Medium-sized Groups
Banking and Insurance Companies and Groups
Banking Companies
The accounts must state that they have been prepared in accordance with the special provisions of Part VII of CA 1985 relating to banking companies. However, it should be noted that banking companies are specifically excluded from the exemptions available to small and medium-sized companies.
Banking Groups
The general rules for reporting accounts are largely the same as for other companies, but the formats of the balance sheet and profit and loss statement have been adapted to take account of the special circumstances of banking companies. For accounting periods beginning on or after 1 January 2005, the option to prepare IAS accounts also applies to banking companies (see 3.16 above).
Insurance Companies
It must appear from the accounts that they have been prepared in accordance with the special provisions of Chapter VII of CA 1985 relating to insurance companies. However, it should be noted that insurance companies are specifically exempt from the exemptions that small and medium-sized businesses have.
Insurance Groups
The general rules for presenting accounts are largely the same as for other companies, but the balance sheet and profit and loss account formats have been adapted to cater for the special circumstances of insurance companies. For accounting periods beginning on or after 1 January 2005, the option to prepare IAS accounts also applies to insurance companies (see 3.16 above).
Publication of Accounts
A friendly society within the meaning of section 116 of the Friendly Societies Act 1992 is specifically excluded from this definition. An insurance company is required to prepare its individual accounts in accordance with Part I of Schedule 9A to CA 1985 rather than Schedule 4.
Definition of Publication
Statutory Accounts
Non-statutory Accounts
Formal Statement in Non-statutory Accounts
Revision of Defective Accounts and Reports
Voluntary Revision by the Directors
Disclosure Requirements
Circulation of Revised Accounts and/or Report
Laying and Delivering Revised Accounts and/or Report
Impact on Other Documents
Compulsory Revision of Accounts
Regulations 2004 (SI to apply the same requirements to IAS accounts as to Companies Act accounts. Companies Act 1985 (review of operations and finances and directors' report etc.) Regulations 2005 (SI further amends CA 1985 to include directors' reports scope of the mandatory audit provisions and under the jurisdiction of the FRRP for accounting periods beginning on or after April 1, 2006.
Powers of the Court
Dividends and Distributions
Distributable Reserves
Profits Available for Distribution
In this context, net assets are defined as the total of the company's assets minus the total of its liabilities.
Undistributable Reserves
Definition of Realised Profit and Losses