Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 3 — A company’s financial year
168

(ii)
in the case of a company incorporated on or after 1st April 1990,
the last day of the month in which the anniversary of its
incorporation falls.
(3)
The accounting reference date of a company incorporated in Northern Ireland
before 22nd August 1997 is—
5
(a)
the date specified by notice to the registrar in accordance with article
232(2) of the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032
(N.I. 6)) (notice specifying accounting reference date given within nine
months of incorporation), or
(b)
failing such notice—
10
(i)
in the case of a company incorporated before the coming into
operation of Article 5 of the Companies (Northern Ireland)
Order 1990 (S.I. 1990/593 (N.I. 5)), 31st March, and
(ii)
in the case of a company incorporated after the coming into
operation of that Article, the last day of the month in which the
15
anniversary of its incorporation falls.
(4)
The accounting reference date of a company incorporated—
(a)
in Great Britain on or after 1st April 1996 and before the
commencement of this Act,
(b)
in Northern Ireland on or after 22nd August 1997 and before the
20
commencement of this Act, or
(c)
after the commencement of this Act,

is the last day of the month in which the anniversary of its incorporation falls.
(5)
A company’s first accounting reference period is the period of more than six
months, but not more than 18 months, beginning with the date of its
25
incorporation and ending with its accounting reference date.
(6)
Its subsequent accounting reference periods are successive periods of twelve
months beginning immediately after the end of the previous accounting
reference period and ending with its accounting reference date.
(7)
This section has effect subject to the provisions of section 374 (alteration of
30
accounting reference date).
374
Alteration of accounting reference date
(1)
A company may by notice given to the registrar specify a new accounting
reference date having effect in relation to—
(a)
the company’s current accounting reference period and subsequent
35
periods, or
(b)
the company’s previous accounting reference period and subsequent
periods.

A company’s “previous accounting reference period” means the one
immediately preceding its current accounting reference period.
40
(2)
The notice must state whether the current or previous accounting reference
period—
(a)
is to be shortened, so as to come to an end on the first occasion on which
the new accounting reference date falls or fell after the beginning of the
period, or
45
(b)
is to be extended, so as to come to an end on the second occasion on
which that date falls or fell after the beginning of the period.

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
169

(3)
A notice extending a company’s current or previous accounting reference
period is not effective if given less than five years after the end of an earlier
accounting reference period of the company that was extended under this
section.

This does not apply—
5
(a)
to a notice given by a company that is a subsidiary undertaking or
parent undertaking of another EEA undertaking if the new accounting
reference date coincides with that of the other EEA undertaking or,
where that undertaking is not a company, with the last day of its
financial year, or
10
(b)
where the company is in administration under Part 2 of the Insolvency
Act 1986 (c. 45) or Part 3 of the Insolvency (Northern Ireland) Order
1989 (S.I. 1989/2405 (N.I. 19)), or
(c)
where the Secretary of State directs that it should not apply, which he
may do with respect to a notice that has been given or that may be
15
given.
(4)
A notice under this section may not be given in respect of a previous
accounting reference period if the period for filing accounts and reports for the
financial year determined by reference to that accounting reference period has
already expired.
20
(5)
An accounting reference period may not be extended so as to exceed 18 months
and a notice under this section is ineffective if the current or previous
accounting reference period as extended in accordance with the notice would
exceed that limit.

This does not apply where the company is in administration under Part 2 of the
25
Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989
(S.I. 1989/2405 (N.I. 19)).
(6)
In this section “EEA undertaking” means an undertaking established under the
law of any part of the United Kingdom or the law of any other EEA State.
Chapter 4
30
Annual accounts
General
375
Accounts to give true and fair view
(1)
The directors of a company must not approve accounts for the purposes of this
Chapter unless they are satisfied that they give a true and fair view of the
35
assets, liabilities, financial position and profit or loss—
(a)
in the case of the company’s individual accounts, of the company;
(b)
in the case of the company’s group accounts, of the group as a whole.

In paragraph (b) “the group” means the company and its subsidiary
undertakings included in the consolidation.
40
(2)
The auditor of a company in carrying out his functions under this Act in
relation to the company’s annual accounts must have regard to the directors’
duty under subsection (1).

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
170

Individual accounts
376
Duty to prepare individual accounts

The directors of every company must prepare accounts for the company for
each of its financial years.

Those accounts are referred to as the company’s “individual accounts”.
5
377
Individual accounts: applicable accounting framework
(1)
A company’s individual accounts may be prepared—
(a)
in accordance with section 378 (“Companies Act individual accounts”),
or
(b)
in accordance with international accounting standards (“IAS
10
individual accounts”).

This is subject to the following provisions of this section and to section 389
(consistency of financial reporting within group).
(2)
The individual accounts of a company that is a charity must be Companies Act
individual accounts.
15
(3)
After the first financial year in which the directors of a company prepare IAS
individual accounts (“the first IAS year”), all subsequent individual accounts
of the company must be prepared in accordance with international accounting
standards unless there is a relevant change of circumstance.
(4)
There is a relevant change of circumstance if, at any time during or after the
20
first IAS year—
(a)
the company becomes a subsidiary undertaking of another
undertaking that does not prepare IAS individual accounts,
(b)
the company ceases to be a company with securities admitted to
trading on a regulated market in an EEA State, or
25
(c)
a parent undertaking of the company ceases to be an undertaking with
securities admitted to trading on a regulated market in an EEA State.
(5)
If, having changed to preparing Companies Act individual accounts following
a relevant change of circumstance, the directors again prepare IAS individual
accounts for the company, subsections (4) and (5) apply again as if the first
30
financial year for which such accounts are again prepared were the first IAS
year.
378
Companies Act individual accounts
(1)
Companies Act individual accounts must comprise—
(a)
a balance sheet as at the last day of the financial year, and
35
(b)
a profit and loss account.
(2)
The accounts must—
(a)
in the case of the balance sheet, give a true and fair view of the state of
affairs of the company as at the end of the financial year, and
(b)
in the case of the profit and loss account, give a true and fair view of the
40
profit or loss of the company for the financial year.
(3)
The accounts must comply with provision made by the Secretary of State by
regulations as to—

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
171

(a)
the form and content of the balance sheet and profit and loss account,
and
(b)
additional information to be provided by way of notes to the accounts.
(4)
If compliance with the regulations, and any other provision made by or under
this Act as to the matters to be included in a company’s individual accounts or
5
in notes to those accounts, would not be sufficient to give a true and fair view,
the necessary additional information must be given in the accounts or in a note
to them.
(5)
If in special circumstances compliance with any of those provisions is
inconsistent with the requirement to give a true and fair view, the directors
10
must depart from that provision to the extent necessary to give a true and fair
view.

Particulars of any such departure, the reasons for it and its effect must be given
in a note to the accounts.
379
IAS individual accounts
15
Where the directors of a company prepare IAS individual accounts, they must
state in the notes to the accounts that the accounts have been prepared in
accordance with international accounting standards.
Group accounts: small companies
380
Option to prepare group accounts
20

If at the end of a financial year a company subject to the small companies
regime is a parent company the directors, as well as preparing individual
accounts for the year, may prepare consolidated accounts for the group for the
year.

Those accounts are referred to in this Act as the company’s “group accounts”.
25
Group accounts: other companies
381
Duty to prepare group accounts
(1)
This section applies to companies that are not subject to the small companies
regime.
(2)
If at the end of a financial year the company is a parent company the directors,
30
as well as preparing individual accounts for the year, must prepare
consolidated accounts for the group for the year unless the company is exempt
from that requirement.
(3)
There are exemptions under-
section 382 (company included in EEA accounts of larger group),
35
section 383 (company included in non-EEA accounts of larger group), and
section 384 (company none of whose subsidiary undertakings need be
included in the consolidation).
(4)
A company to which this section applies but which is exempt from the
requirement to prepare group accounts, may do so.
40

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
172

(5)
The accounts prepared under this section are referred to in this Act as the
company’s “group accounts”.
382
Exemption for company included in EEA group accounts of larger group
(1)
A company is exempt from the requirement to prepare group accounts if it is
itself a subsidiary undertaking and its immediate parent undertaking is
5
established under the law of an EEA State, in the following cases—
(a)
where the company is a wholly-owned subsidiary of that parent
undertaking;
(b)
where that parent undertaking holds more than 50% of the allotted
shares in the company and notice requesting the preparation of group
10
accounts has not been served on the company by shareholders holding
in aggregate—
(i)
more than half of the remaining allotted shares in the company,
or
(ii)
5% of the total allotted shares in the company.
15

Such notice must be served not later than six months after the end of the
financial year before that to which it relates.
(2)
Exemption is conditional upon compliance with all of the following
conditions—
(a)
the company must be included in consolidated accounts for a larger
20
group drawn up to the same date, or to an earlier date in the same
financial year, by a parent undertaking established under the law of an
EEA State;
(b)
those accounts must be drawn up and audited, and that parent
undertaking’s annual report must be drawn up, according to that
25
law—
(i)
in accordance with the provisions of the Seventh Directive (83/
349/EEC) (as modified, where relevant, by the provisions of the
Bank Accounts Directive (86/635/EEC) or the Insurance
Accounts Directive (91/674/EEC)), or
30
(ii)
in accordance with international accounting standards;
(c)
the company must disclose in its individual accounts that it is exempt
from the obligation to prepare and deliver group accounts;
(d)
the company must state in its individual accounts the name of the
parent undertaking that draws up the group accounts referred to above
35
and—
(i)
if it is incorporated outside the United Kingdom, the country in
which it is incorporated, or
(ii)
if it is unincorporated, the address of its principal place of
business;
40
(e)
the company must deliver to the registrar, within the period for filing
its accounts and reports for the financial year in question, copies of—
(i)
those group accounts, and
(ii)
the parent undertaking’s annual report,

together with the auditor’s report on them;
45
(f)
any requirement of Part 29 of this Act as to the delivery to the registrar
of a certified translation into English must be met in relation to any
document comprised in the accounts and reports delivered in
accordance with paragraph (e).

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
173

(3)
For the purposes of subsection (1)(b) shares held by a wholly-owned
subsidiary of the parent undertaking, or held on behalf of the parent
undertaking or a wholly-owned subsidiary, shall be attributed to the parent
undertaking.
(4)
The exemption does not apply to a company any of whose securities are
5
admitted to trading on a regulated market in an EEA State.
(5)
Shares held by directors of a company for the purpose of complying with any
share qualification requirement shall be disregarded in determining for the
purposes of this section whether the company is a wholly-owned subsidiary.
(6)
In subsection (4) “securities” includes—
10
(a)
shares and stock,
(b)
debentures, including debenture stock, loan stock, bonds, certificates of
deposit and other instruments creating or acknowledging
indebtedness,
(c)
warrants or other instruments entitling the holder to subscribe for
15
securities falling within paragraph (a) or (b), and
(d)
certificates or other instruments that confer—
(i)
property rights in respect of a security falling within paragraph
(a), (b) or (c),
(ii)
any right to acquire, dispose of, underwrite or convert a
20
security, being a right to which the holder would be entitled if
he held any such security to which the certificate or other
instrument relates, or
(iii)
a contractual right (other than an option) to acquire any such
security otherwise than by subscription.
25
383
Exemption for company included in non-EEA group accounts of larger group
(1)
A company is exempt from the requirement to prepare group accounts if it is
itself a subsidiary undertaking and its parent undertaking is not established
under the law of an EEA State, in the following cases—
(a)
where the company is a wholly-owned subsidiary of that parent
30
undertaking;
(b)
where that parent undertaking holds more than 50% of the allotted
shares in the company and notice requesting the preparation of group
accounts has not been served on the company by shareholders holding
in aggregate—
35
(i)
more than half of the remaining allotted shares in the company,
or
(ii)
5% of the total allotted shares in the company.

Such notice must be served not later than six months after the end of the
financial year before that to which it relates.
40
(2)
Exemption is conditional upon compliance with all of the following
conditions—
(a)
the company and all of its subsidiary undertakings must be included in
consolidated accounts for a larger group drawn up to the same date, or
to an earlier date in the same financial year, by a parent undertaking;
45
(b)
those accounts and, where appropriate, the group’s annual report,
must be drawn up—

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 4 — Annual accounts
174

(i)
in accordance with the provisions of the Seventh Directive (83/
349/EEC) (as modified, where relevant, by the provisions of the
Bank Accounts Directive (86/635/EEC) or the Insurance
Accounts Directive (91/674/EEC)), or
(ii)
in a manner equivalent to consolidated accounts and
5
consolidated annual reports so drawn up;
(c)
the consolidated accounts must be audited by one or more persons
authorised to audit accounts under the law under which the parent
undertaking which draws them up is established;
(d)
the company must disclose in its individual accounts that it is exempt
10
from the obligation to prepare and deliver group accounts;
(e)
the company must state in its individual accounts the name of the
parent undertaking which draws up the group accounts referred to
above and—
(i)
if it is incorporated outside the United Kingdom, the country in
15
which it is incorporated, or
(ii)
if it is unincorporated, the address of its principal place of
business;
(f)
the company must deliver to the registrar, within the period for filing
its accounts and reports for the financial year in question, copies of—
20
(i)
the group accounts, and
(ii)
where appropriate, the consolidated annual report,

together with the auditor’s report on them;
(g)
any requirement of Part 29 of this Act as to the delivery to the registrar
of a certified translation into English must be met in relation to any
25
document comprised in the accounts and reports delivered in
accordance with paragraph (f).
(3)
For the purposes of subsection (1)(b), shares held by a wholly-owned
subsidiary of the parent undertaking, or held on behalf of the parent
undertaking or a wholly-owned subsidiary, are attributed to the parent
30
undertaking.
(4)
The exemption does not apply to a company any of whose securities are
admitted to trading on a regulated market in an EEA State.
(5)
Shares held by directors of a company for the purpose of complying with any
share qualification requirement shall be disregarded in determining for the
35
purposes of this section whether the company is a wholly-owned subsidiary.
(6)
In subsection (4) “securities” includes—
(a)
shares and stock,
(b)
debentures, including debenture stock, loan stock, bonds, certificates of
deposit and other instruments creating or acknowledging
40
indebtedness,
(c)
warrants or other instruments entitling the holder to subscribe for
securities falling within paragraph (a) or (b), and
(d)
certificates or other instruments that confer—
(i)
property rights in respect of a security falling within paragraph
45
(a), (b) or (c),
(ii)
any right to acquire, dispose of, underwrite or convert a
security, being a right to which the holder would be entitled if
he held any such security to which the certificate or other
instrument relates, or
50