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 12 — Supplementary provisions
214

450
Companies qualifying as medium-sized: parent companies
(1)
A parent company qualifies as a medium-sized company in relation to a
financial year only if the group headed by it qualifies as a medium-sized group.
(2)
A group qualifies as medium-sized in relation to a financial year if the
qualifying conditions are met—
5
(a)
in the case of the parent company’s first financial year, in that year, and
(b)
in the case of any subsequent financial year, in that year and the
preceding year.
(3)
A group is treated as qualifying as medium-sized in relation to a financial year
(other than the parent company’s first financial year)—
10
(a)
if the qualifying conditions are not met in relation to the financial year
in question but it qualified under subsection (2) in relation to the
previous financial year; or
(b)
if the qualifying conditions are met in relation to the financial year in
question and it was treated as qualifying in relation to the previous year
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by virtue of paragraph (a); or
(c)
if the qualifying conditions are not met in relation to the financial year
in question but it qualified under paragraph (b) in relation to the
previous financial year.
(4)
The qualifying conditions are met by a group in a year in which it satisfies two
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or more of the following requirements—

1. Aggregate turnover
Not more than £22.8 million net (or

£27.36 million gross)

2. Aggregate balance sheet total
Not more than £11.4 million net (or

£13.68 million gross)

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3. Aggregate number of employees
Not more than 250

(5)
The aggregate figures are ascertained by aggregating the relevant figures
determined in accordance with section 364 for each member of the group.
(6)
In relation to the aggregate figures for turnover and balance sheet total—
“net” means after any set-offs and other adjustments made to eliminate
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group transactions—
(a)
in the case of Companies Act accounts, in accordance with
regulations under section 386,
(b)
in the case of IAS accounts, in accordance with international
accounting standards; and
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“gross” means without those set-offs and other adjustments.

A company may satisfy the relevant requirements on the basis of either the net
or the gross figure.
(7)
The figures for each subsidiary undertaking shall be those included in its
individual accounts for the relevant financial year, that is—
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(a)
if its financial year ends with that of the parent company, that financial
year, and
(b)
if not, its financial year ending last before the end of the financial year
of the parent company.

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 12 — Supplementary provisions
215


If those figures cannot be obtained without disproportionate expense or undue
delay, the latest available figures shall be taken.
451
Companies excluded from being treated as medium-sized
(1)
A company is not entitled to take advantage of any of the provisions of this Part
relating to companies qualifying as medium-sized if it was at any time within
5
the financial year in question—
(a)
a public company,
(b)
a company that—
(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 (c. 8) to carry on a regulated activity, or
10
(ii)
carries on insurance market activity, or
(c)
a member of an ineligible group.
(2)
A group is ineligible if any of its members is—
(a)
a public company,
(b)
a body corporate (other than a company) whose shares are admitted to
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trading on a regulated market, or
(c)
a person who—
(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 to carry on a regulated activity, or
(ii)
carries on insurance market activity.
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General power to make further provision about accounts and reports
452
General power to make further provision about accounts and reports
(1)
The Secretary of State may make provision by regulations about—
(a)
the accounts and reports that companies are required to prepare;
(b)
the categories of companies required to prepare accounts and reports
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of any description;
(c)
the form and content of the accounts and reports that companies are
required to prepare;
(d)
the obligations of companies and others as regards—
(i)
the approval of accounts and reports,
30
(ii)
the sending of accounts and reports to members and others,
(iii)
the laying of accounts and reports before the company in
general meeting,
(iv)
the delivery of copies of accounts and reports to the registrar,
and
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(v)
the publication of accounts and reports.
(2)
The regulations may amend this Part by adding, altering or repealing
provisions.
(3)
But they must not amend (other than consequentially)—
(a)
section 375 (accounts to give true and fair view), or
40
(b)
the provisions of Chapter 12 (revision of defective accounts and
reports).

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 12 — Supplementary provisions
216

(4)
The regulations may create criminal offences in cases corresponding to those
in which an offence is created by an existing provision of this Part.

The maximum penalty for any such offence may not be greater than is
provided in relation to an offence under the existing provision.
(5)
The regulations may provide for civil penalties in circumstances
5
corresponding to those within section 437(1) (civil penalty for failure to file
accounts and reports).

The provisions of section 437(2) to (5) apply in relation to any such penalty.
Other supplementary provisions
453
Preparation and filing of accounts in euros
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(1)
The amounts set out in the annual accounts of a company may also be shown
in the same accounts translated into euros.
(2)
When complying with section 425 (duty to file accounts and reports), the
directors of a company may deliver to the registrar an additional copy of the
company’s annual accounts in which the amounts have been translated into
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euros.
(3)
In both cases—
(a)
the amounts must have been translated at the exchange rate prevailing
on the date to which the balance sheet is made up, and
(b)
that rate must be disclosed in the notes to the accounts.
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(4)
For the purposes of sections 418 and 419 (requirements in connection with
published accounts) any additional copy of the company’s annual accounts
delivered to the registrar under subsection (2) above shall be treated as
statutory accounts of the company.

In the case of such a copy, references in those sections to the auditor’s report
25
on the company’s annual accounts shall be read as references to the auditor’s
report on the annual accounts of which it is a copy.
454
Power to apply provisions to banking partnerships
(1)
The Secretary of State may by regulations apply to banking partnerships,
subject to such exceptions, adaptations and modifications as he considers
30
appropriate, the provisions of this Part (and of regulations made under this
Part) applying to banking companies.
(2)
A “banking partnership” means a partnership which has permission under
Part 4 of the Financial Services and Markets Act 2000 (c. 8).

But a partnership is not a banking partnership if it has permission to accept
35
deposits only for the purpose of carrying on another regulated activity in
accordance with that permission.
(3)
Expressions used in this section that are also used in the provisions regulating
activities under the Financial Services and Markets Act 2000 have the same
meaning here as they do in those provisions.
40

See section 22 of that Act, orders made under that section and Schedule 2 to
that Act.
(4)
Regulations under this section are subject to affirmative resolution procedure.

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 12 — Supplementary provisions
217

455
Meaning of “annual accounts” and related expressions
(1)
In this Part a company’s “annual accounts”, in relation to a financial year,
means—
(a)
the company’s individual accounts for that year (see section 376), and
(b)
any group accounts prepared by the company for that year (see sections
5
380 and 381).

This is subject to section 390 (option to omit individual profit and loss account
from annual accounts where information given in group accounts).
(2)
In the case of an unquoted company, its “annual accounts and reports” for a
financial year are—
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(a)
its annual accounts,
(b)
the directors’ report, and
(c)
the auditor’s report on those accounts and the directors’ report (unless
the company is exempt from audit).
(3)
In the case of a quoted company, its “annual accounts and reports” for a
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financial year are—
(a)
its annual accounts,
(b)
the directors’ remuneration report,
(c)
the directors’ report, and
(d)
the auditor’s report on those accounts, on the auditable part of the
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directors’ remuneration report and on the directors’ report.
(4)
Where the directors of a company take advantage of the exemption conferred
by section 466 (small charities: independent examiner’s report in lieu of audit),
the references in this section to the auditor’s report shall be read as references
to the report made for the purposes of section 466.
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456
Notes to the accounts
(1)
Information required by this Part to be given in notes to a company’s annual
accounts may be contained in the accounts or in a separate document annexed
to the accounts.
(2)
References in this Part to a company’s annual accounts, or to a balance sheet or
30
profit and loss account, include notes to the accounts giving information which
is required by any provision of this Act or international accounting standards,
and required or allowed by any such provision to be given in a note to
company accounts.
457
Parliamentary procedure for certain regulations under this Part
35
(1)
This section applies to regulations under the following provisions of this
Part—
section 378 (Companies Act individual accounts),
section 386 (Companies Act group accounts),
section 391 (information about related undertakings),
40
section 394 (information about directors’ benefits: remuneration,
pensions and compensation for loss of office),
section 398 (contents of directors’ report: general),
section 403 (contents of directors’ remuneration report),

Company Law Reform Bill [HL]
Part 15 — Accounts and reports
Chapter 12 — Supplementary provisions
218

section 428 (filing obligations of companies subject to small companies
regime),
section 429 (filing obligations of medium-sized companies),
section 452 (general power to make further provision about accounts and
reports).
5
(2)
Any such regulations may make consequential amendments or repeals in other
provisions of this Act, or in other enactments.
(3)
Regulations that—
(a)
restrict the classes of company which have the benefit of any
exemption, exception or special provision,
10
(b)
require additional matter to be included in a document of any class, or
(c)
otherwise render the requirements of this Part more onerous,

are subject to affirmative resolution procedure.
(4)
Otherwise, the regulations are subject to negative resolution procedure.
458
Minor definitions
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(1)
In this Part—
“group” means a parent undertaking and its subsidiary undertakings;
“IAS Regulation” means EC Regulation No. 1606/2002 of the European
Parliament and of the Council of 19 July 2002 on the application of
international accounting standards;
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“included in the consolidation”, in relation to group accounts, or
“included in consolidated group accounts”, means that the undertaking
is included in the accounts by the method of full (and not proportional)
consolidation, and references to an undertaking excluded from
consolidation shall be construed accordingly;
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“insurance market activity” has the meaning given in section 316(3) of the
Financial Services and Markets Act 2000 (c. 8);
“international accounting standards” means the international accounting
standards, within the meaning of the IAS Regulation, adopted from
time to time by the European Commission in accordance with that
30
Regulation;
“listing rules” has the same meaning as in Part 6 of the Financial Services
and Markets Act 2000 (see section 73A of that Act);
“profit and loss account”, in relation to a company that prepares IAS
accounts, includes an income statement or other equivalent financial
35
statement required to be prepared by international accounting
standards;
“regulated activity” has the meaning given in section 22 of the Financial
Services and Markets Act 2000, except that it does not include activities
of the kind specified in any of the following provisions of the Financial
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Services and Markets Act 2000 (Regulated Activities) Order 2001—
(a)
article 25A (arranging regulated mortgage contracts),
(b)
article 39A (assisting administration and performance of a
contract of insurance),
(c)
article 53A (advising on regulated mortgage contracts), or
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(d)
article 21 (dealing as agent), article 25 (arranging deals in
investments) or article 53 (advising on investments) where the
activity concerns relevant investments that are not contractually

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
219

based investments (within the meaning of article 3 of that
Order);
“turnover”, in relation to a company, means the amounts derived from the
provision of goods and services falling within the company’s ordinary
activities, after deduction of—
5
(a)
trade discounts,
(b)
value added tax, and
(c)
any other taxes based on the amounts so derived.
(2)
In the case of an undertaking not trading for profit, any reference in this Part
to a profit and loss account is to an income and expenditure account.
10

References to profit and loss and, in relation to group accounts, to a
consolidated profit and loss account shall be construed accordingly.
Part 16
Audit
15
Chapter 1
Requirement for audited accounts
Requirement for audited accounts
459
Requirement for audited accounts
(1)
A company’s annual accounts for a financial year must be audited in
20
accordance with this Part unless the company—
(a)
is exempt from audit under—
section 461 (small companies),
section 464 (dormant companies), or
section 466 (charities: independent examiner’s report in lieu of
25
audit);

or
(b)
is exempt from the requirements of this Part under section 472 (non-
profit-making companies subject to public sector audit).
(2)
A company is not entitled to any such exemption unless its balance sheet
30
contains a statement by the directors to that effect.
(3)
A company is not entitled to exemption under any of the provisions mentioned
in subsection (1)(a) unless its balance sheet contains a statement by the
directors to the effect that—
(a)
the members have not required the company to obtain an audit of its
35
accounts for the year in question in accordance with section 460, and
(b)
the directors acknowledge their responsibilities for complying with the
requirements of this Act with respect to accounting records and the
preparation of accounts.
(4)
The statement required by subsection (2) or (3) must appear on the balance
40
sheet above the signature required by section 396.