Individual accounts

620.     Clauses 376 to 379, which replace sections 226, 226A and 226B of the 1985 Act, concern the duty of the directors to prepare individual accounts. The individual accounts may either be prepared under the Bill (Companies Act individual accounts) or (unless the company is a charity) in accordance with international accounting standards adopted under the IAS Regulation (IAS individual accounts). The terms "IAS Regulation" and "international accounting standards" are defined in clause 458. Once a company has switched to IAS individual accounts all subsequent individual accounts must be prepared in accordance with IAS unless there is a relevant change of circumstance (see clause 377(3) to (5)). The provisions concerning the form and content of Companies Act accounts currently to be found in the Schedules to Part 7 of the 1985 Act will in future be contained in regulations to be made by the Secretary of State (clause 378(3)). The Parliamentary procedure for such regulations is set out in clause 457.

Group accounts: small companies

Clause 380: Option to prepare group accounts

621.     This clause provides that a company that is subject to the small companies regime and is a parent company is not obliged to prepare group accounts in addition to its individual accounts, (restating section 248 of the 1985 Act), but it may opt to do so. The current exemption in section 248 of the 1985 Act from preparation of group accounts by parent companies heading medium sized groups has been abolished, following the substantial increase in the financial thresholds for medium sized groups in 2004.

Group accounts: other companies

622.     The clauses relating to group accounts have been reorganised to make them easier to follow.

623.     Clauses 381 to 384 re-enact sections 227(1) and (8), 228, 228A and 229(5) of the 1985 Act. Clause 381 concerns the requirements and exemptions from requirements in relation to group accounts. Parent companies not subject to the small companies regime have the duty to prepare consolidated accounts unless exempt from having to do so under clauses 382 to 384. Clause 382 provides an exemption from preparing group accounts for companies included in EEA group accounts of a larger group. Clause 383 provides such an exemption for companies included in non-EEA group accounts of a larger group, and clause 384 an exemption when all the company's subsidiary undertakings could be excluded from consolidation in Companies Act group accounts, (see clause 387).

Group accounts: general

Clause 385: Group accounts: applicable accounting framework

624.     This clause replaces section 227(2) to (7) of the 1985 Act. Parent companies whose securities are publicly traded must prepare group accounts in accordance with the IAS Regulation. Other parent companies (with the exception of charitable companies) have the choice whether to prepare group accounts under the Companies Act (Companies Act group accounts) or in accordance with adopted international accounting standards (IAS group accounts). Once a company has switched to IAS group accounts all subsequent group accounts must be prepared in accordance with IAS unless there is a relevant change of circumstance, (see subsections (4) to (6)).

Clause 386: Companies Act group accounts

625.     For companies preparing Companies Act group accounts, this clause gives the Secretary of State power to make provision by regulations as to the form and content of the consolidated balance sheet and consolidated profit and loss account and additional information to be provided by way of notes to the accounts. The regulations will replace the current requirements contained in Schedule 4A to the 1985 Act. These regulations are subject to the Parliamentary procedure in clause 457.

Clause 387: Companies Act group accounts: subsidiary undertakings included in the consolidation

626.     This clause replaces section 229 of the 1985 Act. It requires all subsidiary undertakings to be included in the consolidated accounts subject to certain permitted exclusions.

Clause 388: IAS group accounts

627.     This clause re-enacts section 227B of the 1985 Act. A company may opt or may be required to prepare group accounts in accordance with international accounting standards. This clause provides that where it does so, this must be stated in the notes to the accounts.

Clause 389: Consistency of financial reporting within group

628.     This clause re-enacts section 227C of the 1985 Act. If the parent company prepares both consolidated and individual accounts under IAS, it is not required to ensure that all its subsidiary undertakings also use IAS. However, it must otherwise ensure that its individual accounts and those of all its subsidiary undertakings use the same financial reporting framework, unless there are good reasons for not doing so.

Clause 390: Individual profit and loss account where group accounts prepared

629.     This clause replaces section 230 of the 1985 Act. A parent company that prepares group accounts and that meets the criteria in subsection (1)(a) and (b) may, subject to the profit and loss account being approved by the directors, dispense with the inclusion of a profit and loss account in the company's accounts, for example when delivered to the registrar. The profit and loss account may also omit the information on employee numbers and costs required by clause 393. The exemption currently provided for in section 230(2) for certain information required by provisions of Schedule 4 to the 1985 Act, will be provided for in regulations under clause 378.

Information to be given in notes to the accounts

Clause 391: Information about related undertakings

630.     This clause replaces section 231(1) to (4) of the 1985 Act. The requirement to disclose information about related undertakings in the notes to a company's annual accounts applies whether or not the company has to produce group accounts but there are different disclosure requirements in each case. This clause gives the Secretary of State a new power to make regulations requiring information about related undertakings to be given in notes to a company's annual accounts. These regulations are subject to the Parliamentary procedure in clause 457. The regulations will replace the provisions of Schedule 5 to the 1985 Act.

631.     Subsection (3) enables regulations under the section to make provision corresponding to section 231(3) of the 1985 Act authorising the omission from the notes to the accounts of information in respect of undertakings established outside the UK, or carrying on business outside the UK where the directors consider that disclosure would be seriously prejudicial to the business of that undertaking, or to the business of the company or any of its subsidiary undertakings. The Secretary of State must agree to the omission. This exemption is sought by a very small number of companies each year.

Clause 392: Information about related undertakings: alternative compliance

632.     This clause replaces section 231(5) to (7) of the 1985 Act. Where there are numerous related undertakings and the directors believe that full disclosure would result in information of excessive length in the notes to the accounts, they may give more limited information. As a minimum this must include information in subsection (2) (a) and (b). Subsection (3) provides that the full information on the related undertakings must be submitted with the next annual return.

Clause 393: Information about employee numbers and costs

633.     This clause replaces section 231A of the 1985 Act concerning particulars of staff. Section 231A was inserted by the 1985 Act (International Accounting Standards and Other Accounting Amendments) Regulations 2004 (SI 2004/2947) re-enacting provisions previously in the Schedules to Part 7 of the 1985 Act so that they continued to apply both to companies preparing Companies Act accounts and to those preparing IAS accounts.

Clause 394: Information about directors' benefits: remuneration

634.     This clause, together with clause 395, replaces section 232 of the 1985 Act. Under section 232, information on directors' remuneration specified in Part 1 of Schedule 6 must be given in notes to a company's annual accounts. Small companies may be exempt from some of the disclosures required by Schedule 6; quoted companies are subject to separate requirements on the disclosure of directors' remuneration under Schedule 7A. The clause gives the Secretary of State a new power to make provision by regulations requiring information about directors' remuneration to be given in notes to a company's annual accounts. Regulations under this section are subject to the Parliamentary procedure in clause 457.

Clause 395: Information about directors' benefits: advances, credit and guarantees

635.     This clause replaces section 232 of the 1985 Act as regards the disclosure of advances, credit and guarantees. Under section 232, information on the following areas must be given in notes to a company's annual accounts:

• details of loans, quasi-loans, credit transactions and related guarantees and security between a company and its directors or persons connected with its directors;

• details of any other transactions or arrangements in which a director, indirectly or directly, has a material interest.

This can be seen as an extension of the internal disclosure of directors' interests required by section 317 of the 1985 Act.

636.     Part 2 of Schedule 6 to the 1985 Act provides details of the disclosures required in respect of these areas. Part 3 imposes similar disclosure requirements in respect of such transactions made between the company and its other officers (such as its company secretary). These provisions are complex and difficult to understand. The Bill repeals Parts 2 and 3 of Schedule 6.

637.     Clause 395 sets out the new disclosure requirements in respect of (a) advances and credits granted by the company to its directors, and (b) guarantees of any kind entered into by the company on behalf of its directors. The wording of the clause is much closer to that of articles 43(1)(13) and 34(13) of the Fourth (78/660/EEC) and Seventh (83/349/EEC) Company Law Directives;

638.     The powers under clause 378(3)(b) (Companies Act individual accounts) and clause 386(3)(b) (Companies Act group accounts) will be used to require the disclosure of information about certain related party transactions in the notes to Companies Act accounts. Companies will no longer be required to disclose transactions made between the company and officers other than directors.

639.     Under clause 395(8) banks and the holding companies of credit institutions need only state (i) the amount of an advance or credit; and (ii) in relation to a guarantee, the amount of the maximum liability that may be incurred by the company (or its subsidiary). In the light of the simplified disclosure regime for advances, credit and guarantees, sections 343 and 344 of the 1985 Act, which make special provision for financial institutions, are repealed.

Approval and signing of accounts

Clause 396: Approval and signing of accounts

640.     This clause replaces section 233 of the 1985 Act. It provides that a company's annual accounts (its individual accounts and any group accounts) must be approved by the board of directors and the balance sheet must be signed. Subsection (3), which requires the balance sheet of accounts prepared in accordance with the small companies regime to carry a statement to that effect, re-enacts sections 246(8) and 248A(5) of the 1985 Act. Subsections (4) and (5) re-enact the criminal offence in section 233 of the 1985 Act for approval of accounts that do not comply with the requirements of the Bill or, where applicable, of Article 4 of the IAS Regulation. Section 233 (4) of the 1985 Act, which required that a director of the company should sign the copy of the balance sheet delivered to the registrar, has not been reproduced. This requirement would have hampered developments in the electronic delivery of accounts.

CHAPTER 5: DIRECTORS' REPORT

641.     Clauses 397 to 401 concern the duty to prepare a directors' report, its content, approval and signature. They replace sections 234, 234ZZA, 234ZZB, 234ZA, 234A, 246(4)(a) and 246A(2A) and 246(8) of the 1985 Act.

642.     Clause 398(4) gives the Secretary of State power to make provisions by regulations as to other matters that must be disclosed in the directors' report. These regulations replace the provision formerly made by Schedule 7 to the 1985 Act. The regulations are subject to the Parliamentary procedure in clause 457.

643.     Clause 399 provides for what must be contained in the business review element of the directors' report. All companies, other than small companies, will need to produce a business review, as required by the EU Accounts Modernisation Directive (2003/51/EEC). Subsection (2) sets out the purpose of the review, that is, to inform members of the company and help them assess how the directors have performed their duty under clause 158 (duty to promote the success of the company). Subsections (3), (4), (6) and (8) specify the content of the review. Subsection (5) specifies information that quoted companies in particular must include in their review where necessary for an understanding of the company's business. Where directors of quoted companies have nothing to report on environmental, employee or social and community matters, their review must say so. Subsection (7) exempts medium-sized companies from reporting non-financial key performance indicators - an exemption allowed by the EU directive. Subsection (9) provides that where the directors' report is a group one, all references in the clause to the company are to be read as references to the company and its consolidated subsidiary undertakings. Subsection (10) enables directors to omit from the business review information about impending developments or matters in the course of negotiation where in their opinion disclosure would be seriously prejudicial to the interests of the company.

644.     Clause 400 corrects one aspect of section 234ZA of the 1985 Act. That provision was disapplied for companies exempt from audit under sections 249A(1) or 249AA(1) of the 1985 Act, but not for charitable companies exempt by virtue of having a report prepared by a reporting accountant under section 249C of that Act. The re-drafted provision exempts all companies exempt from audit under Part 16 of the Bill, including those charitable companies whose accounts are scrutinised by independent examiners under clause 466 of the Bill.

CHAPTER 6: QUOTED COMPANIES: DIRECTORS' REMUNERATION REPORT

645.     Clauses 402 to 404 replace sections 234B and 234C of the 1985 Act. These sections, which were inserted into the Act by the Directors' Remuneration Report Regulations 2002, require quoted companies to:

• publish a report on directors' remuneration as part of the company's annual reporting cycle; and

• disclose within the report details of individual directors' remuneration packages, the company's remuneration policy, and the role of the board and remuneration committee in this area.

646.     Clause 403 gives the Secretary of State power to make provision by regulations as to the information that must be contained in a directors' remuneration report and how it should be set out. These matters are currently set out in Schedule 7A to the 1985 Act, and regulations made under this clause will replace the provisions in Schedule 7A. The regulations will also specify the extent to which the directors' remuneration report should be subject to audit. Regulations under this clause are subject to the Parliamentary procedure in clause 457.

CHAPTER 7: PUBLICATION OF ACCOUNTS AND REPORTS

Duty to circulate copies of accounts and reports

Clause 405: Duty to circulate copies of annual accounts and reports

647.     This clause replaces section 238 of the 1985 Act. Subsection (1) provides that a company must send a copy of its annual accounts and reports (as defined in clause 455 and including any relevant auditor's report) to specified persons. Subsection (2) restricts the general obligation of companies to send copies of accounts and reports. The obligation will in future be to send the accounts and reports only to persons for whom they have a current address. This is to avoid companies having to send copies of the annual accounts and reports to addresses from which correspondence has previously been returned marked not known at this address (or its electronic equivalent). General provisions about how to supply copies to joint holders are in Part 6 of Schedule 6 (Communications by a company other than a traded company) and Part 6 of Schedule 7 (Communications by a traded company).

Clause 406: Time allowed for sending out copies of accounts and reports

648.     This clause makes changes to the time for distributing accounts and reports for both private and public companies. Private companies (unless they opted out of the requirement) were previously required to lay their accounts at a general meeting and to send their accounts and reports to members 21 days before that meeting. They are no longer required to hold any general meeting and the requirement now is to send out their accounts and reports no later than the earlier of the date of actual delivery to the registrar or the deadline for delivery (see clause 426 for the time limits for filing). Public companies must still send the annual accounts and reports out no later than 21 days before the general meeting at which the accounts and reports are to be laid (defined as the "relevant accounts meeting").

Clause 407: Default in sending out copies of accounts and reports: offences

649.     There is no change to these offences (currently in section 238(5) of the 1985 Act).

Option to provide summary financial statement

650.     Clauses 408 to 411 restate section 251 of the 1985 Act. All companies have the option under clause 408 to provide summary financial statements instead of copies of the full accounts and reports. This clause reproduces the existing power for the Secretary of State to make provision by regulations:

• as to the circumstances in which a company may send out summary financial statements; and

• as to the manner in which it is to be ascertained whether a person wishes to receive a copy of the (full) accounts and reports.

651.     Clause 409 sets out the form and content requirements for summary financial statements prepared by unquoted companies, whilst clause 410 sets out the form and content requirements for summary financial statements prepared by quoted companies. In both cases, the Secretary of State may make regulations as to the form and content of summary financial statements. There is also a new power for regulations to provide that specified material be sent separately at the same time as the summary financial statement instead of being included in it. This is to cover the requirements of the Takeovers Directive as to necessary explanatory material (see clause 674). As in the 1985 Act, these powers are subject to the negative resolution procedure. Clause 411 restates the existing offences in section 251(6) of the 1985 Act.

Quoted companies: requirements as to website publication

652.     Clauses 412 to 414 introduce new requirements on quoted companies (as defined in clause 367) to put accounting information on a website. The requirements relate to:

• preliminary announcements of annual results (clause 413); and

• the full annual accounts and reports (clause 412).

A quoted company will still have to send the full accounts and reports to its members under clause 405.

653.     The information must be made available as soon as is reasonably practicable on a website that is maintained by or on behalf of the company, and that identifies the company in question. Access to the website must be available to all members of the public and not just to members, and there must be continuous access to the website without charge. Access to the information on the website and the ability to obtain a hard copy of the information from the website, may be restricted by the company where necessary to comply with any statutory or regulatory requirement (e.g. of an overseas regulator).

654.     The annual accounts and reports for a financial year must remain available until the accounts and reports for the next financial year are published on the website. The preliminary statement must remain available until the annual accounts and reports for the financial year are published on the website. These provisions have been developed in the light of recommendations made by the CLR in paragraph 8.86 of the Final Report that there should be mandatory website publication by quoted companies of any preliminary announcement and of the full annual financial statements.

Right of member or debenture holder to demand copies of accounts and reports

655.     Clauses 415 and 416 re-enact section 239 of the 1985 Act and entitle a member or debenture holder to demand a copy of the company's last annual accounts and reports without charge. Clause 415 lists the documents to which members or debenture holders of unquoted companies are entitled, while clause 416 lists those to which members or debenture holders of quoted companies are entitled. The company must comply with a demand within seven days of receipt of the request by the company.

Requirements in connection with publication of accounts and reports

656.     Clause 417 brings together provisions scattered throughout Part 7 of the 1985 Act (in sections 233(3), 234A(2), 234C(2), 234AB(2), 234A(4) and 234AB(4)) concerning statements of the name of the signatory in published accounts and reports. In the case of unquoted companies, every copy of the balance sheet and directors' report that is published by or on behalf of the company must state the name of the director who signed it on behalf of the board. For quoted companies this applies to copies of the balance sheet, directors' remuneration report and directors' report.

657.     Clauses 418 and 419 re-enact section 240 of the 1985 Act concerning requirements in connection with the publication of statutory or non-statutory accounts.

658.     "Publication" is defined in clause 420.

CHAPTER 8: PUBLIC COMPANIES: LAYING OF ACCOUNTS AND REPORTS BEFORE GENERAL MEETING

659.     Clauses 421 and 422 re-enact section 241 of the 1985 Act on the laying of accounts and reports before the company in general meeting, but restrict its application to public companies. Under the Bill, private companies are under no statutory obligation to hold an AGM or to lay accounts and reports in general meetings. There is therefore no statutory link for them between the accounts and AGMs (although such a link might be provided for in the company's articles). Any AGM that a private company may hold pursuant to its articles will not be a statutory meeting. Public companies will still be required to hold AGMs and they must now hold them within 6 months of the end of the accounting reference period.

CHAPTER 9: QUOTED COMPANIES: MEMBERS' APPROVAL OF DIRECTORS' REMUNERATION REPORT

660.     Clauses 423 and 424 restate the requirement under section 241A of the 1985 Act that a quoted company circulate a resolution approving the directors' remuneration report for the preceding financial year to its shareholders prior to its annual general meeting. The vote is advisory: as such, it does not require directors to amend contractual entitlements, nor to amend their remuneration policy, but the result of the vote will send a very strong signal to directors about the level of support among shareholders for the board's remuneration policy. In practice, directors will wish to take notice of the views of the company's members, and to respond appropriately. All "existing directors" (that is, every person who, immediately before the general meeting, is a director of the company) have a responsibility to ensure that the resolution is put to the vote of the meeting. As such, the requirement does not apply to past directors (even if they served on the board or as members of the remuneration committee in the current financial year), but it does apply to "existing directors" who were, for whatever reason, not present at the general meeting.

CHAPTER 10: FILING OF ACCOUNTS AND REPORTS

Duty to file accounts and reports

661.     Clauses 425 to 427 cover the general duty to file accounts and reports with the registrar of companies and the period allowed for filing accounts.

662.     Clause 426 reduces the period for filing accounts from ten months to nine months for private companies and from seven months to six months for public companies. These periods are calculated from the end of the relevant accounting reference period. The timetable for delivering accounts to the registrar was last amended in 1976. The periods have been reduced to reflect improvements in technology and the increased rate at which information becomes out of date. Filing timescales in other countries are generally less generous than in the UK. Under subsection (6), whether a company is private or public for the purpose of its filing obligations is determined by its status immediately before the end of the relevant accounting reference period.

663.     Clause 427 is a new provision defining how to calculate the periods allowed for filing accounts and reports. In general this is the same date the relevant number of months later. So, for example, if the end of the accounting reference period is 5 June, 6 months from then is 5 December. However, as months are of unequal length, there can be confusion as to whether 6 months from say 30 June is 30 December (exactly 6 months later) or 31 December (the end of the sixth month). Under the rule laid down in this clause, 6 months from 30 June will be 31 December. This reverses the "corresponding date rule" laid down by the House of Lords in Dodds v Walker [1981] 1 WLR 1027.