UK GAAP financial statement disclosures manual

This is in recognition of thefact that UK GAAP is comprised of an IFRS-based regime for micro-entities, smallcompanies and unlisted companies which are not small and EU-endorsed IFRS.Fin

UK GAAP Financial Statement Disclosures Manual

UK GAAP Financial Statement Disclosures Manual Steven Collings

This edition first published 2016

All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on- demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts

in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and speci fically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required, the services

of a competent professional should be sought.

A catalogue record for this book is available from the Library of Congress.

A catalogue record for this book is available from the British Library.

ISBN 978-1-119-13275-2 (paperback) ISBN 978-1-119-13276-9 (ebk) ISBN 978-1-119-13277-6 (ebk) ISBN 978-1-119-28339-3 (obk)

10 9 8 7 6 5 4 3 2 1 Set in 11/12pt TimesLTStd by Thomson Digital, Noida, India Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK

v

25 Filing Financial Statements with Companies House 429

Since the demise of old UK GAAP, companies and their advisers now face adiverse range of potential financial reporting requirements, and the need to getaccustomed to the alphabet soup of the different reporting requirements of fullIFRS, the variations of FRS 102, FRS 101 and FRS 105 Determining whichrequirements, options and exemptions might be appropriate to a particular company

or group is likely to present a real challenge This book will help navigate the reader,topic by topic, through the complex maze of UK financial reporting in 2016 andbeyond

The book starts off with a comprehensive review of the UK financial reportingregulatory framework, explaining clearly the implications for each category of entity–whether groups, subsidiaries or small and micro-entities– and then deals with eachmajor topic in turn

The chapters are well-structured with clear signposting, and each contains asummary of key points and an excellent selection of practical examples and illustra-tions The book never loses focus– it contains a wealth of good practical, down-toearth stuff relevant to the day-to-day work that passes over the desks of mostaccountants

Steve Collings has extensive experience as an accounting practitioner, lecturer andauthor, and he writes in a highly practical and user-friendly way The book shouldprovide an excellent and constant source of reference

Paul Gee, BA(Econ) FCA

July 2016

vii

This is the first edition of UK GAAP Financial Statement Disclosures Manual

aimed at practising accountants, accountants in industry and commerce, studentaccountants and boards of directors This publication is a companion guide to

Interpretation and Application of UK GAAP: For Accounting Periods Commencing

On or After 1 January 2015 (Wiley, March 2015) Target audiences include

micro-entities, small companies and companies which are reporting under EU-adoptedInternational Financial Reporting Standards (IFRS) This is in recognition of thefact that UK GAAP is comprised of an IFRS-based regime (for micro-entities, smallcompanies and unlisted companies which are not small) and EU-endorsed IFRS.Financial reporting in the UK and Republic of Ireland has seen considerable

changes over the last couple of years with the introduction of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland Many companies

had to mandatorily adopt FRS 102 for accounting periods commencing on or after 1January 2015 and this meant restating prior yearfinancial statements so that they wereFRS 102 compliant and making the additional disclosures required by the new regime.Shortly afterwards the small companies’ regime experienced a significant overhaul.This was due to the issuance of the EU Accounting Directive (the Directive) in June 2013.The UK’s Department for Business, Innovation and Skills was given until July 2015 inwhich to transpose the Directive into legislation and this completed in January 2015; therevised Companies Act 2006 became effective from 6 April 2015 for accounting periodscommencing on or after 1 January 2016, or for accounting periods commencing on orafter 1 January 2015, but before 1 January 2016, if the directors so wished

One of the most notable changes which the EU Accounting Directive brought aboutwas a reduction in small and micro-entities’ disclosure requirements in an attempt toreduce the burdens placed on smaller companies

As a direct result of the Directive, the Financial Reporting Council (FRC) had torevise UK GAAP for small and micro-entities The FRC had previously incorporatedthe micro-entities’ legislation in the (now defunct) Financial Reporting Standard forSmaller Entities (the FRSSE) in order that qualifying entities could use the regime; butthis was never intended to be a long-term solution It had already become clear that theFRSSE could not be sustained and the FRC then made the decision to withdraw theFRSSE, move small companies within the scope of FRS 102 and have micro-entities

reporting under a standalone standard (that of FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime).

The new regime in the UK and Republic of Ireland has brought about significantchange where disclosures are concerned in small and micro-entities’ financial state-ments and this publication examines those disclosure issues in detail This book alsocaters for those companies which report under EU-adopted International FinancialReporting Standards (IFRS) because EU-adopted IFRS forms part of UK GAAP.The book goes through the technical theory within UK GAAP and brings thistheory to life through the use of worked examples (where considered applicable) and

ix

also by illustrating how certain financial statement disclosures might look Whereexamples and illustrations are concerned, it is to be emphasised that these are notprescriptive and it should be borne in mind that every company/entity is different andwill require differing levels of disclosure requirements depending on specific facts andcircumstances.

It is also particularly important to emphasise that where small companies’ areconcerned, directors still have a legal responsibility to ensure that the entity’s financialstatements give a true and fair view and whilst the Directive (and the revisedCompanies Act 2006) limit the amount of disclosures that are required to be made

in the small company’s financial statements, additional disclosures, over and abovethose required by law, should be made where making such disclosures enables thefinancial statements to give a true and fair view Wherever appropriate, professionaladvice should be sought to ensure disclosures are made which are appropriate to thecompany’s specific circumstances

I hope youfind this book helpful in your role as a financial statement preparer andcomments are always welcome, via the publisher, for future editions

Steve Collings, FMAAT FCCA

April 2016

The production of a book involves many stages and a variety of individuals whohelp the author, not only in terms of grammar and technical content, but also with thestructure, content andflow of the book Without these individuals the books I writewould not see the light of day

I would like to offer my sincere thanks to Gemma Valler, who is the ing editor for this title Gemma has been closely involved from the start and agreed todeadline extensions so I could incorporate the changes that have recently taken place inthe small companies’ regime following the Financial Reporting Council’s decision towithdraw the Financial Reporting Standard for Smaller Entities and introduce a newreporting regime for micro-entities

commission-Thank you to my copy-editor Caroline Quinnell who has done a wonderful job onthe manuscript and also to all the staff at Wiley who have been involved in the printing,production and marketing of this book

I would also like to express my sincere thanks to my technical editor, Caroline Fox,

BA FCA, who always does a remarkable job in reviewing the draft chapters fortechnical accuracy and provides me with advice throughout the production of the title

as to how to make each chapter even better!

My grateful thanks go to Paul Gee who has written the Foreword to this book

I would also like to thank all my friends and family who are supportive of myauthoring commitments, particularly Les Leavitt who is my co-director at LeavittWalmsley Associates Ltd Without this support, it would not be possible to commit tothe huge task which is authoring books

Finally, I would like to thank you, the reader, who has picked up this book I hopethat it helps you, not only with the disclosure issues you may be facing, but also theadditional points incorporated in the chapters giving an overview of the variouschanges in accounting treatment brought about by the new UK Generally AcceptedPractice and Companies Act 2006 Comments and suggestions for future editions arealways welcome via the publisher

xi

ABOUT THE AUTHOR

Steve Collings, FMAAT FCCA, is the audit and technical director at LeavittWalmsley Associates Ltd, a firm of Chartered Certified Accountants based in Sale,Cheshire, in the United Kingdom, where Steve trained and qualified Steve wasadmitted as a member of the Association of Accounting Technicians (AAT) in 2001and went on to qualify as a Chartered Certified Accountant (ACCA) in 2005 He wasadmitted as a Fellow Member of the AAT in 2006 and became a Fellow Member ofACCA in 2010 Steve also holds ACCA’s Diploma in International FinancialReporting Standards, Diploma in International Financial Reporting Standards forSmall-Medium Entities as well as ACCA’s Certificates in IFRS and InternationalAuditing Standards and holds Senior Statutory Auditor status in the UK

Steve is a member of the Financial Reporting Council’s UK GAAP TechnicalAdvisory Group that advises the Corporate Reporting Council on all issues relating to

UK accounting standards

Steve is the author of several books on the subjects of accounting and auditing,

including Interpretation and Application of International Standards on Auditing (Wiley, March 2011), IFRS for Dummies (Wiley, March 2012), Frequently Asked Questions in IFRS (Wiley, April 2013) and Interpretation and Application of UK GAAP for Accounting Periods Commencing on or after 1 January 2015 (Wiley, March 2015).

He is the author of several articles published in the accounting media and much of Steve’swork can be seen on his website atwww.stevecollings.co.uk

Steve lectures to professionally qualified accountants on the areas of accounting,audit and Solicitors Accounts Rules and was named Accounting Technician of theYear at the 2011 British Accountancy Awards He was also awarded OutstandingContribution to the Accountancy Profession in 2013 by the Association of Interna-tional Accountants and was shortlisted for Practitioner of the Year at the 2014 BritishAccountancy Awards

xiii

1 THE STRUCTURE OF UK GAAP

Introduction 1

FRS 102 The Financial Reporting Standard applicable in the UK and

The EU Accounting Directive 2

Response by the Financial Reporting Council 3 The Structure of New UK GAAP 4 Key Points 19

INTRODUCTION

Financial reporting in the UK and Republic of Ireland has undergone considerablechange over the last few years This is because the standard-setters in the UK andRepublic of Ireland (the Financial Reporting Council (FRC)) had always foreseenentities reporting under an international-based financial reporting framework Since

2005, listed companies in the UK and Republic of Ireland have had to report under adopted IFRS and during the transition to IFRS there were considerable problemsencountered meaning lessons had to be learned Since 2005, the FRC (previously theAccounting Standards Board) have been actively producing a framework for privatecompanies to report under, which is based on IFRS The intention by the (now defunct)Accounting Standards Board was to adopt an IFRS-based framework because IFRShas gathered pace much faster over the years In addition, having a framework which isbased on IFRS is said to improve comparability and consistency and open up capitalmarkets

EU-FRS 102 THE FINANCIAL REPORTING STANDARD APPLICABLE IN THE

UK AND REPUBLIC OF IRELAND

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland was issued on 14 March 2013 This marked the end of several years’ work bythe FRC (and the previous Accounting Standards Board) in developing a standardwhich was based on IFRS and which could be used by private companies The standarditself was initially 350 pages long, which was a considerable reduction in volume fromprevious UK GAAP, which was some 3,500+ pages long Professional accountantshad often complained about the sheer volume of UK GAAP and the voluminousdisclosures which it mandates The Accounting Standards Board at the time alsoacknowledged that UK GAAP had become too voluminous and disjointed and hence itwas more cost-effective to develop a new UK GAAP rather than change the previousGAAP

FRS 102 is itself based on IFRS for SMEs, although it is not identical to IFRS for SMEs because IFRS for SMEs was not compatible with UK and Republic of Ireland companies legislation In addition, IFRS for SMEs is based on the concept of‘public

1

accountability’, a concept which proved very difficult to define in the eyes of UKlegislation The initial Exposure Drafts of FRS 102 were based on the concept of publicaccountability, but this would have meant that certain entities would have had to adoptEU-adopted IFRS (for example, the smallest of pension schemes), which would nothave been appropriate because of the associated disclosure requirements which IFRSrequires.

FRS 102 was originally issued in March 2013 and was mandatory for accountingperiods commencing on or after 1 January 2015 for those companies who were notreporting under the small companies’ regime (i.e the Financial Reporting Standard forSmaller Entities (the FRSSE)) Early adoption was permissible, although the take-upfor early adoption was not vast Initially, medium-sized businesses were the mainentities to adopt FRS 102 for their accounting periods beginning on or after 1 January

2015 and the original plan was to ensure that the medium-sized businesses transitionedacross to the new regime and then the FRC would see how smoothly those transitionshad gone Small companies would continue to report under the FRSSE and originallythe FRC said that they would eventually have to align the FRSSE with FRS 102 toensure that no significant disparities in accounting and disclosures existed between thetwo standards

THE EU ACCOUNTING DIRECTIVE

On 26 June 2013, the EU issued Directive 2013/34/EU of the European Parliamentand of the Council (referred to as the EU Accounting Directive (the Directive)) Itreplaced the 4th and 7th Accounting Directives and established minimum legalrequirements for financial statements in the EU as well as providing 100 MemberState options The overarching objective of the Directive is to allow more companies tohave access to a less burdensomefinancial reporting regime than was the case underthe previous Companies Act 2006 There are three core objectives to the Directive,which are to:

• simplify accounting requirements so as to reduce the administrative burden oncompanies with particular emphasis focused on smaller companies;

• increase the clarity and comparability offinancial statements of companies so

as to reduce the cost of capital and increase the level of cross-border trade andmerger and acquisition activity; and

• protect essential user needs by retaining necessary accounting information forusers

The Directive’s objectives are therefore to simplify the accounting requirementsfor small entities within its scope and hence reduce the levels of disclosures contained

in thefinancial statements The Directive achieves this objective by applying a ‘thinksmall first’ approach and this approach:

• introduces a ‘building block’ approach to the statutory accounts wherebydisclosure levels are increased depending on the size of the undertaking;

• reduces the number of options available to preparers in respect of recognition,measurement and presentation; and

• creates a largely harmonised small companies’ regime and, for the first time,limits the amount of information which Member States are permitted to requiresmall undertakings to place in their annualfinancial statements.

The Directive states that small, medium-sized and large undertakings should bedefined and distinguished by reference to balance sheet total, net turnover and theaverage number of employees during thefinancial year because this criterion usuallyprovides objective evidence as to the size of the undertaking The Directive also allowsMember States the option of using maximum mandatory thresholds to determinecompany sizes or minimum mandatory thresholds The Department for BusinessInnovation and Skills (BIS) confirmed that in order to allow more companies access to

a less burdensomefinancial reporting regime, it would apply the maximum mandatorythresholds in the Directive (Chapter 2 examines the new thresholds)

In January 2015, BIS issued their response to the consultation in which itconfirmed its decision to take advantage of the maximum thresholds which theDirective permits This would, according to BIS, allow 11,000 medium-sizedcompanies to be re-categorised and enable them to take advantage of the smallcompanies’ regime, thus allowing them to make less disclosure in their financialstatements than would otherwise be the case In their response to the consultation,BIS also confirmed that they would also apply the mandatory increases in thethresholds for medium-sized and large businesses The transposition of the Directiveinto company law completed on 26 March 2015 and became effective from 6 April

2015 for accounting periods commencing on or after 1 January 2016, or foraccounting periods commencing on or after 1 January 2015, but before 1 January

2016 if the directors wished This early adoption clause was built into the legislation

to allow a medium-sized business to consider whether it would fall to be classed assmall under the revised Companies Act 2006 and hence possibly take advantage ofthe new small companies’ regime

RESPONSE BY THE FINANCIAL REPORTING COUNCIL

In light of the revisions to the Companies Act 2006, the FRC issued threeExposure Drafts on 19 February 2015 as follows:

• FRED 58 Draft FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime;

• FRED 59 Draft Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Small entities and other minor amendments; and

• FRED 60 Draft Amendments to FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework.

Unlike when the FRC have previously issued Exposure Drafts, on issuance of theabove three Exposure Drafts, the FRC also included an‘Overview Document’, whichgave a brief outline as to the FRC’s overall intentions In addition to overhauling thefinancial reporting regime for smaller and micro-entities, the FREDs also incorporatedother minor amendments to the FRSs

The FRC took the decision to issue three FREDs in order to make a distinctionbetween the different standards which have been affected by the proposals.

The Exposure Drafts were open for comment until April 2015 Once thecomment period closed, the FRC took on board feedback which they received

on the Exposure Drafts from various commentators and then made further changes

to arrive at a set of finalised standards for small and micro-entities The mostnotable changes to the Exposure Drafts in arriving at finalised standards were asfollows:

• A complete restructuring of Section 1A of FRS 102 Small Entities The end

result is a much more user-friendly and concise section and has the specificdisclosure requirements split into two Appendices: Appendix C outlines thosedisclosures which are legally required and Appendix D outlines those dis-closures which are encouraged in order that thefinancial statements of a smallentity give a true and fair view

• Restructuring of FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime to remove sections and paragraph numbers which are

not applicable to micro-entities The consequence of this is that the structure ofFRS 105 is not the same as FRS 102

• A switch from the performance method as a mandatory accounting treatmentfor micro-entities which receive government grants back to the accrualsmethod

The final standards were published by the FRC in summer 2015

THE STRUCTURE OF NEW UK GAAP

The issuance of the new standards for small and micro-entities marked the end ofseveral years of work undertaken by the FRC (and the previous Accounting StandardsBoard) in developing an IFRS-based framework for reporting entities in the UK andRepublic of Ireland

The following diagram illustrates the structure of new UK GAAP:

Each FRS in the above diagram is referred to as follows:

FRS 100 Application of Financial Reporting Requirements (September 2015) FRS 101 Reduced Disclosure Framework (September 2015)

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (September 2015)

FRS 103 Insurance Contracts (March 2014) FRS 104 Interim Financial Reporting (March 2015) FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime (July 2015)

The smallest companies in the UK can report under FRS 105 as this applies tomicro-entities (see the later section ‘FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime’) Small companies (or micro-entities whochoose not to apply FRS 105) can report under FRS 102 with reduced disclosures.Companies which are excluded from the small companies’ regime will report underfull FRS 102 Companies that deal with insurance contracts (or reinsurance contracts)will apply the provisions in FRS 103 Listed companies, including those companieslisted on the Alternative Investment Market (AIM), will report under EU-adoptedIFRS

The idea behind the frameworks is that they become more complex and requiremore disclosures the further up the suite of standards a company goes For example,

a small company will clearly make fewer disclosures in their financial statementsthan a company listed on the London Stock Exchange reporting under EU-endorsedIFRS

FRS 100 Application of Financial Reporting Requirements

The latest version of FRS 100 Application of Financial Reporting Requirements is

the September 2015 version The overall objective of FRS 100 is to outline whichtypes of entity will report under whichfinancial reporting framework The FRS itselfapplies to all financial statements which are intended to give a true and fair view inrespect of the entity’s assets, liabilities, financial position and profit or loss for theaccounting period

It is to be noted that FRS 100 requires a ‘Statement of compliance’ for entities

which apply the provisions of FRS 101 Reduced Disclosure Framework and FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland Such

a statement is included in the notes to the financial statements, unless the entity is asmall entity reporting under FRS 102 with reduced disclosures in which case it isencouraged to make such a statement of compliance in the notes to the financialstatements

Statement of Recommended Practice

If an entity is required to apply a Statement of Recommended Practice (SORP),

FRS 100 requires the relevant SORP to be applied in the circumstances which are setout in the relevant FRS In addition, FRS 100 also requires an entity (other than a smallentity) to state the title of the SORP which it is applying in the preparation of thefinancial statements and whether the financial statements have been prepared inaccordance with the provisions of the SORP If the entity has chosen to departfrom the requirements of any relevant SORP, then FRS 100 requires the entity to

disclose a brief description of how the financial statements depart from the mended practice outlined in the SORP This should also include:

recom-(a) in respect of any accounting treatment which is not compliant with therequirements of the SORP, the reasons why the accounting treatment applied

is judged to be appropriate; and(b) brief details relating to any disclosures which are recommended by theSORP, but which have not been provided together with the reasons why theyhave not been provided

The overall objective of a SORP is to clarify how the requirements of anaccounting framework (such as FRS 102) apply in the industry or sector which thereporting entity operates in For example, a Limited Liability Partnership (LLP) thatfalls to be classed as small under the LLP Regulations will apply the requirements of

FRS 102 with reduced disclosures The SORP applicable to LLPs is the Statement of Recommended Practice – Accounting by Limited Liability Partnerships, which is

issued by the Consultative Committee of Accountancy Bodies A revised version isexpected to be published in the summer of 2016

The idea behind a SORP is that when an entity complies with the requirements of arelevant SORP, it enhances comparability of thefinancial statements among entitieswithin the same industry or sector Comparability is one of the key traits whichfinancial statements must possess in order that interested stakeholders (for example,potential investors) can make reasoned and balanced decisions concerning thefinancial performance, financial position and cash flows of the reporting entity.Where an entity departs from a requirement of the SORP, FRS 100 acknowledgesthat the effect of the departure need not be quantified, with the exception in raresituations where such quantification would be judged necessary in order that thereporting entity’s financial statements give a true and fair view

Some entities are not caught by the requirements of a SORP, but may choose toadopt the provisions of a relevant SORP in preparing theirfinancial statements Wherethis is the case, then the reporting entity is encouraged (under FRS 100) to disclosesuch facts

Effective Date of FRS 100

The provisions in FRS 100 apply for accounting periods beginning on or after

1 January 2016 However, early adoption of FRS 100 is permitted; although if an entityearly-adopts FRS 100 then it must also apply the edition of FRS 101, FRS 102 and FRS

105, which are effective for accounting periods commencing on or after 1 January

2016, and the entity will also be subject to the early application provisions which areset out in those FRSs Where an entity chooses not to early-adopt then it must also notadopt the associated amendments made to FRS 101, FRS 102 and FRS 105 toaccounting periods commencing prior to 1 January 2016

Where FRS 100 is early-adopted then disclosure of that fact must be made in thefinancial statements The exception to making this disclosure is where the entity is amicro-entity or a small entity A small entity would be encouraged to make suchdisclosure

First-time adoption of FRS 100

When a reporting entity adopts the provisions in FRS 100 for thefirst time, it mustapply the transitional arrangements which are relevant to its specific circumstances,which are outlined as follows:

The entity is transitioning to EU-adopted IFRS

The transitional arrangements, which are set out in IFRS 1 First-time Adoption of International Financial Reporting Standards as adopted

by the EU.

Qualifying entity transitioning

to FRS 101

The provisions in paragraphs 6 to 33 of IFRS 1 as adopted by the

EU (unless it is applying EU-adopted IFRS before the date of transition) together with the relevant appendices with the exception

of paragraphs 6 and 21, which require an opening statement of financial position (balance sheet) to be presented as at the date of transition.

The entity is transitioning to FRS 102

The transitional provisions outlined in FRS 102.

The entity is transitioning to FRS 105

The transitional provisions outlined in FRS 105.

When a qualifying entity prepares theirfinancial statements under EU-adoptedIFRS prior to the date of transition to FRS 101 it will be preparing Companies Actindividual accounts as per section 395(1)(a) of the Companies Act 2006 and will not

be preparing International Accounting Standards (IAS) individual accounts Thereporting entity must consider whether any amendments are needed in order tocomply with paragraph 5(b) of FRS 101 but it must not reapply the provisions inIFRS 1 Paragraph 5 of FRS 101 allows a qualifying entity to take advantage of thedisclosure exemptions contained in paragraphs 7A to 9 of FRS 101 (subject toparagraph 7), but paragraph 5(b) requires the qualifying entity to make amendments

to EU-adopted IFRS requirements, where considered necessary, so that thefinancialstatements comply with the Companies Act 2006 and Regulations The reason thatparagraph 5(b) requires such amendments is so that the financial statements arecompliant with UK legislative requirements

Where the qualifying entity determines that amendments are necessary for thefinancial statements to be compliant with the Companies Act 2006 and Regulations,management mustfirst determine whether the amendments have a material effect onthe first set of financial statements presented

Amendments have no material effect on the first financial statements

Where the amendments have no material effect on thefirst financial statementsprepared under the new regime, the entity should make disclosure that it hasundergone a transition to FRS 101 and give brief details of the disclosureexemptions which the entity has adopted for all periods presented in the financialstatements

Amendments are material on the first financial statements

Where the amendments do have a material effect, the qualifying entity’s firstfinancial statements must include the following:

(a) narrative describing the nature of each change of the qualifying entity’saccounting policies;

(b) reconciliations of equity, which were determined under EU-adopted IFRS toits equity that has been determined in accordance with FRS 101 provisions.These reconciliations must be at both the date of transition to FRS 101 andalso at the end of the latest period presented in the entity’s most recent annualfinancial statements that have been prepared in accordance with EU-adoptedIFRS; and

(c) a reconciliation of the profit or loss which was determined under EU-adoptedIFRS to the profit or loss determined under the provisions of FRS 101 for thelatest period presented in the entity’s most recent annual financial statements,which have been prepared to EU-adopted IFRS

Paragraph 12(b) of FRS 101 allows for early adoption and where it isimpracticable to apply the above amendments retrospectively, FRS 100 requiresthe qualifying entity to apply the amendments to the earliest period for which it ispracticable to do so In addition, the qualifying entity must also identify the datapresented for prior periods which are not comparable with the data for the period inwhich the entity prepares its first financial statements that comply with the reduceddisclosure framework set out in FRS 101

FRS 101 Reduced Disclosure Framework

FRS 101 allows a qualifying entity to apply the provisions in FRS 101 Reduced Disclosure Framework and to take advantage of certain disclosure exemptions in the

individual financial statements of subsidiaries, which also include intermediateparents, and ultimate parents which apply the recognition, measurement and disclosurerequirements of EU-adopted IFRS

The term‘qualifying entity’ is pivotal in the application of FRS 101 and is defined

in the Glossary to FRS 101 Essentially a qualifying entity is one where the parentcompany prepares consolidated financial statements (group accounts) which areintended to give a true and fair view and that group member is included in theconsolidatedfinancial statements It is important to emphasise that charities cannot bequalifying entities

The scope of FRS 101 also does not extend to those entities which are required toprepare consolidatedfinancial statements and are not entitled to any of the exemptions

in the following sections of the Companies Act 2006:

• Section 400 Exemption for company included in EEA group accounts of a larger group

• Section 401 Exemption for company included in non-EEA group accounts of a larger group

• Section 402 Exemption if no subsidiary undertakings need to be included in the consolidation.

Qualifying entities which also voluntarily choose to prepare consolidatedfinancialstatements cannot apply the provisions in FRS 101 and hence given the restrictions onthe scope of FRS 101 it is important that care is taken in ensuring correct application ofthe FRS

Protocol to be followed in taking disclosure exemptions under FRS 101

When a qualifying entity satisfies the criteria to use FRS 101 and wishes to take thedisclosure exemptions in paragraphs 7A to 9 of FRS 101, it must ensure the followingconditions are complied with:

(a) The shareholders have been notified in writing informing them that the entity

is proposing to apply the disclosure exemptions in FRS 101 and they do notobject Where a shareholder objects to the disclosure exemptions beingapplied, they must object within a reasonable specified timeframe and in anacceptable format The shareholder must also be a shareholder of theimmediate parent, or a shareholder(s) who hold(s) in total 5% or more ofthe total issued shares in the entity, or more than 50% of the issued shares inthe entity, which are not held by the immediate parent

(b) The entity applies the recognition, measurement and disclosure requirements

in adopted IFRS but amendments are made to the requirements of adopted IFRS where necessary so as to comply with the Companies Act 2006and the Regulations A qualifying entity is required to comply with therequirements of the Companies Act 2006 and the Regulations in preparingtheirfinancial statements and the Application Guidance in FRS 101 outlinesthe amendments necessary to remove conflicts between the requirements ofEU-adopted IFRS and the Companies Act 2006 and the Regulations FRS

EU-101 also acknowledges that the Application Guidance in FRS EU-101 is anintegral part of the standard

(c) The notes to the qualifying entity’s financial statements provide the followingdisclosures:

(i) a brief summary of the disclosure exemptions that have been adopted;and

(ii) the name of the parent of the group in whose consolidated financialstatements the qualifying entity’s financial statements are included andwhere those consolidated financial statements can be obtained

Financial institutions

Where a qualifying entity is a financial institution, it may take advantage in itsindividualfinancial statements of the disclosure exemptions in paragraphs 8 and 9 ofFRS 101, with the exception of:

(a) the disclosure exemptions in IFRS 7 Financial Instruments: Disclosures;

(b) the disclosure exemptions in IFRS 13 Fair Value Measurement to the extent

that they apply tofinancial instruments; and

(c) the disclosure exemptions from paragraphs 134 to 136 of IAS 1 Presentation

of Financial Statements.

First-time adoption of FRS 101

When a qualifying entity applies the provisions in FRS 101 for thefirst time, it is

required to apply the requirements of paragraphs 6 to 33 of IFRS 1 First-time Adoption

of International Financial Reporting Standards A first-time qualifying entity doesnot, however, have to comply with the requirements of paragraphs 6 and 21, whichrequire an opening statement offinancial position (balance sheet) to be presented at thedate of transition to FRS 101

The disclosure exemptions in FRS 101

The table below outlines the disclosure exemptions which are available toqualifying entities under FRS 101

IFRS 2 Share-based Payment Requirements of paragraphs 45(b) and 46 to 52, provided

that:

• if the qualifying entity is a subsidiary, the share-based payment arrangement concerns equity instruments of another group entity; or

• if the qualifying entity is an ultimate parent, the based payment arrangement is in relation to its own equity instruments and the ultimate parent’s own financial statements are presented alongside the consolidated accounts.

share-In both of the above cases, the equivalent disclosures must be made in the consolidated financial statements of the group in which the entity is consolidated.

IFRS 3 Business Combinations The requirements in paragraphs 62, B64(d), B64(e), B64(g),

B64(h), B64(j) to B64(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 and B67 Again, equivalent disclosures must be included in the consolidated financial statements of the group in which the entity is consolidated.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

The requirements of paragraph 33(c) and equivalent disclosures must be made in the consolidated financial statements of the group in which the entity is consolidated.

IFRS 7 Financial Instruments:

Disclosures

Exemption is available to qualifying entities in respect of all disclosure requirements, provided that the equivalent disclosures are made in the consolidated financial statements of the group in which the entity is consolidated Note – a qualifying entity which is a financial institution cannot take advantage of this disclosure exemption.

IFRS 13 Fair Value Measurement The requirements of paragraphs 91 to 99 provided that

equivalent disclosures are made in the consolidated financial statements of the group in which the entity is consolidated.

IAS 1 Presentation of Financial Statements

Paragraph 38, which requires comparative information in relation to:

• paragraph 79(a)(iv) of IAS 1

• paragraph 73(e) of IAS 16 Property, Plant and Equipment

• paragraph 118(e) of IAS 38 Intangible Assets

• paragraph 76 and 79(d) of IAS 40 Investment Property

• paragraph 50 of IAS 41 Agriculture

In addition, a qualifying entity can take advantage of the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 Although for accounting periods starting before 1 January 2013, para- graphs 38A, 38B, 38C, 38D, 40A, 40B, 40C and 40D of IAS

1 (effective 1 January 2013) should be replaced with graphs 39 and 40 of IAS 1 (effective 1 January 2009).

para-IAS 7 Statement of Cash Flows A qualifying entity can take advantage of the exemption

from preparing a statement of cash flows (cash flow statement) in its individual financial statements.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

The requirements of paragraphs 30 and 31.

IAS 24 Related Party Disclosures The requirements of paragraphs 17 and 18A In addition, a

qualifying entity does not have to disclose transactions entered into between two, or more, group members provided that any subsidiary which is a party to the transaction is wholly owned by such a member.

IAS 36 Impairment of Assets The requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)

to 134(f) and 135(c) to 135(e) provided that equivalent disclosures are made in the consolidated financial statements of the group in which the entity is consolidated.

FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (September 2015)

The ‘backbone’ of ‘new UK GAAP’ is in the form of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland This standard

applies to all entities, with the exception of:

• micro-entities reporting under FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime; and

• entities reporting under EU-adopted IFRS

At the time of writing, the latest version of FRS 102 is the September 2015 version.This version of FRS 102 incorporates provisions for small companies in the form of

Section 1A Small Entities, which was not found in previous editions of FRS 102 In

addition, the FRC took the opportunity to make other minor amendments to thestandard at the same time as incorporating presentation and disclosure requirements forsmall entities

The vast majority of companies in the UK and Republic of Ireland will reportunder the provisions in FRS 102 and it offers a more compact financial reportingframework than previous UK GAAP did and is more aligned to the requirements

of EU-adopted IFRS, which was always the intention by the FRC (and, ofcourse, the previous Accounting Standards Board who initiated the ‘new UKGAAP’ project)

Structure of FRS 102

FRS 102 is structured in sections and each section of FRS 102 follows a structure.Each section starts with the Scope section, which outlines which entities or types oftransactions do, and do not, fall under a particular section’s scope It then moves intothe detailed requirements of the section, which sometimes do vary depending on thesection– for example, Section 33 Related Parties does not contain any recognition and

measurement principles because the section is a wholly-disclosure standard Thedisclosure requirements relevant to each section are always contained at the end ofeach section

Example – Accounting policy change

Morley Ltd is reporting under the provisions of FRS 102 for its financial statements for the year ended 31 December 2017 During the year the directors decided to change the way in which it accounts for its borrowing costs as it is in the process of self-constructing a number of fixed assets Prior to the change in accounting policy, the company always expensed borrowing costs immediately in pro fit or loss However, the directors now feel that given the levels of borrowing costs they are currently incurring on such projects, the financial statements would be more relevant and reliable if such costs were capitalised Such a change in accounting methodology would constitute a change in accounting

policy under the provisions of Section 10 Accounting Policies, Estimates and Errors The

directors have concluded that the effect of this accounting policy change is material and wish to make the required disclosures in respect of a voluntary change in accounting policy.

Accounting policies are changed where an FRS requires such a change or management deems the accounting policy change will enable the financial statements

to provide more relevant and reliable financial information As the change in accounting policy is material, the entity should make the required disclosures In order to do this, management will look at the end of Section 10, which outlines the disclosure require- ments and in respect of accounting policies these are split into two parts: the first part deals with the disclosure requirements in respect of an accounting policy change mandated because of an amendment to an FRS or FRC Abstract; the second part deals with a voluntary change in accounting policy Management will therefore make the disclosures required by the second part of the disclosure section contained in paragraph 10.14 of FRS 102.

The structure of FRS 102 is as follows:

1 Scope 1A Small Entities

Appendix A: Guidance on adapting the balance sheet formats Appendix B: Guidance on adapting the profit and loss account formats Appendix C: Disclosure requirements for small entities

Appendix D: Additional disclosures encouraged for small entities

2 Concepts and Pervasive Principles

3 Financial Statement Presentation

4 Statement of Financial Position

5 Statement of Comprehensive Income and Income Statement

Appendix: Example showing presentation of discontinued operations

6 Statement of Changes in Equity and Statement of Income and Retained Earnings

7 Statement of Cash Flows

8 Notes to the Financial Statements

9 Consolidated and Separate Financial Statements

10 Accounting Policies, Estimates and Errors

11 Basic Financial Instruments

12 Other Financial Instruments Issues

Appendix: Examples of hedge accounting

13 Inventories

14 Investments in Associates

15 Investments in Joint Ventures

16 Investment Property

17 Property, Plant and Equipment

18 Intangible Assets other than Goodwill

19 Business Combinations and Goodwill

20 Leases

21 Provisions and Contingencies

Appendix: Examples of recognising and measuring provisions

22 Liabilities and Equity

Appendix: Example of the issuer ’s accounting for convertible debt

32 Events after the End of the Reporting Period

33 Related Party Disclosures

• Incoming Resources from Non-exchange Transactions

• Public Bene fit Entity Combinations

• Public Benefit Entity Concessionary Loans

• Appendix A: Guidance on funding commitments

• Appendix B: Guidance on incoming resources from non-exchange transactions

35 Transition to this FRS

Approval by the FRC The Accounting Council’s Advice to the FRC to issue FRS 102 The Accounting Council’s Advice to the FRC to issue Amendments to FRS 102 – Basic financial instruments and Hedge accounting

The Accounting Council ’s Advice to the FRC to issue Amendments to FRS 102 – Pension obligations

The Accounting Council ’s Advice to the FRC to issue Amendments to FRS 102 – Small entities and other minor amendments

public bene fit entities A ‘public benefit entity’ is an entity that provides goods or

services for the general public, the wider community or for social benefit Any

‘profit’ or ‘surplus’ generated by a public benefit entity is used to support the entity’sprimary objectives as opposed to providing a return to equity holders, members orshareholders

FRS 102 does not necessarily contain all the necessary legal requirements anentity is required to apply in the preparation of their financial statements andtherefore the directors of reporting entities must be satisfied that they have dis-charged all their obligations required under company law For small entities (andmicro-entities that choose not to report under FRS 105), most legally required

disclosures have been included in Section 1A Small Entities in Appendix C

Disclosure requirements for small entities but the section does not include the

disclosure requirements which become relevant when the small entity is subject toexternal audit

As stated earlier in this chapter, FRS 100 Application of Financial Reporting Requirements outlines which types of entity will use a particularfinancial reportingframework The regime is not designed to be inflexible; indeed micro-entities have achoice of whether to apply FRS 105 or a more comprehensive financial reportingframework, such as FRS 102 Section 1A However, certain entities are mandated toapply a certain framework For example, FRS 100 says that an entity which is required

by IAS Regulation to prepare consolidated financial statements in accordance withEU-adopted IFRS must do so– they have no choice where this is concerned However,

the individual financial statements of such an entity, or the individual financialstatements or consolidated financial statements of any other type of entity that fallwithin the scope of FRS 100, are to be prepared in accordance with:

• FRS 105 if the entity is eligible to apply FRS 105 and chooses that framework

to report under; or

• if the entity is not eligible to apply FRS 105, or is eligible but chooses not toapply FRS 105, then thefinancial statements are to be prepared in accordancewith FRS 102 (with reduced disclosure if the entity wishes), full FRS 102 orEU-adopted IFRS

Earnings per share

Where a reporting entity chooses to disclose earnings per share, or where theentity’s ordinary shares or potential ordinary shares are traded on a recognisedsecurities commission (for example, the London Stock Exchange) for the purposes

of issuing ordinary shares in a public market, then the provisions in EU-adopted IAS

33 Earnings per Share must be applied in the financial statements

Operating segments

A similar principle to the above paragraph relates to the provision of segmentinformation Entities whose shares are traded in a public market or an entity thatchooses to provide segment information must apply the provisions in EU-adopted

IFRS 8 Operating Segments However, if the entity chooses to disclose disaggregated

information but that information is not compliant with the requirements outlined inIFRS 8, then the entity should not describe that information as being segmentinformation

Application of IAS 33 Earnings per Share, IFRS 8 Operating Segments and IFRS

6 Exploration for and Evaluation of Mineral Resources

Where the reporting entity chooses to apply any of the above IFRSs, then anyreferences made to other IFRSs within IAS 33, IFRS 8 or IFRS 6 are taken to be thereferences which apply to the relevant section or paragraph of FRS 102

FRS 103 Insurance Contracts

FRS 103 Insurance Contracts was issued by the FRC in March 2014 FRS 103,

together with its accompanying non-mandatory Implementation Guidance, bringstogether existingfinancial reporting requirements as well as the guidance for insurance

contracts FRS 103 is based on the international equivalent, IFRS 4 Insurance Contracts, which was issued by the International Accounting Standards Board in

2013, except to the extent that it was amended by IFRS 13 Fair Value Measurement FRS 103 is also based on the requirements in outgoing UK GAAP at FRS 27 Life Assurance prior to that standard being withdrawn and superseded by FRS 103 as well

as some of the elements found in the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business published in December

2005 and amended in December 2006

FRS 103 allows an entity under its scope to continue using existing accountingpolicies for their insurance contracts, including the appropriate measurement of long-terminsurance business but also permits limited improvements to accounting by insurers FRS

103 also requires entities falling under the standard’s scope to make disclosures which:(a) identify and explain the amounts contained in an insurer’s financial state-ments which have arisen from insurance contracts, including reinsurancecontracts, which the entity issues and reinsurance contracts which it holds;(b) relate to thefinancial strength of entities which carry long-term insurancebusiness; and

(c) enable users of thosefinancial statements to understand the amount, timingand uncertainty of future cashflows relative to those insurance contracts.Whilst FRS 103 does allow entities within its scope to continue applying theirexisting accounting policies, the standard does allow entities to make improvements(within the constraints of legal and statutory requirements) as entities that apply EU-adopted IFRS 4 have The idea behind thisflexibility is so that FRS 103 is no moreonerous than IFRS 4 in terms of its application Notwithstanding thisflexibility, theFRC have acknowledged that the standard does form part of a suite of new standardswhich will inevitably lead to change for insurers, such as the different ways of treatingfinancial instruments However, it should be borne in mind that the FRC expect FRS

103 to only have a limited lifespan and hence is the reason why insurers can continuewith their existing accounting policies At the time of writing, the InternationalAccounting Standards Board (IASB) were in the process of developing an updatedstandard dealing with insurance contracts and hence it is expected that once the IASBcompletes its work on this new standard, the FRC will also follow suit and issue arevised standard for the UK and Republic of Ireland

At the time of writing, the timing of the new IFRS on insurance contracts wascurrently unknown (although the IASB have intimated that they may publish therevised standard towards the end of 2016) and hence interim amendments may bemade to FRS 103 in the future to deal with changes in the regulatory regime forinsurers once these have been finalised.

Entities that issue insurance contracts which are not legally recognised as an insurer

Some entities may issue contracts which meet the definition of an insurancecontract under FRS 103, but they may not be legally constituted as an insuranceprovider A typical example of where this might arise is in relation to product warrantyagreements Where these contracts are issued, the entity would be able to continue withits current accounting policies to such contracts but the entity must consider any otherfactors which may be relevant under FRS 103, such as the liability adequacy test aswell as additional disclosure requirements which might be necessary under FRS 103,which might not have been made under the previous accounting framework

Requirements of FRS 103

Detailed discussions about FRS 103 are not dealt with in this particular chapter

due to the specialist nature of the standard However, Chapter 29 Entities Dealing with Insurance Contracts does examine the principles contained in FRS 103 in more

detail

FRS 104 Interim Financial Reporting

FRS 104 Interim Financial Reporting was issued by the FRC in March 2015 At the outset it is important to understand that despite its name, FRS 104 is not an

accounting standard and hence there is no new requirement under the new UK GAAPfor entities to produce interim financial statements

When the FRC issued FRS 102, they took the decision not to include interimreporting requirements within the body of the standard but instead they chose to update

the existing guidance contained in the ASB Statement Half-yearly reports.

FRS 104 is based upon the requirements of the international equivalent, IAS 34

Interim Financial Reporting The standard itself does not require a reporting entity to

prepare a set of interimfinancial statements, nor does it make any amendments to thelaws or regulations which may require interimfinancial statements to be prepared by

an entity However, reporting entities are obliged to consider whether any such laws orregulations do require them to prepare interim financial statements (for example,paragraph 4.2.2R of the Disclosure and Transparency Rules requires listed entities toprepare a half-yearlyfinancial report, which also includes a condensed set of financialstatements) In addition, those entities listed on the Alternative Investment Market(AIM) are also required to prepare a half-yearly report under the AIM Rules forCompanies, which are issued by the London Stock Exchange

Some entities may also prepare interim financial statements as a matter ofcourse and where this is the case FRS 104 does not require such reports to beprepared in accordance with its requirements However, where the entity makes

a statement of compliance with FRS 104, it must apply all of the provisions inFRS 104

Detailed examination of FRS 104 is contained in Chapter 26 Interim Financial Reporting.

FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime

The micro-entities legislation was issued by the European Union (EU) inSeptember 2013 and has applied ever since In response to this legislation, theFRC incorporated the requirements of the micro-entities legislation into the FinancialReporting Standard for Smaller Entities (the FRSSE) in both the April 2008 andJanuary 2015 versions This was never intended to be a long-term solution, but merely

a temporary measure so as to make the micro-entities regime available to entities whichqualify to use the framework

On issuing the new suite of standards for small and micro-entities, the FRCdecided to‘carve out’ the micro-entities regime into its own FRS, being FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime issued in July

2015 This decision was taken on the basis of the significant levels of disclosurereductions brought about by the micro-entities legislation and the lack of accountingpolicy choices which are available and hence it was sensible to have a standalonestandard for micro-entities

At the time of writing, FRS 105 was not currently available to companies in theRepublic of Ireland because there is no equivalent Irish legislation recognising micro-entities However, the Irish Department of Jobs, Enterprise and Innovation haveconsulted on the possible enactment of the micro-entities legislation and therefore ifthe Republic of Ireland do enact such legislation, FRS 105 will be available toqualifying entities

While FRS 105 is considered by the FRC to be the least complex standard, everyentity which is eligible to apply the standard must consider its appropriateness becausefor some micro-entities, FRS 105 will be appropriate, but for others it may not be It isimportant to emphasise that FRS is optional and a micro-entity could choose a morecomprehensive framework to report under if it so wishes, such as FRS 102 withreduced disclosure

Principles in FRS 105

FRS 105 is based on the recognition and measurement requirements in FRS 102,which is a sensible approach as all UK GAAP standards are then based on a consistentframework However, in drafting FRS 105, the FRC have made additional simplifica-tions due to the standard’s target audience, which are discussed in Chapter 28

Financial Statements for Micro-Entities.

KEY POINTS

Some of the key points to remember from this chapter are:

• UK GAAP is now based on IFRS, which was always the intention by the UKand Republic of Ireland standard-setters

• Companies classed as small in the UK and Republic of Ireland must report

under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland with reduced disclosures for accounting periods commenc-

ing on or after 1 January 2016 (earlier adoption of FRS 102 with reduceddisclosures is permissible)

• Micro-entities can report under FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime, which is currently unavailable for

companies based in the Republic of Ireland

• FRS 105 is optional and hence a micro-entity can adopt a more comprehensiveframework if it so chooses

• Listed companies report under EU-adopted IFRS for which FRS 102 and FRS

105 have no impact

• The EU Accounting Directive simplifies the disclosure requirements for smalland micro-entities

• FRS 100 Application of Financial Reporting Requirements outlines which

entities apply whichfinancial reporting framework; FRS 101 Reduced sure Framework offers reduced disclosures for qualifying group members; FRS 103 Insurance Contracts applies to companies that deal in insurance or reinsurance contracts; FRS 104 Interim Financial Reporting applies to those

Disclo-companies that prepare interimfinancial reports, but FRS 104 is not recognised

as an accounting standard and so there is no new requirement for companies tostart preparing interimfinancial reports if they do not already do so

• The scope of FRS 102 also extends to public benefit entities as well as to otherforms of entity; in other words the scope of FRS 102 is not simply limited to

incorporated entities (which is the case for FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime).

2 INTERACTION OF THE COMPANIES

ACT 2006

Introduction 21 Part 15 of the Companies Act 2006 22 Companies Subject to Audit: Part

16 of the Companies Act 2006 26 Other Applicable Provisions of the Companies Act 2006 28

Statutory Formats of the Financial Statements 29 Abridged and Adapted Financial

Statements 36 The True and Fair Concept 38 Key Points 42

INTRODUCTION

The Companies, Partnership and Groups (Accounts and Reports) Regulations

2015 implemented a new EU Accounting Directive.1 Changes were made to theCompanies Act 2006, and the Accounts and Directors’ Report Regulations to reflectthe provisions of the EU Accounting Directive and preparers offinancial statementswill need to have a sound understanding of the impact of these changes because theyare quite significant

The term‘general purpose financial statements’ is often given to statutory financialstatements A company is legally required to preparefinancial statements as at eachyear-end to satisfy the requirements of the Companies Act 2006 In addition,companies are also legally obliged tofile their financial statements with the Registrar

of Companies (Companies House), which are then made available on the publicrecord This is the price paid by limited companies for the privilege of limited liability

in the event that the company is wound up or ceases to trade

The Companies Act 2006 provides the legal framework forfinancial statements inthe UK and Republic of Ireland and companies are duty bound to ensure compliance.Directors of companies in the UK also have a legal duty to ensure that thefinancialstatements, which they prepare for the reporting entity, give a true and fair view It is acriminal offence for the directors to approvefinancial statements which do not give atrue and fair view

The correct application offinancial reporting standards to the financial statementswill enable the financial statements to give a true and fair view and hence allowcompany directors to discharge their obligations accordingly

There is a close interaction between the requirements of UK GAAP and theCompanies Act 2006 and it is vital that companies comply with both

1 Directive 2013/34/EU.

21

PART 15 OF THE COMPANIES ACT 2006

Part 15 Accounts and Reports of the Companies Act 2006 deals with the general

requirements forfinancial statements Part 15 contains 12 chapters, which are then divided into various sections The table below shows the structure of Part 15 of theCompanies Act 2006:

sub-Chapter

1 Introduction

General 380 Scheme of this Part

Companies subject to the small companies regime

381 Companies subject to the small companies regime

382 Companies qualifying as small: general

383 Companies qualifying as small: parent companies

384 Companies excluded from the small companies regime

Quoted and unquoted companies 385 Quoted and unquoted companies

2 Accounting records 386 Duty to keep accounting records

387 Duty to keep accounting records: offence

388 Where and for how long records are to be kept

389 Where and for how long records are to be kept: offences

3 A company ’s financial year 390 A company ’s financial year

391 Accounting reference periods and accounting reference date

392 Alteration of accounting reference date

4 Annual accounts

General 393 Accounts to give true and fair view

Individual accounts 394 Duty to prepare individual accounts

394A Individual accounts: exemption for dormant companies

394B Companies excluded from the dormant subsidiaries exemption

394C Dormant subsidiaries exemption: parent undertaking declaration of guarantee

395 Individual accounts: applicable accounting framework

396 Companies Act individual accounts

397 IAS individual accounts

Group accounts: small companies 398 Option to prepare group accounts

Group accounts: other companies 399 Duty to prepare group accounts

400 Exemption for company included in EEA group accounts of larger group

401 Exemption for company included in non-EEA group accounts of larger group

402 Exemption if no subsidiary undertakings need be included in the consolidation

Group accounts: general 403 Group accounts: applicable accounting

framework

404 Companies Act group accounts

405 Companies Act group accounts: subsidiary undertakings included in the consolidation

406 IAS group accounts

407 Consistency of financial reporting within the group

408 Individual pro fit and loss account where group accounts prepared

Information to be given in the notes 409 Information about related undertakings

410 Information about related undertakings: alternative compliance

410A Information about off-balance sheet arrangements

411 Information about employee numbers and costs

412 Information about directors ’ benefits: remuneration

413 Information about directors ’ benefits: advances, credit and guarantees

Approval and signing of accounts 414 Approval and signing of accounts

5 Directors’ report 415 Duty to prepare directors ’ report

415A Directors ’ report: small companies exemption

416 Contents of directors ’ report: general

417 Contents of directors ’ report: business review

418 Contents of directors ’ report: statement as to disclosure to auditors

419 Approval and signing of directors ’ report 419A Approval and signing of separate corporate governance statement

6 Quoted companies: directors’

remuneration report

420 Duty to prepare directors ’ remuneration report

421 Contents of directors ’ remuneration report

422 Approval and signing of directors ’ remuneration report

7 Publication of accounts and reports

Duty to circulate copies of accounts and reports

423 Duty to circulate copies of annual accounts and reports

424 Time allowed for sending out copies of accounts and reports

425 Default in sending out copies of accounts and reports: offences

Option to provide summary financial statement

426 Option to provide summary financial statement

427 Form and contents of summary financial statement: unquoted companies

428 Form and contents of summary financial statement: quoted companies

429 Summary financial statements: offences

Quoted companies: requirements as

431 Right of member or debenture holder to copies of accounts and reports: unquoted companies

432 Right of member or debenture holder to copies of accounts and reports: quoted companies

Requirements in connection with publication of accounts and reports

433 Name of signatory to be stated in published copies of accounts and reports

434 Requirements in connection with publication

8 Public companies: Laying of

accounts and reports before general meeting

437 Public companies: laying of accounts and reports before general meeting

438 Public companies: offence of failure to lay accounts and reports

9 Quoted companies: Members’

approval of directors’ remuneration report

439 Quoted companies: members ’ approval of directors’ remuneration report

440 Quoted companies: offences in connection with procedure for approval

10 Filing of accounts and reports

Duty to file accounts and reports 441 Duty to file accounts and reports with the

registrar

442 Period allowed for filing accounts

443 Calculation of period allowed

Filing obligations of different descriptions of company

444 Filing obligations of companies subject to small companies regime

445 Filing obligations of medium-sized companies

446 Filing obligations of unquoted companies

447 Filing obligations of quoted companies

448 Unlimited companies exempt from obligation

to file accounts 448A Dormant subsidiaries exempt from obligation to file accounts

448B Companies excluded from the dormant subsidiaries exemption

448C Dormant subsidiaries filing exemption: parent undertaking declaration of guarantee