GUIDANCE FOR BRITISH COMPANIES
ON CHANGES TO THE ACCOUNTING AND
REPORTING PROVISIONS
OF THE COMPANIES ACT 1985
16 August 2005
This guidance was originally published in October 2004. It has been
revised to take into account recent changes to company law including
extending the option to use summary financial statements. Topics that
are new to this version of the guidance are shown in italics.
URN 05/1218
TABLE OF CONTENTS
SECTION
LOCATION
1.
Summary of changes
Page 3
2.
Abbreviations and definitions
Page 5
3.
Introduction
Page 6
4.
International Accounting Standards (IAS)
Page 9
A
Background
Paragraphs 4.1-4.6
B
Companies obliged to use IAS
Paragraphs 4.7-4.8
C
The option to use IAS
 Use of IAS in both individual and consolidated
accounts
 Consistency within a group
 One way choice?
Page 11
5.




6.





Paragraphs 4.10-4.12
Paragraphs 4.13-4.16
Paragraph 4.17
D Parts of the 1985 Act that still apply and parts that
don’t
 General outline
 List of sections
 Publication exemptions
 Special considerations for small companies
Page 13
Changes to consolidation requirements
Page 17
Participating interest
Exemption for parent company included in non-EEA
group accounts
Exclusion from consolidation if held for resale
Exclusions from consolidation on the basis of incompatible
activities
Paragraph 5.2
Changes to accounting provisions for non-IAS accounts
Page 19
Dividends
Presentation of items
Fair Value options
Derivatives
Adjustment of corresponding amounts
Paragraphs 4.18-4.20
Paragraph 4.21
Paragraphs 4.22-4.24
Paragraphs 4.25-4.31
Paragraphs 5.3-5.6
Paragraph 5.7
Paragraph 5.8
7.
Clarification of distribution rules for investment companies
Paragraph 6.2
Paragraphs 6.3-6.6
Paragraphs 6.7-6.14
Paragraph 6.15
Paragraphs 6.16-6.17
Page 22
8.
Financial instrument disclosures in the Directors’ Report,
Page 23
1
including exemption for small companies that are part of a group
9.


10.
Changes to audit provisions
Page 24
Audit report requirements
Audit exemption for certain financial intermediary companies
Paragraphs 9.1-9.5
Summary financial statements



11.
Extension of summary financial statements option
Summary financial statements for companies using IAS
Summary directors’ report
Other changes to reporting requirements



Automatic three month extension for companies with
overseas interests
Voluntary revision of summary financial statements, Operating
and Financial Review Financial Review and Directors’
Remuneration Report
Disclosure of staff particulars by small companies
Annex A – Decision tree – Are you required to use IAS?
Paragraphs 9.6-9.7
Page 26
Paragraphs 10.1-10.6
Paragraphs 10.7-10.9
Paragraph 10.10
Page 28
Paragraph 11.1
Paragraph 11.2-11.4
Paragraph 11.5
Page 29
Annex B – Corresponding changes in UK Financial Reporting
Standards
Page 30
Annex C – List of regulated markets
Page 34
2
1.
SUMMARY OF CHANGES
Recent changes to the accounting and auditing requirements in the Companies Act 1985
will affect all companies in some way. However, not all the changes are relevant for every
company. This brief summary of the changes is intended to help companies see which
changes may be relevant to them, and to point them to where those changes are discussed in
these Guidance Notes.
In this summary, changes made by the Companies Act 1985 (International Accounting
Standards and other Accounting Amendments) Regulations 2004 are listed separately from
those made by the three sets of regulations made in August 2005 (see paragraph 3.5 in the
Introduction). In the body of this guidance, the two sets of changes are not discussed
separately. However, the changes made by the August 2005 regulations are shown in
italics.
Companies Act 1985 (International Accounting Standards and other Accounting
Amendments) Regulations 2004
All companies will have the option to prepare their individual accounts using International
Accounting Standards rather than UK GAAP, and non-publicly traded companies will also
have the option to prepare their consolidated accounts using International Accounting
Standards (section 4).
All companies that continue to prepare their accounts using UK GAAP will have a new
accounting option to use fair value accounting for financial instruments, investment
property and/or living plants and animals (paragraphs 6.7 - 6.14).
For all companies that continue to prepare their accounts using UK GAAP there are
changes to the requirements in these areas:



how and where proposed dividends are disclosed in the accounts (paragraph 6.2);
how items must be presented in the balance sheet and profit and loss account
(paragraphs 6.3 - 6.6);
disclosure of information on derivatives (paragraph 6.15).
For parent companies, there are changes to the requirements and options on consolidation
(section 5).
For all companies except small companies, there is a new requirement to disclose
information about financial instruments in the directors’ report (section 8).
For companies that have their accounts audited, there are new requirements concerning the
audit report (paragraphs 9.1 – 9.5).
For companies that have overseas interests, the current automatic three month extension
for laying and delivering accounts is repealed (paragraph 11.1).
August 2005 Regulations
3
All companies that use International Accounting Standards will be able to issue summary
financial statements that are compatible with International Accounting Standards
compatible (paragraphs 10.7 – 10.9).
For all companies, there is now a discretion rather than an obligation to adjust prior-year
comparative figures in their accounts where such amounts are not comparable with current
year figures; the obligation for comparatives to be given in the notes to the accounts has
also been removed (paragraphs 6.16 – 6.17).
For unlisted companies that have their accounts audited, there is now an option to send
summary financial statements rather than full financial statements to shareholders
(paragraphs 10.1 – 10.6).
For companies that produce summary financial statements, a directors’ remuneration report
or an Operating and Financial Review, these can now be revised voluntarily in the same
way as annual accounts and directors’ reports (paragraphs 11.2 – 11.4). The summary
financial statement no longer needs to include a summary directors’ report (paragraph
10.10).
For investment companies, the requirements of the assets adequacy test for distributions
have been clarified by replacing references to “liabilities” with “liabilities to creditors”
(section 7).
For small companies (in particular financial intermediaries and members of groups), there
are increased opportunities to take advantage of certain disclosure and audit exemptions
(paragraphs 8.2, 9.6 – 9.7 and 11.5).
UK Financial Reporting Standards
In addition to changes in the Companies Act 1985, parallel changes are being made to UK
Financial Reporting Standards that will affect all companies that continue to use domestic
standards. These changes are outlined in Annex B.
4
2.
ABBREVIATIONS AND DEFINITIONS
AIM
Alternative Investment Market
ASB
Accounting Standards Board
EC
European Commission
EEA
European Economic Area (EU members plus Norway, Iceland
and Liechtenstein)
EU
European Union
FRS
Financial Reporting Standards (issued by the Accounting
Standards Board)
IAS
International Accounting Standards (standards inherited by
the IASB from its predecessor body, including those
subsequently modified by the IASB). For the purposes of these
Guidance Notes, “IAS” means IAS as adopted by the EC (see
paragraph 4.2)
IASB
International Accounting Standards Board
IFRS
International Financial Reporting Standards (completely new
standards issued by the IASB)
LLPs
Limited Liability Partnerships
Non-publicly traded
companies
Those who do not have any securities that are admitted to
trading on a regulated market in any Member State in the
European Union
OJ
Official Journal (official publication of the European Union)
Publicly traded companies Those whose securities are admitted to trading on a regulated
market in any Member State in the European Union
SFS
Summary Financial Statement
UK GAAP
UK Generally Accepted Accounting Practice
1985 Act
Companies Act 1985
5
3.
INTRODUCTION
3.1
Three pieces of legislation passed by the EU in recent years have made a number of
changes to EU accounting requirements for companies. These are:

Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19
July 2002 on the application of International Accounting Standards1 (the “IAS
Regulation”);

Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003
amending Council Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and
91/674/EEC on the annual and consolidated accounts of certain types of companies,
banks and other financial institutions and insurance undertakings2 (the “Modernisation
Directive”); and

Directive 2001/65/EC of the European Parliament and of the Council of 27 September
2001 amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the
valuation rules for the annual and consolidated accounts of certain types of companies as
well as of banks and other financial institutions3 (the “Fair Value Directive”).
These can be downloaded from the Official Journal section of the EC’s website
www.europa.eu.int/eur-lex/en/search/search_oj.html.
3.2
Some of the changes are minor, and are designed to clarify or bring EU accounting
requirements into line with modern best practice. But others, in particular those contained
in the IAS Regulation, are more fundamental and far-reaching.
3.3
The Secretary of State for Trade and Industry has made the Companies Act 1985
(International Accounting Standards and Other Accounting Amendments) Regulations
2004, SI 2004 No. 2947, to implement these changes for British companies through
amendments to the 1985 Act. These Regulations came into force on 12 November and will
apply to financial years beginning on or after 1 January 2005.
3.4
These changes automatically apply to LLPs, certain banking and insurance undertakings,
partnerships and unlimited companies to which Part VII of the 1985 Act is specifically applied.
However, Regulations have been made to ensure that the amendments work properly for these entities,
and to disapply any that are not relevant. These Regulations come into force on 1 October 2005.
They are:

The Bank Accounts Directive (Miscellaneous Banks) (Amendment) Regulations 2005, SI
2005/1984;

The Insurance Accounts Directive (Miscellaneous Insurance Undertakings) (Amendment)
Regulations 2005, SI 2005/1985;

The Partnerships and Unlimited Companies (Accounts) (Amendment) Regulations 2005,
SI 2005/1987; and
1
OJ L243/1 of 11 September 2002.
OJ L178/16 of 17 July 2003.
3
OJ L283/28 of 27 October 2001.
2
6

The Limited Liability Partnerships (Amendment) Regulations 2005, SI 2005/1989.
3.5
The Secretary of State has also made three other sets of Regulations that are in part
consequential on the introduction of IAS. These extend the use of summary financial statements and
make other minor amendments to accounting and reporting requirements. These Regulations are:

the Companies (Summary Financial Statement) (Amendment) Regulations 2005, SI
2005/2281;

the Companies (Revision of Defective Accounts and Report) (Amendment) Regulations 2005,
SI 2005/2282; and

the Companies Act 1985 (Investment Companies and Accounting and Audit Amendments)
Regulations 2005, SI 2005/2280.
3.6
Generally, these Regulations will come into force on 1 October 2005. However, one part of
the Companies Act 1985 (Investment Companies and Accounting and Audit Amendments)
Regulations 2005, concerning audit requirements for small financial intermediaries, will come into
force on 5 September 2005 (see paragraphs 9.6 – 9.7).
3.7
This guidance outlines the main changes contained in these Regulations, and the
effect of the changes. In particular, it explains how the IAS Regulation and the option to
choose IAS will work. It also indicates those parts of the 1985 Act that still apply to
companies using IAS. It is not intended to be a comprehensive statement of the law or the
recent changes. Companies should not consider it a substitute for familiarising themselves
with the legislation itself. In particular, any organisation that wishes to clarify its own
position under the law should take its own legal advice.
3.8
Legislation has or will also be passed to bring similar changes into effect for
companies and building societies (where appropriate) in Northern Ireland.
3.9
In many cases, changes are being made to UK FRS in parallel with the changes to
the accounting requirements in the 1985 Act arising from the Modernisation and Fair Value
Directives. For those companies continuing to prepare accounts under UK GAAP, the
changes are outlined in Annex B.
3.10 Separate guidance has been issued for the Companies Act 1985 (Operating and
Financial Review and Directors’ Report etc) Regulations 2005 (SI 2005 No. 1011), which
contain new requirements for an Operating and Financial Review and new requirements
from the Modernisation Directive for the directors’ report. This is available on the DTI
website at http://www.dti.gov.uk/cld/facts/financialreview.htm.
3.11 Guidance from the EC on the interaction between the IAS Regulation and the
Accounting Directives can be found at
http://www.europa.eu.int/comm/internal_market/accounting/docs/ias/200311comments/ias-200311-comments_en.pdf.
7
4.
INTERNATIONAL ACCOUNTING STANDARDS
A
Background
4.1
The IAS Regulation introduces important changes that will directly affect the way
in which certain companies across the EU prepare their financial statements.
4.2
Under Article 4 of the IAS Regulation, companies governed by the law of a Member
State, whose securities are admitted to trading on a regulated market in any Member State
in the European Union (“publicly traded companies”), are required to prepare their
consolidated accounts on the basis of accounting standards issued by the IASB that are
adopted by the EC. This applies to financial years commencing on or after 1 January 2005.
4.3
The list of regulated markets at 17 February 2004 is set out at Annex C. AIM
ceased to be a regulated market from 12 October 2004. However, the London Stock
Exchange has announced that it intends to mandate use of IAS by companies listed on AIM
for financial periods beginning on or after 1 January 2007.
4.4
At 11 October 2004, all IAS have been adopted with the exception of IAS 32
(although IAS 39 has only been partially adopted). In addition, IFRS 1 has also been
adopted. However, some of these standards have since been amended, and the EC will need
to consider the revised versions for adoption in due course. They will also need to consider
other new IFRS for adoption. For the current list of adopted standards, see the EC website
(www.europa.eu.int/comm/internal_market/accounting/ias_en.htm#adopted-commission).
4.5
Under Article 5 of the IAS Regulation, Member States have the option to extend use
of adopted IAS on a permissive or mandatory basis. In Britain, the application of the
Regulation is to be extended so that:

publicly traded companies are permitted to use IAS in their individual accounts; and

non-publicly traded companies are permitted to use IAS in both their individual and
consolidated accounts.
However, charities are not to be permitted to use IAS (nor would they fall within Article 4
of the IAS Regulation, as non-profit-making bodies are excluded – see paragraph 4.8(i)).
4.6
For the purposes of the extension to the application of the IAS Regulation under
Article 5, to be effected by the Companies Act 1985 (International Accounting Standards
and Other Accounting Amendments) Regulations 2004, “company” means companies
required to prepare accounts by the 1985 Act. Separately, the application of the IAS
Regulation is to be extended to building societies formed under the Building Societies Act
1986 and will apply to LLPs, certain banking and insurance undertakings, partnerships and
unlimited companies to which Part VII of the 1985 Act is specifically applied.
B
Companies obliged to use IAS
8
4.7
Publicly traded companies governed by the law of a Member State are required by
the IAS Regulation to prepare their consolidated accounts using adopted IAS. Certain other
companies may be required to prepare accounts using IAS for different reasons, for example
by a regulator; this section does not cover such situations.
4.8
To work out whether a particular body comes within the requirement in the IAS
Regulation, there are four points to consider.
(i)
Does the body come within the relevant definition of company? For the purposes of Article
4 of the IAS Regulation, “company” has the same meaning as in Article 48 (old Article 58) of
the Treaty of Rome:
“Companies or firms” means companies or firms constituted under civil or commercial law,
including co-operative societies, and other legal persons governed by public or private law,
save for those which are non-profit-making”.
If the answer is no, the body is not required to use IAS. If the answer is yes, move on to the
next step.
(ii)
Is the company governed by the law of a Member State? In other words, has the company
been incorporated in a Member State? If the answer is no, the company is not required to
use IAS. If the answer is yes, move on to the next step.
(iii)
Are any securities of the company admitted to trading on a market listed at Annex C?
“Securities” means debt securities as well as shares. If the answer is no, the company is not
required to use IAS. If the answer is yes, move on to the next step.
(iv)
Does the company have to prepare consolidated accounts? The requirement to prepare
consolidated accounts is set out in the EC 7th Directive as implemented in section 227 of the
1985 Act for ordinary companies, and section 255A for banking and insurance groups.
Certain exemptions from the requirement are also conferred, in particular by section 228,
new section 228A to be inserted by the regulations and section 229(5). If the company is
not required by the 1985 Act to prepare consolidated accounts, it is not required to use IAS.
If the company is required to prepare consolidated accounts, and does so on the basis of IAS,
it will look to the requirements of IAS to determine its subsidiary undertakings to be
included in the consolidation.
This is represented in diagrammatic form at Annex A.
C
The option to use IAS
4.9
Beyond the requirements in Article 4 of the IAS Regulation, new sections 226(2) and
227(3) of the 1985 Act permit a company required by the 1985 Act to prepare accounts to
choose whether to prepare its individual and/or consolidated accounts in accordance with
IAS or in accordance with the accounting requirements of the 1985 Act. If a company elects
to use IAS (or is required to do so by the IAS Regulation), it must state in the notes to its
accounts that they have been prepared in accordance with IAS (new sections 226B for
individual accounts and 227B for consolidated accounts). The company should also ensure
that it is clear which parts of the 1985 Act it must still comply with (see section 4D, in
particular paragraph 4.21).
9
Use of IAS in both individual and consolidated accounts
4.10 Where companies prepare both individual and consolidated accounts, the choice
between IAS and the accounting requirements of the 1985 Act operates separately for each.
4.11 If a company comes within Article 4 of the IAS Regulation, it must use IAS for its
consolidated accounts. However, it still has the choice of using IAS or UK GAAP for its
individual accounts. If a company has chosen to use IAS for its individual accounts under
new section 226(2), it does not have to use IAS for its consolidated accounts. And if it has
chosen to use IAS for its consolidated accounts under new section 227(3), it does not have to
use IAS for its individual accounts.
4.12 The 1985 Act requires that consolidated and individual accounts (where required)
are published together (section 240(2)). This will continue to apply where the consolidated
and individual accounts are prepared using different frameworks. In such circumstances,
the 1985 Act does not specify whether the accounts should be presented as separate sections
of the report or combined into a single set of primary statements and notes. However, in
practice it is expected that the statements will be clearer if the separate sections approach is
taken.
Consistency within a group
4.13 A parent company must ensure that its individual accounts and the individual
accounts of all its subsidiary undertakings are prepared using the same financial reporting
framework, be it IAS or UK GAAP, except to the extent that in the directors’ opinion there
are good reasons for not doing so (new section 227C(1) of the 1985 Act). Therefore, if a
parent company chooses to use IAS for its individual accounts, it must also ensure that the
individual accounts of all its subsidiary undertakings are prepared using IAS (but see
paragraphs 4.14 and 4.15 below for certain exceptions to this requirement).
4.14 There are three specific exceptions to this requirement in new section 227C(2)-(4).
It does not apply:

if the parent company does not prepare group accounts;

to the accounts of subsidiary undertakings that are not required to be prepared under
Part VII of the 1985 Act (for example foreign subsidiaries);

to any subsidiary undertakings that are charities (so charities and subsidiary
undertakings that are not charities are not required to use the same accounting
framework).
4.15 There is also one partial exception to this requirement in new section 227C(5). 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
ensure that all its subsidiary undertakings use the same accounting framework, again unless
there are good reasons for not doing so.
4.16 If the directors believe that there are good reasons for not preparing all individual
accounts within a group using the same accounting framework, they are not required to do
so. This provision is intended to provide a degree of flexibility where there are genuine
10
(including cost/benefit) grounds for using different accounting frameworks within a group
of companies. Examples of “good reasons” could include:

A group using IAS acquired a subsidiary undertaking that had not been using IAS; in
the first year of acquisition, it might not be practical for the newly acquired company to
switch to IAS straight away.

The group contains subsidiary undertakings that are themselves publicly traded, in
which case market pressures or regulatory requirements to use IAS might come into
play, without necessarily justifying a switch to IAS by the non-publicly traded
subsidiaries.

A subsidiary undertaking or the parent was planning to list and so might wish to
convert to IAS in advance, but the rest of group wasn’t listing.

The group contains minor or dormant subsidiaries where the costs of switching
accounting framework would outweigh the benefits.
The key point is that the directors of the parent company must be able to justify any
inconsistency, to shareholders, regulators or other interested parties.
One way choice?
4.17 If a company has prepared its accounts using IAS for a financial year, it cannot
switch back to UK GAAP in subsequent financial years (new section 226(4) for individual
accounts and 227(5) for consolidated accounts). There are three exceptions to this rule in
new section 226(5) and new section 227(6):

The company become a subsidiary undertaking of an undertaking that does not prepare
its accounts in accordance with adopted IAS. This is intended to deal with situations
where a subsidiary undertaking is sold by a group generally using IAS, to another group
or entity not using generally using IAS. It is not intended that companies switch
between accounting regimes on the basis of an internal group restructuring.

The company ceases to be publicly traded (e.g. in a de-listing).

Any parent undertaking of the company ceases to be publicly traded (e.g. in a de-listing).
D
Parts of the 1985 Act that still apply and parts that don’t
General outline
4.18 Companies that are required to use IAS or choose to use IAS will need to prepare
their accounts in accordance with the requirements of IAS rather than the 1985 Act. IAS
deals with the form and content of accounts. Therefore, in broad terms, the provisions in
the 1985 Act relating to the form and content of accounts (in particular the accounts
formats in Schedules 4, 4A, 8, 9 and 9A) will no longer apply to companies using IAS. For
example, instead of the profit and loss account and balance sheet required by the 1985 Act,
companies will need to prepare the primary financial statements and supporting notes
required under IAS.
11
4.19 It follows from this that the provisions on abbreviated accounts for small and
medium sized companies based on the 1985 Act formats also do not apply. Similarly,
accounts disclosure requirements in the Schedules relating to items in the accounts are no
longer relevant except where they relate to items beyond the scope of the IAS Regulation
(such as the disclosure requirements relating to particulars of staff, and to the emoluments
and other benefits to directors, which continue to apply).
4.20 Those aspects of the 1985 Act that deal with matters outside the scope of IAS will
continue to apply when accounts are prepared under IAS. For example the requirements
relating to the directors’ report, publication (as opposed to preparation) of accounts, audit
and certain disclosures that are beyond the scope of IAS (for example, disclosures on
employee numbers and management remuneration) remain applicable to companies
preparing accounts under IAS.
List of sections
4.21 Those provisions in Part VII (Accounts and Audit) of the 1985 Act that will
continue to apply to companies preparing accounts under IAS are as follows:























sections 221 and 222 (duty to keep accounting records)
sections 223 to 225 (a company’s financial year and accounting reference periods)
sections 226, 226A and 226B (preparation of individual accounts)
sections 227, 227A and 227B (preparation of group accounts)
section 227C (consistency of accounts within group)
sections 228 and 228A (exemption for parent companies included in larger groups)
section 229 (subsidiary undertakings included in the consolidation)
section 230(1), (3) and (4) (treatment of individual profit and loss account where
group accounts prepared)
sections 231, 231A and 232 and Schedules 5 and 6 (disclosure in notes to accounts)
section 233 (approval and signing of accounts)
sections 234 and 234A and Schedule 7(directors’ report)
[section 234ZA (statement as to disclosure of information to auditors) to be inserted
by clause 9 of the Companies (Audit, Investigations and Community Enterprise)
Bill]
sections 234B and 234C (directors’ remuneration report)
sections 235 to 237 (auditors’ report and duties of auditors)
sections 238 and 239 (persons entitled to receive or demand copies of accounts and
reports)
section 240 (requirements in connection with publication of accounts)
section 241 (accounts and reports to be laid before company in general meeting)
section 242 (accounts and reports to be delivered to the registrar of companies)
section 242A (civil penalty for failure to deliver accounts)
section 242B (delivery and publication of accounts in euros
section 244 (period allowed for laying and delivering accounts and reports)
sections 245 to [245F to be inserted by the Companies (Audit, Investigations and
Community Enterprise) Bill] (revision of defective accounts and reports)
section 246(1), (4), (5)(a) and (b), (6), (8)(b) and (c) and (9) (certain exemptions for
small companies)
12











section 247 to 247B (qualification of company as small or medium-sized), so far as
applicable to exemptions from audit, from certain directors’ report disclosures, and
for exemption from obligation to prepare group accounts)
sections 249A to 249E (exemptions from audit) (save insofar as they apply to
companies that are charities)
section 251 (summary financial statements)
sections 252 and 253 (private company’s election to dispense with laying of accounts
and reports before general meeting)
section 254 (certain unlimited companies exempt from requirement to deliver
accounts and reports to registrar of companies)
section 255A(4), (5) and (5A) (definition of banking and insurance groups)
section 255B (modification of disclosure requirements in Schedule 5 and 6 in relation
to banking company or group)
sections 258 and 259 (interpretation of “parent undertaking”, “subsidiary
undertaking”, and other expressions) insofar as they apply to the provisions referred
to in this subsection
section 260 (meaning of participating interest)
section 261 (notes to the accounts)
sections 262 and 262A (minor definitions), insofar as they apply to the provisions
referred to in this subsection.
Publication exemptions
4.22 The 1985 Act requirements in respect of laying and delivering accounts continue to
apply to parent companies preparing accounts under IAS. However, the section 243
requirement for the accounts of subsidiary undertakings to be appended in certain cases has
been repealed.
4.23 Section 230 of the 1985 Act provides that, where consolidated accounts are prepared,
the parent company’s individual profit and loss account and related notes may be omitted
from the annual report. Companies that prepare group and individual accounts, and present
the latter in accordance with IAS, can continue to take advantage of this exemption. The
omission of the profit and loss account (referred to within IAS as the income statement)
might be considered to be inconsistent with certain aspects of IAS, for example the
requirement in IAS 1 Presentation of Financial Statements in relation to a fair presentation.
However, IAS does not in itself require the preparation of separate financial statements but
permits the omission of certain elements. In other words, the separate financial statements
required to be published under the 1985 Act are an extract of the full IAS separate financial
statements. This exemption should not affect the ability of a parent company to be treated
as a “first-time adopter” and hence to take advantage of exemptions for first time use under
the provisions of IFRS 1 First Time Adoption of International Financial Reporting Standards.
The company will need to provide the disclosure required by section 230(4), ie that
advantage has been taken of the publication exemption in section 230(1). Auditors will also
need to describe the accounting framework that has been used within their audit reports. In
respect of the individual accounts, the reference to the framework will need to make clear
that its basis is IAS as adopted for use in the EU and as applied in accordance with the
provisions of the 1985 Act.
4.24 The exemption in the 1985 Act relates only to the profit and loss account. By virtue
of section 261(2), the exemption also extends to the notes to the profit and loss account.
The individual IAS accounts would however still need to include the other primary
13
statements and note disclosures required by IAS, including a cash flow statement and a
statement of changes in shareholders’ equity.
Special considerations for small companies
4.25 There are several points that small companies considering switching to IAS should
note.
4.26 At present, IASB standards do not provide a simplified regime for small companies.
There is no equivalent to the exemptions available to small companies in the 1985 Act or to
the ASB’s Financial Reporting Standard for Small Entities. Therefore, small companies
electing to use IAS will have to use the full set of adopted IAS. However, the IASB is
looking at this area and issued a discussion paper on 5 July 2004 (at
www.iasb.org/current/dp_pv.asp).
4.27 The thresholds in section 247(3) and section 249(3) of the 1985 Act defining small
and medium companies and groups are based on turnover, balance sheet total and employee
number figures. The thresholds themselves will not change. However, in some cases the
thresholds refer to particular items in the accounts formats in the 1985 Act. If a small
company switches to IAS, these formats will no longer be relevant. Compliance with the
thresholds will be determined using the equivalent items derived from IAS accounts. For
example, the aggregate of amounts shown as assets in a balance sheet prepared using IAS
will need to be used instead of the balance sheet total. Also, IAS uses the term revenue
rather than turnover.
4.28 As stated above in paragraph 4.19, the provisions on abbreviated accounts do not
generally apply, as the format of accounts on which they are based do not apply to
companies using IAS.
4.29 However, a small company that elects to use IAS will continue to be permitted to
omit its profit and loss account from its published accounts (the IAS equivalent is an income
statement), including supporting notes. It will also be permitted to continue to use the
exemptions in relation to its directors’ report.
4.30 The exemption for unlisted small groups from the requirement to prepare
consolidated accounts continues to be available to a small parent company.
4.31 The exemptions for small companies in relation to statutory audit of the accounts
will also continue to be available where the accounts are prepared in accordance with IAS.
5.
CHANGES TO CONSOLIDATION RULES
5.1
Several changes have been made to the rules on when a parent/subsidiary
relationship exists, when subsidiary undertakings can be exempted from inclusion in
consolidated accounts, and the circumstances in which a parent company does not have to
prepare consolidated accounts. These changes are being reflected in amendments to FRS 2
Accounting for Subsidiary Undertakings as noted in Annex B.
Participating interest
14
5.2
The requirement in section 258(4) of the 1985 Act for a participating interest to
exist in order for an undertaking to be a subsidiary of another undertaking is being removed
and the circumstances in which a parent/subsidiary undertaking relationship exists are
being extended. At present, a parent/subsidiary relationship exists in various
circumstances, including where a participating interest is held, and the “parent” actually
exercises dominant influence. As amended, a parent/subsidiary relationship will exist
where the parent has the power to exercise dominant influence or control, whether or not a
participating interest is held. The intention of this change is to align more closely the
definition of a subsidiary undertaking in the 1985 Act with that contained in IAS 27
Consolidated and Separate Financial Statements. In IAS 27, a subsidiary is defined as an entity
that is controlled. Control is in turn defined as the “power to govern the financial and
operating policies of an entity so as to obtain benefit from its activities”. It is not intended
that the new definitions in the 1985 Act will commonly create parent/subsidiary
relationships in circumstances in which IAS 27 would not.
Exemption for parent companies included in non-EEA group accounts
5.3
An exemption from the requirement to prepare consolidated accounts is to be made
available to a parent company governed by GB law, which is also a subsidiary undertaking
of a parent undertaking not governed by EEA law. In order to qualify for exemption, the
company must meet all of the conditions listed in section 228A.
5.4
One of the conditions is that accounts of the exempted intermediate parent (and its
subsidiary undertakings) are included in consolidated accounts of a larger group. The
consolidated accounts and, where appropriate, the annual report of that larger group must
be drawn up in accordance with the provisions of the Seventh Directive or “in a manner
equivalent” to that Directive. It is considered that, in most circumstances, financial
statements of the larger group prepared on the basis of IAS would meet this equivalence
test.
5.5
The concept of equivalence of accounting frameworks also appears in the EU’s
Transparency Obligations Directive and Prospectus Directive. In these cases, equivalence
refers to non-EU accounting frameworks and their equivalence or otherwise to IAS. Work
on the assessment of equivalence for this purpose has been commenced by the Committee of
European Securities Regulators, in accordance with a mandate provided by the EC. The
outcome of this work might also, by extension, have an impact on an assessment of the
equivalence of specific accounting frameworks to the Seventh Directive.
5.6
The exemption does not apply to a company whose securities are admitted to
trading on a regulated market of any EEA State (see Annex C for current list of regulated
markets).
Exclusion from consolidation if held for resale
5.7
Section 229(3) of the 1985 Act has been amended to make it possible for a subsidiary
undertaking to be excluded from consolidation where the parent company’s interest in it is
held exclusively with a view to subsequent resale irrespective of whether or not it has
previously been included in consolidated accounts.
Exclusion from consolidation on the basis of incompatible activities
15
5.8
Section 229(4) of the 1985 Act has been repealed. Therefore, it is no longer possible
for an undertaking to be excluded from the consolidated accounts of the parent company if
its activities are so incompatible with those of the parent that inclusion would not give a
true and fair view of the undertakings in the consolidated accounts, taken as a whole.
16
6. CHANGES TO ACCOUNTING PROVISIONS FOR
NON-IAS ACCOUNTS
6.1
The changes described below apply only to accounts prepared in accordance with the
1985 Act, not to accounts prepared in accordance with IAS. Many of the legal changes are
being reflected in new UK FRS, as noted in Annex B.
Dividends
6.2
The requirement in paragraph 3(7) of Schedule 4 to the 1985 Act for companies to
show paid and proposed dividends as separate items in the profit and loss account has been
removed. Now, companies are required to show in the notes to the accounts:

any amount set aside to reserves or withdrawn from reserves, or proposed to be set
aside or withdrawn;

the aggregate amount of dividends paid in the financial year (other than those for which
a liability existed at the immediately preceding balance sheet date);

the aggregate amount of dividends liable to be paid at the balance sheet date; and

the aggregate amount of dividends proposed before the date of approval of the accounts,
and not otherwise disclosed under the previous two categories.
Presentation of items
6.3
A new paragraph 5A has been inserted into Schedule 4 to the 1985 Act to amend the
existing requirements so that the presentation of items within the balance sheet and profit
and loss account must have regard to the economic substance of the reported transaction or
arrangement. This provision relates only to the presentation of items within the accounting
formats, not to their recognition or measurement. Its intention is to align more closely the
presentation of balance sheets and profit and loss accounts with the requirements of IAS.
6.4
One effect of the new requirement is that some preference shares will be shown as
liabilities in the balance sheet rather than as part of share capital and reserves. This will be
the case where the preference shares in question would fall to be treated as liabilities in
accordance with IAS 32 Financial Instruments: Disclosure and Presentation.
6.5
Certain provisions of the 1985 Act in relation to capital maintenance operate by
reference to items as stated in companies’ accounts (section 270(2) of the 1985 Act).
Therefore, this reclassification will affect the application of the “net assets test” in section
264 of the 1985 Act (which applies only to public limited companies). The interaction of
section 264 and section 270(2) is such that, where preference shares are classified as
liabilities, they should be treated as such for the purposes of the net assets test, and should
not be treated as part of called-up share capital and undistributable reserves for that
purpose.
17
6.6
Preference shares should continue to be included in the disclosures required by
paragraph 38 of Schedule 4 to the 1985 Act (in respect of 1985 Act accounts).
Fair Value options
6.7
A new section D has been inserted into Schedule 4 to the 1985 Act. This allows
companies to choose to value some of their financial instruments, investment property and
living plants and animals at fair value. There is no requirement in the legislation to use fair
value; it is an optional accounting treatment. However, the ASB’s accounting standards
may in practice determine the circumstances in which fair value measurement is applied.
Equivalent amendments are made for small companies and banking and insurance
companies.
6.8
Companies that choose to take up the option will be required to make a number of
disclosures about their use of fair value (see paragraph 6.13 below). Even where companies
choose not to use fair value, certain disclosures must be made about the fair value of
derivatives (see paragraph 6.15 below).
6.9
“Financial instrument” includes cash, loans and receivables, equity instruments and
debt securities as well as financial derivatives such as futures, options and swaps. Those
financial instruments that are not permitted to be fair valued are listed at paragraph 34A of
new section D.
6.10 “Fair value” can be described as the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Paragraph 34B of new section D sets out how the fair value of a financial instrument should
be determined. The fair value of investment property or living plants and animals should be
determined using the relevant IAS (currently IAS 40 Investment Property and IAS 41
Agriculture respectively).
6.11 New section D also permits the use of a fair value hedge accounting system for
financial instruments (paragraph 34C).
6.12 Paragraph 34E requires that changes in the fair value of a financial instrument or
asset must be included in the profit and loss account except in certain specified
circumstances. In these circumstances, changes in value must be recorded in a separate fair
value reserve. Changes in value in an available for sale financial asset that is not a
derivative may be recorded in the fair value reserve.
6.13 Companies that choose to use fair value for financial instruments, investment
property or living plants and animals must disclose certain information about their use of
fair value in the notes to the accounts. For financial instruments, the information that must
be disclosed is set out in new paragraph 45A of section D. It includes the assumptions
underlying the valuation models used, the fair value of each category of financial
instruments and changes in value, and the extent and nature of derivatives. For investment
property and living plants and animals, the information that must be disclosed is set out in
new paragraph 45D. It includes the balance sheet items affected and the basis of valuation
adopted.
6.14 Many of the new technical accounting terms concerning fair value that are included
in the 1985 Act are not defined in that Act or in the Fair Value Directive (e.g. financial
18
instruments, hedge accounting). Instead, users will need to look at the relevant accounting
standards and related guidance.
Derivatives
6.15 There is a new requirement in paragraph 45B of new section D for companies to
disclose information on derivatives that have not been fair valued. For each class of
derivatives, they must state the fair value of the derivatives in that class (if it can be
determined as set out in paragraph 34B) and the extent and nature of the derivatives. Small
companies are exempted from this requirement.
Adjustment of corresponding amounts
6.16 Paragraph 4(2) of Schedule 4 required companies to adjust prior-year comparative figures in
their balance sheet and profit and loss accounts where such amounts are not comparable with current
year figures. This has been amended so that companies have a discretion rather than a duty to make
adjustments to non-comparable prior-year amounts. The parallel requirement to disclose prior year
figures in the notes to the accounts (eg in paragraph 58 of Schedule 4) has also been removed.
However, companies will have to give particulars of any non-comparability and, when an adjustment
is made, particulars of that adjustment.
6.17 In future, the determination of when companies should make adjustments to non-comparable
prior-year amounts will be dealt with in FRS. On 17 March 2005 the ASB published an exposure
draft on the treatment of corresponding amounts (Financial Reporting Exposure Draft 35
Corresponding Amounts).
7. CLARIFICATION OF DISTRIBUTION RULES FOR
INVESTMENT COMPANIES
7.1
Section 265(1) of the 1985 Act allows investment companies to make a distribution out of
accumulated, realised profits less realised and unrealised losses. This is subject to certain conditions
including an asset adequacy test, intended to ensure that a distribution will be made only if the assets
are sufficient to ensure a reasonable margin of protection to creditors. Under the assets adequacy test,
a distribution can be made only if assets are at least equal to one and a half times total liabilities and
provided that the distribution does not reduce assets to less than that amounts.
7.2
In order to clarify that preference shares should not be counted as liabilities for the purposes of
the section 265 assets test, references to “liabilities” in sections 265(1) and 265(2) have been amended
to “liabilities to creditors”. It is considered that “liabilities to creditors” would exclude, for example,
amounts with the legal form of share capital of the company presented under a liabilities caption
within the balance sheet. It would not, however, exclude accruals, deferred income and deferred tax
liabilities.
7.3
This amendment will apply regardless of whether accounts are prepared in accordance with
the 1985 Act or IAS.
19
8. FINANCIAL INSTRUMENTS DISCLOSURES IN
THE DIRECTORS’ REPORT
8.1
There is a new requirement in paragraph 5A of Schedule 7 to the 1985 Act to
disclose information about financial instruments in the directors’ report. Companies must
disclose certain information about the use of financial instruments by themselves and their
subsidiary undertakings where this is material for an assessment of the company’s (and the
group’s if appropriate) financial position. This includes information about their financial
risk management objectives and the exposure of the company to risks. Small companies are
not required to make this disclosure.
8.2
Small companies that are part of “ineligible groups” for the purposes of the audit and
accounts exemptions are also entitled to the exemption in relation to these disclosures. This exemption
was introduced by the Companies Act 1985 (Operating and Financial Review and Directors’ Report
etc.) Regulations 2005 (SI 2005/1011), which apply to financial years beginning on or after 1 April
2005. However, the exemption has been brought forward to apply to financial years beginning on or
after 1 January 2005.
8.3
This new requirement will apply regardless of whether accounts are prepared in
accordance with the 1985 Act or IAS.
20
9.
CHANGES TO AUDIT PROVISIONS
Audit report requirements
9.1
Section 235 of the 1985 Act includes a new requirement (section 235(1A)) for the
audit report to identify the financial reporting framework applied in the preparation of the
accounts (ie whether IAS as adopted for use in the EU or UK GAAP), and the auditing
standards in accordance with which the audit was conducted. The audit report must state
whether the accounts give a true and fair view in accordance with the financial reporting
framework used to prepare the accounts (section 235(2)). As Recital 10 of the
Modernisation Directive makes clear, the requirement that an audit opinion states whether
the annual or consolidated accounts give a true and fair view in accordance with the
relevant financial reporting framework clarifies the context in which the audit opinion was
given; it does not represent a restriction of the scope of that opinion.
9.2
The 1985 Act requirement is for accounts to give a “true and fair view”. The IAS
requirement is for accounts to “present fairly”. New section 262(2A) makes clear that these
two terms should be read as having the same meaning. This is supported by the IASB’s
framework document, which refers to “the application of the principal qualitative
characteristics and of appropriate accounting standards normally [resulting in] financial
statements that convey what is generally understood as a true and fair view of, or as
presenting fairly such information” (IASB Framework for the Preparation and Presentation of
Financial Statements, paragraph 47).
9.3
There is a new requirement in section 235(2A) that the auditors’ report be qualified
or unqualified, and that it include a reference to any matters to which the auditors want to
draw attention without actually qualifying the accounts.
9.4
Section 236 now requires that audit reports be dated as well as signed.
9.5
The requirements on the publication of non-statutory accounts in section 240(3)(d)
of the 1985 Act have been amended slightly. Previously, a company had to include a
statement indicating whether the auditors had reported on the full statutory accounts, and
state whether that report was qualified. Now, a company must state whether the auditors’
report was qualified or unqualified, and whether the auditors have drawn attention in their
report to any matter by way of emphasis, without qualifying the audit report.
Audit exemption for certain financial intermediary companies
9.6
Companies that qualify as small under section 247 of the 1985 Act and have a turnover of
not more than £5.6m and a balance sheet total of not more than £2.8m can opt not to have their
accounts audited. However, certain categories of companies are not entitled to benefit from the audit
exemption option, regardless of whether they would otherwise qualify to do so. One such category is
companies that carry on a regulated activity under the Financial Services and Markets Act 2000. As
a result of changes made in October 2004 and January 2005, companies acting as financial
intermediaries and carrying on certain activities (for example, arranging or advising on mortgages
21
or engaging in general insurance mediation) were brought within the scope of the Financial Services
and Markets Act 2000. This meant that some small companies that had been entitled to take
advantage of the audit exemption option were no longer able to do so.
9.7
This position has now been reversed, so that such companies will still be able to benefit from
the audit exemption option. Regulations 13 and 17 of the Companies Act 1985 (Investment
Companies and Accounting and Audit Amendments) Regulations 2005 (SI 2005/2280) exclude
certain specified activities from the list of regulated activities under the Financial Services and
Markets Act 2000. These provisions come into force on 5 September 2005 and apply to accounts
delivered to the registrar of companies on or after that date.
22
10. SUMMARY FINANCIAL STATEMENTS
Extension of summary financial statements option
10.1 Listed companies are permitted to send to willing “entitled persons” (the company’s members,
debenture holders, and any others entitled to receive notice of company general meetings) an SFS
instead of the full reports and accounts. The SFS is optional, and prepared in addition to full
financial statements. This option has now been extended to all companies whose accounts have been
audited and where the auditor expresses a positive opinion as to the consistency of the SFS will the
full accounts.
10.2 An SFS must be in the form, and contain the information, specified in regulations made
under the 1985 Act. The detailed requirements in respect of SFS are set out in section 251 of the
1985 Act and the Companies (Summary Financial Statement) Regulations 1995 (SI 1995/2092),
as amended by the Companies (Summary Financial Statement) (Amendment) Regulations 2005 (SI
2005/2281).
10.3 An SFS includes a summary auditors’ report, and for quoted companies a summary directors’
remuneration report. However, an SFS need no longer include a summary directors’ report (see
paragraph 10.10 below), and for quoted companies need not include a summary Operating and
Financial Review (although companies may voluntarily provide such summaries). If a full copy of
the Operating and Financial Review does not accompany the SFS, the company must publish it on a
web site, and give details of that web site in the SFS.
10.4 Before taking up the option to send an SFS rather than the full financial statement, the
company must first establish whether an entitled person wishes to receive an SFS. An entitled person
can choose to continue receiving the company’s full financial statement if they prefer. An entitled
person also remains entitled to request a copy of the full financial statements even if they have chosen
to receive the SFS.
10.5 The procedure to be followed before sending out SFS, to establish whether an entitled person
wishes to receive one, is set out in the Companies (Summary Financial Statement) Regulations 1995.
Put simply, whether or not an entitled person wishes to receive copies of the full financial statements is
ascertained:

from an express relevant notification that the person gives to the company, or

failing such express notification, from any failure by an entitled person to respond to an
opportunity given to him to elect to receive full financial statements either –
(a) in response to a notice sent by the company under regulation 5 of the Companies
(Summary Financial Statement) Regulations 1995, or
(b) as part of a relevant consultation of his wishes under regulation 6 of these Regulations.
10.6 Some companies, on learning that the Government was minded to extend the SFS option to
them, undertook the necessary procedures to ascertain entitled persons’ wishes in advance of the recent
changes to the law. The regulations clarify that any such “prior consultation” will be valid.
23
Summary financial statements for companies using IAS
10.7 The previous requirements for SFS were based on the various formats for full accounts in the
accounts Schedules to the 1985 Act. Those full formats will not apply to IAS accounts, so the
prescribed summary formats would in many instances be incompatible with full IAS accounts.
10.8 Therefore, the Companies (Summary Financial Statement) (Amendment) Regulations 2005
set out requirements for the contents of SFS for IAS companies. The requirements draw on the
framework for interim financial reports in IAS 34 (Interim Financial Reporting). IAS-based SFS
must include summarised versions of the full balance sheet and income statement, prepared using the
same headings and line items as the full statements. However, directors have flexibility to combine
items of a similar nature where they consider that this is appropriate, as long as the resulting SFS is
still consistent with the full accounts. In other respects, the SFS requirements for companies using
IAS will be the same as those for non-IAS accounts.
10.9 The “consistency” requirement does not require the SFS balance sheet and income statement
to be identical in format to the statements in the full accounts. However, the SFS should not give a
misleading view of the company’s financial position and performance in comparison to that given by
full accounts. The permission to combine headings and line items is therefore limited to items of a
similar nature, which DTI believes would generally preclude offsetting of assets and liabilities and
income and expenditure. Application of the permission to combine will require use of judgement as to
how a more concise presentation can be achieved without giving a misleading impression.
Summary directors’ report
10.10 Section 251 of the 1985 Act and the Companies (Summary Financial Statement)
Regulations 1995 have been amended so that companies no longer need to include a summary
directors’ report in their SFS. However, the SFS must include information on dividends paid and
proposed as a note to the summary profit and loss account.
24
11. OTHER CHANGES TO REPORTING
REQUIREMENTS
Automatic three month extension for companies with overseas interests
11.1 Section 244(3) of the 1985 Act allowed the right to claim an automatic three month
extension of the period allowed for laying and delivering reports and accounts where the
company had overseas interests. This automatic right has been repealed. However,
companies may continue to apply for an extension on a discretionary basis under section
244(5).
Voluntary revision of summary financial statements, directors’ remuneration report
and Operating and Financial Review
11.2 Section 245 of the 1985 Act allows voluntary revision of annual accounts, SFS, the directors’
report, the directors’ remuneration report and the Operating and Financial Review. The 1985 Act
did not however expressly permit voluntary revision of SFS where the accounts and reports on which
they were based were not being revised. The law has now been amended to extend voluntary revision
to SFS in those circumstances. This is intended to deal with situations where the full accounts and
reports are not defective, but a defective SFS has been prepared based on them.
11.3 Regulations made under section 245 of the 1985 Act (the Companies (Revision of Defective
Accounts and Report) Regulations 1990, SI 1990/2570) set out the detail of how accounts and
reports should be revised. These regulations have also been amended so that they cover everything for
which revision is permitted by section 245.
11.4 In addition, voluntary revision of SFS can now be done by way of a supplementary note to
the original statements, rather than by having to reissue the complete corrected SFS. It has always
been possible to revise full financial statements in this way, but was not previously permitted for SFS.
Disclosure of staff particulars by small companies
11.5 The exemption for small companies from the requirement to disclosure staff particulars was
inadvertently removed by structural changes to the 1985 Act made by the Companies Act 1985
(International Accounting Standards and Other Accounting Amendments) Regulations 2004. This
exemption has now been restored.
25
Is the body a company
under the relevant
definition?
NO
ANNEX A
YES
The company is not
required to prepare IAS
accounts.
Is the company
governed by the law of
a Member State?
NO
YES
The company is not
required to prepare IAS
accounts.
Are the company’s
securities traded on a
regulated market listed
at Annex A?
NO
The company is not
required to prepare IAS
accounts.
The company is not
required to prepare IAS
accounts.
YES
Does the company have
to prepare consolidated
account, under section
227 of the Companies
Act 1985?
NO
YES
The company must prepare IAS
accounts.
26
ANNEX B
CORRESPONDING CHANGES IN UK FINANCIAL
REPORTING STANDARDS [UPDATE FOR
CORRESPONDING AMOUNTS]
The following table summarises the position under accounting standards for the legal
changes described in the Guidance Notes. It does not reflect changes to the Financial
Reporting Standard for Smaller Entities for which an exposure draft is expected to be
published shortly.
Guidan
ce
paragr
aph
5.2
Companies
Act
reference
Changes being made to UK accounting
standards
s258(4)
5.3
s228A
5.7
s229(3)
5.8
s229(4)
repealed
The ASB has published an amendment to FRS 2
that revises the definition of a parent/subsidiary
relationship to reflect the removal of the
requirement for a participating interest to exist.
FRS 2(14(e))
The amendment to FRS 2 extends the exemptions
from the preparation of consolidated accounts to
include the new exemption* in the Regulations.
FRS 2(21(d))
* Exemption from the requirement to prepare
consolidated accounts is now available to a parent
company governed by GB law, which is also a
subsidiary undertaking of a parent undertaking
not governed by EEA law. In order to qualify for
exemption, the company must meet all of the
conditions listed in section 228A.
A subsidiary undertaking may be excluded from
consolidation where the parent company’s interest
in it is held exclusively with a view to subsequent
resale irrespective of whether or not it has
previously been included in consolidated accounts.
This has not been reflected in the amendment
because FRS 2 remains more restrictive than the
law because it requires (rather than permits)
exemption from consolidation of the subsidiary by
the parent, but only when the subsidiary has not
previously been consolidated by the parent.
FRS 2(25(b))
The amendment to FRS 2 reflects the restriction
of circumstances in which subsidiary undertakings
may be excluded from the consolidation. An
undertaking should no longer be excluded from
the consolidated accounts of the parent company if
27
Scope and
effective
date (periods
beginning)
1 January 05
all entities
1 January 05
all entities
Extant for all
entities
1 January 05
for all entities
Guidan Companies
ce
Act
paragr reference
aph
6.2
Schedule 4
paragraph
35A
6.4
Schedule 4
paragraph 5A
6.7
Schedule 4
Section D
Changes being made to UK accounting
standards
its activities are so incompatible with those of the
parent that inclusion would not give a true and fair
view of the undertakings in the consolidated
accounts.
FRS 2(25(c))
The disclosure requirement for dividends proposed
after the balance sheet date and before the date of
approval of the accounts is reflected in FRS 21(13)
‘Events after the balance sheet date’.
FRS 25 ‘Financial Instruments: Disclosure and
Presentation’ requires preference shares that are
obligations to be classified as liabilities rather than
as part of shareholders’ funds. FRS 25(15)
FRS 26 ‘Financial Instruments: Measurement’
paragraphs 43 et seq sets out the circumstances in
which fair value measurement is applied.
SSAP 19 already requires investment properties to
be measured at their open market value.
6.9
Schedule 4
paragraph
34A
6.10
Schedule 4
paragraphs
34B and 34D
6.11
Schedule 4
paragraph
34C
Scope and
effective
date (periods
beginning)
1 January 05
for all entities
1 January 05
for all entities
1 January 05
for listed
entities.
1 January 06
for certain
unlisted
entities
Extant for all
There is currently no UK standard that specifically entities
requires an entity to fair value living plants and
animals.
FRS 26(2(a)) sets out the scope of the financial
1 January 05
instruments covered by the standard.
for listed
Those financial instruments that will not be
entities.
permitted to be fair valued are noted in paragraphs 1 January 06
46-47 of FRS 26.
for certain
unlisted
entities
FRS 26(48, AG69-AG82) sets out the
1 January 05
considerations for determining the fair value of a
for listed
financial instrument
entities.
1 January 06
for certain
SSAP 19(11) already requires investment
unlisted
properties to be measured at their open market
entities
value.
Extant for all
entities
There is currently no UK standard that specifically
requires an entity to fair value living plants and
animals.
Hedge accounting requirements are set out in
1 January 05
FRS 26 paragraphs 71-102.
for listed
entities.
28
Guidan Companies
ce
Act
paragr reference
aph
Changes being made to UK accounting
standards
6.12
Schedule 4
paragraph
34E
6.13
Schedule 4
paragraph
45A
45C
45D
The requirements for recognising gains and losses
arising from the changes in fair value of a financial
instrument are set out in:
 FRS 26(55(b)) in respect of available for sale
financial assets;
 FRS 26(85 et seq) in respect of hedging
instruments;
 FRS 23(32) in respect of exchange differences
arising on a monetary item that forms part of a
company’s net investment in a foreign entity.
Disclosure requirements for certain information
about the use of fair value in the notes to the
accounts are set out in:
 FRS 25(92) in respect of the significant
assumptions underlying the valuation models
and techniques used;
 FRS 25(60) in respect of the extent and nature
of derivatives held at fair value;
 SSAP 19(12) in respect of the basis of valuation
of investment property;
6.14
6.15
Schedule 4
paragraph
45B
7.1
Schedule 7
paragraph 5A
There is currently no UK standard that specifically
requires an entity to fair value living plants and
animals.
For entities applying UK GAAP, definitions are
given in FRS 25(11) and FRS 26(9).
FRS 25(92) sets out disclosure requirements in
respect of the significant assumptions underlying
the valuation models and techniques used;
FRS 25(90) requires disclosure in respect only of
derivatives linked to unquoted equity instruments.
The requirement to indicate (in the directors’
report) the use of financial instruments will in
addition be required to be disclosed in the financial
statements by FRS 25(51-59).
29
Scope and
effective
date (periods
beginning)
1 January 06
for certain
unlisted
entities
1 January 05
for listed
entities.
1 January 06
for certain
unlisted
entities
1 January 05
for all entities
Extant for all
entities
1 January 05
for all entities
1 January 05
for all entities
ANNEX C
LIST OF REGULATED MARKETS [CHECK UP TO
DATE]
List of Regulated Markets under Article 16 of the Investment Services
Directive (ISD) (Council Directive 93/22/EEC) at 17.02.2004 (OJ C72/3 of
23.3.04)
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
Austria
1. Amtlicher Handel
(official market)
2. Geregelter
Freiverkehr
(semi-official
market)
3. Dritter Markt
(third market)
Wiener Börse AG
(1-3)
Finanzmarktaufsichtsbehör de
Belgium
1. Bourse de
valeurs
mobillièes
d'Euronext
Brussels:
 Le premier
marché (official
market)
 Le second
marché
 Le nouveau
marché
 le marché trading
facilities
1. Euronext
Brussel SA
1. Bourse:
Législateur = Ministre des
Finances;
Autorité de Marché =
Autorité de Marché
d'Euronext Bruxelles.
2. Euronext
Brussels SA
2. Le Marché des
Instruments
derives
d'Euronext
Bruxelles
30
2. Marché des Intruments
derives
Ministre des Finances sur
avid de la CBF.
Autorité de Marché =
Autorité de Marché
d'Euronext Bruxelles.
3. Ministre des Finances sur
proposition du Comité due
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
fonds des rentes.
3. Fonds des
rentes
3. Le marché
secondaire hors
bourse des
obligations
linéaires, des
titres scindés et
des certificates
de trésorerie
4. Nasdaq Europe:
Ministre des Finances sur
avis de la CBF.
Autorité de Marché =
Autorité de Marché de
Nasdaq Europe.
4. Nasdaq SA
Denmark
4. Nasdaq Europe
1. Københavns
Fondsbørs
 Equity market;
 Bond market;
 Derivatives
market
1-2. Copenhagen
Stock Exchange
Ltd.
2. XtraMarket Authorised
marketplace for
unlisted units of
investment
associations
(UCTIS) and
Special Purposes
Associations
3. Dansk
3. Danish
Autoriseret
Authorised
Markedsplads
Market Place
A/S (Danish
Ltd. (DAMP)
Authorised
Market Place Ltd.
(DAMP))
[authorised
market place =
regular trade in
securities
31
Finanstilsynet (Danish
financials supervisory
authority)
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
For both 1 & 2:
Designation: Ministry of
Finance.
admitted for
trading but not
listed on stock
exchange]
Finland
1. Arvopaperipörssi
(Stock
Exchange);
 Päälista (Main
List for equity
and Debt
Instruments);
 I-, NM-, Pre- ja
Meklarien lists
(parallel Lists I-,
NM-, pre- and
Brokers' list for
equity and debt
instruments);
Helsingin
Arvopaperi- ja
johdannaispörssi,
selvitysyhtiön Oy,
(Helsinki
Securities and
Derivatives
Exchange,
Clearing House
Ltd)
Oversight:
 Approval of rules: Ministry
of Finance;
 Supervision of compliance:
Rahoitustarkastus/Finnish
Financial Supervision
Authority.
2. Optioyhteisö
(Option
Corporation).
(Derivatives
exchange and
clearing house).
France
1. Bourse de Paris:
 Premier marché
(official list);
 Second marché;
 Marché des EDR
(European
Depositary
Receipts.
Euronext Paris
(1-4)
Proposition de I'Autorité des
des marches financiers (AMF)
(cf. article L.4211 du code
monétaire et financier).
Approbation par le Ministre de
I'economie et des finances.
2. Nouveau marché
3. MATIF
4. MONEP
32
Country
Germany
Title of Regulated
Market
Operating entity
1. Börse BerlinBremen
(Amtilcher
Handel,
Geregelter
Markt)
1. Berliner Börse Börsenaufsichtsbehörden de
AG.
Länder (stock exchange
supervisory authorities of the
deferral states) and the
Bundesanstalt für
Finanzdiensteistungsaufsicht
2. Börse
(BAFin).
Düsseldorf AG.
State authorities:
1. Senatsverwaltung für
Wirtschaft und Technologie,
3 & 4. Deutsche
Berlin.
Börse AG.
2. Finanzministerium
desLandes NordrheinWestfalen, Düsseldorf.
2. Düsseldorfer
Börse (Amtilcher
Handel,
Geregelter
Markt)
3. Frankfurter
Wertpapierbörse
(Amtilcher Markt,
Geregelter
Markt)
4. Eurex
Deutschland
5. BÖAG
(Börsen AG)
5. Hanseatische
Wertpapierbörse
Hamburg
(Amtilcher Markt,
Geregelter Markt, 6. BÖAG
Startup market)
(Börsen AG)
Competent authority for
designation and oversight of
market
3 & 4. Hessisches Ministerium
für Wirtschaft, Verkehr und
Landesentwicklung,
Wisebaden.
5. Freie und Hansestadt
Hamburg, Wirtschaftbehörde.
6. Niedersächsisches
Ministerium für Wirtschaft,
Technologie und Verkehr,
Hanover.
6.
Niedersächsis
che Börse zu
Hannover
(Amtilcher Markt,
Geregelter
Markt)
7. Börse München
(Amtilcher Markt,
Geregelter
Markt)
7. Bayerische
Börse AG
7. Bayerisches
Staatsministerium für Wirtchaft,
Verkehr und Technolgie,
München.
8. BörseStuttgart AG
8. Wirtschaftsministerium
Baden-Württemberg, Stuttgart.
33
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
1 and 2. Athens
Stock Exchange
Capital market Commission
8. BadenWürttembergisch
e
Wertpapierbörse
(Amtilcher Markt,
Geregelter
Markt)
Greece




1.
Athens
Stock
Exchange
(A.S.E)/Thess
aloniki Stock
Exchange
Centre
T.S.E.C.)
Main Market
Parallel Market
Parallel Market
for Emerging
Markets
New Market
2. Athens
Derivatives
Exchange
(A.D.EX)
3. Electronic
Secondary
Securities Market
(HDAT-Bond
Market, under
the competence
and supervision
of the Bank of
Greece)
Ireland
Irish Stock Exchange
comprising:
 Official List
 Exploration
3. Bank of
Greece
Irish Stock
Exchange Ltd.
34
The Irish Financial Services
Regulatory Authority
authorises "regulated market"
and (with exc. of listing
Country
Title of Regulated
Market


Italy
Operating entity
Securities Market
Developing
Companies
Market
ITEQ
1. Stock Exchange,
divided into the
following
segments:
 Electronic share
market (MTA);
 Electronic
covered warrants
market (MCW);
 After-Hours
Market (TAH);
 Electronic bond
and government
securities market
(MOT);
 Electronic market
for Eurobonds,
foreign bonds
and assetbacked securities
(EuroMOT).
Competent authority for
designation and oversight of
market
conditions) vets and approves
rules for operation of the
different segments as prepared
by the ISE.
(1-4) Borsa
Italiana S.p.A.
(5-6) Società per
il Mercato dei
Titoli di Stato MTS S.p.A.:
2. Mercato Ristretto
(second market).
3. Derivatives
market (DEM).
4. Nuovo Mercato
(New Market NM).
5. Wholesale
Market for
Corporate and
International
35
CONSOB authorises
companies which manage
markets, and approves
For wholesale markets for
Government securities,
operating company is
authorised by Treasury having
regard to the opinion of
CONSOB and Banca d'latlia.
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
Organisations
Bonds.
6. Wholesale
Market for
Corporate and
International
Organisations
Bonds.
Luxembourg
Bourse de
Luxembourg: Official
List
Société de la
Bourse de
Luxembourg S.A.
Commission de surveillance du
Secteur Financier
Netherlands
1. Euronext
Amsterdam Cash
Market:
 Official market
 Domestic market
for unlisted
securities
 Euro NM
Amsterdam
Euronext N.V.
and Euronext
Amsterdam N.V.
Recognition by the Minister of
Finance after advice from the
Netherlands Authority for the
Financial Markets.
Supervision by the Netherlands
authority for the Financial
Markets and The Netherlands
Ministry of Finance.
2. Euronext
Amsterdam
derivatives
Market.
Portugal
1. Mercado de
Cotações Oficiais
(Official
Quotation
Market)
2. Segundo
Mercado
(Second Market)
Markets 1-4:
Euronext Lisboa Sociedade
Gestora de
Mercados
Regulamentados
SA
3. Novo Mercado
(New Market)
36
Finance Ministry authorises
markets on basis of proposal
from Comissão do Mercado de
Valores Mobillários (CMVM) latter responsible for regulation
and oversight of market.
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
4. Mercado de
Futurose e
Opções (Futures
and Options
Market)
Spain
5. MEDIP Mercado
Especial de
Dívida Pública
(Special Market
for Public Debt)
Market 5: MTS
Portugal Sociedade
Gestora Mercado
Especial Dívida
Pública SA
A. Bolsas de
Valores (all comprise
first, second and new
market segments)
1. Bolsa de Valores
de Barcelona;
2. Bolsa de Valores
de Bilbao;
3. Bolsa de Valores
de Madrid;
4. Bolsa de Valores
de Valencia.
A1. Sociedad
Rectora de la
Bolsa de Valores
de Barcelona S.A.
A2. Soc. Rectora
de la Bolsa de
Valores de Bilbao
S.A.
A3. Soc. Rectora
de la Bolsa de
Valores de Madrid
S.A.
A4. Soc. Recotora
de la Bolsa de
Valores de
Valencia S.A.
B. Mercados
oficiales de
Productos
Financieros
Derivados
1. MEFF Renta
Fija;
2. MEFF Renta
Variable.
B1. Soc. Rectora
de Productos
Financieros
Derivados de
RENTA Fija S.A.
B2. Soc. Rectora
de Productos
Financieros
Derivados de
Renta Variable
S.A.
37
CNMV (Comisión Nacional del
Mercado de Valores)
Banco de España responsible
for market for public debt.
Country
Title of Regulated
Market
C. Mercados FC&M
de Futuros y
Opciones sobre
Cítricos [commodity
derivatives not
covered by section B
annex ISD: related
markets do not fall
within ISD definition
of "regulated
market"]
Operating entity
Competent authority for
designation and oversight of
market
C. (FC&M) Soc.
Rectora del
Mercado de
Futuros y
Opciones sobre
Criticos SA.
D. AIAF Mercado de
Renta Fija.
E. Mercado de
Deuda Pública en
Anotaciones.
Sweden
D. AIAF Mercado
de Renta Fija.
1.Stockholmsbörsen:
1.Stockholmsbörs
en Aktiebolag
2. Nordic Growth
Market
2. Nordic Growth
Market NGMAktiebolag.
Finansinspektionen (Financial
Supervisory Authority)
3. Aktietorget
3. Aktietorget
Aktiebolag.
United
Kingdom
1. Domestic Equity
Market
Markets 1-6.
London Stock
Exchange Ltd.
2. European Equity
Market
3. Gilt Edged and
Sterling Bond
Market
4. Alternative
Investment
Market (AIM)
38
Entities operating regulated
markets are recognised
investment exchanges within
the meaning of s285 of the
Financial Services Act 2000
and are regulated by the
Financial Services Authority
(FSA).
Country
Title of Regulated
Market
Operating entity
Competent authority for
designation and oversight of
market
5. International
Retail Service
6. International
Order Book
7. The London
International
Financial Futures
and Options
Exchange
(LIFFE)
Iceland
8. Virt-x
8. Virt-x
Exchange Limited
9. EDX
9. EDX London
Limited
1. Verõbréfaþing
1. Kauphöll
Íslands hf.
Íslands.
(kauphöll Íslands.
- official market)
2. Tilboõsmarkaõur
VþÍ (Regulated
OTC Market - not
official listing)
Norway
7. LIFFE
Administration
and Management.
Fjármála-eftirlitiõ (Financial
Supervisory Authority)
2. Kauphöll
Íslands.
Oslo Børs ASA
Oslo Stock
Exchange
 Equity Market
 Derivative Market
 Bonds Market
39
Kredittilsynet (The Banking,
Insurance and Securities
Commission of Norway)
Department of Trade and Industry
© Crown Copyright
http://www.dti.gov.uk
URN 05/1218
40