Accounting requirements of company law in the UK

Company Law in the UK requires that directors of companies incorporated in the UK “prepare accounts for the company for each of its financial years”, which give a “true and fair view”.  Such accounts are either:

  • ‘Companies Act Accounts’, prepared in accordance with the accounting and disclosure requirements of company law and with the Financial Reporting Standards (FRSs) published by the Financial Reporting Council (FRC) (‘UK and Irish GAAP’); or
  • ‘IAS Accounts’, prepared in accordance with the International Financial Reporting Standards published by the International Accounting Standards Board (IASB), as adopted by the European Union.

The IAS Regulation (Regulation (EC) No.1606/2002) requires the consolidated financial statements of companies with debt or equity securities listed on a regulated EU market, e.g. the main market of the London Stock Exchange, to be prepared in accordance with EU adopted IFRS.  For other financial statements, under sections 395 and 403 of the Companies Act 2006 companies can choose, subject to certain exceptions, whether to prepare ‘Companies Act Accounts’ or ‘IAS Accounts’.

Sections 394 to 394C of the Companies Act 2006 establish the duty to prepare individual accounts, whilst in accordance with section 395 such individual accounts may be either 'Companies Act individual accounts' or 'IAS individual accounts'. The individual accounts of a company that is a charity must be 'Companies Act individual accounts'.

Section 399 sets out the requirement to prepare group accounts, whilst section 403 establishes that apart from parent companies subject to Article 4 of the IAS regulation, who are required to prepare 'IAS group accounts' (i.e. in accordance with EU adopted IFRS), and parent companies which are charities, whose group accounts must be 'Companies Act group accounts', other parent companies have the option of preparing either 'Companies Act group accounts' or 'IAS group accounts'. 

'Companies Act accounts'

The detailed accounting requirements are contained primarily in two separate statutory instruments (both available on CHARIOT - member login required):

  • The Small Companies and Groups (Accounts and Directors Report) Regulations 2008 - S.I. No. 409 of 2008 (as amended); and
  • The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 - S.I. No. 410 of 2008 (as amended).

'IAS accounts'

Companies required to, or opting to, prepare 'IAS accounts' only need apply certain sections of the Companies Act 2006 as it relates to financial reporting and are only required to comply with certain schedules to the above regulations. 'IAS accounts' are prepared in accordance with EU-adopted IFRS.

 The 2013 Accounting Directive

To transpose the 2013 Accounting Directive, the UK Government issued:

  • S.I. No. 3008 of 2013 - The Small Companies (Micro-Entities’ Accounts) Regulations 2013; and
  • S.I. No. 980 of 2015 - The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015.

In response to these legal changes, the FRC issued FRS 105 (for micro entities) and amendments to FRS 100 to 102.  See the ‘Standards in issue’  page on the FRC website for further details.

The 2013 Accounting Directive was completed in 2013 during the Irish Presidency of the EU.  It replaced the 4th Directive (Directive 78/660/EEC) and the 7th Directive (Directive 83/349/EEC), which governed the preparation, by companies incorporated in the EU, of individual company financial statements and group financial statements respectively (other than those prepared by credit institutions and insurance undertakings).

As a recast of the 4th and 7th Directives, many of the provisions of those directives have been carried forward into the 2013 Accounting Directive.  There are, however, some very significant changes, including: ‘Small company maximum harmonisation’ (a restriction on the disclosures that a Member State can require small companies to provide in their financial statements), a Member State option to raise the small company thresholds, and the option to apply exemptions for micro-undertakings.

 

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