CHAPTER 8: PUBLICATION OF ACCOUNTS AND REPORTS

Clause 399: Duty to circulate copies of annual accounts and reports

677.     This clause replaces section 238 of the 1985 Act. Subsection (1) provides that a company must send a copy of its annual accounts and reports (as defined in clause 448 and including any relevant auditor's report) to specified persons.

678.     Subsection (2) restricts the general obligation of companies to send copies of accounts and reports. The obligation will in future be to send the accounts and reports only to persons for whom they have a current address. This is to avoid companies having to send copies of the annual accounts and reports to addresses from which correspondence has previously been returned marked not known at this address (or its electronic equivalent). General provisions about how to supply copies to joint holders are in Part 6 of Schedule 6 and Part 6 of Schedule 7.

Clause 400: Time allowed for sending out copies of accounts and reports

679.     This clause makes changes to the time for distributing accounts for both private and public companies. Private companies were previously required to lay their accounts at a general meeting and to send their accounts and reports to members 21 days before that meeting. They are no longer required to hold any general meeting and the requirement now is to send out their accounts and reports no later than the earlier of the date of actual delivery to the registrar or the deadline for delivery (see clause 420 for the time limits for filing). Public companies must send the annual accounts and reports out no later than 14 days before the end of the period for filing accounts and reports with the registrar or, if earlier, the date on which they actually deliver them.

Clause 401: Default in sending out copies of accounts and reports: offences

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

Option to provide summary financial statement

681.     Clauses 402 to 405 restate section 251 of the 1985 Act. All companies have the option under clause 402 to provide summary financial statements instead of copies of the full accounts and reports. This clause reproduces the existing power for the Secretary of State to make provision by regulations:

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

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

682.     Clause 403 sets out the form and content requirements for summary financial statements prepared by unquoted companies, whilst clause 404 sets out the form and content requirements for summary financial statements prepared by quoted companies. In both cases, the Secretary of State may make regulations as to the form and content of summary financial statements. There is also a new power for regulations to provide that specified material be sent separately at the same time as the summary financial statements instead of being included in it. This is to cover the requirements of the Takeovers Directive as to necessary explanatory material (see clause 649). As in the 1985 Act, these powers are subject to the negative resolution procedure. Clause 405 restates the existing offences in section 251(6) of the 1985 Act.

Quoted companies: requirements as to website publication

683.     Clauses 406 to 408 introduce new requirements on quoted companies (as defined in clause 358) to put accounting information on a website. The requirements relate to:

• preliminary announcements of annual results (clause 407); and

• the full annual accounts and reports (clause 406).

A quoted company will still have to send the full accounts and reports to its members under clause 399.

684.     The information must be made available as soon as is reasonably practicable on a website that is maintained by or on behalf of the company, and that identifies the company in question. Access to the website must be available to all members of the public and not just to members, and there must be continuous access to the website without charge.

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

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

686.     Clauses 409 and 410 re-enact section 239 of the 1985 Act and entitle a member or debenture holder to a copy of the company's last annual accounts and reports without charge. Clause 409 lists the documents to which members or debenture holders of unquoted companies are entitled, while clause 410 lists those to which members or debenture holders of quoted companies are entitled.

Requirements in connection with publication of accounts and reports

687.     Clause 411 brings together provisions scattered throughout Part 7 of the 1985 Act (in sections 233(3), 234A(2), 234C(2), 234AB(2), 234A(4) and 234AB(4)) concerning statements of the name of the signatory in published accounts and reports. In the case of unquoted companies, every copy of the balance sheet and directors' report that is published by or on behalf of the company must state the name of the director who signed it on behalf of the board. For quoted companies this applies to copies of the balance sheet, directors' remuneration report, directors' report and operating and financial review.

688.     Clauses 412 and 413 re-enact section 240 of the 1985 Act concerning requirements in connection with the publication of statutory or non-statutory accounts.

689.     "Publication" is defined in clause 414.

CHAPTER 9: PUBLIC COMPANIES: LAYING OF ACCOUNTS AND REPORTS BEFORE GENERAL MEETING

690.     Clauses 415 and 416 re-enact section 241 of the 1985 Act on the laying of accounts and reports before the company in general meeting, but restrict its application to public companies.

691.     Under the Bill, private companies are under no statutory obligation to hold an AGM or to lay accounts and reports in general meetings. There is therefore no statutory link for them between the accounts and AGMs (although such a link might be provided for in the company's articles). Any AGM that a private company may hold pursuant to its articles will not be a statutory meeting. Public companies will still be required to hold AGMs and they must now hold them within 6 months of the end of the accounting reference period.

CHAPTER 10: QUOTED COMPANIES: MEMBERS' APPROVAL OF DIRECTORS' REMUNERATION REPORT

692.     Clauses 417 and 418 restate the requirement under section 241A of the 1985 Act that a quoted company circulate a resolution approving the directors' remuneration report for the preceding financial year to its shareholders prior to its annual general meeting.

693.     The vote is advisory: as such, it does not require directors to amend contractual entitlements, nor to amend their remuneration policy, but the result of the vote will send a very strong signal to directors about the level of support among shareholders for the board's remuneration policy. In practice, directors will wish to take notice of the views of the company's members, and to respond appropriately.

694.     All "existing directors" (that is, every person who, immediately before the general meeting, is a director of the company) have a responsibility to ensure that the resolution is put to the vote of the meeting. As such, the requirement does not apply to past directors (even if they served on the board or as members of the remuneration committee in the current financial year), but it does apply to "existing directors" who were, for whatever reason, not present at the general meeting.

CHAPTER 11: FILING OF ACCOUNTS AND REPORTS

Duty to file accounts and reports

695.     Clauses 419 to 421 cover the general duty to file accounts and reports with the registrar of companies and the period allowed for filing accounts.

696.     Clause 420 reduces the period for filing accounts from ten months to nine months for private companies and from seven months to six months for public companies. These periods are calculated from the end of the relevant accounting reference period. The timetable for delivering accounts to the registrar was last amended in 1976. The periods have been reduced to reflect improvements in technology and the increased rate at which information becomes out of date. Filing timescales in other countries are generally less generous than in the UK.

697.     Clause 421 is a new provision defining how to calculate the periods allowed for filing accounts and reports. In general this is the same date the relevant number of months later. So, for example, if the end of the accounting reference period is 5th June, 6 months from then is 5th December. However, as months are of unequal length, there can be confusion as to whether 6 months from say 30th June is 30th December (exactly 6 months later) or 31st December (the end of the sixth month). Under the rule laid down in this clause, 6 months from 30th June will be 31st December. This reverses the "corresponding date rule" laid down by the House of Lords in Dodds v Walker [1981] 1 WLR 1027.

Filing obligations of different descriptions of company

698.     Clauses 422 to 426 concern the filing obligations of different sizes of company. They restructure the provisions in sections 242, 246, 246A and 254 of the 1985 Act to make clearer what companies have to do.

699.     Clause 422 concerns the filing obligations of companies subject to the small companies regime (previously section 246(1) and (5) to (7) of the 1985 Act). Such companies may file abbreviated accounts and this clause gives the Secretary of State the power to make regulations concerning abbreviated accounts for such companies.

700.     Clause 423 restates provisions in section 246A of the 1985 Act permitting medium-sized companies (as defined in clause 443) to file abbreviated accounts and gives the Secretary of State the power to make regulations concerning abbreviated accounts for such companies.

701.     Clause 424 concerns the filing obligations of unquoted companies.

702.     Clause 425 concerns the filing obligations of quoted companies. This is a restatement of section 242 of the 1985 Act. Subsection (3) provides for the copies of all the accounting documents including the balance sheet to state the name of the person who signed the documents.

703.     Clause 426 replaces section 254 of the 1985 Act. It exempts unlimited companies from the obligation to file accounts. There are limitations on the exemption set out in subsections (2) and (3).

Requirements where abbreviated accounts delivered

704.     Clause 427 replaces the provision in section 247B of the 1985 Act requiring a special auditors' report in place of the auditors' report required by section 235 where a company delivers abbreviated accounts to the registrar of companies. There is no requirement for the special auditors' report where the company is entitled to exemption from audit and has taken advantage of that exemption.

705.     Clause 428 replaces sections 246(7) and (8) and 246A(4) of the 1985 Act concerning the approval and signing of abbreviated accounts.

Failure to file accounts and reports

706.     Clauses 429 and 430 re-enact sanctions in section 242(2) to (5) of the 1985 Act for failing to file accounts and reports within the required periods.

707.     Clause 431, which provides a civil penalty for failure to file accounts, restates section 242A of the 1985 Act with one change. Rather than setting out the table of penalties in the legislation, subsection (2) provides for the Secretary of State to make regulations specifying both the relevant periods and the amounts of the penalties. Regulations that have the effect of increasing the penalty will be subject to the affirmative resolution procedure. Otherwise, they will be subject to the negative resolution procedure.

CHAPTER 12: REVISION OF DEFECTIVE ACCOUNTS AND REPORTS

Clause 432: Voluntary revision of accounts etc

708.     This clause restates section 245 of the 1985 Act providing for the voluntary revision of defective accounts and reports. It replicates the existing power for the Secretary of State to make provision in regulations as to the application of the provisions of this Act to revised annual accounts and reports. Regulations under this section are subject to the negative resolution procedure, which is consistent with the existing powers.

Clause 433: Secretary of State's notice in respect of accounts or reports

709.     This clause re-enacts section 245A of the 1985 Act. It concerns the Secretary of State's duty to give notice to the directors of a company if there is or may be a question as to whether the accounts comply with the Companies Act or the IAS Regulation (Regulation (EC) 1606/2002 on the application of international accounting standards).

Clauses 434 to 436: Application to court

710.     Clauses 434 and 435 concern applications to the court in respect of defective accounts or reports. They re-enact sections 245B and 245C of the 1985 Act. Clause 435 gives the Secretary of State the power to authorise a person for the purposes of clause 434 to apply to the courts to require the directors of companies to prepare revised accounts and reports where the original accounts or reports were defective. Authorisation is subject to the negative resolution procedure, which corresponds to the existing provision. The body known as the Financial Reporting Review Panel (FRRP) is the only authorised person under this provision to date (the Companies (Defective Accounts) (Authorised Person) Order 2005: SI 2005/699).

711.     Clause 436 re-enacts sections 245D and E of the 1985 Act. It provides for the disclosure of information by the Commissioners for Her Majesty's Revenue and Customs to a person authorised under clause 435 (currently the FRRP) to apply to the court in respect of defective accounts and reports. The provision contains important limitations, including criminal offences for use or disclosure of the information other than for permitted purposes. Subsection (2) provides that personal data may not be disclosed in contravention of the Data Protection Act 1998.

Clause 437: Power of authorised person to require documents, information and explanations

712.     This clause re-enacts section 245F of the 1985 Act. Subsections (1) to (3) provide the FRRP (as the person authorised under clause 435) with a statutory power to require a company and its officers, employees and auditors to provide documents and information. Where a person refuses to provide information or documents to the FRRP, the FRRP may apply to the court for an order. The court may make an order requiring disclosure. Failure to comply with such an order would be contempt of court.

Clause 438: Restrictions on disclosure of information obtained under compulsory powers

713.     This clause re-enacts section 245G of the 1985 Act. It ensures that information obtained by the FRRP under the powers in clause 437 is subject to restrictions on onward disclosure. Information may not be disclosed by the FRRP without the consent of the individual or business in question, except for the purposes of carrying out its functions, or unless it is disclosed to specified persons or for specified purposes set out in clause 439.

Clause 439: Permitted disclosure of information obtained under compulsory powers

714.     This clause restates section 245G(3) of, and Schedule 7B to, the 1985 Act. It sets out the disclosures of information obtained by the authorised person under clause 437 that are permitted. Subsection (3) lists the specified persons to whom disclosures are permitted and subsections (2) and (4) list the specified purposes for which disclosure may be made. Subsection (5) sets out the circumstances in which a disclosure to an overseas regulatory authority is permitted.

Clause 440: Power to amend categories of permitted disclosure

715.     This clause re-enacts section 245G(4) of the 1985 Act. It gives the Secretary of State power to amend the disclosure provisions relating to information obtained by the authorised person.

CHAPTER 13: SUPPLEMENTARY PROVISIONS

Clause 441: Accounting standards

716.     This clause re-enacts section 256 of the 1985 Act. The Accounting Standards Board is the body prescribed for the purposes of issuing accounting standards (the Accounting Standards (Prescribed Body) Regulations 2005: SI 2005/697).

Clause 442: Reporting Standards

717.      This clause re-enacts section 256A of the 1985 Act. It confers on the Secretary of State the power to specify a body for the purpose of issuing reporting standards in respect of the operating and financial review. The Accounting Standards Board has been so specified (the Reporting Standards (Specified Body) Order 2005: SI 2005/692).

Clauses 443 to 445: Companies qualifying as medium-sized

718.     Medium-sized companies benefit from certain limited accounting and reporting exemptions. For example, clause 390(7) exempts medium-sized companies from disclosing certain non-financial information in their directors' reports.

719.     Clauses 443 to 445 set out which companies or parent companies qualify as medium-sized. The conditions for qualification as a medium sized company have been separated from those relating to small companies to make them easier to follow but they are otherwise unchanged from the current regime (sections 247, 247A and 249 of the 1985 Act).

Other supplementary provisions

Clause 446: Preparation and filing of accounts in euros

720.     This clause re-enacts section 242B of the 1985 Act. It enables companies to show the amounts in their annual accounts additionally in euros, and to deliver to the registrar an additional copy of their accounts translated into euros.

Clause 447: Power to apply provisions to banking partnerships

721.     This clause re-enacts section 255D of the 1985 Act. It gives the Secretary of State the power to apply the accounting and reporting provisions of the Bill that apply to banking companies to banking partnerships. As under the current law, the regulations are subject to the affirmative resolution procedure.

Clause 448: Meaning of "annual accounts" and related expressions

722.     This clause provides definitions of the terms "annual accounts" and "annual accounts and reports" for the purpose of this Part, the meaning being different for unquoted and quoted companies.

Clause 449: Notes to the accounts

723.     This clause re-enacts section 261 of the 1985 Act. It concerns the notes to a company's accounts.

Clause 450: Parliamentary procedure for certain regulations under this Part

724.     This clause specifies the Parliamentary procedure that must be followed in connection with regulations made under the various provisions of this Part which replace the requirements as to the form and content of accounts and reports currently contained in Schedules to Part 7 of the 1985 Act.

725.     The clause follows section 257 of the 1985 Act in requiring affirmative resolution procedure for regulations which add to the documents required to be prepared by companies, restrict the exemptions available to particular classes or types of company, add to the information to be included in any particular document or otherwise make the requirements more onerous. Other regulations are subject to negative resolution procedure.

Clause 451: Minor definitions

726.     This clause contains other definitions for the purposes of this Part.

PART 16: AUDIT

727.     This Part brings together various provisions on the audit of companies from the 1985 Act. It also introduces a number of significant changes to the law on auditing.

CHAPTER 1: REQUIREMENT FOR AUDITED ACCOUNTS

728.     This Chapter restates the existing requirement for companies to produce audited accounts, currently in section 235(1) of the 1985 Act; and the existing exemptions, currently in sections 249A to 249E of that Act. Much of the law in this area reflects EU Company Law Directives, including parts of the Fourth (78/660/EEC), Seventh (83/349/EEC) and Eighth (84/253/EEC).

729.     The only change from the existing law in this Chapter is to make it possible for the UK Comptroller and Auditor General (or the public sector auditors associated with devolved administrations) to carry out public sector audits of the accounts of certain non-departmental public bodies that are registered companies.

Clause 452: Requirement for audited accounts

730.     This clause restates the requirement for each company to have its annual accounts audited, unless it takes advantage of one of the exemptions in subsequent clauses. Directors must state in the balance sheet if they are taking advantage of an exemption. Unless the company is subject to a public sector audit, the statement must say that the members have not required an audit, and that the directors take responsibility for producing compliant accounts.

Clause 453: Right of members to require audit

731.     This clause restates the right of shareholders to require an audit, even if the company qualifies for one of the audit exemptions.

Clauses 454 to 456: Exemption from audit: small companies

732.     These clauses restate the exemption from audit for small companies. A company must not only meet the general small company criteria in clause 355, but its turnover and balance sheet totals must fall below £5.6 million and £2.8 million respectively. A company that is a charity can qualify for the exemption only if it is very small, with a gross income for the year no higher than £90,000.

733.     Clause 455(1) excludes from the exemption various categories of company including public companies and some financial services companies. Clause 456 sets out the conditions for a company in a group qualifying for a small company exemption.

Clauses 457 and 458: Exemption from audit: dormant companies

734.     These two clauses restate the exemption from audit available to dormant companies. "Dormant" is defined in clause 763. Certain financial services companies are excluded from using the exemption even if they are dormant.

Clauses 459 to 467: Exemption from audit: certain charities

735.     These clauses restate the option for certain charities of choosing to have an accountant's report and so being exempt from needing a statutory audit. This is available to a charity that is a small company, but whose turnover is higher than £90,000 so that it is not eligible for complete exemption under clause 454.

736.     Clause 460(1) excludes from this exemption various categories of charity including those that are public companies and some financial services companies. Clause 461 sets out the conditions for a charity company in a group qualifying for the option of an accountant's report.

737.     Clause 462(2) requires an accountant's report to state whether the accounts agree with the company's accounting records, and whether they have been drawn up in accordance with applicable parts of the Companies Acts. Subsection (3) provides a power for the Secretary of State to specify which provisions are applicable. Subsection (4) requires the accountant to state in his report that the company is entitled to make use of this exemption.

738.     Clause 463 defines who can act as a reporting accountant for charities who use this exemption. They must be members of one of the nine qualifying bodies listed in subsection (5), or otherwise subject to the rules of one of those bodies.

739.     Clause 464 provides for continuity when a reporting accountant is a partnership that is not a legal person, e.g. an English partnership. It makes provision corresponding to that made by clause 813 in relation to appointment as auditor.

740.     Clause 465 prevents an accountant from acting as reporting accountant to a company if he or an associate of his is too closely connected to the company or to an undertaking associated with the company. It defines some of the relationships that are disallowed, and confers on the Secretary of State a power to define further disallowed connections. This corresponds to the provision made by clause 811 in relation to auditors.

741.     Clause 465(3) defines "associated undertaking" for this purpose, and clause 466 defines "associate".

742.     Clause 467 gives the reporting accountant the same rights to obtain information from the company as are given to an auditor by clauses 487 to 489.