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Draft instrument not yet final - July 2007

    Draft Regulations laid before Parliament under sections 473(3) and 1290 of the Companies Act

    2006, for approval by resolution of each House of Parliament.

    DRAFT STATUTORY INSTRUMENTS

    2008 No. 0000

    COMPANIES The Companies Act 2006 (Accounts and Reports) (Amendment)

    Regulations 2008

    Made - - - - 2008

    Coming into force - - 6th April 2008

    The Secretary of State makes the following Regulations in exercise of the powers conferred by

    sections 468, 473(2), 484 and 1292 of the Companies Act 2006(a).

    In accordance with sections 473(3) and 1290 of the Companies Act 2006 a draft of this instrument

    was laid before Parliament and approved by a resolution of each House of Parliament.

    PART 1

    INTRODUCTION Citation and interpretation

    1.(1) These Regulations may be cited as the Companies Act 2006 (Accounts and Reports)

    (Amendment) Regulations 2008.

    (2) In these Regulations “the 2006 Act” means the Companies Act 2006.

    Commencement and application

    2.(1) These Regulations come into force on 6th April 2008.

    (2) They apply in relation to financial years beginning on or after 6th April 2008.

    (3) In determining whether a company or group qualifies as small or medium-sized under

    section 382(2), 383(3), 465(2) or 466(3) of the 2006 Act (qualification in relation to subsequent

    financial year by reference to circumstances in preceding financial years) in relation to a financial

    year ending on or after 6th April 2008, the company or group shall be treated as having qualified

    as small or medium-sized (as the case may be) in any previous financial year in which it would

    have so qualified if amendments to the same effect as those made by these Regulations had been

    in force.

(a) 2006 c.46.

Draft instrument not yet final July 2007

    PART 2

    SMALL AND MEDIUM-SIZED COMPANIES AND GROUPS

    Conditions for company or group to qualify as small

    3.(1) In the table in section 382(3) of the 2006 Act (conditions to be met by company to

    qualify as small)

    (a) in item 1 (turnover) for “Not more than ?5.6 million” substitute “Not more than ?6.5

    million”, and

    (b) in item 2 (balance sheet total) for “Not more than ?2.8 million” substitute “Not more than

    ?3.26 million”.

    (2) In the table in section 383(4) of the 2006 Act (conditions to be met by group for parent

    company to qualify as small)

    (a) in item 1 (aggregate turnover) for “Not more than ?5.6 million net (or ?6.72 million

    gross)” substitute “Not more than ?6.5 million net (or ?7.8 million gross)”, and

    (b) in item 2 (aggregate balance sheet total) for “Not more than ?2.8 million net (or ?3.36

    million gross)” substitute “Not more than ?3.26 million net (or ?3.9 million gross)”. Conditions for company or group to qualify as medium-sized

    4.(1) In the table in section 465(3) of the 2006 Act (conditions to be met by company to

    qualify as medium-sized)

    (a) in item 1 (turnover) for “Not more than ?22.8 million” substitute “Not more than ?25.9

    million”, and

    (b) in item 2 (balance sheet total) for “Not more than ?11.4 million” substitute “Not more

    than ?12.9 million”.

    (2) In the table in section 466(4) of the 2006 Act (conditions to be met by group for parent

    company to qualify as medium-sized)

    (a) in item 1 (aggregate turnover) for “Not more than ?22.8 million net (or ?27.36 million

    gross)” substitute “Not more than ?25.9 million net (or ?31.1 million gross)”, and

    (b) in item 2 (aggregate balance sheet total) for “Not more than ?11.4 million net (or ?13.68

    million gross)” substitute “Not more than ?12.9 million net (or ?15.5 million gross)”. Conditions for small companies exemption from audit

    5.(1) In section 477(2) of the 2006 Act (conditions to be met by company to be exempt from

    audit)

    (a) in paragraph (b) (turnover), for “not more than ?5.6 million” substitute “not more than

    ?6.5 million”, and

    (b) in paragraph (c) (balance sheet total), for “not more than ?2.8 million” substitute “not

    more than ?3.26 million”.

    (2) In section 479(2) of the 2006 Act (conditions to be met by group for group company to be

    exempt from audit)

    (a) in paragraph (b) (aggregate turnover), for “not more than ?5.6 million net (or ?6.72

    million gross)” substitute “not more than ?6.5 million net (or ?7.8 million gross)”, and

    (b) in paragraph (c) (aggregate balance sheet total), for “not more than ?2.8 million net (or

    ?3.36 million gross)” substitute “not more than ?3.26 million net (or ?3.9 million gross)”.

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    Small companies exemption in relation to directors’ report 6.(1) In section 381 of the 2006 Act (companies subject to the small companies regime), omit

    “for accounts and reports”.

    (2) After section 415 of that Act insert

    Directors’ report: small companies exemption

    415A.(1) A company is entitled to small companies exemption in relation to the

    directors’ report for a financial year if—

    (a) it is entitled to prepare accounts for the year in accordance with the small companies

    regime, or

    (b) it would be so entitled but for being or having been a member of an ineligible group.

    (2) The exemption is relevant to

    section 416(3) (contents of report: statement of amount recommended by way of

    dividend),

    section 417 (contents of report: business review), and

    sections 444 to 446 (filing obligations of different descriptions of company).”.

    (3) In section 416(3) of that Act (contents of report: statement of amount recommended by way

    of dividend), for “subject to the small companies regime” substitute “entitled to the small

    companies exemption”.

    (4) In section 417(1) of that Act (contents of report: business review), for “subject to the small

    companies regime” substitute “entitled to the small companies exemption”.

    (5) In section 419(2) (statement to be contained in report) for the words from “If the report” to

    “regime,” substitute “If in preparing the report advantage is taken of the small companies

    exemption,”.

    (6) In section 441(1) of the 2006 Act (duty to file accounts and reports with the registrar), at the

    appropriate place insert

    “section 444A (filing obligations of companies entitled to small companies exemption in

    relation to directors’ report),”.

    (7) After section 444 of that Act insert

    “Filing obligations of companies entitled to small companies exemption in relation to

    directors’ report

    444A.(1) The directors of a company that is entitled to small companies exemption in

    relation to the directors’ report for a financial year—

    (a) must deliver to the registrar a copy of the company’s annual accounts for that year,

    and

    (b) may also deliver to the registrar a copy of the directors’ report.

    (2) The directors must also deliver to the registrar a copy of the auditor’s report on the

    accounts (and any directors’ report) that it delivers.

    This does not apply if the company is exempt from audit and the directors have taken

    advantage of that exception.

    (3) The copies of the balance sheet and directors’ report delivered to the registrar under

    this section must state the name of the person who signed it on behalf of the board.

    (4) The copy of the auditor’s report delivered to the registrar under this section must—

    (a) state the name of the auditor and (where the auditor is a firm) the name of the

    person who signed it as senior statutory auditor, or

    (b) if the conditions in section 506 (circumstances in which names may be omitted)

    are met, state that a resolution has been passed and notified to the Secretary of

    State in accordance with that section.

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    (5) This section does not apply to companies within section 444 (filing obligations of

    company entitled to small companies exemption in relation to directors’ report).”.

    (8) In section 445 of that Act (filing obligations of medium-sized companies), for subsection (7)

    substitute

    “(7) This section does not apply to companies within

    (a) section 444 (filing obligations of companies subject to the small companies

    regime), or

    (b) section 444A (filing obligations of companies entitled to small companies

    exemption in relation to directors’ report).”. (9) In section 446(5) of that Act (filing obligations of unquoted companies: disapplication of

    section in relation to companies subject to other provisions), omit the “or” at the end of paragraph

    (a) and after that paragraph insert

    “(aa) section 444A (filing obligations of companies entitled to small companies

    exemption in relation to directors’ report), or”. (10) In section 498 (duties of auditor) for subsection (5) substitute

    “(5) If the directors of the company—

    (a) have prepared accounts in accordance with the small companies regime, or

    (b) have taken advantage of small companies exemption in preparing the directors’

    report,

    and in the auditor’s opinion they were not entitled to do so, the auditor shall state that fact

    in his report.”.

    (11) In Schedule 8 to that Act (index of defined expressions), in the entry relating to “small

    companies regime” for “, for accounts and reports” substitute “(for accounts)”.

    (12) In that Schedule, at the appropriate place insert

    “small companies exemption (in section 415A”.

    relation to directors’ report)

    Companies entitled to take advantage of provisions applying to medium-sized companies

    7. In section 467 of the 2006 Act (companies excluded from being treated as medium-sized)

    after subsection (3) insert

    (4) This section does not prevent a company from taking advantage of section 417(7)

    (business review: non-financial information) by reason only of its having been a member of

    an ineligible group at any time within the financial year in question..

    PART 3

    OFF-BALANCE SHEET ARRANGEMENTS

    Information about off-balance sheet arrangements

    8. After section 410 of the 2006 Act insert

    Information about off-balance sheet arrangements

    410A.(1) In the case of a company that is not subject to the small companies regime, if

    in any financial year

    (a) the company is or has been party to arrangements that are not reflected in its

    balance sheet, and

    (b) at the balance sheet date the risks or benefits arising from those arrangements are

    material,

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    the information required by this section must be given in notes to the company’s annual

    accounts.

    (2) The information required is

    (a) the nature and business purpose of the arrangements, and

    (b) the financial impact of the arrangements on the company.

    (3) The information need only be given to the extent necessary for enabling the financial

    position of the company to be assessed.

    (4) If the company qualifies as medium-sized in relation to the financial year (see sections

    465 to 467) it need not comply with subsection (2)(b).

    (5) This section applies in relation to group accounts as if the undertakings included in

    the consolidation were a single company..

    PART 4

    MINOR AMENDMENTS

    Individual profit and loss account where group accounts prepared

    9. In 408(2) of the 2006 Act (no obligation for profit and loss account to include information

    about employee numbers and costs where group accounts prepared) for “The profit and loss

    account” substitute “The company’s individual profit and loss account”. Information about employee numbers and costs: group accounts

    10. For section 411(7) of the 2006 Act (information about employee numbers and costs: group

    accounts) substitute

    (7) This section applies in relation to group accounts as if the undertakings included in

    the consolidation were a single company.. Requirement to deliver auditor’s report on accounts and reports 11. In section 444(2) of the 2006 Act (filing obligations of company subject to small companies

    regime: duty to deliver auditor’s report), for “those accounts (and on the directors’ report)”

    substitute “the accounts (and any directors’ report) that it delivers”. Unlimited companies exemption from obligation to file accounts

    12. In section 448(3) of the 2006 Act (unlimited companies exemption from obligation to file

    accounts: companies to which the exemption does not apply)

    (a) for paragraph (b) substitute

    “(b) each of the members of the company is

    (i) a limited company,

    (ii) another unlimited company each of whose members is a limited company,

    or

    (iii) a Scottish partnership each of whose members is a limited company.”;

    (b) after that paragraph insert

    “The references in paragraph (b) to a limited company, another unlimited company or a

    Scottish partnership include a comparable undertaking incorporated in or formed under the

    law of a country or territory outside the United Kingdom.

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     Minister of State for Competitiveness,

    Date Department for Business, Enterprise and Regulatory Reform

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    EXPLANATORY NOTE

    (This note is not part of the Regulations)

    These Regulations implement in part Directive 2006/46 of the European Parliament and the

    Council of 14th June 2006 amending Council Directives 78/660/EEC on the annual accounts of

    certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual

    accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on

    the annual accounts and consolidated accounts of insurance undertakings (OJ L 224 of 16th

    August 2006, pages 1 to 7). The remainder of the Directive is to be implemented in separate

    regulations to be made under Part 15 of the Companies Act 2006 (c.46) (“the 2006 Act”).

    Regulations 3 to 5 implement article 1, paragraphs 1 to 4 of Directive 2006/46. They raise the

    financial thresholds contained in sections 382, 383, 465, 466, 477 and 479 of the 2006 Act which

    determine when a company or group qualifies as small or medium-sized for the purposes of

    certain accounting and reporting exemptions, and for exemption from audit.

    For small companies, the turnover limit is increased from ?5.6 million to ?6.5 million, and the

    balance sheet total from ?2.8 million to ?3.26 million. For small groups, the aggregate turnover

    limit is increased from ?5.6 million net (or ?6.72 million gross) to ?6.5 million net (or ?7.8 million

    gross), and the aggregate balance sheet total from ?2.8 million net (or ?3.36 million gross) to

    ?3.26 million net (or ?3.9 million gross).

    For medium-sized companies, the turnover limit is increased from ?22.8 million to ?25.9 million,

    and the balance sheet total from ?11.4 million to ?12.9 million. For medium-sized groups, the

    aggregate turnover limit is increased from ?22.8 million net (or ?27.36 million gross) to ?25.9

    million net (or ?31.1 million gross), and the aggregate balance sheet total from ?11.4 million net

    (or ?13.68 million gross) to ?12.9 million net (or ?15.5 million gross).

    Regulations 6 and 7 amend various provisions in order to reinstate certain exemptions relating to

    the directors’ report in section 247A(1A) of the Companies Act 1985 (c.6.) for small and medium-

    sized companies that would otherwise not be able to take advantage of them only because they are

    members of ineligible groups.

    Regulation 8 implements articles 1.6 first point and 2.1 first point of Directive 2006/46. It inserts a

    new section 410A into the 2006 Act requiring companies to make certain disclosures about off-

    balance sheet arrangements in the notes to their accounts. Section 410A(4) provides that medium-

    sized companies do not have to disclose the financial impact of off-balance sheet arrangements.

    Regulations 9 to 12 make minor amendments.

    The Regulations come into force on 6th April 2008 and apply to financial years beginning on or

    after that date. Regulation 2(3) makes transitional provision to enable companies to take early

    advantage of the new financial thresholds for small and medium-sized companies.

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