Accounts and returns
Chapter 17
Accounts and returns
Chapter Contents
17.4 Publication of accounts and reports
17.5 Failure to file accounts and reports
Part 15 of the 2006 Act deals with accounts and reports. Section 380 provides that this part of the Act applies to accounts and reports in relation to each financial year of a company.
Section 386 provides that every company must keep adequate accounting records. This means accounting records that are sufficient:
(a) to show and explain the company’s transactions;
(b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time; and
(c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of the Act (and, where applicable, of Article 4 of the International Accounting Standards (IAS) Regulation).
Quoted companies are required under European law to draw up accounts in compliance with IAS regulation (see section 1.4.3).
The accounting records must contain entries from day to day of sums received and expended, and a record of the assets and liabilities of the company.
If the company’s business involves dealing in goods, the accounting records must contain statements of stock held by the company at the end of each financial year, statements of stock takings and, excepting goods sold by way of ordinary retail trade, statements of goods sold and purchased.
If a company fails to comply with the provisions of s 386 then every officer of the company in default is liable.
Section 388 provides that accounting records must be kept at the company’s registered office or such other place as the directors may think fit, and must, at all times, be open to inspection by the company’s officers. In the case of a private company, they must be kept for three years, and in the case of a public company, for six years from the date on which they were made.
Section 389 provides that failure to comply with maintenance of the records for these periods results in liability on every officer of the company in default.
Section 381 relates to companies that are subject to the small companies regime. Companies that are subject to the small companies regime are sometimes treated differently, e.g. they are not subject to s 399 (duty to prepare group accounts), and are, subject to s 477, exempt from audit. The small companies regime for accounts and reports applies to companies for the financial year in relation to which the company:
(a) qualifies as small (ss 382–383); and
(b) is not excluded from the regime (s 384).
A small company qualifies as small in its first financial year if it fulfils the following qualifications.
It must fulfil two or more of the following requirements:
Turnover of not more than £5.6m.
Balance sheet total not more than £2.8m.
Number of employees not more than 50 (s 382).
Section 383 provides further that a parent company qualifies as a small company in relation to a financial year only if the group headed by it qualifies as a small group.
In subsequent years a company qualifies as small in relation to a subsequent financial year:
(a) if the qualifying conditions are met in that year and the preceding year;
(b) if the qualifying conditions are met in that year and the company qualified as small in relation to the preceding financial year; or
(c) if the qualifying conditions were met in the preceding financial year and the company qualified as small in relation to that year.
A group qualifies as a small group in relation to the parent company’s first financial year if the qualifying conditions are met in that year. These are that the group must satisfy two or more of the following requirements:
Aggregate turnover of not more than £5.6m net or £6.72m gross.
Aggregate balance sheet of not more than £2.8m net or £3.36m gross.
Aggregate number of employees not more than 50.
Net means after any set-offs and other adjustments made to eliminate group transactions; gross means without those set-offs and other adjustments.
A group qualifies as small in relation to a subsequent financial year of the parent company:
(a) if the qualifying conditions are met in that year and the preceding financial year;
(b) if the qualifying conditions are met in that year and the group qualified as small in relation to the preceding financial year; or
(c) if the qualifying conditions were met in the preceding financial year and the group qualified as small in relation to that year.
Section 384 provides that certain companies are excluded from the small companies regime. The small companies regime does not apply to a company that is, or was, at any time within the financial year to which the accounts relate:
(a) a public company;
(b) a company that:
| (i) | is an authorised insurance company, a banking company, an e-money issuer, an ISD (Investment Services Directive) investment firm or a UCITS (Undertakings for Collective Investments in Transferable Securities) management company, or |
| (ii) | carries on insurance market activity, or |
(c) is a member of an ineligible group.
A group in ineligible if any of its members is:
(a) a public company;
(b) a body corporate (other than a company) whose shares are admitted to trading on a regulated market in an EEA state;
(c) a person who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity;
(d) a small company that is an authorised insurance company, a banking company, an e-money issuer, an ISD (Investment Services Directive) investment firm or a UCITS management company; or
(e) a person who carries on insurance market activity.
Section 465 provides that a company qualifies as medium sized in relation to its first financial year if the qualifying conditions set out in s 465(3) are met (see below).
Section 465(3) provides that the qualifying conditions that must be satisfied by a company are two or more of the following requirements:
Turnover not more than £22.8m.
Balance sheet total not more than £11.4m.
Number of employees not more than 250.
It qualifies as a medium-sized company in relation to a subsequent financial year:
(a) if the qualifying conditions are met in that year and the preceding financial year;
(b) if the qualifying conditions are met in that year and the company qualified as medium sized in relation to the preceding financial year; or
(c) if the qualifying conditions were met in the preceding financial year and the company qualified as medium sized in relation to that year.
Section 466 defines the companies that qualify as medium-sized companies where they are parent companies.
Section 466(1) provides that a parent company qualifies as a medium-sized company in relation to a financial year only if the group headed by it qualifies as a medium-sized group.
A group qualifies as medium sized in relation to the parent company’s first financial year if the qualifying conditions are met in that year. The group qualifies as medium sized in relation to a subsequent financial year of the parent company:
(a) if the qualifying conditions are met in that year and the preceding financial year;
(b) if the qualifying conditions are met in that year and the group qualified as medium sized in relation to the preceding financial year; or
(c) if the qualifying conditions were met in the preceding financial year and the group qualified as medium sized in relation to that year.
The qualifying conditions, which must be satisfied as to at least two of the three, are as follows:
Aggregate turnover not more than £22.8m net (or £27.36m gross).
Aggregate balance sheet not more than £11.4m net (or £13.68m gross).
Aggregate number of employees not more than 250.
Section 467 deals with certain companies that are excluded from being treated as medium sized.
A company is not entitled to take advantage of the provisions of this part of the Act if it is:
(a) a public company;
(b) a company that:
| (i) | has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity, or |
| (ii) | carries on insurance market activity; or |
(c) a member of an ineligible group.
A group is ineligible if any of its members is:
(a) a public company;
(b) a body corporate other than a company whose shares are admitted to trading on a regulated market;
(c) a person other than a small company who has permission under Part 4 of the Financial Services and Markets Act 2000 to carry on a regulated activity;
(d) a small company that is an authorised insurance company, a banking company, an e-money issuer, an ISD investment firm or a UCITS management company (see section 17.1.2); or
(e) a person who carries on insurance market activity.
Medium-sized companies enjoy certain exceptions in relation to filing obligations (s 445 CA 2006).
17.1.4 Quoted and unquoted companies
Quoted and unquoted companies are defined in s 385.
For the purposes of Part 15 of the Act, a company is a quoted company in relation to a financial year if it is a quoted company immediately before the end of the accounting reference period by reference to which that financial year was determined.
A quoted company means a company whose equity share capital:
(a) has been included in the official list in accordance with the provisions of Part 6 of the Financial Services and Markets Act 2000;
(b) is officially listed in an EEA state; or
(c) is admitted to dealing on either the New York Stock Exchange or the exchange known as NASDAQ.
An unquoted company is a company that is not quoted (s 385(3) CA 2006). Quoted companies are sometimes subject to additional rules, e.g. s 420 (duty to prepare directors’ remuneration report), s 428 (form and contents of summary financial statement: quoted companies).
17.1.5 A company’s financial year
Section 390 deals with a company’s financial year. A company’s first financial year begins with the first day of its first accounting reference period and ends with the last day of that period, or a date not more than seven days before or after it, as the directors may determine.
Subsequent financial years begin with the day immediately following the end of the previous financial year, and end with the last day of the next accounting reference period or such other date not more than seven days before or after the end of that period, as the directors may determine.
The company’s accounting reference period is determined according to its accounting reference date in each calendar year (s 391).
(a) the company’s current accounting reference period and subsequent periods; or
(b) the company’s previous accounting reference period and subsequent periods.
The notice must state whether the current or previous accounting reference period is to be shortened or extended, and a notice extending a company’s current or previous accounting reference period is not effective if given less than five years after the end of an earlier accounting reference period of the company that was extended under this section.