UK: Companies Act (2006) - BERR publishes guidance on accounting and reporting provisions

BERR has published guidance on the accounting and reporting provisions within the Companies Act (2006) and associated Regulations. The guidance summarises changes introduced by the Act and Regulations and explains the relevance of the Act's provisions for companies required (or opting) to prepare accounts using international accounting standards.

The Accounting Standards Board has already referred to the guidance: in a press release published today, the ASB comments on the meaning of "off-balance sheet arrangements" in Section 410A of the 2006 Act. Section 410A was inserted by Section 8 of the Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008 and requires the disclosure of off balance sheet arrangements by companies other than small companies. However, no definition of "off balance sheet arrangement" is provided - hence the ASB's guidance.

UK: ASB publishes FRED 'Improvements to Financial Reporting Standards'

The UK's Accounting Standards Board has published a Financial Reporting Exposure Draft (FRED) titled "Improvements to Financial Reporting Standards". In the accompanying press release, the following explanation is provided:

The amendments proposed in the FRED arise as a consequence of the International Accounting Standards Board’s (IASB) annual improvements process. In May 2008 the IASB issued an International Financial Reporting Standard, ‘Improvements to IFRSs’, which made amendments to a number of International Financial Reporting Standards (IFRS).

The ASB is issuing this FRED which seeks to maintain the existing levels of convergence between UK and International Financial Reporting Standards. The proposals set out in the FRED include the same improvements to UK FRS as those made to IFRS where the UK standard is based on its international equivalent.

In addition to the improvements arising from the IASB’s annual improvements process the ASB has taken this opportunity to propose improvements to UK FRS which have been brought to its attention; to update UK IFRS-based FRS where the equivalent IFRS has been amended or updated; and finally to update UK FRS for editorial changes. The ASB is inviting comments on its proposals by 27 September 2008.

For further information see:
ASB press release | Copy of the FRED | Earlier IASB post

UK: revised edition of FRSSE published by ASB

In this earlier post, changes to the Accounting Standards Board's Financial Reporting Standard for Smaller Entities (FRSSE) were noted. A revised copy of FRSSE has now been published and is available here. The revised FRSSE applies to accounting periods beginning on or after April 6 2008. Early adoption is not permitted.

UK: ASB: FRSSE updated

The UK's Accounting Standards Board (ASB) has updated its Financial Reporting Standard for Smaller Entities (FRSSE). The update is a result of changes introduced by the Companies Act (2006). Amongst the changes are:

(a) A 20% increase in the thresholds for qualifying as a smaller company.
(b) A requirement to report separately political and charitable donations (and an increase in the threshold for such donations to £ 2,000).

The updated FRSSE applies to accounting periods beginning on or after 6 April 2008. The ASB has not yet published the updated version but it intends to do so by the end of May. For further information see here. The current version is available here.

Postscript (12 June 2008): The updated FRSSE has now been published here.

UK: narrative reporting - ASB report and review

The Accounting Standards Board has today published 'Rising to the challenge', which reports on its review of narrative reporting by 50 UK listed companies in 2008 and 2009 (the full results are available here). The focus of the review was with companies' compliance with the business review content requirements in Section 417 of the Companies Act (2006); the communication and presentation of content; and areas that are leading to clutter in narrative reporting. 

The ASB found that, overall, most companies provided good content with regard to: financial performance and position; financial key performance indicators (KPIs); and the articulation of strategy. However, the review found that some companies struggled to meet some requirements, particularly the communication of principal risks and non-financial KPIs. In this regard, the ASB's chairman - Ian Mackintosh - has stated:

When reporting principal risks, 66% of the sample was technically compliant but in our view needed to make improvements to meet the spirit of the requirements. A number of companies resorted to simply providing descriptions of generic risks that could be easily cut-and-pasted into many other FTSE annual reports. Thirty-two percent of the sample did not disclose any non-financial KPIs, despite the [Companies Act 2006] requirement to do so where ‘necessary’ and ‘appropriate’."

UK: the future of UK GAAP - ASB consultation reveals divergent views

In August 2009 the Accounting Standards Board published a consultation paper in which it set out proposals regarding the future of UK Generally Accepted Accounting Practice (GAAP) and its convergence with International Financial Reporting Standards (IFRS). Substantial and wide ranging change was proposed. The responses received have now been published - see here - and these, the ASB notes in an accompanying press release, "demonstrate a divergence of views on many important issues and the ASB will have a challenging task in analysing them and in coming to firm recommendations".

UK: England and Wales: financial reporting and the true and fair view

Last year the Financial Reporting Council published a legal opinion written by Martin Moore QC concerning the status of the 'true and fair' concept in UK financial reporting. In his opinion, Mr Moore QC endorsed the analysis contained in earlier legal opinions written by Lord Hoffmann and Dame Mary Arden and observed that the 'true and fair' concept "...remains at the heart of the preparation of financial statements. It can aptly be described as an overarching concept which should inform all decisions by the preparers of such statements" (para. 46). 

Against this background, the judgment of Mr Justice Andrew Smith in Macquarie Internationale Investments Ltd v Glencore UK Ltd [2009] EWHC 2267 (Comm), handed down yesterday, is interesting and important. The judgment contains discussion of the application of accounting principles, Financial Reporting Standards (FRSs) and the relationship between the 'true and fair' concept and FRSs. This makes the case unusual because such issues are not often considered by the courts.  

The case concerned a claim for damages by Macquarie against Glencore for breach of warranties in a sale and purchase agreement for the acquisition by Macquarie of the shares in Corona Energy Holdings Ltd. The warranties provided that accounts had been prepared in accordance with relevant accounting standards and gave a true and fair view of assets and liabilities. Macquarie claimed that Corona's subsidiaries had incurred charges that were not recognised in the relevant accounts and, had they known about these charges, they would have paid less for the shares. The trial judge found Glencore not in breach of the warranties and, in the course of his judgment, observed: 

[Para. 106] ... in order for an item to be recognised as an asset or a liability there should be sufficient evidence of its existence. No doubt evidence will be sufficient for this purpose if, while not itself demonstrating the existence of the item, it sufficiently indicates it to call for enquiries about the position and reasonable and proportionate enquiries would provide sufficient evidence of its existence. But it does not seem to me that extravagant and disproportionate investigations are demanded, or that there is sufficient evidence of an item if its existence might be established only by investigations which the entity or those preparing its financial statements could not be expected to conduct if exercising reasonable diligence and making sensible enquiries.

[Para. 166] ... Although it might be that the quality of being "true" is directed to the accuracy of statements of fact and the quality of being "fair" reflects that accounts involve matters of assessment and judgment, it would be an arid and unhelpful exercise to decide whether financial statements are (i) true and (ii) fair as if they were separate questions. The sensible and generally accepted approach is to recognise that "true and fair" is a composite phrase, and the requirement that financial statements be "true and fair" is a single, indivisible requirement.

[Paras. 167-169] The concept of a "true and fair view" was considered by Mr. Leonard Hoffmann QC and Ms Mary Arden in a Joint Opinion written for the Accounting Standards Committee (the predecessor of the Accounting Standards Board) and dated 13 September 1983 ... [The] Joint Opinion ... explains why the "true and fair" concept necessarily relates to the expectations that accounting practices generate. It is of some interest that Mr Hoffmann and Ms Arden recognise that the application of the "true and fair" concept involves "judgment in questions of degree" and observe that cost-effectiveness is relevant to deciding what information is required in order to prepare financial statements that give a true and fair view. So too, as I have explained, it seems to me that both judgment and the cost-effectiveness and proportionality of potential investigations are relevant to deciding whether there is sufficient evidence to recognise an item as an asset or a liability. None of this means that financial statements that are prepared in accordance with FRSs necessarily give a true and fair view.

[Para 170] ... I find it difficult to envisage circumstances in which, because an entity has no or no sufficient evidence of a liability and therefore does not provide for it in its financial statements, they would on that account fail to give a true and fair view of the entity's financial position. I have already concluded that the Accounts were prepared in accordance with Relevant Accounting Standards, and I cannot accept that, this being so, the Accounts did not give a true and fair view of the assets and liabilities ...".