Companies Act 2006 - Accounts and audit changes



Author: Giles Murphy

The Companies Act 2006 introduces a number of significant changes affecting the preparation and audit of statutory accounts. The sections relating to accounts and audit have effective dates between April 2008 and October 2009.

The Companies Act 2006 (the Act) received Royal Assent on 8 November 2006, replacing the majority of existing company legislation. The changes resulting from the Act are being implemented on six separate dates, the first of which was in January 2007. All parts of the Act will be in force by October 2009. The sections of the Act that relate to accounts and audit have effective dates between 6 April 2008 and 1 October 2009. To help with the transition process, we have time-tabled and outlined the impact of the changes affecting the preparation and audit of statutory accounts.

From 6 April 2008

Where a company changes auditor before the end of the term of office, the company

must inform the appropriate audit authority (either the Institute of Chartered Accountants in England and Wales or the Professional Oversight Board) of the circumstances or reasons for the change.

For periods beginning on or after 6 April 2008

  • New company and group size limits have been introduced (see figure 1).
  • The audit exemption limits have been increased, but all three criteria must still be met.
  1. The company must qualify as small in relation to that year (see figure 1).
  2. Turnover must not exceed £6.5m.
  3. The balance sheet total must not exceed £3.26m.
  • Filing deadlines have been reduced:
    • from ten to nine months for private companies
    • from seven to six months for public companies.

Figure 1:

 

Small Company / Group

Medium Company / Group

Company / Group (net)

Group (gross)

Company / Group (net)

Group (gross)

Turnover (£m)

6.5

7.8

25.9

31.1

Balance Sheet (£m)

3.26

3.9

12.9

15.5

Number of employees

50

50

250

25

  • New filing options have been introduced for small companies. They may file as little as a balance sheet (and audit report where audited).
  • Small companies preparing accounts under the Financial Reporting Standard for Smaller Entities (FRSSE) must apply the new version of the FRSSE (effective April 2008). Early adoption is not permitted.
  • Medium-sized companies’ abbreviated accounts must disclose turnover.
  • Medium-sized groups must prepare consolidated accounts.
  • References to the Companies Act 1985 in accounts should be updated to refer to the Companies Act 2006.
  • The threshold for disclosure of political and charitable donations made during the year increased from £200 to £2,000.
  • There is a new requirement for medium and large companies to disclose the nature and business purpose of any off balance sheet arrangements that have material risks or benefits at the balance sheet date.
  • The format and wording of audit reports will change.
  • The audit report must be signed in the name of the Senior Statutory Auditor on behalf of the audit firm.
  • Companies may contract with their auditors to enable them to limit their liability in respect of the audit to a fair and reasonable amount. Details of any such auditor liability limitation agreement should be disclosed in the notes to the accounts.
  • Financial assistance for the purchase of own shares is no longer prohibited for private companies. Therefore, the whitewash procedure is no longer required.
  • Private companies do not need to apply to the courts for a reduction in their share capital. This can now be effected by a solvency statement signed by all the directors.
  • Enforcement of increased filing penalties for accounts filed late, on or after 1 February 2009.
  • Introduction of new restrictions on the use of the share premium account.
  • Removal of the requirement for a company to have authorised share capital.

From 1 October 2008

  • Financial assistance for the purchase of own shares is no longer prohibited for private companies. Therefore, the whitewash procedure is no longer required.
  • Private companies do not need to apply to the courts for a reduction in their share capital. This can now be effected by a solvency statement signed by all the directors.

From 1 February 2009

  • Enforcement of increased filing penalties for accounts filed late, on or after 1 February 2009.

From 1 October 2009

  • Introduction of new restrictions on the use of the share premium account.
  • Removal of the requirement for a company to have authorised share capital.

Giles Murphy is a Director and National Head of Assurance and Business Services at Smith & Williamson. Contact him on 020 7131 4369 or email giles.murphy@smith.williamson.co.uk

Disclaimer

We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Limited 2009.

Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Members of Nexia International.

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Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Members of Nexia International.