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Public Companies Update January 2005
4 INTERNATIONAL ACCOUNTING STANDARDS
The Companies Act 1985 (1985 Act) has been amended to permit
companies to choose to use international accounting standards
(IAS) (also often referred to as IFRS or International Financial
Reporting Standards) rather than domestic accounting standards.
An EC Regulation on the application of international accounting
standards known as the "IAS Regulation", came into
force in September 2002. The IAS Regulation requires that,
for each financial year starting on or after 1 January 2005,
listed companies governed by the law of an EU member state
must, save for certain exceptions, prepare their consolidated
financial statements in accordance with IAS.
The changes to the 1985 Act implement the requirements of
the IAS Regulation and permit, subject to certain restrictions,
IAS to be used by all companies. Once a company has prepared
its accounts (whether company and/or group) under IAS it must
prepare all subsequent accounts in accordance with IAS, unless
there is a relevant change of circumstance, namely:
| (i) |
the company becomes a subsidiary undertaking
of another undertaking which does not prepare IAS accounts; |
| (ii) |
the company ceases to have its shares traded
on a regulated market; or |
| (iii) |
the company's parent undertaking ceases
to have its shares traded on a regulated market. |
Where a parent company prepares group accounts, the 1985
Act requires, with some exceptions, that the parent's directors
ensure that the individual accounts of all UK group members
are prepared on the same basis except "to the extent
that, in the directors' opinion, there are good reasons for
not doing so".
Companies that have adopted IAS will no longer apply UK accounting
standards, or the accounting parts of UK law. However, certain
requirements of the 1985 Act (such as Schedules 7 and 7A)
will still apply, as will the disclosure required in notes
to accounts regarding staff numbers (section 231A, 1985 Act).
The 1985 Act is also modified to accommodate IAS treatments,
so that UK GAAP itself can align with IAS.
The current higher-parent-based exemption from the preparation
of group accounts from EEA parent companies is extended to
non-EEA parent companies (section 228A, 1985 Act). The exemption
is, however, subject to a number of specified conditions.
In addition, the automatic three-month filing extension in
section 244(3) of the 1985 Act available to companies with
business or interests outside the UK has been removed. However,
if "special reasons" exist, companies will still
be able to apply for an extension at the discretion of Companies
House (section 244(5), 1985 Act).
The changes take effect for accounting periods beginning on
or after 1 January 2005.
If you require further information on any matter covered
in this note, please contact your principal contact at Charles
Russell or Simon
Gilbert, Katy
Knight, Clive
Hopewell or Alexander
Keepin (London), Francis
Rundall or Richard
Norton (Cheltenham) or Catherine
Drew or Geoff
Sparks (Guildford) on 0207 203 5000.
To download these articles in pdf format, please click
here
Please note that the summaries above are
a general indicative guide only. They are not exhaustive.
This information has been prepared by the firm as a service
to our clients. As it is a general guide, we recommend that
you seek professional advice before taking action. No liability
can be accepted by the firm for any action taken or not taken
as a result of this information. The firm is not authorised
under the Financial Services and Markets Act 2000 but we are
able in certain circumstances to offer a limited range of
investment services to clients because we are members of the
Law Society. We can provide these investment services if they
are an incidental part of the professional services we have
been engaged to provide.
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