Company law in the United Kingdom requires that directors of companies established in the UK draw up annual accounts for the company. Their objective is to give a true picture of the financial health of the company with each exercise.
IAS Accounts or Companies Act Accounts
Such accounts are either IAS Accounts or Companies Act Accounts.
- Company Law Accounts, prepared in accordance with Company Law Accounting and Disclosure Requirements and Financial Reporting Standards (FRS) issued by the Financial Reporting Council (FRC) ("UK and Irish GAAP")
- IAS accounts, prepared in accordance with international financial reporting standards published by the International Accounting Standards Board (IASB), as adopted by the European Union.
The IAS Regulation (Regulation (EC) No 1606/2002) requires that the consolidated financial statements of companies holding debt or equity securities listed on an EU regulated market, such as the main market of the London Stock Exchange for example, be carried out in accordance with IFRS standards adopted by the EU. For the other financial statements, companies can choose, subject to certain exceptions, to establish “accounts according to company law” or “IAS accounts”, as specified in articles 395 and 403 of the law on companies from 2006,
Companies that have the obligation to establish “IAS accounts” or that wish to opt for this format are only required to apply certain sections of the 2006 Company Law. This is the part concerning financial information. They are only required to comply with certain appendices to the regulations described in the law. The “IAS accounts” are prepared in accordance with IFRS standards adopted by the EU.
Companies Act accounts
The detailed accounting requirements are mainly contained in two separate regulatory texts dating from 2008. One concerns small businesses and the other large and medium-sized businesses.
In the classification of small businesses, there is a subset called micro-entity, which relates to very small businesses.
To determine the size of your business, there are thresholds for turnover, balance sheet total (i.e. total fixed and current assets) and the average number of employees.
A small business can prepare and submit accounts in accordance with the special provisions of the Companies Act 2006 and relevant regulations. This means that they can choose to disclose less information than medium and large companies.
Generally, small business accounts include:
- a profit and loss account
- a balance sheet, signed by an administrator on behalf of the board and the printed name of this administrator
- notes to accounts
- group accounts (if a small parent company chooses to prepare them)
And they must be accompanied by:
- a directors' report indicating the signature of a secretary or a director
- an auditor's report which includes the printed name of the registered auditor (unless the company is not required to be audited)
The 2013 Accounting Directive
The 2013 Accounting Directive was completed in 2013 during the Irish EU Presidency. The company law applied in the UK dates from 2006.
To adapt its legislation to the 2013 accounting directive, the British government has published:
- S.I. No. 3008 of 2013 - Regulation of 2013 on small businesses (micro-entity accounts); and
- S.I. No. 980 of 2015 - Regulations of 2015 on companies, partnerships and groups (accounts and reports).
In response to these legal changes, the FRC released FRS 105 (for micro-entities) and modifications from FRS 100 to 102.
The main changes brought about by the 2013 Accounting Directive are the maximum harmonization of small businesses which results in a restriction of the information that a Member State can require of small businesses in their financial statements, an option for Member States to increase the qualification threshold for small businesses and the possibility of applying exemptions to micro-businesses.