ICAEW.com works better with JavaScript enabled.

Company law and corporate governance - what's new and what's due

Despite a relatively quiet year for major company law developments, there may be changes on the horizon. Kathryn Cearns and Isobel Hoyle detail the developments that have occurred, some issues that have arisen, and what’s in the pipeline (including some governance issues mainly affecting listed companies).

After the huge overhaul of company law by the Companies Act 2006, there have been relatively few major developments over the past year. There are, however, a number of areas being reviewed at present which may lead to changes in the future.

Preparation of accounts – true and fair view guidance

The Financial Reporting Council (FRC) has produced guidance1 on the true and fair view requirement which applies to UK company accounts and confirms that the requirement for accounts to be true and fair remains fundamental under both UK Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) (see Section 393 of the 2006 Act). The guidance aims to help those involved in the preparation of company accounts, and in their audit, to apply the true and fair requirement in practice. The guidance notes the opinion received from Martin Moore QC in 2008, which confirmed that the ‘fair presentation’ standard under IFRS is equivalent to a true and fair view.

The guidance also provides that:

  • material transactions must be accounted for in accordance with their substance, not just strictly in accordance with their legal form, to ensure the accounts give a true and fair view;
  • if a company needs to depart from an accounting standard in order for the accounts to give a true and fair view, provided that the board has acted reasonably and a proper explanation of the departure and its effects is given, the Financial Reporting Review Panel (FRRP) would be reluctant to substitute its own judgement for that of the board; and
  • the FRC expects all those involved in the preparation of the accounts, those charged with governance and the auditors to stand back and ensure that the accounts, taken as a whole, do provide a true and fair view.

Accounting records – guidance for directors

The ICAEW has issued a new technical release ‘Guidance for directors on accounting records under the Companies Act 2006 (01/11)’2. Companies have an obligation to keep adequate accounting records under section 386 of the 2006 Act and failure to do so is an offence. The new guidance gives practical advice on how these requirements can be met, including:

  • accounting records should comprise an orderly, classified collection of information capable of timely retrieval, which contains details of the transactions, assets and liabilities of the company;
  • directors can arrange the company’s accounting records in whatever manner they think fit, provided that the information is adequate for future reference. Where records are kept in electronic form, they must be capable of being reproduced in hard copy; and
  • the information kept in the accounting records should be such that would allow the directors to prepare a reasonably accurate statement of the company’s financial position at any time.

This is an extract from the Finance & Management Magazine, Issue 192, October 2011.

Find out more

Members

Full article only available to Finance and Management faculty members.

Non-members

To read the complete article, join the Finance and Management faculty and get access to this article in full, plus all future publications, events and services as well as our comprehensive archive of material.