Companies Act 2006 – CHAPTER 2

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Sections 386 to 389: Accounting records

639. These sections set out the general duty to keep accounting records and specify where
and for how long records are to be kept. They replace equivalent provisions in sections 221
and 222 of the 1985 Act. Their purpose is to ensure that businesses record transactions to
enable them to show the company’s financial position and to prepare accounts which comply
with the Companies Act and, where relevant, with International Accounting Standards.
“Accounting records” is a broad term and there is no specific definition as the records may
differ depending on the nature and complexity of the business. For a simple business these
may include, for example, bank statements, purchase orders, sales and purchase invoices,
whilst a more sophisticated business may have integrated records, which it holds

640. Section 387 creates a criminal offence for every officer of a company who is in
default, where the company has failed to keep adequate accounting records under section
386. The section replicates the existing penalties under section 221(5) and (6) of the 1985 Act
(imprisonment or a fine).

641. Section 389 makes similar provision in relation to failure to comply with section 388,
replacing section 222(4) and (6) of the 1985 Act.


Section 390: A company’s financial year

642. This section replaces section 223 of the 1985 Act. A company’s financial year is the
period for which its accounts and reports must be prepared. A company’s financial year is the
same as its accounting reference period (see section 391), subject to the directors’ decision to
alter the last day of the period by plus or minus seven days.

Section 391: Accounting reference periods and accounting reference date

Section 392: Alteration of accounting reference date

643. These sections replace sections 224 and 225 of the 1985 Act.

644. Section 391(2) and (3) preserve the accounting reference dates of companies
incorporated before 1st April 1996 (in the case of GB companies), and before 22nd August
1997 (in the case of Northern Irish companies). Otherwise, a company’s accounting reference
date is the last day of the month in which the anniversary of its incorporation falls. Its first
accounting reference period is a period of more than six months but not more than eighteen
months beginning with the date of incorporation and ending with the accounting reference
date unless the company changes its accounting reference date (the date on which the
accounting reference period ends), in accordance with section 392. Subsequent accounting
reference periods (financial years) are successive periods of 12 months, again subject to any
alteration of the accounting reference date.

645. Section 392(4) provides that a company cannot change its accounting reference date if
the period allowed for delivering accounts and reports to the registrar for that period has
already expired. Under the corresponding provision in the 1985 Act, the company cannot
change the date “if the period allowed for laying and delivering accounts and reports in
relation to that period has already expired." Under the Act only public companies are obliged
to lay their accounts at a general meeting (section 437).


Section 393: Accounts to give true and fair view

646. Subsection (1) introduces an overarching obligation on directors (the preparers of
accounts) not to approve accounts unless they give a true and fair view of the financial
position of the company and, in the case of group accounts, the group. This provision reflects
the underlying legal duty already expressed in Community law.

647. Subsection (2) in addition places a requirement on auditors to take this overarching
duty to give a true and fair view into consideration when giving an opinion on the accounts.
This requirement supplements the functions of an auditor set out in section 485.

Individual accounts

648. Sections 394 to 397, which replace sections 226, 226A and 226B of the 1985 Act,
concern the duty of the directors to prepare individual accounts. The individual accounts may
either be prepared under the Act (Companies Act individual accounts) or (unless the
company is a charity) in accordance with international accounting standards adopted under
the IAS Regulation (IAS individual accounts). The terms “IAS Regulation” and
“international accounting standards” are defined in section 474. Once a company has
switched to IAS individual accounts all subsequent individual accounts must be prepared in
accordance with IAS unless there is a relevant change of circumstance (see section 395(3) to
(5)). The provisions concerning the form and content of Companies Act accounts to be found
in the Schedules to Part 7 of the 1985 Act will in future be contained in regulations to be
made by the Secretary of State (section 396(3)). The Parliamentary procedure for such
regulations is set out in section 473.

Group accounts: small companies

Section 398: Option to prepare group accounts

649. This section provides that a company that is subject to the small companies regime
and is a parent company is not obliged to prepare group accounts in addition to its individual
accounts, (restating section 248 of the 1985 Act), but it may opt to do so. The current
exemption in section 248 of the 1985 Act from preparation of group accounts by parent
companies heading medium sized groups has been abolished, following the substantial
increase in the financial thresholds for medium sized groups in 2004.

Group accounts: other companies

Sections 399 to 402: group accounts: other companies

650. The sections relating to group accounts have been reorganised to make them easier to

651. Sections 399 to 402 re-enact sections 227(1) and (8), 228, 228A and 229(5) of the
1985 Act. Section 399 concerns the requirements and exemptions from requirements in
relation to group accounts. Parent companies not subject to the small companies regime have
the duty to prepare consolidated accounts unless exempt from having to do so under sections
400 to 402. Section 400 provides an exemption from preparing group accounts for companies
included in EEA group accounts of a larger group. Section 401 provides such an exemption
for companies included in non-EEA group accounts of a larger group, and section 402
provides an exemption when all the company’s subsidiary undertakings could be excluded
from consolidation in Companies Act group accounts (see section 405).

Group accounts: general

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