Companies Act 2006 – Section 403
Section 403: Group accounts: applicable accounting framework
652. This section replaces section 227(2) to (7) of the 1985 Act. Parent companies whose
securities are publicly traded must prepare group accounts in accordance with the IAS
Regulation. Other parent companies (with the exception of charitable companies) have the
choice whether to prepare group accounts under the Companies Act (Companies Act group
accounts) or in accordance with adopted international accounting standards (IAS group
accounts). Once a company has switched to IAS group accounts all subsequent group
accounts must be prepared in accordance with IAS unless there is a relevant change of
circumstance (see subsections (4) to (6)).
Section 404: Companies Act group accounts
653. For companies preparing Companies Act group accounts, this section gives the
Secretary of State power to make provision by regulations as to the form and content of the
consolidated balance sheet and consolidated profit and loss account and additional
information to be provided by way of notes to the accounts. The regulations will replace the
current requirements contained in Schedule 4A to the 1985 Act. These regulations are subject
to the Parliamentary procedure in section 473.
Section 405: Companies Act group accounts: subsidiary undertakings included in the consolidation
654. This section replaces section 229 of the 1985 Act. It requires all subsidiary
undertakings to be included in the consolidated accounts subject to certain permitted
Section 406: IAS group accounts
655. This section re-enacts section 227B of the 1985 Act. A company may opt or may be
required to prepare group accounts in accordance with international accounting standards.
This section provides that where it does so, this must be stated in the notes to the accounts.
Section 407: Consistency of financial reporting within group
656. This section re-enacts section 227C of the 1985 Act. If the parent company prepares
both consolidated and individual accounts under IAS, it is not required to ensure that all its
subsidiary undertakings also use IAS. However, it must otherwise ensure that its individual
accounts and those of all its subsidiary undertakings use the same financial reporting
framework, unless there are good reasons for not doing so.
Section 408: Individual profit and loss account where group accounts prepared
657. This section replaces section 230 of the 1985 Act. A parent company that prepares
group accounts and that meets the criteria in subsection (1)(a) and (b) may, subject to the
profit and loss account being approved by the directors, dispense with the inclusion of a profit
and loss account in the company’s accounts, for example when delivered to the registrar. The
profit and loss account may also omit the information on employee numbers and costs
required by section 411. The exemption currently provided for in section 230(2) of the 1985
Act for certain information required by provisions of Schedule 4 to the 1985 Act, will be
provided for in regulations under section 396.
Information to be given in notes to the accounts
Section 409: Information about related undertakings
658. This section replaces section 231(1) to (4) of the 1985 Act. The requirement to
disclose information about related undertakings in the notes to a company’s annual accounts
applies whether or not the company has to produce group accounts but there are different
disclosure requirements in each case. This section gives the Secretary of State a new power to
make regulations requiring information about related undertakings to be given in notes to a
company’s annual accounts. These regulations are subject to the Parliamentary procedure in
section 473. The regulations will replace the provisions of Schedule 5 to the 1985 Act.
659. Subsection (3) enables regulations under the section to make provision corresponding
to section 231(3) of the 1985 Act authorising the omission from the notes to the accounts of
information in respect of undertakings established outside the UK, or carrying on business
outside the UK where the directors consider that disclosure would be seriously prejudicial to
the business of that undertaking, or to the business of the company or any of its subsidiary
undertakings. The Secretary of State must agree to the omission. This exemption is sought by
a very small number of companies each year.
Section 410: Information about related undertakings: alternative compliance
660. This section replaces section 231(5) to (7) of the 1985 Act. Where there are numerous
related undertakings and the directors believe that full disclosure would result in information
of excessive length in the notes to the accounts, they may give more limited information. As a
minimum this must include information in subsection (2)(a) and (b). Subsection (3) provides
that the full information on the related undertakings must be submitted with the next annual
Section 411: Information about employee numbers and costs
661. This section replaces section 231A of the 1985 Act concerning particulars of staff.
Section 231A was inserted by the 1985 Act (International Accounting Standards and Other
Accounting Amendments) Regulations 2004 (S.I. 2004/2947) re-enacting provisions
previously in the Schedules to Part 7 of the 1985 Act so that they continued to apply both to
companies preparing Companies Act accounts and to those preparing IAS accounts.
Section 412: Information about directors’ benefits: remuneration
662. This section, together with section 413, replaces section 232 of the 1985 Act. Section
232 of the 1985 Act, with Schedules 6 and 7A, provides for disclosure of specified
information on directors’ remuneration in notes to a company’s annual accounts. Section 412
of the 2006 Act instead gives the Secretary of State a new power to make provision by
regulations requiring information about directors’ remuneration to be given in notes to a
company’s annual accounts. Regulations under this section are subject to the Parliamentary
procedure in section 473
Section 413: Information about directors’ benefits: advances, credit and guarantees
663. This section replaces section 232 of the 1985 Act as regards the disclosure of
advances, credit and guarantees. Under section 232 of the 1985 Act, information on the
following areas must be given in notes to a company’s annual accounts:
• details of loans, quasi-loans, credit transactions and related guarantees and security
between a company and its directors or persons connected with its directors;
• details of any other transactions or arrangements in which a director, indirectly or
directly, has a material interest.
This can be seen as an extension of the internal disclosure of directors’ interests required by
section 317 of the 1985 Act.
664. Section 413 sets out the new disclosure requirements in respect of (a) advances and
credits granted by the company to its directors, and (b) guarantees of any kind entered into by
the company on behalf of its directors. The wording of section 413 is much closer to that of
articles 43(1)(13) and 34(13) of the Fourth (78/660/EEC) and Seventh (83/349/EEC)
Company Law Directives.
665. The powers under section 396(3)(b) (Companies Act individual accounts) and section
404(3)(b) (Companies Act group accounts) will be used to require the disclosure of
information about certain related party transactions in the notes to Companies Act accounts.
Companies will no longer be required to disclose transactions made between the company
and officers other than directors.
666. Under section 413(8) banks and the holding companies of credit institutions need only
state (a) the amount of an advance or credit, and (b) in relation to a guarantee, the amount of
the maximum liability that may be incurred by the company (or its subsidiary). In the light of
the simplified disclosure regime for advances, credit and guarantees, sections 343 and 344 of
the 1985 Act, which make special provision for financial institutions, are repealed.