Corporate Transparency

Statutory registers

Election to keep information on the public register

The information contained n the registers is replicated in the register maintained by CH

As the purpose of keeping the various registers is to allow certain people to inspect them, it could be argued that is pointless and burdensome to require companies to maintain these registers

CA2006 allow private companies to make an election as regards each register as follows

The company can choose to maintain its register

The company can choose to keep the relevant information on the register at CH, in which case it will not need to maintain the relevant register. It will need to inform CH of any changes in the information contained in the relevant register

Annual accounts and reports

The directors must prepare annual accounts and reports for each financial year of the company

Every company must send a copy of its annual accounts and reports for each financial year to every member, every debenture holder and every person who is entitled to receive notice of GM

Quoted companies must also publish the annual accounts and reports on their websites

The annual accounts and reports must be filed with CH

Public companies are required to lay their annual accounts and reports before the GM which usually involves tabling a resolution at the AGM under which the company will receive the reports and accounts

Annual accounts

As companies are required to publish annual accounts, every company is required to keep adequate accounting records

These records must include sufficient details

To show and explain the company's transactions

To disclose with reasonable accuracy the financial position of the company at any time

To enable the directors to ensure that any prepared accounts comply with CA2006 and IAS

A company's annual accounts consist of

Any individual accounts prepared by the company for that year

Any group accounts prepared by the company for that year

Individual company accounts

The directors of a company are under a duty to prepare accounts for that company for each of its financial years

S.396 provides that the individual accounts must state

The part of the UK in which the company is registered

The company's registered number

Whether the company is a public or a private company and whether it is limited by shares or guarantee

The address of the company's registered office

Where appropriate, the fact that the company is being wound up

A balance sheet as of the day of the financial year, which give a true and fair view of the state of affairs of the company as at the end of the financial year

A profit and loss account that provides a fair and true view of the profit or loss of the company for the financial year

Group accounts

A parent company must also prepare group for each financial year

The information contained in the group accounts is largely the same as that found in the individual accounts except that the group accounts need to cover the accounts of the parent and all of its subsidiaries

Some subsidiaries can be excluded such as where the inclusion of a subsidiary is not material for giving a true and fair view

Annual Reports

A company must prepare annual reports for each year

What constitutes a company annual reports will depend on whether the company is quoted or unquoted and whether it is small or not

S.471 provides that a company's annual reports consist of

The strategic report

The directors report

The auditor's report

The directors remuneration report (quoted companies only)

As regards the strategic report, the directors report, the remuneration report and a separate corporate governance statement, a director of a company will be liable to compensate the company for any loss it has suffered as a result of

Any untrue or misleading statement

The omission from a report of anything required to be in it

A director will only be liable if

They knew the statement to be untrue or misleading or were reckless as to whether it was untrue or misleading

They knew the omission to be dishonest concealment of a material fact

Strategic report

The directors of a company must prepare a strategic report for each financial year of the company

Small companies are not subject to this requirement and need not prepare a strategic report

The purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under s.172

The strategic report must contain a s.172 statement which describes how the directors have had regard to the matters set out in s.172(1)(a)-(f) when performing their duty under s.172

A company that qualifies as medium sized need not include a s.172 statement in its strategic report

The strategic report must include

A fair review of the company's business, which provides a balanced and comprehensive analysis of the development and performance of the company's buness during the financial year and the position of the company's business at the end of that year

A description of the principal risks and uncertainties facing the company

If the company is quoted it must also provide the following additional information

Details of the main trends and factors likely to affect the future development, performance and position of the company's business

Information about the environmental matters the company's employees and social, community and human rights issues

A description of a company's strategy and business model

A breakdown showing at the end of each financial year he number of persons of each sex who were directors, senior managers and employees of the company

Traded companies must include a non-financial information statement. Other companies can include this statement if they so wish. S.414CB states that this statement contains information regarding

Environmental matters

The company's employees

Social matters

Respect for human rights

Anti-corruption and anti-bribery matters

Directors report

The directors of a company must prepare a directors report for each financial year that includes the following information

The names of the persons who were at any time during the financial year, directors of the company

The amount that the directors should be paid by way of dividend

A statement providing that

So far as each director is aware, there is no relevant audit information of which the company's auditor is unaware

Each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the company''s auditor is aware of that information

Large and medium sized companies must also include further information including

Details of political donations exceeding £2,000 made by the company

Particulars of important events affecting the company and indication of likely future developments in the company's business

Details regarding the company's acquisition of its own shares

A description of the company's policy regarding the employment of disabled persons

Details of action taken by the company in relation to employee consultation and involvement

A statement summarising how the directors have had regard to the need to foster the business relationships with suppliers, customers and others

If the company is quoted it must also provide details concerning the company's greenhouse gas emissions, notable the quantity in tonnes of such emissions

Certain companies must also provide corporate governance related information in the directors report. A company that has more than 2,000 employees or a turnover of more than £200 million and a balance sheet total of more than £2 billion must include in its directors report, a statement of corporate governance arrangement which states

Which corporate governance code if any the company applied in that financial year

How the company applied the code

If the company did not apply a corporate governance code for the financial year, the reasons for that decision and an explanation of what corporate governance arrangements were applied for that year

If the company departed from the code, its reasons for doing so

A company whose shares are traded on a regulated market must provide a corporate governance statement as part of its directors report although it can provide this statement as a separate report if it so wishes including

The corporate governance code to which the company is subject or which the company has voluntarily decided to apply

If the company has departed from the stated corporate governance code, it must explain which parts it has departed from and the reasons for doing so

A description of the main feature of the company's internal control and risk management systems

A description of the composition and operation of the company's administrative, management and supervisory bodies and their committees and a description of the diversity policy that applies to these bodies and how that policy is implemented

Auditor's report

If the company has appointed an auditor to audit its statutory accounts then the auditor will produce an auditors report

The auditors report must include information specified in 495 - 498

The name of the company whose accounts are being audited

A description of the annual accounts that are the subject of the audit and the period covered by those acocunts

A description of the financial reporting framework that was used to prepare the accounts

A clear statement as to whether, in the auditors opinion the annual accounts

Give a fair and true view of the company's finances

Have been prepared in accordance with the relevant financial reporting framework

Have been prepared in accordance with the requirements of the CA2006

A statement on any material uncertainty relating to events or conditions that may cast significant doubt upon the company's ability to continue to adopt the going concern basis of accounting

A statement setting out whether, in the auditors opinion the information given in the strategic report and the directors report is consistent with the accounts and whether those reports are prepared in accordance with applicable legal requirements

A statement setting out whether the auditor has found any material misstatements in the strategic report and the directors report

If applicable, a statement setting out whether the directors remuneration report and corporate governance statement comply with the CA2006 and the DTRs respectively

If applicable, a statement whether the corporate governance statement complies with the relevant rules of the DTRs and whether a statement contains any material misstatements

A statement setting out whether adequate accounting records have been kept by the company and whether those records are in agreement with the individual accounts

Directors remuneration report

The directors of a quoted company must prepare a directors remuneration report for each financial year

The information that must be provided in the report includes

A single total figure of remuneration for each director

Details of each directors pensions entitlements

Details of payments to past directors including loss of office payments

Details of directors shareholdings and share interests

A performance graph and table providing details of company performance over the last 5 years

The percentage change in remuneration of the CEO

A statement on how the company intends to implement the previous years remuneration policy

Details of how the directors remuneration policy of the company

The auditor

A company's annual accounts will be relied upon by a range of persons who are contemplating transacting with the company

Appointment

An auditor must be appointed for each financial year of the company

S.475 provides that a company's annual accounts must be audited

The company is a small company

The company is a subsidiary

The company is dormant

It is a non-profit making company that is subject to a public sector audit

Eligibility requirements and prohibitions

The company must make sure they are eligible to act as auditor

A person who is not eligible cannot act as company's statutory auditor and will commit a criminal offence

S.1212 provides that a person is eligible to act as auditor if they satisfy the following 2 conditions

The proposed auditor is a member of a recognised supervisory body such as ICAEW or ACCA

The propose auditor is eligible for appointment under the rules of its supervisory body

S.1214 requires that a auditor can be independent. Certain persons are prohibited from acting as a company's auditor

An officer or employee of the company or associated undertaking (parent or subsidiary or a subsidiary of the parent)

A partner of employee of a person within (a) or a partnership to which a person within (a) is a partner

if at any time during their term of office, an auditor becomes prohibited from acting as auditor due to lack of independence, then they must resign immediately and provide notice to the company that they have resigned due to lack of independence

Appointing an auditor of a private company

The directors can appoint the auditor in a private company first financial year providing that the appointment is made within the period for appointing auditors - this is 28 days after the end of time allowed for sending out copies of the annual accounts fort the previous financial year

In subsequent years, the auditor is appointed by passing an ordinary resolution before the end of the period for appointing auditors

If no appointment has been made by the end of the period, then s.487 provides that the auditor in office will be deemed to reappointed unless

They were appointed by the directors

The articles require reappointment by resolution

The deemed reappointment is prevented because members representing at least 5% of the company's voting rights notify the company that they do not want the auditor to be reappointed

The members have resolved that the auditor should not be reappointed

The directors have resolved that no auditor should be appointed for the financial year in question

The company is a public interest entity and the auditors appointment breaches the maximum engagement period

Appointing an auditor of a public company

In its first financial year, the directors appoint the auditor providing that the appointment is made before the first accounts meeting

In subsequent years the auditor is appointed by passing an ordinary resolution before the end of the accounts meeting at which the company's annual accounts and reports have been laid

There is no automatic reappointment process set out in CA2006

Remuneration

An auditor will require remuneration for the work undertaken

Remuneration will be fixed by those who appointed he auditor

Auditor remuneration has been a concern

An auditors independence may be compromised where the auditor is overly reliant on the fee income that a particular audit generate

A companys auditor may also provide the company with other services, an auditor will likely be keen to conditue providing such non audit services and this desire may affect the auditors independenence

UKCG provides that the audit committee should develop and implement a policy on the engagement of the external auditor to provide non audit services. Aspects of audit engagement the policy may tackle include

Ensuring there is prior approval of non-audit services

Considering the impact this may have on independence

Reporting to the board on any improvement or action required

Taking into account the relevant regulations and ethical guidance

Duties and rights

The principal duty placed upon an auditor states tat a company's auditor in preparing the auditors report must carry out such investigations as will enable them to form an opinion as to

Whether adequate accounting records have been kept by the company and returns adequate for their audit have been received from branches not visited by the auditor

Whether the company's individual accounts are in agreement with the accounting records and returns

In the case of a quoted company, whether the auditable part of the company's directors remuneration report is in agreement with the accounting records and returns

To enable the auditor to undertake these investigations, the CA2006 grants the auditor significant powers including

A right of access at all times to the company's books, accounts and vouchers

The right to require specified person to provide such informations and explanations as the auditor thinks necessary for the perofrmance of their duties

The auditor must state in the auditors report if they are of the opinion that

Adequate accounting records have not been kept

The company's individual accounts are not in agreement with the accounting records and returns

The directors remuneration report is not in agreement with the accounting records or returns

Auditor liability

An auditor owes a duty to the company in contract

An auditor might try to avoid civil liability by placing an exclusion or limitation clause in the audit contract. An auditors ability to do this is extremely limited. S.532 provides that a provision in the contract will be void if it

Exempts an auditor from any liability that would attach to them in connection with any ngeligence, default, breach of duty or breach of trust occurring in the course of auditing a company's accounts

By which an indemnity for an auditor against any liability attaching to them in connection with any negligence, default, breach of duty or breach of trust occurring in the course of auditing a company's accounts

2 exceptions

A company can indemnify an auditor against any liability incurred by them in defending proceedings in which the auditor is acquitted or judgement given in its favour

Auditors can limit their liability by entering into a liability limitation agreement with the company which is an agreement that purports to limit the amount of a liability owed to a company by its auditor in respect of nay negligence, default, breach of duty or breach of trust

Contractual liability

Where a contract exists between the company and the auditor, the the company may sue the auditor if they breach a term of that contract

If the auditor does not perform their duties with reasonable skill and share then the company can also sue for breach of the implied duty placed upon an auditor to act with reasonable skill and care

Tortious liability

A company can sue an auditor in tort if the auditor makes a statement they know to be false or the auditor provides a negligence audit

One issue that has generated a notable of case law is whether third parties who have suffered loss due to a negligent audit can sue the auditor

The courts have imposed strict limitations on a third par's ability to sue an auditor - the result is that an auditor will not usually owe a duty to the company's members or other third parties. Such persons will need to show the existence of a special relationship

Criminal liability

There are two principal offence that relate to an auditors conduct

S507 of CA2006 applies

Where the auditor knowingly or recklessly causes an auditors report to include any matter that is misleading, false or deceptive in a material particular

Where the auditor knowingly or recklessly causes an auditors report to omit certain specified statements

s.17 of the Theft Act applies where a person dishonestly with a view to gain for themselves or another or with intent to cause loss to another

Destroys, defaces, conceals or falsifies any account or nay record or document made or required for any accounting purpose

In furnishing information for any purpose, produces or make sure of any account, or any such recorder document which his knowledge is or may be misleading, false or deceptive

Vacation of office

Resignation

An auditor of a company may resign by sending a notice to that effect o the company

The auditors term of office will end on the date when the company receives the notice or on such later date as may be specified in the notice

The notice will not be effective unless it is accompanies by a statement setting out the auditors reasons for resigning

Such a statement will not be required if

The auditor of a private company is ceasing to hold office at the end of the period for appointing auditors or the auditor of a public company is ceasing to hold office at the end of an accounts meeting

The auditors reasons for ceasing to hold office are all exempt reasons or there are no matters connected with the auditor ceasing to hold office that they consider need to be brought to the attention of the embers or creditors of the company

Remval

An auditor may be removed from office at any time by the members

This power is exercisable by passing an ordinary resolution at a meeting - the WR cannot be used and special notice of the resolution must be provided

The auditor must provide a s.519 statement

Replacement

Where the term of office of the auditor of a private company expires and the company decides not to reappoint it, then a replacement auditor ca be appointed by the company passing a WR

An auditor can be replaced by passing a resolution at a GM. Special notice is required

Rotation

The rules as implemented under CA2006 are

An auditor of a PE has a maximum engagement period of 10 years (this can be extended to 20 years after a public tender after at least 10)

The FRC can extend the maximum engagement period by up to 2 years if it believes that exceptional circumstances exist

If an auditor reaches the maximum engagement period and is replaced then the PIE cannot appoint that auditor for a period of 4 years beginning on the date after the maximum engagement period ended

Periodic financial reporting

Companies whose securities are traded on a regulated market must periodically report on their financial affairs

DTR 4 requires that companies must publish an annual financial report and half yearly financial report (3 months after end of period)

DTR 4 provides that within 4 months of the end of a company's financial year, it must publish an annual report publicly available for at least 10 years

Audited financial statement

Half yearly report

A management report containing a fair review of the business and description of the principal risks and uncertainties facing the company

Responsibility statements

Condensed set of financial statements

An interim management report detailing important events that affected the company and principal risks

Responsibility statements

Confirmation statement

A confirmation statement is simply atstament stating that all the required information has been delivered or will be delivered at the same time

Reuired information includes

Notification of specified relevant events eg RO change

Notification of change in principal business activities

A statement of capital (only if changed)

Notification of a change in the trading status of shares

Confirmation period

Must be delivered to CH within a 14 day period following the end of each review period (12 months after incorporation and 12 months after last review period)

Failure to deliver a confirmation statement is a criminal offence but liability ca be avoided if they can show they took all reasonable steps