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Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008

rose to move that the draft regulations laid before the House on 17 December 2007 be approved. The noble Lord said: My Lords, we are here today to debate three sets of regulations to be made under the Companies Act 2006—the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, and the Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008. I begin by setting these draft regulations in some sort of context. The Companies Act 2006—which a number of noble Lords will remember with affection—will help business reap the rewards of simpler, clearer and more cost-effective legislation in more modern language. It is a major part of the Government’s better regulation simplification plan and will reduce annual administrative burdens on business by over £300 million. It has been necessary to put back final implementation of the Act from October 2008 to October 2009. Needless to say, the Government regret that this has been necessary, but I am certain we took the right decision in the light of the advice from the Registrar of Companies that he could not be absolutely confident that the necessary changes to Companies House systems and processes could be made in time. Businesses need to be able to plan ahead with certainty. We have learnt the lessons from other major IT projects, both within and outside government, that delays in decisions can greatly increase costs and inconvenience for users. It is also important to emphasise that many of the key provisions of the Companies Act 2006 will be commenced in line with the timetable announced in February last year. A large number of important provisions, including most of the statutory statement of the director-general’s duties and the enhanced business review, were commenced in October 2007. Another important tranche, including the accounting reporting provisions, will be commenced with effect from 6 April 2008. I am also pleased that it will still be possible to commence some provisions, of particular importance to business, in October 2008, including the new solvency statement route for capital reduction by private companies. Part 15 of the 2006 Act concerns company accounts and reports. It will come into force on 6 April this year, applying to financial years beginning on or after that date. Part 15 confers powers on the Secretary of State to make regulations as to the detailed form and content of the accounts and reports of companies. The first two regulations—the small companies regulations and the large and medium-sized companies regulations—replace the 11 accounting schedules to the Companies Act 1985 and their equivalent in the Companies (Northern Ireland) Order 1986. These schedules to the 1985 Act and the 1986 order set out the detailed contents of the accounts and the format in which they must be prepared. They cover specific types of disclosures or apply to certain categories of companies. Not all schedules apply to all companies. There is a logic in separating out the requirements in this way, so that each schedule deals with a different subject. Companies have got used to it over the years, but there is no denying it can be confusing, particularly for a small company. To work out what its accounts must contain, a small company must look at a minimum of four accounting schedules to the 1985 Act and possibly six. It will not to have to make all the disclosures required by some of those schedules, so it will need to look at the relevant section of the 1985 Act to work out which parts of those schedules are relevant to it. When it came to restating the detailed requirements on the format and content of accounts and reports under the 2006 Act, we wanted to make things easier for all companies but particularly for small companies. Therefore, we have taken a different approach. We have proposed a single set of regulations for small companies. This gathers together in a single document all the requirements from the six accounting schedules to the 1985 Act that are applicable to small companies. This approach means that small companies will have to look in only one place to establish what they are required to include in their account and reports. They will not have to look through regulations that also apply to large companies and work out which parts apply to them and which parts do not. We believe that this approach has clear benefits for small companies. Indeed, stakeholders agreed; when we consulted, all those who commented supported the proposal. We followed the same approach for all other companies, with a single set of regulations applying to large and medium-sized companies. This sets out the basic requirements applying to all companies other than small ones. It also contains the exemptions for medium-sized companies and the additional requirements for quoted companies, banking and insurance companies and group accounts. This approach has less obvious benefits for large and medium-sized companies and we considered other approaches, such as replicating the existing structure of the accounting schedules or making a separate set of regulations for each category of company. However, we believe that, in the long run, a single set of regulations with all the requirements in a single place will be easier for companies to use. When we consulted, the majority of those who commented supported this approach. Among those who did not, there was no consensus on a preferred option. These two sets of regulations largely restate the requirements in the accounting schedules to the 1985 Act and the 1986 Northern Ireland order without changing the substance of those requirements. However, the regulations make a small number of substantive changes to the accounting requirements. For all companies, the threshold for disclosure in the directors’ report of political donations and expenditure and charitable donations has been raised from £200 to £2,000. A new disclosure requirement for donations to independent election candidates has been introduced, consequential on new provisions in Part 14 of the 2006 Act. For all companies that prepare consolidated accounts, a few minor technical amendments have been made to address the potential for differences in the context of UK accounting standards being converged with international financial reporting standards by increasing flexibility. For medium-sized companies preparing abbreviated accounts for filing at Companies House, the exemption from disclosing turnover in the abbreviated profit and loss account that they file with the Registrar of Companies has been removed. However, there is still exemption from disclosing detailed particulars of turnover in the notes to such accounts. For quoted companies, there is a new requirement to report in their directors’ remuneration report on how they have taken pay and employment conditions elsewhere in the group into account when setting directors’ pay. This requirement will be applicable to reports for financial years beginning on or after 6 April 2009. These two sets of regulations also have a function beyond restating the accounting schedules to the 1985 Act. Together with the third set of regulations that we are debating—the Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008—they implement European directive 2006/46/EC, which amends the European accounting directives. The measures in this directive are intended to contribute to EU market confidence, encourage cross-border investment and facilitate cross-border access to capital. It is important to get the right balance between ensuring that proper disclosures are made and not imposing undue burdens on business. We believe that we have done this. To that end, these two sets of regulations give all companies—small, medium and large—the option of including a wider category of financial instruments in their accounts at fair value than is permitted under the 1985 Act. They also impose a new requirement on large companies to make certain disclosures about transactions with related parties; small and medium-sized companies are exempt from this disclosure. The Companies Act 2006 (Amendment) (Accounts and Reports) Regulations 2008 contain further implementing measures for the directive. They increase the thresholds defining small and medium-sized companies for accounting and reporting purposes and the audit exemption threshold for small companies. They also impose a new requirement for companies to make certain disclosures about off-balance-sheet arrangements in the notes to their accounts. Small companies are exempted from this requirement and medium-sized companies may limit disclosure to information about the nature and business purpose of such arrangements. Finally, this set of regulations makes a number of technical improvements and corrections to Part 15 of the 2006 Act. In conclusion, the regulations are an important part of the implementation of the Companies Act 2006. They make a small number of substantive changes to the accounting requirements under that Act but primarily they restate the detailed requirements on the format and contents of accounts in a way that will be easier for companies, particularly small companies, to use. I beg to move. Moved, That the draft regulations laid before the House on 17 December 2007 be approved. Sixth Report from the Statutory Instruments Committee.—(Lord Bach.)