1. Accounting and Audit – Regulations published in connection with deregulatory changes

The regulations to implement deregulatory changes to the accounting and auditing requirements in the Companies Act 2006 have been made. The Regulations will come into force on 1 October 2012 and apply to accounting periods ending on or after that date.

The deregulatory changes being introduced include the following:

  • Subsidiary companies will be exempted from mandatory audit when a series of conditions are met, including that the parent company gives a "statutory guarantee" of all the subsidiary's outstanding liabilities at the end of the financial year and the company's shareholders unanimously agree to dispense with an audit for that financial year.
  • Dormant subsidiary companies that meet the criteria for the new audit exemption will also be exempt from preparing and filing accounts.
  • The mandatory audit thresholds for small companies will be aligned with the accounting thresholds for small companies, which will allow more small companies to take advantage of the audit exemption if they wish to do so.
  • There will be a reduced disclosure framework, based on IFRS, that companies within a group can use in their individual accounts.

For more details about the changes made by the Regulations, which follow the response paper published earlier this month, see corporate e-bulletin 2012/24.

The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012/2301) can be found on the legislation.gov.uk  website.

2. Financial reporting – FRC releases report on net debt reconciliations

The Financial Reporting Council (FRC) has released a report by the Financial Reporting Lab on net debt reconciliations.

The Lab was set up by the FRC to improve the effectiveness of corporate reporting in the UK.  It looks at various disclosure issues and attempts to identify best practice and what is of most use to investors. It then encourages companies to consider adopting these practices.

The Lab reports that a strong majority of investors use a net debt reconciliation in their analysis.  The report also identifies what investors find most helpful in reconciliations.  Recommendations include making clear how components of net debt relate to amounts on the balance sheet and disclosing separate movements in net debt.  Reconciliations are not, however, required by IFRS.

The Lab encourages readers of the report to comment on its content and presentation. Any feedback will be taken into account in producing two further reports, on debt and cash flow disclosure.

The Report can be found on the FRC website.

3. London Stock Exchange - Government and LSE to develop proposals for a new route to IPO

BIS has announced that it has developed proposals with the LSE to attract entrepreneurs and high-growth companies to the UK.  It says that the proposals will include a new route to the IPO market in the UK for high growth companies  which is likely to feature reformed rules on free float, eligibility criteria and reporting requirements.  BIS says that it is intended that the route will act as a launch pad for companies seeking a premium listing and will complement the UK's existing markets, including the LSE Main Market and AIM.  It will be targeted at European mid-sized high-growth businesses.

There are no detailed proposals at this stage but BIS says that further details, including proposals on the eligibility criteria, will be published before the end of 2012.

The press release also indicates that the FSA's response on its Listing Rule consultation paper CP12/2 (see corporate ebulletin 2012/06 ) is expected next month.

The BIS press release is available on the BIS website.  

4. Corporate governance – London Stock Exchange publishes guide

The London Stock Exchange has published a guide to corporate governance which is aimed at both companies listed on the main market of the London Stock Exchange and on AIM.

The guide covers issues that companies should consider ahead of an IPO, such as the corporate governance requirements they will have to comply with and the structure of the board, and issues that are relevant after an IPO, such as disclosure of inside information and executive remuneration.

Herbert Smith contributed the chapter on inside information in the guide.

The Guide is available on the Herbert Smith website and the LSE website.  

5. Abolition of the FSA - consultation on handbook changes on authorisation and supervision

The FSA has published the first of a number of consultation papers which will be required to split the existing FSA Handbook between the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) to form two new Handbooks.

Under the new regulatory architecture, the FSA will be abolished and three new institutions will regulate financial activities in the UK: a new Bank of England Financial Policy Committee (FPC) will be responsible for macro-prudential regulation; the PRA will be responsible for prudential regulation of financial institutions; and the FCA will be responsible for conduct issues across the entire spectrum of financial services (see corporate ebulletin 2011/18 for further details). The UK Listing Authority functions will fall within the remit of the FCA.

The Financial Services Bill which will implement the changes was introduced in the House of Commons in January 2012 and remains under consideration by Parliament.  The changes are now expected to take effect in Spring 2013.

This FSA consultation paper (CP 12/24) relates to aspects of authorisation and supervision. The consultation closed on 12 December 2012.

CP12/24  is available on the FSA website.

6. Late payment of debt - BIS consults on implementing EU Directive

BIS has published a consultation on implementing the European Directive on late payment of debt in commercial transactions.  The Directive is designed to combat late payments in commercial transactions within the EU by laying down common minimum requirements and applies to all debts incurred in commercial transactions.  It applies to businesses and public authorities.

The key requirements in the EU Directive are:

  • For business to business payments, the period for payment fixed in the contract should not exceed 60 days, unless otherwise expressly agreed and provided such terms are not grossly unfair.
  • There should be a default payment period of 30 days where terms have not been agreed (reflecting existing practice in the UK).
  • Public authorities will be required to pay suppliers within 30 calendar days of receipt of an undisputed invoice (this matches the UK Government’s standard practice for the public sector).
  • A creditor is entitled to a minimum of €40 as compensation for recovery costs (current UK legislation sets three levels of compensation payment according to the value of the payment).  Suppliers will not be prevented from seeking to claim additional recovery costs.

The consultation closes on 19 October 2012.  Implementation of the EU Late Payment Directive (Directive 2011/7/EU) is due to take place on 16 March 2013.  The Government is proposing to exclude contracts concluded before 16 March 2013 from being subject to the Directive but is seeking views on this.

The Government recently reaffirmed its commitment to encourage more businesses to sign up to the Prompt Payment Code which encourages good practice (see corporate ebulletin 2012/22).

The consultation paper is available on the BIS website.