Environmental and social transparency under the ... - ClientEarth

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82 | Environmental and social transparency under the Companies Act 2006Annex 1: UK law governing company environmental and social accounting and reporting | 83A.1.2 inAn AIM company incorporated in an EEA country must prepare and presentthese accounts in accordance with International Accounting Standards. Where,at the end of the relevant financial period, such company is not a parent company,How do companies have to account and reportrelation to subsidiaries or other associates?performance of the company’s business during the financial year, and theposition of the company’s business at the end of that year. 246 s400 247 Exemption for company included in EEA group accounts of larger groupit may prepare and present such financial information either in accordance withInternational Accounting Standards or in accordance with the accounting andA.1.2.1 Company groups and subsidiariescompany legislation and regulations that are applicable to that company due toits country of incorporation.An AIM company incorporated in a non-EEA country must prepare and presents1162 Parent and subsidiary undertakingsthese accounts in accordance with either:(1) This section (together with Schedule 7) defines “parent undertaking” and “subsidiary• International Accounting Standards;undertaking” for the purposes of the Companies Acts.• US Generally Accepted Accounting Principles;(2) An undertaking is a parent undertaking in relation to another undertaking, a• Canadian Generally Accepted Accounting Principles;subsidiary undertaking, if—• Australian International Financial Reporting Standards (as issued by the(a) it holds a majority of the voting rights in the undertaking, orAustralian Accounting Standards Board); or(b) it is a member of the undertaking and has the right to appoint or remove a• Japanese Generally Accepted Accounting Principles.majority of its board of directors, orThe accounts produced in accordance with this rule must disclose any transactionwith a related party, whether or not previously disclosed under these rules,(c) it has the right to exercise a dominant influence over the undertaking—(i) by virtue of provisions contained in the undertaking’s articles, orwhere any of the class tests exceed 0.25% and must specify the identity of the(ii) by virtue of a control contract, orrelated party and the consideration for the transaction.(d) it is a member of the undertaking and controls alone, pursuant to an agreementwith other shareholders or members, a majority of the voting rightsCompanies listed on the AIM are required to prepare annual accounts inin the undertaking.accordance with International Accounting Standards 242 (see above), US,Canadian or Japanese Generally Accepted Accounting Principles (GAAP),or Australian International Financial Reporting Standards. 243Under the Companies Act 2006, a ‘parent company’ is one which ultimatelyhas control over its subsidiaries, through one of the means identifiedby section 1162(2).However, there are no other reporting requirements set by the AIM. Thiscan be particularly problematic, as the AIM is used by many mid-to-smallGroup accountscompanies to raise capital, whose environmental or social impacts may bevery significant. This is particularly the case with mining companies. 244s399 Duty to prepare group accounts(2) If at the end of a financial year the company is a parent company the directors, aswell as preparing individual accounts for the year, must prepare group accountsHowever, it is important to note that UK-based companies on the AIMfor the year unless the company is exempt from that requirement.will be required to prepare a business review under the Companies Act2006. 245 (3) There are exemptions underAlthough they will be exempt from the provisions of section 417(5)section 400 (company included in EEA accounts of larger group),relating explicitly to environmental and social reporting, AIM companiessection 401 (company included in non-EEA accounts of larger group), andbased in the UK are required to report on environmental and social matterssection 402 (company none of whose subsidiary undertakings need bewhere necessary: for a fair review of the company’s business; as part ofincluded in the consolidation).a description of the principal risks and uncertainties facing the company;as part of a balanced and comprehensive analysis of the development and(4) A company to which this section applies but which is exempt from the requirementto prepare group accounts, may do so.If the company is a subsidiary of a parent company, and has been included inEEA 248 accounts of a larger group, which have been drawn up and audited inaccordance with a certain standard (EC or international). This situation needsto be clearly explained in the subsidiary’s individual account, and details of theparent company must also be given. Copies of the group accounts and reports
84 | Environmental and social transparency under the Companies Act 2006Annex 1: UK law governing company environmental and social accounting and reporting | 85need to be delivered to the registrar. The exemption cannot apply to a companywhose securities have been admitted for trading on a regulated market in a EEAstate.s401 Exemption for company included in non-EEA group accounts of larger groupIf the company is a subsidiary of a parent company, and has been included inconsolidated non-EEA accounts of a larger group, which have been drawn upin accordance with EC standards or equivalent, and audited in accordance withwhatever applicable domestic law. This situation needs to be clearly explained inthe subsidiary’s individual accounts, and details of the parent company must alsobe given. Copies of the group accounts and reports need to be delivered to theregistrar. The exemption cannot apply to a company whose securities have beenadmitted for trading on a regulated market in a EEA state.s402 Exemption if no subsidiary undertakings need be included in theconsolidationIf under all of the company’s subsidiary undertakings can be excluded from consolidationunder section 405 Companies Act 2006.Parent companies in the UK 249 must prepare consolidated group accounts,unless one of the statutory exemptions applies as set out in sections 400-402 Companies Act 2006.REGULATION (EC) No 1606/2002 OF THE EUROPEAN PARLIAMENT ANDOF THE COUNCIL of 19 July 2002 on the application of international accountingstandardsArticle 4 Consolidated accounts of publicly traded companiesFor each financial year starting on or after 1 January 2005, companies governedby the law of a Member State shall prepare their consolidated accounts in conformitywith the international accounting standards adopted in accordance withthe procedure laid down in Article 6(2) if, at their balance sheet date, their securitiesare admitted to trading on a regulated market of any Member State withinthe meaning of Article 1(13) of Council Directive 93/22/EEC of 10 May 1993 oninvestment services in the securities field (1).Companies Act 2006s403 Group accounts: applicable accounting framework(1) The group accounts of certain parent companies are required by Article 4 ofthe IAS Regulation to be prepared in accordance with international accountingstandards (“IAS group accounts”).Under Article 4 of the EC Regulation on the application of InternationalAccounting Standards, 250 and as restated by the Companies Act 2006,parent companies listed on a stock exchange in any EU Member Statemust prepare their consolidated annual accounts in accordance with therequirements of International Accounting Standards.Directors’ reports for company groupss415 Duty to prepare directors’ report...(2) For a financial year in which—(a) the company is a parent company, and(b) the directors of the company prepare group accounts,the directors’ report must be a consolidated report (a “group directors’ report”)relating to the undertakings included in the consolidation.Where the directors of a holding company are required to prepare groupaccounts (see above), they must also prepare a directors’ report for thewhole group.A.1.2.2Minority shareholdingsLarge and Medium-sized Companies and Groups (Accounts and Reports) Regulations2008.Schedule 4: Information on related undertakings required whether preparing CompaniesAct or IAS AccountsSignificant holdings in undertakings other than subsidiary undertakings4.— (1) The information required by paragraphs 5 and 6 must be given where at theend of the financial year the company has a significant holding in an undertakingwhich is not a subsidiary undertaking of the company, and which does not fallwithin paragraph 18 (joint ventures) or 19 (associated undertakings).(2) A holding is significant for this purpose if—(a) it amounts to 20% or more of the nominal value of any class ofshares in the undertaking, or(b) the amount of the holding (as stated or included in the company’sindividual accounts) exceeds one-fifth of the amount (as so stated)of the company’s assets.5.— (1) The name of the undertaking must be stated.(2) There must be stated—(a) if the undertaking is incorporated outside the United Kingdom, thecountry in which it is incorporated,(b) if it is unincorporated, the address of its principal place of business.(3) There must also be stated—(a) the identity of each class of shares in the undertaking held by thecompany, and
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