Chapter 6: Annual or Integrated Report

Question 1

What companies are required to keep accounting records?

Answer 1

All companies regardless of their type and whether or not they are trading are required to keep accounting records per S.386.

Question 2

What is the default date of a company’s accounting reference period?

Answer 2

The end of the month of the anniversary of its incorporation.

Question 3

What sections of the annual report are the CoSec’s responsibility?

Answer 3

1. Strategic report
2. Directors’ report
3. Remuneration report
4. Corporate Governance Reports
5. Reports of the various committees
6. Ensuring that all all statutory and governance disclosures are made within the reports or the notes to the accounts

Question 4

What are the attributes of micro-sized companies?

Answer 4

Less than 10 employees
Less than £316,000 balance sheet
Less than £632,000 turnover
At least 2 of the above need to be met

Question 5

What are the filing requirements of micro-sized companies?

Answer 5

Directors report – optional
Strategic report – no
Profit & loss – abridged and optional
Balance sheet – abridged
Auditors report – if audited
Notes - yes

Question 6

What are the attributes of small-sized companies?

Answer 6

Less than 50 employees
Less than £5.1 million balance sheet
Less than £10.2 million turnover

Question 7

What companies are excluded from being a small-sized company?

Answer 7

• Public company
• Insurance/banking/regulated (Authorised insurance company, Banking company, e-money issuer, MIFID investment firm, UCITS company)
• Ineligible group (small company regime, s.384)
• If any of its members/shareholders are:
o Traded on regulated market (EEA state)
o Doing regulated activities (FSMA2000)
o Insurance/banking/regulated activities

Question 8

What are the filing requirements of small-sized companies?

Answer 8

Directors report – optional
Strategic report – optional
Profit & loss – abridged optional
Balance sheet – abridged 
Group accounts – optional
Auditors report – if audited
Notes - YEs

Question 9

What are the attributes of medium-sized companies?

Answer 9

Less than 250 employees
Less than £18 million balance sheet
Less than £36 million turnover

Question 10

What are the filing requirements of medium-sized companies?

Answer 10

Directors report – yes
Strategic report – abridged
Profit & loss – abridged
Balance sheet – abridged 
Group accounts – if a group
Auditors report – if audited
Notes - yes

Question 11

What rules/legislation govern the additional disclosures required for listed companies?

Answer 11

Listing rules and DTR, Market Abuse Regulations, UK Corporate governance code, FRC guidance.

Question 12

What are the contents of the Strategic report?

s.414

Answer 12

Purpose: Shows members how directors performed in relation to s. 172. How the company is achieving its goals.

• Helpful for attracting members (will be longer for a quoted company, compared to private)
• A fair review of the business, balanced, comprehensive analysis of development, performance and position.
• KPIs – how the company has succeeded
• Principal risks and uncertainties.

Question 13

What must Quoted companies include in their strategic report?:

Answer 13

• Trends for future
• Environmental matters
• Strategy/business model
• Gender of senior management

Question 14

What must Traded companies include (ESG report):

Answer 14

• Environment
• Social matters
• Employees
• Human rights
• Anti-corruption/bribery

Question 15

What should the Directors report contain?

Answer 15

Purpose: transparency to the members – directors have done their duty to the company. How they have applied the codes/rules in the running of the company. Corporate Social Responsibility.
- Names of directors
- Recommended dividend (if one)
- Statement that:
1- No info the auditor isn’t aware of
2- Directors made themselves aware of such info/told auditor

Question 16

According to the Directors’ Report Regulations 2008 what must the directors’ report also include:

Answer 16

• Principal activities/review of business
• Significant events
• Activities in research/development
• Company share purchases
• Donations over £2,000
• Disabled employees
• H&S
• Employee development

Question 17

What must the Auditors’ report contain?

Answer 17

Statement of opinion of the auditor on whether the accounts show a ‘true and fair’ view of the accounts in accordance with the framework and CA2006.
Outline any material uncertainties, doubts, misstatements

The audit report must state: (s.495):
1- If accounts prepared in accordance with UK GAAP/IFRS
2- Prepared in accordance with the Act (UK GAAP) or IAS (IFRS)
3- Fair and true view of
a. Balance sheet
b. P&L
c. State of affairs of the Group (if a group)
(pg. 184)

Question 18

What are the contents of the Directors remuneration report?

Answer 18

Information on rem policy, and remuneration given to directors (i.e. fees, pensions, shareholdings) shown against a performance graph over the last 5 years.
Must be approved every year by members
Audited section = emoluments, share options and incentive schemes

Question 19

What should the Auditor’s Report to audit committee contain?

Answer 19

Auditors giving a report to the audit committee

Scope/timing, materiality, deficiency’s in accounting systems, non-compliance, audit partners,

Question 20

Audit, Nomination and Remuneration Committee Reports

Answer 20

Report to the audit committee is separate to the audit committee report

The work of these 3 committees should be explained in the annual report (UKCGC)
• Disclose any significant issues
• Particular focus areas
• Actions to monitor/verify independence of auditor
• Details of audit tender (if term is up)

Question 21

How do the accounts need to be made available and for how long?

Answer 21

s.430 – Quoted companies – available on their website
DTR – Listed companies – made available for 10 years
Made available as soon as practicable on a website maintained by the company
Available to all members of the public continuously and free
Debenture holders can obtain accounts/reports

Question 22

What is integrated reporting?

Answer 22

Material info about strategy, governance, performance, practices
Commercial social environment
International Integrated Report Framework (IIRC)
Includes CSR & ESG benchmarking

Question 23

What affects the independence of the auditor?

Answer 23

S.1214
A person cannot be appointed as an auditor if they are an officer/employee of the company or associated undertaking (i.e. subsidiary or parent)
Audit Regulation – Article 4 & 5 (Non-audit services)
For a PIE, certain prohibited services cannot be done. In addition to the restriction on types of non-audit services, there’s also a restriction on the relative fees payable to the audit firm. The fee is capped on ALL non-audit related activity (PIEs and non-PIEs) to 70% of total audit fee from the previous 3 years.

Question 24

Prohibited services for PIEs include (i.e. the below CAN be done for a non-PIE):

Answer 24

• Tax
• Management
• Bookkeeping
• Payroll
• Risk Management
• Valuation
• Legal
• Internal audit
• Capital structuring
• HR
• Underwriting shares

Question 25

Audit Firms- how should an audit firm be rotated?

Answer 25

Audit Firm Ss. 487-491 - There is a mandatory audit firm rotation – PIES must undertake a tender for their audit services at least every 10 years – no auditor is able to hold office for more than 20 years UNLESS an extension is granted by the FRC for a further 2 years in exceptional circumstances. Note: an extension cannot be granted if the period would exceed 22 years.

Question 26

How should an audit partner be rotated?

Answer 26

Audit Partner There is also a mandatory audit partner rotation – no audit partner shall be responsible for an individual PIE for more than 7 years from their 1st appointment. Although the Audit Practicing Board recommends that a max period a key audit partner is responsible for carrying out statutory audit should be no more than 5 years and that a period of another 5 years should pass before taking part again in the audit.