Group Reporting

Accounting Groups I

European Union legislation requires holding companies to prepare and publish group accounts in addition to the own accounts. Group accounts are consolidated group-wide accounts.A “group” includes all group companies in the European Union.

A group, for most Companies Act purposes, consists of a company and immediate layers of subsidiaries. The EU legislation provides a wider definition of a subsidiary for the purpose of the obligation to prepare group accounts than applies for most Companies Act purposes.


Accounting Groups II

A company is deemed to be subsidiary of the company if the company,

  • holds a majority of its shares;
  • is a shareholder and controls the board of directors;
  • is a shareholder and controls the majority of voting rights;
  • exercises a dominant influence over it by contract or by its constitution/ memorandum and articles;
  • has a participating interest and actually exercise a dominant influence; or
  • the two undertakings are managed on a unified basis.

The requirement also applies to partnerships and unincorporated bodies, other than those who have members without a limit on their liability, which are not corporates or their equivalent. It covers companies limited by shares and by guarantee.  It also covers unlimited companies and partnerships, where all the members are either themselves companies limited by shares or by guarantee, equivalent entities under another state’s law or combinations of the above.


Group Financial Framework

Companies Act group financial statements in relation to a holding company and its subsidiary undertakings included in the consolidation for any of its financial years shall comprise

  • a consolidated balance sheet dealing with the assets, liabilities and financial position of the holding company and its subsidiary undertakings (including those being wound up) as at the financial year end date;
  • a consolidated profit and loss account dealing with the profit or loss of the holding company and its subsidiary undertakings (including those being wound up) for the financial year; and
  • any other additional information required by the financial reporting framework adopted in relation to them.

Group financial statements prepared in accordance with the Companies Act are “Companies Act group financial statements.”

Statement prepared in accordance with international financial reporting standards are “IFRS group financial statements.” Equivalent provisions apply to each framework, in the same manner as the apply to non-group companies.


Exemptions I

There are exemptions from the obligation to prepare group accounts.  They must meet two of the following three conditions:

  • the balance sheet of the parent and subsidiaries together is less than €10,000,000;
  • the turnover of the parent and subsidiaries together is less than €20,000,000;
  • their average number of employees of does not exceed 250.

The exemption requires that the company concerned and all of its subsidiary undertakings taken as a whole satisfy 2 of the 3 of the above conditions.

This group audit exemption does not apply where

  • any shares, debentures or other debt securities of a subsidiary undertaking have been admitted to trading on a regulated market in an EEA state, or
  • any of the subsidiary undertakings is a credit institution or an insurance undertaking.

Exemptions II

The “balance sheet total” in relation to a company or undertaking, means the aggregate of the amounts shown as assets in the company’s or undertaking’s balance sheet. The “amount of the turnover”, in relation to a company or undertaking, means the amount of the turnover shown in the company’s or undertaking’s profit and loss account.

The average number of persons employed is that required to be disclosed in the accounts. In relation to a financial year which is not, in fact, a year, the amount specified above shall be proportionally adjusted. The above thresholds may be amended by Ministerial regulation.

A holding company is exempt from the requirement to prepare group financial statements if, all of its subsidiary undertakings could be excluded from the consolidation in Companies Act group financial statements.

A holding company that prepares IFRS financial statements is exempt from the requirement to prepare group financial statements in the circumstances provided, and subject to compliance with the conditions in that behalf specified, in IFRS.


Holding Company is Subsidiary

The obligation to prepare group accounts does not apply to a parent which is itself a subsidiary of another undertaking within the EU or EFTA (EEA states), where all, or at least 90 percent of the shares are held by the parent. The exempted parent and all of its subsidiaries must be covered in the group accounts of the parents’ parent.

It is a condition that any other shareholders consent to the exemptions. The exemption does not apply where the shares are listed on a regulated stock exchange within the EEA.

A company which becomes a holding company may avail itself of the above exemption in respect of the financial year in which it becomes a holding company if the group requirement is met in respect of that financial year.

Where a holding company qualifies to avail itself of the exemption, it shall continue to be so qualified, unless, in the latest financial year of the company and the financial year of the company immediately preceding that financial year, the group requirement is not met.


Details of Holding Company Exemption I

A holding company is exempt from the requirement to prepare group financial statements if that holding company (the “lower holding company”) is itself a subsidiary undertaking, and its holding undertaking is established under the laws of an EEA state, and one or other of the following cases applies.

  • the lower holding company is a wholly owned subsidiary of that other holding undertaking;
  • that other holding undertaking holds more than 50 percent of the shares in the lower holding company and notice requesting the preparation of group financial statements has not been served on the lower holding company by shareholders holding in aggregate more than half of the remaining shares in the lower holding company, or 5 percent or more of the total shares in the lower holding company.

The notice may be served on the lower holding company not later than 6 months after the end of the financial year before that to which it relates.


Details of Holding Company Exemption II

The exemption does not apply unless the following conditions are satisfied—

  • the lower holding company is included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same financial year, by a holding undertaking established under the laws of an EEA state;
  • those accounts are drawn up and audited, and the group’s consolidated annual report is drawn up in accordance with Standards in the Seventh EU Company Law Directive or international financial reporting standards,
  • the lower holding company discloses in its entity financial statements that it is exempt from the obligation to prepare and deliver group financial statements;
  • the lower holding company states in its entity financial statements, the name of the holding undertaking which draws up the consolidated accounts and if the holding undertaking is incorporated outside the State, the country in which it is incorporated, or if the holding undertaking is unincorporated, the address of its principal place of business; and
  • the lower holding company delivers to the CRO, within the period allowed for delivering its entity financial statements, copies of the holding undertaking’s consolidated accounts, and the consolidated annual report, together with the auditors’ report on them.

Shares held by directors of the lower holding company for the purpose of complying with any share qualification requirement shall be disregarded in determining whether the company is a wholly owned subsidiary of another.

Shares held by a wholly owned subsidiary of the first-mentioned undertaking or held on behalf of that undertaking or its wholly owned subsidiary are attributed to that undertaking.


Subsidiary of Non-EEA Company I

There is an exemption where the parent is a subsidiary of a parent established in a non-EEA state, subject to similar conditions, to those above.  The parent must prepare consolidated group accounts in accordance with IFRS standards. The notes and reports must contain certain matters. The reports must be translated.

A holding company is exempt from the requirement to prepare group financial statements if the holding company (the “lower holding company”) is itself a subsidiary undertaking, and its holding undertaking is not established under the laws of an EEA state, and one or other of the following cases applies.

  • the lower holding company is a wholly owned subsidiary of that other holding undertaking;
  • that other holding undertaking holds more than 50 percent of the shares in the lower holding company and notice requesting the preparation of group financial statements has not been served on the lower holding company by shareholders holding in aggregate more than half of the remaining shares in the lower holding company, or 5 percent or more of the total shares in the lower holding company.

The notice must be served not later than 6 months after the end of the financial year before that to which it relates.


Subsidiary of Non-EEA Company II

The exemption does not apply unless the following conditions are satisfied:

  • the lower holding company and all of its subsidiary undertakings are included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same financial year, by a holding undertaking;
  • those accounts and, where appropriate, the group’s consolidated annual report is drawn up in accordance with the provisions of the EU Seventh Company Law Directive; or  in a manner equivalent to consolidated accounts and consolidated annual reports so drawn up;
  • the consolidated accounts are audited by one or more persons authorised to audit accounts under the laws under which the holding undertaking which draws them up is established;
  • the lower holding company discloses in its entity financial statements that it is exempt from the obligation to prepare and deliver group financial statements;
  • the lower holding company states in its entity financial statements, the name of the holding undertaking which draws up the consolidated accounts and if the holding undertaking is a body corporate, the country in which it is incorporated, or if the holding undertaking is unincorporated, the address of its principal place of business; and
  • the lower holding company delivers to the CRO, within the period allowed for delivering its entity financial statements, copies of the other holding undertaking’s consolidated accounts, and where appropriate, the consolidated annual report, together with the auditors’ report on them.

Shares held by a wholly owned subsidiary of the first-mentioned undertaking, or held on behalf of that undertaking or its wholly owned subsidiary, are attributed to that undertaking.


Consolidation

In the case of Companies Act group financial statements, all of the subsidiary undertakings of the holding company shall be consolidated in the group financial statements. This subject to the exceptions below.

A subsidiary undertaking may be excluded from consolidation in Companies Act group financial statements if its inclusion is not material for the purposes of giving a true and fair view. Two or more undertakings may be excluded, only if they are not material, for those purposes, taken together.

A subsidiary undertaking may be excluded from consolidation in Companies Act group financial statements where—

  • severe long-term restrictions substantially hinder the exercise of the rights of the holding company over the assets or management of that subsidiary undertaking,
  • the information necessary for the preparation of group financial statements in accordance with this Part cannot be obtained without disproportionate expense or undue delay, or
  • the interest of the holding company is held exclusively with a view to subsequent resale.

Omission of Certain Information

Where the company is required to prepare and does prepare group financial statements in accordance with the Act, and the notes to the company’s entity balance sheet show the company’s profit or loss for the financial year determined in accordance with this Act, then the following applies.

The entity profit and loss account together with certain information specified in Schedule 3 (information supplementing the profit and loss account) or equivalent information required by IFRS, shall be approved by the board of directors but may be omitted from the company’s entity financial statements for the purposes circulation of financial statements.

It may also be exempt from the requirements of—

  • rights of members to demand copies of financial statements;
  • financial statements to be laid before members), and
  • documents to be annexed to the annual return.

This does not apply unless the fact that the exemption has been availed of, is disclosed in the entity financial statements published with the group financial statements.


References and Sources

Primary References

 

Companies Act 2014  S.297 – S. 304 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)   Ch.18   Courtney

Keane on Company Law 5th Ed. (2016) Ch.30 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law


 

Companies Act

Exemption from consolidation: size of group

297. (1) Subsection (2) applies save where the company has elected to prepare IFRS group financial statements; its operation is subject to subsections (3) to (8) and section 298 .

(2) A holding company shall, in respect of a particular financial year, be exempt from the requirement to prepare group financial statements if, at the financial year end date of the holding company—

(a) for that financial year, and

(b) for the financial year of that company immediately preceding that financial year,

the holding company and all of its subsidiary undertakings taken as a whole satisfy at least 2 of the following 3 qualifying conditions.

(3) Those qualifying conditions are—

(a) the balance sheet total of the holding company and its subsidiary undertakings taken as a whole does not exceed €10 million,

(b) the amount of the turnover of the holding company and its subsidiary undertakings taken as a whole does not exceed €20 million, and

(c) the average number of persons employed by the holding company and its subsidiary undertakings taken as a whole does not exceed 250.

(4) In this section “balance sheet total”, in relation to a company or undertaking, means the aggregate of the amounts shown as assets in the company’s or undertaking’s balance sheet.

(5) In this section “amount of the turnover”, in relation to a company or undertaking, means the amount of the turnover shown in the company’s or undertaking’s profit and loss account.

(6) For the purposes of this section, the average number of persons employed shall be that required to be disclosed in accordance with section 317 .

(7) In the application of this section to any period which is a financial year but is not in fact a year, the amount specified in subsection (3)(b) shall be proportionally adjusted.

(8) This section shall not apply where—

(a) any shares, debentures or other debt securities of a subsidiary undertaking have been admitted to trading on a regulated market in an EEA state, or

(b) any of the subsidiary undertakings is a credit institution or an insurance undertaking.


Application of section 297 in certain circumstances and cessation of exemption

298. (1) In this section the reference to the group requirement being met is a reference to the company concerned and all of its subsidiary undertakings taken as a whole satisfying at least 2 of the 3 conditions in section 297 (3).

(2) A company which before the commencement of this Part is not a holding company but which becomes a holding company on or after the commencement of this Part may avail itself of the exemption in section 297 (2) in respect of the financial year in which it becomes a holding company if the group requirement is met in respect of that financial year.

(3) Where a holding company qualifies to avail itself of the exemption in section 297 (2) it shall continue to be so qualified, unless in the latest financial year of the company and the financial year of the company immediately preceding that financial year, the group requirement is not met.


Exemption from consolidation: holding company that is subsidiary undertaking of undertaking registered in EEA

299. (1) Subject to subsection (4), a holding company is exempt from the requirement to prepare group financial statements if that holding company (the “lower holding company”) is itself a subsidiary undertaking and its holding undertaking is established under the laws of an EEA state and one or other of the following cases applies.

(2) Those cases are—

(a) the lower holding company is a wholly owned subsidiary of that other holding undertaking,

(b) that other holding undertaking holds more than 50 per cent of the shares in the lower holding company and notice requesting the preparation of group financial statements has not been served on the lower holding company by shareholders holding in aggregate—

(i) more than half of the remaining shares in the lower holding company, or

(ii) 5 per cent or more of the total shares in the lower holding company.

(3) The notice referred to in subsection (2)(b) shall be served on the lower holding company not later than 6 months after the end of the financial year before that to which it relates.

(4) Subsection (1) shall not apply unless the following conditions are satisfied—

(a) the lower holding company is included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same financial year, by a holding undertaking established under the laws of an EEA state,

(b) those accounts are drawn up and audited and the group’s consolidated annual report is drawn up in accordance with—

(i) the provisions of the Seventh Directive (where applicable, as modified by Council Directive 86/635/EEC of 8 December 1986 or Council Directive 91/674/EEC of 23 December 1991), or

(ii) international financial reporting standards,

(c) the lower holding company discloses in its entity financial statements that it is exempt from the obligation to prepare and deliver group financial statements,

(d) the lower holding company states in its entity financial statements the name of the holding undertaking which draws up the consolidated accounts referred to in paragraph (a) and—

(i) if the holding undertaking is incorporated outside the State, the country in which it is incorporated, or

(ii) if the holding undertaking is unincorporated, the address of its principal place of business,

and

(e) the lower holding company delivers to the Registrar, within the period allowed for delivering its entity financial statements, copies of—

(i) the holding undertaking’s consolidated accounts, and

(ii) the consolidated annual report,

together with the auditors’ report on them.

(5) Shares held by directors of the lower holding company for the purpose of complying with any share qualification requirement shall be disregarded in determining for the purposes of subsection (2)(a) whether the company is a wholly owned subsidiary of another.

(6) For the purposes of paragraph (b) of subsection (2), shares held by a wholly owned subsidiary of the first-mentioned undertaking in that paragraph, or held on behalf of that undertaking or its wholly owned subsidiary, shall be attributed to that undertaking.

(7) Without prejudice to the construction provided in subsection (8) for the expression “consolidated annual report”, references in this section to—

(a) an undertaking established under the laws of an EEA State,

(b) consolidated accounts prepared by such an undertaking, and

(c) other relevant matters in that regard,

shall, in a case where the undertaking is a company registered under this Act or an existing company, be read, respectively, as references to—

(i) the company so registered or the existing company, as the case may be,

(ii) group financial statements prepared by the company, and

(iii) the matters provided by, or referred to in, this Part or any other enactment that correspond to those relevant matters.

(8) In this section—

“consolidated annual report” means the report prepared by management of the group in accordance with the Seventh Directive and is equivalent to the expression “directors’ report” as used in this Part;

“Seventh Directive” means the Seventh Council Directive 83/349/EEC of 13 June 1983.


Exemption from consolidation: holding company that is subsidiary undertaking of undertaking registered outside EEA

300. (1) Subject to subsection (4), a holding company is exempt from the requirement to prepare group financial statements if the holding company (the “lower holding company”) is itself a subsidiary undertaking and its holding undertaking is not established under the laws of an EEA state and one or other of the following cases applies.

(2) Those cases are—

(a) the lower holding company is a wholly owned subsidiary of that other holding undertaking,

(b) that other holding undertaking holds more than 50 per cent of the shares in the lower holding company and notice requesting the preparation of group financial statements has not been served on the lower holding company by shareholders holding in aggregate—

(i) more than half of the remaining shares in the lower holding company, or

(ii) 5 per cent or more of the total shares in the lower holding company.

(3) The notice referred to in subsection (2)(b) shall be served not later than 6 months after the end of the financial year before that to which it relates.

(4) Subsection (1) shall not apply unless the following conditions are satisfied:

(a) the lower holding company and all of its subsidiary undertakings are included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same financial year, by a holding undertaking;

(b) those accounts and, where appropriate, the group’s consolidated annual report are drawn up—

(i) in accordance with the provisions of the Seventh Directive (where applicable, as modified by Council Directive 86/635/EEC of 8 December 1986 or Council Directive 91/674/EEC of 23 December 1991), or

(ii) in a manner equivalent to consolidated accounts and consolidated annual reports so drawn up;

(c) the consolidated accounts are audited by one or more persons authorised to audit accounts under the laws under which the holding undertaking which draws them up is established;

(d) the lower holding company discloses in its entity financial statements that it is exempt from the obligation to prepare and deliver group financial statements;

(e) the lower holding company states in its entity financial statements the name of the holding undertaking which draws up the consolidated accounts referred to in paragraph (a) and—

(i) if the holding undertaking is a body corporate, the country in which it is incorporated, or

(ii) if the holding undertaking is unincorporated, the address of its principal place of business;

and

(f) the lower holding company delivers to the Registrar, within the period allowed for delivering its entity financial statements, copies of—

(i) the other holding undertaking’s consolidated accounts, and

(ii) where appropriate, the consolidated annual report,

together with the auditors’ report on them.

(5) Shares held by directors of the lower holding company for the purpose of complying with any share qualification requirement shall be disregarded in determining for the purposes of subsection (2)(a) whether the company is a wholly owned subsidiary of another.

(6) For the purposes of paragraph (b) of subsection (2), shares held by a wholly owned subsidiary of the first-mentioned undertaking in that paragraph, or held on behalf of that undertaking or its wholly owned subsidiary, shall be attributed to that undertaking.

(7) In this section—

“consolidated annual report” means—

(a) the report prepared by management of the group in accordance with the Seventh Directive, or

(b) the report by management of the group required to be prepared under the laws or administrative measures that result in the equivalence referred to in subsection (4)(b)(ii),

and, in either case, is equivalent to the expression “directors’ report” as used in this Part;

“Seventh Directive” means the Seventh Council Directive 83/349/EEC of 13 June 1983.


Exemption from consolidation: holding company with all of its subsidiary undertakings excluded from consolidation

301. A holding company is exempt from the requirement to prepare group financial statements if, by virtue of section 303 (2) or (3), all of its subsidiary undertakings could be excluded from the consolidation in Companies Act group financial statements.


Exemption from consolidation where IFRS so permits

302. A holding company that prepares IFRS financial statements is exempt from the requirement to prepare group financial statements in the circumstances provided, and subject to compliance with the conditions in that behalf specified, in IFRS.


Subsidiary undertakings included in the group financial statements

303. (1) In the case of Companies Act group financial statements, all of the subsidiary undertakings of the holding company shall be consolidated in the group financial statements, but this is subject to the exceptions authorised by the subsequent provisions of this section.

(2) A subsidiary undertaking may be excluded from consolidation in Companies Act group financial statements if its inclusion is not material for the purposes of giving a true and fair view; but 2 or more undertakings may be excluded only if they are not material, for those purposes, taken together.

(3) In addition, a subsidiary undertaking may be excluded from consolidation in Companies Act group financial statements where—

(a) severe long-term restrictions substantially hinder the exercise of the rights of the holding company over the assets or management of that subsidiary undertaking, or

(b) the information necessary for the preparation of group financial statements in accordance with this Part cannot be obtained without disproportionate expense or undue delay, or

(c) the interest of the holding company is held exclusively with a view to subsequent resale.

(4) The reference in subsection (3)(a) to the rights of the holding company and the reference in subsection (3)(c) to the interest of the holding company are, respectively, to rights and interest held by or attributed to the holding company for the purposes of section 7 (definition of subsidiary) in the absence of which it would not be the holding company.


Treatment of entity profit and loss account where group financial statements prepared

304. (1) Subject to subsection (3), subsection (2) applies with respect to the entity profit and loss account of a holding company where—

(a) the company is required to prepare and does prepare group financial statements in accordance with this Act, and

(b) the notes to the company’s entity balance sheet show the company’s profit or loss for the financial year determined in accordance with this Act.

(2) The entity profit and loss account together with the information specified in paragraphs 62 to 66 of Schedule 3 (information supplementing the profit and loss account) or equivalent information required by IFRS shall be approved in accordance with section 324 (approval by board of directors) but may be omitted from the company’s entity financial statements for the purposes of section 338 (circulation of financial statements), and shall also be exempt from the requirements of—

(a) section 339 (right of members to demand copies of financial statements),

(b) section 341 (financial statements to be laid before members), and

(c) section 347 (documents to be annexed to annual return).

(3) Subsection (2) does not apply unless the fact that it has been availed of is disclosed in the entity financial statements published with the group financial statements.

The text in italics on this page is sourced from the Irish Statute Book and is re-published under the Licence for Re-Use of Public Sector Information made pursuant to Directive 2003/98/EC Directive 2013/37/EU of the European Parliament and of the Council on the re-use of public sector information transposed into Irish law by the European Communities (Re-Use of Public Sector Information) Regulations 2005 to  2015.


Schedule – Accounting Principles

SCHEDULE 4

ACCOUNTING PRINCIPLES, FORM AND CONTENT OF GROUP FINANCIAL STATEMENTS

Section 294 .

PART I

CONSTRUCTION OF REFERENCES TO PROVISIONS OF SCHEDULE

1. Without prejudice to the generality of section 9 of the Interpretation Act 2005 and its application to the body of this Act and to Schedules 1 , 2 and 5 to 17 —

(a) a reference in this Schedule to a paragraph or Part is a reference to a paragraph or Part of this Schedule, unless it is indicated that a reference to some other enactment is intended; and

(b) a reference in this Schedule to a subparagraph or clause is a reference to the subparagraph or clause of the provision in which the reference occurs, unless it is indicated that a reference to some other enactment is intended.

PART II


GENERAL RULES AND FORMATS

GENERAL RULES

2. (1) Group financial statements shall comply, except for any necessary modifications to take account of differences between group financial statements and entity financial statements, with the provisions of Schedule 3 as if the undertakings included in the consolidation (the “group”) were a single company.

(2) In particular, for the purposes of paragraph 69 of Schedule 3 (dealings with or interests in group undertakings) as it applies to group financial statements—

(a) any subsidiary undertakings of the holding company not dealt with in the group financial statements shall be treated as a subsidiary undertaking of the group; and

(b) if the holding company is itself a subsidiary undertaking, the group shall be treated as a subsidiary undertaking of any holding undertaking of the holding company, and the reference to fellow subsidiary undertakings shall be read accordingly.

3. (1) The group balance sheet and group profit and loss account shall consolidate in full the information contained in the separate balance sheets and profit and loss accounts of the holding company and of the subsidiary undertakings included in the consolidation, subject to the adjustments required or permitted by the following provisions of this Schedule and to such other adjustments (if any) as may be appropriate in accordance with generally accepted accounting practice.

(2) If the financial year of a subsidiary undertaking dealt with in the group financial statements differs from that of the holding company, the group financial statements shall be drawn up—

(a) from the entity financial statements of the subsidiary undertaking for its financial year last ending before the end of the holding company’s financial year provided that the financial year ended no more than 3 months before that of the holding undertaking; or

(b) from interim financial statements drawn up by the subsidiary undertaking as at the end of the holding company’s financial year.


AMENDMENTS TO FORMATS IN Schedule 3

Minority interest

4. (1) In applying Balance Sheet Formats 1 and 2 set out in Part II of Schedule 3 to group financial statements a separate item under the heading “Minority Interest” shall be shown—

(a) in Format 1 after item H; and

(b) in Format 2 under the general heading “LIABILITIES”, between items A and B.

(2) The amount to be shown under the heading “Minority Interest” referred to in subparagraph (1) shall be the amount of share capital and reserves attributable to shares in subsidiary undertakings consolidated in the group financial statements held by or on behalf of persons other than the holding company and its subsidiary undertakings.

5. (1) In applying Profit and Loss Formats 1, 2, 3 and 4 set out in Part II of Schedule 3 to group financial statements a separate item under the heading “Minority Interest” shall be shown—

(a) in Format 1, before item 20;

(b) in Format 2, before item 22;

(c) in Format 3, before item 11 in Section A and before item 9 in Section B ; and

(d) in Format 4, before item 13 in Section A and before item 11 in Section B .

(2) The amount to be shown under the heading “Minority Interest” in accordance with subparagraph (1) shall be the amount of any profit or loss for the year attributable to shares in subsidiary undertakings consolidated in the group financial statements held by or on behalf of persons other than the holding company and its subsidiary undertakings.

Other changes

6. (1) The formats set out in Part II of Schedule 3 shall have effect in relation to group financial statements with the following modifications.

(2) In the Balance Sheet Formats, the items headed “Participating interests”, that is—

(a) in Format 1, item A.III.3; and

(b) in Format 2, item A.III.3 under the heading “ASSETS”;

shall be replaced by 2 items, “Interests in associated undertakings” and “Other participating interests”.

(3) In the Profit and Loss Account Formats, the items headed “Income from participating interests”, that is—

(a) in Format 1, item 8;

(b) in Format 2, item 10;

(c) in Format 3, item B.4; and

(d) in Format 4, item B.6,

shall be replaced by 2 items, “Income from interests in associated undertakings” and “Income from other participating interests”.

PART III


ACCOUNTING PRINCIPLES AND VALUATION RULES

ACCOUNTING PRINCIPLES

General

7. In determining the amounts to be included in the group financial statements, the accounting principles and valuation rules contained in Part III of Schedule 3 shall apply and shall be applied consistently within those group financial statements.

8. (1) Subject to subparagraph (2), a holding company shall apply the same methods of valuation in drawing up its group financial statements as it applies in drawing up its entity financial statements.

(2) Subparagraph (1) shall not apply where, in the opinion of the directors, a departure from that subparagraph is necessary for the purpose of giving a true and fair view.

(3) Where there is any application of subparagraph (2), the particulars of the departure and the reasons therefor shall be disclosed in the notes to the group financial statements.

9. (1) Where the assets and liabilities to be included in the group financial statements have been valued or otherwise determined by undertakings included in the consolidation according to accounting rules differing from those used in the group financial statements, the values or amounts shall be adjusted so as to accord with the rules used for the group financial statements.

(2) The adjustments referred to in this paragraph need not be made if they are not material for the purpose of giving a true and fair view.

(3) If, in the opinion of the directors of the holding company, there are special reasons for departing from subparagraph (1) they may do so but particulars of any such departure, the reasons therefor and its effect shall be stated in the notes to the group financial statements.

Preparing the consolidation

10. (1) Group financial statements shall show the assets, liabilities and financial position as at the end of the financial year and the profit or loss for the financial year of the holding company and the undertakings included in the consolidation as if they were a single undertaking.

(2) In particular—

(a) debts and claims between the undertakings included in the consolidation shall be eliminated in preparing the group financial statements;

(b) income and expenditure relating to transactions between the undertakings included in the consolidation shall be eliminated in preparing the group financial statements;

(c) where profits and losses resulting from transactions between the undertakings included in the consolidation are included in the book values of assets, they shall be eliminated in preparing the group financial statements;

but clauses (a) to (c) need not be complied with where the amounts involved are not material for the purpose of giving a true and fair view.

11. (1) The methods of consolidation shall be applied consistently from one financial year to the next.

(2) If, in the opinion of the directors of the holding company, there are special reasons for departing from subparagraph (1) they may do so but particulars of any such departure, the reasons therefor and its effect shall be stated in the notes to the group financial statements.

Accounting for an acquisition

12. (1) Paragraphs 13 to 16 apply where an undertaking becomes a subsidiary undertaking of the holding company.

(2) That event is referred to in those provisions as an “acquisition” and references to the undertaking acquired shall be read accordingly.

13. An acquisition shall be accounted for by the acquisition method of accounting unless the conditions for accounting for it as a merger as set out in paragraph 15 are satisfied and the merger method of accounting is adopted.

14. (1) The acquisition method of accounting is as described in subparagraphs (2) to (6).

(2) The identifiable assets and liabilities of the undertaking acquired shall be included in the consolidated balance sheet at their fair values as at the date of acquisition.

(3) In subparagraph (2) “identifiable assets or liabilities” means the assets or liabilities which are capable of being disposed of or discharged separately, without disposing of a business of the undertaking.

(4) The income and expenditure of the undertaking acquired shall be brought into the group financial statements only as from the date of acquisition.

(5) There shall be calculated the difference between the acquisition cost of the interest in the shares of the acquired undertaking incurred by the undertakings included in the group financial statements, and the interest of the undertakings included in the group financial statements in the adjusted capital and reserves of the undertaking acquired.

(6) For the foregoing purpose—

“acquisition cost” means the amount of any cash consideration and the fair value of any other consideration, together with such amounts (if any) in respect of fees and other expenses of the acquisition as the holding company may determine to have been incurred in relation to the acquisition;

“adjusted capital and reserves of the undertaking acquired” means its capital and reserves at the date of the acquisition after adjusting the identifiable assets and liabilities of the undertaking to fair values as at that date.

(7) The resulting amount, if positive, shall be treated as goodwill and the provisions of Schedule 3 in relation to goodwill shall apply.

(8) The resulting amount, if negative, shall be treated as a negative consolidation difference.

15. The conditions for accounting for an acquisition as a merger are—

(a) that at least 90 per cent of the nominal value of the equity shares in the undertaking acquired is held by or on behalf of the undertakings consolidated in the group financial statements,

(b) that the proportion referred to in clause (a) was attained pursuant to the arrangement providing for the issue of equity shares by the undertakings consolidated in the group financial statements,

(c) that the fair value of any consideration other than the issue of equity shares given pursuant to the arrangement by the undertakings consolidated in the group financial statements did not exceed 10 per cent of the nominal value of the equity shares issued.

16. (1) The merger method of accounting is as set out in subparagraphs (2) to (6).

(2) The assets and liabilities of the undertaking acquired shall be brought into the group financial statements at the amount at which they stand in the acquired undertaking’s financial statements, subject to any adjustment authorised or required by this Part.

(3) The income and expenditure of the acquired undertaking shall be included in the group financial statements for the entire financial year, including the period before the acquisition.

(4) The group financial statements shall show corresponding amounts relating to the previous financial year as if the undertaking had been included in the consolidation throughout that year.

(5) There shall be set off against the aggregate of—

(a) the appropriate amount in respect of shares issued by the undertakings consolidated in the group financial statements as part of the arrangement referred to in paragraph 15(b) in consideration for the acquisition of shares in the acquired undertaking; and

(b) the fair value of any other consideration for the acquisition of shares in the acquired undertaking, determined as at the date when those shares were acquired;

the nominal value of the issued share capital of the acquired undertaking held by the undertakings consolidated in the group financial statements.

(6) The resulting amount shall be shown as an adjustment to the consolidated reserves.

17. (1) Where a group is acquired, paragraphs 12 to 16 apply with the following adaptations.

(2) References to shares of the acquired undertaking shall be read as references to shares of the holding undertaking of the group acquired.

(3) Other references to the acquired undertaking shall be read as references to the group acquired; and references to the assets and liabilities, income and expenditure and capital and reserves of the acquired undertaking shall be read as references to the assets and liabilities, income and expenditure and capital and reserves of the group after making the set offs and other adjustments required by this Part in the case of group financial statements.

Changes in the composition of the group

18. If the composition of the undertakings consolidated in the group financial statements has changed significantly in the course of a financial year, the group financial statements must include information which makes the comparison of successive sets of group financial statements meaningful.


ACCOUNTING FOR JOINT VENTURES AND ASSOCIATES IN GROUP FINANCIAL STATEMENTS

Joint ventures

19. (1) Where a holding company or one of its subsidiary undertakings consolidated in the group financial statements manages another undertaking jointly with one or more undertakings not consolidated in the group financial statements, that other undertaking (the “joint venture”) may, if it is not—

(a) a body corporate; or

(b) a subsidiary undertaking of the holding company;

be proportionally consolidated in the group financial statements in proportion to the rights in its capital held by the holding company or the subsidiary undertakings consolidated in the group financial statements, as the case may be.

(2) The provisions of this Schedule relating to the preparation of consolidated financial statements shall apply, with any necessary modifications, to the inclusion of joint ventures in the consolidated financial statements by proportional consolidation in accordance with subparagraph (1).

Associated undertakings

20. (1) In paragraph 21 “associated undertaking” means an undertaking in which an undertaking consolidated in the group financial statements has a participating interest and over whose operating and financial policy it exercises a significant influence and which is not—

(a) a subsidiary undertaking of the holding company; or

(b) a joint venture proportionally consolidated in accordance with paragraph 19.

(2) Where an undertaking holds 20 per cent or more of the voting rights in another undertaking, it shall be presumed to exercise such an influence over it unless the contrary is shown.

(3) The voting rights in an undertaking means the rights conferred on shareholders in respect of their shares or, in the case of an undertaking not having a share capital, on members, to vote at general meetings of the undertaking on all or substantially all matters.

(4) The provisions of section 7 (5) and (6) with respect to determining whether shares are held in a body corporate and with respect to reckoning the amount of voting rights held apply, with any necessary modifications, in determining for the purpose of this paragraph whether an undertaking holds 20 per cent or more of the voting rights in another undertaking.

21. (1) The interest of an undertaking consolidated in the group financial statements in an associated undertaking, and the amount of profit or loss attributable to such an interest, shall be shown in the group financial statements by way of the equity method of accounting including dealing with any goodwill arising in accordance with paragraphs 20 to 22 and 24 of Schedule 3 .

(2) Where the associated undertaking is itself a holding undertaking, the net assets and profits or losses to be taken into account are those of the holding undertaking and its subsidiary undertakings (after making any consolidation adjustments).

(3) The equity method of accounting need not be applied if the amounts in question are not material for the purpose of giving a true and fair view.

Participating interest

22. (1) In paragraph 20 and this paragraph “participating interest” means an interest held by one undertaking in the equity shares of another undertaking which it holds on a long term basis for the purpose of securing a contribution to that undertaking’s own activities by the exercise of control or influence arising from or related to that interest.

(2) The reference in subparagraph (1) to an interest in equity shares includes—

(a) an interest which is convertible into an interest in equity shares; and

(b) an option to acquire equity shares or any such interest,

and an interest or option falls within clause (a) or (b) notwithstanding that the equity shares to which it relates are, until the conversion or the exercise of the option, unissued.

(3) Where an undertaking holds an interest in equity shares and such an interest represents 20 per cent or more of all such interests in the other undertaking it shall be presumed to hold that interest on the basis and for the purpose mentioned in subparagraph (1) unless the contrary is shown.

(4) For the purpose of this paragraph an interest held on behalf of an undertaking shall be treated as held by it.

(5) In the balance sheet and profit and loss formats set out in Part II of Schedule 3 , “participating interest” does not include an interest in a group undertaking.


PART IV

INFORMATION REQUIRED BY WAY OF NOTES TO GROUP FINANCIAL STATEMENTS

23. Without prejudice to paragraph 2, the notes to the group financial statements shall, in addition to providing the information required by Schedule 3 , also state the information required by paragraphs 24 to 28.

24. Where sums originally denominated in currencies, other than the currency in which the group financial statements are presented, have been brought into account under any items shown in the balance sheet or profit and loss account, the basis on which those sums have been translated into the currency in which the group financial statements are presented shall be stated.

25. In respect of the aggregate of the amounts shown in the group balance sheet under the heading “Creditors” there shall be stated the information required by paragraph 58 of Schedule 3 as if references in that paragraph to a company were to the company and its subsidiary undertakings taken as a whole.

26. In relation to each joint venture proportionately consolidated, there shall be stated the nature of the joint management arrangement.

27. In relation to acquisitions taking place in the financial year, there shall be stated in the notes to the group financial statements—

(a) the name and registered office of the acquired undertaking, or where a group was acquired, the name and registered office of the holding undertaking of that group; and

(b) whether the acquisition has been accounted for by the acquisition method or the merger method of accounting.

28. Paragraph 67 (related party transactions) of Schedule 3 shall, in the case of group financial statements, apply to all transactions entered into by the holding company, or any subsidiary undertaking included in the consolidation, with related parties, being transactions of the kind referred to in that paragraph but not being intra-group transactions.