This is another group of amendments that responds to concerns raised with us by one of the large accountancy firms. The need for the amendments arises because there are differences regarding which undertakings are consolidated in group accounts, depending on whether a parent company is preparing those group accounts using international accounting standards or UK law and standards, which is UK GAAP—generally accepted accounting principles. These result in some circumstances where the populations of the group differ depending on whether IAS or UK GAAP is used.
In the case of group accounts prepared under UK GAAP, the population of the group will be the parent company and its subsidiary undertakings as defined in part 32, but excluding subsidiary undertakings that meet any exclusion in clause 387. Those definitions derive from the seventh European Community company law directive on consolidated accounts. The definition of “subsidiary” under IAS 27 is slightly different, which could lead to different entities populating a group for the purpose of consolidated accounts.
The amendments will ensure that the legal provisions in part 15 concerning group accounts relate to the populations of entities that are included in the relevant group accounts, whether prepared under IAS or UK GAAP. There is additional wording in the amendment to clause 375 to reflect the requirement of clause 386(2) that the true and fair view of a group must be looked at from the point of view of the members of the holding company, not from that of shareholders in the subsidiary companies.
Once again, we very much welcome the amendments. They are needed to resolve any confusion and to ensure that the concept of group accounts is as broad as it needs to be.
‘(3) If compliance with the regulations and any other provision made by or under this Act as to the matters to be included in a company’s individual accounts, or in notes to those accounts under subsection (1), would not be sufficient to give a true and fair view, the necessary additional information must be given in the accounts or in a note to them.’.
‘(2) If compliance with the regulations and any other provision made by or under this Act as to the matters to be included in a company’s IAS individual accounts, or in notes to those accounts under subsection (1), would not be sufficient to give a true and fair view, the necessary additional information must be given in the accounts or in a note to them.’.
These probing amendments seek clarification of the concept of “true and fair”. One thing the Bill does is move the auditing profession increasingly to a tick-box approach to auditing whereby, if accounting and auditing standards are fulfilled, the accounts and the business of the audit, as well as the accountants, are, by definition, deemed to be successful. I understand that, nevertheless, the concept of “true and fair” still underpins financial statements.
Under clause 375, directors now have an express duty to ensure that annual accounts give a true and fair view. Clause 375 requires auditors to take account of that duty on directors when they themselves are forming and giving their audit opinion. Clause 485 similarly requires the auditor to give an opinion on whether the accounts give a true and fair view. Therefore, there seem to be a number of indications that “true and fair” remains the underpinning principle.
We are moving increasingly to an IAS basis for international companies, and IAS 1 includes the concept of fair presentation, which is not exactly the same, potentially, as “true and fair”. I understand that when this has been debated at European Union level, “true and fair” has predominated over even “fair presentation”. Again, it would be helpful to get clarification from the Minister that, irrespective of the fact that all accounting and auditing standards might have been followed, the accounts that emerge from that process must give a true and fair view of the financial position of the company at the date of those accounts. That must predominate, and I would be grateful if she gave the Committee that assurance.
I, too, welcome the hon. Lady to her Front-Bench post. It is good to have two women talking about accounting, for a change.
In no way will the provisions in this part of the Bill lead to the tick-box mentality that the hon. Lady fears and which we will doubtless discuss a little later, although I fear that some of the amendments might do so. That is not the intention or the purpose, and I do not think that we will end up with it.
The hon. Lady is right to say that clause 375 makes it an express duty on directors, who we have included, to give a “true and fair” view of a company’s financial position. I am aware of the “fair presentation” language that comes into the IAS requirements, and I assure her that there is no practical difference and that the “true and fair” principles will still be the key thing that directors and auditors have to consider before they sign off accounts. Nothing in company law or in international accounting rules requires anything other than that.
I am very assured by the Minister’s statement. There is no doubt that the concept of “true and fair” has underpinned all the work in respect of directors, accountants and auditors over the years. It is a concept that is well understood not only within the profession and the business world, but outside them. That is why it is so valuable to ensure that it is enshrined in the Bill.
In view of the Minister’s comments, I beg to ask leave to withdraw the amendment.