02 Feb Companies House Reform: Reform of Company Accounts
The government has received strong support for the reform of company accounts following its recent consultation on Corporate Transparency and Register Reform. As a result, reforms that go further than initially envisaged are being considered and will be subject to further consultation. Below, Elemental reviews what happens next and what might happen in the future.
Corporate transparency and register reform: Government Response
In the fourth of a series of articles examining the recently published government response to the consultation on enhancing the role of Companies House and transparency of UK corporate entities, we review the reform of company accounts.
Improving Financial Information available on the Register
There are few concrete reform proposals contained in the government response. However, the government acknowledges that several respondents are concerned about the accuracy of the Companies House data. Respondents suggested improvements including requesting more detailed profit and loss information, checking for companies filing duplicate accounts and introducing more cross-checking of information between Companies House and other public sector bodies.
Companies House data does not currently reveal whether a company is small, medium, or large. One firm reform proposal will ensure that Companies House collects data to confirm eligibility for filing these types of accounts.
There is a balance to be struck between such improvements and the additional burdens that such reforms could place on businesses.
The government intends to consider the following areas for further consultation:
- The processes for checking accounts filed with Companies House in an effort to enforce the Companies Act 2006 and increase the value of the Register.
- Requesting additional information in accounts, such as turnover, in order to improve transparency, accuracy and integrity of accounts filings.
- Ensuring there is value in the information displayed on the Register by reviewing reporting timelines and considering improving the way accounts are displayed online.
- Aligning the submission of accounts with HMRC and other government agencies.
Shortening the accountancy reference period
A company can currently shorten its accounting reference period (ARP) as often as it wishes to. This process is open to abuse by companies who use this as a mechanism to extend filing deadlines.
Strong support was received for limiting the ability of a company to shorten its ARP to once every five years. This would match up with existing provisions relating to extending (rather than shortening) the ARP. The government agreed and intends to pursue this reform.
Companies will also be required to submit information to support a change of ARP. In particular, where a company claims it is aligning its ARP with a parent or subsidiary as the reason for making a change, Companies House will request the name and company number of the parent/subsidiary to serve as a cross-check.
Minimum Account Tagging Standards
To facilitate the digital submission of all accounts, the government plans to extend iXBRL tagging to conform with international standards e. The government will pay close attention to the needs of small business, to minimise any burden from new tagging and electronic filing measures.
This proposal received strong support as part of the consultation response, and it seems to be a no-brainer. The implementation of full tagging will reduce potential fraud, create transparency, and make financial information easier to extract and compare. The standard is being adopted internationally and this step will bring the UK into line with international best practice.
How Elemental can help
We believe increasing transparency will improve trust in UK businesses, however there is a balance to be struck – it is essential that UK businesses are not subjected to excessive administrative burden. These reforms demonstrate that the government is taking a step in the right direction and show what is likely to be changing over the next few years.