The Friendly Societies Act 1992 (International Accounting Standards and Other Accounting Amendments) Order 2005

PART 1 General

Citation, commencement and interpretation

1.—(1) This Order may be cited as the Friendly Societies Act 1992 (International Accounting Standards and Other Accounting Amendments) Order 2005.

(2) This Order comes into force on 1st October 2005 and has effect as respects financial years which begin on or after 1st January 2005 and end on or after 1^st October 2005.

(3) In this Order “the 1992 Act” means the Friendly Societies Act 1992.

PART 2 Accounts prepared in accordance with international accounting standards

Preparation of individual and group accounts in accordance with international accounting standards

2.  For sections 69 and 70 of the 1992 Act substitute—

“Duty to prepare individual accounts

69A— (1) The committee of management of every friendly society or registered branch must prepare accounts for the society or branch for each of its financial years.Those accounts are referred to in this Part as the society’s or branch’s “individual accounts”.

(2) The individual accounts of a friendly society or registered branch of a society may be prepared—

(a) in accordance with section 69B (“Friendly Societies Act individual accounts”), or

(b) in accordance with international accounting standards (“IAS individual accounts”).

This subsection is subject to subsection (3) and section 69I (consistency of accounts).

(3) After the first financial year in which the committee of management of a friendly society or registered branch prepares IAS individual accounts (“the first IAS year”), all subsequent individual accounts of the society or branch must be prepared in accordance with international accounting standards unless there is a relevant change of circumstance.

(4) There is a relevant change of circumstance if, at any time during or after the first IAS year—

(a) the society or branch becomes a subsidiary undertaking of another undertaking and individual accounts for that undertaking are not prepared in accordance with international accounting standards,

(b) the society or branch ceases to be a society or part of a society with securities admitted to trading on a regulated market, or

(c) a parent undertaking of the society or branch ceases to be an undertaking with securities admitted to trading on a regulated market.

In this subsection “regulated market” has the same meaning as it has in Council Directive 93/22/EEC on investment services in the securities field.

(5) If, having changed to preparing Friendly Societies Act individual accounts following a relevant change of circumstance, the committee of management again prepares IAS individual accounts for the society or branch, subsections (3) and (4) apply again as if the first financial year for which such accounts are again prepared were the first IAS year.

Friendly Societies Act individual accounts

69B.— (1) Friendly Societies Act individual accounts must comprise—

(a) a balance sheet as at the last day of the financial year, and

(b) an income and expenditure account.

(2) The balance sheet must give a true and fair view of the state of affairs of the society or branch as at the end of the financial year; and the income and expenditure account must give a true and fair view of the income and expenditure of the society or branch for the financial year.

(3) Friendly Societies Act individual accounts must comply with the requirements of regulations made under section 69C as to the form and content of the balance sheet and income and expenditure account and additional information to be provided by way of notes to the accounts or otherwise.

(4) Where compliance with the provisions of those regulations, and the other provisions of this Act as to the matters to be included in a society’s or branch’s individual accounts or in notes to those accounts, 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.

(5) If in special circumstances compliance with any of those provisions is inconsistent with the requirement to give a true and fair view, the committee of management must depart from that provision to the extent necessary to give a true and fair view.

(6) Particulars of any such departure, the reasons for it and its effect must be given in a note to the accounts.

(7) The Treasury may by regulations –

(a) add to the classes of documents to be comprised in a society’s or branch’s Friendly Societies Act individual accounts under subsection (1);

(b) make provision as to the matters to be included in any document so added;

(c) modify the requirements of this Part as to the matters to be stated in any document comprised in the society’s or branch’s Friendly Societies Act individual accounts;

(d) reduce the classes of documents to be comprised in a society’s or branch’s Friendly Societies Act individual accounts.

(8) Regulations under subsection (7) –

(a) may make different provision for different cases, and

(b) may include incidental and supplementary provisions.

Form and contents of Friendly Societies Act individual accounts

69C.— (1) The Treasury must by regulations make provision with respect to the form and content of Friendly Societies Act individual accounts.

(2) The Treasury may by regulations make provision with respect to additional information to be contained in Friendly Societies Act individual accounts, whether in the form of notes or otherwise.

(3) The regulations may, in particular–

(a) prescribe accounting principles and rules;

(b) require corresponding information for a preceding financial year;

(c) make different 'provision for different descriptions of society or branch.

IAS individual accounts

69D.   Where the committee of management of a friendly society prepare IAS individual accounts for a society or branch, it must state in the notes to those accounts that the accounts have been prepared in accordance with international accounting standards.

Duty to prepare group accounts

69E.— (1) If at the end of a financial year an incorporated friendly society has subsidiary undertakings, the committee of management, in addition to preparing individual accounts for the year, must prepare consolidated accounts for the year for the society and those undertakings taken as a whole, except as provided by regulations under subsection (7).

Those accounts are referred to in this Part as the society’s “group accounts”.

(2) Certain friendly societies are obliged by Article 4 of the IAS Regulation to prepare their group accounts in accordance with international accounting standards (“IAS group accounts”).

(3) The group accounts of other friendly societies may be prepared –

(a) in accordance with section 69F (“Friendly Societies Act group accounts”), or

(b) in accordance with international accounting standards (“IAS group accounts”).

This subsection is subject to the following provisions of this section and section 69I (consistency of accounts).

(4) After the first financial year in which the committee of management of a friendly society prepares IAS group accounts (“the first IAS year”), all subsequent group accounts of the society must be prepared in accordance with international accounting standards unless there is a relevant change of circumstance.

(5) There is a relevant change of circumstance if, at any time during or after the first IAS year—

(a) the society becomes a subsidiary undertaking of another undertaking and accounts for that undertaking and its subsidiary undertakings (taken as a whole) are not prepared in accordance with international accounting standards,

(b) the society ceases to be a society with securities admitted to trading on a regulated market, or

(c) a parent undertaking of the society ceases to be an undertaking with securities admitted to trading on a regulated market.

In this subsection “regulated market” has the same meaning as it has in Council Directive 93/22/EEC on investment services in the securities field.

(6) If, having changed to preparing Friendly Societies Act group accounts following a relevant change of circumstance, the committee of management again prepares IAS group accounts for the society, subsections (4) and (5) apply again as if the first financial year for which such accounts are again prepared were the first IAS year.

(7) The Treasury may by regulations exempt specified descriptions of incorporated friendly societies with subsidiaries from any duty to prepare group accounts.

(8) Regulations under subsection (7) may exempt societies by reference to any criterion and may make different provision for different descriptions of societies.

Friendly Societies Act group accounts

69F.— (1) Friendly Societies Act group accounts must comprise—

(a) a balance sheet dealing with the state of affairs of the society and its subsidiary undertakings;

(b) an income and expenditure account showing the income and expenditure of the society and its subsidiary undertakings.

(2) Friendly Societies Act group accounts must give a true and fair view of the state of affairs as at the end of the financial year, and the income and expenditure for the financial year, of the society and the subsidiary undertakings included in the group accounts as a whole, so far as concerns the members of the society.

(3) Friendly Societies Act group accounts must comply with the requirements of regulations made under section 69G as to the form and content of the group accounts and additional information to be provided by way of notes to the accounts or otherwise.

(4) Where compliance with the provisions of those regulations, and the other provisions of this Act as to the matters to be included in a society’s group accounts or in notes to those accounts, 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.

(5) If in special circumstances compliance with any of those provisions is inconsistent with the requirement to give a true and fair view, the committee of management must depart from that provision to the extent necessary to give a true and fair view.

(6) Particulars of any such departure, the reasons for it and its effect must be given in a note to the accounts.

(7) The Treasury may by regulations—

(a) add to the classes of documents to be comprised in a society’s Friendly Societies Act group accounts under subsection (1);

(b) make provision as to the matters to be included in any document so added;

(c) modify the requirements of this Part as to the matters to be stated in any document comprised in the society’s Friendly Societies Act group accounts; and

(d) reduce the classes of documents to be comprised in a society’s Friendly Societies Act group accounts.

(8) Regulations under subsection (7)—

(a) may make different provision for different descriptions of society; and

(b) may include incidental and supplementary provisions.

Form and content of Friendly Societies Act group accounts

69G.— (1) The Treasury must by regulations make provision with respect to the form and content of Friendly Societies Act group accounts.

(2) The Treasury may by regulations make provision with respect to additional information to be contained in Friendly Societies Act group accounts, whether in the form of notes or otherwise.

(3) The regulations may, in particular—

(a) prescribe accounting principles and rules;

(b) require corresponding information for a preceding financial year; and

(c) make different provision for different descriptions of society.

IAS group accounts

69H.   Where the committee of management of a friendly society prepares IAS group accounts, it must state in the notes to those accounts that the accounts have been prepared in accordance with international accounting standards.

Consistency of accounts

69I.— (1) The committee of management of a friendly society that prepares group accounts must secure that the individual accounts of—

(a) the friendly society,

(b) each of its subsidiary undertakings, and

(c) each of its registered branches,

are all prepared using the same financial reporting framework, except to the extent that in their opinion there are good reasons for not doing so.

(2) Subsection (1) only applies to accounts of subsidiary undertakings which are—

(a) required to be prepared under Part 7 of the Companies Act 1985(1), or

(b) required to be prepared under Part 6 of this Act.

(3) Subsection (1) does not require accounts of undertakings that are charities to be prepared using the same financial reporting framework as accounts of undertakings which are not charities.

(4) Subsection (1)(a) does not apply where the committee of management of a friendly society prepares IAS group accounts and IAS individual accounts.

(5) The committee of management of a society which has subsidiary undertakings must ensure that, except where in its opinion there are good reasons against it, the financial year of each of its subsidiary undertakings coincides with the society’s own financial year.”.

PART 3 Other modifications of Friendly Societies Act provisions relating to accounts

Contents of the committee of management’s annual report

3.—(1) Section 71 of the 1992 Act (report on a friendly society’s affairs by the committee of management) is amended as follows.

(2) In subsection (1) for paragraph (a) substitute—

“(a) a fair review of the business of the society, its subsidiary undertakings and bodies that it jointly controls (if any) complying with section 71A;

(aa) a description of the principal risks and uncertainties facing the society, its subsidiary undertakings and bodies that it jointly controls (if any);”.

(3) After subsection (1) insert –

“(1A) If the friendly society has subsidiary undertakings, the report may, where appropriate, give greater emphasis to those matters which are significant to the society and its subsidiary undertakings taken as a whole.”.

(4) Omit subsection (2)(b).

Business review

4.  After section 71 of the 1992 Act insert—

“ Business review

71A— (1) The review required for the purposes of section 71(1)(a) is a balanced and comprehensive analysis of—

(a) the development and performance of the business of the friendly society, its subsidiary undertakings and bodies that it jointly controls (if any) during the financial year, and

(b) the position of the friendly society, its subsidiary undertakings and bodies that it jointly controls (if any) at the end of that year,

consistent with the size and complexity of the business.

(2) The review must, to the extent necessary for an understanding of the development, performance or position of the business of the society, its subsidiary undertakings and bodies that it jointly controls (if any), include—

(a) analysis using financial key performance indicators, and

(b) where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters.

(3) The review must, where appropriate, include references to additional explanations of amounts included in the annual accounts of the society.

(4) In this section “key performance indicators” means factors by reference to which the development, performance or position of the business of the society, any subsidiary undertakings it has and any bodies that it jointly controls, can be measured effectively.”.

Content of the auditors' report

5.—(1) Section 73 of the 1992 Act (auditors' report) is amended as follows.

(2) For subsection (4) substitute—

“(4A) The auditors shall, in their report,—

(a) state whether in their opinion the information given in the report of the committee of management for the financial year for which the annual accounts are prepared is consistent with those accounts; and

(b) state whether in their opinion that report has been prepared in accordance with this Act and the regulations made under it.”

(3) For subsection (5) substitute—

“(5A) The auditors shall, in their report, include—

(a) an introduction identifying the annual accounts that are the subject of the audit and the financial reporting framework that has been applied in their preparation;

(b) a description of the scope of the audit identifying the auditing standards in accordance with which the audit was conducted.

(5B) The auditors shall, in their report, state clearly whether in the auditors' opinion the annual accounts have been properly prepared in accordance with the requirements of this Act (and, where applicable, Article 4 of the IAS Regulation).

(5C) The auditors shall, in their report, state in particular whether the annual accounts give a true and fair view in accordance with the relevant financial reporting framework—

(a) in the case of an individual balance sheet, of the state of affairs of the society or branch as at the end of the financial year;

(b) in the case of an individual income and expenditure account, of the income and expenditure of the society or branch for the financial year;

(c) in the case of the group accounts of an incorporated friendly society, of the state of affairs as at the end of the financial year and of the income and expenditure for the financial year of the society and the subsidiary undertakings dealt with in the group accounts, so far as concerns members of the society.

(5D) The auditors' report—

(a) shall be either unqualified or qualified, and

(b) shall include a reference to any matters to which the auditors wish to draw attention by way of emphasis without qualifying the report.”.

(4) Omit subsections (6) and (7).

Dating of the auditors' report

6.  In subsection (1) of section 74 of the 1992 Act (signature of auditors' report), after “signed” insert “and dated”.

Consequential amendments

7.  The Schedule to this Order (consequential amendments to the 1992 Act) has effect.

PART 4 Transitional provisions

Regulations made under sections 69 and 70

8.—(1) Regulations made under subsection (4) section 69 of the 1992 Act (exemptions from duty to prepare group accounts) and in force immediately before the commencement date have effect as if made under section 69E of that Act (inserted by this Order).

(2) Regulations made under section 70 of the 1992 Act (documents included in and contents and form of annual accounts) and in force immediately before the commencement date have effect as if made under sections 69B, 69C, 69F and 69G of that Act (inserted by this Order).

Dave Watts

Vernon Coaker

Two of the Lords Commissioners of Her Majesty’s Treasury

4th August 2005