The Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments) Order 2004

Made: 21st December 2004

Coming into force: 21st December 2004

Now therefore, the Treasury, in exercise of the powers conferred upon them by section 104 of the Building Societies Act 1986 and by section 2(2) of the European Communities Act 1972, hereby make the following Order:

PART 1 — General

Citation, commencement and interpretation

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• (1) This Order may be cited as the Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments) Order 2004.

• (2) This Order comes into force on the day after the day on which it is made and has effect as respects building societies' financial years which begin on or after 1st January 2005 (the “commencement date”).

• (3) In this Order “the 1986 Act” means the Building Societies Act 1986.

PART 2 — Accounts prepared in accordance with international accounting standards

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

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For sections 72 and 73 of the 1986 Act⁴ substitute—

(72A) (1) The directors of every building society shall prepare accounts for the society for each of its financial years. Those accounts are referred to in this Part as the society’s “individual accounts”. (2) A society’s individual accounts may be prepared– (a) in accordance with section 72B (“Building Societies Act individual accounts”), or (b) in accordance with international accounting standards (“IAS individual accounts”). This subsection is subject to the following provisions of this section and section 72I (consistency of accounts). (3) After the first financial year in which the directors of a building society prepare IAS individual accounts (“the first IAS year”), all subsequent individual accounts of the society 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, the society ceases to have any securities admitted to trading on a regulated market. (5) If, having changed to preparing Building Societies Act individual accounts following a relevant change of circumstance, the directors again prepare IAS individual accounts for the society, subsections (3) and (4) apply again as if the first financial year for which such accounts are again prepared were the first IAS year. (72B) (1) Building 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 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 for the financial year. (3) Building Societies Act individual accounts must comply with the requirements of regulations made under section 72C 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 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 directors 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 Building 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 Building Societies Act individual accounts; (d) reduce the classes of documents to be comprised in a society’s Building Societies Act individual accounts. (8) Regulations under subsection (7)– (a) may make different provision for different descriptions of society, and (b) may include incidental and supplementary provisions. (9) The power to make regulations under subsection (7) is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (72C) (1) The Treasury shall by regulations make provision with respect to the form and contents of Building Societies Act individual accounts. (2) The Treasury may by regulations make provision with respect to additional information to be contained in Building Societies Act individual accounts, whether in the form of notes or otherwise. (3) Without prejudice to the generality of subsections (1) and (2), the regulations may— (a) prescribe accounting principles and rules; (b) require corresponding information for a preceding financial year; (c) make different provision for different descriptions of society; (4) The power to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. (72D) Where the directors of a building society prepare IAS individual accounts, they must state in the notes to those accounts that the accounts have been prepared in accordance with international accounting standards. (72E) (1) If at the end of a financial year a building society has subsidiary undertakings, the directors, as well as preparing individual accounts for the year, shall prepare accounts for the year for the society and those undertakings taken as a whole.Those accounts are referred to in this Part as the society’s “group accounts”. (2) The group accounts of certain societies are required by Article 4 of the IAS Regulation to be prepared in accordance with international accounting standards (“IAS group accounts”). (3) The group accounts of other societies may be prepared– (a) in accordance with section 72F (“Building 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. (4) After the first financial year in which the directors of a building society prepare 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, the society ceases to have any securities admitted to trading on a regulated market. (6) If, having changed to preparing Building Societies Act group accounts following a relevant change of circumstance, the directors again prepare IAS group accounts for the society, subsection (4) and (5) apply again as if the first financial year for which such accounts are again prepared were the first IAS year. (72F) (1) Building Societies Act group accounts must comprise– (a) a balance sheet dealing with the state of affairs of the building society and its subsidiary undertakings, and (b) an income and expenditure account showing the income and expenditure for the society and its subsidiary undertakings. (2) Building 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 members of the society. (3) Building Societies Act group accounts must comply with the requirements of regulations made under section 72G 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 directors 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 Building 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 Building Societies Act group accounts; and (d) reduce the classes of documents to be comprised in a society’s Building 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. (9) The power to make regulations under subsection (7) is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. (72G) (1) The Treasury shall by regulations make provision with respect to the form and contents of Building Societies Act group accounts. (2) The Treasury may by regulations make provision with respect to additional information to be contained in Building Societies Act group accounts, whether in the form of notes or otherwise. (3) Without prejudice to the generality of subsections (1) and (2), the regulations may— (a) prescribe accounting principles and rules; (b) require corresponding information for a preceding financial year; (c) make different provision for different descriptions of society; (d) permit group accounts to be prepared in other than consolidated form. (4) The power to make regulations under this section is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (72H) Where the directors of a building society prepare IAS group accounts, they must state in the notes to those accounts that the accounts have been prepared in accordance with international accounting standards. (72I) (1) The directors of a building society that prepares group accounts must secure that the individual accounts of– (a) the building society, and (b) each of its subsidiary undertakings, 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 required to be prepared under Part 7 of the Companies Act 1985⁵. (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 directors of a building society prepare IAS group accounts and IAS individual accounts. (5) The directors of a society which has subsidiary undertakings must secure that, except where in their 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 provisions relating to accounts, directors' reports and auditors' reports

Duty to prepare directors' report

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• (1) Section 75 of the 1986 Act (directors' report) is amended as follows.

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

(a) a fair review of the business of the society and its connected undertakings (if any), complying with section 75A, (aa) a description of the principal risks and uncertainties facing the society and its connected undertakings (if any),

• (3) After subsection (1A)⁶ insert–

(1B) If the building 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).

Business review

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After section 75 of the 1986 Act insert—

(75A) (1) The review required for the purposes of section 75(1) is a balanced and comprehensive analysis of— (a) the development and performance of the business of the building society and its connected undertakings (if any) during the financial year, and (b) the position of the building society and its connected undertakings (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 and its connected undertakings (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 and 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 and any connected undertakings it has can be measured most effectively.

Content of auditors' report

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• (1) Section 78 of the 1986 Act (auditors' report) is amended as follows.

• (2) For subsections (4) and (5) substitute—

(3A) The auditors' report must 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. (3B) The report must 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). (4) The report must 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 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 for the financial year, (c) in the case of group accounts, 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 dealt with in the group accounts, so far as concerns members of the society. (4A) The auditors' report— (a) must be either unqualified or qualified, and (b) must include a reference to any matters to which the statutory auditors wish to draw attention by way of emphasis without qualifying the report.

Auditors' report to be signed and dated

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After section 78 of the 1986 Act insert—

(78A) (1) The auditors' report must state the names of the auditors and be signed and dated by them. (2) Every copy of the auditors' report which is laid before the building society at the annual general meeting or which is otherwise circulated, published or issued, must state the names of the auditors. (3) If a copy of the auditors' report is laid before the society or otherwise circulated, published or issued without the required statement of the auditors' names, the society and every officer of it who is in default is guilty of an offence and liable on summary conviction to a fine not exceeding level 3 on the standard scale. (4) References in this section to signature by the auditors are, where the office of auditor is held by a body corporate or partnership, to signature in the name of the body corporate or partnership by a person authorised to sign on its behalf.

Auditors' report and publication of accounts

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After section 81 of the 1986 Act insert—

(81A) (1) If a building society publishes any of its statutory accounts, they must be accompanied by the relevant auditors' report under section 78. (2) A building society that is required to prepare group accounts for a financial year must not publish its statutory individual accounts for that year without also publishing with them its statutory group accounts. (3) If a building society publishes non-statutory accounts, it must publish with them a statement indicating— (a) that they are not the society’s statutory accounts, (b) whether statutory accounts dealing with any financial year with which the non-statutory accounts purport to deal have been prepared, (c) whether the society’s auditors have made a report under section 78 on the statutory accounts for any financial year, and (d) whether any such auditors' report— (i) was qualified or unqualified, or included a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, or (ii) contained a statement under section 79(6) (failure to obtain necessary information and explanations); and it must not publish with any non-statutory accounts any auditors' report made under section 78. (4) For the purposes of this section a building society is regarded as publishing a document if it publishes, issues or circulates it or otherwise makes it available for public inspection in a manner calculated to invite members of the public generally, or any class of members of the public, to read it. (5) References in this section to a building society’s statutory accounts are to its annual accounts as required to be laid before the society under section 81; and references to the publication by a society of “non-statutory accounts” are to the publication of— (a) any balance sheet or income and expenditure account relating to, or purporting to deal with, a financial year or part of a financial year of the society, or (b) an account in any form purporting to be a balance sheet or income and expenditure account for the group consisting of the society and its subsidiary undertakings relating to, or purporting to deal with, a financial year or part of a financial year of the society, otherwise than as part of the society’s statutory accounts or summary financial statement prepared under section 76. (6) A building society which contravenes any provision of this section, and any officer of it who is in default, is guilty of an offence and liable on summary conviction to a fine not exceeding level 3 on the standard scale.

Consequential amendments

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The Schedule to this Order (consequential amendments to the 1986 Act) has effect.

PART 4 — Transitional provisions

Regulations made under sections 72 and 73

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• (1) Regulations made under section 72 of the 1986 Act (documents comprised in annual accounts) and in force immediately before the commencement date have effect as if made under sections 72B and 72F of that Act (inserted by this Order).

• (2) Regulations made under section 73 of the 1986 Act (contents and form of annual accounts) and in force immediately before the commencement date have effect as if made under sections 72C and 72G of that Act (inserted by this Order).

SCHEDULE — Consequential amendments to the 1986 Act

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The 1986 Act is amended as follows.

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• (1) Section 6 (the lending limit) is amended as follows.

• (2) In subsection (2), in the definition of “X”, in paragraph (a) omit “in pursuance of regulations under section 73(7)”.

• (3) In subsection (14), in the definition of “accounts”—

• (a) in paragraph (a) omit “under subsection (1) of section 72”; and

• (b) in paragraph (b) omit “under subsection (2) of that section”.

• (4) After subsection (15) insert the following—

(16) In this section, in the case of societies which produce IAS individual accounts or IAS group accounts; - “fixed assets” means–land and buildings;plant and machinery;equipment, fixtures, fittings and vehicles;payments on account and assets in the course of construction; andintangible fixed assets. - “liquid assets” means–cash and cash equivalents;treasury bills and similar securities;loans and advances to credit institutions; anddebt securities and other fixed income securities.

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• (1) Section 61(3A)⁷ (supplementary provisions regarding election of directors) is amended as follows–

• (a) in paragraph (a), for “under section 73(7)” substitute “under section 72C or 72G, or in accordance with international accounting standards, as appropriate”;

• (b) for “section 72” substitute “section 72A or 72E and “liquid assets” and “fixed assets”, in the case of societies which produce IAS individual accounts or IAS group accounts, have the same meaning as given in section 6(16).”.

4

In section 71(2) (accounting records), in each of paragraphs (c) and (d), after “under this Act” insert “(and, where applicable Article 4 of the IAS Regulation)”.

5

After section 72I (consistency of accounts) (inserted by this Order) insert—

(72J) (1) The information specified in Schedule 10A must be given in notes to a building society’s annual accounts. (2) In that Schedule— - Part 1 relates to emoluments and other benefits of directors and others, and to loans and other dealings in favour of directors and connected persons, and - Part 2 relates to information about the employees of a society. (3) It is the duty of any director of a society, and any person who is or has at any time in the preceding five years been an officer of the society, to give notice to the society of such matters relating to himself as may be necessary for the purposes of Part 1 of Schedule 10A. (4) A person who makes default in complying with subsection (3) commits an offence and is liable on summary conviction to a fine not exceeding level 3 on the standard scale. (5) The Treasury may, by order, modify the provisions of Schedule 10A. (6) An order under this section may— (a) make consequential amendments of or repeals in other provisions of this Act; (b) make such transitional or saving provisions as appear to the Treasury to be necessary or expedient; (c) make different provision for different cases. (7) The power to make an order under this section is exercisable by statutory instrument but no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament. (8) In this section “modify” includes amend, add to or repeal. (72K) (1) The information specified in Schedule 10B must be given in notes to a building society’s annual accounts. (2) In the case of a building society whose directors are not required to prepare consolidated group accounts, the information specified in Part 1 of that Schedule must be given. (3) In the case of a building society whose directors are required to prepare consolidated group accounts, the information specified in Part 2 of that Schedule must be given. (4) The Treasury may, by order, modify the provisions of Schedule 10B. (5) An order under this section may— (a) make consequential amendments of or repeals in other provisions of this Act; (b) make such transitional or saving provisions as appear to the Treasury to be necessary or expedient; (c) make different provision for different cases. (6) The power to make an order under this section is exercisable by statutory instrument but no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament. (7) In this section “modify” includes amend, add to or repeal.

6

After section 81A (requirements in connection with publication of accounts) (inserted by this Order) insert—

(81B) (1) In this Part— - “annual accounts”, in relation to a building society, means—the individual accounts required by section 72A, andany group accounts required by section 72E,together with the notes to those accounts; - “IAS Regulation” means EC Regulation No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards⁸; - “income and expenditure account”, in relation to a society which prepares IAS accounts, includes an income statement or other equivalent financial statement required to be prepared by international accounting standards; - “international accounting standards” means the international accounting standards, within the meaning of the IAS Regulation, adopted from time to time by the European Commission in accordance with the IAS Regulation; - “regulated market” has the same meaning as it has in Council Directive 93/22/EEC on investment services in the securities field⁹. (2) References in this Part to accounts giving a “true and fair view” are references— (a) in the case of Building Societies Act individual accounts, to the requirement under section 72B that such accounts give a true and fair view; (b) in the case of Building Societies Act group accounts, to the requirement under section 72F that such accounts give a true and fair view; and (c) in the case of IAS accounts, to the requirement under international accounting standards that such accounts achieve a fair presentation.

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• (1) Section 119 (interpretation) is amended as follows.

• (2) In subsection (1)—

• (a) for the definition of “the annual accounts” substitute—

• “annual accounts” has the meaning given in section 81B(1)

• (b) the following definitions are inserted at the appropriate place in alphabetical order–

• “Building Societies Act accounts” means Building Societies Act individual accounts and, where required, any Building Societies Act group accounts;

• “Building Societies Act group accounts” has the meaning given by section 72E(3)(a)

• “Building Societies Act individual accounts” has the meaning given by section 72A(2)(a)

• “group accounts” has the meaning given by section 72E(1);

• “IAS accounts” means IAS individual accounts or IAS group accounts;

• “IAS group accounts” has the meaning given by section 72E(3)(b);

• “IAS individual accounts” has the meaning given by section 72A(2)(b);

• “individual accounts” has the meaning given by section 72A(1);

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In paragraph 31 of Schedule 2 (members' right to propose and circulate resolutions)—

• (a) in sub-paragraph (2)(a)(i), for “section 72” substitute “section 72A or 72E”;

• (b) in paragraph (2)(a)(i)(aa), for “under section 73(7)” substitute” “under section 72C or 72G or in accordance with international accounting standards, as appropriate”; and

• (c) after sub-paragraph (8) insert—

(9) For the purposes of this paragraph “liquid assets” and “fixed assets”, in the case of societies which produce IAS individual accounts or IAS group accounts, have the same meaning as given in section 6(16).

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After Schedule 10 insert the following—