Company Accounts: Standards

(asked on 23rd May 2022) - View Source

Question to the Department for Business, Energy and Industrial Strategy:

To ask Her Majesty's Government, further to the Written Answer by Lord Callanan on 20 May (HL31), how any audited accounts described as a "starting point" can have been reliable for assessing whether a company is capable of being a going concern or not, if that “starting point” (1) contained material unrealised profits, and (2) excluded material realised losses.


Answered by
Lord Callanan Portrait
Lord Callanan
Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)
This question was answered on 27th May 2022

UK-adopted international accounting standards require the directors of a company, when preparing the accounts, to make an assessment of the company’s ability to continue to operate as a going concern for at least 12 months from the balance sheet date. These standards also require disclosure where there are material uncertainties related to events or conditions that may cast significant doubt upon the company’s ability to continue as a going concern.

Section 836 of the Companies Act 2006 requires that the calculation of distributable profits is determined by reference to the relevant accounts. Part 23 includes other criteria that must be assessed before the amount of distributable profits for the company can be determined. In taking a decision to pay a dividend, directors must also consider their duty under s172 of the Companies Act 2006 to promote the success of the company for the benefit of shareholders as a whole. Consideration of the success of the company may include an assessment of whether the company would, following the payment of the proposed dividend, be solvent and continue to be able to pay its debts as they fall due, in the context of the current and likely future position and needs of the company.

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