© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Accounts
Legal requirements​​
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- Must give a true and fair view
"(1)Companies Act individual accounts must comprise—
(a)a balance sheet as at the last day of the financial year, and
(b)a profit and loss account.
(2)The accounts must—
(a)in the case of the balance sheet, give a true and fair view of the state of affairs of the company as at the end of the financial year, and
(b)in the case of the profit and loss account, give a true and fair view of the profit or loss of the company for the financial year." (CA 2006, s.396)
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- Directors not to approve unless accounts give true and fair view
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"(1)The directors of a company must not approve accounts for the purposes of this Chapter unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss—
(a)in the case of the company's individual accounts, of the company;
(b)in the case of the company's group accounts, of the undertakings included in the consolidation as a whole, so far as concerns members of the company.
(2)The auditor of a company in carrying out his functions under this Act in relation to the company's annual accounts must have regard to the directors' duty under subsection (1)." (CA 2006, s.393)
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- Compliance with regulations
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"(3)The accounts must comply with provision made by the Secretary of State by regulations as to—
(a)the form and content of the balance sheet and profit and loss account, and
(b)additional information to be provided by way of notes to the accounts." (CA 2006, s.396)
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- Notes to be added if necessary for true and fair view
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"(4) 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, 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." (CA 2006, s.396)
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- Overriding requirement/departure from other provisions if necessary to give true and fair view
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"(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.
Particulars of any such departure, the reasons for it and its effect must be given in a note to the accounts." (CA 2006, s.396)
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- Micro-entity requirements presumed to give true and fair view
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"(2A)In the case of the individual accounts of a company which qualifies as a micro-entity in relation to the financial year (see sections 384A and 384B), the micro-entity minimum accounting items included in the company’s accounts for the year are presumed to give the true and fair view required by subsection (2)." (CA 2006, s.396)
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Meaning of true and fair view​​
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- Question of law but heavy reliance on practice of professional accountants
"[201] The defendants, in addition, rely on an opinion of Mr Martin Moore QC dated 21 April 2008 which considered whether earlier opinions of Leonard Hoffmann QC (later Lord Hoffmann) and Mary Arden (now Lady Arden JSC) in 1983 and 1984 and by Mary Arden QC in 1993 held good in light of the provisions of European Directives and Regulations governing the preparation and audit of financial statements and/or the requirements of the Companies Act 2006. The earlier opinions (which Mr Moore QC described as having "almost iconic status") concluded that in determining whether accounts satisfied the legal requirement that they show a true and fair view, the Courts relied heavily upon the ordinary practices of professional accountants and that compliance with generally accepted accounting principles would be prima facie evidence of satisfaction with the standard (and vice versa). The earlier opinions also concluded that reasonable businessmen and accountants differed over the degree of accuracy or comprehensiveness, and that there may be more than one view of a financial position, any of which could be described as true and fair..." (Burnden Holdings (UK) Ltd v. Hunt [2019] EWHC 1566 (Ch), Zacaroli J)
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See Opinion of Martin Moore QC (2008)
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