Made | 6th December 2004 | ||
Laid before Parliament | 6th December 2004 | ||
Coming into force | 31st December 2004 |
which relate to a financial year beginning on or after 1st January 2005.
(3) In these Regulations -
Removal of provisions requiring disclosures in notes to accounts
4.
- (1) Regulation 6 of the principal Regulations (holdings in undertakings) is omitted.
(2) The following paragraphs of Schedule 5 (notes to annual accounts) are omitted -
(3) Schedule 6 (information in respect of holdings in undertakings) is omitted.
Alteration of heading in balance sheet formats
5.
- (1) In Schedule 2 (balance sheet formats), for "provisions for liabilities and charges", wherever occurring, substitute "provisions for liabilities".
Alteration to which liabilities and losses are to be taken into account
6.
In Part 1 of Schedule 7 (accounting principles), in paragraph 4(1)(b) omit "and losses" and "or are likely to arise".
Amounts in accounts to have regard to the substance of the reported transaction
7.
In Part 5 (other accounting rules) of Schedule 7, insert the following after paragraph 20 -
(2) In Part 4 (current assets) of Schedule 7, in paragraph 14, for "paragraphs 15 and 16" substitute "paragraphs 15, 16, 31A, 31C and 31D".
(3) After paragraph 31 of Schedule 7, insert -
(3) Sub-paragraph (1) does not apply to -
(4) If the fair value of a financial instrument cannot be determined reliably in accordance with paragraph 31B, sub-paragraph (1) does not apply to that financial instrument.
(5) In this paragraph, "joint venture" means an undertaking, other than a connected undertaking, which a society manages jointly with one or more undertakings.
Methods for determining fair value
31B.
- (1) The fair value of a financial instrument is its value determined in accordance with this paragraph.
(2) If a reliable market can readily be identified for the financial instrument, its fair value is to be determined by reference to its market value.
(3) If a reliable market cannot readily be identified for the financial instrument but can be identified for its components or for a similar instrument, its fair value is to be determined by reference to the market value of its components or of the similar instrument.
(4) If neither sub-paragraph (2) nor (3) apply, the fair value of the financial instrument is to be a value resulting from generally accepted valuation models and techniques.
(5) Any valuation models and techniques used for the purposes of sub-paragraph (4) must ensure a reasonable approximation of the market value.
Hedged items
31C.
A society may include any assets or liabilities, or identified portions of such assets or liabilities, which qualify as hedged items under a fair value hedge accounting system at the amount required under that system.
Other assets which may be included at fair value
31D.
- (1) This paragraph applies to -
which under international accounting standards may be included in accounts at fair value.
(2) Such investment property and such living animals and plants may be included at fair value, provided that all such investment property, or as the case may be, all such living animals and plants are so included where their fair value can reliably be determined.
(3) In this paragraph "fair value" means fair value determined in accordance with relevant international accounting standards.
Accounting for changes in value of financial instruments
31E.
- (1) This paragraph applies where a financial instrument is valued in accordance with paragraph 31A or 31C.
(2) Notwithstanding paragraph 4 in Part 1 of this Schedule, and subject to sub-paragraphs (3) and (4) below, a change in the value of the financial instrument shall be included in the income and expenditure account.
(3) Where -
the amount of the change in value shall be credited to or (as the case may be) debited from a separate reserve ("the fair value reserve").
(4) Where the instrument accounted for -
the amount of the change in value may be credited to or (as the case may be) debited from the fair value reserve.
The fair value reserve
31F.
- (1) The fair value reserve shall be adjusted to the extent that the amounts shown in it are no longer necessary for the purposes of paragraph 31E(3) or (4).
(2) The treatment for taxation purposes of amounts credited or debited to the fair value reserve shall be disclosed in a note to the accounts.".
Information about fair value in notes to the accounts
9.
After paragraph 35 of Schedule 5 (notes to annual accounts) insert -
in respect of instruments in that category; and
(c) for each class of derivative financial instruments, the extent and nature of the instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows.
(3) Where any amount is transferred to or from the fair value reserve during the financial year, there shall be stated in tabular form -
Information where investment property and living animals and plants are included at fair value
37.
- (1) This paragraph applies where the amounts to be included in a society's annual accounts in respect of investment property or living animals and plants have been determined in accordance with paragraph 31D of Schedule 7.
(2) The balance sheet items affected and the basis of valuation adopted in determining the amounts of the assets in question in the case of each such item shall be disclosed in a note to the accounts.
(3) In the case of investment property, for each balance sheet item affected there shall be shown, either separately in the balance sheet or in a note to the accounts -
(4) In sub-paragraph (3) above, references in relation to any item to the comparable amounts determined in accordance with that sub-paragraph are references to -
Interpretation
11.
In Schedule 11 (interpretation of schedules) -
(b) after paragraph 12 (amounts repayable), insert -
(c) in paragraph 13 (other definitions) -
(d) after paragraph 13, insert -
Minor and consequential amendments
12.
The Schedule to these Regulations makes minor and consequential amendments.
Derek Twigg
John Heppell
Two of the Lords Commissioners of Her Majesty's Treasury
6th December 2004
3.
- (1) In regulation 4 (group accounts: supplementary provisions), for "subsections (2) and (3) of section 73 of the Act", wherever occurring, substitute "subsection (2) of section 72F of the Act".
4.
In regulation 5 (notes to annual accounts) -
5.
In paragraph 2(3) of Schedule 4 (form and content of the annual accounts of a group accounts society), for "subsections (2) and (3) of section 73 of the Act" substitute "subsection (2) of section 72F of the Act".
6.
- (1) In paragraph 22 of Schedule 5 (reserves and provisions in notes to annual accounts), for "provisions for liabilities and charges", wherever occurring, substitute "provisions for liabilities".
The parts of the Modernisation of Accounts Directive implemented by these Regulations are those that require amendments to be made to the Building Societies (Accounts and Related Provisions) Regulations 1998 (S.I. 1998/504 - "the 1998 Regulations"). Part 2 of these Regulations, regulation 11(a) and the Schedule to the Regulations make those amendments required in order to implement that Directive. Part 3 of the Regulations and paragraphs (b), (c) and (d) of regulation 11 make those amendments required in order to implement the Fair Value Directive.
The Regulations also change cross-references to sections of the Building Societies Act 1986 required due to the Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments Order) 2004.
Regulation 2 deletes two paragraphs of regulation 4 of the 1998 Regulations which previously required building societies to exclude from their group accounts those of its subsidiaries whose activities were so different that it would be incompatible with the accounts giving a true and fair view of the group's position to include them.
Regulation 3 permits societies to additionally show amounts in their accounts in euro. Regulation 4 deletes certain provisions of the 1998 Regulations which relate to disclosures in the notes to the society's accounts. These disclosures are now to be required by provisions in the Building Societies Act 1986 which are being inserted by the Building Societies Act 1986 (International Accounting Standards and Other Accounting Amendments) Order 2004.
Regulations 5 and 6 effect the details of how liabilities and provisions for liabilities are to be presented in the accounts. Regulation 7 provides that amounts included in the accounts must be determined with regard to the substance of a reported transaction or arrangement.
Regulation 8 permits building societies to include certain financial instruments (including derivative financial instruments) and other classes of assets, in their accounts at fair value. The amendments specify the type of financial instruments and other assets which may be valued at fair value, the methods for determining fair value, how assets and liabilities that qualify as hedged items under a fair value hedge accounting system are to be accounted for and how changes in the value of financial instruments are to be accounted for.
Regulation 9 requires information about fair valuation to be given in the notes to a society's accounts. Regulation 10 requires disclosures to be made in the directors' report in relation to the use of financial instruments by a building society.
Regulations 11, 12 and the Schedule deal with definitions and minor and consequential amendments.
A separate transposition note for each Directive showing how the main provisions of each Directive (as it applies to building societies) will be transposed into UK law is available from HM Treasury. Copies may be obtained from the General Insurance, Mutuals and Inclusion Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ and the notes will be available on the Treasury website (www.hm-treasury.gov.uk).
A regulatory impact assessment has been prepared in relation to these Regulations. A copy of it is available on the Treasury website or from the above address. Copies of both the transposition notes and the regulatory impact assessment have been placed in the library of both Houses of Parliament.
[3] S.I. 1998/504; amended by S.I. 1999/248 and S.I. 2001/3649 and modified by S.I. 2003/1633.back
[4] Paragraph 7A was inserted by S.I. 2001/3649, article 565.back
[5] O.J. L222 of 14.8.1978 page 11, as amended in particular by Directives 2001/65/EEC and 2003/51/EEC of the European Parliament and of the Council (O.J. L238 of 27.12.2001, page 28, and O.J. L178 of 17.7.2003, page 16).back