Requirement to disclose related undertakings

October 29, 2015



Section 409 of the Companies Act 2006 (the "Act") requires all companies to disclose information in respect of their related undertakings[1] in the notes to their financial statements.

Section 410 of the Act previously offered a concession to this requirement, by allowing for the omission of this information, provided the directors of the company were of the opinion that such disclosures would result in accounts being excessive in length and provided the relevant disclosures were made in the Company’s annual return instead.

What has changed?

The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (the “New Regulations”) has repealed the S. 410 concession, constituting, in part, a wider drive for transparency, accountability and good governance.

UK incorporated companies will no longer be able to take advantage of the concession offered under section 410 of the Act.

Consequently, financial statements approved on or after 1 July 2015 must include a complete list of related undertakings (UK and non-UK) in their notes section, unless the reporting company qualifies for exemption (other than that previously offered by section 410 of the Act[2]).

How could it impact you?

It will be necessary to understand what entities constitute “related undertakings”. In this respect the legislation can be complex.

In addition, this requirement for increased disclosure will place emphasis upon the need to verify the information to be disclosed and Groups with multiple legal entities will need to ensure that they have robust controls in place to maintain and track changes in ownership and legal entity data.

In our experience, many Groups, particularly those with multiple legal entities and investments, in various jurisdictions, have/may have difficulty:

  1. Accessing information in respect of related undertakings – this can be particularly challenging if legal entity controls are not in place and maintained; and
  2. Ensuring the accuracy of this information – a particular concern given the disclosure, as part of the financial statements, will need to be audited.

It’s important to understand the implications to your business and entity structure early so that you can comply fully with the new regime. Some of the questions to consider include:

  • Is the legal entity structure data up to date?
  • Is the corporate structure fit for purpose? Can it be simplified to reduce the cost of compliance?
  • What controls are in place to monitor and track corporate changes?
  • How effectively is technology being utilised to support compliance?

To discuss this issue further please don’t hesitate to get in touch or talk to your usual PwC adviser.

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[1] A related undertaking can include direct and indirect subsidiaries, significant holdings and other qualifying undertakings (e.g. joint ventures).

[2] We can provide further detail in respect of the available exemptions upon request.

Matt Timmons | Entity Governance & Compliance

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