United Kingdom Statutory Instruments

(a) the annual accounts of any building society, and

(b) any report which the directors of a building society are obliged to prepare by virtue of section 75 of the Building Societies Act 1986,

which relate to a financial year beginning on or after 1^st January 2005.

    (3) In these Regulations - 

(a) in paragraph 8(1) (general rules for inclusion of fixed assets), for "paragraph 28", substitute "paragraph 13, 28, 31A, 31C or 31D";

(b) in paragraph 13(1) (financial fixed assets), at the end , insert "and to paragraphs 31A, 31C and 31D".

    (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 - 

(a) in the definition of "group accounts society", for "section 72 of the Act (duty of directors to prepare annual accounts)" substitute "section 72E of the Act (duty to prepare group accounts)"; and

(b) in the definition of "subsidiary undertaking", for "section 72" substitute "section 72E".

     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) - 

(a) in paragraph (1) after "required to be included" insert "by the Act and";

(b) in paragraph (3) omit "relevant"; and

(c) omit paragraph (4).

     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".

• Parts of Directive 2003/51/EC of the European Parliament and of the Council amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC as regards modernising the annual and consolidated accounts of certain types of companies, banks and other financial institutions to bring the preparation of those accounts more into line with international accounting standards (OJ L 178, 17/07/2003, p.16 - 22) ("the Modernisation of Accounts Directive"); and

• Directive 2001/65/EC of the European Parliament and of the Council amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies as well as of banks and other financial institutions (OJ L 283 27/10/2001 p.28 - 32) ("the Fair Value Directive").

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.