Companies (Audit, Investigations and Community Enterprise) Bill [HL]

House of Commons

Session 2002 - 03
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Other Bills before Parliament

Companies (Audit, Investigations and Community Enterprise) Bill [HL]

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
1

[NOTE: The words marked in bold type were inserted by the Lords to avoid
questions of privilege.]
A
Bill
To
amend the law relating to company auditors and accounts and company
investigations; to make provision for community interest companies; and for
connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
Part 1
Auditors, accounts and investigations
Chapter 1
Auditors
Recognised supervisory bodies
5
1
Additional requirements for recognition of supervisory bodies
(1)
Part 2 of Schedule 11 to the Companies Act 1989 (c. 40) (requirements for
recognition of supervisory bodies for purposes of provisions relating to
company auditors) is amended as follows.
(2)
After paragraph 7(1) (body must have rules and practices for ensuring
10
company audit work is carried out with integrity and without conflicts of
interest) insert—
“(1A)
The body must participate in arrangements within paragraph 17,
and the rules and practices mentioned in sub-paragraph (1) above
must include provision requiring compliance with any standards for
15
the time being determined under such arrangements.”
(3)
In paragraph 8 (body must have rules and practices as to the technical
standards to be applied in company audit work), the existing provisions

Bill 142 53/3

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
2

become sub-paragraph (1), and after that sub-paragraph insert—
“(2)
The body must participate in arrangements within paragraph 18,
and the rules and practices mentioned in sub-paragraph (1) above
must include provision requiring compliance with any standards for
the time being determined under such arrangements.”
5
(4)
After paragraph 10 insert—
“Independent monitoring of audits of listed and other major companies
10A   (1)
The body must—
(a)
participate in arrangements within paragraph 19(1), and
(b)
have rules designed to ensure that members of the body who
10
perform any company audit functions in respect of major
audits take such steps as may be reasonably required of them
to enable their performance of any such functions to be
monitored by means of inspections carried out under the
arrangements.
15
      (2)
Any monitoring of such persons under the arrangements is to be
regarded (so far as their performance of company audit functions in
respect of major audits is concerned) as monitoring of compliance
with the body’s rules for the purposes of paragraph 10(1).
      (3)
In this paragraph “company audit function” and “major audit” have
20
the same meaning as in paragraph 19.”
(5)
After paragraph 12 insert—
“Independent investigation for disciplinary purposes of public interest cases
12A   (1)
The body must—
(a)
participate in arrangements within paragraph 20(1), and
25
(b)
have rules and practices designed to ensure that, where the
designated persons have decided that any particular
disciplinary action should be taken against a member of the
body following the conclusion of an investigation under such
arrangements, that decision is to be treated as if it were a
30
decision made by the body in disciplinary proceedings
against the member.
      (2)
In sub-paragraph (1) “the designated persons” means the persons
who, under the arrangements, have the function of deciding whether
(and, if so, what) disciplinary action should be taken against a
35
member of the body in the light of an investigation carried out under
the arrangements.”
2
Arrangements to which additional requirements for recognition relate
After Part 2 of Schedule 11 to the Companies Act 1989 (c. 40) (which is

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
3

amended by section 1) insert—
“Part 3
Arrangements in which supervisory bodies are required to participate
Arrangements for setting standards relating to professional integrity and
independence
5
17
The arrangements referred to in paragraph 7(1A) are appropriate
funded arrangements—
(a)
for the determining of standards for the purposes of the rules
and practices mentioned in paragraph 7(1), and
(b)
for ensuring that the determination of those standards is
10
done independently of the body.
Arrangements for setting technical standards
18
The arrangements referred to in paragraph 8(2) are appropriate
funded arrangements—
(a)
for the determining of standards for the purposes of the rules
15
and practices mentioned in paragraph 8(1), and
(b)
for ensuring that the determination of those standards is
done independently of the body.
Arrangements for independent monitoring of audits of listed and other major
companies
20
19    (1)
The arrangements referred to in paragraph 10A(1) are appropriate
funded arrangements—
(a)
for enabling the performance by members of the body of
company audit functions in respect of major audits to be
monitored by means of inspections carried out under the
25
arrangements, and
(b)
for ensuring that the carrying out of such monitoring and
inspections is done independently of the body.
      (2)
In this paragraph—
“company audit function” means any function performed as a
30
company auditor;
“major audit” means an audit conducted in respect of—
(a)
a company any of whose securities have been
admitted to the official list (within the meaning of
Part 6 of the Financial Services and Markets Act
35
2000), or
(b)
any other company in whose financial condition
there is a major public interest.
Arrangements for independent investigation for disciplinary purposes of public
interest cases
40
20    (1)
The arrangements referred to in paragraph 12A(1) are appropriate
funded arrangements—

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
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(a)
for the carrying out of investigations into public interest cases
arising in connection with the performance of company audit
functions by members of the body,
(b)
for the holding of disciplinary hearings relating to members
of the body which appear to be desirable following the
5
conclusion of such investigations,
(c)
for requiring such hearings to be held in public except where
the interests of justice otherwise require,
(d)
for the persons before whom such hearings have taken place
to decide whether (and, if so, what) disciplinary action
10
should be taken against the members to whom the hearings
related, and
(e)
for ensuring that the carrying out of those investigations, the
holding of those hearings, and the taking of those decisions
are done independently of the body.
15
      (2)
In this paragraph—
“company audit function” means any function performed as a
company auditor;
“public interest cases” means matters which raise or appear to
raise important issues affecting the public interest.
20
Supplementary: arrangements to operate independently of body
21    (1)
This paragraph applies for the purposes of—
paragraph 17(b),
paragraph 18(b),
paragraph 19(1)(b), or
25
paragraph 20(1)(e).
      (2)
Arrangements cannot be regarded as appropriate for the purpose of
ensuring that the thing or things mentioned in that provision is or are
done independently of the body unless they are designed to ensure
that the body—
30
(a)
will have no involvement in the appointment or selection of
any of the persons who are to be responsible for doing the
thing or things in question, and
(b)
will not otherwise be involved in the doing of that thing or
those things.
35
      (3)
Sub-paragraph (2) imposes a minimum requirement and does not
preclude the possibility that additional criteria may need to be
satisfied in order for the arrangements to be regarded as appropriate
for the purpose in question.
Supplementary: “funded” arrangements etc.
40
22   (1)
For the purposes of any of paragraphs 17, 18, 19 and 20,
arrangements are “funded” arrangements if, in the event of their
providing for the payment of costs of maintaining the arrangements,
such costs are to be paid by the body in accordance with the
arrangements.
45
      (2)
Arrangements can qualify as arrangements within any of
paragraphs 17, 18, 19(1) and 20(1) even though the matters for which

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
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they provide are more extensive in any respect than those mentioned
in that provision.”
Delegation of Secretary of State’s functions in relation to auditors
3
Delegation of functions by Secretary of State to new or existing body
(1)
Section 46 of the Companies Act 1989 (c. 40) (delegation by Secretary of State
5
of functions relating to auditors) is amended as follows.
(2)
For subsection (1) substitute—
“(1)
The Secretary of State may make an order under this section (a
“delegation order”) for the purpose of enabling functions of the
Secretary of State under this Part to be exercised by a body designated
10
by the order.
(1A)
The body so designated may be either—
(a)
a body corporate which is established by the order, or
(b)
subject to section 46A, a body (whether a body corporate or an
unincorporated association) which is already in existence (“an
15
existing body”).”
(3)
In subsection (2) (effect of delegation order on body established by it), for
“established” substitute “designated”.
(4)
For subsection (6) substitute—
“(6)
Where a delegation order is made, the provisions of Schedule 13 have
20
effect with respect to—
(a)
the status of the body designated by the order in exercising
functions of the Secretary of State under this Part;
(b)
the constitution and proceedings of the body where it is
established by the order;
25
(c)
the exercise by the body of certain functions transferred to it;
and
(d)
other supplementary matters.”
4
Circumstances in which Secretary of State may delegate functions to existing
body
30
After section 46 of the Companies Act 1989 (which is amended by section 3)
insert—
“46A  Circumstances in which Secretary of State may delegate functions to
existing body
(1)
The Secretary of State’s power to make a delegation order under section
35
46 which designates an existing body (see section 46(1A)(b)) is
exercisable in accordance with this section.
(2)
The Secretary of State may make such an order if it appears to the
Secretary of State—
(a)
that the body is willing and able to exercise the functions that
40
would be transferred by the order; and

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
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(b)
that the body has arrangements in place relating to the exercise
of those functions which are such as to be likely to ensure that
the conditions in subsection (3) are met.
(3)
The conditions are—
(a)
that the functions in question will be exercised effectively; and
5
(b)
where the delegation order is to contain any requirements or
other provisions specified under subsection (4), that those
functions will be exercised in accordance with any such
requirements or provisions.
(4)
The delegation order may contain such requirements or other
10
provisions relating to the exercise of the functions by the designated
body as appear to the Secretary of State to be appropriate.
(5)
An existing body—
(a)
may be designated by a delegation order under section 46, and
(b)
may accordingly exercise functions of the Secretary of State in
15
pursuance of the order,
despite any involvement of the body in the exercise of any functions
under arrangements within any of paragraphs 17, 18, 19(1) or 20(1) of
Schedule 11.”
5
Supplementary provisions about delegation orders
20
(1)
Schedule 13 to the Companies Act 1989 (c. 40) (supplementary provisions
about delegation orders) is amended as follows.
(2)
For paragraph 1 substitute—
“Operation of this Schedule
1     (1)
This Schedule has effect in relation to a body designated by an order
25
under section 46 as follows—
(a)
paragraphs 2 to 12 have effect in relation to the body where it
is established by the order;
(b)
paragraphs 2 and 6 to 11 have effect in relation to the body
where it is an existing body (see section 46(1A)(b)); and
30
(c)
paragraph 13 has effect in relation to the body where it is an
existing body that is an unincorporated association.
      (2)
In their operation in accordance with sub-paragraph (1)(b),
paragraphs 2 and 6 apply only in relation to—
(a)
things done by or in relation to the body in or in connection
35
with the exercise of functions transferred to it by the order,
and
(b)
functions of the body which are functions so transferred.
      (3)
Any power conferred by this Schedule to make provision by order is
a power to make provision by an order under section 46.”
40
(3)
In paragraph 10 (report and accounts)—
(a)
after sub-paragraph (2) insert—
“(2A)
The following provisions of this paragraph apply as
follows—

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts and investigations
Chapter 1 — Auditors
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(a)
sub-paragraphs (3) and (4) apply only where the body
is established by the order, and
(b)
sub-paragraphs (5) and (6) apply only where the body
is an existing body.”; and
(b)
after sub-paragraph (4) insert—
5
“(5)
Unless the body is a company to which section 226 of the
Companies Act 1985 (duty to prepare individual company
accounts) applies—
(a)
the Secretary of State may, with the consent of the
Treasury, give directions to the body with respect to
10
its accounts and the audit of its accounts, and
(b)
it is the duty of the body to comply with the
directions.
(6)
Whether or not the body is a company to which section 226 of
the Companies Act 1985 applies—
15
(a)
the Secretary of State may give directions to the body
providing that any provisions of that Act specified in
the directions are to apply to the body, with or
without any modifications so specified, and
(b)
it is the duty of the body to comply with the
20
directions.”
(4)
In paragraph 11 (other supplementary provisions), for “established” (in both
places) substitute “designated”.
(5)
After paragraph 12 insert—
“13   (1)
This paragraph applies where the body is an unincorporated
25
association.
      (2)
Any relevant proceedings may be brought by or against the body in
the name of any body corporate whose constitution provides for the
establishment of the body.
      (3)
In sub-paragraph (2) “relevant proceedings” means proceedings
30
brought in or in connection with the exercise of any transferred
function.
      (4)
In relation to proceedings brought as mentioned in sub-paragraph
(2), any reference in paragraph 11(3)(e) or (4)(c) to the body replacing
or being replaced by the Secretary of State in any legal proceedings
35
is to be read with the appropriate modifications.”
Auditors’ qualifications
6
Approval of overseas qualifications for auditors
(1)
Section 33 of the Companies Act 1989 (c. 40) (approval of overseas
qualifications for auditors) is amended as follows.
40
(2)
For subsections (1) and (2) substitute—
“(1)
The Secretary of State may declare that the following are to be regarded
for the purposes of this Part as holding an approved overseas
qualification—