House of Commons - Explanatory Note
Companies (Audit, Investigations And Community Enterprise) Bill [HL] - continued          House of Commons

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SUMMARY OF REGULATORY IMPACT ASSESSMENT

262.     Overall, the proposed legislation is not expected to have a significant economic impact on business. For some measures, the main effect is to enhance existing powers - for example, new powers to obtain information from directors, staff or others connected with companies. In such cases, the additional costs (in terms of e.g. management and staff time) are likely to be low, because information may already be obtained from such sources voluntarily.

263.     There will be few if any extra costs for small businesses: the provision giving auditors additional powers to obtain information will not apply to small companies which take advantage of audit exemption, and provisions on disclosure of non-audit services do not apply to any small companies. There will be some minor additional costs for small companies choosing to become CICs as a result of extra regulation, but those costs will be incurred entirely as a result of the voluntary decision to become a CIC.

264.     The main costs to business arise as a result of "associated" measures which are not part of the Bill but which the Bill supports:

  • the expansion of the FRC and greater proactive enforcement of accounting requirements are likely to result in an increase in FRC costs to around £12 million by 2006-07. In June 2004 the FRC announced that a listed company's contribution to the FRC for 2004/05 would increase from £400 to £4,250 for a FT-SE 350 company and £1,600 for other listed companies. Most of this increase is attributable to the FRC's new non-legislative regulatory functions. The Bill provides a safety-net in case the current voluntary funding arrangement breaks down, in the form of a power for the Secretary of State to impose a levy on any person significantly affected by or with a major interest in the FRC's activities. The intention is to use this power, where necessary, to secure funding from existing funders only and not to widen the FRC's funding base;

  • greater proactivity of the FRRP in enforcing accounting requirements on large businesses. The FRRP will be looking at some 300 large companies' accounts per year. The relevant Regulatory Impact Assessment (RIA) estimates that the average cost to a company and its auditor of responding to a full FRRP investigation is around £10,000 for auditors' fees plus management time. Again, the increase in FRRP workload does not result from the Bill, though it is supported by certain of the Bill's provisions. This is set out in more detail in the RIA.

265.     The main benefits are hard to quantify but likely to be substantial: for the 'post-Enron measures', greater investor confidence in markets; higher quality accounts and audit; deterrence or earlier detection of financial misreporting; and improved investigation of companies suspected of malpractice. In addition, the CIC regime will help boost the development of social enterprise.

COMMENCEMENT DATES

266.     All provisions of the Bill except those concerning commencement, extent and the short title are to come into force by commencement orders.

EUROPEAN CONVENTION ON HUMAN RIGHTS

267.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Rt Hon Patricia Hewitt MP, Secretary of State for Trade and Industry, Minister for Women and Equality and e-Minister in Cabinet, has made the following statement:

"In my view the provisions of the Companies (Audit, Investigations and Community Enterprise) Bill are compatible with the Convention rights."

268.     Provisions concerning property may raise issues concerning Article 1 of the First Protocol (protection of property): clauses 8 (auditors' rights to information); 12 (authorised person's power to require information); 18 (exemption from liability for grant-receiving bodies); 19 and 20 (powers of Secretary of State and investigators to require documents and information; and protection for certain disclosures to the Secretary of State); 28-30 (restrictions on the distribution of CIC assets); 31 (names); 33 (the community interest test); 40 (investigations by CIC Regulator); 41-47 (power of the Regulator of Community Interest Companies to take supervisory measures, require the transfer of shares and otherwise to control the property of a CIC); 51 (ceasing to be a CIC); Schedule 2 (restrictions on disclosure of information). To the extent that these powers may affect the peaceful enjoyment of property, the Government is satisfied that the powers can be justified as a necessary control in accordance with the general interest and that there are legitimate reasons for their use and that this approach is compatible with the Convention.

269.     Provisions concerning defences and proceedings and the use of compulsorily obtained evidence may raise issues concerning Article 6 of the Convention (fair trial): clauses 2 (disciplinary procedures for auditors); 8 and 9 (auditors' rights to information); 11 (disclosure of information by Inland Revenue); 12 (authorised person's power to require information); 18 (exemption from liability for grant-receiving bodies), 19, 20 and 22 (powers of Secretary of State and investigators to require documents and information, protection in relation to certain disclosures to the Secretary of State and sanctions in the event of failure to comply with requirements); 26 (rights to appeal against decisions of the Regulator of Community Interest Companies); 40 (investigations by the Regulator of Community Interest Companies); 44 (removal of CIC director) and 48 (winding-up of CIC); Schedule 2 (use of compulsorily obtained evidence in proceedings). To the extent that these provisions raise issues under Article 6, the Government is satisfied that legitimate procedures exist in respect of appeals in proceedings, that the minimum guarantees for proceedings regarded as criminal for Article 6 purposes are satisfied, that the privilege against self-incrimination in criminal proceedings is appropriately protected, that there is no infringement of the right of access to the courts and that, in the case of provisions involving a reverse burden of proof, the reverse burden is compatible with the presumption of innocence.

270.     Some provisions raise issues concerning Article 8 of the Convention (privacy): clauses 8 (auditors' rights to information); 11 (disclosure of information by Inland Revenue); 12 (authorised person's power to require information); 19-21 (powers of Secretary of State and investigators to require documents and information, protection in relation to certain disclosures to the Secretary of State; and powers of inspectors and investigators to enter and remain on premises); 32 (community interest company reports); 40 (investigation of CICs); 41 (power of the Regulator of Community Interest Companies to appoint an auditor for a CIC); 57 (disclosure of information to and from the Regulator of Community Interest Companies); Schedule 2 (restrictions on disclosure of information). To the extent that these provisions may infringe the rights under Article 8 to respect for private and family life, home and correspondence, the Government considers that the infringement is in accordance with the law and necessary in a democratic society in the interests of the economic wellbeing of the country, the prevention of crime and the protection of the rights of others.

 
 
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Prepared: 16 July 2004