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


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

1

 

A

Bill

[AS AMENDED IN STANDING COMMITTEE A]

To

amend the law relating to company auditors and accounts, to the provision

that may be made in respect of certain liabilities incurred by a company’s

officers, and to 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, directors’ liabilities 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.”

 
Bill 15853/3
 
 

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

2

 

(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

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

5

must include provision requiring compliance with any standards for

the time being determined under such arrangements.”

(4)   

After paragraph 10 insert—

“Independent monitoring of audits of listed and other major companies

10A   (1)  

The body must—

10

(a)   

participate in arrangements within paragraph 19(1), and

(b)   

have rules designed to ensure that members of the body who

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

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monitored by means of inspections carried out under the

arrangements.

      (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

20

with the body’s rules for the purposes of paragraph 10(1).

      (3)  

In this paragraph “company audit function” and “major audit” have

the same meaning as in paragraph 19.”

(5)   

After paragraph 12 insert—

“Independent investigation for disciplinary purposes of public interest cases

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12A   (1)  

The body must—

(a)   

participate in arrangements within paragraph 20(1), and

(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

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body following the conclusion of an investigation under such

arrangements, that decision is to be treated as if it were a

decision made by the body in disciplinary proceedings

against the member.

      (2)  

In sub-paragraph (1) “the designated persons” means the persons

35

who, under the arrangements, have the function of deciding whether

(and, if so, what) disciplinary action should be taken against a

member of the body in the light of an investigation carried out under

the arrangements.”

2       

Arrangements to which additional requirements for recognition relate

40

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, directors’ liabilities 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

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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, directors’ liabilities 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.

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      (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

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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, directors’ liabilities 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;

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(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

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would be transferred by the order; and

 

 

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities 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, directors’ liabilities 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—

 

 

 
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