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

House of Commons

Session 2002 - 03
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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
8

(a)
persons who are qualified to audit accounts under the law of a
specified country or territory outside the United Kingdom;
(b)
persons who hold a specified professional qualification in
accountancy obtained in a specified country or territory outside
the United Kingdom.
5
(1A)
Approval of a qualification under subsection (1)(b) may be expressed
to be subject to any specified requirement or requirements being
satisfied.
(2)
A qualification must not be approved under subsection (1) unless the
Secretary of State is satisfied that the qualification, taken with any
10
requirement or requirements to be specified under subsection (1A),
affords an assurance of professional competence equivalent to that
afforded by a recognised professional qualification.”
(3)
For subsection (6) substitute—
“(6)
The Secretary of State may if he thinks fit, having regard to the
15
considerations mentioned in subsections (2) and (3)—
(a)
withdraw his approval of an overseas qualification in relation to
persons becoming qualified as mentioned in subsection (1)(a),
or obtaining such a qualification as is mentioned in subsection
(1)(b), after such date as he may specify; or
20
(b)
vary or revoke a requirement mentioned in subsection (1A)
from such date as he may specify.”
Services provided by auditors
7
Disclosure of services provided by auditors and related remuneration
(1)
For section 390B of the Companies Act 1985 (c. 6) substitute—
25
“390B  Disclosure of services provided by auditors or associates and related
remuneration
(1)
The Secretary of State may make provision by regulations for securing
the disclosure of—
(a)
the nature of any services provided for a company by the
30
company’s auditors (whether in their capacity as such or
otherwise) or by their associates;
(b)
the amount of any remuneration received or receivable by a
company’s auditors, or their associates, in respect of any
services within paragraph (a).
35
(2)
The regulations may provide—
(a)
for disclosure of the nature of any services provided to be made
by reference to any class or description of services specified in
the regulations (or any combination of services, however
described);
40
(b)
for the disclosure of amounts of remuneration received or
receivable in respect of services of any class or description
specified in the regulations (or any combination of services,
however described);

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 1 — Auditors
9

(c)
for the disclosure of separate amounts so received or receivable
by the company’s auditors or any of their associates, or of
aggregate amounts so received or receivable by all or any of
those persons.
(3)
The regulations may—
5
(a)
provide that “remuneration” includes sums paid in respect of
expenses;
(b)
apply to benefits in kind as well as to payments of money, and
require the disclosure of the nature of any such benefits and
their estimated money value;
10
(c)
apply to services provided for associates of a company as well
as to those provided for a company;
(d)
define “associate” in relation to an auditor and a company
respectively.
(4)
The regulations may provide that any disclosure required by the
15
regulations is to be made—
(a)
in a note to the company’s annual accounts (in the case of its
individual accounts) or in such manner as is specified in the
regulations (in the case of group accounts),
(b)
in the directors’ report required by section 234, or
20
(c)
in the auditors’ report under section 235.
(5)
If the regulations provide that any such disclosure is to be made as
mentioned in subsection (4)(a) or (b), the regulations may—
(a)
require the auditors to supply the directors of the company with
any information necessary to enable the disclosure to be made;
25
(b)
provide for any provision within subsection (6) to apply in
relation to a failure to make the disclosure as it applies in
relation to a failure to comply with a requirement of this Act or
(as the case may be) a provision of Part 7.
(6)
The provisions are—
30
(a)
sections 233(5) and 234(5); and
(b)
any provision of sections 245 to 245C.
(7)
The regulations may make different provision for different cases.
(8)
Nothing in subsections (2) to (7) affects the generality of subsection (1).
(9)
Regulations under this section shall be made by statutory instrument
35
which shall be subject to annulment in pursuance of a resolution of
either House of Parliament.”
(2)
In section 390A of the Companies Act 1985 (c. 6) (remuneration of auditors)—
(a)
subsection (3) (auditors’ remuneration to be disclosed in note to
accounts) accordingly ceases to have effect, and
40
(b)
in subsection (5) (application to benefits in kind), for the words from
“payments in cash” onwards substitute “payments of money.”
(3)
In paragraph 1(1) of Schedule 4A to that Act (form and contents of group
accounts), omit “section 390A(3) (amount of auditors’ remuneration) and”.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
10

Chapter 2
Accounts and reports
Auditing of accounts
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Auditors’ rights to information
For section 389A of the Companies Act 1985 (c. 6) substitute—
5
“389A  Rights to information
(1)
An auditor of a company—
(a)
has a right of access at all times to the company’s books,
accounts and vouchers (in whatever form they are held), and
(b)
may require any of the persons mentioned in subsection (2) to
10
provide him with such information or explanations as he thinks
necessary for the performance of his duties as auditor.
(2)
Those persons are—
(a)
any officer or employee of the company;
(b)
any person holding or accountable for any of the company’s
15
books, accounts or vouchers;
(c)
any subsidiary undertaking of the company which is a body
corporate incorporated in Great Britain;
(d)
any officer, employee or auditor of any such subsidiary
undertaking or any person holding or accountable for any
20
books, accounts or vouchers of any such subsidiary
undertaking;
(e)
any person who fell within any of paragraphs (a) to (d) at a time
to which the information or explanations required by the
auditor relates or relate.
25
(3)
Where a parent company has a subsidiary undertaking which is not a
body corporate incorporated in Great Britain, the auditor of the parent
company may require it to obtain from any of the persons mentioned
in subsection (4) such information or explanations as he may
reasonably require for the purposes of his duties as auditor.
30
(4)
Those persons are—
(a)
the undertaking;
(b)
any officer, employee or auditor of the undertaking;
(c)
any person holding or accountable for any of the undertaking’s
books, accounts or vouchers;
35
(d)
any person who fell within paragraph (b) or (c) at a time to
which the information or explanations relates or relate.
(5)
If so required, the parent company must take all such steps as are
reasonably open to it to obtain the information or explanations from the
person within subsection (4) from whom the auditor has required the
40
company to obtain the information or explanations.
(6)
A statement made by a person in response to a requirement under
subsection (1)(b) or (3) may not be used in evidence against him in any

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
11

criminal proceedings except proceedings for an offence under section
389B.
(7)
Nothing in this section or section 389B compels any person to disclose
information in respect of which in an action in the High Court a claim
to legal professional privilege, or in an action in the Court of Session a
5
claim to confidentiality of communications, could be maintained.
389B  Offences relating to the provision of information to auditors
(1)
If a person knowingly or recklessly makes to an auditor of a company
a statement (oral or written) that—
(a)
conveys or purports to convey any information or explanations
10
which the auditor requires, or is entitled to require, under
section 389A(1)(b), and
(b)
is misleading, false or deceptive in a material particular,

the person is guilty of an offence and liable to imprisonment or a fine,
or both.
15
(2)
A person who fails to comply with a requirement under section
389A(1)(b) without delay is guilty of an offence and is liable to a fine.
(3)
However, it is a defence for a person charged with an offence under
subsection (2) to prove that it was not reasonably practicable for him to
provide the required information or explanations.
20
(4)
If a company fails to comply with section 389A(5), the company and
every officer of it who is in default is guilty of an offence and liable to a
fine.
(5)
Nothing in this section affects any right of an auditor to apply for an
injunction to enforce any of his rights under section 389A.”
25
9
Statement in directors’ report as to disclosure of information to auditors
(1)
Part 7 of the Companies Act 1985 (c. 6) (accounts and audit) is amended as
follows.
(2)
In section 234 (duty to prepare directors’ report), after subsection (2) insert—
“(2A)
If section 234ZA applies to the report, it shall contain the statement
30
required by subsection (2) of that section.”
(3)
After section 234 insert—
“234ZA
Statement as to disclosure of information to auditors
(1)
This section applies to a directors’ report unless the directors have
taken advantage of the exemption conferred by section 249A(1) or
35
249AA(1).
(2)
The report must contain a statement to the effect that, in the case of each
of the persons who are directors at the time when the report is
approved under section 234A, the following applies—
(a)
so far as the director is aware, there is no relevant audit
40
information of which the company’s auditors are unaware, and
(b)
he has taken all the steps that he ought to have taken as a
director in order to make himself aware of any relevant audit

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
12

information and to establish that the company’s auditors are
aware of that information.
(3)
In subsection (2) “relevant audit information” means information
needed by the company’s auditors in connection with preparing their
report.
5
(4)
For the purposes of subsection (2) a director has taken all the steps that
he ought to have taken as a director in order to do the things mentioned
in paragraph (b) of that subsection if he has—
(a)
made such enquiries of his fellow directors and of the
company’s auditors for that purpose, and
10
(b)
taken such other steps (if any) for that purpose,

as were required by his duty as a director of the company to exercise
due care, skill and diligence.
(5)
In determining for the purposes of subsection (2) the extent of that duty
in the case of a particular director, the following considerations (in
15
particular) are relevant—
(a)
the knowledge, skill and experience that may reasonably be
expected of a person carrying out the same functions as are
carried out by the director in relation to the company, and
(b)
(so far as they exceed what may reasonably be so expected) the
20
knowledge, skill and experience that the director in fact has.
(6)
Where a directors’ report containing the statement required by
subsection (2) is approved under section 234A but the statement is
false, every director of the company who—
(a)
knew that the statement was false, or was reckless as to whether
25
it was false, and
(b)
failed to take reasonable steps to prevent the report from being
approved,

is guilty of an offence and liable to imprisonment or a fine, or both.”
Defective accounts
30
10
Persons authorised to apply to court in connection with defective accounts
(1)
Section 245C of the Companies Act 1985 (c. 6) (other persons authorised to
apply to court) is amended as follows.
(2)
After subsection (1) insert—
“(1A)
But where the order giving authorisation (see subsection (4)) is to
35
contain any requirements or other provisions specified under
subsection (4A), the Secretary of State may not authorise a person
unless, in addition, it appears to him that the person would, if
authorised, exercise his functions as an authorised person in
accordance with any such requirements or provisions.”
40
(3)
After subsection (4) insert—
“(4A)
An order under subsection (4) may contain such requirements or other
provisions relating to the exercise of functions by the authorised person
as appear to the Secretary of State to be appropriate.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
13

(4B)
If the authorised person is an unincorporated association, any relevant
proceedings may be brought by or against that association in the name
of any body corporate whose constitution provides for the
establishment of the association.

For this purpose “relevant proceedings” means proceedings brought
5
in, or in connection with, the exercise of any function by the association
as an authorised person.”
11
Disclosure of tax information by Inland Revenue to facilitate application for
declaration that accounts are defective
(1)
After section 245C of the Companies Act 1985 (c. 6) insert—
10
“245D  Disclosure of information held by Inland Revenue to persons
authorised to apply to court
(1)
Information which is held by or on behalf of the Commissioners of
Inland Revenue may be disclosed to a person who is authorised under
section 245C of this Act, or under Article 253C of the Companies
15
(Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), if the
disclosure—
(a)
is made for a permitted purpose, and
(b)
is made by the Commissioners or is authorised by them.
(2)
Such information—
20
(a)
may be so disclosed despite any other restriction on the
disclosure of information whether imposed by any statutory
provision or otherwise, but
(b)
in the case of personal data (within the meaning of the Data
Protection Act 1998), may not be disclosed in contravention of
25
that Act.
(3)
For the purposes of subsection (1), a disclosure is made for a permitted
purpose if it is made for the purpose of facilitating—
(a)
the taking of steps by the authorised person to discover whether
there are grounds for an application to the court under section
30
245B of this Act or Article 253B of the Companies (Northern
Ireland) Order 1986; or
(b)
a determination by the authorised person as to whether or not
to make such an application.
(4)
The power of the Commissioners to authorise a disclosure under
35
subsection (1)(b) may be delegated (either generally or for a specified
purpose) to an officer of the Board of Inland Revenue.
245E  Restrictions on use and further disclosure of information disclosed
under section 245D
(1)
Information that is disclosed to an authorised person under section
40
245D may not be used except in or in connection with—
(a)
taking steps to discover whether there are grounds for an
application to the court as mentioned in section 245D(3)(a);
(b)
determining whether or not to make such an application; or
(c)
proceedings on any such application.
45

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 1 — Auditors, accounts, directors’ liabilities and investigations
Chapter 2 — Accounts and reports
14

(2)
Information that is disclosed to an authorised person under section
245D may not be further disclosed except—
(a)
to the person to whom the information relates; or
(b)
in or in connection with proceedings on any such application to
the court.
5
(3)
A person who contravenes subsection (1) or (2) is guilty of an offence
and liable to imprisonment or a fine, or both.
(4)
It is a defence for a person charged with an offence under subsection (3)
to prove—
(a)
that he did not know, and had no reason to suspect, that the
10
information had been disclosed under section 245D; or
(b)
that he took all reasonable steps and exercised all due diligence
to avoid the commission of the offence.
(5)
Sections 732 (restriction on prosecutions), 733(2) and (3) (liability of
individuals for corporate default) and 734 (criminal proceedings
15
against unincorporated bodies) apply to offences under this section.”
(2)
After Article 253C of the Companies (Northern Ireland) Order 1986 (S.I. 1986/
1032 (N.I. 6)) insert—
“253D  Disclosure of information held by Inland Revenue to persons
authorised to apply to court
20
(1)
Information which is held by or on behalf of the Commissioners of
Inland Revenue may be disclosed to a person who is authorised under
Article 253C, or under section 245C of the Companies Act 1985, if the
disclosure—
(a)
is made for a permitted purpose, and
25
(b)
is made by the Commissioners or is authorised by them.
(2)
Such information—
(a)
may be so disclosed despite any other restriction on the
disclosure of information whether imposed by any statutory
provision or otherwise, but
30
(b)
in the case of personal data (within the meaning of the Data
Protection Act 1998), may not be disclosed in contravention of
that Act.
(3)
For the purposes of paragraph (1), a disclosure is made for a permitted
purpose if it is made for the purpose of facilitating—
35
(a)
the taking of steps by the authorised person to discover whether
there are grounds for an application to the court under Article
253B or section 245B of the Companies Act 1985; or
(b)
a determination by the authorised person as to whether or not
to make such an application.
40
(4)
The power of the Commissioners to authorise a disclosure under
paragraph (1)(b) may be delegated (either generally or for a specified
purpose) to an officer of the Board of Inland Revenue.