Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
224

467
Companies excluded from report exemption
(1)
A company is not entitled to the exemption conferred by section 466 (charities:
independent examiner’s report in lieu of audit) if it was at any time within the
financial year in question—
(a)
a public company,
5
(b)
a company that—
(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 (c. 8) to carry on a regulated activity,
(ii)
carries on insurance market activity, or
(iii)
is an appointed representative within the meaning of section 39
10
of that Act (other than an appointed representative whose scope
of appointment is limited to activities that are not regulated
activities for the purposes of this Part),
(c)
a special register body as defined in section 117(1) of the Trade Union
and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers’
15
association as defined in section 122 of that Act or Article 4 of the
Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I.
5)), or
(d)
a member of an ineligible group.
(2)
A group is ineligible if any of its members is—
20
(a)
a public company,
(b)
a body corporate (other than a company) whose shares are admitted to
trading on a regulated market in an EEA State, or
(c)
a person who—
(i)
has permission under Part 4 of the Financial Services and
25
Markets Act 2000 to carry on a regulated activity, or
(ii)
carries on insurance market activity.
468
Availability of report exemption in case of group company
(1)
A company is not entitled to the exemption conferred by section 466 (charities:
independent examiner’s report in lieu of audit) in respect of a financial year
30
during any part of which it was a group company unless—
(a)
the conditions specified in subsection (2) below are met, or
(b)
subsection (3) applies.
(2)
The conditions are—
(a)
that the group—
35
(i)
qualifies as a small group in relation to that financial year, and
(ii)
was not at any time in that year an ineligible group;
(b)
that the group’s aggregate turnover in that year is—
(i)
in the case of a company registered in England and Wales or
Northern Ireland, not more than £700,000 net (or £840,000
40
gross), and
(ii)
in the case of a company registered in Scotland, of such amount
as may be specified by regulations under the Charities and
Trustee Investment (Scotland) Act 2005 (asp 10);
(c)
that the group’s aggregate balance sheet total for that year is—
45

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
225

(i)
in the case of a company registered in England and Wales or
Northern Ireland, not more than £2.8 million net (or £3.36
million gross), and
(ii)
in the case of a company registered in Scotland, of such amount
as may be specified by regulations under the Charities and
5
Trustee Investment (Scotland) Act 2005.
(3)
A company is not excluded by subsection (1) if, throughout the whole of the
period or periods during the financial year when it was a group company, it
was both a subsidiary undertaking and dormant.
(4)
In this section—
10
(a)
“group company” means a company that is a parent company or a
subsidiary undertaking, and
(b)
“the group”, in relation to a group company, means that company
together with all its associated undertakings.

For this purpose undertakings are associated if one is a subsidiary undertaking
15
of the other or both are subsidiary undertakings of a third undertaking.
(5)
For the purposes of this section—
(a)
whether a group qualifies as a small group shall be determined in
accordance with section 365(2) (conditions for small companies
accounts regime),
20
(b)
“ineligible group” has the meaning given by section 366,
(c)
a group’s aggregate turnover and aggregate balance sheet total shall be
determined as for the purposes of section 365, and
(d)
“net” and “gross” have the same meaning as in that section.
(6)
The provisions mentioned in subsection (5) apply for the purposes of this
25
section as if all the bodies corporate in the group were companies.
469
The independent examiner’s report
(1)
The report required for the purposes of section 466 (small charities:
independent examiner’s report in lieu of audit) is a report that is—
(a)
prepared by a person (the “independent examiner”) who meets the
30
requirements of section 470, and
(b)
complies with the provisions under subsections (2) and (3).
(2)
In the case of a company registered in England and Wales or Northern Ireland,
the report must comply with the requirements for independent examination of
a charity’s accounts under section 44(1)(c) of the Charities Act 1993 (c. 10).
35
(3)
In the case of a company registered in Scotland, the report must comply with
such requirements for independent examination of a charity’s accounts as may
be specified by regulations made under section 44(4)(g) of the Charities and
Trustee Investment (Scotland) Act 2005 (asp 10).
470
The independent examiner
40
(1)
In the case of a company registered in England and Wales or Northern Ireland,
the independent examiner must be a person meeting the requirements of
section 43(a) of the Charities Act 1993.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
226

(2)
In the case of a company registered in Scotland, the independent examiner
must be a person meeting such requirements for an independent examiner of
a charity’s accounts as may be specified by regulations made under section
44(4)(g) of the Charities and Trustee Investment (Scotland) Act 2005.
471
Rights of independent examiner
5

Where the directors of a company take advantage of the exemption conferred
by section 466 (small charities: independent examiner’s report in lieu of audit),
sections 489 to 491 (auditor’s rights to information) have effect in relation to the
independent examiner as they would in relation to an auditor.
Companies subject to public sector audit
10
472
Non-profit-making companies subject to public sector audit
(1)
The requirements of this Part as to audit of accounts do not apply to a company
for a financial year if it is non-profit-making and its accounts—
(a)
are subject to audit—
(i)
by the Comptroller and Auditor General by virtue of an order
15
under section 25(6) of the Government Resources and Accounts
Act 2000 (c. 20), or
(ii)
by the Auditor General for Wales by virtue of section 96, or an
order under section 144, of the Government of Wales Act 1998
(c. 38);
20
(b)
are accounts—
(i)
in relation to which section 21 of the Public Finance and
Accountability (Scotland) Act 2000 (asp 1) (audit of accounts:
Auditor General for Scotland) applies, or
(ii)
that are subject to audit by the Auditor General for Scotland by
25
virtue of an order under section 473 (Scottish public sector
companies: audit by Auditor General for Scotland); or
(c)
are subject to audit by the Comptroller and Auditor General for
Northern Ireland by virtue of an order under Article 5(3) of the Audit
and Accountability (Northern Ireland) Order 2003 (S.I. 2003/418
30
(N.I. 5)).
(2)
In the case of a company that is a parent company or a subsidiary undertaking,
subsection (1) applies only if every group undertaking is non-profit-making.
(3)
In this section “non-profit-making” has the same meaning as in Article 48 of the
Treaty establishing the European Community.
35
(4)
This section has effect subject to section 459(2) (balance sheet to contain
statement that company entitled to exemption under this section).
473
Scottish public sector companies: audit by Auditor General for Scotland
(1)
The Scottish Ministers may by order provide for the accounts of a company
having its registered office in Scotland to be audited by the Auditor General for
40
Scotland.
(2)
An order under subsection (1) may be made in relation to a company only if it
appears to the Scottish Ministers that the company—

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 2 — Appointment of auditors
227

(a)
exercises in or as regards Scotland functions of a public nature none of
which relate to reserved matters (within the meaning of the Scotland
Act 1998 (c. 46)), or
(b)
is entirely or substantially funded from a body having accounts falling
within paragraph (a) or (b) of subsection (3).
5
(3)
Those accounts are—
(a)
accounts in relation to which section 21 of the Public Finance and
Accountability (Scotland) Act 2000 (asp 1) (audit of accounts: Auditor
General for Scotland) applies,
(b)
accounts which are subject to audit by the Auditor General for Scotland
10
by virtue of an order under this section.
(4)
An order under subsection (1) may make such supplementary or consequential
provision (including provision amending an enactment) as the Scottish
Ministers think expedient.
(5)
An order under subsection (1) shall not be made unless a draft of the statutory
15
instrument containing it has been laid before, and approved by resolution of,
the Scottish Parliament.
General power of amendment by regulations
474
General power of amendment by regulations
(1)
The Secretary of State may by regulations amend this Chapter by adding,
20
altering or repealing provisions.
(2)
The regulations may make consequential amendments or repeals in other
provisions of this Act, or in other enactments.
(3)
Regulations under this section imposing new requirements, or rendering
existing requirements more onerous, are subject to affirmative resolution
25
procedure.
(4)
Other regulations under this section are subject to negative resolution
procedure.
Chapter 2
Appointment of auditors
30
Private companies
475
Appointment of auditors of private company: general
(1)
An auditor or auditors of a private company must be appointed for each
financial year of the company, unless the directors reasonably resolve
otherwise on the ground that audited accounts are unlikely to be required.
35
(2)
For each financial year for which an auditor or auditors is or are to be
appointed (other than the company’s first financial year), the appointment
must be made before the end of the period of 28 days beginning with—

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 2 — Appointment of auditors
228

(a)
the end of the time allowed for sending out copies of the company’s
annual accounts and reports for the previous financial year (see section
406), or
(b)
if earlier, the day on which copies of the company’s annual accounts
and reports for the previous financial year are sent out under section
5
405.

This is the “period for appointing auditors”.
(3)
The directors may appoint an auditor or auditors of the company—
(a)
at any time before the company’s first period for appointing auditors,
(b)
following a period during which the company (being exempt from
10
audit) did not have any auditor, at any time before the company’s next
period for appointing auditors, or
(c)
to fill a casual vacancy in the office of auditor.
(4)
The members may appoint an auditor or auditors by ordinary resolution—
(a)
during a period for appointing auditors,
15
(b)
if the company should have appointed an auditor or auditors during a
period for appointing auditors but failed to do so, or
(c)
where the directors had power to appoint under subsection (3) but have
failed to make an appointment.
(5)
An auditor or auditors of a private company may only be appointed—
20
(a)
in accordance with this section, or
(b)
in accordance with section 476 (default power of Secretary of State).

This is without prejudice to any deemed re-appointment under section 477.
476
Appointment of auditors of private company: default power of Secretary of
State
25
(1)
If a private company fails to appoint an auditor or auditors in accordance with
section 475, the Secretary of State may appoint one or more persons to fill the
vacancy.
(2)
Where subsection (2) of that section applies and the company fails to make the
necessary appointment before the end of the period for appointing auditors,
30
the company must within one week of the end of that period give notice to the
Secretary of State of his power having become exercisable.
(3)
If a company fails to give the notice required by this section, an offence is
committed by—
(a)
the company, and
35
(b)
every officer of the company who is in default.
(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
40
477
Term of office of auditors of private company
(1)
An auditor or auditors of a private company hold office in accordance with the
terms of their appointment, subject to the requirements that—

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 2 — Appointment of auditors
229

(a)
they do not take office until any previous auditor or auditors cease to
hold office, and
(b)
they cease to hold office at the end of the next period for appointing
auditors unless re-appointed.
(2)
Where no auditor has been appointed by the end of the next period for
5
appointing auditors, any auditor in office immediately before that time is
deemed to be re-appointed at that time, unless—
(a)
he was appointed by the directors, or
(b)
the company’s articles require actual re-appointment, or
(c)
the deemed re-appointment is prevented by the members under section
10
478, or
(d)
the members have resolved that he should not be re-appointed, or
(e)
the directors have resolved that no auditor or auditors should be
appointed for the financial year in question.
(3)
This is without prejudice to the provisions of this Part as to removal and
15
resignation of auditors.
(4)
No account shall be taken of any loss of the opportunity of deemed re-
appointment under this section in ascertaining the amount of any
compensation or damages payable to an auditor on his ceasing to hold office
for any reason.
20
478
Prevention by members of deemed re-appointment of auditor
(1)
An auditor of a private company is not deemed to be re-appointed under
section 477(2) if the company has received notices under this section from
members who hold at least the requisite percentage of the total voting rights of
all members who would be entitled to vote on a resolution that the auditor
25
should not be re-appointed.
(2)
The “requisite percentage” is 5%, or such lower percentage as is specified for
this purpose in the company’s articles.
(3)
A notice under this section—
(a)
may be in hard copy or electronic form,
30
(b)
must be authenticated by the person or persons giving it, and
(c)
must be received by the company before the end of the accounting
reference period immediately preceding the time when the deemed re-
appointment would have effect.
Public companies
35
479
Appointment of auditors of public company: general
(1)
An auditor or auditors of a public company must be appointed for each
financial year of the company, unless the directors reasonably resolve
otherwise on the ground that audited accounts are unlikely to be required.
(2)
For each financial year for which an auditor or auditors is or are to be
40
appointed (other than the company’s first financial year), the appointment
must be made before the end of the accounts meeting of the company at which
the company’s annual accounts and reports for the previous financial year are
laid.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 2 — Appointment of auditors
230

(3)
The directors may appoint an auditor or auditors of the company—
(a)
at any time before the company’s first accounts meeting;
(b)
following a period during which the company (being exempt from
audit) did not have any auditor, at any time before the company’s next
accounts meeting;
5
(c)
to fill a casual vacancy in the office of auditor.
(4)
The members may appoint an auditor or auditors by ordinary resolution—
(a)
at an accounts meeting;
(b)
if the company should have appointed an auditor or auditors at an
accounts meeting but failed to do so;
10
(c)
where the directors had power to appoint under subsection (3) but have
failed to make an appointment.
(5)
An auditor or auditors of a public company may only be appointed—
(a)
in accordance with this section, or
(b)
in accordance with section 480 (default power of Secretary of State).
15
480
Appointment of auditors of public company: default power of Secretary of
State
(1)
If a public company fails to appoint an auditor or auditors in accordance with
section 479, the Secretary of State may appoint one or more persons to fill the
vacancy.
20
(2)
Where subsection (2) of that section applies and the company fails to make the
necessary appointment before the end of the accounts meeting, the company
must within one week of the end of that meeting give notice to the Secretary of
State of his power having become exercisable.
(3)
If a company fails to give the notice required by this section, an offence is
25
committed by—
(a)
the company, and
(b)
every officer of the company who is in default.
(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
30
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
481
Term of office of auditors of public company
(1)
The auditor or auditors of a public company hold office in accordance with the
terms of their appointment, subject to the requirements that—
35
(a)
they do not take office until the previous auditor or auditors have
ceased to hold office, and
(b)
they cease to hold office at the conclusion of the accounts meeting next
following their appointment, unless re-appointed.
(2)
This is without prejudice to the provisions of this Part as to removal and
40
resignation of auditors.