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 2 — Appointment of auditors
231

General provisions
482
Fixing of auditor’s remuneration
(1)
The remuneration of an auditor appointed by the members of a company must
be fixed by the members by ordinary resolution or in such manner as the
members may by ordinary resolution determine.
5
(2)
The remuneration of an auditor appointed by the directors of a company must
be fixed by the directors.
(3)
The remuneration of an auditor appointed by the Secretary of State must be
fixed by the Secretary of State.
(4)
For the purposes of this section “remuneration” includes sums paid in respect
10
of expenses.
(5)
This section applies in relation to benefits in kind as to payments of money.
483
Disclosure of terms of audit appointment
(1)
The Secretary of State may make provision by regulations for securing the
disclosure of the terms on which a company’s auditor is appointed,
15
remunerated or performs his duties.

Nothing in the following provisions of this section affects the generality of this
power.
(2)
The regulations may—
(a)
require disclosure of—
20
(i)
a copy of any terms that are in writing and
(ii)
a written memorandum setting out any terms that are not in
writing;
(b)
require disclosure to be at such times, in such places and by such means
as are specified in the regulations;
25
(c)
require the place and means of disclosure to be stated—
(i)
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),
(ii)
in the directors’ report, or
30
(iii)
in the auditor’s report on the company’s annual accounts.
(3)
The provisions of this section apply to a variation of the terms mentioned in
subsection (1) as they apply to the original terms.
(4)
Regulations under this section are subject to affirmative resolution procedure.
484
Disclosure of services provided by auditor or associates and related
35
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 company’s
auditor (whether in his capacity as auditor or otherwise) or by his
40
associates;

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
232

(b)
the amount of any remuneration received or receivable by a company’s
auditor, or his associates, in respect of any such services.

Nothing in the following provisions of this section affects the generality of this
power.
(2)
The regulations may provide—
5
(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);
(b)
for the disclosure of amounts of remuneration received or receivable in
respect of services of any class or description specified in the
10
regulations (or any combination of services, however described);
(c)
for the disclosure of separate amounts so received or receivable by the
company’s auditor or any of his associates, or of aggregate amounts so
received or receivable by all or any of those persons.
(3)
The regulations may—
15
(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;
(c)
apply to services provided for associates of a company as well as to
20
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 regulations is
to be made—
(a)
in a note to the company’s annual accounts (in the case of its individual
25
accounts) or in such manner as is specified in the regulations (in the
case of group accounts),
(b)
in the directors’ report, or
(c)
in the auditor’s report on the company’s annual accounts.
(5)
If the regulations provide that any such disclosure is to be made as mentioned
30
in subsection (4)(a) or (b), the regulations may require the auditor to supply the
directors of the company with any information necessary to enable the
disclosure to be made.
(6)
Regulations under this section are subject to negative resolution procedure.
Chapter 3
35
Functions of auditor
Auditor’s report
485
Auditor’s report on company’s annual accounts
(1)
A company’s auditor must make a report to the company’s members on all
annual accounts of the company of which copies are, during his tenure of
40
office—
(a)
in the case of a private company, to be sent out to members under
section 405;

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
233

(b)
in the case of a public company, to be laid before the company in
general meeting under section 421.
(2)
The auditor’s report must include—
(a)
an introduction identifying the annual accounts that are the subject of
the audit and the financial reporting framework that has been applied
5
in their preparation, and
(b)
a description of the scope of the audit identifying the auditing
standards in accordance with which the audit was conducted.
(3)
The report must state clearly whether, in the auditor’s opinion, the annual
accounts—
10
(a)
give a true and fair view—
(i)
in the case of an individual balance sheet, of the state of affairs
of the company as at the end of the financial year,
(ii)
in the case of an individual profit and loss account, of the profit
or loss of the company for the financial year,
15
(iii)
in the case of group accounts, of the state of affairs as at the end
of the financial year and of the profit or loss for the financial
year of the undertakings included in the consolidation as a
whole, so far as concerns members of the company;
(b)
have been properly prepared in accordance with the relevant financial
20
reporting framework; and
(c)
have been prepared in accordance with the requirements of this Act
(and, where applicable, Article 4 of the IAS Regulation).

Expressions used in this subsection that are defined for the purposes of Part 15
(see section 458) have the same meaning as in that Part.
25
(4)
The auditor’s report—
(a)
must be either unqualified or qualified, and
(b)
must include a reference to any matters to which the auditor wishes to
draw attention by way of emphasis without qualifying the report.
486
Auditor’s report on directors’ report
30

The auditor must state in his report on the company’s annual accounts whether
in his opinion the information given in the directors’ report for the financial
year for which the accounts are prepared is consistent with those accounts.
487
Auditor’s report on auditable part of directors’ remuneration report
(1)
If the company is a quoted company, the auditor, in his report on the
35
company’s annual accounts for the financial year, must—
(a)
report to the company’s members on the auditable part of the directors’
remuneration report, and
(b)
state whether in his opinion that part of the directors’ remuneration
report has been properly prepared in accordance with this Act.
40
(2)
For the purposes of this Part, “the auditable part” of a directors’ remuneration
report is the part identified as such by regulations under section 403.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
234

Duties and rights of auditors
488
Duties of auditor
(1)
A company’s auditor, in preparing his report, must carry out such
investigations as will enable him to form an opinion as to—
(a)
whether adequate accounting records have been kept by the company
5
and returns adequate for their audit have been received from branches
not visited by him, and
(b)
whether the company’s individual accounts are in agreement with the
accounting records and returns, and
(c)
in the case of a quoted company, whether the auditable part of the
10
company’s directors’ remuneration report is in agreement with the
accounting records and returns.
(2)
If the auditor is of opinion—
(a)
that adequate accounting records have not been kept, or that returns
adequate for their audit have not been received from branches not
15
visited by him, or
(b)
that the company’s individual accounts are not in agreement with the
accounting records and returns, or
(c)
in the case of a quoted company, that the auditable part of its directors’
remuneration report is not in agreement with the accounting records
20
and returns,

the auditor shall state that fact in his report.
(3)
If the auditor fails to obtain all the information and explanations which, to the
best of his knowledge and belief, are necessary for the purposes of his audit, he
shall state that fact in his report.
25
(4)
If—
(a)
the requirements of regulations under section 394 (disclosure of
directors’ benefits: remuneration, pensions and compensation for loss
of office) are not complied with in the annual accounts, or
(b)
in the case of a quoted company, the requirements of regulations under
30
section 403 as to information forming the auditable part of the
directors’ remuneration report are not complied with in that report,

the auditor must include in his report, so far as he is reasonably able to do so,
a statement giving the required particulars.
(5)
If the directors of the company have prepared accounts and reports in
35
accordance with the small companies regime and in the auditor’s opinion they
were not entitled so to do, the auditor shall state that fact in his report.
489
Auditor’s general right to information
(1)
An auditor of a company—
(a)
has a right of access at all times to the company’s books, accounts and
40
vouchers (in whatever form they are held), and
(b)
may require any of the following persons to provide him with such
information or explanations as he thinks necessary for the performance
of his duties as auditor.
(2)
Those persons are—
45

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
235

(a)
any officer or employee of the company;
(b)
any person holding or accountable for any of the company’s books,
accounts or vouchers;
(c)
any subsidiary undertaking of the company which is a body corporate
incorporated in the United Kingdom;
5
(d)
any officer, employee or auditor of any such subsidiary undertaking or
any person holding or accountable for any 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
10
or relate.
(3)
A statement made by a person in response to a requirement under this section
may not be used in evidence against him in criminal proceedings except
proceedings for an offence under section 491.
(4)
Nothing in this section compels a person to disclose information in respect of
15
which a claim to legal professional privilege (in Scotland, to confidentiality of
communications) could be maintained in legal proceedings.
490
Auditor’s right to information from overseas subsidiaries
(1)
Where a parent company has a subsidiary undertaking that is not a body
corporate incorporated in the United Kingdom, the auditor of the parent
20
company may require it to obtain from any of the following persons such
information or explanations as he may reasonably require for the purposes of
his duties as auditor.
(2)
Those persons are—
(a)
the undertaking;
25
(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;
(d)
any person who fell within paragraph (b) or (c) at a time to which the
information or explanations relates or relate.
30
(3)
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 concerned.
(4)
A statement made by a person in response to a requirement under this section
may not be used in evidence against him in criminal proceedings except
proceedings for an offence under section 491.
35
(5)
Nothing in this section compels a person to disclose information in respect of
which a claim to legal professional privilege (in Scotland, to confidentiality of
communications) could be maintained in legal proceedings.
491
Auditor’s rights to information: offences
(1)
A person commits an offence who knowingly or recklessly makes to an auditor
40
of a company a statement (oral or written) that—
(a)
conveys or purports to convey any information or explanations which
the auditor requires, or is entitled to require, under section 489, and
(b)
is misleading, false or deceptive in a material particular.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
236

(2)
A person guilty of an offence under subsection (1) is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine (or both);
(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
5
exceeding twelve months or to a fine not exceeding the
statutory maximum (or both);
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months or to a fine not exceeding the statutory
maximum (or both).
10
(3)
A person who fails to comply with a requirement under section 489 without
delay commits an offence unless it was not reasonably practicable for him to
provide the required information or explanations.
(4)
If a parent company fails to comply with section 490, an offence is committed
by—
15
(a)
the company, and
(b)
every officer of the company who is in default.
(5)
A person guilty of an offence under subsection (3) or (4) is liable on summary
conviction to a fine not exceeding level 3 on the standard scale.
(6)
Nothing in this section affects any right of an auditor to apply for an injunction
20
(in Scotland, an interdict or an order for specific performance) to enforce any
of his rights under section 489 or 490.
492
Auditor’s rights in relation to resolutions and meetings
(1)
In relation to a written resolution proposed to be agreed to by a private
company, the company’s auditor is entitled to receive all such communications
25
relating to the resolution as, by virtue of any provision of Chapter 2 of Part 13
of this Act, are required to be supplied to a member of the company.
(2)
A company’s auditor is entitled—
(a)
to receive all notices of, and other communications relating to, any
general meeting which a member of the company is entitled to receive,
30
(b)
to attend any general meeting of the company, and
(c)
to be heard at any general meeting which he attends on any part of the
business of the meeting which concerns him as auditor.
(3)
Where the auditor is a firm, the right to attend or be heard at a meeting is
exercisable by an individual authorised by the firm in writing to act as its
35
representative at the meeting.
Signature of auditor’s report
493
Signature of auditor’s report
(1)
The auditor’s report must state the name of the auditor and be signed and
dated.
40
(2)
Where the auditor is an individual, the report must be signed by him.

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 3 — Functions of auditor
237

(3)
Where the auditor is a firm, the report must be signed by the senior statutory
auditor in his own name, for and on behalf of the auditor.
494
Senior statutory auditor
(1)
The senior statutory auditor means the individual identified by the firm as
senior statutory auditor in relation to the audit in accordance with—
5
(a)
standards issued by the European Commission, or
(b)
if there is no applicable standard so issued, any relevant guidance
issued by—
(i)
the Secretary of State, or
(ii)
a body appointed by order of the Secretary of State.
10
(2)
The person identified as senior statutory auditor must be eligible for
appointment as auditor of the company in question (see Chapter 2 of Part 35 of
this Act).
(3)
The senior statutory auditor is not, by reason of being named or identified as
senior statutory auditor or by reason of his having signed the auditor’s report,
15
subject to any civil liability to which he would not otherwise be subject.
(4)
An order appointing a body for the purpose of subsection (1)(b)(ii) is subject to
negative resolution procedure.
495
Names to be stated in published copies of auditor’s report
(1)
Every copy of the auditor’s report that is published by or on behalf of the
20
company must—
(a)
state the name of the auditor and (where the auditor is a firm) the name
of the person who signed it as senior statutory auditor, or
(b)
if the conditions in section 496 (circumstances in which names may be
omitted) are met, state that a resolution has been passed and notified to
25
the Secretary of State in accordance with that section.
(2)
For the purposes of this section a company is regarded as publishing the report
if it publishes, issues or circulates it or otherwise makes it available for public
inspection in a manner calculated to invite members of the public generally, or
any class of members of the public, to read it.
30
(3)
If a copy of the auditor’s report is published without the statement required by
this section, an offence is 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
35
conviction to a fine not exceeding level 3 on the standard scale.
496
Circumstances in which names may be omitted
(1)
The auditor’s name and, where the auditor is a firm, the name of the person
who signed the report as senior statutory auditor, may be omitted from—
(a)
published copies of the report, and
40
(b)
the copy of the report delivered to the registrar under Chapter 10 of
Part 15 (filing of accounts and reports),

if the following conditions are met.