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 35 — Statutory Auditors
Chapter 2 — Individuals and firms
411

(e)
he has been authorised to practise the profession of statutory auditor
pursuant to the European Communities (Recognition of Professional
Qualifications) (First General System) Regulations 2005 (S.I. 2005/18)
and has fulfilled any requirements imposed pursuant to regulation 6 of
those Regulations, or
5
(f)
subject to any direction under section 850(5), he is regarded for the
purposes of this Chapter as holding an approved overseas
qualification.
(2)
A person is within this subsection if—
(a)
before 1st January 1990, he began a course of study or practical training
10
leading to a professional qualification in accountancy offered by a body
established in the United Kingdom,
(b)
he obtained that qualification on or after 1st January 1990 and before 1st
January 1996, and
(c)
the Secretary of State approves his qualification as an appropriate
15
qualification for the purposes of this Chapter.
(3)
The Secretary of State may approve a qualification under subsection (2)(c) only
if he is satisfied that, at the time the qualification was awarded, the body
concerned had adequate arrangements to ensure that the qualification was
awarded only to persons educated and trained to a standard equivalent to that
20
required, at that time, in the case of a recognised professional qualification
under Part 2 of the Companies Act 1989 (c. 40) (eligibility for appointment as
company auditor).
849
Qualifying bodies and recognised professional qualifications
(1)
In this Part a “qualifying body” means a body established in the United
25
Kingdom (whether a body corporate or an unincorporated association) which
offers a professional qualification in accountancy.
(2)
In this Part references to the rules of a qualifying body are to the rules (whether
or not laid down by the body itself) which the body has power to enforce and
which are relevant for the purposes of this Part.
30

This includes, so far as so relevant, rules relating to—
(a)
admission to or expulsion from a course of study leading to a
qualification,
(b)
the award or deprivation of a qualification, or
(c)
the approval of a person for the purposes of giving practical training or
35
the withdrawal of such approval.
(3)
Schedule 11 has effect with respect to the recognition for the purposes of this
Part of a professional qualification offered by a qualifying body.
850
Approval of overseas qualifications
(1)
The Secretary of State may declare that the following are to be regarded for the
40
purposes of this Chapter as holding an approved overseas qualification—
(a)
persons who are qualified to audit accounts under the law of a specified
foreign country, or
(b)
persons who hold a specified professional qualification in accountancy
obtained in a specified foreign country.
45

Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 2 — Individuals and firms
412

(2)
A declaration under subsection (1)(b) may be expressed to be subject to the
satisfaction of any specified requirement or requirements.
(3)
The Secretary of State may make a declaration under subsection (1) only if he
is satisfied that—
(a)
in the case of a declaration under subsection (1)(a), the fact that the
5
persons in question are qualified to audit accounts under the law of the
specified foreign country, or
(b)
in the case of a declaration under subsection (1)(b), the specified
professional qualification taken with any requirement or requirements
to be specified under subsection (2),
10

affords an assurance of professional competence equivalent to that afforded by
a recognised professional qualification.
(4)
The Secretary of State may make a declaration under subsection (1) only if he
is satisfied that the treatment that the persons who are the subject of the
declaration will receive as a result of it is comparable to the treatment which is,
15
or is likely to be, afforded in the specified foreign country or a part of it to—
(a)
in the case of a declaration under subsection (1)(a), some or all persons
who are eligible to be appointed as a statutory auditor, and
(b)
in the case of a declaration under subsection (1)(b), some or all persons
who hold a corresponding recognised professional qualification.
20
(5)
The Secretary of State may direct that persons holding an approved overseas
qualification are not to be treated as holding an appropriate qualification for
the purposes of this Chapter unless they hold such additional educational
qualifications as the Secretary of State may specify for the purpose of ensuring
that such persons have an adequate knowledge of the law and practice in the
25
United Kingdom relevant to the audit of accounts.
(6)
The Secretary of State may give different directions in relation to different
approved overseas qualifications.
(7)
The Secretary of State may, if he thinks fit, having regard to the considerations
mentioned in subsections (3) and (4), withdraw a declaration under subsection
30
(1) in relation to—
(a)
persons becoming qualified to audit accounts under the law of the
specified foreign country after such date as he may specify, or
(b)
persons obtaining the specified professional qualification after such
date as he may specify.
35
(8)
The Secretary of State may, if he thinks fit, having regard to the considerations
mentioned in subsections (3) and (4), vary or revoke a requirement specified
under subsection (2) from such date as he may specify.
(9)
In this section “foreign country”, in relation to any time, means a country or
territory that, at that time, is not a “relevant State” within the meaning of the
40
European Communities (Recognition of Professional Qualifications) (First
General System) Regulations 2005 (S.I. 2005/18) or part of such a State.
851
Eligibility of individuals retaining only 1967 Act authorisation
(1)
A person whose only appropriate qualification is based on his retention of an
authorisation originally granted by the Board of Trade or the Secretary of State
45
under section 13(1) of the Companies Act 1967 (c. 81) is eligible only for
appointment as auditor of an unquoted company.

Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 2 — Individuals and firms
413

(2)
A company is “unquoted” if, at the time of the person’s appointment, neither
the company, nor any parent undertaking of which it is a subsidiary
undertaking, is a quoted company within the meaning of section 367(2).
(3)
References to a person eligible for appointment as a statutory auditor by virtue
of this Part in enactments relating to eligibility for appointment as auditor of a
5
person other than a company do not include a person to whom this section
applies.
Information
852
Matters to be notified to the Secretary of State
(1)
The Secretary of State may require a recognised supervisory body or a
10
recognised qualifying body—
(a)
to notify him immediately of the occurrence of such events as he may
specify in writing and to give him such information in respect of those
events as is so specified;
(b)
to give him, at such times or in respect of such periods as he may
15
specify in writing, such information as is so specified.
(2)
The notices and information required to be given must be such as the Secretary
of State may reasonably require for the exercise of his functions under this Part.
(3)
The Secretary of State may require information given under this section to be
given in a specified form or verified in a specified manner.
20
(4)
Any notice or information required to be given under this section must be
given in writing unless the Secretary of State specifies or approves some other
manner.
853
The Secretary of State’s power to call for information
(1)
The Secretary of State may by notice in writing require a person within
25
subsection (2) to give him such information as he may reasonably require for
the exercise of his functions under this Part.
(2)
The persons within this subsection are—
(a)
any recognised supervisory body,
(b)
any recognised qualifying body, and
30
(c)
any person eligible for appointment as a statutory auditor by virtue of
this Chapter.
(3)
The Secretary of State may require that any information which he requires
under this section is to be given within such reasonable time and verified in
such manner as he may specify.
35
Enforcement
854
Compliance orders
(1)
If at any time it appears to the Secretary of State—
(a)
in the case of a recognised supervisory body, that any requirement of
Schedule 10 is not satisfied,
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Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 3 — Auditors General
414

(b)
in the case of a recognised professional qualification, that any
requirement of Schedule 11 is not satisfied, or
(c)
that a recognised supervisory body or a recognised qualifying body has
failed to comply with an obligation to which it is subject under or by
virtue of this Part,
5

he may, instead of revoking the relevant recognition order, make an
application to the court under this section.
(2)
If on an application under this section the court decides that the requirement
in question is not satisfied or, as the case may be, that the body has failed to
comply with the obligation in question, it may order the body to take such
10
steps as the court directs for securing that the requirement is satisfied or that
the obligation is complied with.
(3)
In this section “the court” means the High Court or, in Scotland, the Court of
Session.
Chapter 3
15
Auditors General
Eligibility for appointment
855
Auditors General: eligibility for appointment as a statutory auditor
(1)
In this Part “Auditor General” means—
(a)
the Comptroller and Auditor General,
20
(b)
the Auditor General for Scotland,
(c)
the Auditor General for Wales, or
(d)
the Comptroller and Auditor General for Northern Ireland.
(2)
An Auditor General is eligible for appointment as a statutory auditor.
(3)
Subsection (2) is subject to any suspension notice having effect under section
25
863 (notices suspending eligibility for appointment as a statutory auditor).
Conduct of audits
856
Individuals responsible for audit work on behalf of Auditors General
An Auditor General must secure that each individual responsible for statutory
audit work on behalf of that Auditor General is eligible for appointment as a
30
statutory auditor by virtue of Chapter 2.
The Independent Supervisor
857
Appointment of the Independent Supervisor
(1)
The Secretary of State must appoint a body (“the Independent Supervisor”) to
discharge the function mentioned in section 858(1) (“the supervision
35
function”).
(2)
An appointment under this section must be made by order.

Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 3 — Auditors General
415

(3)
The order has the effect of making the body appointed under subsection (1)
designated under section 5 of the Freedom of Information Act 2000 (c. 36)
(further powers to designate public authorities).
(4)
A body may be appointed under this section only if it is a body corporate or an
unincorporated association which appears to the Secretary of State—
5
(a)
to be willing and able to discharge the supervision function, and
(b)
to have arrangements in place relating to the discharge of that function
which are such as to be likely to ensure that the conditions in subsection
(4) are met.
(5)
The conditions are—
10
(a)
that the supervision function will be exercised effectively, and
(b)
where the order is to contain any requirements or other provisions
specified under subsection (6), that that function will be exercised in
accordance with any such requirements or provisions.
(6)
An order under this section may contain such requirements or other provisions
15
relating to the exercise of the supervision function by the Independent
Supervisor as appear to the Secretary of State to be appropriate.
(7)
An order under this section is subject to negative resolution procedure.
Supervision of Auditors General
858
Supervision of Auditors General by the Independent Supervisor
20
(1)
The Independent Supervisor must supervise the performance by each Auditor
General of his functions as a statutory auditor.
(2)
The Independent Supervisor must discharge that duty by—
(a)
entering into supervision arrangements with one or more bodies, and
(b)
overseeing the effective operation of any supervision arrangements
25
entered into by it.
(3)
For this purpose “supervision arrangements” are arrangements entered into by
the Independent Supervisor with a body, for the purposes of this section, in
accordance with which the body does one or more of the following—
(a)
determines standards relating to professional integrity and
30
independence which must be applied by an Auditor General in
statutory audit work;
(b)
determines technical standards which must be applied by an Auditor
General in statutory audit work and the manner in which those
standards are to be applied in practice;
35
(c)
monitors the performance of statutory audits carried out by an Auditor
General;
(d)
investigates any matter arising from the performance by an Auditor
General of a statutory audit;
(e)
holds disciplinary hearings in respect of an Auditor General which
40
appear to be desirable following the conclusion of such investigations;
(f)
decides whether (and, if so, what) disciplinary action should be taken
against an Auditor General to whom such a hearing related.

Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 3 — Auditors General
416

(4)
The Independent Supervisor may enter into supervision arrangements with a
body despite any relationship that may exist between the Independent
Supervisor and that body.
(5)
The Independent Supervisor must notify each Auditor General in writing of
any supervision arrangements that it enters into under this section.
5
(6)
Supervision arrangements within subsection (3)(f) may, in particular, provide
for the payment by an Auditor General of a fine to any person.
(7)
Any fine received by the Independent Supervisor under supervision
arrangements is to be paid into the Consolidated Fund.
859
Duties of Auditors General in relation to supervision arrangements
10
(1)
Each Auditor General must—
(a)
comply with any standards of the kind mentioned in subsection (3)(a)
or (b) of section 858 determined under the supervision arrangements,
(b)
take such steps as may be reasonably required of that Auditor General
to enable his performance of statutory audits to be monitored by means
15
of inspections carried out under the supervision arrangements, and
(c)
comply with any decision of the kind mentioned in subsection (3)(f) of
that section made under the supervision arrangements.
(2)
Each Auditor General must pay to the body or bodies with which the
Independent Supervisor enters into the supervision arrangements such
20
proportion of the costs incurred by the body or bodies for the purposes of the
arrangements as the Independent Supervisor may notify to him in writing.
(3)
Expenditure under subsection (2) is—
(a)
in the case of expenditure of the Comptroller and Auditor General, to
be regarded as expenditure of the National Audit Office for the
25
purposes of section 4(1) of the National Audit Act 1983 (c. 44);
(b)
in the case of expenditure of the Comptroller and Auditor General for
Northern Ireland, to be regarded as expenditure of the Northern
Ireland Audit Office for the purposes of Article 6(1) of the Audit
(Northern Ireland) Order 1987 (S.I. 1987/460 (N.I. 5)).
30
(4)
In this section “the supervision arrangements” means the arrangements
entered into under section 858.
Reporting requirement
860
Reports by the Independent Supervisor
(1)
The Independent Supervisor must, at least once in each calendar year, prepare
35
a report on the discharge of its functions.
(2)
The Independent Supervisor must give a copy of each report prepared under
subsection (1) to—
(a)
the Secretary of State;
(b)
the First Minister in Scotland;
40
(c)
the First Minister and the deputy First Minister in Northern Ireland;
(d)
the Assembly First Secretary in Wales.

Company Law Reform Bill [HL]
Part 35 — Statutory Auditors
Chapter 3 — Auditors General
417

(3)
The Secretary of State must lay before each House of Parliament a copy of each
report received by him under subsection (2)(a).
(4)
In relation to a calendar year during which an appointment of a body as the
Independent Supervisor is made or revoked by an order under section 857, this
section applies with such modifications as may be specified in the order.
5
Information
861
Matters to be notified to the Independent Supervisor
(1)
The Independent Supervisor may require an Auditor General—
(a)
to notify the Independent Supervisor immediately of the occurrence of
such events as it may specify in writing and to give it such information
10
in respect of those events as is so specified;
(b)
to give the Independent Supervisor, at such times or in respect of such
periods as it may specify in writing, such information as is so specified.
(2)
The notices and information required to be given must be such as the
Independent Supervisor may reasonably require for the exercise of the
15
functions conferred on it by or by virtue of this Part.
(3)
The Independent Supervisor may require information given under this section
to be given in a specified form or verified in a specified manner.
(4)
Any notice or information required to be given under this section must be
given in writing unless the Independent Supervisor specifies or approves some
20
other manner.
862
The Independent Supervisor’s power to call for information
(1)
The Independent Supervisor may by notice in writing require an Auditor
General to give it such information as it may reasonably require for the exercise
of the functions conferred on it by or by virtue of this Part.
25
(2)
The Independent Supervisor may require that any information which it
requires under this section is to be given within such reasonable time and
verified in such manner as it may specify.
Enforcement
863
Suspension notices
30
(1)
The Independent Supervisor may issue —
(a)
a notice (a “suspension notice”) suspending an Auditor General’s
eligibility for appointment as a statutory auditor in relation to all
persons, or any specified person or persons, indefinitely or until a date
specified in the notice;
35
(b)
a notice amending or revoking a suspension notice previously issued to
an Auditor General.
(2)
In determining whether it is appropriate to issue a notice under subsection (1),
the Independent Supervisor must have regard to—
(a)
the Auditor General’s performance of the obligations imposed on him
40
by or by virtue of this Part, and