|Company Law Reform Bill [HL] - continued||House of Commons|
|back to previous text|
Clause 478: Prevention by members of deemed re-appointment of auditor
720. This clause enables members with at least 5% of the voting rights in a private company to prevent an auditor being automatically re-appointed by giving notice to the company. The company's articles can enable members to do this with less than 5% of the voting rights, but cannot increase the required percentage.
721. Subsection (3) provides that the deadline for such a notice excluding the reappointment of an auditor is the end of the financial year the accounts for which he is auditing.
722. These clauses restate the law on appointment of auditors of public companies, providing that auditors are generally to be appointed by shareholders by ordinary resolution in the general meeting before which the company's accounts are laid.
Clause 479: Appointment of auditors of public company: general
723. This clause restates a public company's obligation to appoint auditors, unless it is taking advantage of exemption from audit. This is to be done by the shareholders by ordinary resolution, normally at the general meeting at which the accounts are laid. The directors can appoint the company's first auditors (or the first after a period of audit exemption), and can fill a casual vacancy.
Clause 480: Appointment of auditors of public company: default power of Secretary of State
724. This clause restates the obligation of a company to inform the Secretary of State if it has failed to appoint an auditor at the general meeting that considers the previous year's accounts; and the Secretary of State's power to appoint an auditor in those circumstances.
Clause 481: Term of office of auditors of public company
725. This clause restates that an auditor of a public company holds office until the end of the meeting at which the accounts they are auditing are laid, unless they are re-appointed. And it provides that where there is a change of auditor, the term of office of the incoming auditor does not begin before the end of the previous auditor's term. This means that a new auditor's term will typically begin immediately after the end of the accounts meeting.
726. These clauses apply to both private and public companies.
Clause 482: Fixing of auditor's remuneration
727. This clause restates the provision that it is the members of a company, by ordinary resolution, who determine the auditor's remuneration, or decide the method by which it should be determined. If the auditor was appointed by someone other than the members, then it will be the directors or the Secretary of State as appropriate who will determine his remuneration.
Clause 483: Disclosure of terms of audit appointment
728. This clause creates a new power for the Secretary of State to require companies to disclose information about the terms on which they engage their auditors. Subsection (2) provides some examples of the detailed requirements that the Secretary of State could specify in regulations. Subsection (3) provides that regulations can require disclosure of changes in terms as well as the terms at the time
of appointment. Subsection (4) specifies that the regulations are to be made by affirmative resolution procedure.
Clause 484: Disclosure of services provided by auditor or associates and related remuneration
729. This clause restates the existing power of the Secretary of State, in section 390B of the 1985 Act, to require disclosure of details of all the services supplied to a company by its auditor, and the remuneration involved. Subsections (2) to (4) give some illustrations of the detailed requirements that the Secretary of State can specify in regulations: subsection (2) relates to the level of disaggregation of different services and remunerations, and between the auditor and his associates; subsection (3) lists some of the definitional issues that can be covered in regulations; and subsection (4) provides examples of where the information should be disclosed.
730. Against the possibility that following subsection (4), the regulations might ask for disclosure in a document compiled by the company rather than the auditor, subsection (5) says that the regulations can require the auditor to supply the directors with any information that may be required, e.g. about the auditor's associates. Subsection (6) specifies that the regulations are to be made by negative resolution procedure.
Clauses 485 to 487: Auditor's report
731. These clauses restate with modifications the existing law, in section 235 of the 1985 Act, on what the auditor should include in his report on the accounts.
732. In clause 485, subsections (1) and (2) contain the basic duty to produce an audit report and require that it should set out the way the auditor has approached the audit. Subsection (3) requires the auditor in his report to state his opinion on three overlapping matters: (i) whether the accounts provide a true and fair view, (ii) whether they comply with the appropriate reporting framework, and (iii) whether the accounts comply with the requirements in Part 15 of the Bill (and, where applicable, with article 4 of the IAS Regulation (Regulation (EC) 1606/2002 on the application of international accounting standards)). Subsection (4) requires the audit report to be either qualified or unqualified, though it is open to the auditor to draw attention to aspects of his audit without qualifying the report.
733. The other two clauses in this group restate the law on what the auditor should include in relation to the directors' report and the directors' remuneration report.
Clauses 488 to 492: Duties and rights of auditors
734. These clauses bring together and restate the existing law on the auditor's duties (currently in section 237 of the 1985 Act) in investigating, forming an opinion, and making his report; and on the auditor's rights (sections 389A to 390 of that Act) to be provided with appropriate information.
735. Clause 488 lists areas where an auditor must investigate and report on any problems: the company's accounting records, and whether there is consistency between these and (i) the accounts and (ii) - where there is one - the appropriate part of the directors' remuneration report. The auditor is also to report if he has not been able to get all the information he needs. If possible, he is to make good any gaps in the information relating to payments to directors. And he is to report if he believes that the company is taking advantage of the small companies accounts regime without being entitled to do so.
736. Clause 489 restates the auditor's rights to obtain information and explanations from the company and its UK subsidiaries, and from appropriate associated individuals. Clause 490 sets out the corresponding right to require the company to obtain information or explanations from any subsidiaries that are not incorporated in the UK.
737. Clause 491 sets out offences for those who supply inaccurate information to auditors or fail to respond to auditors' requests for information without delay.
738. Clause 492 requires a private company to send to its auditor all the information about any written resolutions that it sends to its shareholders. It also gives the auditor of any company - public or private - the right to attend any general meetings it may have, and to be allowed to speak on anything relevant to the audit. The auditor must also receive all communications relating to general meetings.
Clause 493: Signature of auditor's report
739. This clause specifies who must sign the audit report submitted to a company by its auditor. The report must state the name of the audit firm, or if an individual has been appointed as auditor, his name. This is as currently required by section 236 of the 1985 Act.
740. For cases where the auditor is a firm, the clause then makes a change from the 1985 Act by requiring the "senior statutory auditor", as defined in the following clause, to sign the report in his own name on behalf of the firm. This anticipates a new requirement that will be introduced by the EU Audit Directive. If the auditor is an individual, he must sign as under the 1985 Act.
Clause 494: Senior statutory auditor
741. This clause defines a new term - the "senior statutory auditor" - for the individual who will be asked to sign his name to an audit report carried out by a firm. The firm will identify this individual according to standards to be issued by the European Commission, or if there are no standards, to guidance issued either by the Secretary of State or by a body appointed by him by an order subject to negative resolution. Subsection (2) specifies that to be identified as a senior statutory auditor of a company, an individual must be eligible himself to be appointed as auditor of the company. Subsection (3) ensures that for an individual to be nominated as senior statutory auditor will not affect his exposure to liability in any way.
Clause 495: Name of auditor etc to be stated in published copies of auditor's report
742. This clause requires a company to ensure that the copies of its auditor's report it sends out include the name of the auditor and of the senior statutory auditor if there is one, or to say that it is taking advantage of the exemption in the following clause. Subsection (2) explains which copies are covered: it would include the version circulated to shareholders, as well as any others that would be expected to be seen by members of the public. It does not, however, cover copies sent to the registrar: these are dealt with by clauses 428(8), 429(6), 430(4) and 431(4). Subsections (3) and (4) restate the offence, currently in section 236 of the 1985 Act, of not including the auditor's name - and now also the senior statutory auditor's name - as required.
Clause 496: Circumstances in which names may be omitted
743. This clause provides an exemption from the requirements to include the names of the auditor in both the published and filed copies of the audit report. This is available if the company passes a resolution not to reveal the names because it considers on reasonable grounds that revealing them would lead to a serious risk of violence or intimidation. It is also a condition of using the exemption that the company must inform the Secretary of State, giving details of the name of the auditor, and of the senior statutory auditor if there is one.
Clause 497: Offences in connection with auditors' report
744. This clause creates a new criminal offence in relation to inaccurate auditor's reports. The offence is committed by any individual eligible to be a statutory auditor who knowingly or recklessly causes a report to include anything that is misleading, false or deceptive; or to omit a required statement of a problem with the accounts.
745. Subsection (1) sets out the offence of commission, and subsection (2) that of omission. The items whose omission can be an offence are listed in paragraphs (a) to (c) and include statements about accounting records not being properly reflected in the accounts, about the auditor having been unable to obtain all necessary information and explanations, and about the directors wrongly claiming the company is exempt from the requirement for group accounts.
746. Subsection (3) defines the individuals potentially caught by the offence as the auditor, if a sole practitioner, and his employees and agents; and the directors, members, employees and agents of an audit firm. But the offence only applies to such an individual if he is an accountant who would be qualified to act as auditor of the company in his own right. Subsection (4) sets out the maximum penalty as an unlimited fine.
Clause 498: Guidance for regulatory and prosecuting authorities: England, Wales and Northern Ireland
747. This clause enables the Secretary of State to issue guidance about handling matters where the same behaviour by an auditor could give rise both to disciplinary proceedings by a regulatory body, and to prosecution for the new offence. Subsection (2) requires the Secretary of State to obtain the Attorney's General agreement to any guidance. Subsection (3) lists the regulatory and prosecuting authorities the guidance would be intended to help. The list includes the accountancy supervisory bodies, the Financial Reporting Council, the Director of the Serious Fraud Office and the Director of Public Prosecutions, as well as the Secretary of State himself. Under subsection (4), the Secretary of State's guidance is limited to England, Wales and Northern Ireland.
748. It is likely that one of the most important aspects of the guidance would be to enable prosecutors to decide not to prosecute in a particular case that would be better handled through disciplinary proceedings.
Clause 499: Guidance for regulatory authorities: Scotland
749. This clause enables the Lord Advocate to issue guidance about handling matters in Scotland where the same auditor's report could give rise both to disciplinary proceedings by a regulatory body, and to prosecution for the new offence. Subsection (2) requires the Lord Advocate to consult the Secretary of State before issuing guidance. Subsection (3) lists the regulatory bodies the guidance is intended to help. The list comprises the accountancy supervisory bodies, the FRC, and the Secretary of State.
750. This Chapter restates the law on the ways in which auditors can cease to hold office. The current provisions are in section 388 and sections 391 to 394A of the 1985 Act. There are some changes to the existing law resulting from the changes elsewhere in the Bill making it easier to pass written resolutions. There are also changes in the requirements when auditors leave office: increasing the range of cases in which there is a requirement for a statement explaining why they are leaving, and for copies of any statement to be sent to shareholders and to appropriate regulators.
Clause 500: Resolution removing auditor from office
751. This clause restates that the shareholders in a company always have the right to dismiss its auditor by ordinary resolution. As at present, to remove the auditor before the end of his term of office, even a private company will need to hold a general meeting to pass such a resolution.
752. Subsection (2) requires special notice of the resolution (see note on following clause). Subsection (3) provides that shareholders' right provided by this clause does not prevent the auditor being entitled to being compensated for termination of his
appointment. Subsection (4) specifies that the resolution described here is the only way in which an auditor can be removed before the end of his term of office.
Clause 501: Special notice required for resolution removing auditor from office
753. This clause restates the requirement that a resolution to dismiss an auditor needs special notice (i.e. 28 days' before the general meeting, as defined in clause 295). The company must send a copy to the auditor it is proposed to dismiss, and then he has the right to make a statement of his case. The company then has to circulate his statement to the shareholders (or if time does not allow, the statement can be read out at the meeting).
754. Subsection (6) provides protection if the auditor it is proposed to dismiss is using the provision to have a statement circulated to secure needless publicity for defamatory material. It enables the company, or someone else, to apply to the court, and the court can then determine whether the auditor is using the provision in that way, in which case the company is not obliged to circulate the statement. The court can order the auditor to pay some or all of the costs of the proceedings.
Clause 502: Notice to registrar of resolution removing auditor from office
755. This clause restates the obligation on a company that has decided to dismiss its auditor to inform the registrar within 14 days.
Clause 503: Rights of auditor who has been removed from office
756. This clause restates the right of a dismissed auditor to attend appropriate meetings, namely any meeting at which his term of office would have expired (i.e. a public company's accounts meeting), or any meeting at which it is proposed to replace him.
Clause 504: Failure to re-appoint auditor: special procedure required for written resolution
757. This clause sets out the procedure for changing auditor from one financial year to the next by written resolution (a procedure only available to private companies). This may be done (i) during the term of office of the outgoing auditor, or (ii) afterwards, if no replacement has been appointed. But case (ii) will arise only if there is no automatic deemed reappointment for one of the five reasons in clause 477(2).
758. Subsection (3) provides that the company must first send a copy of the proposed resolution both to the outgoing auditor and to his proposed replacement; and subsection (4) provides that the former then has 14 days to make a statement setting out his views. Subsection (5) then provides that the company should send, to its shareholders, the resolution together with any statement from the outgoing auditor. Subsection (6) specifies how the general rules on written resolutions are to apply in this case.
759. Subsection (7) provides protection if the outgoing auditor is using the provision to have a statement circulated to secure needless publicity for defamatory material. It enables the company, or someone else, to apply to the court, and the court can then determine whether the auditor is using the provision in that way, in which case the company is not obliged to circulate the auditor's representations. The court can order the auditor to pay some or all of the costs of the proceedings.
760. Subsection (8) provides that failure to comply with the rules in this clause will make the resolution ineffective.
Clause 505: Failure to re-appoint auditor: special notice required for resolution at general meeting
761. This clause sets out the procedure for changing auditor between one financial year and the next at a general meeting. This may be done by resolution at the meeting, but special notice is required if no deadline for appointing auditors has passed since the outgoing auditor left, or if the deadline has passed when an auditor should have been appointed without one being appointed. So, for example, if a public company chooses not to re-appoint an auditor at its accounts meeting, but later (before the next accounts meeting) changes its mind, it would need to give special notice of any general meeting appointing replacement auditors.
762. Subsection (3) provides that immediately it receives a proposed resolution for changing auditor, the company should send a copy of it both to the outgoing auditor and to his proposed replacement; and subsection (4) provides that the former may then send the company a written statement setting out his views. Subsections (5) and (6) provide that the company should send its shareholders any statement from the outgoing auditor, and that if it is received to late for this it should be read out at the meeting.
763. Subsection (7) provides protection if the outgoing auditor is using the provision to have a statement circulated to secure needless publicity for defamatory material. It enables the company, or someone else, to apply to the court, and the court can then determine whether the auditor is using the provision in that way, in which case the company is not obliged to circulate the auditor's representations, nor need they be read out at the meeting. The court can order the auditor to pay some or all of the costs of the proceedings.
Clause 506: Resignation of auditor
764. This clause restates the right of an auditor to resign by written notice to the company. His resignation is effective from the date it is delivered to the company's registered office, or from a later date specified in it. To be effective it must be accompanied by the statement required by clause 509.
Clause 507: Notice to registrar of resignation of auditor
765. This clause restates the obligation on a company whose auditor resigns to inform the registrar. Default in complying is an offence.
Clause 508: Rights of resigning auditor
766. This clause restates the right of an auditor who resigns to require the directors to convene a general meeting of the company so that it can consider his explanation of the circumstances that led to his decision to resign. The auditor can ask the company to send out a written explanation either in advance of that meeting if he has requested one, or before the next appropriate general meeting. The directors have 21 days to send out a notice convening a meeting once a resigning auditor has asked for it, and it must then be held within 28 days of the notice.
767. Subsection (9) provides protection if the resigning auditor is using the provision to have a statement circulated to secure needless publicity for defamatory material. It enables the company, or someone else, to apply to the court, and the court can then determine whether the auditor is using the provision in that way, in which case the company is not obliged to circulate the statement. The court can order the auditor to pay some or all of the costs of the proceedings.
Clause 509: Statement by auditor to be deposited with company
768. This clause requires a departing auditor to make a statement when he stops being the auditor of a company and to deposit it with the company. For quoted companies, this statement should explain the circumstances surrounding his departure. For other public companies and all private companies, it should explain the circumstances unless the auditor thinks that there is no need for them to be brought to the attention of the shareholders or creditors. In that case, the statement should state that there are no such circumstances.
769. This reverses the position under section 394 of the 1985 Act, where auditors were only required to make a statement if they considered there were relevant circumstances, and provides that auditors leaving quoted companies will now always be required to make a statement of the circumstances.
770. Subsection (4) sets out the deadline for depositing such a statement with the company, namely:
Clause 510: Company's duties in relation to statement
771. Unless the departing auditor's statement says that there are no circumstances to be brought to the attention of shareholders and creditors, this clause obliges the company to circulate the statement to everyone to whom it needs to send the annual accounts. The company must do this within 14 days of receiving it.
772. If the company does not want to circulate the statement, it can apply to the court, and if the court decides that the departing auditor is trying to secure needless publicity for defamatory material, then the company need not circulate the statement, but instead must send an account of the court decision to those to whom it would have sent the statement. In the event of a successful application, the court can order the auditor to pay some or all of the costs. In the event of an unsuccessful application, the company must circulate the statement within 14 days of the end of the court proceedings.
Clause 511: Copy of statement to be sent to registrar
773. This clause provides that the departing auditor must send a copy of his statement to the registrar, normally within 28 days of depositing it with the company. The auditor is not required to send it to the registrar if within 21 days of depositing it he hears that the company has applied to the court. But if the company lets him know that its application was unsuccessful, then he must send it to the registrar within seven days of being told.
Clause 512: Duty of auditor to notify appropriate audit authority
774. This clause introduces a new obligation on departing auditors to send copies of their leaving statements to an appropriate audit authority as defined in clause 515. It contains different rules depending on whether the company the auditor is leaving is classified as a "major audit" as defined in clause 515.
775. In relation to major audits, the departing auditor should always send a copy of his statement to the appropriate audit authority. He should do this as the same time as he deposits his statement with the company under clause 509. In relation to other audits, the departing auditor is required to send his statement to the appropriate audit authority only if he is leaving before the end of his term of office, meaning only if he has resigned or has been dismissed.
776. Subsection (3) provides that where the auditor's statement to the company said that there were no circumstances that needed to be brought to the attention of shareholders or creditors, that statement must have attached to it a statement of the auditor's reasons for leaving when sending it to the audit authority.
777. Subsections (5) to (8) set out the offence of failure to comply with these requirements, and the maximum penalties.
|© Parliamentary copyright 2006||Prepared: 26 May 2006|