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Clause 833: Disclosure required: business premises
1455. This clause replaces section 4(1)(b) of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It makes provision to enable customers and suppliers to discover the name(s) and the address for service of documents when visiting any business premises of the trader or partners.
Consequences of failure to make required disclosure
Clause 834: Criminal consequences of failure to make required disclosure
1456. This clause replaces section 7 of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It retains the existing offences for failure to comply with the requirements relating to disclosure of name and address in documents and notices.
Clause 835: Civil consequences of failure to make required disclosure
1457. This clause replaces section 5 of the Business Names Act 1985 so far as it applies to sole traders and partnerships. It provides legal rights to anyone who has sustained losses as a result of failure to comply with this Chapter's requirements by a sole trader or partnership
CHAPTER 3: SUPPLEMENTARY
Clause 836: Application of general provisions about offences
Clause 837: Interpretation
1458. These clauses replace subsection 7(6) and section 8 of the Business Names Act 1985.
PART 35: STATUTORY AUDITORS
1459. The effects of this Part are:
- To replace Part 2 of the 1989 Act and equivalent Northern Ireland provisions, by restating those provisions with some modifications.
- To extend the category of auditors that are subject to regulation and to make provision for the registration and regulation of auditors (whether based in the UK or not) who audit companies which are incorporated outside the EU but listed in the UK;
- To provide that the Comptroller and Auditor General and the regional Auditors General are eligible to be appointed to perform statutory audits and provide a mechanism for the regulation and supervision of their functions as statutory auditor.
1460. Many of the provisions in this Part implement obligations contained in the 8th Company Law Directive on Audit (adopted and expected to be published by mid June 2006). The provisions relating to Auditors General implement recommendations contained in Lord Sharman's report, "Holding to Account, The Review of Audit and Accountability for Central Government", published in 2001.
CHAPTER 1: INTRODUCTORY
Clauses 838 to 840: Introductory
1461. Part 2 of the 1989 Act regulates only the auditors of companies. Clause 839(1) defines the meaning of statutory auditor more broadly. Persons within paragraphs (a) to (g) are 'statutory auditors'. This list includes those persons who audit companies (as required under Part 16 of the Bill) and those who audit building societies, insurers that are friendly societies and insurance undertakings. In addition, the Secretary of State has a power to add auditors of other persons to this list. Clause 840 cross-refers the eligibility for appointment as a statutory auditor to the requirements contained in Chapter 2 or Chapter 3 of this Part of the Bill.
CHAPTER 2: INDIVIDUALS AND FIRMS
Eligibility for appointment
Clause 841: Individuals and firms: eligibility for appointment as a statutory auditor
Clause 842: Effect of ineligibility
1462. These clauses are restatements of sections 25 and 28 of the 1989 Act adapted so as to apply in relation to statutory auditors. The clauses provide that for a person or firm (defined in clause 890) to be eligible for appointment as a statutory auditor, the person must be a member of a recognised supervisory body and be eligible for appointment under the rules of that body. Clause 842(2) clarifies that references to such members include references to persons who are not members but who are subject to the body's rules. (Clause 846 and Schedule 10 address the recognition of supervisory bodies, and lay down the requirements they must meet to be recognised.)
1463. Clause 842 provides that no person may act as a statutory auditor if he is ineligible. It specifies that, on becoming ineligible, the auditor must resign his office and give notice in writing. Failure to comply with this requirement is an offence, conviction of which can result in a fine (subsections (3) and (4)). If the auditor continues to act as a statutory auditor after conviction (subsection (5)), or continues to fail to give notice that he is ineligible for appointment as a statutory auditor (subsection (6)), he commits a further offence for which a daily fine may be imposed after conviction (subsection (7)). Subsection (8) provides a defence if the person did not know or had no reason to believe that he was, or had become, ineligible.
Clause 843: Independence requirement
1464. This clause restates section 27 of the 1989 Act and indicates circumstances where a person may not act as a statutory auditor on grounds of lack of independence. Under subsection (2) this includes persons who are officers or employees of the audited entity, or the partner or employee of such a person. Under subsection (3), this includes where the person is an officer or employee of a subsidiary of the audited entity. Subsection (4) allows the Secretary of State to make regulations regarding other connections between the audited entity and the statutory auditor by virtue of which a person will be regarded as lacking independence.
Clause 844: Effect of lack of independence
1465. This clause sets out the consequences of the prohibition from acting as a statutory auditor on grounds of lack of independence, as defined in clause 843. They replicate the effect of ineligibility as explained for clause 842.
Clause 845: Effect of appointment of a partnership
1466. This clause is a restatement of section 26 of the 1989 Act. The effect of the clause is to ensure that when a partnership constituted in England and Wales, Northern Ireland, or any other country or territory in which a partnership is not a legal person, is appointed as a statutory auditor under this Part, the appointment may continue even if a partner leaves the partnership. For a partnership or other person to be considered as appropriate for the appointment to continue, they must be eligible for appointment as a statutory auditor and not be prohibited (as indicated in clause 843(1)). Without this provision, the appointment would cease every time the membership of the partnership changed.
Clause 846: Supervisory bodies
1467. This clause restates section 30 of the 1989 Act and defines a supervisory body as a body established in the UK which maintains and enforces rules regarding the eligibility of persons appointed as statutory auditors and the conduct of statutory audit work. The rules of the supervisory body referred to here must be relevant to the purposes of this Part of the Bill and relate to persons who are seeking appointment or acting as a statutory auditor, whether or not they are a member of the supervisory body. Subsection (4) introduces Schedule 10, which specifies the requirements supervisory bodies must meet in order to be recognised, and the process for doing so.
Schedule 10: Recognised supervisory bodies
Part 1: Grant and Revocation of a Supervisory Body
1468. This Schedule restates provisions in Schedule 11 to the 1989 Act. Paragraph 1 identifies the steps a body is required to take to become recognised by the Secretary of State. Paragraph 3 specifies the steps that the Secretary of State is required to take if the recognition of the body is revoked. Paragraph 5 provides that recognition (and revocation) orders are not statutory instruments. Paragraph 4 is a transitional provision that allows bodies recognised under the 1989 Act or the Companies (Northern Ireland) Order 1990 to continue to be recognised.
Part 2: Requirements for recognition of a supervisory body
1469. Paragraphs 6 and 7 require a recognised supervisory body to ensure that persons eligible for appointment as a statutory auditor hold appropriate qualifications (as defined in clause 848). They require a firm that is a statutory auditor to be controlled by qualified persons. Paragraphs 8 to 11 require the bodies to have rules and practices which ensure that auditors are fit and proper persons, that professional integrity and independence is maintained, that technical standards for audits are assured and that there are procedures for maintaining appropriate levels of competence. Paragraphs 12 to 16 specify the requirements for monitoring, enforcement, discipline and investigation of complaints.
Part 3: Arrangements in which recognised supervisory bodies are required to participate
1470. Paragraphs 21 to 27 specify the arrangements with independent bodies that recognised supervisory bodies must enter into in order to meet the requirements of this Schedule described above.
Clause 847: Exemption from liability for damages
1471. This clause is a restatement of section 48 of the 1989 Act. It sets out those bodies and individuals that are exempt from liability for damages arising from the discharge or claimed discharge of supervisory functions as specified in this Part of the Bill (these include the effects of rules, practices, powers and arrangements of the body). It applies to recognised supervisory bodies (see clause 846 and Schedule 10) and their officers, employees and members of their governing bodies. The exemption does not apply if they have acted in bad faith, or if it would prevent an award of damages because the act was unlawful under the Human Rights Act.
Clause 848: Appropriate qualifications
1472. This clause restates section 31 of the 1989 Act. It provides that a person holds an appropriate audit qualification if he holds a professional qualification obtained in the UK which is recognised in accordance with clause 846 and Schedule 11. Qualifications recognised under Part 2 of the 1989 Act or the Companies (Northern Ireland) Order 1990 will continue to be recognised.
1473. Persons whose qualifications from other EU Member States are recognised under the European Communities (Recognition of Professional Qualifications) (First General System) Regulations 2005 to practise as statutory auditors are also considered to hold an appropriate qualification. So too are overseas qualifications from non-EU countries if approved under clause 850. Subsection (2) restates a transitional provision from the 1989 Act for those persons who have begun a course of study in accountancy before 1 January 1990 and obtained a qualification between 1 January 1990 and 1 January 1996, enabling them to apply to the Secretary of State for approval of their qualification. The transitional provisions contained in section 31(2) and (3) of the 1989 Act have not been restated.
Clause 849: Qualifying bodies and recognised professional qualifications
1474. This clause is a restatement of section 32 of the 1989 Act. It defines the term "qualifying body" as a body that offers a professional qualification in accountancy and introduces Schedule 11 which sets out the requirements that qualifying bodies must impose. Only a qualification recognised in accordance with these provisions can be considered a recognised professional qualification within the meaning of clause 848(1)(a).
Schedule 11: Recognised Professional Qualifications
Part 1: Grant and revocation of recognition of a professional qualification
Paragraph 1: Application for recognition of professional qualification
1475. This Schedule restates provisions in Schedule 12 to the 1989 Act. Paragraph 1 identifies the steps a body is required to take for a qualification it offers to be recognised by the Secretary of State. Paragraph 3 specifies the steps that the Secretary of State is required to take if the recognition is revoked. Paragraph 5 provides that recognition (and revocation) orders are not statutory instruments. Paragraph 4 is a transitional provision that allows qualifications recognised under the 1989 Act or the Companies (Northern Ireland) Order 1990 to continue to be recognised.
Part 2: Requirements for recognition of a professional qualification
1476. Paragraph 6 sets the minimum academic standards that a person must have attained before he can attempt the professional qualification. Paragraph 7 requires that the qualification is restricted to persons who have either completed a relevant academic course or have seven years' professional experience. Paragraph 8 requires that an examination must be passed (part of which has to be in writing) for the person to achieve the qualification. This examination must be in subjects of theoretical knowledge prescribed by the Secretary of State; or a university or equivalent level examination; or by practical demonstration of knowledge to examination or diploma level that is recognised by the Secretary of State. Paragraph 9 requires persons to carry out at least three years' practical training.
Clause 850: Approval of overseas qualifications
1477. This clause restates section 33 of the 1989 Act as regards the approval of overseas qualifications from non-EU countries. It sets out the conditions that will need to be satisfied, relating to the assurance of professional competence. The clause provides for approval of all those in a specified country who are qualified to audit accounts, or only those who hold specified qualifications in that country. In the case of the latter, the Secretary of State may specify any additional requirements to be satisfied. The clause allows the Secretary of State to recognise an overseas qualification only if there is comparability of treatment in the country in question.
Clause 851: Eligibility of individuals retaining only 1967 Act authorisation
1478. This clause restates section 34 of the 1989 Act. Prior to 1967 auditors of an unquoted company were exempt from the statutory qualification requirements placed on other company auditors. The Companies Act 1967 abolished this exemption but allowed an auditor with sufficient practical experience to apply to the Secretary of State for authorisation to practise. Past authorisations will continue to be valid by virtue of the transitional provision in clause 848(1)(b). Clause 851 provides that auditors authorised under the 1967 Act may not be treated as statutory auditors for any purpose other than to perform the statutory audit of an unquoted company (as defined in clause 367(2 and (3)).
Clauses 852: Matters to be notified to the Secretary of State
1479. This clause is a restatement of section 37 of the 1989 Act and allows the Secretary of State to identify events that must be notified to him if they occur. It requires that recognised supervisory and qualifying bodies must provide information, either in writing or some other specified manner, that is reasonably required for the Secretary of State to carry out his functions - this might include annual reports, notification of rule or bye-law changes. This information might relate to specific time periods or specific occurrences.
Clause 853: The Secretary of State's power to call for information
1480. This clause restates section 38 of the 1989 Act. It provides the Secretary of State with the power to require information from a recognised supervisory body, a recognised qualifying body or an individual statutory auditor. For example, as a result of a report provided under clause 852, the Secretary of State may request further information on a specific point to clarify if a recognised supervisory body is complying with the requirements in Schedule 10. The Secretary of State can specify the time period in which this information has to be provided.
Clause 854: Compliance orders
1481. This clause is a restatement of section 39 of the 1989 Act. If a recognised supervisory or qualifying body fails to meet the requirements in Schedule 10 or 11 respectively, or it fails to comply with another requirement contained in this Part of the Bill, then the Secretary of State may apply to the court for an order to make the body comply. The ultimate sanction for non-compliance by a body would be revocation of their status as a recognised body under Schedule 10 or 11.
CHAPTER 3: AUDITORS GENERAL
Clause 855: Auditors General: eligibility for appointment as a statutory auditor
1482. Subsection (1) defines an "Auditor General" for the purposes of this Part as the Comptroller and Auditor General, the Auditor General for Scotland, the Auditor General for Wales and the Comptroller and Auditor General for Northern Ireland. Subsections (2) and (3) explain that an Auditor General is eligible for appointment as a statutory auditor, unless his eligibility has been suspended by the Independent Supervisor under clause 863.
Clause 856: Individuals responsible for audit work on behalf of Auditors General
1483. This clause provides that an Auditor General must ensure that the individuals within his charge, who are carrying out statutory audits on the Auditor General's behalf, are, in their own right, eligible for appointment as a statutory auditor by virtue of the qualifications and requirements that are set out in Chapter 2.
Clause 857: Appointment of the Independent Supervisor
1484. Subsections (1) and (3) provide that the Secretary of State must appoint a body to be the Independent Supervisor of Auditors General in respect of the exercise of statutory audit functions. Subsection (2) provides for the appointment of the Independent Supervisor to have the effect of making it subject to the obligations of the Freedom of Information Act 2000. Subsections (4), (5) and (6) provide that a body may be appointed as Independent Supervisor of an Auditor General if it is a corporate body or unincorporated association that is willing to carry out the function, that has arrangements in place that will ensure the supervision is carried out effectively, and that will exercise such functions and requirements that may be laid down in the Secretary of State's order appointing it. The appointed Independent Supervisor must perform its function on a UK-wide basis for all four Auditors General in accordance with clause 857.
Clause 858: Supervision of Auditors General by the Independent Supervisor
1485. This clause sets the framework for the supervision arrangements to be carried out by the Independent Supervisor. Subsection (2) provides that the Independent Supervisor must establish arrangements with one or more third parties to carry out aspects of the supervisory function. Subsection (3) provides that the arrangements with a third party cover standards on professional integrity and independence, as well as the technical standards for statutory audit work; monitoring performance; investigating matters arising from that performance; and as necessary holding disciplinary hearings and deciding whether any disciplinary action should be taken. Subsections (6) and (7) make provisions relating to the payment of fines under the disciplinary arrangements.
Clause 859: Duties of Auditors General in relation to supervision arrangements
1486. Subsection (1) makes it a duty for the Auditor General to comply with the standards set by, as well as the monitoring arrangements and decisions of, the independent supervision arrangements. It also provides in subsection (2) for each Auditor General to pay the proportion of the costs of the independent supervisory arrangements that may be notified to the Auditor General in writing. Subsection (3) provides that the payment of such costs is to be regarded as expenditure of the National Audit Office in the case of the Comptroller and Auditor General, and as expenditure of the Northern Ireland Audit Office in the case of the Comptroller and Auditor General for Northern Ireland. In the case of the Auditor General for Scotland, under section 13 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1) the expenses of the Auditor General are to be paid by Audit Scotland. In the case of the Auditor General for Wales, under section 93 of the Government of Wales Act 1998 the expenses of the Auditor General are to be met by the Assembly.
Clause 860: Reports by the Independent Supervisor
1487. This clause provides that the Independent Supervisor must provide at least one report each calendar year to the Secretary of State and to the First Minister in Scotland, The First Minister and the Deputy First Minister in Northern Ireland and the
Assembly First Minister in Wales. The Secretary of State must then lay the report before each House of Parliament.
Clause 861: Matters to be notified to the Independent Supervisor
1488. This clause makes it a legal requirement for an Auditor General to notify the Independent Supervisor in writing of events that the Independent Supervisor may specify and is consistent with the requirement for other statutory auditors as contained in clause 852.
Clause 862: The Independent Supervisor's power to call for information
1489. This clause makes provision enabling the Independent Supervisor to require an Auditor General to provide information. It enables the Independent Supervisor to specify the period within which the information must be provided and how the information must be verified. This clause is consistent with the requirement for other statutory auditors as contained in clause 853.
Clauses 863: Suspension notices
1490. This clause provides the Independent Supervisor with the power to suspend an Auditor General's eligibility for appointment as a statutory auditor if, for example, he falls short of the standards laid down for performance of statutory audit work. It also sets out the provisions as to how the suspension will be effected, the considerations pertaining to the decision to suspend, the reasons for such a decision and so on. It provides for a process leading up to the issuing of a suspension notice, including the hearing of representations from the Auditor General in question.
Clause 864: Effect of suspension notices
1491. This clause provides that an Auditor General must not act as a statutory auditor of a particular person if he is suspended in relation to that person. If the suspension starts during his term of office, the Auditor General must resign as a statutory auditor immediately, and tell the audited person that he has resigned. Subsection (3) makes it clear that the criminal offences in clause 842 (ineligibility for appointment as a statutory auditor) do not apply to an Auditor General who is ineligible by virtue of a suspension notice.
Clause 865: Compliance orders
1492. This clause provides the power for the Independent Supervisor to take an Auditor General to court if he fails to comply with any obligation imposed by or by virtue of this Part of the Bill. The court may direct the Auditor General to take such steps as it thinks fit to ensure compliance.
Clause 866: Proceedings involving the Independent Supervisor
1493. This clause provides that where the Independent Supervisor is an unincorporated association it may take proceedings in the name of the body corporate under which it is constituted.
Clause 867: Grants to the Independent Supervisor
1494. This clause amends section 16(2) of the C(AICE) Act 2004. The effect of the amendment is that the body that carries out the functions of the Independent Supervisor is eligible for grants from the Secretary of State under section 16 of that Act to meet the expenditure of the body and any subsidiary. It also means that the body may be exempt from liability in damages under section 18 of the Act.
CHAPTER 4: THE REGISTER OF AUDITORS ETC
Clause 868: The register of auditors
1495. This clause restates section 35 of the 1989 Act but extends the provision to cover other statutory auditors (as defined in clause 839) and third country auditors (as defined in clause 870). It requires the Secretary of State to make regulations that require the keeping of a register of those persons eligible to be a statutory auditor and registered third country auditors. Subsection (2) sets out the information that must be included on the register and includes the name and address and the name of the relevant supervisory body for the person. If an individual statutory auditor works for a firm that is a statutory auditor, both must be entered separately on the register and cross-referenced. In subsection (3) additional information, namely the name and address of directors, members or partners, is required from bodies corporate (including limited liability partnerships), corporations sole and partnerships. The clause allows for certain parts of the register to be kept by different persons, for example an oversight body may keep the information regarding third country auditors, whilst the recognised supervisory bodies may keep information regarding other statutory auditors. Subsection (6) confers a power to provide that information in the register, or a certified copy of it, is to be made available to the public upon request. A charge for access to this information is permitted. Subsection (7) allows the Secretary of State to disapply some or all of the requirements of subsections 2(e) and 3 in relation to third country auditors (for example, if they are already subject to equivalent supervision in their home country).
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