Company Law Reform Bill [HL] (235-241)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (235-241)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 1 — Requirement for audited accounts
235

(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 that is a charity, not more than £700,000 net (or
£840,000 gross),
5
(ii)
in the case of a company registered in Scotland that is a charity,
of such amount as may be specified by regulations under the
Charities and Trustee Investment (Scotland) Act 2005 (asp 10),
and
(iii)
in any other case, not more than £5.6 million net (or £6.72
10
million gross);
(c)
that the group’s aggregate balance sheet total for that year is not more
than £2.8 million net (or £3.36 million gross).
(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
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was both a subsidiary undertaking and dormant.
(4)
In this section—
(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
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together with all its associated undertakings.

For this purpose undertakings are associated if one is a subsidiary undertaking
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 small shall be determined in accordance
25
with section 389 (qualifying conditions for small companies accounts
regime),
(b)
“ineligible group” has the meaning given by section 390(2);
(c)
a group’s aggregate turnover and aggregate balance sheet total shall be
determined as for the purposes of section 389;
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(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
section as if all the bodies corporate in the group were companies.
Exemption from audit: dormant companies
488
Dormant companies: conditions for exemption from audit
35
(1)
A company is exempt from the requirements of this Act relating to the audit of
accounts in respect of a financial year if—
(a)
it has been dormant since its formation, or
(b)
it has been dormant since the end of the previous financial year and the
following conditions are met.
40
(2)
The conditions are that the company—
(a)
as regards its individual accounts for the financial year in question—
(i)
is entitled to prepare accounts in accordance with the small
companies regime (see sections 387 to 390), or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 1 — Requirement for audited accounts
236

(ii)
would be so entitled but for having been a public company or a
member of an ineligible group, and
(b)
is not required to prepare group accounts for that year.
(3)
This section has effect subject to—
section 483(2) and (3) (requirements as to statements to be contained in
5
balance sheet),
section 484 (right of members to require audit), and
section 489 (companies excluded from dormant companies exemption).
489
Companies excluded from dormant companies exemption

A company is not entitled to the exemption conferred by section 488 (dormant
10
companies) if it was at any time within the financial year in question a
company that—
(a)
has permission under Part 4 of the Financial Services and Markets Act
2000 (c. 8) to carry on a regulated activity, or
(b)
carries on insurance market activity.
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Exemption from audit: certain charities
490
Small charities: independent examiner’s report in lieu of audit
(1)
A company that is a charity is exempt from the requirements of this Act
relating to the audit of accounts in respect of a financial year if—
(a)
it meets the conditions set out in subsection (2) below, and
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(b)
the directors cause a report in respect of the company’s individual
accounts for that year to be prepared in accordance with section 493
and made to the company’s members.
(2)
The conditions referred to above are that—
(a)
the company qualifies as a small company in relation to that year;
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(b)
its balance sheet total for that year is—
(i)
in the case of a company registered in England and Wales or
Northern Ireland, not more than £2.8 million, and
(ii)
in the case of a company registered in Scotland, of such amount
as may be specified by regulations under the Charities and
30
Trustee Investment (Scotland) Act 2005 (asp 10);
(c)
its gross income in that year is—
(i)
in the case of a company registered in England and Wales or
Northern Ireland, more than £90,000 but not more than
£500,000, and
35
(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.
(3)
For a period which is a company’s financial year but not in fact a year the
maximum figure for gross income shall be proportionately adjusted.
40
(4)
For the purposes of this section—
(a)
whether a company qualifies as a small company shall be determined
in accordance with section 388(1) to (6);
(b)
“balance sheet total” has the same meaning as in that section; and

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 1 — Requirement for audited accounts
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(c)
“gross income” means the company’s income from all sources, as
shown in the company’s income and expenditure account.
(5)
This section has effect subject to—
section 483(2) and (3) (requirements as to statements to be contained in
balance sheet),
5
section 484 (right of members to require audit),
section 491 (companies excluded from report exemption), and
section 492 (availability of report exemption in case of group company).
491
Companies excluded from report exemption
A company is not entitled to the exemption conferred by section 490 (charities:
10
independent examiner’s report in lieu of audit) if it was at any time within the
financial year in question—
(a)
a public company,
(b)
a company that—
(i)
has permission under Part 4 of the Financial Services and
15
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
of that Act (other than an appointed representative whose scope
of appointment is limited to activities that are not regulated
20
activities for the purposes of this Part), or
(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’
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.
25
5)).
492
Availability of report exemption in case of group company
(1)
A company is not entitled to the exemption conferred by section 490 (charities:
independent examiner’s report in lieu of audit) in respect of a financial year
during any part of which it was a group company unless—
30
(a)
the conditions specified in subsection (2) below are met, or
(b)
subsection (3) applies.
(2)
The conditions are—
(a)
that the group—
(i)
qualifies as a small group in relation to that financial year, and
35
(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
gross), and
40
(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—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
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Chapter 1 — Requirement for audited accounts
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(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 389(2) (conditions for small companies
accounts regime),
20
(b)
“ineligible group” has the meaning given by section 390,
(c)
a group’s aggregate turnover and aggregate balance sheet total shall be
determined as for the purposes of section 389, 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.
493
The independent examiner’s report
(1)
The report required for the purposes of section 490 (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 494, 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).
494
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] (changed to Companies Bill [HL])
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Chapter 1 — Requirement for audited accounts
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(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.
495
Rights of independent examiner
5

Where the directors of a company take advantage of the exemption conferred
by section 490 (small charities: independent examiner’s report in lieu of audit),
sections 513 to 515 (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
496
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 497 (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 483(2) (balance sheet to contain
statement that company entitled to exemption under this section).
497
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—

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Chapter 2 — Appointment of auditors
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(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
498
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
499
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] (changed to Companies Bill [HL])
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Chapter 2 — Appointment of auditors
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(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
430), 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
429.

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 500 (default power of Secretary of State).

This is without prejudice to any deemed re-appointment under section 501.
500
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 499, 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
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(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.
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501
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—