Company Law Reform Bill [HL] (242-246)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (242-246)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 2 — Appointment of auditors
242

(a)
they do not take office until any previous auditor or auditors cease to
hold office, and
(b)
they cease to hold office at the end of the next period for appointing
auditors unless re-appointed.
(2)
Where no auditor has been appointed by the end of the next period for
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appointing auditors, any auditor in office immediately before that time is
deemed to be re-appointed at that time, unless—
(a)
he was appointed by the directors, or
(b)
the company’s articles require actual re-appointment, or
(c)
the deemed re-appointment is prevented by the members under section
10
502, or
(d)
the members have resolved that he should not be re-appointed, or
(e)
the directors have resolved that no auditor or auditors should be
appointed for the financial year in question.
(3)
This is without prejudice to the provisions of this Part as to removal and
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resignation of auditors.
(4)
No account shall be taken of any loss of the opportunity of deemed re-
appointment under this section in ascertaining the amount of any
compensation or damages payable to an auditor on his ceasing to hold office
for any reason.
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502
Prevention by members of deemed re-appointment of auditor
(1)
An auditor of a private company is not deemed to be re-appointed under
section 501(2) if the company has received notices under this section from
members who hold at least the requisite percentage of the total voting rights of
all members who would be entitled to vote on a resolution that the auditor
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should not be re-appointed.
(2)
The “requisite percentage” is 5%, or such lower percentage as is specified for
this purpose in the company’s articles.
(3)
A notice under this section—
(a)
may be in hard copy or electronic form,
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(b)
must be authenticated by the person or persons giving it, and
(c)
must be received by the company before the end of the accounting
reference period immediately preceding the time when the deemed re-
appointment would have effect.
Public companies
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503
Appointment of auditors of public company: general
(1)
An auditor or auditors of a public 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.
(2)
For each financial year for which an auditor or auditors is or are to be
40
appointed (other than the company’s first financial year), the appointment
must be made before the end of the accounts meeting of the company at which
the company’s annual accounts and reports for the previous financial year are
laid.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 2 — Appointment of auditors
243

(3)
The directors may appoint an auditor or auditors of the company—
(a)
at any time before the company’s first accounts meeting;
(b)
following a period during which the company (being exempt from
audit) did not have any auditor, at any time before the company’s next
accounts meeting;
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(c)
to fill a casual vacancy in the office of auditor.
(4)
The members may appoint an auditor or auditors by ordinary resolution—
(a)
at an accounts meeting;
(b)
if the company should have appointed an auditor or auditors at an
accounts meeting but failed to do so;
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(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 public company may only be appointed—
(a)
in accordance with this section, or
(b)
in accordance with section 504 (default power of Secretary of State).
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504
Appointment of auditors of public company: default power of Secretary of
State
(1)
If a public company fails to appoint an auditor or auditors in accordance with
section 503, the Secretary of State may appoint one or more persons to fill the
vacancy.
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(2)
Where subsection (2) of that section applies and the company fails to make the
necessary appointment before the end of the accounts meeting, the company
must within one week of the end of that meeting 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
25
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
conviction to a fine not exceeding level 3 on the standard scale and, for
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continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
505
Term of office of auditors of public company
(1)
The auditor or auditors of a public company hold office in accordance with the
terms of their appointment, subject to the requirements that—
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(a)
they do not take office until the previous auditor or auditors have
ceased to hold office, and
(b)
they cease to hold office at the conclusion of the accounts meeting next
following their appointment, unless re-appointed.
(2)
This is without prejudice to the provisions of this Part as to removal and
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resignation of auditors.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 2 — Appointment of auditors
244

General provisions
506
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.
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(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
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of expenses.
(5)
This section applies in relation to benefits in kind as to payments of money.
507
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,
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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—
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(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;
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(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
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(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.
508
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
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associates;

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
245

(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—
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(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—
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(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
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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
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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
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Functions of auditor
Auditor’s report
509
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 429;

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
246

(b)
in the case of a public company, to be laid before the company in
general meeting under section 445.
(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—
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(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,
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(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
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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 16
(see section 482) have the same meaning as in that Part.
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(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.
510
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.
511
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
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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.
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(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 427.