Company Law Reform Bill [HL] (247-253)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (247-253)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
247

Duties and rights of auditors
512
Duties of auditor
(1)
A company’s auditor, in preparing his report, must carry out such
investigations as will enable him to form an opinion as to—
(a)
whether adequate accounting records have been kept by the company
5
and returns adequate for their audit have been received from branches
not visited by him, and
(b)
whether the company’s individual accounts are in agreement with the
accounting records and returns, and
(c)
in the case of a quoted company, whether the auditable part of the
10
company’s directors’ remuneration report is in agreement with the
accounting records and returns.
(2)
If the auditor is of opinion—
(a)
that adequate accounting records have not been kept, or that returns
adequate for their audit have not been received from branches not
15
visited by him, or
(b)
that the company’s individual accounts are not in agreement with the
accounting records and returns, or
(c)
in the case of a quoted company, that the auditable part of its directors’
remuneration report is not in agreement with the accounting records
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and returns,

the auditor shall state that fact in his report.
(3)
If the auditor fails to obtain all the information and explanations which, to the
best of his knowledge and belief, are necessary for the purposes of his audit, he
shall state that fact in his report.
25
(4)
If—
(a)
the requirements of regulations under section 418 (disclosure of
directors’ benefits: remuneration, pensions and compensation for loss
of office) are not complied with in the annual accounts, or
(b)
in the case of a quoted company, the requirements of regulations under
30
section 427 as to information forming the auditable part of the
directors’ remuneration report are not complied with in that report,

the auditor must include in his report, so far as he is reasonably able to do so,
a statement giving the required particulars.
(5)
If the directors of the company have prepared accounts and reports in
35
accordance with the small companies regime and in the auditor’s opinion they
were not entitled so to do, the auditor shall state that fact in his report.
513
Auditor’s general right to information
(1)
An auditor of a company—
(a)
has a right of access at all times to the company’s books, accounts and
40
vouchers (in whatever form they are held), and
(b)
may require any of the following persons to provide him with such
information or explanations as he thinks necessary for the performance
of his duties as auditor.
(2)
Those persons are—
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
248

(a)
any officer or employee of the company;
(b)
any person holding or accountable for any of the company’s books,
accounts or vouchers;
(c)
any subsidiary undertaking of the company which is a body corporate
incorporated in the United Kingdom;
5
(d)
any officer, employee or auditor of any such subsidiary undertaking or
any person holding or accountable for any books, accounts or vouchers
of any such subsidiary undertaking;
(e)
any person who fell within any of paragraphs (a) to (d) at a time to
which the information or explanations required by the auditor relates
10
or relate.
(3)
A statement made by a person in response to a requirement under this section
may not be used in evidence against him in criminal proceedings except
proceedings for an offence under section 515.
(4)
Nothing in this section compels a person to disclose information in respect of
15
which a claim to legal professional privilege (in Scotland, to confidentiality of
communications) could be maintained in legal proceedings.
514
Auditor’s right to information from overseas subsidiaries
(1)
Where a parent company has a subsidiary undertaking that is not a body
corporate incorporated in the United Kingdom, the auditor of the parent
20
company may require it to obtain from any of the following persons such
information or explanations as he may reasonably require for the purposes of
his duties as auditor.
(2)
Those persons are—
(a)
the undertaking;
25
(b)
any officer, employee or auditor of the undertaking;
(c)
any person holding or accountable for any of the undertaking’s books,
accounts or vouchers;
(d)
any person who fell within paragraph (b) or (c) at a time to which the
information or explanations relates or relate.
30
(3)
If so required, the parent company must take all such steps as are reasonably
open to it to obtain the information or explanations from the person concerned.
(4)
A statement made by a person in response to a requirement under this section
may not be used in evidence against him in criminal proceedings except
proceedings for an offence under section 515.
35
(5)
Nothing in this section compels a person to disclose information in respect of
which a claim to legal professional privilege (in Scotland, to confidentiality of
communications) could be maintained in legal proceedings.
515
Auditor’s rights to information: offences
(1)
A person commits an offence who knowingly or recklessly makes to an auditor
40
of a company a statement (oral or written) that—
(a)
conveys or purports to convey any information or explanations which
the auditor requires, or is entitled to require, under section 513, and
(b)
is misleading, false or deceptive in a material particular.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
249

(2)
A person guilty of an offence under subsection (1) is liable—
(a)
on conviction on indictment, to imprisonment for a term not exceeding
two years or a fine (or both);
(b)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
5
exceeding twelve months or to a fine not exceeding the
statutory maximum (or both);
(ii)
in Scotland or Northern Ireland, to imprisonment for a term not
exceeding six months or to a fine not exceeding the statutory
maximum (or both).
10
(3)
A person who fails to comply with a requirement under section 513 without
delay commits an offence unless it was not reasonably practicable for him to
provide the required information or explanations.
(4)
If a parent company fails to comply with section 514, an offence is committed
by—
15
(a)
the company, and
(b)
every officer of the company who is in default.
(5)
A person guilty of an offence under subsection (3) or (4) is liable on summary
conviction to a fine not exceeding level 3 on the standard scale.
(6)
Nothing in this section affects any right of an auditor to apply for an injunction
20
(in Scotland, an interdict or an order for specific performance) to enforce any
of his rights under section 513 or 514.
516
Auditor’s rights in relation to resolutions and meetings
(1)
In relation to a written resolution proposed to be agreed to by a private
company, the company’s auditor is entitled to receive all such communications
25
relating to the resolution as, by virtue of any provision of Chapter 2 of Part 14
of this Act, are required to be supplied to a member of the company.
(2)
A company’s auditor is entitled—
(a)
to receive all notices of, and other communications relating to, any
general meeting which a member of the company is entitled to receive,
30
(b)
to attend any general meeting of the company, and
(c)
to be heard at any general meeting which he attends on any part of the
business of the meeting which concerns him as auditor.
(3)
Where the auditor is a firm, the right to attend or be heard at a meeting is
exercisable by an individual authorised by the firm in writing to act as its
35
representative at the meeting.
Signature of auditor’s report
517
Signature of auditor’s report
(1)
The auditor’s report must state the name of the auditor and be signed and
dated.
40
(2)
Where the auditor is an individual, the report must be signed by him.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
250

(3)
Where the auditor is a firm, the report must be signed by the senior statutory
auditor in his own name, for and on behalf of the auditor.
518
Senior statutory auditor
(1)
The senior statutory auditor means the individual identified by the firm as
senior statutory auditor in relation to the audit in accordance with—
5
(a)
standards issued by the European Commission, or
(b)
if there is no applicable standard so issued, any relevant guidance
issued by—
(i)
the Secretary of State, or
(ii)
a body appointed by order of the Secretary of State.
10
(2)
The person identified as senior statutory auditor must be eligible for
appointment as auditor of the company in question (see Chapter 2 of Part 42 of
this Act).
(3)
The senior statutory auditor is not, by reason of being named or identified as
senior statutory auditor or by reason of his having signed the auditor’s report,
15
subject to any civil liability to which he would not otherwise be subject.
(4)
An order appointing a body for the purpose of subsection (1)(b)(ii) is subject to
negative resolution procedure.
519
Names to be stated in published copies of auditor’s report
(1)
Every copy of the auditor’s report that is published by or on behalf of the
20
company must—
(a)
state the name of the auditor and (where the auditor is a firm) the name
of the person who signed it as senior statutory auditor, or
(b)
if the conditions in section 520 (circumstances in which names may be
omitted) are met, state that a resolution has been passed and notified to
25
the Secretary of State in accordance with that section.
(2)
For the purposes of this section a company is regarded as publishing the report
if it publishes, issues or circulates it or otherwise makes it available for public
inspection in a manner calculated to invite members of the public generally, or
any class of members of the public, to read it.
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(3)
If a copy of the auditor’s report is published without the statement required by
this section, an offence is 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
35
conviction to a fine not exceeding level 3 on the standard scale.
520
Circumstances in which names may be omitted
(1)
The auditor’s name and, where the auditor is a firm, the name of the person
who signed the report as senior statutory auditor, may be omitted from—
(a)
published copies of the report, and
40
(b)
the copy of the report delivered to the registrar under Chapter 10 of
Part 16 (filing of accounts and reports),

if the following conditions are met.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
251

(2)
The conditions are that the company—
(a)
considering on reasonable grounds that statement of the name would
create or be likely to create a serious risk that the auditor or senior
statutory auditor, or any other person, would be subject to violence or
intimidation, has resolved that the name should not be stated, and
5
(b)
has given notice of the resolution to the Secretary of State, stating—
(i)
the name and registered number of the company,
(ii)
the financial year of the company to which the report relates,
and
(iii)
the name of the auditor and (where the auditor is a firm) the
10
name of the person who signed the report as senior statutory
auditor.
Offences in connection with auditor’s report
521
Offences in connection with auditor’s report
(1)
A person to whom this section applies commits an offence if he knowingly or
15
recklessly causes a report under section 509 (auditor’s report on company’s
annual accounts) to include any matter that is misleading, false or deceptive in
a material particular.
(2)
A person to whom this section applies commits an offence if he knowingly or
recklessly causes such a report to omit a statement required by—
20
(a)
section 512(2)(b) (statement that company’s accounts do not agree with
accounting records and returns),
(b)
section 512(3) (statement that necessary information and explanations
not obtained), or
(c)
section 512(5) (statement that directors wrongly took advantage of
25
exemption from obligation to prepare group accounts).
(3)
This section applies to—
(a)
where the auditor is an individual, that individual and any employee
or agent of his who is eligible for appointment as auditor of the
company;
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(b)
where the auditor is a firm, any director, member, employee or agent of
the firm who is eligible for appointment as auditor of the company.
(4)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
(b)
on summary conviction, to a fine not exceeding the statutory
35
maximum.
522
Guidance for regulatory and prosecuting authorities: England, Wales and
Northern Ireland
(1)
The Secretary of State may issue guidance for the purpose of helping relevant
regulatory and prosecuting authorities to determine how they should carry out
40
their functions in cases where behaviour occurs that—
(a)
appears to involve the commission of an offence under section 521
(offences in connection with auditor’s report), and
(b)
has been, is being or may be investigated pursuant to arrangements—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 3 — Functions of auditor
252

(i)
under paragraph 15 of Schedule 10 (investigation of complaints
against auditors and supervisory bodies), or
(ii)
of a kind mentioned in paragraph 24 of that Schedule
(independent investigation for disciplinary purposes of public
interest cases).
5
(2)
The Secretary of State must obtain the consent of the Attorney General before
issuing any such guidance.
(3)
In this section “relevant regulatory and prosecuting authorities” means—
(a)
supervisory bodies within the meaning of Part 42 of this Act,
(b)
bodies to which the Secretary of State may make grants under section
10
16(1) of the Companies (Audit, Investigations and Community
Enterprise) Act 2004 (c. 27) (bodies concerned with accounting
standards etc),
(c)
the Director of the Serious Fraud Office,
(d)
the Director of Public Prosecutions or the Director of Public
15
Prosecutions for Northern Ireland, and
(e)
the Secretary of State.
(4)
This section does not apply to Scotland.
523
Guidance for regulatory authorities: Scotland
(1)
The Lord Advocate may issue guidance for the purpose of helping relevant
20
regulatory authorities to determine how they should carry out their functions
in cases where behaviour occurs that—
(a)
appears to involve the commission of an offence under section 521
(offences in connection with auditor’s report), and
(b)
has been, is being or may be investigated pursuant to arrangements—
25
(i)
under paragraph 15 of Schedule 10 (investigation of complaints
against auditors and supervisory bodies), or
(ii)
of a kind mentioned in paragraph 24 of that Schedule
(independent investigation for disciplinary purposes of public
interest cases).
30
(2)
The Lord Advocate must consult the Secretary of State before issuing any such
guidance.
(3)
In this section “relevant regulatory authorities” means—
(a)
supervisory bodies within the meaning of Part 42 of this Act,
(b)
bodies to which the Secretary of State may make grants under section
35
16(1) of the Companies (Audit, Investigations and Community
Enterprise) Act 2004 (bodies concerned with accounting standards etc),
and
(c)
the Secretary of State.
(4)
This section applies only to Scotland.
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 17 — Audit
Chapter 4 — Removal, resignation, etc of auditors
253

Chapter 4
Removal, resignation, etc of auditors
Removal of auditor
524
Resolution removing auditor from office
(1)
The members of a company may remove an auditor from office at any time.
5
(2)
This power is exercisable only—
(a)
by ordinary resolution at a meeting, and
(b)
in accordance with section 525 (special notice of resolution to remove
auditor).
(3)
Nothing in this section is to be taken as depriving the person removed of
10
compensation or damages payable to him in respect of the termination—
(a)
of his appointment as auditor, or
(b)
of any appointment terminating with that as auditor.
(4)
An auditor may not be removed from office before the expiration of his term of
office except by resolution under this section.
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525
Special notice required for resolution removing auditor from office
(1)
Special notice is required for a resolution at a general meeting of a company
removing an auditor from office.
(2)
On receipt of notice of such an intended resolution the company must
immediately send a copy of it to the person proposed to be removed.
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(3)
The auditor proposed to be removed may make with respect to the intended
resolution representations in writing to the company (not exceeding a
reasonable length) and request their notification to members of the company.
(4)
The company must (unless the representations are received by it too late for it
to do so)—
25
(a)
in any notice of the resolution given to members of the company, state
the fact of the representations having been made, and
(b)
send a copy of the representations to every member of the company to
whom notice of the meeting is or has been sent.
(5)
If a copy of any such representations is not sent out as required because
30
received too late or because of the company’s default, the auditor may (without
prejudice to his right to be heard orally) require that the representations be
read out at the meeting.
(6)
Copies of the representations need not be sent out and the representations need
not be read at the meeting if, on the application either of the company or of any
35
other person claiming to be aggrieved, the court is satisfied that the auditor is
using the provisions of this section to secure needless publicity for defamatory
matter.

The court may order the company’s costs (in Scotland, expenses) on the
application to be paid in whole or in part by the auditor, notwithstanding that
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he is not a party to the application.