Companies Act 2006 (c. 46)

(The document as of February, 2008)

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(d) the Comptroller and Auditor General for Northern Ireland.

(2) An Auditor General is eligible for appointment as a statutory auditor.

(3) Subsection (2) is subject to any suspension notice having effect under section 1234 (notices suspending eligibility for appointment as a statutory auditor).

Conduct of audits

1227 Individuals responsible for audit work on behalf of Auditors General

An Auditor General must secure that each individual responsible for statutory audit work on behalf of that Auditor General is eligible for appointment as a statutory auditor by virtue of Chapter 2.

The Independent Supervisor

1228 Appointment of the Independent Supervisor

(1) The Secretary of State must appoint a body ("the Independent Supervisor") to discharge the function mentioned in section 1229(1) ("the supervision function").

(2) An appointment under this section must be made by order.

(3) The order has the effect of making the body appointed under subsection (1) designated under section 5 of the Freedom of Information Act 2000 (c. 36) (further powers to designate public authorities).

(4) A body may be appointed under this section only if it is a body corporate or an unincorporated association which appears to the Secretary of State--

(a) to be willing and able to discharge the supervision function, and

(b) to have arrangements in place relating to the discharge of that function which are such as to be likely to ensure that the conditions in subsection (5) are met.

(5) The conditions are--

(a) that the supervision function will be exercised effectively, and

(b) where the order is to contain any requirements or other provisions specified under subsection (6), that that function will be exercised in accordance with any such requirements or provisions.

(6) An order under this section may contain such requirements or other provisions relating to the exercise of the supervision function by the Independent Supervisor as appear to the Secretary of State to be appropriate.

(7) An order under this section is subject to negative resolution procedure.

Supervision of Auditors General

1229 Supervision of Auditors General by the Independent Supervisor

(1) The Independent Supervisor must supervise the performance by each Auditor General of his functions as a statutory auditor.

(2) The Independent Supervisor must discharge that duty by--

(a) entering into supervision arrangements with one or more bodies, and

(b) overseeing the effective operation of any supervision arrangements entered into by it.

(3) For this purpose "supervision arrangements" are arrangements entered into by the Independent Supervisor with a body, for the purposes of this section, in accordance with which the body does one or more of the following--

(a) determines standards relating to professional integrity and independence which must be applied by an Auditor General in statutory audit work;

(b) determines technical standards which must be applied by an Auditor General in statutory audit work and the manner in which those standards are to be applied in practice;

(d) investigates any matter arising from the performance by an Auditor General of a statutory audit;

(e) holds disciplinary hearings in respect of an Auditor General which appear to be desirable following the conclusion of such investigations;

(f) decides whether (and, if so, what) disciplinary action should be taken against an Auditor General to whom such a hearing related.

(4) The Independent Supervisor may enter into supervision arrangements with a body despite any relationship that may exist between the Independent Supervisor and that body.

(5) The Independent Supervisor must notify each Auditor General in writing of any supervision arrangements that it enters into under this section.

(6) Supervision arrangements within subsection (3)(f) may, in particular, provide for the payment by an Auditor General of a fine to any person.

(7) Any fine received by the Independent Supervisor under supervision arrangements is to be paid into the Consolidated Fund.

1230 Duties of Auditors General in relation to supervision arrangements

(1) Each Auditor General must--

(a) comply with any standards of the kind mentioned in subsection (3)(a) or (b) of section 1229 determined under the supervision arrangements,

(b) take such steps as may be reasonably required of that Auditor General to enable his performance of statutory audits to be monitored by means of inspections carried out under the supervision arrangements, and

(c) comply with any decision of the kind mentioned in subsection (3)(f) of that section made under the supervision arrangements.

(2) Each Auditor General must pay to the body or bodies with which the Independent Supervisor enters into the supervision arrangements such proportion of the costs incurred by the body or bodies for the purposes of the arrangements as the Independent Supervisor may notify to him in writing.

(3) Expenditure under subsection (2) is--

(a) in the case of expenditure of the Comptroller and Auditor General, to be regarded as expenditure of the National Audit Office for the purposes of section 4(1) of the National Audit Act 1983 (c. 44);

(b) in the case of expenditure of the Comptroller and Auditor General for Northern Ireland, to be regarded as expenditure of the Northern Ireland Audit Office for the purposes of Article 6(1) of the Audit (Northern Ireland) Order 1987 (S.I. 1987/460 (N.I. 5)).

(4) In this section "the supervision arrangements" means the arrangements entered into under section 1229.

Reporting requirement

1231 Reports by the Independent Supervisor

(1) The Independent Supervisor must, at least once in each calendar year, prepare a report on the discharge of its functions.

(2) The Independent Supervisor must give a copy of each report prepared under subsection (1) to--

(a) the Secretary of State;

(b) the First Minister in Scotland;

(d) the Assembly First Secretary in Wales.

(3) The Secretary of State must lay before each House of Parliament a copy of each report received by him under subsection (2)(a).

(4) In relation to a calendar year during which an appointment of a body as the Independent Supervisor is made or revoked by an order under section 1228, this section applies with such modifications as may be specified in the order.

Information

1232 Matters to be notified to the Independent Supervisor

(1) The Independent Supervisor may require an Auditor General--

(a) to notify the Independent Supervisor immediately of the occurrence of such events as it may specify in writing and to give it such information in respect of those events as is so specified;

(b) to give the Independent Supervisor, at such times or in respect of such periods as it may specify in writing, such information as is so specified.

(2) The notices and information required to be given must be such as the Independent Supervisor may reasonably require for the exercise of the functions conferred on it by or by virtue of this Part.

(3) The Independent Supervisor may require information given under this section to be given in a specified form or verified in a specified manner.

(4) Any notice or information required to be given under this section must be given in writing unless the Independent Supervisor specifies or approves some other manner.

1233 The Independent Supervisor's power to call for information

(1) The Independent Supervisor may by notice in writing require an Auditor General to give it such information as it may reasonably require for the exercise of the functions conferred on it by or by virtue of this Part.

(2) The Independent Supervisor may require that any information which it requires under this section is to be given within such reasonable time and verified in such manner as it may specify.

Enforcement

1234 Suspension notices

(1) The Independent Supervisor may issue--

(a) a notice (a "suspension notice") suspending an Auditor General's eligibility for appointment as a statutory auditor in relation to all persons, or any specified person or persons, indefinitely or until a date specified in the notice;

(b) a notice amending or revoking a suspension notice previously issued to an Auditor General.

(2) In determining whether it is appropriate to issue a notice under subsection (1), the Independent Supervisor must have regard to--

(a) the Auditor General's performance of the obligations imposed on him by or by virtue of this Part, and

(b) the Auditor General's performance of his functions as a statutory auditor.

(3) A notice under subsection (1) must--

(a) be in writing, and

(b) state the date on which it takes effect (which must be after the period of three months beginning with the date on which it is issued).

(4) Before issuing a notice under subsection (1), the Independent Supervisor must--

(a) give written notice of its intention to do so to the Auditor General, and

(b) publish the notice mentioned in paragraph (a) in such manner as it thinks appropriate for bringing it to the attention of any other persons who are likely to be affected.

(5) A notice under subsection (4) must--

(a) state the reasons for which the Independent Supervisor proposes to act, and

(b) give particulars of the rights conferred by subsection (6).

(6) A person within subsection (7) may, within the period of three months beginning with the date of service or publication of the notice under subsection (4) or such longer period as the Independent Supervisor may allow, make written representations to the Independent Supervisor and, if desired, oral representations to a person appointed for that purpose by the Independent Supervisor.

(7) The persons within this subsection are--

(a) the Auditor General, and

(b) any other person who appears to the Independent Supervisor to be affected.

(8) The Independent Supervisor must have regard to any representations made in accordance with subsection (6) in determining--

(a) whether to issue a notice under subsection (1), and

(b) the terms of any such notice.

(9) If in any case the Independent Supervisor considers it appropriate to do so in the public interest it may issue a notice under subsection (1), without regard to the restriction in subsection (3)(b), even if--

(a) no notice has been given or published under subsection (4), or

(b) the period of time for making representations in pursuance of such a notice has not expired.

(10) On issuing a notice under subsection (1), the Independent Supervisor must--

(a) give a copy of the notice to the Auditor General, and

(b) publish the notice in such manner as it thinks appropriate for bringing it to the attention of persons likely to be affected.

(11) In this section "specified" means specified in, or of a description specified in, the suspension notice in question.

1235 Effect of suspension notices

(1) An Auditor General must not act as a statutory auditor at any time when a suspension notice issued to him in respect of the audited person has effect.

(2) If at any time during an Auditor General's term of office as a statutory auditor a suspension notice issued to him in respect of the audited person takes effect, he must immediately--

(a) resign his office (with immediate effect), and

(b) give notice in writing to the audited person that he has resigned by reason of his becoming ineligible for appointment.

(3) A suspension notice does not make an Auditor General ineligible for appointment as a statutory auditor for the purposes of section 1213 (effect of ineligibility: criminal offences).

1236 Compliance orders

(1) If at any time it appears to the Independent Supervisor that an Auditor General has failed to comply with an obligation imposed on him by or by virtue of this Part, the Independent Supervisor may make an application to the court under this section.

(2) If on an application under this section the court decides that the Auditor General has failed to comply with the obligation in question, it may order the Auditor General to take such steps as the court directs for securing that the obligation is complied with.

(3) In this section "the court" means the High Court or, in Scotland, the Court of Session.

Proceedings

1237 Proceedings involving the Independent Supervisor

(1) If the Independent Supervisor is an unincorporated association, any relevant proceedings may be brought by or against it in the name of any body corporate whose constitution provides for the establishment of the body.

(2) For this purpose "relevant proceedings" means proceedings brought in or in connection with the exercise of any function by the body as the Independent Supervisor.

(3) Where an appointment under section 1228 is revoked, the revoking order may make such provision as the Secretary of State thinks fit with respect to pending proceedings.

Grants

1238 Grants to the Independent Supervisor

In section 16 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27) (grants to bodies concerned with accounting standards etc), after subsection (2)(k) insert--

" (ka) exercising functions of the Independent Supervisor appointed under Chapter 3 of Part 42 of the Companies Act 2006; " .

Chapter 4 The register of auditors etc

1239 The register of auditors

(1) The Secretary of State must make regulations requiring the keeping of a register of--

(a) the persons eligible for appointment as a statutory auditor, and

(b) third country auditors (see Chapter 5) who apply to be registered in the specified manner and in relation to whom specified requirements are met.

(2) The regulations must require each person's entry in the register to contain--

(a) his name and address,

(b) in the case of an individual eligible for appointment as a statutory auditor, the specified information relating to any firm on whose behalf he is responsible for statutory audit work,

(c) in the case of a firm eligible for appointment as a statutory auditor, the specified information relating to the individuals responsible for statutory audit work on its behalf,

(d) in the case of an individual or firm eligible for appointment as a statutory auditor by virtue of Chapter 2, the name of the relevant supervisory body, and

(e) in the case of a firm eligible for appointment as a statutory auditor by virtue of Chapter 2 or a third country auditor, the information mentioned in subsection (3),

and may require each person's entry to contain other specified information.

(3) The information referred to in subsection (2)(e) is--

(a) in relation to a body corporate, except where paragraph (b) applies, the name and address of each person who is a director of the body or holds any shares in it;

(b) in relation to a limited liability partnership, the name and address of each member of the partnership;

(c) in relation to a corporation sole, the name and address of the individual for the time being holding the office by the name of which he is the corporation sole;

(d) in relation to a partnership, the name and address of each partner.

(4) The regulations may provide that different parts of the register are to be kept by different persons.

(5) The regulations may impose such obligations as the Secretary of State thinks fit on--

(a) recognised supervisory bodies,

(b) any body designated by order under section 1252 (delegation of Secretary of State's functions),

(d) third country auditors,

(e) any person with whom arrangements are made by one or more recognised supervisory bodies, or by any body designated by order under section 1252, with respect to the keeping of the register, or

(f) the Independent Supervisor appointed under section 1228.

(6) The regulations may include--

(a) provision requiring that specified entries in the register be open to inspection at times and places specified or determined in accordance with the regulations;

(b) provision enabling a person to require a certified copy of specified entries in the register;

(c) provision authorising the charging of fees for inspection, or the provision of copies, of such reasonable amount as may be specified or determined in accordance with the regulations.

(7) The Secretary of State may direct in writing that the requirements imposed by the regulations in accordance with subsections (2)(e) and (3), or such of those requirements as are specified in the direction, are not to apply, in whole or in part, in relation to a particular registered third country auditor or class of registered third country auditors.

(8) The obligations imposed by regulations under this section on such persons as are mentioned in subsection (5)(b) or (e) are enforceable on the application of the Secretary of State by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988 (c. 36).

(9) In this section "specified" means specified by regulations under this section.

(10) Regulations under this section are subject to negative resolution procedure.

1240 Information to be made available to public

(1) The Secretary of State may make regulations requiring a person eligible for appointment as a statutory auditor, or a member of a specified class of such persons, to keep and make available to the public specified information, including information regarding--

(a) the person's ownership and governance,

(b) the person's internal controls with respect to the quality and independence of its audit work,

(d) the audited persons of whom the person has acted as statutory auditor.

(2) Regulations under this section may--

(a) impose such obligations as the Secretary of State thinks fit on persons eligible for appointment as a statutory auditor;

(b) require the information to be made available to the public in a specified manner.

(3) In this section "specified" means specified by regulations under this section.

(4) Regulations under this section are subject to negative resolution procedure.

Chapter 5 Registered third country auditors

Introductory

1241 Meaning of "third country auditor", "registered third country auditor" etc

(1) In this Part--

"third country auditor" means the auditor of the accounts of a traded non-Community company, and the expressions "third country audit" and "third country audit work" are to be construed accordingly;
"registered third country auditor" means a third country auditor who is entered in the register kept in accordance with regulations under section 1239(1).

(2) In subsection (1) "traded non-Community company" means a body corporate--

(a) which is incorporated or formed under the law of a country or territory which is not a member State or part of a member State,

(b) whose transferable securities are admitted to trading on a regulated market situated or operating in the United Kingdom, and

(c) which has not been excluded, or is not of a description of bodies corporate which has been excluded, from this definition by an order made by the Secretary of State.

(3) For this purpose--

"regulated market" has the meaning given by Article 4.1(14) of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments;
"transferable securities" has the meaning given by Article 4.1(18) of that Directive.

(4) An order under this section is subject to negative resolution procedure.

Duties

1242 Duties of registered third country auditors

(1) A registered third country auditor must participate in--

(a) arrangements within paragraph 1 of Schedule 12 (arrangements for independent monitoring of audits of traded non-Community companies), and

(b) arrangements within paragraph 2 of that Schedule (arrangements for independent investigation for disciplinary purposes of public interest cases).

(2) A registered third country auditor must--

(a) take such steps as may be reasonably required of it to enable its performance of third country audits to be monitored by means of inspections carried out under the arrangements mentioned in subsection (1)(a), and

(b) comply with any decision as to disciplinary action to be taken against it made under the arrangements mentioned in subsection (1)(b).

(3) Schedule 12 makes further provision with respect to the arrangements in which registered third country auditors are required to participate.

(4) The Secretary of State may direct in writing that subsections (1) to (3) are not to apply, in whole or in part, in relation to a particular registered third country auditor or class of registered third country auditors.

Information

1243 Matters to be notified to the Secretary of State

(1) The Secretary of State may require a registered third country auditor--

(a) to notify him immediately of the occurrence of such events as he may specify in writing and to give him such information in respect of those events as is so specified;

(b) to give him, at such times or in respect of such periods as he may specify in writing, such information as is so specified.

(2) The notices and information required to be given must be such as the Secretary of State may reasonably require for the exercise of his functions under this Part.

(3) The Secretary of State may require information given under this section to be given in a specified form or verified in a specified manner.

(4) Any notice or information required to be given under this section must be given in writing unless the Secretary of State specifies or approves some other manner.

1244 The Secretary of State's power to call for information

(1) The Secretary of State may by notice in writing require a registered third country auditor to give him such information as he may reasonably require for the exercise of his functions under this Part.

(2) The Secretary of State may require that any information which he requires under this section is to be given within such reasonable time and verified in such manner as he may specify.

Enforcement

1245 Compliance orders

(1) If at any time it appears to the Secretary of State that a registered third country auditor has failed to comply with an obligation imposed on him by or by virtue of this Part, the Secretary of State may make an application to the court under this section.

(2) If on an application under this section the court decides that the auditor has failed to comply with the obligation in question, it may order the auditor to take such steps as the court directs for securing that the obligation is complied with.

(3) In this section "the court" means the High Court or, in Scotland, the Court of Session.

1246 Removal of third country auditors from the register of auditors

(1) The Secretary of State may, by regulations, confer on the person keeping the register in accordance with regulations under section 1239(1) power to remove a third country auditor from the register.

(2) Regulations under this section must require the person keeping the register, in determining whether to remove a third country auditor from the register, to have regard to the auditor's compliance with obligations imposed on him by or by virtue of this Part.

(3) Where provision is made under section 1239(4) (different parts of the register to be kept by different persons), references in this section to the person keeping the register are to the person keeping that part of the register which relates to third country auditors.

(4) Regulations under this section are subject to negative resolution procedure.

1247 Grants to bodies concerned with arrangements under Schedule 12

In section 16 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27) (grants to bodies concerned with accounting standards etc), after subsection (2)(ka) (inserted by section 1238) insert--

" (kb) establishing, maintaining or carrying out arrangements within paragraph 1 or 2 of Schedule 12 to the Companies Act 2006; " .

Chapter 6 Supplementary and general

Power to require second company audit

1248 Secretary of State's power to require second audit of a company

(1) This section applies where a person appointed as statutory auditor of a company was not an appropriate person for any part of the period during which the audit was conducted.

(2) The Secretary of State may direct the company concerned to retain an appropriate person--

(a) to conduct a second audit of the relevant accounts, or

(b) to review the first audit and to report (giving his reasons) whether a second audit is needed.

(3) For the purposes of subsections (1) and (2) a person is "appropriate" if he--

(a) is eligible for appointment as a statutory auditor or, if the person is an Auditor General, for appointment as statutory auditor of the company, and

(b) is not prohibited by section 1214(1) (independence requirement) from acting as statutory auditor of the company.

(4) The Secretary of State must send a copy of a direction under subsection (2) to the registrar of companies.

(5) The company is guilty of an offence if--

(a) it fails to comply with a direction under subsection (2) within the period of 21 days beginning with the date on which it is given, or

(b) it has been convicted of a previous offence under this subsection and the failure to comply with the direction which led to the conviction continues after the conviction.

(6) The company must--

(a) send a copy of a report under subsection (2)(b) to the registrar of companies, and

(b) if the report states that a second audit is needed, take such steps as are necessary for the carrying out of that audit.

(7) The company is guilty of an offence if--

(a) it fails to send a copy of a report under subsection (2)(b) to the registrar within the period of 21 days beginning with the date on which it receives it,

(b) in a case within subsection (6)(b), it fails to take the steps mentioned immediately it receives the report, or

(c) it has been convicted of a previous offence under this subsection and the failure to send a copy of the report, or take the steps, which led to the conviction continues after the conviction.

(8) A company guilty of an offence under this section is liable on summary conviction--

(a) in a case within subsection (5)(a) or (7)(a) or (b), to a fine not exceeding level 5 on the standard scale, and

(b) in a case within subsection (5)(b) or (7)(c), to a fine not exceeding one-tenth of level 5 on the standard scale for each day on which the failure continues.

(9) In this section "registrar of companies" has the meaning given by section 1060.

1249 Supplementary provision about second audits

(1) If a person accepts an appointment, or continues to act, as statutory auditor of a company at a time when he knows he is not an appropriate person, the company may recover from him any costs incurred by it in complying with the requirements of section 1248.

For this purpose "appropriate" is to be construed in accordance with subsection (3) of that section.

(2) Where a second audit is carried out under section 1248, any statutory or other provision applying in relation to the first audit applies also, in so far as practicable, in relation to the second audit.

(3) A direction under section 1248(2) is, on the application of the Secretary of State, enforceable by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988 (c. 36).

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