Company Law Reform Bill [HL]

As has been identified, Clause 493 puts a duty on a company to include the name of the auditor and, if there is one, the senior statutory auditor in the copy of the audit report that it circulates to its shareholders or otherwise publishes. It also provides an important exception from this duty to deal with the case where there is a risk of violence or intimidation if the names are revealed in that way. As noble Lords will be well aware, threats of violence have been used against suppliers to a number of companies, particularly bioscience companies, and at least one such company has been unable to appoint an auditor as a result of those threats. The auditor is in a more difficult position than other suppliers because there is a statutory duty to publish his name. Publication of the name of the auditor is important as a general rule so that the markets and the public have the information necessary to assess the confidence they can put in the audit’s assurance of the truth and the fairness of the accounts. But I am sure that noble Lords will agree that it should also be possible to withhold the names in the special circumstances I have described. Because it is for the company to publish the audit report, and to include in it the auditors’ names, it is appropriate that they have the option of using the exception. In practice, I am sure that in circumstances where there is a risk of violence, the company and the auditors will have discussed disclosure of the name at the time the auditors were appointed. Use of the exception—assuming the conditions for it still exist—may be a condition of the audit contract. I can understand the motivation behind the amendment. Who better than the auditors to assess whether they are at risk of violence or intimidation? But I believe that adding this option for auditors to use would be unnecessary and ineffective, because where there is a real external threat, the company and auditors will be able to work together only if they have a shared understanding of what that threat is and how they should deal with it. The question of disclosure of the auditors’ names may well be covered in the auditors’ terms of appointment. The amendment would have purpose only if there was a difference in perception between the company and the auditor. If the company believes there is no risk, then it must include the names in published versions of the audit report. If it does not, then it is committing the offence in subsection (6). In the absence of a real risk, it would be no defence that the auditors had sent a notice to the Secretary of State under this amendment. That is why I believe that the amendment would be ineffective. If the company does not believe there is a risk, the new right would be of no practical value, because it does not override the company’s obligations. If the company does believe there is a risk, it will use the exemption in the Bill. The criminals who use violence against bioscience companies in this way create very real situations for many honest people. I am afraid that if there were a case where the auditor thinks there is a risk and the company disagrees, the auditor’s only way out may be to resign, as has been identified, which is always his right. The amendment to Clause 494 as it stands serves a useful purpose. Where company and auditor agree there is a risk, they can keep the auditors’ names out of the published accounts. If the company does not include the name of the auditor and the senior statutory auditor in its published audit report when the exception does not apply, then the company and all its directors and other officers responsible for the default commit an offence. There may be cases where unscrupulous directors for some reason do not want to reveal the names of their auditors but, if so, I do not believe they would choose this route. They would have to put to the company’s shareholders a resolution to the effect that there is a risk of violence and send a copy of the resolution to the Secretary of State. I hope that the noble Baroness understands the thrust of this response. An amendment that gives auditors this right does not override the company’s obligation to make a judgment on this matter. If it happens to make a different judgment and believes there is no risk, it has a clear responsibility under the Bill to name the auditor.