Company Law Reform Bill [HL]

As the noble Baroness said, there is already a disciplinary system for practising auditors, and the purpose of Clauses 495 and 496 is to enable guidance to be issued to avoid any conflict between prosecution for an apparent offence under Clause 494 and disciplinary action based on the same facts. I understand that there is concern that the same audit report could give rise both to disciplinary proceedings and to criminal prosecution under Clause 494. The worry, I believe, is that in disciplinary proceedings auditors will be less willing to be forthcoming—they may be advised by their lawyers to be less forthcoming—for fear that the evidence they give could be used in a criminal prosecution. I believe that that concern is unjustified. As a number of noble Lords have mentioned, there are already a number of existing offences with which auditors can be charged—for example, if they are fraudulent or dishonest. We know of no evidence that fear of that is causing auditors to withhold information from the Accountancy Investigation and Discipline Board or from the professional conduct arms of the accountancy institutes. Nor do we see why the introduction of these new offences should make a dramatic difference to the behaviour of auditors who appear before them. Nevertheless, we have provided in Clauses 495 and 496 for guidance to prosecutors and regulations that will help to avoid any conflict. The noble Baroness implied that this was new and unusual, but it is modelled on similar provisions in Section 130 of the Financial Services and Markets Act 2000, where market abuse can also give rise to criminal and non-criminal proceedings. Guidance is effective in that area in avoiding conflicts. In particular, it enables the prosecutor to decide not to prosecute in a case which would be better handled through the disciplinary proceedings. We would envisage guidance on the new offence relating to the auditor’s report having the same effect. Another example is the tax authorities, which make a similar judgment in deciding whether to impose penalty fines on defaulters or to start a criminal prosecution. It is only where the scale and seriousness of the default are great that they will consider prosecution appropriate. We see no reason why the prosecution and regulators should not be able to reach a similarly sensible decision in relation to auditors. Full consultation on this will take place. That will involve the Attorney-General, who acts independently of the Government in relation to the guidance. The noble Baroness, Lady Noakes, asked what kind of guidance would be issued. Guidance will assist regulators and prosecutors in deciding whether prosecution or the disciplinary proceedings should be used. She asked about the status of that guidance. Guidance will among other things help prosecutors avoid any unlawfulness in the decision not to prosecute. She asked what would happen if the regulators did not want to follow guidance. Regulators will be aware that if they ignore guidance and cause a conflict with prosecutors, they will compromise the effectiveness of both their own function and that of the prosecution. We would not expect regulators to take such an approach lightly. There is nothing unusual about this procedure. It seems a sensible way—