Company Law Reform Bill [HL]

Clause 509 introduces new requirements for sending copies of the statements that departing auditors make to the appropriate audit authority. This is in line with the EU audit directive which was agreed last year and which we expect to be formally adopted in the next few months. The clause deals with two categories based on the type of company that was being audited. If it is a listed company, or another company of major public interest according to criteria issued by the Financial Reporting Council, then all statements should be sent to the Secretary of State or to the body to which he has delegated auditor supervisory functions, namely the Professional Oversight Board for Accountancy, part of the Financial Reporting Council, known as POBA. If, on the other hand, the company that the auditor has left was an unlisted company and not of major public interest, a statement need only be submitted in the case of an auditor’s resignation or dismissal by the company and the statement is sent to the auditor’s own supervisory body—for example, one of the Institutes of Chartered Accountants—rather than to POBA. Amendments Nos. 328 and 329 would remove reference to the supervisory bodies so that, in practice, all the statements would go to POBA. In practice, I do not believe that burdening POBA, which is a relatively small organisation, with details of the circumstances of every auditor who resigns or is dismissed would be of value. The supervisory bodies may have a closer interest; some of the circumstances around dismissal may suggest a problem with an auditor, particularly if there is a pattern. Amendment No. 330 would remove subsection (4), which deals with those auditors leaving unquoted companies who take the view that there are no circumstances that need be brought to the attention of the members or creditors of the company. In such a case, the auditor will nonetheless have to submit a statement of reasons for leaving to the appropriate audit authority. This is a requirement of the audit directive and I believe that it should be no great burden. Amendments Nos. 331 and 332 point up a problem with subsection (5)—that a company as well as the auditor is required to send the required statement to the appropriate audit authority, and the deadline in relation to major audits is the date by which the auditor is required to deposit the statement with the company. This means that the company is required to send the statement instantly, which is clearly impractical. We agree to consider Amendments Nos. 331 and 332. Incidentally, the reason that company and auditor are both required to send the statement is that when an auditor resigns or is dismissed, it is quite possible, as my noble friend acknowledged, that the auditor and company will have different accounts of the circumstances. But the current drafting provides for the company to send in the auditor’s statement of circumstances and we shall consider what change may be required on this point. Amendment No. 333 would replace the word ““he”” with the word ““auditor”” in subsection (5)(a). However, as there is no one else mentioned to whom the ““he”” could refer, I see no need for this. Amendment No. 334 on the other hand would replace the word ““person”” in subsection (6)(a) with the word ““company””. As there is no other kind of person but a company that the subsection could apply to, this is an improvement and I am happy to accept Amendment No. 334. On the question of the audit directive, the relevant part of the directive is Article 36, which in the latest published draft refers to,"““authorities responsible for public oversight””." I believe that the supervisory bodies can be included as they are part of the public oversight system for auditors.