Company Law Reform Bill [HL]

My Lords, notwithstanding that, I still do not believe that anything in the Bill would prevent the auditor making a full statement on all the issues he believes are connected with his ability to hold office. Clause 510 deals with the important obligation on an auditor to provide an explanation of why he is no longer going to audit a company for the benefit of the shareholders and creditors. Auditors already have this duty, and the Bill modifies it so that it is more likely that an explanation will be provided. As we explained in Grand Committee, under Section 394 of the Companies Act 1985, an auditor who ceases to hold office for any reason is required to make a statement of the circumstances only if he positively considers that there are circumstances that should be brought to the attention of the members or creditors of the company he is leaving. By contrast, for unquoted companies, Clause 510 requires the auditor to make a statement as the general rule, with the exception that he need not make a statement if he positively decides that there are no circumstances to be brought to the attention of the members or creditors. As we explained in Grand Committee, we are making these changes because of the importance of ensuring that whenever auditors are leaving because they believe there is a problem with the accounts or with the management of the company, they should make that known to the shareholders and to the public. The change from the 1985 Act shifts the balance in favour of disclosure, not against it. An undecided auditor at present might persuade himself that there are no circumstances that he considers should be brought to the attention of the members or creditors. He may find it more difficult to persuade himself that there are no circumstances that need be brought to their attention. Amendments Nos. 347 and 348 would together revert the Bill to the existing position under the Act, and the Government continue to believe that the proposals in the Bill are an improvement and help disclosure. For quoted companies, the Bill provides that auditors who are leaving are to be required to make a statement of circumstances in all cases, without any option. Amendment No. 349 would change the content of the statement from"““circumstances connected with his ceasing to hold office””" to"““circumstances which he considers are connected with his ceasing to hold office””," which is the nub of the noble Baroness’s point. This can be seen as weakening the requirement unnecessarily. It goes without saying that an auditor, or anyone else making a statement of circumstances, will use his judgment in deciding what is relevant to include. That will inevitably be the case. I do not believe that any risk here would be avoided by the amendment. As we said in Grand Committee, there is a defence for an auditor who took all reasonable steps and exercised all due diligence, but I accept the point made by the noble Baroness made on the relevance of that provision. Given that defence, it is not clear whether there are circumstances in which the amendment would have a practical effect. I do not believe that there is a real problem to be solved. Nevertheless, in light of the opinions that have been expressed around the House, we will take this matter away and consider it further, because we want to ensure that we reach the right position. There is no disagreement about what we are trying to achieve. We do not see a need for the amendment, but, given the points made by all noble Lords who have spoken on this matter, I shall take it away and give it further thought, without commitment—it is an issue that we should discuss again at the next stage.