Company Law Reform Bill [HL]

My Lords, the eighth company law directive on auditing sets out clear requirements for practical training in Article 10. It requires that member states ensure that all training is carried out by persons, "““providing adequate guarantees regarding their ability to provide practical training””." This requirement is not new and reflects the practical training provisions of the 1984 eighth directive, which the 1989 Act implemented. Paragraph 9 of Schedule 11 reflects these requirements and, indeed, is a restatement of the provisions in the 1989 Act. It requires persons who wish to qualify as a statutory auditor to carry out at least three years’ practical training under supervision of persons approved by the body offering the qualification. In practice, these requirements are met through the recognised qualifying bodies—those professional bodies that offer audit qualifications—operating a system of approved training offices. This means that those firms which are hosting practical training experience for audit students have provided guarantees to the qualifying body on the standard of training and supervision being provided. That is important. The practical training requirement for auditors is a vital part of their professional development, providing them with a range and depth of technical experience as well as developing their technical, commercial and ethical awareness skills. It is vital to the quality of the future stock of UK auditors that the practical training that auditors receive is structured, supervised and up to date. In considering whether a firm is suitable to provide adequate training, a number of criteria are considered, including the firm-wide procedures, the number of audit clients, the number of statutory auditors in the firm, the provision of training records, the setting of competencies and the number of assessments carried out on individuals. Although this amendment may be aimed at alleviating a practical difficulty for a handful of individuals it is not, in practice, the small matter that the noble Baroness, Lady Noakes, indicated. It runs a coach and horses through the UK qualifying system and would allow the retrospective approval of both overseas and UK practical training. That would fundamentally undermine the framework I have just described, which exists to ensure the quality of UK audit qualifications. I find it difficult to see how retrospective approval would operate in assessing the adequacy of firms’ training and supervision arrangements, or their suitability for training individuals, since—after a period of time has elapsed—records may not have been kept, changes in audit clients will have taken place, firm-wide systems may have changed and staff will have left. That is likely to mean that adequate guarantees could not be assured, in the spirit of the directive. I understand the practical issue for those relatively few people operating overseas, but on balance this is not the right way to go. I urge the noble Baroness to withdraw the amendment.