Company Law Reform Bill [HL]

My Lords, it may be helpful if I begin by explaining how Clause 815 works in practice. In doing so, I hope to address the concerns that the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman, have raised. The eighth company directive, on auditing, allows UK authorities to approve an auditor from a third country only if there is reciprocal approval in relation to auditors operating in that country. Clause 815 is drafted to meet that obligation and requires the Secretary of State to be satisfied as to the matters it sets out on the basis of whether there is comparable treatment. Clause 815 does not allow the Secretary of State to approve the qualifications of individual auditors from third countries on a case-by-case basis. It allows only the collective approval of qualifications. Under subsection (1)(a) he may collectively approve the qualifications of all auditors practising in a specified country, while under subsection (1)(b) he may collectively approve only specified qualifications held in the specified country. In either case, it is important to emphasise that subsection (3) requires the Secretary of State to be satisfied that the level of professional competence assured by foreign qualifications will be equivalent to that assured by UK audit qualifications. Subsection (1)(b) is essential to the recognition of auditors who hold a specific professional qualification from a foreign country that meets our standards, but where—this is particularly relevant for countries with a federal structure—other qualifications recognised under law there do not meet our standards. I hope this explanation clarifies that subsection (1)(a) and (b) represents two limbs of the same power. Indeed, having the two limbs should help the process of reciprocity. The exercise of the power under either limb needs to be compatible with the directive’s requirements; the test of comparable treatment must thus apply to both limbs. The amendments proposed by the noble Baroness, Lady Noakes, would impose a different test for the limb in subsection (1)(b) that would not meet the directive’s requirements. Furthermore, that would produce the odd result that the Secretary of State must apply different tests when exercising the same power—one if recognising all the qualifications in a country, but another if recognising only one particular qualification. I cannot see the logic in such a distinction. I have no data to hand on the specific issue of the speed at which reciprocity and recognition are going ahead, but in the light of the comments made it is certainly a matter that we will look into discussing urgently with officials, to try to understand what roadblocks there may be. I share the view that has been expressed from all Benches about their importance in a global marketplace, for I have spent time abroad in an accountancy firm myself—although not as an auditor—and understand the importance of having quality on a wide front.