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Companies (Audit, Investigations and Community Enterprise) Act 2004

Section 9 - Statement in directors' report as to disclosure of information to auditors

53.Section 9 complements the auditors' rights to information provided by section 8.  It requires the directors' report to contain a statement that so far as each director is aware, there is no relevant audit information of which the auditors are unaware; and that the director has taken all the steps he should have taken as a director to make himself aware of such information and to establish that the auditors are aware of it.

54.The aim of section 9 is to ensure that each director will have to think hard about whether there is any information that he knows about or could ascertain  which is needed by the auditors in connection with  preparing their report.  This derives from a recommendation in the Company Law Review (Modern Company Law for a Competitive Economy, Final Report July 2001, URN 01/942, paragraph 8.119 second bullet) that directors should be required to volunteer information to the auditors in certain circumstances.

55.Subsection (2) establishes the basic requirement for the new statement in the directors' report.  It applies to all companies whose accounts have been subject to a statutory audit for that financial year.  Under the  law as  amended by the Companies Act 1985 (Accounts of Small and Medium-Sized Enterprises and Audit Exemption) (Amendment) Regulations 2004 (SI 2004/16), most small companies with a turnover of £5.6 million or less and a balance sheet total of £2.8 million or less are exempt from the  requirement to have their accounts audited.

56.Subsection (3) inserts a new section 234ZA into the Companies Act 1985.  This sets out the content of the statement.  The statement must confirm that  each individual director is not aware of any relevant audit information of which the auditors are unaware (new section 234ZA(2)(a)); and that each individual director has taken steps to ascertain relevant audit information and establish whether the auditors are aware of it (new section 234ZA(2)(b)).  Taken with new sections 234ZA(4) and (5), new section 234ZA(2)(b) provides that the steps which the statement confirms have been taken by each director to make himself aware of relevant audit information and to ascertain the auditors' awareness of it are those required by the directors' existing common law duty to exercise due care, skill and diligence.  New section 234ZA(3) defines "relevant audit information."

57.New section 234ZA(6) sets out the offence and sanctions that apply if a false statement is made.  (If the statement is not made at all, the existing offence in section 234(5) of the 1985 Act - failure to comply with the provisions of Part 7 of the Act as to the contents of the directors' report - will apply.)  The offence applies to each individual director who knew that the statement was false, or was reckless as to whether it was false, and who did not take reasonable steps to prevent the report from being approved.  A person found guilty on indictment will be liable to imprisonment for up to two years and/or an unlimited fine, and on summary conviction to up to twelve months' imprisonment and/or a fine up to the statutory maximum (£5,000).

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