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Companies (Audit, Investigations and Community Enterprise) Act 2004

Bodies concerned with accounting standards etc
Section 16 - Grants to bodies concerned with accounting standards etc

88.Section 256(3) of the Companies Act 1985 allowed the Secretary of State to make grants to bodies concerned with the making and enforcing of accounting standards.  The Secretary of State has paid grants under this section in respect of the work of the FRC and its companion bodies, the ASB and the FRRP.

89.Following the FRC's assumption of the functions of the Accountancy Foundation, its annual running costs will be broadly shared by Government, business and the professional accountancy bodies (with the exception of the costs of disciplinary cases, which will continue to fall to the professional accountancy bodies; and the costs of an independent audit inspection unit which will be borne by audit firms).

90.Section  16 replaces section 256(3) of the Companies Act 1985 to allow the Government to contribute to the funding of any of the activities of a body which carries out the activities specified in subsection (2).  It is expected that the FRC will be the body to whom a grant will be made.  Subsection (4) makes clear that a grant can be paid to a body in respect of activities carried out by its subsidiary, or any body established under the constitution of its subsidiary (such as a Board or a Panel).

Section 17 -  Levy to pay expenses of bodies concerned with accounting standards etc

91.Section 17 gives the Secretary of State the power to make regulations imposing a levy for meeting the costs of any body to whom the Secretary of State has paid or is proposing to pay a grant under section 16.  The aim of the power is to ensure that the body to whom a grant is made under section 16 – expected to be the FRC - will have security of funding; and it is anticipated that a levy would only be imposed if the currently voluntary funding arrangement was no longer viable.

92.In determining the appropriate rate of the levy, the Secretary of State must take account of the level of the Government grant paid, or expected to be paid,  under section 16(subsection (5)).   An amount payable by a person as a result of the levy will constitute a debt owed by that person to the FRC and be recoverable by the FRC as a debt (subsection (6)).

93.It is anticipated that should a levy be necessary, it would be imposed on:

  • listed companies; and

  • the members of the Consultative Committee of Accountancy Bodies (ICAEW, ICAS, ACCA, ICAI, the Chartered Institute of Management Accountants, and the Chartered Institute of Public Finance and Accountancy).

These bodies already contribute to the funding of the FRC under the voluntary funding arrangement.

94.The first regulations made in respect of the levy power - and any further regulations which change the persons or bodies by whom the levy is payable - will be subject to the affirmative resolution procedure of both Houses of Parliament (subsections (10) and (11)). Any other subsequent regulations will be subject to the negative resolution procedure (subsection (12)).

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Section 18 – Exemption from liability

95.Section 18 exempts a body receiving a grant under section 16, its subsidiary bodies and their members, officers and staff from liability in damages for things done or not done for the purposes of, or in connection with, the activities listed in section 16 (which is in effect a list of the FRC’s regulatory functions).  It supersedes two previous exemptions: that enjoyed by a body authorised to apply to the courts in respect of defective accounts (the FRRP) under s245C(6) of the Companies Act 1985; and that available to a body to which the Secretary of State delegates her functions under Part 2 of the Companies Act 1989 (expected to be the Professional Oversight Board for Accountancy of the FRC) under s48(3) of that Act.  These two exemptions are therefore repealed.

96.Subsection (1) provides that an exemption from liability in damages applies when a grant has been paid to a body under section 16, and that it applies to acts or omissions occurring during the period of 12 months following the payment.

97.Subsection (3) provides for a body funded under section 16, its subsidiaries and their members, officers and staff to be exempt from liability in damages for things that they do or omit to do during the 12 month period since the grant was paid, for the purposes of, or in connection with, any of the activities listed in section 16(2). The exemption would not apply to any non-regulatory activities conducted by the regulator (for example, providing vocational training on a commercial basis or compiling a database of Non-Executive Directors).

98.Subsection (4) sets out the circumstances when the exemption will not apply – that is to say, where the act or omission was in bad faith or where it was unlawful under section 6(1) of the Human Rights Act 1998.

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