Companies (Audit, Investigations and Community Enterprise) Act 2004

Prospective

Recognised supervisory bodies E+W+S

1 Additional requirements for recognition of supervisory bodies E+W+S

(1) Part 2 of Schedule 11 to the Companies Act 1989 (c. 40) (requirements for recognition of supervisory bodies for purposes of provisions relating to company auditors) is amended as follows.

(2) After paragraph 7(1) (body must have rules and practices for ensuring company audit work is carried out with integrity and without conflicts of interest) insert—

“(1A) The body must participate in arrangements within paragraph 17, and the rules and practices mentioned in sub-paragraph (1) above must include provision requiring compliance with any standards for the time being determined under such arrangements.”

(3) In paragraph 8 (body must have rules and practices as to the technical standards to be applied in company audit work), the existing provisions become sub-paragraph (1), and after that sub-paragraph insert—

“(2) The body must participate in arrangements within paragraph 18, and the rules and practices mentioned in sub-paragraph (1) above must include provision requiring compliance with any standards for the time being determined under such arrangements.”

(4) After paragraph 10 insert—

“10A “Independent monitoring of audits of listed and other major companies

(1) The body must—

(a) participate in arrangements within paragraph 19(1), and

(b) have rules designed to ensure that members of the body who perform any company audit functions in respect of major audits take such steps as may be reasonably required of them to enable their performance of any such functions to be monitored by means of inspections carried out under the arrangements.

(2) Any monitoring of such persons under the arrangements is to be regarded (so far as their performance of company audit functions in respect of major audits is concerned) as monitoring of compliance with the body’s rules for the purposes of paragraph 10(1).

(3) In this paragraph “company audit function” and “major audit” have the same meaning as in paragraph 19.”

(5) After paragraph 12 insert—

“12A “Independent investigation for disciplinary purposes of public interest cases

(1) The body must—

(a) participate in arrangements within paragraph 20(1), and

(b) have rules and practices designed to ensure that, where the designated persons have decided that any particular disciplinary action should be taken against a member of the body following the conclusion of an investigation under such arrangements, that decision is to be treated as if it were a decision made by the body in disciplinary proceedings against the member.

(2) In sub-paragraph (1) “the designated persons” means the persons who, under the arrangements, have the function of deciding whether (and, if so, what) disciplinary action should be taken against a member of the body in the light of an investigation carried out under the arrangements.”

2 Arrangements to which additional requirements for recognition relate E+W+S

After Part 2 of Schedule 11 to the Companies Act 1989 (c. 40) (which is amended by section 1) insert—

“Part 3 E+W+S Arrangements in which supervisory bodies are required to participate

Arrangements for setting standards relating to professional integrity and independence

17 The arrangements referred to in paragraph 7(1A) are appropriate funded arrangements—

(a) for the determining of standards for the purposes of the rules and practices mentioned in paragraph 7(1), and

(b) for ensuring that the determination of those standards is done independently of the body.

Arrangements for setting technical standards

18 The arrangements referred to in paragraph 8(2) are appropriate funded arrangements—

(a) for the determining of standards for the purposes of the rules and practices mentioned in paragraph 8(1), and

(b) for ensuring that the determination of those standards is done independently of the body.

Arrangements for independent monitoring of audits of listed and other major companies

19 (1) The arrangements referred to in paragraph 10A(1) are appropriate funded arrangements—

(a) for enabling the performance by members of the body of company audit functions in respect of major audits to be monitored by means of inspections carried out under the arrangements, and

(b) for ensuring that the carrying out of such monitoring and inspections is done independently of the body.

(2) In this paragraph—

• “company audit function” means any function performed as a company auditor;

• “major audit” means an audit conducted in respect of—

  (a)

  a company any of whose securities have been admitted to the official list (within the meaning of Part 6 of the Financial Services and Markets Act 2000), or

  (b)

  any other company in whose financial condition there is a major public interest.

Arrangements for independent investigation for disciplinary purposes of public interest cases

20 (1) The arrangements referred to in paragraph 12A(1) are appropriate funded arrangements—

(a) for the carrying out of investigations into public interest cases arising in connection with the performance of company audit functions by members of the body,

(b) for the holding of disciplinary hearings relating to members of the body which appear to be desirable following the conclusion of such investigations,

(c) for requiring such hearings to be held in public except where the interests of justice otherwise require,

(d) for the persons before whom such hearings have taken place to decide whether (and, if so, what) disciplinary action should be taken against the members to whom the hearings related, and

(e) for ensuring that the carrying out of those investigations, the holding of those hearings, and the taking of those decisions are done independently of the body.

(2) In this paragraph—

• “company audit function” means any function performed as a company auditor;

• “public interest cases” means matters which raise or appear to raise important issues affecting the public interest.

Supplementary: arrangements to operate independently of body

21 (1) This paragraph applies for the purposes of—

• paragraph 17(b),

• paragraph 18(b),

• paragraph 19(1)(b), or

• paragraph 20(1)(e).

(2) Arrangements cannot be regarded as appropriate for the purpose of ensuring that the thing or things mentioned in that provision is or are done independently of the body unless they are designed to ensure that the body—

(a) will have no involvement in the appointment or selection of any of the persons who are to be responsible for doing the thing or things in question, and

(b) will not otherwise be involved in the doing of that thing or those things.

(3) Sub-paragraph (2) imposes a minimum requirement and does not preclude the possibility that additional criteria may need to be satisfied in order for the arrangements to be regarded as appropriate for the purpose in question.

Supplementary: “funded” arrangements etc.

22 (1) For the purposes of any of paragraphs 17, 18, 19 and 20, arrangements are “funded”arrangements if, in the event of their providing for the payment of costs of maintaining the arrangements, such costs are to be paid by the body in accordance with the arrangements.

(2) Arrangements can qualify as arrangements within any of paragraphs 17, 18, 19(1) and 20(1) even though the matters for which they provide are more extensive in any respect than those mentioned in that provision.”