C4Part 16Audit
Chapter 2Appointment of auditors
Public companies
C1489Appointment of auditors of public company: general
1
An auditor or auditors of a public company must be appointed for each financial year of the company, unless the directors reasonably resolve otherwise on the ground that audited accounts are unlikely to be required.
2
For each financial year for which an auditor or auditors is or are to be appointed (other than the company's first financial year), the appointment must be made before the end of the accounts meeting of the company at which the company's annual accounts and reports for the previous financial year are laid.
3
The directors may appoint an auditor or auditors of the company—
a
at any time before the company's first accounts meeting;
b
following a period during which the company (being exempt from audit) did not have any auditor, at any time before the company's next accounts meeting;
c
to fill a casual vacancy in the office of auditor.
4
The members may appoint an auditor or auditors by ordinary resolution—
a
at an accounts meeting;
b
if the company should have appointed an auditor or auditors at an accounts meeting but failed to do so;
c
where the directors had power to appoint under subsection (3) but have failed to make an appointment.
5
An auditor or auditors of a public company may only be appointed—
a
in accordance with this section, or
b
in accordance with section 490 (default power of Secretary of State).
489AF1Appointment of auditors of public company: additional requirements for public interest entities with audit committees
1
This section applies to the appointment under section 489(4) of an auditor or auditors of a public company—
a
which is also a public interest entity; and
b
which has an audit committee.
2
But it does not apply to the appointment of an Auditor General as auditor or one of the auditors of the company.
3
Before an appointment to which this section applies is made—
a
the audit committee of the company must make a recommendation to the directors in connection with the appointment, and
b
the directors must propose an auditor or auditors for appointment F4...
4
Before the audit committee makes a recommendation or the directors make a proposal under subsection (3), the committee F5... must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , unless the company is—
a
a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EC ; or
b
a company with reduced market capitalisation within the meaning in Article 2(1)(t) of that Directive.
5
The audit committee must in its recommendation—
a
identify its first and second choice candidates for appointment, F6drawn from those auditors who have participated in a selection procedure under subsection (4),
b
give reasons for the choices so identified,
c
state that—
i
the recommendation is free from influence by a third party, and
ii
no contractual term of the kind mentioned in Article 16(6) of the Audit Regulation has been imposed on the company.
F36
The directors must include in their proposal—
a
the recommendation made by the audit committee in connection with the appointment, and
b
if the proposal of the directors departs from the preference of the audit committee—
i
a recommendation for a candidate or candidates for appointment drawn from those auditors who have participated in a selection procedure under subsection (4), and
ii
the reasons for not following the audit committee’s recommendation.
7
Where the audit committee recommends re-appointment of the company’s existing auditor or auditors, and the directors are in agreement, subsections (4) and (5)(a) and (b) do not apply.
489BAppointment of auditors of public company: additional requirements for public interest entities without audit committees
1
This section applies to the appointment under section 489(4) of an auditor or auditors of a public company—
a
which is also a public interest entity; and
b
which does not have an audit committee.
2
But it does not apply to the appointment of an Auditor General as auditor or one of the auditors of the company.
3
Before an appointment to which this section applies is made the directors must propose an auditor or auditors for appointment.
4
Before the directors make a proposal under subsection (3), the directors must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , F9from which their proposed auditor or auditors must be drawn, unless the company is—
a
a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EU ; or
b
a company with reduced market capitalisation within the meaning in Article 2(1)(t) of that Directive.
F85
Subsection (4) does not apply in relation to a proposal to re-appoint the company’s existing auditor or auditors.
489CF7Restriction on appointment of auditor of public company which is a public interest entity
1
A person who has been, or will have been, auditor of a public company which is a public interest entity for every financial year comprised in the maximum engagement period (see section 494ZA) may not be appointed as auditor of the company for any financial year which begins within the period of 4 years beginning with the day after the last day of the last financial year of the maximum engagement period.
2
A person who is a member of the same network as the auditor mentioned in subsection (1) may not be appointed as auditor of the company for any financial year which begins within the period of 4 years mentioned in that subsection.
3
This section does not apply in relation to an Auditor General.
C2490Appointment of auditors of public company: default power of Secretary of State
1
If a public company fails to appoint an auditor or auditors in accordance with section 489,F2489A or 489B the Secretary of State may appoint one or more persons to fill the vacancy.
2
Where subsection (2) of F10section 489 applies and the company fails to make the necessary appointment before the end of the accounts meeting, the company must within one week of the end of that meeting give notice to the Secretary of State of his power having become exercisable.
3
If a company fails to give the notice required by this section, an offence is committed by—
a
the company, and
b
every officer of the company who is in default.
4
A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
C3491Term of office of auditors of public company
1
The auditor or auditors of a public company hold office in accordance with the terms of their appointment, subject to the requirements that—
a
they do not take office until the previous auditor or auditors have ceased to hold office, and
b
they cease to hold office at the conclusion of the accounts meeting next following their appointment, unless re-appointed.
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F111B
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F111C
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F111D
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F111E
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2
This is without prejudice to the provisions of this Part as to removal and resignation of auditors.
F12491AMaximum engagement period: transitional arrangements
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Pts. 1-39 (except for Pt. 7 and ss. 662-669), 45-47 extended (12.5.2011) by The Companies Act 2006 (Consequential Amendments and Transitional Provisions) Order 2011 (S.I. 2011/1265), art. 5(1), Sch. 1 para. 2