Chapter 2Individuals and firms
Eligibility for appointment
1212Individuals and firms: eligibility for appointment as a statutory auditor
(1)An individual or firm is eligible for appointment as a statutory auditor if the individual or firm—
(a)is a member of a recognised supervisory body, and
(b)is eligible for appointment under the rules of that body.
(2)In the cases to which section 1222 applies (individuals retaining only 1967 Act authorisation) a person’s eligibility for appointment as a statutory auditor is restricted as mentioned in that section.
1213Effect of ineligibility
(1)No person may act as statutory auditor of an audited person if he is ineligible for appointment as a statutory auditor.
(2)If at any time during his term of office a statutory auditor becomes ineligible for appointment as a statutory auditor, he must immediately—
(a)resign his office (with immediate effect), and
(b)give notice in writing to the audited person that he has resigned by reason of his becoming ineligible for appointment.
(3)A person is guilty of an offence if—
(a)he acts as a statutory auditor in contravention of subsection (1), or
(b)he fails to give the notice mentioned in paragraph (b) of subsection (2) in accordance with that subsection.
(4)A person guilty of an offence under subsection (3) is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding the statutory maximum.
(5)A person is guilty of an offence if—
(a)he has been convicted of an offence under subsection (3)(a) or this subsection, and
(b)he continues to act as a statutory auditor in contravention of subsection (1) after the conviction.
(6)A person is guilty of an offence if—
(a)he has been convicted of an offence under subsection (3)(b) or this subsection, and
(b)he continues, after the conviction, to fail to give the notice mentioned in subsection (2)(b).
(7)A person guilty of an offence under subsection (5) or (6) is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding one-tenth of the statutory maximum for each day on which the act or the failure continues.
(8)In proceedings against a person for an offence under this section it is a defence for him to show that he did not know and had no reason to believe that he was, or had become, ineligible for appointment as a statutory auditor.
Independence requirement
1214Independence requirement
(1)A person may not act as statutory auditor of an audited person if one or more of subsections (2), (3) and (4) apply to him.
(2)This subsection applies if the person is—
(a)an officer or employee of the audited person, or
(b)a partner or employee of such a person, or a partnership of which such a person is a partner.
(3)This subsection applies if the person is—
(a)an officer or employee of an associated undertaking of the audited person, or
(b)a partner or employee of such a person, or a partnership of which such a person is a partner.
(4)This subsection applies if there exists, between—
(a)the person or an associate of his, and
(b)the audited person or an associated undertaking of the audited person,
a connection of any such description as may be specified by regulations made by the Secretary of State.
(5)An auditor of an audited person is not to be regarded as an officer or employee of the person for the purposes of subsections (2) and (3).
(6)In this section “associated undertaking”, in relation to an audited person, means—
(a)a parent undertaking or subsidiary undertaking of the audited person, or
(b)a subsidiary undertaking of a parent undertaking of the audited person.
(7)Regulations under subsection (4) are subject to negative resolution procedure.
1215Effect of lack of independence
(1)If at any time during his term of office a statutory auditor becomes prohibited from acting by section 1214(1), he must immediately—
(a)resign his office (with immediate effect), and
(b)give notice in writing to the audited person that he has resigned by reason of his lack of independence.
(2)A person is guilty of an offence if—
(a)he acts as a statutory auditor in contravention of section 1214(1), or
(b)he fails to give the notice mentioned in paragraph (b) of subsection (1) in accordance with that subsection.
(3)A person guilty of an offence under subsection (2) is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding the statutory maximum.
(4)A person is guilty of an offence if—
(a)he has been convicted of an offence under subsection (2)(a) or this subsection, and
(b)he continues to act as a statutory auditor in contravention of section 1214(1) after the conviction.
(5)A person is guilty of an offence if—
(a)he has been convicted of an offence under subsection (2)(b) or this subsection, and
(b)after the conviction, he continues to fail to give the notice mentioned in subsection (1)(b).
(6)A person guilty of an offence under subsection (4) or (5) is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding one-tenth of the statutory maximum for each day on which the act or the failure continues.
(7)In proceedings against a person for an offence under this section it is a defence for him to show that he did not know and had no reason to believe that he was, or had become, prohibited from acting as statutory auditor of the audited person by section 1214(1).
Effect of appointment of a partnership
1216Effect of appointment of a partnership
(1)This section applies where a partnership constituted under the law of—
(a)England and Wales,
(b)Northern Ireland, or
(c)any other country or territory in which a partnership is not a legal person,
is by virtue of this Chapter appointed as statutory auditor of an audited person.
(2)Unless a contrary intention appears, the appointment is an appointment of the partnership as such and not of the partners.
(3)Where the partnership ceases, the appointment is to be treated as extending to—
(a)any appropriate partnership which succeeds to the practice of that partnership, or
(b)any other appropriate person who succeeds to that practice having previously carried it on in partnership.
(4)For the purposes of subsection (3)—
(a)a partnership is to be regarded as succeeding to the practice of another partnership only if the members of the successor partnership are substantially the same as those of the former partnership, and
(b)a partnership or other person is to be regarded as succeeding to the practice of a partnership only if it or he succeeds to the whole or substantially the whole of the business of the former partnership.
(5)Where the partnership ceases and the appointment is not treated under subsection (3) as extending to any partnership or other person, the appointment may with the consent of the audited person be treated as extending to an appropriate partnership, or other appropriate person, who succeeds to—
(a)the business of the former partnership, or
(b)such part of it as is agreed by the audited person is to be treated as comprising the appointment.
(6)For the purposes of this section, a partnership or other person is “appropriate” if it or he—
(a)is eligible for appointment as a statutory auditor by virtue of this Chapter, and
(b)is not prohibited by section 1214(1) from acting as statutory auditor of the audited person.
Supervisory bodies
1217Supervisory bodies
(1)In this Part a “supervisory body” means a body established in the United Kingdom (whether a body corporate or an unincorporated association) which maintains and enforces rules as to—
(a)the eligibility of persons for appointment as a statutory auditor, and
(b)the conduct of statutory audit work,
which are binding on persons seeking appointment or acting as a statutory auditor either because they are members of that body or because they are otherwise subject to its control.
(2)In this Part references to the members of a supervisory body are to the persons who, whether or not members of the body, are subject to its rules in seeking appointment or acting as a statutory auditor.
(3)In this Part references to the rules of a supervisory body are to the rules (whether or not laid down by the body itself) which the body has power to enforce and which are relevant for the purposes of this Part.
This includes rules relating to the admission or expulsion of members of the body, so far as relevant for the purposes of this Part.
(4)Schedule 10 has effect with respect to the recognition of supervisory bodies for the purposes of this Part.
1218Exemption from liability for damages
(1)No person within subsection (2) is to be liable in damages for anything done or omitted in the discharge or purported discharge of functions to which this subsection applies.
(2)The persons within this subsection are—
(a)any recognised supervisory body,
(b)any officer or employee of a recognised supervisory body, and
(c)any member of the governing body of a recognised supervisory body.
(3)Subsection (1) applies to the functions of a recognised supervisory body so far as relating to, or to matters arising out of, any of the following—
(a)rules, practices, powers and arrangements of the body to which the requirements of Part 2 of Schedule 10 apply;
(b)the obligations with which paragraph 20 of that Schedule requires the body to comply;
(c)any guidance issued by the body;
(d)the obligations imposed on the body by or by virtue of this Part.
(4)The reference in subsection (3)(c) to guidance issued by a recognised supervisory body is a reference to any guidance or recommendation which is—
(a)issued or made by it to all or any class of its members or persons seeking to become members, and
(b)relevant for the purposes of this Part,
including any guidance or recommendation relating to the admission or expulsion of members of the body, so far as relevant for the purposes of this Part.
(5)Subsection (1) does not apply—
(a)if the act or omission is shown to have been in bad faith, or
(b)so as to prevent an award of damages in respect of the act or omission on the ground that it was unlawful as a result of section 6(1) of the Human Rights Act 1998 (c. 42) (acts of public authorities incompatible with Convention rights).
Professional qualifications
1219Appropriate qualifications
(1)A person holds an appropriate qualification for the purposes of this Chapter if and only if—
(a)he holds a recognised professional qualification obtained in the United Kingdom,
(b)immediately before the commencement of this Chapter, he—
(i)held an appropriate qualification for the purposes of Part 2 of the Companies Act 1989 (c. 40) (eligibility for appointment as company auditor) by virtue of section 31(1)(a) or (c) of that Act, or
(ii)was treated as holding an appropriate qualification for those purposes by virtue of section 31(2), (3) or (4) of that Act,
(c)immediately before the commencement of this Chapter, he—
(i)held an appropriate qualification for the purposes of Part III of the Companies (Northern Ireland) Order 1990 (S.I. 1990/593 (N.I. 5)) by virtue of Article 34(1)(a) or (c) of that Order, or
(ii)was treated as holding an appropriate qualification for those purposes by virtue of Article 34(2), (3) or (4) of that Order,
(d)he is within subsection (2),
(e)he has been authorised to practise the profession of statutory auditor pursuant to the European Communities (Recognition of Professional Qualifications) (First General System) Regulations 2005 (S.I. 2005/18) and has fulfilled any requirements imposed pursuant to regulation 6 of those Regulations, or
(f)subject to any direction under section 1221(5), he is regarded for the purposes of this Chapter as holding an approved overseas qualification.
(2)A person is within this subsection if—
(a)before 1st January 1990, he began a course of study or practical training leading to a professional qualification in accountancy offered by a body established in the United Kingdom,
(b)he obtained that qualification on or after 1st January 1990 and before 1st January 1996, and
(c)the Secretary of State approves his qualification as an appropriate qualification for the purposes of this Chapter.
(3)The Secretary of State may approve a qualification under subsection (2)(c) only if he is satisfied that, at the time the qualification was awarded, the body concerned had adequate arrangements to ensure that the qualification was awarded only to persons educated and trained to a standard equivalent to that required, at that time, in the case of a recognised professional qualification under Part 2 of the Companies Act 1989 (c. 40) (eligibility for appointment as company auditor).
1220Qualifying bodies and recognised professional qualifications
(1)In this Part a “qualifying body” means a body established in the United Kingdom (whether a body corporate or an unincorporated association) which offers a professional qualification in accountancy.
(2)In this Part references to the rules of a qualifying body are to the rules (whether or not laid down by the body itself) which the body has power to enforce and which are relevant for the purposes of this Part.
This includes, so far as so relevant, rules relating to—
(a)admission to or expulsion from a course of study leading to a qualification,
(b)the award or deprivation of a qualification, or
(c)the approval of a person for the purposes of giving practical training or the withdrawal of such approval.
(3)Schedule 11 has effect with respect to the recognition for the purposes of this Part of a professional qualification offered by a qualifying body.
1221Approval of overseas qualifications
(1)The Secretary of State may declare that the following are to be regarded for the purposes of this Chapter as holding an approved overseas qualification—
(a)persons who are qualified to audit accounts under the law of a specified foreign country, or
(b)persons who hold a specified professional qualification in accountancy obtained in a specified foreign country.
(2)A declaration under subsection (1)(b) may be expressed to be subject to the satisfaction of any specified requirement or requirements.
(3)The Secretary of State may make a declaration under subsection (1) only if he is satisfied that—
(a)in the case of a declaration under subsection (1)(a), the fact that the persons in question are qualified to audit accounts under the law of the specified foreign country, or
(b)in the case of a declaration under subsection (1)(b), the specified professional qualification taken with any requirement or requirements to be specified under subsection (2),
affords an assurance of professional competence equivalent to that afforded by a recognised professional qualification.
(4)The Secretary of State may make a declaration under subsection (1) only if he is satisfied that the treatment that the persons who are the subject of the declaration will receive as a result of it is comparable to the treatment which is, or is likely to be, afforded in the specified foreign country or a part of it to—
(a)in the case of a declaration under subsection (1)(a), some or all persons who are eligible to be appointed as a statutory auditor, and
(b)in the case of a declaration under subsection (1)(b), some or all persons who hold a corresponding recognised professional qualification.
(5)The Secretary of State may direct that persons holding an approved overseas qualification are not to be treated as holding an appropriate qualification for the purposes of this Chapter unless they hold such additional educational qualifications as the Secretary of State may specify for the purpose of ensuring that such persons have an adequate knowledge of the law and practice in the United Kingdom relevant to the audit of accounts.
(6)The Secretary of State may give different directions in relation to different approved overseas qualifications.
(7)The Secretary of State may, if he thinks fit, having regard to the considerations mentioned in subsections (3) and (4), withdraw a declaration under subsection (1) in relation to—
(a)persons becoming qualified to audit accounts under the law of the specified foreign country after such date as he may specify, or
(b)persons obtaining the specified professional qualification after such date as he may specify.
(8)The Secretary of State may, if he thinks fit, having regard to the considerations mentioned in subsections (3) and (4), vary or revoke a requirement specified under subsection (2) from such date as he may specify.
(9)In this section “foreign country”, in relation to any time, means a country or territory that, at that time, is not a “relevant State” within the meaning of the European Communities (Recognition of Professional Qualifications) (First General System) Regulations 2005 (S.I. 2005/18) or part of such a State.
1222Eligibility of individuals retaining only 1967 Act authorisation
(1)A person whose only appropriate qualification is based on his retention of an authorisation originally granted by the Board of Trade or the Secretary of State under section 13(1) of the Companies Act 1967 (c. 81) is eligible only for appointment as auditor of an unquoted company.
(2)A company is “unquoted” if, at the time of the person’s appointment, neither the company, nor any parent undertaking of which it is a subsidiary undertaking, is a quoted company within the meaning of section 385(2).
(3)References to a person eligible for appointment as a statutory auditor by virtue of this Part in enactments relating to eligibility for appointment as auditor of a person other than a company do not include a person to whom this section applies.
Information
1223Matters to be notified to the Secretary of State
(1)The Secretary of State may require a recognised supervisory body or a recognised qualifying body—
(a)to notify him immediately of the occurrence of such events as he may specify in writing and to give him such information in respect of those events as is so specified;
(b)to give him, at such times or in respect of such periods as he may specify in writing, such information as is so specified.
(2)The notices and information required to be given must be such as the Secretary of State may reasonably require for the exercise of his functions under this Part.
(3)The Secretary of State may require information given under this section to be given in a specified form or verified in a specified manner.
(4)Any notice or information required to be given under this section must be given in writing unless the Secretary of State specifies or approves some other manner.
1224The Secretary of State’s power to call for information
(1)The Secretary of State may by notice in writing require a person within subsection (2) to give him such information as he may reasonably require for the exercise of his functions under this Part.
(2)The persons within this subsection are—
(a)any recognised supervisory body,
(b)any recognised qualifying body, and
(c)any person eligible for appointment as a statutory auditor by virtue of this Chapter.
(3)The Secretary of State may require that any information which he requires under this section is to be given within such reasonable time and verified in such manner as he may specify.
Enforcement
1225Compliance orders
(1)If at any time it appears to the Secretary of State—
(a)in the case of a recognised supervisory body, that any requirement of Schedule 10 is not satisfied,
(b)in the case of a recognised professional qualification, that any requirement of Schedule 11 is not satisfied, or
(c)that a recognised supervisory body or a recognised qualifying body has failed to comply with an obligation to which it is subject under or by virtue of this Part,
he may, instead of revoking the relevant recognition order, make an application to the court under this section.
(2)If on an application under this section the court decides that the requirement in question is not satisfied or, as the case may be, that the body has failed to comply with the obligation in question, it may order the body to take such steps as the court directs for securing that the requirement is satisfied or that the obligation is complied with.
(3)In this section “the court” means the High Court or, in Scotland, the Court of Session.