EXPLANATORY NOTE
(This note is not part of the Regulations)
These Regulations provide for companies to disclose fees receivable by their auditors and their auditors’ associates’ and also to disclose liability limitation agreements that they make with their auditors. Disclosure must be in a note to the company’s annual accounts.
Small and medium-sized companies (defined in regulation 3(2)(a) and (b) in the same way as in the Companies Act 2006) must disclose the fee paid to their auditors for the audit itself (regulation 4). The Secretary of State (or, if a delegation order is made under section 1252 of the Companies Act 2006, the body to whom the Secretary of State’s functions are delegated) may require the auditors of a medium-sized company to give him limited information about other fees paid to them if the company does not voluntarily disclose that information itself (regulation 4(4)): this provision implements Article 49.1(c) of Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audit of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (O.J. L157, 9.6.2006, p. 87).
Every other company must disclose both the audit fee and all other fees receivable by the auditors for services supplied by them and their associates to the company, its subsidiaries (except where its control over a subsidiary is subject to severe long-term restrictions) and associated pension schemes (regulation 5(1)). Auditors’ associates are defined in Schedule 1; associated pension schemes are defined in regulation 3(1). Each type of service specified in Schedule 2 and the fee paid for it must be separately disclosed (regulation 5(3)); and services to the company and its subsidiaries on the one hand and to associated pension schemes on the other must be separately disclosed (regulation 5(4)). No disclosure is required of fees for non-accountancy services supplied by a distant associate of the company’s auditors where the total fees for those services are not more than £10,000 or 1% of all the audit fees received by the auditors in the auditors’ financial year ending not later than the company’s financial year to which the accounts relate (regulation 5(6) and (7)).
Consolidated group accounts (except those of small or medium-sized groups which are not ineligible) must disclose the types of services specified in Schedule 2 and the fees paid for them as if the group were a single company: but if that is done, the individual companies do not need to disclose them (regulation 6).
Auditors must supply their company’s directors with the information needed to enable the company to disclose the types of services specified in Schedule 2 and the fees paid for them (regulation 7).
A company which has made a liability limitation agreement with its auditors must disclose its principal terms and the date of the approval resolution (or resolution waiving the need for approval in the case of a private company) passed by the company’s members (regulation 8). The disclosure must be in a note to the accounts for the year in question or (if the agreement was entered into too late to be included in those accounts) in a note to the next year’s accounts.
An Impact Assessment has not been produced for these Regulations as they have only a negligible impact on the costs of business, charities and voluntary bodies.