(This note is not part of the Order)
This Order amends the law relating to statutory auditors as defined in section 1210 of the Companies Act 2006 (“the 2006 Act”). It extends to the whole of the United Kingdom.
Part 2 of the Order (articles 4 and 5) amends the 2006 Act. It re-implements obligations in Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (OJ L 157, 9.6.2006, p.87), and makes provision for matters which arise out of or relate to these obligations.
Article 4 substitutes new sections 1225 to 1225G for the existing section 1225 in Part 42 of the 2006 Act. They provide for additional types of action which may be taken against a statutory auditor's professional body (in connection with securing the body's responsibilities properly to supervise its statutory auditor members). The Secretary of State may now give a direction to a professional body (e.g. directing the body to do specified things) and may now impose a financial penalty upon such a body.
Article 5(3) and (4) amends Schedule 10 to the 2006 Act to allow an entity carrying out inspections of “major” audits (defined in section 525(2)) to determine sanctions against statutory auditors if its inspections reveal breaches of relevant rules of the professional body. In addition, they oblige the professional body to treat such sanctions as if they were sanctions which the professional body had itself imposed. Article 5(5) amends Schedule 10 to allow the waiving of hearings in connection with significant statutory auditor disciplinary proceedings.
Part 3 of the Order (articles 6 to 16) concerns the transfer of functions of the Secretary of State under Part 42 of the 2006 Act to the Financial Reporting Council Limited (“the designated body”). By virtue of section 1252(3) of the 2006 Act, the designated body is designated for the purposes of the Freedom of Information Act 2000 (c.36).
Article 6 revokes the Statutory Auditors (Delegation of Functions etc) Order 2008, whereby functions under Part 42 were transferred to a body called the Professional Oversight Board.
The effect of article 7 is to transfer all of the functions under Part 42 of the 2006 Act to the designated body, subject to a number of specified exceptions and reservations. The functions transferred include the new functions which arise by virtue of the amendments to Part 42 made by Part 2 of the Order.
Article 8 confers on the designated body the functions relating to notices of auditor resignations (see sections 522 to 525 of the 2006 Act).
Articles 9 imposes consultation requirements on the designated body and articles 10, 11 and 12 respectively impose obligations to publish an annual work programme, to record decisions, and to notify the Secretary of State of certain matters.
Article 13 provides that financial penalties received by the designated body may not be retained but (less the body's reasonable costs) must be paid over to the Secretary of State.
Article 14 has the effect that references to the Secretary of State in section 1256 of the 2006 Act (time limits for prosecution of offences) are to be construed as references to either the Secretary of State or the designated body. The effect of article 15 is that the designated body is now responsible for issuing guidance as to identifying the “senior statutory auditor” (see section 504 of the 2006 Act). Article 16 makes transitional provision.
Part 4 (articles 17 to 21) concerns the appointment of the designated body as “Independent Supervisor” of the Auditors General (defined by section 1226 of the 2006 Act; and see, in particular, section 1229). Article 17 revokes the Independent Supervisor Appointment Order 2007 whereby the Professional Oversight Body performed this supervisory function. Article 18 appoints the designated body; article 19 makes provision for the content of reports prepared by the Independent Supervisor; and article 20 imposes certain consultation and record-keeping requirements. Article 21 makes transitional provisions.
Part 5 (articles 22 to 24) concerns the prescription of the designated body for the purposes of section 464 of the 2006 Act i.e. the body responsible for issuing “accounting standards”. Article 22 revokes the Accounting Standards (Prescribed Body) Regulations 2008 whereby a body known as the Accounting Standards Board performed this role. Article 23 prescribes the designated body and article 24 makes transitional provisions.
The Schedule contains minor and consequential amendments.
A full regulatory impact assessment of the effect that this instrument will have on the costs of business and the voluntary sector is available from Business Environment Directorate, Department for Business, Innovation and Skills, 1 Victoria Street, London SW1H 0ET or at www.bis.gov.uk and is annexed to the Explanatory Memorandum which is available alongside the instrument on www.legislation.gov.uk.