C195C171C228C167C231C229C227C165Part 16Audit

Annotations:
Modifications etc. (not altering text)
C195

Pt. 16 applied (with modifications) (8.12.2017) by The Risk Transformation Regulations 2017 (S.I. 2017/1212), regs. 1(2), 162, 163 (with reg. 189)

C167

Pts. 1-39 modified (31.12.2020) by Regulation (EC) No. 2157/2001, Art. AAA1(3) (as inserted by The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018 (S.I. 2018/1298), regs. 1, 97 (with regs. 140-145) (as amended by S.I. 2020/523, regs. 1(2), 5(a)-(f)); 2020 c. 1, Sch. 5 para. 1(1))

C84C85C192C176C167C188C190C213C204 Chapter 1Requirement for audited accounts

Annotations:
Modifications etc. (not altering text)
C85

Pt. 16 Ch. 1 applied (with modifications) (6.4.2008) by The Partnerships (Accounts) Regulations 2008 (S.I. 2008/569), regs. 4, 7, Sch. Pt. 1

C192

Pt. 16 Ch. 1 applied (with modifications) by S.I. 2008/565, reg. 3 (as substituted (with effect in accordance with reg. 2(4) of the amending S.I.) by The Statutory Auditors Regulations 2017 (S.I. 2017/1164), reg. 1(2)(3), Sch. 2 para. 3 (with reg. 2(6)(7)))

C176

Pt. 16 Ch. 1 applied (with modifications) (E.W.S.) (1.10.2018) by The Occupational Pension Schemes (Master Trusts) Regulations 2018 (S.I. 2018/1030), regs. 1(2), 9(4)-(8)

Requirement for audited accounts

C1C101C207475Requirement for audited accounts

C21

A company's annual accounts for a financial year must be audited in accordance with this Part unless the company—

a

is exempt from audit under—

  • section 477 (small companies),

  • F22section 479A (subsidiary companies) or

  • section 480 (dormant companies);

or

b

is exempt from the requirements of this Part under section 482 (non-profit-making companies subject to public sector audit).

F942

A company is not entitled to any such exemption unless its balance sheet contains a statement by the directors to that effect.

F942

A company is not entitled to any such exemption unless its balance sheet contains a statement by the directors—

a

identifying the exemption in question, and

b

confirming that the company qualifies for the exemption.

3

A company is not entitled to exemption under any of the provisions mentioned in subsection (1)(a) unless its balance sheet contains a statement by the directors to the effect that—

a

the members have not required the company to obtain an audit of its accounts for the year in question in accordance with section 476, and

b

the directors acknowledge their responsibilities for complying with the requirements of this Act with respect to accounting records and the preparation of accounts.

4

The statement required by subsection (2) or (3) must appear on the balance sheet above the signature required by section 414.

C102C205476Right of members to require audit

1

The members of a company that would otherwise be entitled to exemption from audit under any of the provisions mentioned in section 475(1)(a) may by notice under this section require it to obtain an audit of its accounts for a financial year.

2

The notice must be given by—

a

members representing not less in total than 10% in nominal value of the company's issued share capital, or any class of it, or

b

if the company does not have a share capital, not less than 10% in number of the members of the company.

3

The notice may not be given before the financial year to which it relates and must be given not later than one month before the end of that year.

Exemption from audit: small companies

C203C103477Small companies: conditions for exemption from audit

1

A company that F16qualifies as a small company in relation to a financial year is exempt from the requirements of this Act relating to the audit of accounts for that year.

2

F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

For the purposes of this section—

a

whether a company qualifies as a small company shall be determined in accordance with section 382(1) to (6), F18. . .

b

F18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

This section has effect subject to—

  • section 475(2) and (3) (requirements as to statements to be contained in balance sheet),

  • section 476 (right of members to require audit),

  • section 478 (companies excluded from small companies exemption), and

  • section 479 (availability of small companies exemption in case of group company).

C203C104478Companies excluded from small companies exemption

A company is not entitled to the exemption conferred by section 477 (small companies) if it was at any time within the financial year in question—

a

a public company,

b

a company that—

i

is an authorised insurance company, a banking company, an e-money issuer, F1a MiFID investment firm or a UCITS management company, F133or

ii

carries on insurance market activity, or

F43iii

is a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 F44or section 39(1) of the Pension Schemes Act (Northern Ireland) 2021 (interpretation of Part 1), or

c

a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers' association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5)).

C203C105479Availability of small companies exemption in case of group company

1

A company is not entitled to the exemption conferred by section 477 (small companies) in respect of a financial year during any part of which it was a group company unless—

F19a

the group—

i

qualifies as a small group in relation to that financial year, and

ii

was not at any time in that year an ineligible group, or

b

subsection (3) applies.

2

F20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

A company is not excluded by subsection (1) if, throughout the whole of the period or periods during the financial year when it was a group company, it was both a subsidiary undertaking and dormant.

4

In this section—

a

“group company” means a company that is a parent company or a subsidiary undertaking, and

b

“the group”, in relation to a group company, means that company together with all its associated undertakings.

For this purpose undertakings are associated if one is a subsidiary undertaking of the other or both are subsidiary undertakings of a third undertaking.

5

For the purposes of this section—

a

whether a group qualifies as small shall be determined in accordance with section 383 (companies qualifying as small: parent companies);

b

“ineligible group” has the meaning given by section 384(2) and (3);

c

F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d

F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

e

F21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

The provisions mentioned in subsection (5) apply for the purposes of this section as if all the bodies corporate in the group were companies.

F23Exemption from audit: qualifying subsidiaries

Annotations:
Amendments (Textual)
F23

Ss. 479A-479C and cross-heading inserted (1.10.2012 with application in accordance with reg. 2 of the amending S.I.) by The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (S.I. 2012/2301), regs. 1, 7

479A Subsidiary companies: conditions for exemption from audit

1

A company is exempt from the requirements of this Act relating to the audit of individual accounts for a financial year if—

a

it is itself a subsidiary undertaking, and

C186b

its parent undertaking is established under the law of F46any part of the United Kingdom.

2

Exemption is conditional upon compliance with all of the following conditions—

a

all members of the company must agree to the exemption in respect of the financial year in question,

b

the parent undertaking must give a guarantee under section 479C in respect of that year,

c

the company must be included in the consolidated accounts drawn up for that year or to an earlier date in that year by the parent undertaking in accordance with—

F58i

if the undertaking is a company, the requirements of Part 15 of this Act, or, if the undertaking is not a company, the legal requirements which apply to the drawing up of consolidated accounts for that undertaking, or

ii

F132UK-adopted international accounting standards (within the meaning given by section 474(1)),

d

the parent undertaking must disclose in the notes to the consolidated accounts that the company is exempt from the requirements of this Act relating to the audit of individual accounts by virtue of this section, and

e

the directors of the company must deliver to the registrar on or before the date that they file the accounts for that year—

i

a written notice of the agreement referred to in subsection (2)(a),

ii

the statement referred to in section 479C(1),

iii

a copy of the consolidated accounts referred to in subsection (2)(c),

iv

a copy of the auditor's report on those accounts, and

v

a copy of the consolidated annual report drawn up by the parent undertaking.

3

This section has effect subject to—

  • section 475(2) and (3) (requirements as to statements contained in balance sheet), and

  • section 476 (right of members to require audit).

C209479B Companies excluded from the subsidiary companies audit exemption

A company is not entitled to the exemption conferred by section 479A (subsidiary companies) if it was at any time within the financial year in question—

F113a

a traded company as defined in section 474(1),

b

a company that—

i

is an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company, F111 or

ii

carries on insurance market activity, or

F63iii

is a scheme funder of a Master Trust scheme within the meanings given by section 39(1) of the Pension Schemes Act 2017 F87or section 39(1) of the Pension Schemes Act (Northern Ireland) 2021 (interpretation of Part 1), or

c

a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c 52) or an employers' association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807) (NI 5).

C209 479C Subsidiary companies audit exemption: parent undertaking declaration of guarantee

1

A guarantee is given by a parent undertaking under this section when the directors of the subsidiary company deliver to the registrar a statement by the parent undertaking that it guarantees the subsidiary company under this section.

2

The statement under subsection (1) must be authenticated by the parent undertaking and must specify—

a

the name of the parent undertaking,

F57b

the registered number (if any) of the parent undertaking,

F51c

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d

the name and registered number of the subsidiary company in respect of which the guarantee is being given,

e

the date of the statement, and

f

the financial year to which the guarantee relates.

3

A guarantee given under this section has the effect that—

a

the parent undertaking guarantees all outstanding liabilities to which the subsidiary company is subject at the end of the financial year to which the guarantee relates, until they are satisfied in full, and

b

the guarantee is enforceable against the parent undertaking by any person to whom the subsidiary company is liable in respect of those liabilities.

Exemption from audit: dormant companies

C106C211480C254Dormant companies: conditions for exemption from audit

1

A company is exempt from the requirements of this Act relating to the audit of accounts in respect of a financial year if—

a

it has been dormant since its formation, or

b

it has been dormant since the end of the previous financial year and the following conditions are met.

2

The conditions are that the company—

a

as regards its individual accounts for the financial year in question—

i

is entitled to prepare accounts in accordance with the small companies regime (see sections 381 to 384), or

ii

would be so entitled but for having been a public company or a member of an ineligible group, and

b

is not required to prepare group accounts for that year.

3

This section has effect subject to—

  • section 475(2) and (3) (requirements as to statements to be contained in balance sheet),

  • section 476 (right of members to require audit), and

  • section 481 (companies excluded from dormant companies exemption).

C107C199481C252Companies excluded from dormant companies exemption

A company is not entitled to the exemption conferred by section 480 (dormant companies) if it was at any time within the financial year in question a company that—

F149za

is a traded company as defined in section 474(1),

a

is an authorised insurance company, a banking company, an e-money issuer, F2a MiFID investment firm or a UCITS management company, or

b

carries on insurance market activity.

Companies subject to public sector audit

482Non-profit-making companies subject to public sector audit

1

The requirements of this Part as to audit of accounts do not apply to a company for a financial year if it is non-profit-making and its accounts—

F13a

are subject to audit by the Comptroller and Auditor General by virtue of an order under section 25(6) of the Government Resources and Accounts Act 2000;

ab

are subject to audit by the Auditor General for Wales by virtue of—

i

an order under section 144 of the Government of Wales Act 1998, or

ii

paragraph 18 of Schedule 8 to the Government of Wales Act 2006;

b

are accounts—

i

in relation to which section 21 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1) (audit of accounts: Auditor General for Scotland) applies, or

ii

that are subject to audit by the Auditor General for Scotland by virtue of an order under section 483 (Scottish public sector companies: audit by Auditor General for Scotland); or

c

are subject to audit by the Comptroller and Auditor General for Northern Ireland by virtue of an order under Article 5(3) of the Audit and Accountability (Northern Ireland) Order 2003 (S.I. 2003/418 (N.I. 5)).

2

In the case of a company that is a parent company or a subsidiary undertaking, subsection (1) applies only if every group undertaking is non-profit-making.

3

In this section “non-profit-making” has the same meaning as inF15 Article 54 of the Treaty on the Functioning of the European Union.

4

This section has effect subject to section 475(2) (balance sheet to contain statement that company entitled to exemption under this section).

I1483Scottish public sector companies: audit by Auditor General for Scotland

1

The Scottish Ministers may by order provide for the accounts of a company having its registered office in Scotland to be audited by the Auditor General for Scotland.

2

An order under subsection (1) may be made in relation to a company only if it appears to the Scottish Ministers that the company—

a

exercises in or as regards Scotland functions of a public nature none of which relate to reserved matters (within the meaning of the Scotland Act 1998 (c. 46)), or

b

is entirely or substantially funded from a body having accounts falling within paragraph (a) or (b) of subsection (3).

3

Those accounts are—

a

accounts in relation to which section 21 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1) (audit of accounts: Auditor General for Scotland) applies,

b

accounts which are subject to audit by the Auditor General for Scotland by virtue of an order under this section.

4

An order under subsection (1) may make such supplementary or consequential provision (including provision amending an enactment) as the Scottish Ministers think expedient.

5

An order under subsection (1) shall not be made unless a draft of the statutory instrument containing it has been laid before, and approved by resolution of, the Scottish Parliament.

General power of amendment by regulations

I2C108484General power of amendment by regulations

1

The Secretary of State may by regulations amend this Chapter or section 539 (minor definitions) so far as applying to this Chapter by adding, altering or repealing provisions.

2

The regulations may make consequential amendments or repeals in other provisions of this Act, or in other enactments.

3

Regulations under this section imposing new requirements, or rendering existing requirements more onerous, are subject to affirmative resolution procedure.

4

Other regulations under this section are subject to negative resolution procedure.

C167Chapter 2Appointment of auditors

Private companies

C12C11I8C109C249485C7C3Appointment of auditors of private company: general

1

An auditor or auditors of a private 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 period of 28 days beginning with—

a

the end of the time allowed for sending out copies of the company's annual accounts and reports for the previous financial year (see section 424), or

b

if earlier, the day on which copies of the company's annual accounts and reports for the previous financial year are sent out under section 423.

This is the “period for appointing auditors”.

3

The directors may appoint an auditor or auditors of the company—

a

at any time before the company's first period for appointing auditors,

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 period for appointing auditors, or

c

to fill a casual vacancy in the office of auditor.

4

The members may appoint an auditor or auditors by ordinary resolution—

a

during a period for appointing auditors,

b

if the company should have appointed an auditor or auditors during a period for appointing auditors but failed to do so, or

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 private company may only be appointed—

a

in accordance with this section, or

b

in accordance with section 486 F137or 486A (default power of Secretary of State).

This is without prejudice to any deemed re-appointment under section 487.

C191485AF140Appointment of auditors of private company: additional requirements for public interest entities with audit committees

1

This section applies to the appointment under section 485(4) of an auditor or auditors of a private 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 F47...

4

Before the audit committee makes a recommendation or the directors make a proposal under subsection (3), the committee F136... must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , unless the company is a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EC .

5

The audit committee must in its recommendation—

a

identify its first and second choice candidates for appointment, F160drawn 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.

F416

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.

C178485BAppointment of auditors of private company: additional requirements for public interest entities without audit committees

1

This section applies to the appointment under section 485(4) of an auditor or auditors of a private 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), they must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , F170from which their proposed auditor or auditors must be drawn, unless the company is a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EC .

F1025

Subsection (4) does not apply in relation to a proposal to re-appoint the company’s existing auditor or auditors.

C237485CF108Restriction on appointment of auditor of private company which is a public interest entity

1

A person who has been, or will have been, auditor of a private 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.

C14C13I9C110C250486C8C4Appointment of auditors of private company: default power of Secretary of State

1

If a private company fails to appoint an auditor or auditors in accordance with section 485F139... the Secretary of State may appoint one or more persons to fill the vacancy.

2

Where subsection (2) of F127section 485 applies and the company fails to make the necessary appointment before the end of the period for appointing auditors, the company must within one week of the end of that period 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.

C251486AF45Defective appointments: default power of Secretary of State

1

If—

a

a private company appoints, or purports to appoint, an auditor or auditors, and

b

the appointment or purported appointment is made in breach of section 485A, 485B or 485C (requirements applying to appointment of auditors by public interest entities),

the Secretary of State may appoint another auditor or auditors in place of the auditor or auditors referred to in paragraph (a).

2

The breach of section 485A, 485B or 485C does not invalidate any report made under Chapter 3 of this Part by the auditor or auditors on the company’s annual reports or accounts before the auditor or auditors are replaced under subsection (1) of this section.

3

But where the breach in question is a breach of section 485C, sections 1248 and 1249 (Secretary of State’s power to require second audit) apply as if the auditor was not an appropriate person, or the auditors were not appropriate persons, for the period during which the audit was conducted.

4

Within one week of becoming aware of the breach of section 485A, 485B or 485C, the company must give notice to the Secretary of State that the power under subsection (1) of this section has become exercisable.

5

If the company fails to give the notice required by subsection (4), an offence is committed by—

a

the company, and

b

every officer of the company who is in default.

6

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.

C16C15I10C111C245487C9C5Term of office of auditors of private company

1

An auditor or auditors of a private company hold office in accordance with the terms of their appointment, subject to the requirements that—

a

they do not take office until any previous auditor or auditors cease to hold office, and

b

they cease to hold office at the end of the next period for appointing auditors unless re-appointed.

F651A

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F651B

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F651C

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F651D

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F651E

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

Where no auditor has been appointed by the end of the next period for appointing auditors, any auditor in office immediately before that time is deemed to be re-appointed at that time, unless—

a

he was appointed by the directors, or

b

the company's articles require actual re-appointment, or

c

the deemed re-appointment is prevented by the members under section 488, or

d

the members have resolved that he should not be re-appointed, or

e

the directors have resolved that no auditor or auditors should be appointed for the financial year in question or

F85f

the auditor’s appointment would be in breach of section 485C.

3

This is without prejudice to the provisions of this Part as to removal and resignation of auditors.

4

No account shall be taken of any loss of the opportunity of deemed re-appointment under this section in ascertaining the amount of any compensation or damages payable to an auditor on his ceasing to hold office for any reason.

F89487AMaximum engagement period: transitional arrangements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C18C17I11C112C218488C10C6Prevention by members of deemed re-appointment of auditor

1

An auditor of a private company is not deemed to be re-appointed under section 487(2) if the company has received notices under this section from members representing at least the requisite percentage of the total voting rights of all members who would be entitled to vote on a resolution that the auditor should not be re-appointed.

2

The “requisite percentage” is 5%, or such lower percentage as is specified for this purpose in the company's articles.

3

A notice under this section—

a

may be in hard copy or electronic form,

b

must be authenticated by the person or persons giving it, and

c

must be received by the company before the end of the accounting reference period immediately preceding the time when the deemed re-appointment would have effect.

Public companies

C113489Appointment 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 F93or 490A (default power of Secretary of State).

489AF91Appointment 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 F88...

4

Before the audit committee makes a recommendation or the directors make a proposal under subsection (3), the committee F40... 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, F36drawn 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.

F716

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 , F79from 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.

F1445

Subsection (4) does not apply in relation to a proposal to re-appoint the company’s existing auditor or auditors.

489CF33Restriction 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.

C114490Appointment 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 489F62... the Secretary of State may appoint one or more persons to fill the vacancy.

2

Where subsection (2) of F138section 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.

490AF99Defective appointments: default power of Secretary of State

1

If—

a

a public company appoints, or purports to appoint, an auditor or auditors, and

b

the appointment or purported appointment is made in breach of section 489A, 489B or 489C (requirements applying to appointment of auditors by public interest entities),

the Secretary of State may appoint another auditor or auditors in place of the auditor or auditors referred to in paragraph (a).

2

The breach of section 489A, 489B or 489C does not invalidate any report made under Chapter 3 of this Part by the auditor or auditors on the company’s annual reports or accounts before the auditor or auditors are replaced under subsection (1) of this section.

3

But where the breach in question is a breach of section 489C, sections 1248 and 1249 (Secretary of State’s power to require second audit) apply as if the auditor was not an appropriate person, or the auditors were not appropriate persons, for the period during which the audit was conducted.

4

Within one week of becoming aware of the breach of section 489A, 489B or 489C, the company must give notice to the Secretary of State that the power under subsection (1) of this section has become exercisable.

5

If the company fails to give the notice required by subsection (4), an offence is committed by—

a

the company, and

b

every officer of the company who is in default.

6

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.

C115491Term 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.

F1231A

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1231B

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1231C

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1231D

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1231E

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

This is without prejudice to the provisions of this Part as to removal and resignation of auditors.

F73491AMaximum engagement period: transitional arrangements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General provisions

C19C116492Fixing of auditor's remuneration

1

The remuneration of an auditor appointed by the members of a company must be fixed by the members by ordinary resolution or in such manner as the members may by ordinary resolution determine.

2

The remuneration of an auditor appointed by the directors of a company must be fixed by the directors.

3

The remuneration of an auditor appointed by the Secretary of State must be fixed by the Secretary of State.

4

For the purposes of this section “remuneration” includes sums paid in respect of expenses.

5

This section applies in relation to benefits in kind as to payments of money.

I3C117493Disclosure of terms of audit appointment

1

The Secretary of State may make provision by regulations for securing the disclosure of the terms on which a company's auditor is appointed, remunerated or performs his duties.

Nothing in the following provisions of this section affects the generality of this power.

2

The regulations may—

a

require disclosure of—

i

a copy of any terms that are in writing, and

ii

a written memorandum setting out any terms that are not in writing;

b

require disclosure to be at such times, in such places and by such means as are specified in the regulations;

c

require the place and means of disclosure to be stated—

i

in a note to the company's annual accounts (in the case of its individual accounts) or in such manner as is specified in the regulations (in the case of group accounts),

ii

inF156the strategic report or the directors' report, or

iii

in the auditor's report on the company's annual accounts.

3

The provisions of this section apply to a variation of the terms mentioned in subsection (1) as they apply to the original terms.

4

Regulations under this section are subject to affirmative resolution procedure.

C20I4C118494Disclosure of services provided by auditor or associates and related remuneration

1

The Secretary of State may make provision by regulations for securing the disclosure of—

a

the nature of any services provided for a company by the company's auditor (whether in his capacity as auditor or otherwise) or by his associates;

b

the amount of any remuneration received or receivable by a company's auditor, or his associates, in respect of any such services.

Nothing in the following provisions of this section affects the generality of this power.

2

The regulations may provide—

a

for disclosure of the nature of any services provided to be made by reference to any class or description of services specified in the regulations (or any combination of services, however described);

b

for the disclosure of amounts of remuneration received or receivable in respect of services of any class or description specified in the regulations (or any combination of services, however described);

c

for the disclosure of separate amounts so received or receivable by the company's auditor or any of his associates, or of aggregate amounts so received or receivable by all or any of those persons.

3

The regulations may—

a

provide that “remuneration” includes sums paid in respect of expenses;

b

apply to benefits in kind as well as to payments of money, and require the disclosure of the nature of any such benefits and their estimated money value;

c

apply to services provided for associates of a company as well as to those provided for a company;

d

define “associate” in relation to an auditor and a company respectively.

4

The regulations may provide that any disclosure required by the regulations is to be made—

a

in a note to the company's annual accounts (in the case of its individual accounts) or in such manner as is specified in the regulations (in the case of group accounts),

b

inF121the strategic report or the directors' report, or

c

in the auditor's report on the company's annual accounts.

5

If the regulations provide that any such disclosure is to be made as mentioned in subsection (4)(a) or (b), the regulations may require the auditor to supply the directors of the company with any information necessary to enable the disclosure to be made.

6

Regulations under this section are subject to negative resolution procedure.

C243C208494ZAF116The maximum engagement period

1

Where a person is auditor of a company for consecutive financial years, the maximum engagement period of the person as auditor of the company—

a

begins with the first of those years (see the appropriate entry in the first column of the following Table), and

b

ends with the financial year specified in the corresponding entry in the second column of the Table:

First financial year of the maximum engagement period

Last financial year of the maximum engagement period

A financial year of the company beginning before 17 June 1994

The last financial year of the company to begin before 17 June 2020.

A financial year of the company beginning—

(a) on or after 17 June 1994, and

(b) before 17 June 2003

The last financial year of the company to begin before 17 June 2023.

A financial year of the company beginning—

(a) on or after 17 June 2003, and

(b) before 17 June 2016

No qualifying selection procedure

Where neither the first financial year of the maximum engagement period nor any subsequent financial year is one for which the auditor has been appointed following the carrying out of a qualifying selection procedure, the later of-

(a) the last financial year of the company to begin before 17 June 2016, and

(b) the last financial year of the company to begin within the period of 10 years beginning with the first day of the first financial year of the maximum engagement period.

No qualifying selection procedure within 10 years

Where the last day of the last financial year of the company to begin within the period of 10 years beginning with the first day of the last financial year of the company for which the auditor was appointed following a qualifying selection procedure is before 17 June 2016—

(a) the last financial year of the company to begin before 17 June 2016, unless

(b) the auditor is appointed following a qualifying selection procedure for the first financial year of the company to begin on or after 17 June 2016, in which case it is the last financial year of the company to begin within the period of 20 years beginning with the first day of the first financial year of the maximum engagement period.

Qualifying selection procedure within 10 years

In any other case, the earlier of-

(a) the last financial year of the company to begin within the period of 10 years beginning with the first day of the last financial year of the company for which the auditor was appointed following a qualifying selection procedure, and

(b) the last financial year of the company to begin within the period of 20 years beginning with the first day of the first financial year of the maximum engagement period.

A financial year of the company beginning on or after 17 June 2016

The earlier of—

(a) the last financial year of the company to begin within the period of 10 years beginning with the first day of the last financial year of the company for which the auditor was appointed following a qualifying selection procedure, and

(b) the last financial year of the company to begin within the period of 20 years beginning with the first day of the first financial year of the maximum engagement period.

2

Where the first financial year of the maximum engagement period begins on or after 17 June 2003, the maximum engagement period may be extended by a period of no more than 2 years with the approval of the competent authority.

3

Such approval may be given by the competent authority only if it is satisfied that exceptional circumstances exist.

4

Where the competent authority gives its approval as mentioned in subsection (2)—

a

the second column of the Table in subsection (1) has effect with the necessary modifications, and

b

the first appointment to be made after the end of the period as so extended must be made following a qualifying selection procedure.

5

F29In this section “qualifying selection procedure” means—

a

in the case of an appointment for a financial year beginning on or after 17 June 2016 made after the Statutory Auditors and Third Country Auditors Regulations 2017 come into force—

i

if the company is a private company and has an audit committee, a selection procedure that complies with the requirements of section 485A(4) and (5)(a) and (b),

ii

if the company is a public company and has an audit committee, a selection procedure that complies with the requirements of subsections 489A(4) and (5)(a) and(b), F172...

F141iii

if the company is a private company and does not have an audit committee, a selection procedure that complies with the requirements of section 485B(4),

iv

if the company is a public company and does not have an audit committee, a selection procedure that complies with the requirements of section 489B(4),

b

in any other case, a selection procedure that substantially meets the requirements of Article 16(2) to (5) of the Audit Regulation F143as it had effect immediately before IP completion day, having regard to the circumstances at the time (including whether the company had an audit committee).

C201494AF77Interpretation

In this Chapter—

  • F66“audit committee” means a body which performs—

    1. (a)

      the functions referred to in—

      1. (i)

        rule 7.1.3 of the Disclosure Guidance and Transparency Rules sourcebook made by the Financial Conduct Authority (audit committees and their functions) under the Financial Services and Markets Act 2000, or

      2. (ii)

        rule 2.4 of the Audit Committee Part of the Rulebook made by the Prudential Regulation Authority (audit committee) under that Act,

      as they have effect on IP completion day, or

    2. (b)

      equivalent functions.

  • F56...

  • “Auditor General” means—

    1. a

      the Comptroller and Auditor General,

    2. b

      the Auditor General for Scotland,

    3. c

      the Auditor General for Wales, or

    4. d

      the Comptroller and Auditor General for Northern Ireland;

  • “issuer” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 102A(6));

  • “network” means an association of persons other than a firm co-operating in audit work by way of—

    1. a

      profit-sharing;

    2. b

      cost sharing;

    3. c

      common ownership, control or management;

    4. d

      common quality control policies and procedures;

    5. e

      common business strategy; or

    6. f

      use of a common name;

  • “public interest F67entity ” means—

    1. a

      an issuer whose transferable securities are admitted to trading on a F104UK regulated market;

    2. b

      a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, F84which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation;

    3. c

      F90a person who would be an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings as that Article had effect immediately before IP completion day, were the United Kingdom a member State;

  • F169...

  • F169...

C167Chapter 3Functions of auditor

C255Auditor's report

Annotations:
Modifications etc. (not altering text)
C255

Ss. 495-497 applied (with modifications) by S.I. 2008/373, reg. 7(1)(1A) (as substituted and inserted (1.1.2018) by The Statutory Auditors Regulations 2017 (S.I. 2017/1164), reg. 1(2)(3), 9 (with reg. 2(6)(7)))

C21C22C23C24C253C119C241C174C238C168C215C226C240495Auditor's report on company's annual accounts

C25C2021

A company's auditor must make a report to the company's members on all annual accounts of the company of which copies are, during his tenure of office—

a

in the case of a private company, to be sent out to members under section 423;

b

in the case of a public company, to be laid before the company in general meeting under section 437.

C86C87F1662

The auditor’s report must include—

a

the identity of the company whose annual accounts are the subject of the audit,

b

a description of the annual accounts that are the subject of the audit (including the period covered by those accounts),

c

a description of the financial reporting framework that has been applied in the preparation of those accounts, and

d

a description of the scope of the audit identifying the auditing standards in accordance with which the audit was conducted.

C86C873

The report must state clearly whether, in the auditor's opinion, the annual accounts—

a

give a true and fair view—

i

in the case of an individual balance sheet, of the state of affairs of the company as at the end of the financial year,

ii

in the case of an individual profit and loss account, of the profit or loss of the company for the financial year,

iii

in the case of group accounts, of the state of affairs as at the end of the financial year and of the profit or loss for the financial year of the undertakings included in the consolidation as a whole, so far as concerns members of the company;

b

have been properly prepared in accordance with the relevant financial reporting framework; and

c

have been prepared in accordance with the requirements of this Act F42....

Expressions used in this subsectionF30or subsection (3A) that are defined for the purposes of Part 15 (see F54sections 464, 471 and 474) have the same meaning as in that Part.

F983A

The following provisions apply to the auditors of a company which qualifies as a micro-entity in relation to a financial year (see sections 384A and 384B) in their consideration of whether the Companies Act individual accounts of the company for that year give a true and fair view as mentioned in subsection (3)(a)—

a

where the accounts comprise only micro-entity minimum accounting items, the auditors must disregard any provision of an accounting standard which would require the accounts to contain information additional to those items,

b

in relation to a micro-entity minimum accounting item contained in the accounts, the auditors must disregard any provision of an accounting standard which would require the accounts to contain further information in relation to that item, and

c

where the accounts contain an item of information additional to the micro-entity minimum accounting items, the auditors must have regard to any provision of an accounting standard which relates to that item.

C86C87F1034

The auditor’s report—

a

must be either unqualified or qualified,

b

must include a reference to any matters to which the auditor wishes to draw attention by way of emphasis without qualifying the report,

c

must include a statement on any material uncertainty relating to events F82or conditions that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting, and

d

must identify the auditor’s place of establishment.

F785

Where more than one person is appointed as an auditor—

a

all the persons appointed must jointly make a report under this section and the report must include a statement as to whether all the persons appointed agree on the matters contained in the report, and

b

if all the persons appointed cannot agree on the matters contained in the report, the report must include the opinions of each person appointed and give reasons for the disagreement.

C26C88C120C247C181C169C174C177C222C235C219C214 496 Auditor's report on strategic report and on directors' report

F1241

In his report on the company's annual accounts, the auditor must-

a

state whether, in his opinion, based on the work undertaken in the course of the audit—

i

the information given in the strategic report (if any) and the directors’ report for the financial year for which the accounts are prepared is consistent with those accounts, and

ii

any such strategic report and the directors’ report have been prepared in accordance with applicable legal requirements,

b

state whether, in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, he has identified material misstatements in the strategic report (if any) and the directors’ report, and

c

if applicable, give an indication of the nature of each of the misstatements referred to in paragraph (b).

F1682

Where more than one person is appointed as auditor, the report must include a statement as to whether all the persons appointed agree on the statements and indications given under subsection (1) and, if they cannot agree on those statements and indications, the report must include the opinions of each person appointed and give reasons for the disagreement.

C89C121C181497Auditor's report on auditable part of directors' remuneration report

1

If the company is a quoted company F60or unquoted traded company, the auditor, in his report on the company's annual accounts for the financial year, must—

a

report to the company's members on the auditable part of the directors' remuneration report, and

b

state whether in his opinion that part of the directors' remuneration report has been properly prepared in accordance with this Act.

2

For the purposes of this Part, “the auditable part” of a directors' remuneration report is the part identified as such by regulations under section 421.

F1303

In this section “unquoted traded company” means a traded company (as defined by section 360C) that is not a quoted company.

C90C122 497A Auditor's report on separate corporate governance statement

F1521

Where the company prepares a separate corporate governance statement in respect of a financial year, the auditor must, in his report of the company’s annual accounts for that year—

a

state whether, in his opinion, based on the work undertaken in the course of the audit, the information given in the statement in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority (information about internal control and risk management systems in relation to financial reporting processes and about share capital structures)—

i

is consistent with those accounts, and

ii

has been prepared in accordance with applicable legal requirements,

b

state whether, in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, he has identified material misstatements in the information in the statement referred to in paragraph (a),

c

if applicable, give an indication of the nature of each of the misstatements referred to in paragraph (b), and

d

state whether, in his opinion, based on the work undertaken in the course of the audit, rules 7.2.2, 7.2.3 and 7.2.7 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority (information about the company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees) have been complied with, if applicable.

F322

Where more than one person is appointed as auditor, the report must include a statement as to whether all the persons appointed agree on the statements and indications given under subsection (1) and, if they cannot agree on those statements and indications, the report must include the opinions of each person appointed and give reasons for the disagreement.

Duties and rights of auditors

C39C42C43C40C41C31C91C96C123C197C244C210C230C206C193C216498Duties of auditor

1

A company's auditor, in preparing his report, must carry out such investigations as will enable him to form an opinion as to—

a

whether adequate accounting records have been kept by the company and returns adequate for their audit have been received from branches not visited by him, and

b

whether the company's individual accounts are in agreement with the accounting records and returns, and

c

in the case of a quoted company F64or unquoted traded company, whether the auditable part of the company's directors' remuneration report is in agreement with the accounting records and returns.

2

If the auditor is of the opinion—

a

that adequate accounting records have not been kept, or that returns adequate for their audit have not been received from branches not visited by him, or

b

that the company's individual accounts are not in agreement with the accounting records and returns, or

c

in the case of a quoted company F110or unquoted traded company, that the auditable part of its directors' remuneration report is not in agreement with the accounting records and returns,

the auditor shall state that fact in his report.

3

If the auditor fails to obtain all the information and explanations which, to the best of his knowledge and belief, are necessary for the purposes of his audit, he shall state that fact in his report.

4

If—

a

the requirements of regulations under section 412 (disclosure of directors' benefits: remuneration, pensions and compensation for loss of office) are not complied with in the annual accounts, or

b

in the case of a quoted company, the requirements of regulations under section 421 as to information forming the auditable part of the directors' remuneration report are not complied with in that report,

the auditor must include in his report, so far as he is reasonably able to do so, a statement giving the required particulars.

F85

If the directors of the company—

a

have prepared accounts in accordance with the small companies regime, or

b

have taken advantage of small companies exemption F129from the requirement to prepare a strategic report or in preparing the directors' report,

and in the auditor's opinion they were not entitled to do so, the auditor shall state that fact in his report.

F1536

Where more than one person is appointed as auditor, the report must include a statement as to whether all the persons appointed agree on the statements given under subsections (2) to (5) and, if they cannot agree on those statements, the report must include the opinions of each person appointed and give reasons for the disagreement.

F687

In this section “unquoted traded company” means a traded company (as defined by section 360C) that is not a quoted company.

C92C97C124C197 498A F11Auditor's duties in relation to separate corporate governance statement

Where the company is required to prepare a corporate governance statement in respect of a financial year and no such statement is included in the directors' report—

a

the company's auditor, in preparing his report on the company's annual accounts for that year, must ascertain whether a corporate governance statement has been prepared, and

b

if it appears to the auditor that no such statement has been prepared, he must state that fact in his report.

C44C45C46C93C98C125C197C175C170C225C242C200499C36C32C27Auditor's general right to information

1

An auditor of a company—

a

has a right of access at all times to the company's books, accounts and vouchers (in whatever form they are held), and

b

may require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.

2

Those persons are—

a

any officer or employee of the company;

b

any person holding or accountable for any of the company's books, accounts or vouchers;

c

any subsidiary undertaking of the company which is a body corporate incorporated in the United Kingdom;

d

any officer, employee or auditor of any such subsidiary undertaking or any person holding or accountable for any books, accounts or vouchers of any such subsidiary undertaking;

e

any person who fell within any of paragraphs (a) to (d) at a time to which the information or explanations required by the auditor relates or relate.

3

A statement made by a person in response to a requirement under this section may not be used in evidence against him in criminal proceedings except proceedings for an offence under section 501.

4

Nothing in this section compels a person to disclose information in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.

C94C99C126C197500C37C33C28Auditor's right to information from overseas subsidiaries

1

Where a parent company has a subsidiary undertaking that is not a body corporate incorporated in the United Kingdom, the auditor of the parent company may require it to obtain from any of the following persons such information or explanations as he may reasonably require for the purposes of his duties as auditor.

2

Those persons are—

a

the undertaking;

b

any officer, employee or auditor of the undertaking;

c

any person holding or accountable for any of the undertaking's books, accounts or vouchers;

d

any person who fell within paragraph (b) or (c) at a time to which the information or explanations relates or relate.

3

If so required, the parent company must take all such steps as are reasonably open to it to obtain the information or explanations from the person concerned.

4

A statement made by a person in response to a requirement under this section may not be used in evidence against him in criminal proceedings except proceedings for an offence under section 501.

5

Nothing in this section compels a person to disclose information in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.

C95C100C127C197501C38C34C29Auditor's rights to information: offences

1

A person commits an offence who knowingly or recklessly makes to an auditor of a company a statement (oral or written) that—

a

conveys or purports to convey any information or explanations which the auditor requires, or is entitled to require, under section 499, and

b

is misleading, false or deceptive in a material particular.

2

A person guilty of an offence under subsection (1) is liable—

a

on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);

b

on summary conviction—

i

in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

ii

in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).

3

A person who fails to comply with a requirement under section 499 without delay commits an offence unless it was not reasonably practicable for him to provide the required information or explanations.

4

If a parent company fails to comply with section 500, an offence is committed by—

a

the company, and

b

every officer of the company who is in default.

5

A person guilty of an offence under subsection (3) or (4) is liable on summary conviction to a fine not exceeding level 3 on the standard scale.

6

Nothing in this section affects any right of an auditor to apply for an injunction (in Scotland, an interdict or an order for specific performance) to enforce any of his rights under section 499 or 500.

C128502C35C30Auditor's rights in relation to resolutions and meetings

1

In relation to a written resolution proposed to be agreed to by a private company, the company's auditor is entitled to receive all such communications relating to the resolution as, by virtue of any provision of Chapter 2 of Part 13 of this Act, are required to be supplied to a member of the company.

2

A company's auditor is entitled—

a

to receive all notices of, and other communications relating to, any general meeting which a member of the company is entitled to receive,

b

to attend any general meeting of the company, and

c

to be heard at any general meeting which he attends on any part of the business of the meeting which concerns him as auditor.

3

Where the auditor is a firm, the right to attend or be heard at a meeting is exercisable by an individual authorised by the firm in writing to act as its representative at the meeting.

Signature of auditor's report

C63C59C55C51C47C67C129C183C196C217C167C233C236C220C234503Signature of auditor's report

1

The auditor's report must state the name of the auditor and be signed and dated.

2

Where the auditor is an individual, the report must be signed by him.

3

Where the auditor is a firm, the report must be signed by the senior statutory auditor in his own name, for and on behalf of the auditor.

F534

Where more than one person is appointed as auditor, the report must be signed by all those appointed.

C64C60C56C52C48I5C163C221C217C167C173C187C179C172504Senior statutory auditor

1

The senior statutory auditor means the individual identified by the firm as senior statutory auditor in relation to the audit in accordance with—

F80a

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b

F119... any relevant guidance issued by—

i

the Secretary of State, or

ii

a body appointed by order of the Secretary of State.

2

The person identified as senior statutory auditor must be eligible for appointment as auditor of the company in question (see Chapter 2 of Part 42 of this Act).

3

The senior statutory auditor is not, by reason of being named or identified as senior statutory auditor or by reason of his having signed the auditor's report, subject to any civil liability to which he would not otherwise be subject.

4

An order appointing a body for the purpose of subsection (1)(b)(ii) is subject to negative resolution procedure.

C68C65C61C57C53C49C72C70C71C130C194C184C217C167C189C212C248C239505Names to be stated in published copies of auditor's report

1

Every copy of the auditor's report that is published by or on behalf of the company must—

a

state the name of the auditor and (where the auditor is a firm) the name of the person who signed it as senior statutory auditor, or

b

if the conditions in section 506 (circumstances in which names may be omitted) are met, state that a resolution has been passed and notified to the Secretary of State in accordance with that section.

F1261A

If more than one person is appointed as auditor, the reference in subsection (1)(a) to the name of the auditor is to be read as a reference to the names of all the auditors.

2

For the purposes of this section a company is regarded as publishing the report if it publishes, issues or circulates it or otherwise makes it available for public inspection in a manner calculated to invite members of the public generally, or any class of members of the public, to read it.

3

If a copy of the auditor's report is published without the statement 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.

C69C66C62C58C54C83C50C73C131C223C217C167C246C185C198C224506Circumstances in which names may be omitted

1

F150An auditor’s name and, where the auditor is a firm, the name of the person who signed the report as senior statutory auditor, may be omitted from—

a

published copies of the report, and

b

the copy of the report delivered to the registrar under Chapter 10 of Part 15 (filing of accounts and reports),

if the following conditions are met.

2

The conditions are that the company—

a

considering on reasonable grounds that statement of the name would create or be likely to create a serious risk that the auditor or senior statutory auditor, or any other person, would be subject to violence or intimidation, has resolved that the name should not be stated, and

b

has given notice of the resolution to the Secretary of State, stating—

i

the name and registered number of the company,

ii

the financial year of the company to which the report relates, and

iii

the name of the auditor and (where the auditor is a firm) the name of the person who signed the report as senior statutory auditor.

Offences in connection with auditor's report

C132C180507C74Offences in connection with auditor's report

1

A person to whom this section applies commits an offence if he knowingly or recklessly causes a report under section 495 (auditor's report on company's annual accounts) to include any matter that is misleading, false or deceptive in a material particular.

2

A person to whom this section applies commits an offence if he knowingly or recklessly causes such a report to omit a statement required by—

a

section 498(2)(b) (statement that company's accounts do not agree with accounting records and returns),

b

section 498(3) (statement that necessary information and explanations not obtained), or

c

section 498(5) (statement that directors wrongly took advantage of exemption from obligation to prepare group accounts).

3

This section applies to—

a

where the auditor is an individual, that individual and any employee or agent of his who is eligible for appointment as auditor of the company;

b

where the auditor is a firm, any director, member, employee or agent of the firm who is eligible for appointment as auditor of the company.

4

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

C133C180508C75Guidance for regulatory and prosecuting authorities: England, Wales and Northern Ireland

1

The Secretary of State may issue guidance for the purpose of helping relevant regulatory and prosecuting authorities to determine how they should carry out their functions in cases where behaviour occurs that—

a

appears to involve the commission of an offence under section 507 (offences in connection with auditor's report), and

F148b

has been, is being or may be investigated—

i

pursuant to arrangements under paragraph 15 of Schedule 10 (investigation of complaints against auditors and supervisory bodies), or

ii

by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

2

The Secretary of State must obtain the consent of the Attorney General before issuing any such guidance.

3

In this section “relevant regulatory and prosecuting authorities” means—

a

supervisory bodies within the meaning of Part 42 of this Act,

b

bodies to which the Secretary of State may make grants under section 16(1) of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27) (bodies concerned with accounting standards etc),

c

the Director of the Serious Fraud Office,

d

the Director of Public Prosecutions or the Director of Public Prosecutions for Northern Ireland, and

e

the Secretary of State.

4

This section does not apply to Scotland.

C134C180509C76Guidance for regulatory authorities: Scotland

1

The Lord Advocate may issue guidance for the purpose of helping relevant regulatory authorities to determine how they should carry out their functions in cases where behaviour occurs that—

a

appears to involve the commission of an offence under section 507 (offences in connection with auditor's report), and

F167b

has been, is being or may be investigated—

i

pursuant to arrangements under paragraph 15 of Schedule 10 (investigation of complaints against auditors and supervisory bodies), or

ii

by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

2

The Lord Advocate must consult the Secretary of State before issuing any such guidance.

3

In this section “relevant regulatory authorities” means—

a

supervisory bodies within the meaning of Part 42 of this Act,

b

bodies to which the Secretary of State may make grants under section 16(1) of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27) (bodies concerned with accounting standards etc), and

c

the Secretary of State.

4

This section applies only to Scotland.

F101Chapter 4Removal, resignation, etc of auditors

Annotations:
Amendments (Textual)

Removal of auditor

C135510C77Resolution removing auditor from office

1

The members of a company may remove an auditor from office at any time.

2

This power is exercisable only—

a

by ordinary resolution at a meeting, and

b

in accordance with section 511 (special notice of resolution to remove auditor).

3

Nothing in this section is to be taken as depriving the person removed of compensation or damages payable to him in respect of the termination—

a

of his appointment as auditor, or

b

of any appointment terminating with that as auditor.

F964

An auditor may not be removed from office before the expiration of his term of office except—

a

by resolution under this section, or

b

in accordance with section 511A.

C136511C78Special notice required for resolution removing auditor from office

1

Special notice is required for a resolution at a general meeting of a company removing an auditor from office.

2

On receipt of notice of such an intended resolution the company must immediately send a copy of it to the auditor proposed to be removed.

3

The auditor proposed to be removed may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.

4

The company must (unless the representations are received by it too late for it to do so)—

a

in any notice of the resolution given to members of the company, state the fact of the representations having been made, and

b

send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.

5

If a copy of any such representations is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.

6

Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

511AF142Public interest companies: application to court to remove auditor from office

1

This section applies only to a public interest company.

2

The competent authority may apply to the court for an order removing an auditor of a company from office if the authority considers that there are proper grounds for removing the auditor from office.

3

The members of a company may apply to the court for an order removing an auditor of the company from office if the applicant or applicants consider that there are proper grounds for removing the auditor from office.

4

If the court is satisfied, on hearing an application under subsection (2), that there are proper grounds for removing the auditor from office, it may make an order removing the auditor from office.

5

If the court is satisfied, on hearing an application under subsection (3), that—

a

the applicants represent in total—

i

not less than 5% of the voting rights of all the members having a right to vote at a general meeting of the company, or

ii

not less than 5% in nominal value of the company’s share capital, and

b

there are proper grounds for removing the auditor from office,

the court may make an order removing the auditor from office.

6

For the purposes of this section, divergence of opinions on accounting treatments or audit procedures are not to be taken to be proper grounds for removing an auditor from office.

F287

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F112512Notice to registrar of resolution removing auditor from office

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C79C137513Rights of auditor who has been removed from office

1

An auditor who has been removed by resolution under section 510 F163or by order of the court under section 511A has, notwithstanding his removal, the rights conferred by section 502(2) in relation to any general meeting of the company—

a

at which his term of office would otherwise have expired, or

b

at which it is proposed to fill the vacancy caused by his removal.

2

In such a case the references in that section to matters concerning the auditor as auditor shall be construed as references to matters concerning him as a former auditor.

Failure to re-appoint auditor

C138514Failure to re-appoint auditor: special procedure required for written resolution

F381

This section applies where a resolution is proposed as a written resolution of a private company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the resolution is proposed, is an auditor of the company and who is to cease to hold office at the end of a period for appointing auditors.

But this section does not apply if the auditor is to cease to hold office by virtue of section 510 F106 , 511A or 516.

2

This section also applies where a resolution is proposed as a written resolution of a private company whose effect would be to appoint a person as auditor where, at the time the resolution is proposed, the company does not have an auditor and the person proposed to be appointed is not a person (the “outgoing auditor”) who was an auditor of the company when the company last had an auditor.

But this is subject to subsection (2A).

2A

This section does not apply (by virtue of subsection (2)) if— ”

a

a period for appointing auditors has ended since the outgoing auditor ceased to hold office,

b

the outgoing auditor ceased to hold office by virtue of section 510 F131, 511A or 516, or

c

the outgoing auditor has previously had the opportunity to make representations with respect to a proposed resolution under subsection (4) of this section or an intended resolution under section 515(4).

3

F159Where this section applies, the company must send a copy of the proposed resolution to the person proposed to be appointed and to the outgoing auditor.

4

The outgoing auditor may, within 14 days after receiving the notice, make with respect to the proposed resolution representations in writing to the company (not exceeding a reasonable length) and request their circulation to members of the company.

5

The company must circulate the representations together with the copy or copies of the resolution circulated in accordance with section 291 (resolution proposed by directors) or section 293 (resolution proposed by members).

6

Where subsection (5) applies—

a

the period allowed under section 293(3) for service of copies of the proposed resolution is 28 days instead of 21 days, and

b

the provisions of section 293(5) and (6) (offences) apply in relation to a failure to comply with that subsection as in relation to a default in complying with that section.

7

Copies of the representations need not be circulated if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

8

If any requirement of this section is not complied with, the resolution is ineffective.

C80C139515Failure to re-appoint auditor: special notice required for resolution at general meeting

F1171

Special notice is required for a resolution at a general meeting of a private company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the notice is given, is an auditor of the company and who is to cease to hold office at the end of a period for appointing auditors.

But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 F134, 511A or 516.

1A

Special notice is required for a resolution at a general meeting of a public company whose effect would be to appoint a person as auditor in place of a person (the “outgoing auditor”) who, at the time the notice is given, is an auditor of the company and who is to cease to hold office at the end of an accounts meeting.

But special notice is not required under this subsection if the auditor is to cease to hold office by virtue of section 510 F59, 511A or 516.

2

Special notice is required for a resolution at a general meeting of a company whose effect would be to appoint a person as auditor where, at the time the notice is given, the company does not have an auditor and the person proposed to be appointed is not a person (the “outgoing auditor”) who was an auditor of the company when the company last had an auditor.

But this is subject to subsection (2A).

2A

Special notice is not required under subsection (2) if—

a

a period for appointing auditors has ended or (as the case may be) an accounts meeting of the company has been held since the outgoing auditor ceased to hold office,

b

the outgoing auditor ceased to hold office by virtue of section 510 F83, 511A or 516, or

c

the outgoing auditor has previously had the opportunity to make representations with respect to an intended resolution under subsection (4) of this section or a proposed resolution under section 514(4).

3

On receipt of notice of F164... an intended resolutionF48mentioned in subsection (1), (1A) or (2) the company shall forthwith send a copy of it to the person proposed to be appointed and to the outgoing auditor.

4

The outgoing auditor may make with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and request their notification to members of the company.

5

The company must (unless the representations are received by it too late for it to do so)—

a

in any notice of the resolution given to members of the company, state the fact of the representations having been made, and

b

send a copy of the representations to every member of the company to whom notice of the meeting is or has been sent.

6

If a copy of any such representations is not sent out as required because received too late or because of the company's default, the outgoing auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.

7

Copies of the representations need not be sent out and the representations need not be read at the meeting if, on the application either of the company or of any other person claiming to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the outgoing auditor, notwithstanding that he is not a party to the application.

Resignation of auditor

C81C140516Resignation of auditor

1

An auditor of a company may resign his office by F86sending a notice to that effect to the company.

2

F120Where the company is a public interest company, the notice is not effective unless it is accompanied by the statement required by section 519.

3

An effective notice of resignation operates to bring the auditor's term of office to an end as of the date on which the notice is F122received or on such later date as may be specified in it.

F125517Notice to registrar of resignation of auditor

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C82C141518Rights of resigning auditor

1

This section applies where an F171auditor's (A's) notice of resignation is accompanied by a statement under section 519 except where—.

a

the company is a non-public interest company, and

b

the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

2

He may F158send with the notice F161an authenticated requisition calling on the directors of the company forthwith duly to convene a general meeting of the company for the purpose of receiving and considering such explanation of the F157reasons for, and matters connected with, his resignation as he may wish to place before the meeting.

3

He may request the company to circulate to its members—

a

before the meeting convened on his requisition, or

b

before any general meeting at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation,

a statement in writing (not exceeding a reasonable length) of the F70reasons for, and matters connected with, his resignation.

4

The company must (unless the statement is received too late for it to comply)—

a

in any notice of the meeting given to members of the company, state the fact of the statement having been made, and

b

send a copy of the statement to every member of the company to whom notice of the meeting is or has been sent.

5

The directors must within 21 days from the date F118on which the company receives a requisition under this section proceed duly to convene a meeting for a day not more than 28 days after the date on which the notice convening the meeting is given.

6

If default is made in complying with subsection (5), every director who failed to take all reasonable steps to secure that a meeting was convened commits an offence.

7

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction to a fine not exceeding the statutory maximum.

8

If a copy of the statement mentioned above is not sent out as required because received too late or because of the company's default, the auditor may (without prejudice to his right to be heard orally) require that the statement be read out at the meeting.

9

Copies of a statement need not be sent out and the statement need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the auditor is using the provisions of this section to secure needless publicity for defamatory matter.

The court may order the company's costs (in Scotland, expenses) on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.

10

An auditor who has resigned has, notwithstanding his resignation, the rights conferred by section 502(2) in relation to any such general meeting of the company as is mentioned in subsection (3)(a) or (b) above.

In such a case the references in that section to matters concerning the auditor as auditor shall be construed as references to matters concerning him as a former auditor.

Statement by auditor on ceasing to hold office

C142C182519Statement by auditor to be F95sent to company

F1511

An auditor of a public interest company who is ceasing to hold office (at any time and for any reason) must send to the company a statement of the reasons for doing so.

2

An auditor (“A”) of a non-public interest company who is ceasing to hold office must send to the company a statement of the reasons for doing so unless A satisfies the first or second condition.

2A

The first condition is that A is ceasing to hold office—

a

in the case of a private company, at the end of a period for appointing auditors;

b

in the case of a public company, at the end of an accounts meeting.

2B

The second condition is that—

a

A's reasons for ceasing to hold office are all exempt reasons (as to which see section 519A(3)), and

b

there are no matters connected with A's ceasing to hold office that A considers need to be brought to the attention of members or creditors of the company.

3

A statement under this section must include—

a

the auditor's name and address;

b

the number allocated to the auditor on being entered in the register of auditors kept under section 1239;

c

the company's name and registered number.

3A

Where there are matters connected with an auditor's ceasing to hold office that the auditor considers need to be brought to the attention of members or creditors of the company, the statement under this section must include details of those matters.

3B

Where—

a

an auditor (“A”) of a non-public interest company is required by subsection (2) to send a statement, and

b

A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company,

A's statement under this section must include a statement to that effect.

4

F146A statement under this section must be F31sent—

a

in the case of resignation, along with the notice of resignation;

b

in the case of failure to seek re-appointment, not less than 14 days before the end of the time allowed for next appointing an auditor;

c

in any other case, not later than the end of the period of 14 days beginning with the date on which he ceases to hold office.

5

A person ceasing to hold office as auditor who fails to comply with this section commits an offence.

6

In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

7

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

F98

Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—

a

any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and

b

if the body is a company, any shadow director is treated as an officer of the company.

519AF155Meaning of “public interest company”, “non-public interest company” and “exempt reasons”

1

In this Chapter—

  • F147“public interest company” means a company which is—

    1. a

      an issuer whose transferable securities are admitted to trading on a F75UK regulated market;

    2. b

      a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, F35which is a CRR firm within the meaning of Article 4(1)(2A) of that Regulation; or

    3. c

      F34a person who would be an insurance undertaking as defined in Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings as that Article had effect immediately before IP completion day, were the United Kingdom a member State;

F812

For the purposes of the definition of “public interest company”—

  • “issuer” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 102A(6));

  • F115...

  • F115...

3

In the application of this Chapter to an auditor (“A”) of a company ceasing to hold office, the following are “exempt reasons”—

a

A is no longer to carry out statutory audit work within the meaning of Part 42 (see section 1210(1));

b

the company is, or is to become, exempt from audit under section 477, 479A or 480, or from the requirements of this Part under section 482, and intends to include in its balance sheet a statement of the type described in section 475(2);

c

the company is a subsidiary undertaking of a parent undertaking that is incorporated in the United Kingdom and—

i

the parent undertaking prepares group accounts, and

ii

A is being replaced as auditor of the company by the auditor who is conducting, or is to conduct, an audit of the group accounts;

d

the company is being wound up under Part 4 of the Insolvency Act 1986 or Part 5 of the Insolvency (Northern Ireland) Order 1989 ( S.I. 1989/2405 (N.I. 19)), whether voluntarily or by the court, or a petition under Part 4 of that Act or Part 5 of that Order for the winding up of the company has been presented and not finally dealt with or withdrawn.

4

But the reason described in subsection (3)(c) is only an exempt reason if the auditor who is conducting, or is to conduct, an audit of the group accounts is also conducting, or is also to conduct, the audit (if any) of the accounts of each of the subsidiary undertakings (of the parent undertaking) that is incorporated in the United Kingdom and included in the consolidation.

5

The Secretary of State may by order amend the definition of “public interest company” in subsection (1).

6

An order under subsection (5) is subject to negative resolution procedure.

C143C182520Company's duties in relation to statement

1

This section applies where F97a company receives from an auditor (“A”) who is ceasing to hold office a statement under section 519 except where—

a

the company is a non-public interest company, and

b

the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

2

F49Where this section applies, the company must within 14 days of the F100receipt of the statement either—

a

send a copy of it to every person who under section 423 is entitled to be sent copies of the accounts, or

b

apply to the court.

3

If it applies to the court, the company must notify the auditor of the application.

4

If the court is satisfied that the auditor is using the provisions of section 519 to secure needless publicity for defamatory matter—

a

it shall direct that copies of the statement need not be sent out, and

b

it may further order the company's costs (in Scotland, expenses) on the application to be paid in whole or in part by the auditor, even if he is not a party to the application.

The company must within 14 days of the court's decision send to the persons mentioned in subsection (2)(a) a statement setting out the effect of the order.

5

If no such direction is made the company must send copies of the statement to the persons mentioned in subsection (2)(a) within 14 days of the court's decision or, as the case may be, of the discontinuance of the proceedings.

6

In the event of default in complying with this section an offence is committed by every officer of the company who is in default.

7

In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

8

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

C144C182521Copy of statement to be sent to registrar

F92A1

This section applies where an auditor (“A”) of a company sends a statement to the company under section 519 except where—

a

the company is a non-public interest company, and

b

the statement includes a statement to the effect that A considers that none of the reasons for A's ceasing to hold office, and no matters (if any) connected with A's ceasing to hold office, need to be brought to the attention of members or creditors of the company (as required by section 519(3B)).

1

F37Where this section applies, unless within 21 days beginning with the day on which he F76sent the statement under section 519 the auditor receives notice of an application to the court under section 520, he must within a further seven days send a copy of the statement to the registrar.

2

If an application to the court is made under section 520 and the auditor subsequently receives notice under subsection (5) of that section, he must within seven days of receiving the notice send a copy of the statement to the registrar.

3

An auditor who fails to comply with subsection (1) or (2) commits an offence.

4

In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

5

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

F106

Where an offence under this section is committed by a body corporate, every officer of the body who is in default also commits the offence. For this purpose—

a

any person who purports to act as director, manager or secretary of the body is treated as an officer of the body, and

b

if the body is a company, any shadow director is treated as an officer of the company.

C145C182522Duty of auditor to F39send statement to appropriate audit authority

F1541

Where an auditor of a company sends a statement under section 519, the auditor must at the same time send a copy of the statement to the appropriate audit authority.

5

A person ceasing to hold office as auditor who fails to comply with this section commits an offence.

6

If that person is a firm an offence is committed by—

a

the firm, and

b

every officer of the firm who is in default.

7

In proceedings for an offence under this section it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

8

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

C146C182523Duty of company to notify appropriate audit authority

F741

This section applies if an auditor is ceasing to hold office—

a

in the case of a private company, at any time other than at the end of a period for appointing auditors;

b

in the case of a public company, at any time other than at the end of an accounts meeting.

1A

But this section does not apply if the company reasonably believes that the only reasons for the auditor's ceasing to hold office are exempt reasons (as to which see section 519A(3)).

2

Where this section applies, the company must give notice to the appropriate audit authority that the auditor is ceasing to hold office.

2A

The notice is to take the form of a statement by the company of what the company believes to be the reasons for the auditor's ceasing to hold office and must include the information listed in section 519(3).

This is subject to subsection (2C).

2B

Subsection (2C) applies where—

a

the company receives a statement from the auditor under section 519,

b

the statement is sent at the time required by section 519(4), and

c

the company agrees with the contents of the statement.

2C

Where this subsection applies, the notice may instead take the form of a copy of the statement endorsed by the company to the effect that it agrees with the contents of the statement.

3

A notice under this section must be given within the period of 28 days beginning with the day on which the auditor ceases to hold office.

4

If a company fails to comply with this section, an offence is committed by—

a

the company, and

b

every officer of the company who is in default.

5

In proceedings for such an offence it is a defence for the person charged to show that he took all reasonable steps and exercised all due diligence to avoid the commission of the offence.

6

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

C147C182524F50Provision of information to accounting authorities

F1351

Where the appropriate audit authority receives a statement under section 522 or a notice under section 523, the authority may forward to the accounting authorities—

a

a copy of the statement or notice, and

b

any other information the authority has received from the auditor or the company concerned in connection with the auditor's ceasing to hold office.

2

The accounting authorities are—

a

the Secretary of State, and

C166b

any person authorised by the Secretary of State for the purposes of section 456 (revision of defective accounts: persons authorised to apply to court).

F1093

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

If the court has made an order under section 520(4) directing that copies of the statement need not be sent out by the company, sections 460 and 461 (restriction on further disclosure) apply in relation to the copies sent to the accounting authorities as they apply to information obtained under section 459 (power to require documents etc).

C148C182525Meaning of “appropriate audit authority” F61...

1

In sections 522, 523 and 524 “appropriate audit authority” means—

a

F162in relation to an auditor of a public interest company (other than an Auditor General)—

i

the Secretary of State, or

ii

if the Secretary of State has delegated functions under section 1252 to a body whose functions include receiving the F107statement or notice in question, that body;

F14a

in the case of a major audit (other than one conducted by an Auditor General), the Financial Reporting Council Limited;

b

F52in relation to an auditor of a non-public interest company (other than an Auditor General), the relevant supervisory body.

F5c

F69in relation to an Auditor General, the Independent Supervisor.

F6 “Supervisory body” and “Independent Supervisor” have the same meaning as in Part 42 (statutory auditors) (see F7sections 1217 and 1228).

F1652

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1653

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplementary

C149C182526Effect of casual vacancies

If an auditor ceases to hold office for any reason, any surviving or continuing auditor or auditors may continue to act.

Chapter 5Quoted companies: right of members to raise audit concerns at accounts meeting

C150527Members' power to require website publication of audit concerns

1

The members of a quoted company may require the company to publish on a website a statement setting out any matter relating to—

a

the audit of the company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the next accounts meeting, or

b

any circumstances connected with an auditor of the company ceasing to hold office since the previous accounts meeting,

that the members propose to raise at the next accounts meeting of the company.

2

A company is required to do so once it has received requests to that effect from—

a

members representing at least 5% of the total voting rights of all the members who have a relevant right to vote (excluding any voting rights attached to any shares in the company held as treasury shares), or

b

at least 100 members who have a relevant right to vote and hold shares in the company on which there has been paid up an average sum, per member, of at least £100.

See also section 153 (exercise of rights where shares held on behalf of others).

3

In subsection (2) a “relevant right to vote” means a right to vote at the accounts meeting.

4

A request—

a

may be sent to the company in hard copy or electronic form,

b

must identify the statement to which it relates,

c

must be authenticated by the person or persons making it, and

d

must be received by the company at least one week before the meeting to which it relates.

5

A quoted company is not required to place on a website a statement under this section if, on an application by the company or another person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused.

6

The court may order the members requesting website publication to pay the whole or part of the company's costs (in Scotland, expenses) on such an application, even if they are not parties to the application.

C151528Requirements as to website availability

1

The following provisions apply for the purposes of section 527 (website publication of members' statement of audit concerns).

2

The information must be made available on a website that—

a

is maintained by or on behalf of the company, and

b

identifies the company in question.

3

Access to the information on the website, and the ability to obtain a hard copy of the information from the website, must not be conditional on the payment of a fee or otherwise restricted.

4

The statement—

a

must be made available within three working days of the company being required to publish it on a website, and

b

must be kept available until after the meeting to which it relates.

5

A failure to make information available on a website throughout the period specified in subsection (4)(b) is disregarded if—

a

the information is made available on the website for part of that period, and

b

the failure is wholly attributable to circumstances that it would not be reasonable to have expected the company to prevent or avoid.

C152529Website publication: company's supplementary duties

1

A quoted company must in the notice it gives of the accounts meeting draw attention to—

a

the possibility of a statement being placed on a website in pursuance of members' requests under section 527, and

b

the effect of the following provisions of this section.

2

A company may not require the members requesting website publication to pay its expenses in complying with that section or section 528 (requirements in connection with website publication).

3

Where a company is required to place a statement on a website under section 527 it must forward the statement to the company's auditor not later than the time when it makes the statement available on the website.

4

The business which may be dealt with at the accounts meeting includes any statement that the company has been required under section 527 to publish on a website.

C153530Website publication: offences

1

In the event of default in complying with

a

section 528 (requirements as to website publication), or

b

section 529 (companies' supplementary duties in relation to request for website publication),

an offence is committed by every officer of the company who is in default.

2

A person guilty of an offence under this section is liable—

a

on conviction on indictment, to a fine;

b

on summary conviction, to a fine not exceeding the statutory maximum.

C154531Meaning of “quoted company”

1

For the purposes of this Chapter a company is a quoted company if it is a quoted company in accordance with section 385 (quoted and unquoted companies for the purposes of Part 15) in relation to the financial year to which the accounts to be laid at the next accounts meeting relate.

2

The provisions of subsections (4) to (6) of that section (power to amend definition by regulations) apply in relation to the provisions of this Chapter as in relation to the provisions of that Part.

Chapter 6Auditors' liability

Voidness of provisions protecting auditors from liability

C155532Voidness of provisions protecting auditors from liability

1

This section applies to any provision—

a

for exempting an auditor of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts, or

b

by which a company directly or indirectly provides an indemnity (to any extent) for an auditor of the company, or of an associated company, against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is auditor occurring in the course of the audit of accounts.

2

Any such provision is void, except as permitted by—

a

section 533 (indemnity for costs of successfully defending proceedings), or

b

sections 534 to 536 (liability limitation agreements).

3

This section applies to any provision, whether contained in a company's articles or in any contract with the company or otherwise.

4

For the purposes of this section companies are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate.

Indemnity for costs of defending proceedings

I12C156533Indemnity for costs of successfully defending proceedings

Section 532 (general voidness of provisions protecting auditors from liability) does not prevent a company from indemnifying an auditor against any liability incurred by him—

a

in defending proceedings (whether civil or criminal) in which judgment is given in his favour or he is acquitted, or

b

in connection with an application under section 1157 (power of court to grant relief in case of honest and reasonable conduct) in which relief is granted to him by the court.

Liability limitation agreements

C157534Liability limitation agreements

1

A “liability limitation agreement” is an agreement that purports to limit the amount of a liability owed to a company by its auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of accounts, of which the auditor may be guilty in relation to the company.

2

Section 532 (general voidness of provisions protecting auditors from liability) does not affect the validity of a liability limitation agreement that—

a

complies with section 535 (terms of liability limitation agreement) and of any regulations under that section, and

b

is authorised by the members of the company (see section 536).

3

Such an agreement—

a

is effective to the extent provided by section 537, and

b

is not subject—

i

in England and Wales or Northern Ireland, to section 2(2) or 3(2)(a) of the Unfair Contract Terms Act 1977 (c. 50);

ii

in Scotland, to section 16(1)(b) or 17(1)(a) of that Act.

C158I6535Terms of liability limitation agreement

1

A liability limitation agreement—

a

must not apply in respect of acts or omissions occurring in the course of the audit of accounts for more than one financial year, and

b

must specify the financial year in relation to which it applies.

2

The Secretary of State may by regulations—

a

require liability limitation agreements to contain specified provisions or provisions of a specified description;

b

prohibit liability limitation agreements from containing specified provisions or provisions of a specified description.

“Specified” here means specified in the regulations.

3

Without prejudice to the generality of the power conferred by subsection (2), that power may be exercised with a view to preventing adverse effects on competition.

4

Subject to the preceding provisions of this section, it is immaterial how a liability limitation agreement is framed.

In particular, the limit on the amount of the auditor's liability need not be a sum of money, or a formula, specified in the agreement.

5

Regulations under this section are subject to negative resolution procedure.

C159536Authorisation of agreement by members of the company

1

A liability limitation agreement is authorised by the members of the company if it has been authorised under this section and that authorisation has not been withdrawn.

2

A liability limitation agreement between a private company and its auditor may be authorised—

a

by the company passing a resolution, before it enters into the agreement, waiving the need for approval,

b

by the company passing a resolution, before it enters into the agreement, approving the agreement's principal terms, or

c

by the company passing a resolution, after it enters into the agreement, approving the agreement.

3

A liability limitation agreement between a public company and its auditor may be authorised—

a

by the company passing a resolution in general meeting, before it enters into the agreement, approving the agreement's principal terms, or

b

by the company passing a resolution in general meeting, after it enters into the agreement, approving the agreement.

4

The “principal terms” of an agreement are terms specifying, or relevant to the determination of—

a

the kind (or kinds) of acts or omissions covered,

b

the financial year to which the agreement relates, or

c

the limit to which the auditor's liability is subject.

5

Authorisation under this section may be withdrawn by the company passing an ordinary resolution to that effect—

a

at any time before the company enters into the agreement, or

b

if the company has already entered into the agreement, before the beginning of the financial year to which the agreement relates.

Paragraph (b) has effect notwithstanding anything in the agreement.

C160537Effect of liability limitation agreement

1

A liability limitation agreement is not effective to limit the auditor's liability to less than such amount as is fair and reasonable in all the circumstances of the case having regard (in particular) to—

a

the auditor's responsibilities under this Part,

b

the nature and purpose of the auditor's contractual obligations to the company, and

c

the professional standards expected of him.

2

A liability limitation agreement that purports to limit the auditor's liability to less than the amount mentioned in subsection (1) shall have effect as if it limited his liability to that amount.

3

In determining what is fair and reasonable in all the circumstances of the case no account is to be taken of—

a

matters arising after the loss or damage in question has been incurred, or

b

matters (whenever arising) affecting the possibility of recovering compensation from other persons liable in respect of the same loss or damage.

I7C161538Disclosure of agreement by company

1

A company which has entered into a liability limitation agreement must make such disclosure in connection with the agreement as the Secretary of State may require by regulations.

2

The regulations may provide, in particular, that any disclosure required by the regulations shall be made—

a

in a note to the company's annual accounts (in the case of its individual accounts) or in such manner as is specified in the regulations (in the case of group accounts), or

b

in the directors' report.

3

Regulations under this section are subject to negative resolution procedure.

C164 538A F12 Meaning of “corporate governance statement” etc

1

In this Part “ corporate governance statement ” means the statement required by rules 7.2.1 to 7.2.11 in the Disclosure Rules and Transparency Rules sourcebook F25 made by the Financial Conduct Authority .

F26 2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

A “separate” corporate governance statement means one that is not included in the directors' report.

C167Chapter 7Supplementary provisions

C162C232C167539Minor definitions

In this Part—

  • “e-money issuer” F24means—

    1. a

      an electronic money institution, within the meaning of the Electronic Money Regulations 2011 ( S.I. 2011/99), or

    2. b

      a person who has permission under F173Part 4A of the Financial Services and Markets Act 2000 (c. 8) to carry on the activity of issuing electronic money within the meaning of article 9B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544);

  • F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  • F4 “MiFID investment firm” means an investment firm within the meaning of F72Article 2(1A) of Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012, other than—

    1. a

      a company F145which is exempted from the definition of “investment firm” by Schedule 3 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), F105...

    2. b

      F128a company which is an exempt investment firm as defined by regulation 8 (Meaning of “exempt investment firm” in Chapter 1) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 F114(S.I. 2017/701), and

    3. c

      F55any other company which fulfils all the requirements set out in regulation 6(3) of those Regulations;

  • “qualified”, in relation to an auditor's report (or a statement contained in an auditor's report), means that the report or statement does not state the auditor's unqualified opinion that the accounts have been properly prepared in accordance with this Act or, in the case of an undertaking not required to prepare accounts in accordance with this Act, under any corresponding legislation under which it is required to prepare accounts;

  • “turnover”, in relation to a company, means the amounts derived from the provision of goods and services falling within the company's ordinary activities, after deduction of—

    1. a

      trade discounts,

    2. b

      value added tax, and

    3. c

      any other taxes based on the amounts so derived;

  • “UCITS management company” has the meaning given by the Glossary forming part of the Handbook made by the F27Financial Conduct Authority under the Financial Services and Markets Act 2000.