Companies Act 2006

Part 2Requirements for recognition of a supervisory body

Holding of appropriate qualification

6(1)The body must have rules to the effect that a person is not eligible for appointment as a statutory auditor unless—

(a)in the case of an individual, he holds an appropriate qualification,

(b)in the case of a firm—

(i)each individual responsible for statutory audit work on behalf of the firm is eligible for appointment as a statutory auditor, and

(ii)the firm is controlled by qualified persons (see paragraph 7 below).

(2)Sub-paragraph (1) does not prevent the body from imposing more stringent requirements.

(3)A firm which has ceased to comply with the conditions mentioned in sub-paragraph (1)(b) may be permitted to remain eligible for appointment as a statutory auditor for a period of not more than three months.

7(1)This paragraph explains what is meant in paragraph 6(1)(b) by a firm being “controlled by qualified persons”.

(2)In this paragraph references to a person being qualified are—

(a)in relation to an individual, to his holding—

(i)an appropriate qualification, or

(ii)a corresponding qualification to audit accounts under the law of a member State, or part of a member State, other than the United Kingdom;

(b)in relation to a firm, to its—

(i)being eligible for appointment as a statutory auditor, or

(ii)being eligible for a corresponding appointment as an auditor under the law of a member State, or part of a member State, other than the United Kingdom.

(3)A firm is to be treated as controlled by qualified persons if, and only if—

(a)a majority of the members of the firm are qualified persons, and

(b)where the firm’s affairs are managed by a board of directors, committee or other management body, a majority of that body are qualified persons or, if the body consists of two persons only, at least one of them is a qualified person.

(4)A majority of the members of a firm means—

(a)where under the firm’s constitution matters are decided upon by the exercise of voting rights, members holding a majority of the rights to vote on all, or substantially all, matters;

(b)in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its constitution.

(5)A majority of the members of the management body of a firm means—

(a)where matters are decided at meetings of the management body by the exercise of voting rights, members holding a majority of the rights to vote on all, or substantially all, matters at such meetings;

(b)in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its constitution.

(6)Paragraphs 5 to 11 of Schedule 7 to this Act (rights to be taken into account and attribution of rights) apply for the purposes of this paragraph.

Auditors to be fit and proper persons

8(1)The body must have adequate rules and practices designed to ensure that the persons eligible under its rules for appointment as a statutory auditor are fit and proper persons to be so appointed.

(2)The matters which the body may take into account for this purpose in relation to a person must include—

(a)any matter relating to any person who is or will be employed by or associated with him for the purposes of or in connection with statutory audit work;

(b)in the case of a body corporate, any matter relating to—

(i)any director or controller of the body,

(ii)any other body corporate in the same group, or

(iii)any director or controller of any such other body; and

(c)in the case of a partnership, any matter relating to—

(i)any of the partners,

(ii)any director or controller of any of the partners,

(iii)any body corporate in the same group as any of the partners, or

(iv)any director or controller of any such other body.

(3)Where the person is a limited liability partnership, in sub-paragraph (2)(b) “director” is to be read as “member”.

(4)In sub-paragraph (2)(b) and (c) “controller”, in relation to a body corporate, means a person who either alone or with an associate or associates is entitled to exercise or control the exercise of 15% or more of the rights to vote on all, or substantially all, matters at general meetings of the body or another body corporate of which it is a subsidiary.

Professional integrity and independence

9(1)The body must have adequate rules and practices designed to ensure that—

(a)statutory audit work is conducted properly and with integrity, and

(b)persons are not appointed as statutory auditors in circumstances in which they have an interest likely to conflict with the proper conduct of the audit.

(2)The body must participate in arrangements within paragraph 21, and the rules and practices mentioned in sub-paragraph (1) must include provision requiring compliance with any standards for the time being determined under such arrangements.

(3)The body must also have adequate rules and practices designed to ensure that no firm is eligible under its rules for appointment as a statutory auditor unless the firm has arrangements to prevent a person to whom sub-paragraph (4) applies from being able to exert any influence over the way in which a statutory audit is conducted in circumstances in which that influence would be likely to affect the independence or integrity of the audit.

(4)This sub-paragraph applies to—

(a)any individual who is not a qualified person within the meaning of paragraph 7, and

(b)any person who is not a member of the firm.

Technical standards

10(1)The body must have rules and practices as to—

(a)the technical standards to be applied in statutory audit work, and

(b)the manner in which those standards are to be applied in practice.

(2)The body must participate in arrangements within paragraph 22, and the rules and practices mentioned in sub-paragraph (1) must include provision requiring compliance with any standards for the time being determined under such arrangements.

Procedures for maintaining competence

11The body must have rules and practices designed to ensure that persons eligible under its rules for appointment as a statutory auditor continue to maintain an appropriate level of competence in the conduct of statutory audits.

Monitoring and enforcement

12(1)The body must have adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules.

(2)The arrangements for monitoring may make provision for that function to be performed on behalf of the body (and without affecting its responsibility) by any other body or person who is able and willing to perform it.

Independent monitoring of audits of listed companies and other major bodies

13(1)The body must—

(a)participate in arrangements within paragraph 23(1), and

(b)have rules designed to ensure that members of the body who perform any statutory audit functions in respect of major audits take such steps as may be reasonably required of them to enable their performance of any such functions to be monitored by means of inspections carried out under the arrangements.

(2)Any monitoring of such persons under the arrangements is to be regarded (so far as their performance of statutory audit functions in respect of major audits is concerned) as monitoring of compliance with the body’s rules for the purposes of paragraph 12(1).

(3)In this paragraph—

• “major audit” means a statutory audit conducted in respect of—

  (a)

  a company any of whose securities have been admitted to the official list (within the meaning of Part 6 of the Financial Services and Markets Act 2000 (c. 8)), or

  (b)

  any other person in whose financial condition there is a major public interest;

• “statutory audit function” means any function performed as a statutory auditor.

Membership, eligibility and discipline

14The rules and practices of the body relating to—

(a)the admission and expulsion of members,

(b)the grant and withdrawal of eligibility for appointment as a statutory auditor, and

(c)the discipline it exercises over its members,

must be fair and reasonable and include adequate provision for appeals.

Investigation of complaints

15(1)The body must have effective arrangements for the investigation of complaints against—

(a)persons who are eligible under its rules for appointment as a statutory auditor, and

(b)the body in respect of matters arising out of its functions as a supervisory body.

(2)The arrangements mentioned in sub-paragraph (1) may make provision for the whole or part of that function to be performed by and to be the responsibility of a body or person independent of the body itself.

Independent investigation for disciplinary purposes of public interest cases

16(1)The body must—

(a)participate in arrangements within paragraph 24(1), and

(b)have rules and practices designed to ensure that, where the designated persons have decided that any particular disciplinary action should be taken against a member of the body following the conclusion of an investigation under such arrangements, that decision is to be treated as if it were a decision made by the body in disciplinary proceedings against the member.

(2)In sub-paragraph (1) “the designated persons” means the persons who, under the arrangements, have the function of deciding whether (and if so, what) disciplinary action should be taken against a member of the body in the light of an investigation carried out under the arrangements.

Meeting of claims arising out of audit work

17(1)The body must have adequate rules or arrangements designed to ensure that persons eligible under its rules for appointment as a statutory auditor take such steps as may reasonably be expected of them to secure that they are able to meet claims against them arising out of statutory audit work.

(2)This may be achieved by professional indemnity insurance or other appropriate arrangements.

Register of auditors and other information to be made available

18The body must have rules requiring persons eligible under its rules for appointment as a statutory auditor to comply with any obligations imposed on them by—

(a)requirements under section 1224 (Secretary of State’s power to call for information);

(b)regulations under section 1239 (the register of auditors);

(c)regulations under section 1240 (information to be made available to the public).

Taking account of costs of compliance

19The body must have satisfactory arrangements for taking account, in framing its rules, of the cost to those to whom the rules would apply of complying with those rules and any other controls to which they are subject.

Promotion and maintenance of standards

20The body must be able and willing—

(a)to promote and maintain high standards of integrity in the conduct of statutory audit work, and

(b)to co-operate, by the sharing of information and otherwise, with the Secretary of State and any other authority, body or person having responsibility in the United Kingdom for the qualification, supervision or regulation of auditors.