Section 491: Term of office of auditors of public company
749. This section restates the rule that an auditor of a public company holds office until the end of the meeting at which the accounts are laid, unless re-appointed. Where there is a change of auditor, the term of office of the incoming auditor does not begin before the end of the previous auditor’s term. This means that a new auditor’s term will typically begin immediately after the end of the accounts meeting.
750. These sections apply to both private and public companies.
Section 492: Fixing of auditor’s remuneration
751. This section restates the rule that it is the members of a company, by ordinary resolution, who determine the auditor’s remuneration, or decide the method by which it should be determined. If the auditor was appointed by someone other than the members, then it will be the directors or the Secretary of State as appropriate who will determine his remuneration.
Section 493: Disclosure of terms of audit appointment
752. This section creates a new power for the Secretary of State to require companies to disclose information about the terms on which they engage their auditors. Subsection (2) provides some examples of the detailed requirements that the Secretary of State could specify in regulations. Subsection (3) provides that regulations can require disclosure of changes in terms as well as the terms at the time of appointment. Subsection (4) specifies that the regulations are to be made by affirmative resolution procedure.
Section 494: Disclosure of services provided by auditor or associates and related remuneration
753. This section restates the existing power of the Secretary of State, in section 390B of the 1985 Act, to require disclosure of details of all the services supplied to a company by its auditor, and the remuneration involved. Subsections (2) to (4) give the detailed requirements that the Secretary of State can specify in regulations: subsection (2) relates to the level of disaggregation of different services and remunerations, and between the auditor and his associates; subsection (3) makes provision for some of the definitional issues that can be covered in regulations; and subsection (4) provides for where the information should be disclosed.
754. Under subsection (4), the regulations might require disclosure in a document compiled by the company rather than the auditor. Subsection (5) provides that, if so, the regulations can require the auditor to supply the directors with the information to be disclosed e.g. about the auditor’s associates. Subsection (6) specifies that the regulations are to be made by negative resolution procedure.
Sections 495 to 497: Auditor’s report
755. These sections restate, with modifications, the provisions of section 235 of the 1985 Act as to what the auditor should include in his report on the accounts.
756. Section 495 imposes the basic duty to produce an audit report and requires that it should set out the way the auditor has approached the audit. Subsection (3) requires the auditor in his report to state his opinion on three matters: (i) whether the accounts provide a true and fair view, (ii) whether they comply with the appropriate reporting framework, and (iii) whether the accounts comply with the requirements in Part 15 of the Act (and, where applicable, with article 4 of the IAS Regulation (Regulation (EC) 1606/2002 on the application of international accounting standards)). Subsection (4) requires the audit report to be either qualified or unqualified, though it is open to the auditor to draw attention to aspects of his audit without qualifying the report.
757. Sections 496 and 497 restate the law on what the auditor should include in relation to the directors’ report and the directors’ remuneration report.
Sections 498 to 502: Duties and rights of auditors
758. These sections bring together and restate the existing law on the auditor’s duties (currently in section 237 of the 1985 Act) in investigating, forming an opinion, and making his report; and on the auditor’s rights (sections 389A to 390 of that Act) to be provided with appropriate information.
759. Section 498 lists areas where an auditor must investigate and report on any problems: the company’s accounting records, and whether there is consistency between these and (i) the accounts and (ii) – where there is one – the appropriate part of the directors’ remuneration report. The auditor is also to report if he has not been able to get all the information he needs. If possible, he is to make good any gaps in the information relating to payments to directors. And he is to report if he believes that the company is taking advantage of the small companies accounts regime without being entitled to do so.
760. Section 499 restates the auditor’s rights to obtain information and explanations from the company and its UK subsidiaries, and from appropriate associated individuals. Section 500 sets out the corresponding right to require the company to obtain information or explanations from any subsidiaries that are not incorporated in the UK.
761. Section 501 sets out offences for those who supply inaccurate information to auditors or fail to respond to auditors’ requests for information without delay.
762. Section 502 requires a private company to send to its auditor all the information about any written resolutions that it sends to its shareholders. It also gives the auditor of any company – public or private – the right to attend any general meetings it may have, and to be allowed to speak on anything relevant to the audit. The auditor must also receive all communications relating to general meetings.
Section 503: Signature of auditor’s report
763. This section specifies who must sign the audit report submitted to a company by its auditor. The report must state the name of the audit firm, or if an individual has been appointed as auditor, his name. This is as currently required by section 236 of the 1985 Act.
764. For cases where the auditor is a firm, the section makes a change from the 1985 Act by requiring the senior statutory auditor, as defined in section 504, to sign the report in his own name on behalf of the firm. This implements a requirement of the Audit Directive (2006/43/EC). If the auditor is an individual, he must sign as under the 1985 Act.
Section 504: Senior statutory auditor
765. This section defines a new term – “the senior statutory auditor” – for the individual who will be asked to sign his name to an audit report carried out by a firm. The firm will identify this individual according to standards to be issued by the European Commission, or if there are no standards, to guidance issued either by the Secretary of State or by a body appointed by him by order subject to negative resolution. Subsection (2) specifies that to be identified as a senior statutory auditor of a company, an individual must be eligible himself to be appointed as auditor of the company. Subsection (3) ensures that for an individual to be nominated as senior statutory auditor will not affect his exposure to liability in any way.
Section 505: Names to be stated in published copies of auditor’s report
766. This section requires a company to ensure that the copies of its auditor’s report it sends out include the name of the auditor and of the senior statutory auditor if there is one, or to say that it is taking advantage of the exemption in the following section. Subsection (2) provides that this includes copies circulated to shareholders, as well as any others that would be expected to be seen by members of the public. It does not, however, cover copies sent to the registrar: these are dealt with by sections 444(7), 445(6), 446(4) and 447(4). Subsections (3) and (4) restate the offence, currently in section 236 of the 1985 Act, of not including the auditor’s name – and now also the senior statutory auditor’s name – as required.
Section 506: Circumstances in which names may be omitted
767. This section provides an exemption from the requirements to include the names of the auditor in both the published and filed copies of the audit report. This is available if the company passes a resolution not to reveal the names because it considers on reasonable grounds that revealing them would lead to a serious risk of violence or intimidation. It is also a condition of using the exemption that the company must inform the Secretary of State, giving details of the name of the auditor, and of the senior statutory auditor if there is one.