Sections 482 and 483: Companies subject to public sector audit
728. These two sections, the only wholly new provisions in this Chapter, are intended to ensure that certain non-commercial, public sector bodies constituted as companies that are audited by a public sector auditor are not required to be audited under the Act.
729. Section 482 exempts from Companies Act audit any non-departmental public body that is a company and is non-profit-making, if it is subject to public sector audit.
730. A UK body may be subject to public sector audit by virtue of an order under the Government Resources and Accounts Act 2000 The body in question will then be audited by the National Audit Office on behalf of the UK Comptroller and Auditor General. Under the Audit and Accountability (Northern Ireland) Order 2003, an order can make a body subject to audit by the Comptroller and Auditor General for Northern Ireland. Alternatively, a body may be subject to audit by the Auditor General for Wales under section 96 of the Government of Wales Act 1998, or an order under section 144 of that Act.
731. Some Scottish bodies are subject to public sector audit by the Auditor General for Scotland (AGS) under the Public Finance and Accountability (Scotland) Act 2000.
732. The companies exempted by this section are not subject to the Fourth Company Law Directive: the Directive is based on Article 44(2)(g) of the EC Treaty (formerly 54(3)(g) of the EEC Treaty), and Article 48 of the Treaty excludes from the scope of Article 44 undertakings that are non-profit-making. That is why subsection (3) gives “non-profitmaking” the same meaning as in the Treaty.
733. Subsection (2) provides that a group company can benefit from this exemption only if every company in the group is non-profit-making. The effect of subsection (4) is that the exemption is not available unless the balance sheet contains a statement that the company is entitled to it.
734. Section 483 confers a new power on Scottish Ministers to provide that a company should have its accounts audited by the Auditor General for Scotland (AGS). This is available for companies depending on their functions or their funding. The Scottish Ministers can designate a company under this power if its functions are public functions that are all covered by the Scottish Parliament’s responsibilities, or if the company receives all or most of its funding from a public body already audited by the AGS. In the latter case, the funding body may be audited by the AGS because it is covered by the Public Finance and Accountability (Scotland) Act 2000, or because it is itself a company that Scottish Ministers have made auditable by the AGS by a previous order under this section.
735. If an order is made under this section providing that a company should have a public sector audit by the AGS, and if that company is non-profit-making, then it will benefit from the exemption from audit in the preceding section.
Section 484: General power of amendment by regulations
736. This section provides a power for the Secretary of State to amend the provisions of this Chapter. Taken together with section 468, it broadly restates the power in section 257 of the 1985 Act. Subsection (2) enables the regulations to make consequential changes to other legislation. The power is subject to affirmative resolution if it is extending the requirement for audit, or otherwise making requirements more onerous; and to negative resolution otherwise.
737. This Chapter broadly restates the existing law in sections 384 to 388A of the 1985 Act on the way in which shareholders appoint a company’s auditors, with some minor changes (as explained below). The provisions are reorganised to deal with private and public companies separately. The Chapter also restates the rules in sections 390A and 390B of the 1985 Act on auditors’ remuneration and the disclosure required of services provided by auditors and introduces a new power for the Secretary of State to require disclosure of the terms of audit appointments.
738. Sections 485 to 488 restate the law on appointment of auditors of private companies, providing that auditors are generally to be appointed by shareholders by ordinary resolution. For any financial year other than the first, this will generally be done within 28 days of the circulation to a company’s shareholders of the accounts for the previous year.
739. There are two changes: firstly, an auditor’s term of office will typically run from the end of the 28 day period following circulation of the accounts until the end of the corresponding period the following year. This will apply even if the auditor is appointed at a meeting where the company’s accounts are laid. The second change is that an auditor is now deemed to be re-appointed unless the company decides otherwise.
Section 485: Appointment of auditors of private company: general
740. This section provides for a private company’s obligation to appoint an auditor, unless it is taking advantage of an exemption from audit. The appointment is to be made by the shareholders by ordinary resolution, except that the directors can appoint the company’s first auditor (or the first after a period of audit exemption), and can fill a casual vacancy.
Section 486: Appointment of auditors of private company: default power of Secretary of State
741. This section requires a company to inform the Secretary of State if it has failed to appoint an auditor within 28 days of circulation of its accounts. The Secretary of State has power to appoint an auditor in those circumstances.
Section 487: Term of office of auditors of private company
742. This section provides that the end of the term of office of the auditor of a private company is to be the end of the next period for appointing auditors. At the end of his term an auditor will automatically be deemed to be re-appointed except in five cases:
• if he was appointed by the directors;
• if the company’s articles require actual re-appointment;
• if enough members have given notice to the company under section 488;
• if there has been a resolution that the auditor should not be reappointed; or
• if the directors decide that they do not need auditors for the following year.
743. When 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 28-day period for appointing auditors.
Section 488: Prevention by members of deemed re-appointment of auditor
744. This section enables members with at least 5% of the voting rights in a private company to prevent an auditor being automatically re-appointed by giving notice to the company. The company’s articles can enable members to do this with less than 5% of the voting rights, but cannot increase the required percentage.
745. Subsection (3) provides that the deadline for a notice preventing the deemed reappointment of an auditor is the end of the financial year for the accounts he is auditing.
746. Sections 489 to 491 restate the law on appointment of auditors of public companies, providing that auditors are generally to be appointed by shareholders by ordinary resolution in the general meeting before which the company’s accounts are laid.
Section 489: Appointment of auditors of public company: general
747. This section restates a public company’s obligation to appoint auditors, unless it is taking advantage of exemption from audit. This is to be done by the shareholders by ordinary resolution, normally at the general meeting at which the accounts are laid. The directors can appoint the company’s first auditors (or the first after a period of audit exemption), and can fill a casual vacancy.
Section 490: Appointment of auditors of public company: default power of Secretary of State
748. This section restates the obligation of a company to inform the Secretary of State if it has failed to appoint an auditor at the general meeting that considers the previous year’s accounts. The Secretary of State has power to appoint an auditor in those circumstances.