Paragraph 14: Membership, eligibility and discipline

1531.     This paragraph is a restatement of paragraph 11 of Schedule 11 to the 1989 Act. It extends the scope of the provisions to statutory auditors from company auditors and requires the rules and practices of the body to be reasonable and fair.

Paragraph 15: Investigation of complaints

1532.     This paragraph is a restatement of paragraph 12 of Schedule 11 to the 1989 Act. It extends the scope of the provisions to statutory auditors from company auditors. It requires the body to have effective arrangements to deal with complaints made against statutory auditors, who are members, or against the body itself.

Paragraph 16: Independent investigation for disciplinary purposes of public interest cases

1533.     This is a restatement of paragraph 12A of Schedule 11 to the 1989 Act which requires the body to participate in arrangements for the investigation of public interest cases as specified in paragraph 23(1). It also requires the body to have rules and practices in place so that if disciplinary action has been decided upon by a designated person against a member of the body then the body should accept and act upon the decision taken.

Paragraph 17: Meeting of claims arising out of audit work

1534.     This paragraph is a restatement of paragraph 13 of Schedule 11 to the 1989 Act. It extends the scope of the provisions to statutory auditors from company auditors. This requires the body to ensure that statutory auditors have sufficient means to meet any claims that are made against them.

Paragraph 18: Register of auditors and other information to be made available

1535.     This paragraph is a restatement of paragraph 14 of Schedule 11 to the 1989 Act. It extends the scope of the provisions to statutory auditors from company auditors. It requires the body to have rules and practices in place to ensure that they meet obligations imposed upon them in relation to the register of auditors and making information available.

Paragraph 19: Taking account of costs of compliance

1536.     This paragraph is a restatement of paragraph 15 of Schedule 11 to the 1989 Act. It requires the body to take into account the cost, to its members, of following its rules.

Paragraph 20: Promotion and maintenance of standards

1537.     This paragraph is a restatement of paragraph 16 of Schedule 11 to the 1989 Act. It requires the body to promote and maintain high standards of integrity whilst also co-operating with the Secretary of State or any responsible body or person.

Part 3: Arrangements in which recognised supervisory bodies are required to participate

Paragraph 21: Arrangements for setting standards relating to professional integrity and independence

1538.     This provision cross-refers to paragraph 9(1) and (2) and requires that the setting of standards relating to professional integrity and independence is carried out by an independent body.

Paragraph 22: Arrangements for setting technical standards

1539.     This provision cross-refers to paragraph 10(1) and (2) and requires that the setting of technical standards is carried out by an independent body.

Paragraph 23: Arrangements for independent monitoring of audits of listed companies and other major bodies

1540.     This provision cross-refers to paragraph 13(1) and the independent monitoring of statutory audits of listed companies and other major audits. The monitoring of these audits must be carried out by inspections performed by an independent body.

Paragraph 24: Arrangements for independent investigation for disciplinary purposes of public interest cases

1541.     This paragraph identifies the steps to be taken in the independent investigations of public interest cases and cross-refers to paragraph 16(1). The steps will include an investigation and a disciplinary hearing (which may be in public). Sub-paragraph (2) defines 'public interest cases' and 'statutory audit function'.

Paragraph 25: Supplementary: arrangements to operate independently of body

1542.     This paragraph identifies those paragraphs where arrangements are in place between the body and an independent body. Sub-paragraph (2) identifies the criteria that will have to be met to ensure that those arrangements are independent.

Paragraph 26: Supplementary: funding of arrangements

1543.     This paragraph requires the body to pay costs to the independent body with which it has an arrangement requiring payment.

Paragraph 27: Supplementary: scope of arrangement

1544.     This paragraph allows the body to have additional arrangements with the independent body that have not been identified in any of paragraphs 21, 22, 23 or 24.

Clause 815: Exemption from liability for damages

1545.     This clause is a restatement of section 48 of the 1989 Act. It sets out those bodies and individuals that are exempt from liability for damages arising from the discharge or claimed discharge of supervisory functions as specified in this Part of the Bill (these include the effects of rules, practices, powers and arrangements of the body). These bodies are recognised supervisory bodies (see clause 814 and Schedule 10) and their officers, employees and members of their governing bodies.

Clause 816: Appropriate qualifications

1546.     This clause restates section 31 of the 1989 Act. The clause sets out that a person holds an appropriate audit qualification if he holds a recognised professional qualification obtained in the UK, or immediately before Chapter 2 of this Part of the Bill comes into force he held, or was treated as holding, an appropriate qualification recognised under Part 2 of the 1989 Act or the Companies (Northern Ireland) Order 1990.

1547.     Persons who are authorised under the European Communities (Recognition of Professional Qualifications) (First General System) Regulations 2005 to practise the profession of statutory auditor are also considered to hold an appropriate qualification. Subsection (2) provides a transitional requirement for those persons who have begun a course of study in accountancy before 1st January 1990 and obtained a qualification between 1st January 1990 and 1st January 1996, enabling them to apply to the Secretary of State for approval of their qualification. The transitional provisions contained in section 31(2) and (3) of the 1989 Act have not been restated.

Clause 817: Qualifying bodies and recognised professional qualifications

1548.     This clause is a restatement of section 32 of the 1989 Act. It defines the term "qualifying body" as a body that offers a professional qualification in accountancy and introduces Schedule 11 which sets out the requirements that qualifying bodies must impose.

Schedule 11: Recognised Professional Qualifications

Part 1: Grant and revocation of recognition of a professional qualification

Paragraph 1: Application for recognition of professional qualification

1549.     This paragraph is a restatement of paragraph 1 of Schedule 12 to the 1989 Act. It identifies the steps a body is required to take to be recognised as a recognised qualifying body. Three new provisions have been added to those contained in the 1989 Act. At sub-paragraph (2) is a definition of the term 'recognised qualifying body'. Sub-paragraph (9) defines what is meant by the term 'guidance' in sub-paragraph (8)(b). Sub-paragraph (10) identifies those areas where the issuing of guidance or a recommendation would apply.

Paragraph 2: Grant and refusal of recognition

1550.     This paragraph is a restatement of paragraph 2 of Schedule 12 to the 1989 Act. It identifies that, on completion of the requirements in paragraph 1, the Secretary of State may either accept or refuse the application.

Paragraph 3: Revocation of recognition

1551.     This paragraph is a restatement of paragraph 3 of Schedule 12 to the 1989 Act. It specifies the steps that the Secretary of State is required to take if the recognition of the body is revoked.

Paragraph 4: Transitional provision

1552.     This is a new provision that allows bodies recognised under either the 1989 Act or the Companies (Northern Ireland) Order 1990 to continue to be recognised under paragraph 2(1) of this Schedule.

Paragraph 5: Orders not statutory instruments

1553.     This provision provides that orders under this Part are not statutory instruments.

Part 2: Requirements for recognition of a professional qualification

Paragraph 6: Entry requirements

1554.     This paragraph is a restatement of paragraph 4 of Schedule 12 to the 1989 Act. It sets the minimum academic standards that a person must have attained before he can attempt the professional qualification. At sub-paragraph (4) the term 'sufficient period of professional experience' is defined as not being less than seven years' experience.

Paragraph 7: Requirement for theoretical instruction or professional experience

1555.     This paragraph is a restatement of paragraph 5 of Schedule 12 to the 1989 Act. It requires that the qualification is restricted to persons who have either completed a relevant academic course or have sufficient professional experience. At sub-paragraph (2) the term 'sufficient period of professional experience' is defined as not being less than seven years' experience.

Paragraph 8: Examination

1556.     This paragraph is a restatement of paragraph 7 of Schedule 12 to the 1989 Act. It requires that an examination must be passed (part of which has to be in writing) for the person to achieve the qualification. This examination must be in subjects of theoretical knowledge prescribed by the Secretary of State; or a university or equivalent level examination; or by practical demonstration of knowledge to examination or diploma level that is recognised by the Secretary of State.

Paragraph 9: Practical training

1557.     This paragraph is a restatement of paragraph 8 of Schedule 12 to the 1989 Act. It extends the scope of the provisions to statutory auditors from company auditors. It requires persons to carry out at least three years' practical training, under supervision of persons identified in sub-paragraphs (3) and (4).

Paragraph 10: Supplementary provision with respect to a sufficient period of professional experience

1558.     This paragraph is a restatement of paragraph 6(2) and (3) of Schedule 12 to the 1989 Act. It provides for a possible reduction in the length of professional experience where the person has undertaken academic training in other specified areas.

Paragraph 11: The body offering the qualification

1559.     This paragraph is a restatement of paragraph 9 of Schedule 12 to the 1989 Act. It requires the body offering the qualification to have rules, arrangements and monitoring systems.

Clause 818: Approval of overseas qualifications

1560.     This clause restates section 33 of the 1989 Act and extends it so that the approval of overseas qualifications applies for a wider range of 'statutory auditors' (as defined in clause 807). It sets out the conditions that will need to be satisfied, relating to the assurance of professional competence. The clause provides for approval of those who are qualified to audit accounts overseas or who hold specified overseas qualifications. In the case of the latter, the Secretary of State may specify any additional requirements to be satisfied. In addition, the clause allows the Secretary of State to recognise an overseas qualification only if there is comparability of treatment in the country in question. The clause also allows the Secretary of State to withdraw a declaration under this section. For the purposes of this clause 'foreign country' refers to countries that are not included within the European Communities (Recognition of Professional Qualifications) (First General System) Regulations 2005.

Clause 819: Eligibility of individuals retaining only 1967 Act authorisation

1561.     This clause restates section 34 of the 1989 Act. Prior to 1967 auditors of a class of an unquoted company were exempt from the statutory qualification requirements placed on other company auditors. The Companies Act 1967 abolished this exemption unless such an auditor made an application to the Secretary of State. Clause 819 continues this arrangement, but does not allow such auditors to be treated as statutory auditors for any other purpose other than to perform the statutory audit of an unquoted company (as defined in clause 358(2)).

Clauses 820: Matters to be notified to the Secretary of State

1562.     This clause is a restatement of section 37 of the 1989 Act and allows the Secretary of State to identify events that must be notified to him if they occur. It requires that recognised supervisory and qualifying bodies must provide information, either in writing or some other specified manner, that is reasonably required for the Secretary of State to carry out his functions - this might include annual reports, notification of rule or bye-law changes. This information might relate to specific time periods or specific occurrences.

Clause 821: The Secretary of State's power to call for information

1563.     This clause restates section 38 of the 1989 Act and in addition provides the Secretary of State with the power to require information from a recognised supervisory body, a recognised qualifying body or an individual statutory auditor. The Secretary of State can specify the time period in which this information has to be provided.

Clause 822: Compliance orders

1564.     This clause is a restatement of section 39 of the 1989 Act. If a recognised supervisory body fails to meet the requirements in Schedule 10, or any requirements in Schedule 11 that relate to a recognised professional qualification are not satisfied, or a recognised supervisory or qualifying body fails to comply with a requirement contained in this Part of the Bill, then the Secretary of State may apply to the court for an order to make the body comply. The ultimate sanction for non-compliance by a body would be revocation of their status as a recognised body under Schedule 10 or 11.

CHAPTER 3: AUDITORS GENERAL

Clause 823: Auditors General: eligibility for appointment as a statutory auditor

1565.     Subsection (1) defines an "Auditor General" as the Comptroller and Auditor General, the Auditor General for Scotland, the Auditor General for Wales and the Comptroller and Auditor General for Northern Ireland. Subsections (2) and (3) explain that an Auditor General is eligible for appointment as a statutory auditor, unless his eligibility has been suspended by the Independent Supervisor under clause 831.

Clause 824: Individuals responsible for audit work on behalf of Auditors General

1566.     This clause provides that an Auditor General must ensure that the individuals within his charge, who are carrying out statutory audits on the Auditor General's behalf, are, in their own right, eligible for appointment as a statutory auditor by virtue of the qualifications and requirements that are set out in Chapter 2.

Clause 825: Appointment of the Independent Supervisor

1567.     Subsections (1) and (2) provide that the Secretary of State must appoint a body to be the Independent Supervisor of Auditors General in respect of the exercise of statutory audit functions and that the appointment is to be made by order. Subsections (3), (4) and (5) provide that a body may be appointed as Independent Supervisor of an Auditor General if it is a corporate body or unincorporated association that is willing to carry out the function, that has arrangements in place that will ensure the supervision is carried out effectively, and that will exercise such functions and requirements that may be laid down in the Secretary of State's order appointing it. The appointed Independent Supervisor must perform its function on a UK-wide basis for all four Auditors General in accordance with clause 826.

Clause 826: Supervision of Auditors General by the Independent Supervisor

1568.     This clause sets the framework for the supervision arrangements to be carried out by the Independent Supervisor. Subsection (2) provides that the Independent Supervisor must establish arrangements with one or more third parties to carry out aspects of the supervisory function. Subsection (3) provides that the arrangements with a third party cover standards on professional integrity and independence, as well as the technical standards for statutory audit work; monitoring performance; investigating matters arising from that performance; and as necessary holding disciplinary hearings and deciding whether any disciplinary action should be taken. Subsections (6) and (7) make provisions relating to the payment of fines under the disciplinary arrangements.

Clause 827: Duties of Auditors General in relation to supervision arrangements

1569.     Subsection (1) makes it a duty for the Auditor General to comply with the standards set by, as well as the monitoring arrangements and decisions of, the independent supervision arrangements. It also provides in subsection (2) for each Auditor General to pay the proportion of the costs of the independent supervisory arrangements that may be notified to the Auditor General in writing. Subsection (3) provides that the payment of such costs is to be regarded as expenditure of the National Audit Office in the case of the Comptroller and Auditor General, and as expenditure of the Northern Ireland Audit Office in the case of the Comptroller and Auditor General for Northern Ireland. In the case of the Auditor General for Scotland, under section 13 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1) the expenses of the Auditor General are to be paid by Audit Scotland. In the case of the Auditor General for Wales, under section 93 of the Government of Wales Act 1998 the expenses of the Auditor General are to be met by the Assembly.

Clause 828: Reports by the Independent Supervisor

1570.     This clause provides that the Independent Supervisor must provide at least one report each calendar year to the Secretary of State and to the First Minister in Scotland, The First Minister and the Deputy First Minister in Northern Ireland and the Assembly First Minister in Wales. The Secretary of State must then lay the report before each House of Parliament.

Clause 829: Matters to be notified to the Independent Supervisor

1571.     This clause makes it a legal requirement for an Auditor General to notify the Independent Supervisor in writing of events that the Independent Supervisor may specify and is consistent with the requirement for other statutory auditors as contained in clause 820.

Clause 830: The Independent Supervisor's power to call for information

1572.     This clause makes provision enabling the Independent Supervisor to require an Auditor General to provide information. It enables the Independent Supervisor to specify the period within which the information must be provided and how the information must be verified. This clause is consistent with the requirement for other statutory auditors as contained in clause 821.

Clauses 831: Suspension notices

1573.     This clause provides the Independent Supervisor with the power to suspend an Auditor General's eligibility for appointment as a statutory auditor if, for example, he falls short of the standards laid down for performance of statutory audit work. It also sets out the provisions as to how the suspension will be effected, the considerations pertaining to the decision to suspend, the reasons for such a decision and so on. It provides for a process leading up to the issuing of a suspension notice, including the hearing of representations from the Auditor General in question. Subsection (1) provides that the Independent Supervisor may issue a suspension notice (or a notice amending or revoking a suspension notice previously issued). An Auditor General's suspension may be indefinite or until a specified date. The terms of the suspension notice may set out whether, in the light of all the circumstances, an Auditor General is suspended from being a statutory auditor for the purposes of a particular firm's accounts, or indeed from all statutory audits. Subsection (2) explains that before the Independent Supervisor may issue a notice under subsection (1) it must consider the Auditor General's performance of his functions as a statutory auditor including meeting the obligations set out in this Chapter. Subsection (3) provides that the suspension notice under subsection (1) must be in writing and that any suspension must not start less than three months after the issue of the notice. Subsections (4) and (5) also provide that the Independent Supervisor must give advance notice in writing (a "warning notice") and publish notice of its intention to issue a notice under subsection (1) explaining the reasons for its decision and setting out the Auditor General's rights in response to the warning notice. Subsections (6), (7) and (8) set out the process the Auditor General must follow if he wishes to make representations following the service of the warning notice. An Auditor General must make these representations within three months of the service of the warning notice or three months after publication of the Independent Supervisor's notice of its intention to serve a suspension notice. The Independent Supervisor has the discretion to extend the period if it so chooses. Representations should be made in writing, but the Independent Supervisor may appoint a person to hear oral representations. The Auditor General or any other person affected by the suspension notice (such as an individual auditor) is entitled to object to the proposal to issue the suspension notice or notice amending or revoking a suspension notice. Subsection (9) provides that, in the public interest, the Independent Supervisor may suspend an Auditor General with immediate effect and without going through the warning notice procedure. Subsection (10) provides that a copy of any suspension notice, or other notice under subsection (1), must be given to the Auditor General and be brought to the attention of those affected.

Clause 832: Effect of suspension notices

1574.     This clause provides that an Auditor General must not act as a statutory auditor of a particular person if he is suspended in relation to that person. If the suspension starts during his term of office, the Auditor General must resign as a statutory auditor immediately, and tell the audited person that he has resigned. Subsection (3) makes it clear that the criminal offences in clause 810 (ineligibility for appointment as a statutory auditor) do not apply to an Auditor General who is ineligible by virtue of a suspension notice.

Clause 833: Compliance orders

1575.     This clause provides the power for the Independent Supervisor to take an Auditor General to court if he fails to comply with any obligation imposed by or by virtue of this Part of the Bill. The court may direct the Auditor General to take such steps as it thinks fit to ensure compliance.

Clause 834: Proceedings involving the Independent Supervisor

1576.     This clause provides that where the Independent Supervisor is an unincorporated association it may take proceedings in the name of the body corporate under which it is constituted.

Clause 835: Grants to the Independent Supervisor

1577.     This clause amends section 16(2) of the C(AICE) Act 2004. The effect of the amendment is that the body that carries out the functions of the Independent Supervisor is eligible for grants from the Secretary of State under section 16 of that Act to meet the expenditure of the body and any subsidiary.

CHAPTER 4: THE REGISTER OF AUDITORS ETC

Clause 836: The register of auditors

1578.     This clause restates section 35 of the 1989 Act but extends the provision to cover other 'statutory auditors' (as defined in clause 807). It requires the Secretary of State to make regulations that require the keeping of a register of those persons eligible to be a statutory auditor and registered third country auditors. Subsection (2) sets out the information that must be included on the register and includes the name and address and the name of the relevant supervisory body for the person. If an individual statutory auditor works for a firm that is a statutory auditor, both must be entered separately on the register and cross-referenced. In subsection (3) additional information, namely the name and address of directors, members or partners, is required from bodies corporate (including limited liability partnerships), corporations sole and partnerships. The clause allows for certain parts of the register to be kept by different persons, for example an oversight body may keep the information regarding third country auditors, whilst the recognised supervisory bodies may keep information regarding other statutory auditors. The clause, in subsection (5), allows the regulations to impose obligations on recognised supervisory bodies, a body to whom the Secretary of State has delegated his functions, statutory auditors, third country auditors, a person with whom an arrangement to keep a register has been made by a recognised supervisory body or the Independent Supervisor appointed to supervise the Auditors General. Subsection (6) confers a power to provide that information in the register, or a certified copy of it, is to be made available to the public upon request. A charge for access to this information is permitted. Subsection (7) allows the Secretary of State to enforce requirements imposed on certain persons either by injunction or, in Scotland, under the Court of Sessions Act 1988. The obligations in the regulations may also be enforced through compliance orders (clauses 822 and 842).