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CHAPTER 5: REGISTERED THIRD COUNTRY AUDITORS

Section 1241: Meaning of “third country auditor”, “registered third country auditor” etc

1582. This is a new provision that sets out the definition of a third country auditor and a registered third country auditor. The section provides that a third country auditor is an auditor (whether based in the UK or not) of the accounts of a company incorporated or formed in a non-EU country, whose shares are admitted for trading on a UK market such as the London Stock Exchange.

Section 1242: Duties of registered third country auditors

1583. Subsections (1) to (3) require registered third country auditors to be subject to systems of independent monitoring and discipline in the UK in accordance with Schedule 12. These provisions are similar to supervision arrangements for statutory auditors contained in section 1212(1) (membership of a Recognised Supervisory Body) and section 1217 (Supervisory Bodies) and Schedule 10. Subsection (4) empowers the Secretary of State to disapply the requirements in subsections (1) to (3). For example, he may disapply the requirements if satisfied that the third country auditor is already subject to equivalent supervision arrangements in his home country.

Schedule 12: Arrangements in which registered third country auditors are required to participate

1584. The requirements in this Schedule are new. They describe the independent monitoring and investigation arrangements which third country auditors must participate in.

Sections 1243 and 1244: Information

1585. These sections replicate for registered third country auditors the requirements in section 1223 and 1224 for the notification of information to the Secretary of State. Third country auditors may be required to provide any information that might reasonably be required for the Secretary of State to carry out his functions.

Sections 1245 and 1246: Enforcement

1586. The provisions in section 1245 enable the Secretary of State to apply to the court for an order to make a registered third country auditor comply with its obligations under the Part. The provisions in section 1246 empower the Secretary of State to make provision as to the removal of the third country auditors from the register of auditors in certain circumstances. In doing so, regard must be had to whether the third country auditor has complied with his obligations under this Part.

Section 1247: Grants to bodies concerned with arrangements under Schedule 12

1587. This section amends section 16(2) of the C(AICE) Act 2004. The effect of the amendment is that the body that carries out the monitoring and investigation functions in relation to third country auditors is eligible for grants from the Secretary of State under section 16 of that Act. It also means that the body may be exempt from liability in damages under section 18 of the Act.

CHAPTER 6: SUPPLEMENTARY AND GENERAL

Sections 1248 and 1249: Power to require second company audit

1588. These sections restate section 29 of the 1989 Act empowering the Secretary of State to require a second audit of a company in circumstances where the person appointed as statutory auditor was not eligible for appointment or was not independent of the company audited. Subsection (2) permits the Secretary of State to direct either that a second audit is performed or that a review of the first audit is carried out (which will inform whether a second audit is required). Subsections (5) to (8) set out the criminal sanctions on the company should it fail to comply with that order. Section 1249 allows the audited person to recover the costs of the second audit from the first auditor, if the first auditor knew when he acted that he was not eligible or not independent.

Section 1250: Misleading, false and deceptive statements

1589. This section is a restatement of the offences in section 41 of the 1989 Act but also extends these offences to third country auditors. Subsection (1) sets out offences in respect of persons who provide information that they know to be misleading, false or deceptive. Subsection (2) makes it an offence for a person to hold himself out as a registered auditor where he is not registered as such in accordance with section 1239. Subsection (3) makes a similar provision for third country auditors. Subsection (4) makes it an offence for either a supervisory or qualifying body to hold itself out as recognised when it is not so recognised. Subsection (8) provides a defence if the person took all reasonable precautions and exercised due diligence to avoid committing the offence.

Section 1251: Fees

1590. This provision is based on section 45 of the 1989 Act and extends the powers of the Secretary of State to make regulations to prescribe periodical fees which must be paid by the Auditors General and registered third country auditors as well as recognised supervisory bodies and recognised qualifying bodies.

Section 1252 and 1253: Delegation of Secretary of State’s functions

1591. These provisions replace sections 46 and 46A of the 1989 Act and empower the Secretary of State to establish a body, or appoint an existing body, to exercise his functions relating to statutory auditors and the recognition of bodies that supervise auditors and/or provide professional qualifications. To do so, the Secretary of State must make a delegation order that is in accordance with Schedule 13. However, subsection (6) provides that some delegated functions must remain exercisable concurrently by the Secretary of State: namely the power to call for information (sections 1224 and 1244) and the power to issue directions to comply with international obligations (section 1254). Subsection (7) also provides that certain delegated functions concerning the approval of overseas qualifications (section 1221) can be exercised only with the consent of the Secretary of State. Subsection (3) provides for the delegation of the body to have the effect of making it subject to the obligations of the Freedom of Information Act 2000. The Professional Oversight Board is currently appointed under section 46 of the 1989 Act to exercise the Secretary of State’s functions.

1592. Section 1253 specifies the conditions for delegating functions to an existing body. It ensures that an existing body is not precluded from exercising any delegated function on the basis of its involvement with the monitoring, investigation or disciplinary arrangements that are set out in Schedule 10.

Schedule 13: Supplementary provisions with respect to delegation order

1593. This Schedule restates the provisions of Schedule 13 to the 1989 Act. Paragraph 2 provides that the delegated body is not to be regarded as acting on behalf of the Crown. Paragraphs 7 to 9 provide for the delegated body to exercise any legislative functions by instrument in writing and not by statutory instrument. Instruments must be made available to the public and the Secretary of State may require the body to consult prior to the making of regulations. Paragraph 10 requires the delegated body to report annually to the Secretary of State on the performance of its functions.

Section 1254: Directions to comply with international obligations

1594. This provision restates section 40 of the 1989 Act and empowers the Secretary of State to direct recognised supervisory or qualifying bodies, or any body delegated under section 1252, to comply with Community or other international obligations. If the body fails to comply with a direction, the Secretary of State can apply to the court for his direction to be enforced.

Section 1255: Offences by bodies corporate, partnerships and unincorporated associations

1595. This provision restates section 42 of the 1989 Act and deals with offences committed by bodies corporate, partnerships and other unincorporated associations. Where an offence committed by such a body is committed with the consent or connivance of, or is attributable to the neglect of, an officer (in the case of a body corporate), a partner (in the case of a partnership) or an officer or member (in the case of an unincorporated association), that officer, partner or member is also guilty of the offence.

Section 1256: Time limits for prosecution of offences

1596. This provision restates section 43 of the 1989 Act and sets a twelve-month time limit for the prosecution of offences within each of the jurisdictions. Subsections (1) to (4) identify that the date on which knowledge of sufficient evidence of the offence to justify prosecuting becomes known to either the Secretary of State or Director of Public Prosecutions (for England and Wales), the Lord Advocate (for Scotland) or Director of Public Prosecutions for Northern Ireland is taken as the date from which the twelve month time limit commences. In any event, the prosecution may not be commenced if three years have passed since the date on which the offence was committed.