Companies Act 2006 – Section 516
Section 516: Resignation of auditor
788. This section restates the right of an auditor to resign by written notice to the company.
His resignation is effective from the date it is delivered to the company’s registered office, or
from a later date specified in it. To be effective it must be accompanied by the statement
required by section 519.
Section 517: Notice to registrar of resignation of auditor
789. This section restates the obligation on a company whose auditor resigns to inform the
registrar. Default in complying is an offence.
Section 518: Rights of resigning auditor
790. This section restates the right of an auditor who resigns to require the directors to
convene a general meeting of the company so that it can consider his explanation of the
circumstances that led to his decision to resign. The auditor can ask the company to send out
a written explanation either in advance of that meeting if he has requested one, or before the
next appropriate general meeting. The directors have 21 days to send out a notice convening a
meeting once a resigning auditor has asked for it, and it must then be held within 28 days of
791. Subsection (9) provides protection if the resigning auditor is using the provision to
have a statement circulated to secure needless publicity for defamatory material. It enables
the company, or anyone else who is aggrieved by the statement, to apply to the court, and the
court can then determine whether the auditor is using the provision in that way, in which case the company is not obliged to circulate the statement. The court can order the auditor to pay
some or all of the costs of the proceedings.
Section 519: Statement by auditor to be deposited with company
792. This section requires a departing auditor to make a statement when he stops being the
auditor of a company and to deposit it with the company. For quoted companies, this
statement should explain the circumstances surrounding his departure. For other public
companies and all private companies, it should explain the circumstances unless the auditor
thinks that there is no need for them to be brought to the attention of the shareholders or
creditors. In that case, the statement should state that there are no such circumstances.
793. This changes the position under section 394 of the 1985 Act, where auditors were
only required to make a statement if they considered there were relevant circumstances:
auditors leaving quoted companies will now always be required to make a statement of the
circumstances; and auditors leaving other companies must make a statement unless they think
that there are no relevant circumstances.
794. Subsection (4) sets out the deadline for depositing such a statement with the company,
• if the auditor is resigning, the statement should accompany the resignation letter;
• if the auditor is deciding not to seek re-appointment, the statement should be deposited
at least 14 days before the end of the time allowed for appointing the next auditor; or
• in any other case, no more than 14 days after the date on which he stops being the
Section 520: Company’s duties in relation to statement
795. Unless the departing auditor’s statement says that there are no circumstances to be
brought to the attention of shareholders and creditors, this section obliges the company to
circulate the statement to everyone to whom it needs to send the annual accounts. The
company must do this within 14 days of receiving it.
796. If the company does not want to circulate the statement, it can apply to the court, and
if the court decides that the departing auditor is trying to secure needless publicity for
defamatory material, then the company need not circulate the statement, but instead must
send an account of the court decision to those to whom it would have sent the statement. In
the event of a successful application, the court can order the auditor to pay some or all of the
costs. In the event of an unsuccessful application, the company must circulate the statement
within 14 days of the end of the court proceedings.
Section 521: Copy of statement to be sent to registrar
797. This section provides that the departing auditor must send a copy of his statement to
the registrar, unless within 21 days of depositing it he hears that the company has applied to
the court. If he does not hear of an application to the court within that time, he must send the
statement to the registrar within the next seven days; and if an application is made and the
company lets him know that it was unsuccessful, he must send the statement to the registrar
within seven days of being told.
Section 522: Duty of auditor to notify appropriate audit authority
798. This section introduces a new obligation on departing auditors to send copies of their
leaving statements to an appropriate audit authority as defined in section 525. It contains
different rules depending on whether the company the auditor is leaving is classified as a
“major audit” as defined in section 525.
799. In relation to major audits, the departing auditor should always send a copy of his
statement to the appropriate audit authority. He should do this as the same time as he deposits
his statement with the company under section 519. In relation to other audits, the departing
auditor is required to send his statement to the appropriate audit authority only if he is leaving
before the end of his term of office, meaning only if he has resigned or has been dismissed;
and he must do so at the time required by the authority.
800. Subsection (3) provides that where the auditor’s statement to the company said that
there were no circumstances that needed to be brought to the attention of shareholders or
creditors, that statement must have attached to it a statement of the auditor’s reasons for
leaving when sending it to the audit authority.
801. Subsections (5) to (8) set out the offence of failure to comply with these requirements,
and the maximum penalties.
Section 523: Duty of company to notify appropriate audit authority
802. This section introduces a new duty on a company to notify the appropriate audit
authority whenever an auditor leaves office before the end of his term, that is when he has
resigned or is dismissed. The company has the choice of sending in the statement of
circumstances made by the auditor under section 519, or of sending in its own statement of
the reasons. Subsection (3) sets the deadline for notification as 14 days after the auditor has
deposited his statement with the company. Subsections (4) to (6) set out the offence of failure
to comply with this requirement, and the maximum penalties.
Section 524: Information to be given to accounting authorities
803. This section sets out the duty of the audit authorities to give the accounting authorities
information about auditors’ departure, and the power, if they think it right to do so, to pass on
the statements which they receive from departing auditors under the section 522 or from
companies under section 523. The accounting authorities are the Secretary of State and
anyone the Secretary of State has authorised under Part 15 to apply to the court in respect of
the revision of defective accounts. At present this is the Financial Reporting Review Panel,
part of the Financial Reporting Council organisation.
804. Subsection (3) deals with the situation where the same body is both an audit authority
and an accounting authority. If an accounting authority receives a statement that the court has
determined need not be circulated to members, then subsection (4) provides that it must treat
the statement as confidential, in the same way that authorities have to treat information
obtained under compulsory powers under Part 15.
Section 525: Meaning of “appropriate audit authority” and “major audit”
805. This section defines two terms used in connection with the duty to inform the audit
authority when an auditor leaves office, namely appropriate audit authority and major audit.
The former means the Secretary of State, or the body to whom he has delegated functions in
relation to the supervision of statutory auditors under Part 42, currently the Professional
Oversight Board, part of the Financial Reporting Council organisation.
806. A major audit is defined as meaning the audit of a listed company, or of any other
company where there is a major public interest. Whether there is a major public interest is to
be determined by reference to guidance issued by any of the audit authorities. In practice, this
will generally be guidance issued by the Financial Reporting Council.
Section 526: Effect of casual vacancies
807. This section applies when one out of two or more joint auditors ceases to be an
auditor of the company. It enables the remaining auditors to continue in office. It restates
section 388(2) of the 1985 Act.