Companies Act 2006 – Section 1222

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Eligibility of individuals retaining only 1967 Act authorisation

1563. This section restates section 34 of the 1989 Act. Prior to 1967 auditors of an unquoted
company were exempt from the statutory qualification requirements placed on other company
auditors. The Companies Act 1967 abolished this exemption but allowed an auditor with
sufficient practical experience to apply to the Secretary of State for authorisation to practise.
Past authorisations will continue to be valid by virtue of the transitional provision in section
1219(1)(b). Section 1222 provides that auditors authorised under the 1967 Act may not be
treated as statutory auditors for any purpose other than to perform the statutory audit of an
unquoted company (as defined in section 385(2)).

Section 1223: Matters to be notified to the Secretary of State

1564. This section 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, or notification of rule or bye-law changes. This
information might relate to specific time periods or specific occurrences.

Section 1224: The Secretary of State’s power to call for information

1565. This section restates section 38 of the 1989 Act. It 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. For example, as a result of a report provided under
section 1223, the Secretary of State may request further information on a specific point to
clarify if a recognised supervisory body is complying with the requirements in Schedule 10.
The Secretary of State can specify the time period in which this information has to be
provided.

Section 1225: Compliance orders

1566. This section is a restatement of section 39 of the 1989 Act. If a recognised supervisory
or qualifying body fails to meet the requirements in Schedule 10 or 11, or it fails to comply
with another requirement contained in this Part of the Act, then the Secretary of State may
apply to the court for an order to make the body comply. The ultimate sanction for noncompliance
by a body would be revocation of its status as a recognised body under Schedule
10 or 11.

CHAPTER 3: AUDITORS GENERAL

Section 1226: Auditors General: eligibility for appointment as a statutory auditor

1567. Subsection (1) defines an “Auditor General” for the purposes of this Part as the
Comptroller and Auditor General, the Auditor General for Scotland, the Auditor General for
Wales or 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 section 1234.

Section 1227: Individuals responsible for audit work on behalf of Auditors General

1568. This section 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.

Section 1228: Appointment of the Independent Supervisor

1569. 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. Subsection (3) provides for the appointment of the Independent Supervisor to have
the effect of making it subject to the obligations of the Freedom of Information Act 2000.
Subsections (4), (5) and (6) 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 section 1229(1).

Section 1229: Supervision of Auditors General by the Independent Supervisor

1570. This section 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.

Section 1230: Duties of Auditors General in relation to supervision arrangements

1571. Subsection (1) makes it a duty for each 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 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 met by the Assembly.

Section 1231: Reports by the Independent Supervisor

1572. This section 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.

Section 1232: Matters to be notified to the Independent Supervisor

1573. This section 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 section 1223.

Section 1233: The Independent Supervisor’s power to call for information

1574. This section 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 section is consistent with the requirement for other statutory auditors as
contained in section 1224.

Section 1234: Suspension notices

1575. This section 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, and the considerations pertaining to the
decision to suspend. 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.

Section 1235: Effect of suspension notices

1576. This section 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 section 1213 (ineligibility for appointment as a statutory auditor) do not apply to
an Auditor General who is ineligible by virtue of a suspension notice.

Section 1236: Compliance orders

1577. This section 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 Act. The court may direct the Auditor General to take such steps as it thinks fit to ensure compliance.

Section 1237: Proceedings involving the Independent Supervisor

1578. This section 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.

Section 1238: Grants to the Independent Supervisor

1579. 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 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. It also means that the body may be exempt from
liability in damages under section 18 of the Act.

CHAPTER 4: THE REGISTER OF AUDITORS ETC

Section 1239: The register of auditors

1580. This section restates section 35 of the 1989 Act but extends the provision to cover
other statutory auditors (as defined in section 1210) and third country auditors (as defined in
section 1241). 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 third country auditors.
Subsection (2) sets out the information that must be included on the register and includes the
person’s 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 section 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.
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 disapply some or all
of the requirements of subsections (2)(e) and (3) in relation to third country auditors (for
example, if they are already subject to equivalent supervision in their home country).

Section 1240: Information to be made available to public

1581. This new provision gives the Secretary of State the power to make regulations placing
an obligation on statutory auditors to make information regarding their ownership,
governance, internal controls with respect to quality and independence of audit work,
turnover and names of persons for whom the person has acted as statutory auditor, available
to the public. Any such obligations are additional to those referred to in section 1239.

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