The Statutory Auditors and Third Country Auditors Regulations 2007

Made: 17th December 2007

Laid before Parliament: 17th December 2007

Coming into force in accordance with regulation 1(2) and (3)

The Secretary of State is a Minister designated for the purposes of section 2(2) of the European Communities Act 1972 in relation to auditors and the audit of accounts.

These Regulations make provision for a purpose mentioned in section 2(2) of that Act and it appears to the Secretary of State that it is expedient for the reference to Directive 2006/43/EC of the European Parliament and of the Council on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC , to be construed as a reference to that Directive as amended at any time before 1st January 2009.

In exercise of the powers conferred by section 2(2) of, as read with paragraph 1A of Schedule 2 to, the European Communities Act 1972 and sections 1239, 1241(2)(c), 1246, 1292(1)(a) and (b) and (2) of, and paragraph 8(1)(a) of Schedule 11 to, the Companies Act 2006 , the Secretary of State makes the following Regulations.

PART 1 — CITATION, COMMENCEMENT AND INTERPRETATION

Citation and commencement

1

• (1) These Regulations may be cited as the Statutory Auditors and Third Country Auditors Regulations 2007.

• (2) These Regulations, except for the provisions referred to in paragraph (3), come into force on 6th April 2008.

• (3) Regulations 32, 33 and 40(2)(b) to (d) come into force on 29th June 2008.

Minor definitions

2

• (1) Section 1261 of the Companies Act 2006 (minor definitions) is amended as follows.

• (2) At the appropriate places in subsection (1), insert the following definitions—

• “the Audit Directive” means Directive 2006/43/EC of the European Parliament and of the Council on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC, as amended at any time before 1st January 2009;

“audit working papers” means any documents which— 1. are or have been held by a statutory auditor or a third country auditor, and 2. are related to the conduct of an audit conducted by that auditor;

“EEA auditor” means an individual who is approved in accordance with the Audit Directive by an EEA competent authority to carry out audits of annual accounts or consolidated accounts required by Community law;

“EEA competent authority” means a competent authority within the meaning of Article 2.10 of the Audit Directive of an EEA State other than the United Kingdom;

“third country” means a country or territory that is not an EEA State or part of an EEA State;

“third country auditor” means a person, other than a person eligible for appointment as a statutory auditor, who is eligible to conduct audits of the accounts of bodies corporate incorporated or formed under the law of a third country in accordance with the law of that country;

“third country competent authority” means a body established in a third country exercising functions related to the regulation or oversight of auditors;

• (3) After subsection (2) insert—

(2A) For the purposes of this Part, Gibraltar shall be treated as if it were an EEA State.

Index of defined expressions

3

• (1) Section 1262 of the Companies Act 2006 (index of defined expressions) is amended as follows.

• (2) At the appropriate places, insert the following entries in the Table—

Audit Directive	section 1261(1)
audit working papers	section 1261(1)
---	---
EEA auditor	section 1261(1)
---	---
EEA competent authority	section 1261(1)
---	---
third country	section 1261(1)
---	---
third country competent authority	section 1261(1)
---	---
UK-traded non-EEA company	section 1241(2)
---	---

• (3) In the entry for “third country auditor”—

• (a) in the left-hand column, omit “third country audit and third country audit work”;

• (b) in the right-hand column, for “section 1241(1)” substitute “ section 1261(1) ”.

PART 2 — STATUTORY AUDITORS

Supervisory bodies

4

• (1) Section 1217 of the Companies Act 2006 (supervisory bodies) is amended as follows.

• (2) In subsection (1) omit the word “either” and the words from “or because” to the end.

• (3) After subsection (1) insert—

(1A) The rules referred to in paragraphs 9(3)(b) (confidentiality of information) and 10C(3)(a) and (b) (bar on appointment as director or other officer) of Schedule 10 must also be binding on persons who— (a) have sought appointment or acted as a statutory auditor, and (b) have been members of the body at any time after the commencement of this Part.

Appropriate qualifications

5

In section 1219(1) of the Companies Act 2006 (appropriate qualifications)—

• (a) after paragraph (d) insert “ or ”;

• (b) omit paragraph (e);

• (c) in paragraph (f), for “overseas” substitute “ third country ”.

Approval of third country qualifications

6

• (1) Section 1221 of the Companies Act 2006 (approval of overseas qualifications) is amended as follows.

• (2) In subsections (1), (5) and (6) and the section heading, for “overseas” substitute “ third country ”.

• (3) In subsections (1)(a) and (b), (3)(a), (4) and (7)(a), for “foreign country” substitute “ third country ”.

• (4) After subsection (1) insert—

(1A) A declaration under subsection (1)(a) or (b) must be expressed to be subject to the requirement that any person to whom the declaration relates must pass an aptitude test in accordance with subsection (7A), unless an aptitude test is not required (see subsection (7B)).

• (5) After subsection (7) insert—

(7A) An aptitude test required for the purposes of subsection (1A)— (a) must test the person's knowledge of subjects— (i) that are covered by a recognised professional qualification, (ii) that are not covered by the professional qualification already held by the person, and (iii) the knowledge of which is essential for the pursuit of the profession of statutory auditor; (b) may test the person's knowledge of rules of professional conduct; (c) must not test the person's knowledge of any other matters. (7B) No aptitude test is required for the purposes of subsection (1A) if the subjects that are covered by a recognised professional qualification and the knowledge of which is essential for the pursuit of the profession of statutory auditor are covered by the professional qualification already held by the person.

• (6) Omit subsection (9).

PART 3 — COMPETENT AUTHORITIES

Notification of matters relevant to other EEA States

7

• (1) After section 1223 of the Companies Act 2006 (matters to be notified to the Secretary of State) insert—

(1223A) (1) A recognised supervisory body must notify the Secretary of State of— (a) any withdrawal of a notifiable person's eligibility for appointment as a statutory auditor; and (b) the reasons for the withdrawal. (2) A recognised supervisory body must also notify the Secretary of State of any reasonable grounds it has for suspecting that— (a) a person has contravened the law of the United Kingdom, or any other EEA State or part of an EEA State, implementing the Audit Directive, and (b) the act or omission constituting that contravention took place on the territory of an EEA State other than the United Kingdom. (3) In this section “notifiable person” means a member of the recognised supervisory body in question— (a) who is also an EEA auditor; and (b) in respect of whom the EEA competent authority is not the recognised supervisory body itself.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restrictions on disclosure

8

• (1) After section 1224 of the Companies Act 2006 (Secretary of State's power to call for information) insert—

(1224A) (1) This section applies to information (in whatever form)— (a) relating to the private affairs of an individual, or (b) relating to any particular business, that is provided to a body to which this section applies in connection with the exercise of its functions under this Part or sections 522 to 524 (notification to appropriate audit authority of resignation or removal of auditor). (2) This section applies to— (a) a recognised supervisory body, (b) a recognised qualifying body, (c) a body performing functions for the purposes of arrangements within paragraph 23(1) (independent monitoring of certain audits) or paragraph 24(1) (independent investigation of public interest cases) of Schedule 10, (d) the Independent Supervisor, (e) the Secretary of State, and (f) a body designated by the Secretary of State under section 1252 (delegation of the Secretary of State's functions). (3) No such information may, during the lifetime of the individual or so long as the business continues to be carried on, be disclosed without the consent of that individual or (as the case may be) the person for the time being carrying on that business. (4) Subsection (3) does not apply to any disclosure of information that— (a) is made for the purpose of facilitating the carrying out by the body of any of its functions, (b) is made to a person specified in Part 1 of Schedule 11A, (c) is of a description specified in Part 2 of that Schedule, or (d) is made in accordance with Part 3 of that Schedule. (5) Subsection (3) does not apply to— (a) the disclosure by an EEA competent authority of information disclosed to it by the body in reliance on subsection (4); (b) the disclosure of such information by anyone who has obtained it directly or indirectly from an EEA competent authority. (6) This section does not prohibit the disclosure of information if the information is or has been available to the public from any other source. (7) Nothing in this section authorises the making of a disclosure in contravention of the Data Protection Act 1998. (1224B) (1) A person who discloses information in contravention of section 1224A (restrictions on disclosure) is guilty of an offence, unless— (a) he did not know, and had no reason to suspect, that the information had been provided as mentioned in section 1224A(1), or (b) he took all reasonable steps and exercised all due diligence to avoid the commission of the offence. (2) A person guilty of an offence under this section is liable— (a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both); (b) on summary conviction— (i) in Scotland, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum, or to both; (ii) in England and Wales or Northern Ireland, to imprisonment for a term not exceeding three months or to a fine not exceeding the statutory maximum, or to both.

• (2) After Schedule 11 to the Companies Act 2006 insert the Schedule 11A set out in the Schedule to these Regulations.

• (3) Section 1224A of the Companies Act 2006 only applies to information that is provided to a body on or after 6th April 2008.

Supervision of Auditors General by the Independent Supervisor

9

• (1) Section 1229 of the Companies Act 2006 (supervision of Auditors General by the Independent Supervisor) is amended as follows.

• (2) For subsection (2) substitute—

(2) The Independent Supervisor must discharge that duty by— (a) establishing supervision arrangements itself, or (b) entering into supervision arrangements with one or more bodies. (2A) If the Independent Supervisor enters into supervision arrangements with one or more bodies, it must oversee the effective operation of those supervision arrangements.

• (3) In the opening words of subsection (3)—

• (a) after “are arrangements” insert “ established by the Independent Supervisor or ”;

• (b) after “in accordance with which” insert “ the Independent Supervisor or ”;

• (c) omit “one or more of”.

• (4) After subsection (3) insert—

(3A) The requirements of paragraphs 9 to 10A and 12 to 15 of Schedule 10 (requirements for recognition of a supervisory body) apply in relation to supervision arrangements as they apply in relation to the rules, practices and arrangements of supervisory bodies.

• (5) In subsection (5) after “arrangements that it” insert “ establishes or ”.

• (6) After subsection (5) insert—

(5A) The Independent Supervisor must, at least once in every calendar year, deliver to the Secretary of State a summary of the results of any inspections conducted for the purposes of subsection (3)(c).

Duties of Auditors General in relation to supervision arrangements

10

• (1) Section 1230 of the Companies Act 2006 (duties of Auditors General in relation to supervision arrangements) is amended as follows.

• (2) For subsection (2) substitute—

(2) Each Auditor General must— (a) if the Independent Supervisor has established supervision arrangements, pay to the Independent Supervisor; (b) if the Independent Supervisor has entered into supervision arrangements with a body, pay to that body, such proportion of the costs incurred by the Independent Supervisor or body for the purposes of the arrangements as the Independent Supervisor may notify to him in writing.

• (3) In subsection (4) after “the arrangements” insert “ established or ”.

Reports of the Secretary of State

11

After section 1251 of the Companies Act 2006 (fees) insert—

(1251A) The Secretary of State must, at least once in every calendar year, publish a report containing a summary of the results of inspections that are delivered to him— (a) by the Independent Supervisor under section 1229(5A); (b) by a recognised supervisory body under paragraph 13(9) of Schedule 10.

Delegation of Secretary of State's functions

12

In section 1252(7)(a) of the Companies Act 2006 (consent of Secretary of State for delegation of certain functions), for “overseas” substitute “ third country ”.

Delegation of functions to an existing body

13

In section 1253(5) of the Companies Act 2006 (delegation of functions to an existing body) for “paragraph 21, 22, 23(1) or 24(1) of Schedule 10” substitute “ paragraph 21 to 22B, 23(1) or 24(1) of Schedule 10 ”.

Cooperation with foreign competent authorities

14

• (1) After section 1253 of the Companies Act 2006 (delegation of functions to an existing body) insert—