The Statutory Auditors and Third Country Auditors Regulations 2016

(1A) The requirements of this sub-paragraph are that the individual— (a) already holds a professional qualification which covers all the subjects which are covered by a recognised professional qualification and which are subjects of which knowledge is essential for the pursuit of the profession of statutory auditor, or (b) holds a professional qualification which does not cover all those subjects and has met whichever of the requirements of sub-paragraph (1B) is specified in the body's rules. (1B) The body's rules must specify that the condition in sub-paragraph (1A)(b) is satisfied in one of the following ways— (a) only by passing an aptitude test in accordance with sub-paragraph (2), (b) only by completing an adaptation period in accordance with sub-paragraphs (2B) and (2C), or (c) either by passing an aptitude test in accordance with sub-paragraph (2) or by completing an adaptation period in accordance with sub-paragraphs (2B) and (2C), according to the choice of the individual.

• (6) Omit sub-paragraph (2A).

• (7) Before sub-paragraph (3) insert—

(2B) An adaptation period is a period, not exceeding three years, in which the individual (“the applicant”) pursues the profession of statutory auditor under the supervision of an individual who holds an appropriate qualification, subject to an assessment (“the ability assessment”) of the applicant's ability to pursue the profession of statutory auditor in the United Kingdom. (2C) Where the body's rules specify that the condition in sub-paragraph (1B)(b) can be satisfied by completing an adaptation period— (a) the body must have rules governing the adaptation period and the ability assessment, having regard to the circumstances of each applicant and, in particular, to the fact that each applicant is a qualified professional in another EEA State, (b) the applicant may be required to undergo further training during the adaptation period, (c) the applicant's performance during the adaptation period must be assessed by the body, and (d) the body must determine the applicant's professional status during the adaptation period.

58

• (1) Paragraph 9 is amended as follows.

• (2) In sub-paragraph (1)(c) for “from any significant threats to it” substitute “ in accordance with the standards mentioned in sub-paragraph (3A) ”.

• (3) In sub-paragraph (1)(d), for the words after “record” substitute “ the matters required to be recorded in accordance with those standards. ”

• (4) Omit sub-paragraph (1)(e).

• (5) After sub-paragraph (1) insert—

(1A) The body must have adequate rules and practices designed to ensure that, except where the audited person is a public interest entity— (a) an individual who has been appointed as statutory auditor may not be appointed as a director or other officer of the audited person or be concerned in the management of the audited person during a period of not less than one year determined in standards set by the competent authority and commencing on the date on which the individual's appointment as a statutory auditor ended; (b) a key audit partner of a firm which has been appointed as statutory auditor may not be appointed as a director or other officer of the audited person or be concerned in the management of the audited person during a period of not less than one year to be determined in standards set by the competent authority and commencing on the date on which the firm's appointment as a statutory auditor ended.

• (6) Omit sub-paragraph (2).

• (7) In sub-paragraph (3), omit paragraphs (a) and (c) and the “and” at the end of paragraph (b).

• (8) After sub-paragraph (3) insert—

(3A) The rules and practices mentioned in sub-paragraphs (1) and (3) must include provision requiring compliance with standards for the time being determined by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

• (9) In sub-paragraph (4), for “sub-paragraph (3)(b) (confidentiality of information)” substitute “ sub-paragraphs (1A) and (3)(b) ”.

• (10) After sub-paragraph (4) insert—

(5) An auditor is not to be regarded as an officer of the audited person for the purposes of sub-paragraph (1A) (a) and (b).

59

• (1) Paragraph 10 is amended as follows.

• (2) For sub-paragraph (2) substitute—

(2) The rules and practices mentioned in sub-paragraph (1) must include provision requiring compliance with any standards for the time being determined by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

60

• (1) Paragraph 10A is amended as follows.

• (2) For sub-paragraph (2) substitute—

(2) The rules and practices mentioned in sub-paragraph (1) must include provision requiring compliance with any standards for the time being determined by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

• (3) For sub-paragraph (3) substitute—

(3) The body must have rules and practices ensuring that group auditors retain copies of any documents necessary for the purposes of any review in accordance with those standards.

• (4) Omit sub-paragraphs (4) to (6).

61

Omit paragraph 10B.

62

• (1) Paragraph 10C is amended as follows.

• (2) Omit sub-paragraphs (1) and (2).

• (3) For sub-paragraph (3) substitute—

(3) The body must have adequate rules and practices designed to ensure that— (a) an individual who has been appointed as statutory auditor of a public interest entity may not be appointed as a director or other officer of the entity or be concerned in the management of the entity during a period of not less than two years to be determined in standards set by the competent authority and commencing on the date on which the individual's appointment as statutory auditor ended; (b) a key audit partner of a firm which has been appointed as statutory auditor of a public interest entity may not be appointed as a director or other officer or be concerned in the management of the entity during a period of not less than two years to be determined in standards set by the competent authority and commencing on the date on which the firm's appointment as statutory auditor ended.

• (4) Omit sub-paragraph (6).

63

For paragraph 11 substitute—

(11) The body must have rules and practices designed to ensure that persons eligible for appointment as statutory auditors take part in appropriate programmes of continuing education in order to maintain their theoretical knowledge, professional skills and values at a sufficiently high level.

64

• (1) Paragraph 12 is amended as follows.

• (2) For sub-paragraph (2) substitute—

(2) The arrangements for monitoring must make provision for that function to be performed by the competent authority or any body to whom that authority has delegated tasks in accordance with regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016.

• (3) For sub-paragraph (3) substitute—

(3) The arrangements for enforcement must— (a) make provision for that function to be performed by the competent authority or any body to whom that authority has delegated tasks in accordance with regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016; (b) include provision for sanctions which include— (i) the withdrawal of eligibility for appointment as a statutory auditor; (ii) a notice requiring the person responsible for any breach to cease the conduct amounting to a breach and to abstain from repeating such conduct; (iii) a public statement identifying the person responsible for any breach and the nature of the breach (which may take the form of a reprimand or a severe reprimand); (iv) a temporary prohibition preventing a person responsible for any breach from carrying out statutory audits or signing audit reports; (v) a temporary prohibition of up to three years preventing a person responsible for any breach from exercising specified functions in a firm that is eligible for appointment as a statutory auditor or in a public interest entity; (vi) a declaration that the audit report does not satisfy the audit reporting requirements and, where appropriate, a declaration as to the proportion of the audit fee that is not payable as a result; (vii) an appropriate financial penalty; (viii) a requirement to take action to mitigate the effect or prevent the recurrence of the contravention; (ix) exclusion from membership of the body; and (c) include provision for the body to make available to the public information relating to the steps it has taken to ensure the effective enforcement of its rules.

• (4) After sub-paragraph (3) insert—

(4) The sanctions referred to in sub-paragraph (3)(b)(v) must apply to persons who are no longer members of the body as they apply to members. (5) The information to be made available to the public under sub-paragraph (3)(c) must include the following information (which the body must continue to make available in accordance with sub-paragraph (7)) in relation to sanctions the body imposes— (a) information concerning the type of contravention and its nature; (b) the identity of the person sanctioned, unless any of the circumstances mentioned in sub-paragraph (6) applies; and (c) where a sanction is subject to appeal, information concerning the status and outcome of any appeal. (6) The circumstances in which the identity of the person sanctioned must not be made available to the public are— (a) where that person is an individual and the body considers the publication of personal data would be disproportionate; (b) where publication would jeopardise the stability of financial markets; (c) where publication would jeopardise an ongoing criminal investigation; and (d) where publication would cause disproportionate damage to any institution or individual involved. (7) Information in relation to sanctions mentioned in sub-paragraph (3) must continue to be made available for a proportionate period and must be published on the body's website for at least five years after the relevant date. (8) In sub-paragraph (7), “the relevant date” means— (a) where the body imposes a sanction and that decision is appealed, the date on which the appeal is determined; (b) where the body imposes a sanction and that decision is not appealed, the date by which any appeal was required to be lodged.

65

For paragraphs 13 and 14 substitute—

(13) (1) The body must— (a) have adequate arrangements for enabling the performance by its members of statutory audit functions to be monitored by means of inspections, where functions relating to the monitoring of the audits are the subject of a delegation of tasks to the body under regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016; (b) in the case of members of the body who perform any statutory audit functions in respect of audits where functions relating to the monitoring of the audits are not the subject of such a delegation— (i) have arrangements for the monitoring of those audits by the competent authority in accordance with those Regulations and, in respect of public interest entities, Article 26 of the EU Audit Regulation; and (ii) have rules and practices designed to ensure that a sanction imposed by the competent authority in accordance with those Regulations is to be treated as if it were a sanction which the body had determined under arrangements for enforcement within paragraph 12; (c) in the case of members of the body who perform any third country audit functions— (i) have arrangements for the monitoring of those audits by the competent authority in accordance with the Statutory Auditors and Third Country Auditors Regulations 2016; and (ii) have rules and practices designed to ensure that a sanction imposed by the competent authority in accordance with those Regulations is to be treated as if it were a sanction which the body had determined under arrangements for enforcement within paragraph 12; and (d) have rules designed to ensure that members of the body take such steps as may reasonably be required of them to enable their performance of any statutory audit functions or third country audit functions to be monitored by means of inspections. (2) Any monitoring of members of the body under the Statutory Auditors and Third Country Auditors Regulations 2016 or Article 26 of the EU Audit Regulation is to be regarded (so far as their performance of statutory audit functions, or of third country audit functions, is concerned) as monitoring of compliance with the body's rules for the purposes of paragraph 12(1) and (1A). (3) The arrangements referred to in sub-paragraph (1)(a) must— (a) make provision for inspections to be conducted by the competent authority or any recognised supervisory body to whom that authority has delegated tasks in accordance with regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016; and (b) include an inspection which is conducted in relation to each person eligible for appointment as a statutory auditor— (i) at such frequency as the body considers appropriate given the risks arising from the statutory audit work undertaken by the person eligible for appointment as a statutory auditor; and (ii) at least once every six years in the case of a person who, during any of the previous five years, has carried out a statutory audit of an entity not subject to the small companies regime (see section 381). (4) The arrangements must provide that the determination by the body of the frequency of inspections under sub-paragraph (3)(b)(i) is subject to any direction by the competent authority. (5) The inspection must be conducted by persons who— (a) have an appropriate professional education; (b) have experience of— (i) statutory audit work, or (ii) equivalent work on the audit of accounts under the law of an EEA State, or part of an EEA State, other than the United Kingdom; (c) have received adequate training in the conduct of inspections; (d) have declared that they do not have any interests likely to conflict with the proper conduct of the inspection; (e) have not been an employee or partner or member of the management body of the person subject to inspection and have not been otherwise associated with that person for at least three years before the inspection. (6) The inspection must review one or more statutory audits in which the person to whom the inspection relates has participated. (7) The inspection must include an assessment of— (a) the person's compliance with the standards set by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016; (b) the resources allocated by the person to statutory audit work; (c) in the case of an inspection in relation to a firm, its internal quality control system; (d) the remuneration received by the person in respect of statutory audit work. (8) The inspection must be appropriate and proportionate in view of the scale and complexity of the statutory audit work of the person subject to inspection. (9) Where undertaking inspections of statutory audits of undertakings that qualify as small (see sections 382 and 383) or medium sized (see sections 465 and 466) the body must take account of the fact that the standards determined by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016 are designed to be applied in a manner that is proportionate to the scale and complexity of the business of the audited person. (10) An inspection conducted in relation to a firm may be treated as an inspection of all individuals responsible for statutory audit work on behalf of that firm, if the firm has a common quality assurance policy with which each such individual is required to comply. (11) The main conclusions of the inspection must be recorded in a report which is made available to— (a) the person to whom the inspection relates, and (b) the body. (12) The body must, at least once in every calendar year, deliver to the Secretary of State a summary of the results of inspections conducted under this paragraph. (14) The rules and practices of the body relating to— (a) the admission and expulsion of members, (b) the grant and withdrawal of eligibility for appointment as a statutory auditor by the body, where this task has been delegated to the body by the competent authority under regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016, and (c) the enforcement action the body takes in respect of its members, where tasks related to the competent authority's responsibility for imposing and enforcing sanctions have been delegated to the body under that regulation, must be fair and reasonable and include adequate provision for appeals.

66

• (1) Paragraph 15 is amended as follows.

• (2) For sub-paragraph (2) substitute—

(2) The arrangements mentioned in sub-paragraph (1) must make provision for the whole or part of the function of investigating those complaints to be performed by the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016.

67

For paragraph 16 substitute—

(16) (1) The body must have rules and practices designed to ensure that, where the competent authority has decided that any particular enforcement action should be taken against a member of the body following the conclusion of an investigation under the Statutory Auditors and Third Country Auditors Regulations 2016, that decision is to be treated as if it were a decision made by the body in enforcement proceedings against the member. (2) The body must have adequate arrangements as part of its rules and practices— (a) to facilitate the conduct of investigations into non-delegated cases by the competent authority in connection with the performance of statutory audit functions or third country audit functions by members of the body; (b) for the holding by the competent authority of hearings relating to members of the body in accordance with the Statutory Auditors and Third Country Auditors Regulations 2016, where necessary following those investigations; and (c) for making decisions by the competent authority following those investigations as to whether (and, if so, what) enforcement action should be taken against members of the body. (3) “Non-delegated cases” means matters relating to tasks which have not been delegated to the body by the competent authority under regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016.

68

• (1) Paragraph 16A is amended as follows.

• (2) For the words “audit working papers”, wherever they appear, substitute “ audit working papers and investigation reports ”.

69

• (1) Paragraph 16AB is amended as follows.

• (2) For the words “audit working papers”, wherever they appear, substitute “ audit working papers and investigation reports ”.

70

After paragraph 20 insert—

(20ZA) (1) This paragraph applies where, under regulation 3 of the Statutory Auditors and Third Country Auditors Regulations 2016, the competent authority has delegated the task of approving persons as eligible for appointment as statutory auditors to a body (“B”). (2) B must pay the costs incurred by— (a) the competent authority in carrying out activities mentioned in paragraphs 9 to 10C, 12, 13 and 16, or (b) another recognised supervisory body, in carrying out those activities as a result of the competent authority delegating a task to the other body, in relation to any statutory auditor bound by B's rules.

71

For paragraph 20A substitute—

(20A) In this Part of this Schedule— - “audit reporting requirements” has the meaning given by regulation 2 of the Statutory Auditors and Third Country Auditors Regulations 2016 as amended from time to time; - “issuer” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 102A(6)); - “key audit partner” means— 1. the statutory auditor designated by an audit firm for a particular audit engagement as being primarily responsible for carrying out the statutory audit on behalf of the audit firm; or 2. in the case of a group audit, the statutory auditor designated by an audit firm as being primarily responsible for carrying out the statutory audit at the level of the group and the statutory auditor designated as being primarily responsible at the level of material subsidiaries; or 3. the statutory auditor who signs the audit report. - “public interest entity” means— 1. an issuer whose transferable securities are admitted to trading on a regulated market; 2. a credit institution within the meaning given by Article 4(1)(1) of Regulation (EU) No. 575/2013 of the European Parliament and of the Council, other than one listed in Article 2 of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and investment firms; 3. an insurance undertaking within the meaning given by Article 2(1) of Council Directive 1991/674/EEC of the European Parliament and of the Council on the annual accounts and consolidated accounts of insurance undertakings, - “regulated market” has the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (see section 103(1)); - “statutory audit function” means any function performed as a statutory auditor; - “third country audit function” means any function related to the audit of a UK-traded non-EEA company or of an equivalent body corporate whose transferable securities are admitted to trading on a regulated market situated or operating in another EEA state; and - “transferable securities” means anything which is a transferable security for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments.

72

Part 3 is repealed.

73

• (1) Schedule 11A (specified persons, descriptions, disclosures etc for the purposes of section 1224A) is amended as follows.

• (2) For paragraph 16 substitute—

(16) The competent authority.

• (3) In paragraph 80, for the words “audit working papers” in both places where they appear substitute “ audit working papers and investigation reports ”.

SCHEDULE 4 — Amendments to Part 8 of the Building Societies Act 1986

PART 1 — Introductory

1

In this Schedule—

• (a) a reference to a numbered section is a reference to that section of Building Societies Act 1986; and

• (b) a reference to a numbered Schedule is a reference to that Schedule to that Act.

PART 2 — Amendments to Part 8 of the Building Societies Act 1986

2

Part 8 of the Building Societies Act 1986 is amended as follows.

3

In section 78 (auditor's report) —

• (a) in subsection (1), before “report” insert “ written ”;

• (b) for subsections (3A) to (4A) substitute—

(3A) The auditor's report must include— (a) the identity of the building society whose annual accounts are the subject of the audit, (b) a description of the annual accounts that are the subject of the audit (including the period covered by those accounts), (c) a description of the financial reporting framework that has been applied in the preparation of those accounts, and (d) a description of the scope of the audit identifying the auditing standards in accordance with which the audit was conducted. (4) The report must clearly state the opinion of the auditor as to— (a) whether the annual accounts have been properly prepared in accordance with the requirements of this Act (and, where applicable, Article 4 of the IAS Regulation), and (b) in particular whether the annual accounts give a true and fair view in accordance with the relevant financial reporting framework— (i) in the case of an individual balance sheet, of the state of affairs of the society as at the end of the financial year, (ii) in the case of an individual income and expenditure account, of the income and expenditure of the society for the financial year, and (iii) in the case of group accounts, of the state of affairs as at the end of the financial year and the income and expenditure for the financial year of the society and the subsidiary undertakings dealt with in the group accounts, so far as concerns members of the society. (4A) The auditor's opinion must— (a) be either unqualified or qualified, (b) include a reference to any matters to which the auditor wishes to draw attention by way of emphasis without qualifying the audit opinion, (c) include a statement on any material uncertainty relating to events or conditions that may cast significant doubt about the building society's ability to continue as a going concern, and (d) identify the auditor's place of establishment.

• (c) in subsection (6), after “subsection (4)” insert “ (b) ”;

• (d) for subsection (7) substitute—

(7) The auditor's report, in so far as it deals with the documents specified in subsection (3) above, must— (a) state whether, in his opinion, based on the work undertaken in the course of the audit— (i) the documents have been prepared so as to conform to the requirements of, or made under, sections 74 and 75 respectively, (ii) the information given in the annual business statement gives a true representation of the matters in respect of which it is given, and (iii) the information given in the directors' report for the financial year for which the accounts are prepared is consistent with those accounts, (b) state whether, in the light of the knowledge and understanding of the building society and its environment obtained in the course of the audit, the auditor has identified material misstatements in the directors' report, and (c) if applicable, give an indication of the nature of each of the misstatements referred to in paragraph (b).

; and

• (e) after subsection (10) insert—

(11) Where more than one person is appointed as an auditor— (a) all the persons appointed must jointly make a report under this section and the report must include a statement as to whether all the persons appointed agree— (i) on the matters contained in the report, and (ii) on the statements and indications given under subsection (7); and (b) if all the persons appointed cannot agree on— (i) the matters contained in the report, or (ii) on the statements and indications given under subsection (7), the report must include the opinions of each person appointed and give reasons for the disagreement.

4

In section 78A (signature of auditor's report) —

• (a) in subsection (1), after “the auditor” insert “ (or, where more than one person is appointed as auditor, all of their names) ”; and

• (b) after subsection (2) insert—

(2A) Where more than one person is appointed as auditor, the report must be signed by all of them.

5

After section 78C(1) (names to be stated in copies of auditor's report filed or published) insert—

(1A) If more than one individual is appointed as auditor, the reference in subsection (1)(a) to the name of the auditor is to be read as a reference to the names of all the auditors.

6

At the beginning of section 78D(1) (circumstances in which names may be omitted) , for “The” substitute “ An ”.

7

In subsection 79 (auditor's duties and powers) —

• (a) for subsection (2) substitute—

(2) If the auditor is of the opinion that— (a) proper accounting records have not been kept under section 71, or (b) the annual accounts are not in agreement with the accounting records, the auditor must state that fact in his report.

; and

• (b) after subsection (6) insert—

(6A) Where more than one person is appointed as auditor, the report must include a statement as to whether all the persons appointed agree on any statements given under subsections (2) and (6) and, if they cannot agree on those statements, the report must include the opinions of each person appointed and give reasons for the disagreement.

8

In Schedule 11—

• (a) after paragraph 3 insert—

(3A) (1) Any term in a contract which, in relation to the conduct of an audit of a building society, has the effect of restricting the general meeting of the building society's choice of auditor to certain categories or lists of auditors has no effect. (2) If a third party attempts to impose a contractual clause of the kind mentioned in sub-paragraph (1), or to improperly influence the decision of a general meeting of the building society on the selection of an auditor, the directors of the building society must inform the competent authority without delay. (3B) (1) This paragraph applies to the appointment of an auditor or auditors under section 77, where the building society has an audit committee. (2) Before an appointment to which this paragraph applies is made— (a) the audit committee of the building society must make a recommendation to the directors in connection with the appointment, and (b) the directors must propose an auditor or auditors for appointment, including the following information in the proposal— (i) the recommendation made by the audit committee in connection with the appointment, or (ii) if the directors' proposal departs from the preference of the audit committee, the reasons for not following the recommendation. (3) Before the audit committee makes a recommendation or the directors make a proposal under sub-paragraph (2), the committee or directors must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation. (4) The audit committee must in its recommendation— (a) identify its first and second choice candidates for appointment, (b) give reasons for the choices so identified, (c) state that— (i) the recommendation is free from influence by a third party, and (ii) no contractual term of the kind mentioned in paragraph 3A has been imposed on the building society. (5) Sub-paragraphs (3) and (4) do not apply in relation to a recommendation or proposal for appointment of an auditor or auditors for a financial year (“the relevant financial year”)— (a) if the relevant financial year begins during a transitional period mentioned in sub-paragraph (6); or (b) if— (i) a selection procedure mentioned in sub-paragraph (7) has been carried out in respect of the appointment of the auditor or auditors in relation to a financial year beginning less than ten years before the first day of the relevant financial year; and (ii) the auditor or auditors were appointed for the financial year before the relevant financial year. (6) The transitional periods are— (a) in the case of an auditor who was first appointed for a financial year beginning before 17th June 1994 and who continues to hold office on 17th June 2016, the period which begins on 17th June 2016 and ends on the day before the first day of the first financial year of the building society that begins on or after 17th June 2020; (b) in the case of an auditor who was first appointed for a financial year beginning on or after 17th June 1994 and before 17th June 2003 and who continues to hold office on 17th June 2016, the period which begins on 17th June 2016 and ends on the day before the first day of the first financial year of the building society that begins on or after 17th June 2023. (7) The selection procedures are— (a) a selection procedure which is in accordance with sub-paragraphs (3) and (4); (b) a selection procedure which substantially meets the requirements of Article 16(2) to (5) of the Audit Regulation, having regard to the circumstances at the time (including whether the building society had an audit committee), which was carried out in relation to a financial year which began before 17th June 2016. (3C) (1) This paragraph applies to the appointment of an auditor or auditors under section 77, where the building society does not have an audit committee. (2) Before an appointment to which this paragraph applies is made the directors must propose an auditor or auditors for appointment. (3) Before the directors make a proposal under sub-paragraph (2), they must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation. (4) Sub-paragraph (3) does not apply in relation to a proposal for appointment of an auditor or auditors for a financial year (“the relevant financial year”)— (a) if the relevant financial year begins during a transitional period mentioned in sub-paragraph (5); or (b) if— (i) a selection procedure mentioned in sub-paragraph (6) has been carried out in respect of the appointment of the auditor or auditors in relation to a financial year beginning less than ten years before the first day of the relevant financial year; and (ii) the auditor or auditors were appointed for the financial year before the relevant financial year. (5) The transitional periods are— (a) in the case of an auditor who was first appointed in respect of a financial year beginning before 17th June 1994 and who continues to hold office on 17th June 2016, the period which begins on 17th June 2016 and ends on the day before the first day of the first financial year of the building society that begins on or after 17th June 2020; (b) in the case of an auditor who was first appointed in respect of a financial year beginning on or after 17th June 1994 and before 17th June 2003 and who continues to hold office on 17th June 2016, the period which begins on 17th June 2016 and ends on the day before the first day of the first financial year of the building society that begins on or after 17th June 2023. (6) The selection procedures are— (a) a selection procedure which is in accordance with sub-paragraph (4); (b) a selection procedure which substantially meets the requirements of Article 16(2) to (5) of the Audit Regulation, having regard to the circumstances at the time (including whether the company had an audit committee), which was carried out in relation to a financial year which began before 17th June 2016.”.

• (b) before paragraph 6 insert—

(5A) (1) The terms of appointment of an auditor or auditors are subject to the requirement that the auditor or auditors cease to hold office at the conclusion of the annual general meeting in respect of the first complete financial year that follows the expiry of the maximum engagement period. (2) In this paragraph— - “the maximum engagement period” means, subject to sub-paragraph (3) and paragraph 5B (which makes transitional provision in relation to auditors appointed before 17th June 2016), whichever of the following periods is longest— 1. the period of ten years beginning with the first day of the first financial year in respect of which the auditor was appointed, 2. the period of twenty years beginning with the first day of the first financial year in respect of which the auditor was appointed, if the selection requirements are satisfied for at least one financial year which begins every ten years in that period, or 3. such other period of no more than twenty years beginning with the first day of the first financial year in respect of which the auditor was appointed and ending on the last day of the relevant ten year period; - “the relevant ten year period” means the period of ten years beginning with the first day of the last financial year— 1. which begins within ten years of the first day of the first financial year in respect of which the auditor was appointed, and 2. in respect of which the auditor was reappointed following the carrying out of a selection procedure in accordance with the selection requirements; and - “the selection requirements” means— 1. the requirements of paragraph 3B(3) and (4) if the building society has an audit committee, or 2. the requirements of paragraph 3C(3) if the building society does not have an audit committee. (3) The maximum engagement period may be extended by a period of up to two years with the approval of the competent authority, provided that— (a) in a case where the period within paragraph (a) of the definition of “the maximum engagement period” is being extended, the appointment of the auditor for the first complete financial year following the end of that period is made following the carrying out of a selection procedure in accordance with the selection requirements; and (b) in all cases, the competent authority is satisfied that exceptional circumstances exist. (4) An auditor is ineligible for appointment as auditor if— (a) within the four years preceding the start of the financial year to which that appointment relates the auditor has ceased by virtue of sub-paragraph (1) to hold office as auditor of that building society, or (b) the auditor is a member of the same network as an auditor who within the four years preceding the start of the financial year to which that appointment relates has ceased by virtue of that sub-paragraph to hold office as auditor of that building society. (5) In this paragraph, “network” means an association of persons other than a firm co-operating in audit work by way of— (a) profit-sharing; (b) cost-sharing; (c) common ownership, control or management; (d) common quality control policies and procedures; (e) common business strategy; or (f) use of a common name. (5B) (1) In the case of an auditor who was first appointed in respect of a financial year beginning before 17th June 1994 and who continues to hold office on 17th June 2016, “the maximum engagement period” means the period ending on the day before the first day of the first financial year of the building society that begins on or after 17th June 2020. (2) In the case of an auditor who was first appointed in respect of a financial year beginning on or after 17th June 1994 and before 17th June 2003 and who continues to hold office on 17th June 2016, “the maximum engagement period” means the period ending on the day before the first day of the first financial year of the building society that begins on or after 17th June 2023. (3) In the case of an auditor who was first appointed in respect of a financial year beginning on or after 17th June 2003 and before 17th June 2016 and who continues to hold office on 17th June 2016, “the maximum engagement period” means whichever of the following periods is longest— (a) the period ending on whichever is the later of— (i) the day before the first day of the first financial year of the building society that begins on or after 17th June 2016; (ii) the last day of the period of ten years beginning with the first day of the first financial year of the building society in respect of which the auditor was appointed. (b) the period of twenty years beginning with the first day of the first financial year in respect of which the auditor was appointed, if the selection requirements are satisfied for at least one financial year which begins every ten years in the period beginning on 17th June 2007, or (c) such other period of no more than twenty years beginning with the first day of the first financial year in respect of which the auditor was appointed and ending on the last day of the relevant ten year period. (4) In this paragraph— - “the relevant ten year period” means the period of ten years beginning with the first day of the last financial year— 1. which begins either within ten years of the first day of the first financial year in respect of which the auditor was appointed or if later, on or before 16th June 2017, and 2. in respect of which the auditor was reappointed following the carrying out of a selection procedure in accordance with the selection requirements; - “the selection requirements” means— 1. in relation to a financial year beginning on or after 17th June 2016— 1. the requirements of paragraph 3B(3) and (4) if the building society has an audit committee, or 2. the requirements of paragraph 3C(3) if the building society does not have an audit committee, 2. in relation to a financial year beginning before 17th June 2016, the requirement that the building society carries out a tender process which substantially meets the requirements of Article 16(2) to (5) of the Audit Regulation, having regard to the circumstances at the time (including whether the building society had an audit committee). (5) The maximum engagement period may be extended by a period of up to two years with the approval of the competent authority, provided that— (a) in a case where the period under sub-paragraph (3)(a) is being extended, the appointment of the auditor for the first complete financial year following the end of that period is made following the carrying out of a selection procedure in accordance with the selection requirements; and (b) in all cases, the competent authority is satisfied that exceptional circumstances exist.

• (c) after paragraph 6(4) insert—

(5) An auditor may not be removed from office before the expiration of that auditor's term of office except— (a) by resolution under this paragraph, or (b) in accordance with paragraph 6ZA.

• (d) after paragraph 6 insert—

(6ZA) (1) The competent authority may apply to the High Court for an order removing an auditor of a building society from office if the authority considers that there are proper grounds for removing the auditor from office. (2) The members of a building society may apply to the High Court for an order removing an auditor of the building society from office if the applicant or applicants consider that there are proper grounds for removing the auditor from office. (3) If the court is satisfied, on hearing an application under sub-paragraph (1), that there are proper grounds for removing the auditor from office, it may make an order removing the auditor from office. (4) If the court is satisfied, on hearing an application under sub-paragraph (2), that— (a) the applicants represent in total— (i) not less than 5% of the voting rights of all the members having a right to vote at a general meeting of the building society, or (ii) not less than 5% in nominal value of the amount standing to the credit of shares in a building society as shown by the latest balance sheet, and (b) there are proper grounds for removing the auditor from office, the court may make an order removing the auditor from office. (5) For the purposes of this paragraph, divergence of opinions on accounting treatments or audit procedures are not to be taken to be proper grounds for removing an auditor from office.

• (e) in paragraph 6A(1) , after “removed from office” insert “ , other than by order of the High Court made under paragraph 6ZA, ”;

• (f) for the heading to paragraph 8C substitute “Interpretation”; and

• (g) for paragraph 8C substitute—

(8C) In this Schedule— - “appropriate audit authority” means— 1. the Secretary of State, or 2. if the Secretary of State has delegated functions under section 1252 of the Companies Act 2006 to a body whose functions include receiving the equivalent notice under section 522 or 523 of that Act, that body; - “audit committee” means a body which performs the functions referred to in Article 39(6) of 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, or equivalent functions; - “Audit Regulation” means Regulation 537/2014 of the European Parliament and of the Council on specific requirements regarding statutory audit of public interest entities and repealing Commission Decision 2005/989/EC; and - “competent authority” means the Financial Reporting Council Limited .

SCHEDULE 5 — Amendments to other enactments

Amendments to Part 1 of the Companies (Audit, Investigations and Community Enterprise) Act 2004

1

• (1) Part 1 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 is amended as follows.

• (2) In section 15D(4) (permitted disclosure of information obtained under compulsory powers)—

• (a) for paragraph (aa) substitute—

(aa) for the purposes of facilitating— (i) the carrying out of inspections under paragraph 1 of Schedule 12 to the Companies Act 2006 (arrangements for independent monitoring of audits of UK-traded non-EEA companies); or (ii) the carrying out of investigations under paragraph 2 of that Schedule (arrangements for independent investigations for disciplinary purposes).

• (b) after paragraph (aa) insert—

(ab) for the purposes of enabling the competent authority to exercise its functions under the Statutory Auditors and Third Country Auditors Regulations 2016 or under Regulation (EU) 537/2014 on specific requirements regarding statutory audit of public interest entities;

• (3) In section 16(2) (grants to bodies concerned with accounting standards etc), after paragraph (e) insert—

(ea) exercising the functions of the competent authority under the Statutory Auditors and Third Country Auditors Regulations 2016 and under Regulation (EU) 537/2014 on specific requirements regarding statutory audit of public interest entities;

Amendments to Schedule 5 to the Local Audit and Accountability Act 2014

2

• (1) The Local Audit and Accountability Act 2014 is amended as follows.

• (2) In Schedule 5, for paragraph 1(3), substitute—

(3) The reference in sub-paragraph (1) to Part 42 of the Companies Act 2006— (a) includes sections 1288, 1289, 1290 and 1292 of that Act (regulations and orders) as they apply in relation to that Part; (b) does not include the amendments made to that Part by the Statutory Auditors and Third Country Auditors Regulations 2016.

Signed

Neville-Rolfe — Parliamentary Under Secretary of State for Business, Innovation and Skills — 2016-06-15

Explanatory note

(This note is not part of the Regulations)

Footnotes

Editorial notes