The Companies Act 2006 (Transfer of Audit Working Papers to Third Countries) Regulations 2010

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend provisions on the transfer of audit working papers to third country competent authorities contained in sections 1253D and 1253E of, and Schedule 10 to, the Companies Act 2006 (c.46). The Regulations give effect to Commission Decision 2010/64/EU of 5th February 2010 (O.J. L35, 6.2.2010, p.15) and Commission Decision 2010/485/EU of 1st September 2010 (O.J. L240, 11.9.2010, p.6) concerning the adequacy of the competent authorities of certain third countries pursuant to Article 47 of Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (O.J. L157, 9.6.2006, p.87). These Regulations also re-implement certain aspects of Article 47 of Directive 2006/43/EC (“the Directive”).

Commission Decision 2010/64/EU specified four competent authorities of third countries as meeting requirements that are considered adequate for the purpose of Article 47(1) of the Directive. They are the Canadian Public Accountability Board; the Financial Services Agency of Japan; the Certified Public Accountants and Auditing Oversight Board of Japan and the Federal Audit Oversight Authority of Switzerland.

Commission Decision 2010/485/EU specified three competent authorities of third countries as meeting requirements that are considered adequate for the purpose of Article 47(1) of the Directive. They are the Australian Securities and Investments Commission, the Public Company Accounting Oversight Board of the United States of America and the Securities and Exchange Commission of the United States of America.

Regulation 2 substitutes new section 1253D, and introduces sections 1253DA, 1253DB and 1253DC specifying the circumstances in which audit working papers (as defined in section 1261) may be transferred by the Secretary of State or a statutory auditor to third country competent authorities. Regulation 2 also introduces section 1253DD which transposes Article 2(3) of each of Commission Decision 2010/64/EU and Commission Decision 2010/485/EU which requires the consent of an EEA competent authority for the transfer of audit working papers, where those audit working papers are in the possession of the United Kingdom statutory auditor but relate to a subsidiary in the jurisdiction of that EEA competent authority. Regulation 2 also transposes Article 2(6) of Commission Decision 2010/485/EU, concerning how inspections, in non-investigation cases, which involve the competent authorities of Australia or the United States of America must be conducted.

Regulation 3 substitutes section 1253E of the Companies Act 2006 (working arrangements for transfer of audit working papers). Subsection (5) includes the extra provisions mandated by Article 2(4) of Commission Decision 2010/485/EU. Subsections (6) and (7) implement Article 47(2)(d) of the Directive. Subsections (8) and (9) regarding contacts between a statutory auditor and a third country competent authority implement Article 2(5) of Commission Decision 2010/485/EU and apply only to the competent authorities of Australia and the United States of America.

Regulation 4 only enters into force on 31st July 2013 and provides that the competent authorities of the United States of America shall no longer be approved third country competent authorities as of that date.

Regulation 5 substitutes three new paragraphs for existing paragraph 16A of Schedule 10 to the Companies Act 2006 to provide for the rules and practices that recognised supervisory bodies must have in place concerning the transfer of audit working papers to third country competent authorities by United Kingdom statutory auditors.

Regulation 6 amends section 1261(1) of the Companies Act 2006 which contains minor definitions for Part 42 of the Act.

Regulation 7 makes consequential amendments to the Statutory Auditors (Delegation of Functions etc) Order 2008 (S.I. 2008/496).

Regulation 8 provides that paragraph 38 of Schedule 4 to the Companies Act 2006 (Commencement No. 5, Transitional Provisions and Savings) Order 2007 (S.I. 2007/3495) which limits the application of certain provisions of the Companies Act 2006, including Schedule 10, to auditors appointed for financial years beginning on or after 6th April 2008 does not affect the provisions of these Regulations, and that therefore these Regulations apply to any audit working papers, irrespective of when they are or were created, and to any statutory auditor irrespective of the financial year in respect of which the statutory auditor is or was appointed.

A transposition note has been prepared which sets out how the Directive is transposed into UK law, updated to reflect the implementation of Commission Decisions the 2010/64/EU and 2010/485/EU. An Impact Assessment of the effect of the implementation of the Directive on the costs of business, charities or voluntary bodies was also prepared. Both are available from the Department for Business, Innovation and Skills, Corporate Law and Governance Directorate, 1 Victoria Street, London, SW1H 0ET. They are also available electronically at www.bis.gov.uk. Copies have also been placed in the libraries of both Houses of Parliament. Otherwise, an Impact Assessment has not been produced for these Regulations as they have only a negligible impact on the costs of business, charities or voluntary bodies.