Companies Act 2006

Public companies U.K.

489 Appointment of auditors of public company: general U.K.

(1) An auditor or auditors of a public company must be appointed for each financial year of the company, unless the directors reasonably resolve otherwise on the ground that audited accounts are unlikely to be required.

(2) For each financial year for which an auditor or auditors is or are to be appointed (other than the company's first financial year), the appointment must be made before the end of the accounts meeting of the company at which the company's annual accounts and reports for the previous financial year are laid.

(3) The directors may appoint an auditor or auditors of the company—

(a) at any time before the company's first accounts meeting;

(b) following a period during which the company (being exempt from audit) did not have any auditor, at any time before the company's next accounts meeting;

(c) to fill a casual vacancy in the office of auditor.

(4) The members may appoint an auditor or auditors by ordinary resolution—

(a) at an accounts meeting;

(b) if the company should have appointed an auditor or auditors at an accounts meeting but failed to do so;

(c) where the directors had power to appoint under subsection (3) but have failed to make an appointment.

(5) An auditor or auditors of a public company may only be appointed—

(a) in accordance with this section, or

(b) in accordance with section 490 (default power of Secretary of State).

Modifications etc. (not altering text)

C1 Ss. 484-539 applied (with modifications) (1.10.2009) by The Unregistered Companies Regulations 2009 (S.I. 2009/2436), regs. 3-5, Sch. 1 para. 11 (with transitional provisions and savings in regs. 7, 9, Sch. 2)

[F1 489A Appointment of auditors of public company: additional requirements for public interest entities with audit committees U.K.

(1) This section applies to the appointment under section 489(4) of an auditor or auditors of a public company—

(a) which is also a public interest entity; and

(b) which has an audit committee.

(2) But it does not apply to the appointment of an Auditor General as auditor or one of the auditors of the company.

(3) Before an appointment to which this section applies is made—

(a) the audit committee of the company 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 does not accord with that recommendation, the reasons for not following the recommendation.

(4) Before the audit committee makes a recommendation or the directors make a proposal under subsection (3), the committee or directors must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , unless the company is—

(a) a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EC ; or

(b) a company with reduced market capitalisation within the meaning in Article 2(1)(t) of that Directive.

(5) 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 Article 16(6) of the Audit Regulation has been imposed on the company.

(6) Subsections (4) and (5) 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 subsection (7); or

(b) if—

(i) a selection procedure mentioned in subsection (8) 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.

(7) 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 company that begins on or after 17 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 company that begins on or after 17th June 2023.

(8) The selection procedures are—

(a) a selection procedure which is in accordance with subsections (4) and (5);

(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.

Textual Amendments

F1 Ss. 489A 489B inserted (17.6.2016) by The Statutory Auditors and Third Country Auditors Regulations 2016 (S.I. 2016/649), reg. 1(1)(a), Sch. 3 para. 8 (with reg. 1(12))

489B Appointment of auditors of public company: additional requirements for public interest entities without audit committees U.K.

(1) This section applies to the appointment under section 489(4) of an auditor or auditors of a public company—

(a) which is also a public interest entity; and

(b) which does not have an audit committee.

(2) But it does not apply to the appointment of an Auditor General as auditor or one of the auditors of the company.

(3) Before an appointment to which this section applies is made the directors must propose an auditor or auditors for appointment.

(4) Before the directors make a proposal under subsection (3), the directors must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation , unless the company is—

(a) a small or medium sized enterprise within the meaning in Article 2(1)(f) of Directive 2003/71/EU ; or

(b) a company with reduced market capitalisation within the meaning in Article 2(1)(t) of that Directive.

(5) Subsection (4) does 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 subsection (6); or

(b) if—

(i) a selection procedure mentioned in subsection (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 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 company 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 company that begins on or after 17th June 2023.

(7) The selection procedures are—

(a) a selection procedure which is in accordance with subsection (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. ]

Textual Amendments

F1 Ss. 489A 489B inserted (17.6.2016) by The Statutory Auditors and Third Country Auditors Regulations 2016 (S.I. 2016/649), reg. 1(1)(a), Sch. 3 para. 8 (with reg. 1(12))

490 Appointment of auditors of public company: default power of Secretary of State U.K.

(1) If a public company fails to appoint an auditor or auditors in accordance with section 489,[F2 489A or 489B] the Secretary of State may appoint one or more persons to fill the vacancy.

(2) Where subsection (2) of that section applies and the company fails to make the necessary appointment before the end of the accounts meeting, the company must within one week of the end of that meeting give notice to the Secretary of State of his power having become exercisable.

(3) If a company fails to give the notice required by this section, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(4) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

Textual Amendments

F2 Words in s. 490(1) inserted (17.6.2016) by The Statutory Auditors and Third Country Auditors Regulations 2016 (S.I. 2016/649), reg. 1(1)(a), Sch. 3 para. 9(2) (with reg. 1(12))

Modifications etc. (not altering text)

C2 Ss. 484-539 applied (with modifications) (1.10.2009) by The Unregistered Companies Regulations 2009 (S.I. 2009/2436), regs. 3-5, Sch. 1 para. 11 (with transitional provisions and savings in regs. 7, 9, Sch. 2)

491 Term of office of auditors of public company U.K.

(1) The auditor or auditors of a public company hold office in accordance with the terms of their appointment, subject to the requirements that—

(a) they do not take office until the previous auditor or auditors have ceased to hold office, and

(b) they cease to hold office at the conclusion of the accounts meeting next following their appointment, unless re-appointed.

[F3 (1A) The terms of appointment of an auditor or auditors of a public company which is also a public interest entity are subject to the additional requirement that the auditor or auditors cease to hold office at the end of the accounts meeting in respect of the first financial year which ends after the expiry of the maximum engagement period.

(1B) But subsection (1) does not apply to an Auditor General.

(1C) In this section—

• “the maximum engagement period” means, subject to subsection (1D) and section 491A (which makes transitional provision in relation to auditors appointed before 17th June 2016) whichever of the following periods is longest—

  (a)

  the period of ten years beginning with the first day of the first financial year in respect of which the auditor was appointed, or

  (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 that period, 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,

• “the relevant ten year period” means the period of ten years beginning with the first day of the last financial year—

  (a)

  which begins within ten years of the first day of the first financial year in respect of which the auditor was appointed, and

  (b)

  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—

  (a)

  the requirements of section 489A(4) and (5) if the company has an audit committee, or

  (b)

  the requirements of section 489B(4) if the company does not have an audit committee.

(1D) 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.

(1E) An auditor is ineligible for appointment as auditor of a public company which is also a public interest entity 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 subsection (1A) to hold office as auditor of that company, 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 subsection to hold office as auditor of that company.]

(2) This is without prejudice to the provisions of this Part as to removal and resignation of auditors.

Textual Amendments

F3 S. 491(1A)-(1E) inserted (17.6.2016) by The Statutory Auditors and Third Country Auditors Regulations 2016 (S.I. 2016/649), reg. 1(1)(a), Sch. 3 para. 10(2) (with reg. 1(12))

Modifications etc. (not altering text)

C3 Ss. 484-539 applied (with modifications) (1.10.2009) by The Unregistered Companies Regulations 2009 (S.I. 2009/2436), regs. 3-5, Sch. 1 para. 11 (with transitional provisions and savings in regs. 7, 9, Sch. 2)

[F4 491A Maximum engagement period: transitional arrangements U.K.

(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 company 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 company 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 company that begins on or after 17th June 2016; or

(ii) the last day of the period of ten years beginning with the first day of the first financial year of the company 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,

(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 section—

• “the relevant ten year period” means the period of ten years beginning with the first day of the last financial year—

  (a)

  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

  (b)

  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—

  (a)

  in relation to an accounting year beginning on or after 17th June 2016—

  (i)

  the requirements of section 489A(4) and (5), if the company has an audit committee,

  (ii)

  the requirements of section 489B(4) if the company does not have an audit committee,

  (b)

  in relation to an accounting year beginning before 17th June 2016, the requirement that the company 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 company 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 subsection (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.]

Textual Amendments

F4 S. 491A inserted (17.6.2016) by The Statutory Auditors and Third Country Auditors Regulations 2016 (S.I. 2016/649), reg. 1(1)(a), Sch. 3 para. 11 (with reg. 1(12))