The Statutory Auditors Regulations 2017

11.  In regulation 36—

(a) in the modified version of section 485 (appointment of auditors: general), in subsection (5)(b), after “section 486” insert “or section 486A”;

(b) after the modified version of section 485 (appointment of auditors: general) insert—

“485A    Appointment of auditors: additional requirements for public interest entities with audit committees

(1) This section applies to the appointment under section 485(4) of an auditor or auditors of an LLP—

(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 LLP.

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

(a) the audit committee of the LLP must make a recommendation to the designated members in connection with the appointment, and

(b) the designated members must propose an auditor or auditors for appointment.

(4) Before the audit committee makes a recommendation or the designated members make a proposal under subsection (3), the committee must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation.

(5) The audit committee must in its recommendation—

(a) identify its first and second choice candidates for appointment, drawn from those auditors who have participated in a selection procedure under subsection (4),

(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 LLP.

(6) The designated members must include in their proposal—

(a) the recommendation made by the audit committee in connection with the appointment, and

(b) if the proposal of the designated members departs from the preference of the audit committee——

(i) a recommendation for a candidate or candidates for appointment drawn from those auditors who have participated in a selection procedure under subsection (4), and

(ii) the reasons for not following the audit committee’s recommendation.

(7) Where the audit committee recommends re-appointment of the LLP’s existing auditor or auditors, and the designated members are in agreement, subsections (4) and (5)(a) and (b) do not apply.

485B    Appointment of auditors: additional requirements for public interest entities without audit committees

(1) This section applies to the appointment under section 485(4) of an auditor or auditors of an LLP—

(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 LLP.

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

(4) Before the designated members make a proposal under subsection (3), they must carry out a selection procedure in accordance with Article 16(3) of the Audit Regulation, from which their proposed auditor or auditors must be drawn.

(5) Subsection (4) does not apply in relation to a proposal to re-appoint the LLP’s existing auditor or auditors.

485C    Restriction on appointment of auditor of LLP which is a public interest entity

(1) A person who has been, or will have been, auditor of an LLP which is a public interest entity for every financial year comprised in the maximum engagement period (see section 494ZA) may not be appointed as auditor of the LLP for any financial year which begins within the period of 4 years beginning with the day after the last day of the last financial year of the maximum engagement period.

(2) A person who is a member of the same network as the auditor mentioned in subsection (1) may not be appointed as auditor of the LLP for any financial year which begins within the period of 4 years mentioned in that subsection.

(3) This section does not apply in relation to an Auditor General.”;

(c) after the modified version of section 486 (appointment of auditor: default power of Secretary of State) insert—

“Defective appointments: default power of Secretary of State

486A.— (1) If—

(a) an LLP appoints, or purports to appoint, an auditor or auditors, and

(b) the appointment or purported appointment is made in breach of section 485A, 485B or 485C (requirements applying to appointment of auditors by public interest entities),

the Secretary of State may appoint another auditor or auditors in place of the auditor or auditors referred to in paragraph (a).

(2) The breach of section 485A, 485B or 485C does not invalidate any report made under Chapter 3 of this Part by the auditor or auditors on the LLP’s annual reports or accounts before the auditor or auditors are replaced under subsection (1) of this section.

(3) But where the breach in question is a breach of section 485C, sections 1248 and 1249 (Secretary of State’s power to require second audit for companies) apply as if—

(a) the LLP was a company;

(b) the auditor was not an appropriate person, or the auditors were not appropriate persons, for the period during which the audit was conducted.

(4) Within one week of becoming aware of the breach of section 485A, 485B or 485C, the LLP must give notice to the Secretary of State that the power under subsection (1) of this section has become exercisable.

(5) If the LLP fails to give the notice required by subsection (4), an offence is committed by—

(a) the LLP, and

(b) every member of the LLP who is in default.

(6) 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.”;

(d) in the modified version of section 487 (term of office of auditors), at the end of subsection (2)(d) insert—

“, or

(e) the auditor’s appointment would be in breach of section 485C.”.