The Statutory Auditors and Third Country Auditors (Amendment) Regulations 2011

Statutory Instruments

2011 No. 1856

Companies

Auditors

The Statutory Auditors and Third Country Auditors (Amendment) Regulations 2011

Made

19th July 2011

Laid before Parliament

26th July 2011

Coming into force in accordance with regulation 1(2), (3) and (4)

The Secretary of State is a Minister designated M1 for the purposes of section 2(2) of the European Communities Act 1972 M2 in relation to auditors and the audit of accounts.

The Secretary of State makes these Regulations in exercise of the powers conferred by section 2(2) of the European Communities Act 1972, and by sections 1239(1)(b), (2) and (5)(d), 1246(1) and 1292(1)(c) of the Companies Act 2006 M3 .

Marginal Citations

M1 S.I. 2007/1679.

M2 1972 c.68. Section 2(2) was amended by section 27 of the Legislative and Regulatory Reform Act 2006 (c.51) and section 3 of, and Part 1 of the Schedule to, the European Union (Amendment) Act 2008 (c.7).

M3 2006 c.46.

PART 1 U.K. Introduction

Citation, commencement and application U.K.

1.—(1) These Regulations may be cited as the Statutory Auditors and Third Country Auditors (Amendment) Regulations 2011.

(2) These Regulations, except for the provisions referred to in paragraphs (3) and (4), come into force on 1st September 2011.

(3) Regulations 2, 3, 5 and 6 come into force on 1st October 2011.

F1 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) A direction given under section 1242(4) of the Companies Act 2006 by virtue of the amendments made by regulation 4 does not apply in respect of the audit of accounts for a period beginning before 2nd July 2010.

(6) The amendments made by regulations 2, 3, 5 and 6 apply in relation to audits of accounts for periods beginning on or after 1st October 2011.

Textual Amendments

F1 Reg. 1(4) revoked (31.7.2013) by The Statutory Auditors and Third Country Auditors Regulations 2013 (S.I. 2013/1672), reg. 2, Sch.

PART 2 U.K. Amendment to the Companies (Audit, Investigations and Community Enterprise) Act 2004

Grants to bodies concerned with accounting standards etc U.K.

2.  In section 16(2)(f) of the Companies (Audit, Investigations and Community Enterprise) Act 2004 M4 (grants to bodies concerned with accounting standards etc) after “23(1)” insert “ , 23A(1) ”.

PART 3 U.K. Amendments to the Companies Act 2006

Restrictions on disclosure U.K.

3.  In section 1224A(2)(c) of the Companies Act 2006 M5 (restrictions on disclosure), after “(independent monitoring of certain audits)” insert “ , paragraph 23A(1) (independent monitoring of third country audits) ”.

Power to disapply duties of registered third country auditors U.K.

4.  In section 1242(4) of the Companies Act 2006 M6 (power to disapply duties of registered third country auditors)—

(a) after “in relation to” insert “(a)”; and

(b) at the end add—

“(b) audits of the accounts of a particular UK-traded non-EEA company or class of UK-traded non-EEA companies;

(c) audits by a particular registered third country auditor or class of registered third country auditors of the accounts of a particular UK-traded non-EEA company or class of UK-traded non-EEA companies.”.

Marginal Citations

M6 Section 1242 was amended by S.I. 2007/3494.

Recognised supervisory bodies U.K.

5.—(1) Schedule 10 to the Companies Act 2006 M7 (recognised supervisory bodies) is amended as follows.

(2) In paragraph 10A(4)(b) after “23” insert “ , 23A ”.

(3) In paragraph 13 (monitoring of audits)—

(a) in sub-paragraph (1)(a)—

(i) omit “in the case of members of the body who do not perform any statutory audit functions in respect of major audits,”;

(ii) after “of statutory audit functions” insert “ , other than statutory audit functions in respect of major audits, ”;

(b) omit the “and” at the end of sub-paragraph (1)(b);

(c) after sub-paragraph (1)(b) insert—

“(ba) in the case of members of the body who perform any third country audit functions, participate in arrangements within paragraph 23A(1); and”;

(d) in sub-paragraph (1)(c) after “statutory audit functions” insert “ or third country audit functions ”;

(e) for sub-paragraph (2) substitute—

“(2) Any monitoring of members of the body under the arrangements within paragraph 23(1) or 23A(1) is to be regarded (so far as their performance of statutory audit functions in respect of major audits, 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).”;

(f) in sub-paragraph (10) at the end insert—

““third country audit function” means any function related to the audit of a UK-traded non-EEA company.”.

(4) After paragraph 23 (arrangements for independent monitoring of major audits) insert—

“Arrangements for independent monitoring of third country audits

23A.— (1) The arrangements referred to in paragraph 13(1)(ba) are appropriate arrangements—

(a) for enabling the performance by members of the body of third country audit functions to be monitored by means of inspections carried out under the arrangements, and

(b) for ensuring that the carrying out of such monitoring and inspections is done independently of the body.

(2) Those arrangements must provide that the body performing the inspections—

(a) may decide that an inspection referred to in sub-paragraph (1) is not required, or that part of an inspection is not required, in relation to a member, and

(b) may direct that the arrangements referred to in sub-paragraph (3) apply in relation to the member or apply to such extent as may be specified in the direction.

(3) The supervisory body must have adequate arrangements for enabling the performance by its members of third country audit functions to be monitored by means of inspections for cases where a direction is given under sub-paragraph (2)(b).

(4) In this paragraph “third country audit function” means any function related to the audit of a UK-traded non-EEA company.”.

(5) In paragraph 24 (arrangements for independent investigation for disciplinary purposes)—

(a) in sub-paragraph (1)(a) after “the performance of statutory audit functions” insert “ or third country audit functions ”;

(b) in sub-paragraph (2) at the end insert—

““third country audit function” means any function related to the audit of a UK-traded non-EEA company.”.

(6) In paragraph 25(1)(arrangements to operate independently of body)—

(a) omit the “or” at the end of paragraph (c);

(b) after paragraph (c) insert—

“(ca) paragraph 23A(1)(b), or”.

(7) In paragraph 26 (funding of arrangements) after “23” insert “ , 23A ”.

(8) In paragraph 27 (scope of arrangement) after “23” insert “ , 23A ”.

Specified persons, descriptions, disclosures etc for the purposes of section 1224A U.K.

6.  In Schedule 11A to the Companies Act 2006 M8 (specified persons, descriptions, disclosures etc for the purposes of section 1224A)—

(a) in paragraph 16, after “23” insert “ or 23A ”;

(b) in paragraph 62, after “23(1)” insert “ or 23A(1) ” and after “bodies” insert “ and of UK-traded non-EEA companies ”.

PART 4 U.K. Amendments to the Statutory Auditors and Third Country Auditors Regulations 2007 (S.I. 2007/3494)

Registration of third country auditors U.K.

F2 7.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 Reg. 7 revoked (31.7.2013) by The Statutory Auditors and Third Country Auditors Regulations 2013 (S.I. 2013/1672), reg. 2, Sch.

PART 5 U.K. Final provisions

Exercise of functions of Secretary of State U.K.

8.  In article 4(1) of the Statutory Auditors (Delegation of Functions etc) Order 2008 M9 (transfer of Secretary of State functions to Professional Oversight Board) the reference to Part 42 of the Companies Act 2006 includes a reference to that Part as amended by these Regulations.

Marginal Citations

M9 S.I. 2008/496 amended by S.I. 2010/2537.

Transitional and saving provisions U.K.

9.  The amendments made by regulation 7 to the Statutory Auditors and Third Country Auditors Regulations 2007 do not apply in relation to—

(a) audits of accounts for periods beginning on or before 1st July 2010; and

(b) any application for registration delivered to the designated body before 1st September 2011.

Edward Davey

Minister for Employment Relations, Consumer and Postal Affairs

Department for Business, Innovation and Skills

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend section 1242 of, and Schedule 10 to, the Companies Act 2006 (“the Companies Act”), and the Statutory Auditors and Third Country Auditors Regulations 2007 (“SATCAR”). The Regulations give effect to Commission Decision 2011/30/EU of 19th January 2011 (O.J. L15, 20.1.2011, p.12) (“the Commission Decision”) on the equivalence of certain third country public oversight, quality assurance, investigation and penalty systems for auditors and audit entities and a transitional period for audit activities of certain third country auditors and audit entities in the European Union. That Decision was made under Article 46(2) of Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (O.J. L157, 9.6.2006, p.87) (“the Audit Directive”).

Regulation 4 amends section 1242(4) of the Companies Act to enable the Secretary of State to disapply the provisions requiring participation by auditors in arrangements for independent monitoring of audits by means of inspections and for independent investigations for disciplinary purposes where the audit is of a company or class of company incorporated in a third country whose securities are listed in the UK and relates to a financial period commencing on or after 2nd July 2010. This amendment is necessary to give effect to the provisions of Articles 1 and 2.1 of the Commission Decision.

Regulation 5 amends Schedule 10 to the Companies Act to provide that the audits by statutory auditors (as defined in section 1210 of the Companies Act) of companies incorporated in a third country whose securities are listed in the UK may be subject to inspection. This amendment is necessary for the full implementation of the Audit Directive and the Commission Decision. Regulations 2, 3 and 6 make consequential amendments.

Regulation 7 amends the provisions of SATCAR on the registration of auditors of companies incorporated in a third country whose securities are listed in the UK. The amendments remove the category of exempt third country auditor introduced into SATCAR by the Statutory Auditors and Third Country Auditors (Amendment) (No. 2) Regulations 2008 (S.I. 2008/2639) and require all applicants for entry on the register of third country auditors to provide specified information. They introduce a category of “equivalent third country” to give effect to Article 1 of the Commission Decision and amend the list of specified third countries. The amendments allow the designated body (the Professional Oversight Board of the Financial Reporting Council) to give effect to the provisions of the Commission Decision. The registration requirements of SATCAR are subject to the Secretary of State's powers of direction under section 1239(7) of the Companies Act. Regulation 9 makes transitional provision.

Regulation 8 makes minor consequential amendment to the Statutory Auditors (Delegation of Functions etc) Order 2008 (S.I. 2008/496).

A transposition note has been prepared which sets out how Directive 2006/43/EC is transposed into UK law, updated to reflect the implementation of Commission Decision 2011/30/EU. An Impact Assessment of the effect of the implementation of Directive 2006/43/EC on the costs of business, charities or voluntary bodies was also prepared. Both are available from the Department for Business, Innovation and Skills, 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. The transposition note is annexed to the Explanatory Memorandum which is published alongside the instrument on www.legislation.gov.uk.