New provisions

Part 16 CA 06: ss475-539

When in force

6 April 2008 (except s485-488 on private company auditor appointments which came into force on 1 October 2007).

Companies affected

All companies (although certain provisions apply to certain types of company only).

Summary of Changes


  • The law on appointment of private company auditors is consequentially amended to reflect that private companies are no longer required to hold AGMs (ss485-488).
  • A private company’s auditor will be deemed automatically re-appointed unless the articles require re-appointment, the appointment was made by the directors, the deemed reappointment is prevented by the members, or the directors resolve no auditor is to be appointed for that financial year (s487(2)).
  • The Secretary of State has new power to make regulations requiring disclosure of the terms of audit appointments (s493).

The Auditor’s report

  • Where the auditor is a firm, the auditor’s report must be signed by a senior statutory auditor in his own name and on behalf of the auditor. The holder of the position of senior statutory auditor must meet standards issued by the European Commission or, in their absence, guidance from the Secretary of State (s504). No additional civil liability attaches to this person.
  • A new criminal offence is committed where an auditor knowingly or recklessly causes an auditor’s report to include any matter that is misleading, false or deceptive in a material particular (s507(1)), or where a person knowingly or recklessly omits from the auditor’s report certain statements required by CA 06 (s507(2)).

Leaving office

  • An auditor of a quoted company must always deposit at the company’s registered office a statement of the circumstances connected with his ceasing to hold office (s519). This changes the position under CA 85 where a statement was only required where the auditor considered there were relevant circumstances. This remains the position for unquoted companies.
  • There is a new duty on a company to notify the appropriate audit authority whenever an auditor leaves office before the end of his term (s523), accompanied with a copy of the s519 statement or a statement by the company of the reasons for the auditor ceasing to hold office. The company must give notice not later than 14 days after the date the auditor deposited his statement with the company. Different notification bodies apply depending on whether the company is classed as a “major audit” (a listed company or a company where there is a major public interest).

Liability Limitation Agreements

  • Auditors are permitted to agree to limit their liability by contract to a company for audit work. This will be the subject of a separate Practitioner Alert.

Website publication of audit concerns

  • There is a new right for members of quoted companies to require website publication of matters relating to the departure of an auditor or the audit of accounts which members propose to raise at the next AGM (s527). Requests may be made by members with specified minimum voting or share entitlements.

Implications for practice

  • Companies should be aware of the time limit in relation to their duty to notify the audit authority under s523 on an auditor leaving office before the end of this term.
  • Quoted companies will need to ensure they have procedures in place for website publication prior to these provisions coming into force.

March 2008




Peter Brien (partner)

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