Continuing with our series of articles looking at the Company Law Reform Bill, we now turn to look at some of the key provisions contained in Parts 15 and 16 of the Bill which contain the accounts and reports and audit provisions.
If adopted, the proposed reforms to this area of company law will allow the members of a company to approve the limitation of the company's auditors' liability. It is hoped that the reforms will improve the quality of the audit process and simplify the accounting, auditing and reporting requirements of the current law.
Subject to annual approval by the shareholders of the Company, auditors will be able to enter into contractual agreements with their clients to limit their liability in respect of the audits which are carried out by them. Such an agreement would allow them to limit their liability to such an amount as is "fair and reasonable in all the circumstances of the case" having regard to their responsibilities, their contractual obligations to the company and professional standards. No further detail is given as to what might be deemed to constitute "fair and reasonable" and so the courts will be required to form a view as to the scope of this expression. The published draft clause allows auditors to agree a monetary cap on their liability with their clients.
Proposals to increase transparency and strengthen the quality of the audit process include the requirement to publish both the engagement letters of auditors and the resignations of auditors, to give members the right to question auditors (although auditors will not be obliged to answer such questions) and to require audit reports to be signed. Where the auditor is a firm, signature should be by both a person authorised to sign on its behalf and the senior statutory auditor (pursuant to the relevant standards or guidance). There will be a new criminal offence of knowingly or recklessly giving an incorrect audit opinion, although there will be no change in who can sue an auditor.
The time limit for filing annual accounts at Companies House after a company's year-end will be reduced from ten months to seven months for private companies and from seven months to six months for public companies.
A new obligation of application only to listed companies is that they will now be required to make a preliminary statement of results and their annual accounts and reports available on their website. The information must be made available as soon as reasonably practicable and should not be subject to the payment of a fee.
Next edition, we shall provide a further update on the progress of the Company Law Reform Bill as a whole through the legislative process.