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John Selwood's Q&As

This month, John looks at changes to auditor cessation, and considers the new possibilities opened up by the growth of data analytics.

Question: Have there been some recent changes to the procedures for auditor cessation? If so, what are they, when do they apply and how can I learn more about them?

Answer: Your first question has a very short answer: Yes. Answering your second question will require many more words – and the answer will be less definitive. There are significant changes to Companies Act 2006 (‘the Act’) around auditor cessation, but the good news for most auditors is that the changes are deregulatory. They apply from periods commencing on or after 1 October 2015.

They affect the reporting when auditors cease to hold office in a number of ways and change both auditor and company responsibilities.

In this Q&A, space does not permit me to explain every change in detail, so I will briefly outline what I consider to be the headline changes.

S519 and the statement of circumstances

Previously, auditors were always required to produce a statement of circumstances, or more commonly a statement of no circumstances, under s519 of the Act.

Under the now revised s519(1), certain exceptions have been introduced for auditors of non-public interest entity companies, where:

  • the auditor’s term of office has come to an end; or
  • the auditor ceases to hold office during their term of office and their reasons are ‘exempt’ reasons, and there are no connected matters which the auditor considers need to be brought to the attention of creditors or members of the company.

Exempt reasons for the purpose of s519 include:

  • the auditor ceases to practise as an auditor;
  • the company that the auditor is ceasing to act for qualifies for one of the exemptions from audit under the Act;
  • the auditor is ceasing to act for a ‘subsidiary’ company of a UK incorporated parent, because the accounts of the subsidiary are to be audited as part of the audit of the group accounts by the parent company auditor; and
  • the company that the auditor is ceasing to act for is being liquidated through an insolvency procedure.

It is important to note that auditors of public interest companies will continue to send the company a statement of circumstances (referred to as a ‘statement of reasons’ for periods commencing on or after 1 October 2015), without exception.

This is an extract from an article in the October 2016 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.

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