Companies (Audit, Investigations and Community Enterprise) Act 2004
The key provisions of the Companies Act 2004 came into force on 6 April 2005. These include the strengthening of auditors' rights to information from directors and employees, the widened powers of the FRRP to obtain information from auditors, and the new regime for regulating auditors.
The prohibitions on companies indemnifying directors and on funding of a director's expenditure on defending proceedings are also relaxed as from 6th April.
Strengthening of auditors' rights to information
Company directors and employees, and any person accountable for the company's books or accounting records, and domestic subsidiaries (and their officers, employees and auditors) will have a statutory duty to respond to enquiries by the auditors. The duty will also extend to former officers, employees and auditors who were in post at the time to which the auditors' enquiries relate.
In the case of overseas subsidiaries, the auditors of a parent company will be able to require their client to obtain any information or explanations considered necessary for the audit. It is an offence for any individuals to fail to respond, or to delay responding, to the auditors' enquiries. It is also an offence to knowingly or recklessly make an oral or written statement to the auditors that is materially misleading, false or deceptive.
For accounting periods beginning on or after 1st April 2005, directors' reports must include a statement that, at the date on which the report is approved, no director has withheld information from the auditors which he/she knows, or ought to know, would be relevant to the audit.
FRRP to obtain information from auditors
From 6th April 2005, the Financial Reporting Review panel (FRRP) has the power to require any company, or its directors, employees or auditors, to produce documents, information and explanations that are relevant to the FRRP's investigation of the company's accounts.
The FRRP may also require information from former directors, employees or auditors who was in post at the time to which the enquiry relates.
Non-Audit Services
The provisions requiring companies to make detailed disclosure of audit and non-audit services provided by auditors, together with fee information, comes into force on 1 October 2005. These will apply in respect of financial years beginning on or after that date.