Schedule 35 Local audit: registration bodies, registered providers and qualificationsI1

In the Local Audit and Accountability Act 2014, after Schedule 1A (inserted by Schedule 34 to this Act) insert—

“Schedule 1B

External registration bodies

Section 6B(7)

Provision of information to the Local Audit Office

1

(1)

An external registration body must comply with any written request by the Local Audit Office to be provided with information.

(2)

Such a request may relate to information as it exists in the future (for instance, information about a future occurrence once it has occurred or about a future period once it has elapsed).

(3)

The Office may make such a request only if the Office reasonably requires the information concerned in connection with the performance of its functions.

Directions to secure compliance

2

(1)

If the Local Audit Office considers that an external registration body has failed to comply with a requirement under—

(a)

this Act, or

(b)

an agreement under section 6B(5),

the Office may give the body a direction under this paragraph.

(2)

A direction under this paragraph is one directing the body to take steps that the Office considers will—

(a)

secure that the requirement in question is complied with, or

(b)

mitigate the effect, or prevent the recurrence, of the failure of compliance.

(3)

Such a step—

(a)

must be one that the body has the power to take;

(b)

may consist of not doing something.

(4)

A direction under this paragraph must—

(a)

explain the Office’s reasons for giving the direction, and

(b)

specify the time by which the direction must be complied with.

Financial penalties

3

(1)

If the Local Audit Office considers that an external registration body has failed to comply with a requirement under—

(a)

this Act, or

(b)

an agreement under section 6B(5),

the Office may impose a financial penalty on the body.

(2)

A financial penalty is imposed by giving the body a written notice requiring the body to pay the Office a financial penalty of a sum specified in the notice.

(3)

Such a notice must—

(a)

explain the Office’s reasons for imposing the penalty, and

(b)

specify the time by which, and manner in which, the penalty must be paid.

(4)

An external registration body must, as soon as practicable after the end of a financial year, notify the Office of its total income in that year from fees charged under section 6A(5).

(5)

The amount of a penalty imposed on a body under this paragraph may not exceed 30% of the sum last notified by the body under sub-paragraph (4).

Directions and penalties: procedure etc

4

(1)

Before giving a direction under paragraph 2 or imposing a penalty under paragraph 3, the Local Audit Office must—

(a)

give the body a notice of intent, and

(b)

consider any representations made by the body in response to (and in accordance with) that notice.

(2)

A notice of intent is a notice that—

(a)

states the Office’s intention to give the direction or impose the penalty,

(b)

sets out the intended terms of the direction or of the notice imposing the penalty,

(c)

explains the Office’s reasons for intending to give the direction or impose the penalty, and

(d)

specifies the time by which, and manner in which, representations may be made.

(3)

Where the Office has given a direction under paragraph 2 or imposed a penalty under paragraph 3, the Office may by written notice given to that body—

(a)

cancel the direction or penalty, or

(b)

vary the direction, or the notice imposing the penalty, in any way that does not make it more onerous.

(4)

The Office must publish—

(a)

a direction under paragraph 2,

(b)

a notice imposing a penalty under paragraph 3, and

(c)

any notice cancelling or varying such a direction or notice.

(5)

But it must do so only after the direction or penalty can no longer be cancelled or varied on appeal (ignoring any possibility of an appeal out of time).

(6)

If a penalty imposed under paragraph 3 is not paid in time—

(a)

the penalty (or the unpaid part of it) carries interest at the rate for the time being specified in section 17 of the Judgments Act 1838;

(b)

the Office may recover the penalty (or the unpaid part of it), with the interest, as a debt.

Directions and penalties: appeals

5

(1)

An external registration body may appeal to the High Court against a direction given to it under paragraph 2 or a penalty imposed on it under paragraph 3.

(2)

The grounds on which an appeal may be brought are—

(a)

that the failure of compliance on the grounds of which the direction was given or the penalty was imposed did not occur, or

(b)

that any of the following is unreasonable—

(i)

the decision to give the direction or impose the penalty;

(ii)

any of the terms of the direction;

(iii)

the amount of the penalty, or the time or manner of its payment.

(3)

If satisfied that any of those grounds is made out, the court must allow the appeal and do whichever of the following it considers appropriate—

(a)

cancel the direction or penalty, or

(b)

vary the direction or the notice imposing the penalty.

(4)

Otherwise, the court must dismiss the appeal.

(5)

The court may—

(a)

make an interim order suspending the effect of a direction or penalty appealed against under this paragraph;

(b)

if it allows an appeal under this paragraph against a penalty, make any order as to interest that it considers appropriate (including an order varying the effect of paragraph 4(6)(a)).

Compliance orders by the court

6

(1)

This paragraph applies if the High Court is satisfied, on an application by the Local Audit Office, that an external registration body has failed to comply with a requirement under—

(a)

this Act, or

(b)

an agreement under section 6B(5).

(2)

The court may order the body to take steps that the court considers will secure that the requirement in question is complied with.

(3)

Such a step—

(a)

must be one that the body has the power to take;

(b)

may consist of not doing something.

(4)

This court may not make an order under this paragraph in respect of the requirement to comply with a direction under paragraph 2 unless it is satisfied that the failure of compliance on the ground of which the direction was given did in fact occur.

Directions with respect to international obligations

7

(1)

If it appears to the Secretary of State or the Local Audit Office—

(a)

that any action proposed to be taken by an external registration body would be incompatible with assimilated obligations or any other international obligations of the United Kingdom, or

(b)

that any action which an external registration body has power to take is required for the purpose of implementing any such obligations,

the Secretary of State or the Office may direct the body not to take or, as the case may be, to take the action in question.

(2)

A direction under this paragraph—

(a)

may include such supplementary or incidental requirements as the Secretary of State or the Office thinks necessary or expedient, and

(b)

may be varied or cancelled by written notice to the body concerned.

(3)

A direction under this paragraph is enforceable by injunction issued by the High Court on the application of the Secretary of State or the Office.

Exemption from liability in damages

8

(1)

No person within sub-paragraph (2) is to be liable in damages for anything done or omitted in the discharge or purported discharge of functions to which this sub-paragraph applies.

(2)

The persons within this subsection are—

(a)

an external registration body,

(b)

an officer or employee of such a body, and

(c)

a member of the governing body of such a body.

(3)

Sub-paragraph (1) applies to the functions of an external registration body so far as relating to, or to matters arising out of, any of the following—

(a)

rules and arrangements made for the purposes of Schedule 1C or any agreement under section 6B(5)(a), or

(b)

any guidance or recommendation within sub-paragraph (4).

(4)

Guidance or a recommendation is within this sub-paragraph if—

(a)

it is issued or made by the external registration body to all or any class of the persons who are or are seeking to become—

(i)

registered in the body’s local audit register, or

(ii)

listed in accordance with paragraph 6 of Schedule 1C (list of firm’s lead partners), and

(b)

it is relevant for the purposes of this Act,

including any guidance or recommendation relating to entry in or removal from the register or list.

(5)

Sub-paragraph (1) does not apply—

(a)

if the act or omission is shown to have been in bad faith, or

(b)

so as to prevent an award of damages in respect of the act or omission on the ground that it was unlawful as a result of section 6(1) of the Human Rights Act 1998 (acts of public authorities incompatible with Convention rights).

Schedule 1C

Eligibility and regulation of registered providers

Section 6C(1)

Introduction

1

(1)

The following paragraphs set out the requirements that have effect in relation to a local audit register as provided by section 6C(1).

(2)

In this Schedule as it applies in relation to a given register—

• “provider” means an individual or firm entered in that register;

• “the registration body” means the body keeping that register.

Eligibility criteria and procedures

2

(1)

The registration body must have in place—

(a)

criteria for being entered, and remaining, in the register, and

(b)

procedures for entry in, and removal from, the register.

(2)

The procedures must allow for appeals to be made to a person who will determine the appeal independently of the maker of the decision appealed against.

Registration rules

3

(1)

The registration body must secure that each provider is bound by rules determined by the body.

(2)

Those rules are referred to in this Schedule as “registration rules”.

(3)

Any changes in the body’s registration rules after its designation must be approved by the Local Audit Office.

(4)

The body must have arrangements for taking account, in framing its registration rules, of the cost to providers of complying with those rules and any other controls to which they are subject.

Professional qualifications

4

(1)

The criteria and procedures in place under paragraph 2 must be designed to secure that—

(a)

an individual—

(i)

may be entered in the register only if the individual meets the qualification requirement, and

(ii)

is to be removed from the register as soon as possible after ceasing to meet that requirement;

(b)

a firm—

(i)

may be entered in the register only if the firm meets the qualified control requirement, and

(ii)

is to be removed from the register before the end of the period of 3 months beginning with the day on which the firm ceases to meet that requirement.

(2)

See Part 1 of Schedule 1D for the requirements referred to in sub-paragraph (1).

Professional integrity and independence

5

(1)

The registration rules must include rules designed to secure that—

(a)

audits under this Act are conducted properly and with integrity, and

(b)

providers are not appointed as local auditors in circumstances in which they have an interest likely to conflict with the proper conduct of the audit.

(2)

The criteria and procedures in place under paragraph 2 must be designed to secure that a firm—

(a)

may be entered in the register only if the firm has in place adequate arrangements within sub-paragraph (3), and

(b)

is to be removed from the register as soon as possible after ceasing to have such arrangements.

(3)

The arrangements within this sub-paragraph are arrangements to prevent a person to whom sub-paragraph (4) applies from being able to exert any influence over the way in which an audit under this Act is conducted in circumstances in which that influence would be likely to affect the independence or integrity of the audit.

(4)

This sub-paragraph applies to—

(a)

any person who is not a member of the firm, and

(b)

any individual who is a member of the firm but does not meet the qualification requirement for the purposes of paragraph 4(1)(a).

Lead partners

6

(1)

The registration body must secure that the register includes, for each provider that is a firm, a list of the individuals who may act as the lead partner for an audit carried out by the firm.

(2)

The registration body must have arrangements designed to secure that an individual appears in the list only if the individual—

(a)

meets the qualification requirement (see paragraph 1 of Schedule 1D),

(b)

otherwise has the necessary competence to act as the lead partner for an audit, and

(c)

is bound by rules determined by the body (which are referred to in this Schedule as “lead partner rules”).

(3)

Any changes in the body’s lead partner rules after its designation must be approved by the Local Audit Office.

(4)

The registration body must have lead partner rules designed to secure that individuals acting as lead partners for audits under this Act maintain high standards of professional conduct.

Complaints procedures

7

(1)

The registration body must have effective arrangements for the investigation of complaints against providers, so far as relating to their work in connection with audits under this Act.

(2)

The registration body must have effective arrangements for the investigation of complaints against itself, so far as relating to its functions as a registration body.

Meeting of claims

8

(1)

The registration body must have in place registration rules or other arrangements designed to secure that providers take such steps as may reasonably be expected of them to secure that they are able to meet claims against them arising out of their work in connection with audits under this Act.

(2)

This may be achieved by professional indemnity insurance or other appropriate arrangements.

Monitoring and inspections

9

(1)

The registration body must have in place—

(a)

arrangements for monitoring compliance with its registration rules and lead partner rules,

(b)

arrangements for the inspection of providers in connection with their work in connection with audits under this Act,

(c)

registration rules designed to secure that providers co-operate with the monitoring and inspections, and

(d)

lead partner rules designed to secure that individuals bound by the rules co-operate with the monitoring.

(2)

The arrangements relating to inspections must be designed to secure that each provider is inspected at least once every 6 years.

(3)

Those arrangements must include—

(a)

provision for the results of any inspections not carried out by the registration body to be reported to the registration body, and

(b)

in the case of an external registration body, provision for the results of any inspections not carried out by the Local Audit Office to be reported to the Office.

Enforcement

10

(1)

The registration body must have in place—

(a)

arrangements for the investigation of suspected breaches by providers or lead partners,

(b)

registration rules and lead partner rules designed to secure that providers and lead partners co-operate with any investigations,

(c)

arrangements for the imposition of sanctions in respect of breaches that are established, and

(d)

registration rules and lead partner rules designed to secure that providers and lead partners are bound by any sanctions.

(2)

In sub-paragraph (1), “breaches” means breaches of requirements imposed by or under this Act (including by registration rules or lead partner rules).

(3)

The available sanctions must include financial penalties.

(4)

The arrangements and rules must allow for appeals to be made to a person who will determine the appeal independently of the maker of the decision appealed against.

(5)

The arrangements and rules must allow for the Local Audit Office to be able—

(a)

to determine that a particular case raises or appears to raise important issues affecting the public interest, and

(b)

to assume enforcement responsibility in a case in which it has made such a determination.

(6)

For the purposes of sub-paragraph (5), the Office assumes enforcement responsibility if it assumes responsibility for the final decision (subject to any appeal) as to—

(a)

whether the requirement or rule in question has been breached, and

(b)

if so, the sanction to be imposed.

Provision and publication of information

11

(1)

The registration rules must require a provider to comply with any written request for the provision of information made by the registration body or (if different) the Local Audit Office for the purposes of its functions.

(2)

The registration rules must require a provider to comply with any general directions published from time to time by the Local Audit Office regarding the publication of information about providers.

(3)

That information may, for instance, include information regarding—

(a)

a provider’s ownership and governance,

(b)

a provider’s internal controls with respect to the quality and independence of its audit work,

(c)

a provider’s turnover, and

(d)

the relevant authorities whose accounts a provider has audited under this Act.

Schedule 1D

Professional qualifications

Section 6D

Part 1

Requirements for registered providers

Qualification requirement for individuals

1

(1)

This paragraph applies for the purposes of paragraph 4(1)(a) of Schedule 1C.

(2)

An individual meets the qualification requirement if the individual—

(a)

holds an appropriate qualification, or

(b)

falls within paragraph 4 or 5 of this Schedule.

Qualified control requirement for firms

2

(1)

This paragraph applies for the purposes of paragraphs 4(1)(b) and 6(2)(a) of Schedule 1C.

(2)

A firm meets the qualified control requirement if—

(a)

a majority of the members of the firm are qualified persons, and

(b)

where the firm’s affairs are managed by a board of directors, committee or other management body—

(i)

a majority of that body are qualified persons, or

(ii)

if the body consists of two persons only, at least one of them is a qualified person.

(3)

The following provisions apply for the purposes of sub-paragraph (2).

(4)

An individual is a qualified person if the individual—

(a)

holds an appropriate qualification, or

(b)

falls within paragraph 4 or 5 of this Schedule.

(5)

A firm is a qualified person if the firm—

(a)

meets the criteria to become a registered local audit provider, or

(b)

is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006.

(6)

A majority of the members of a firm means—

(a)

where under the firm’s constitution matters are decided upon by the exercise of voting rights, members holding a majority of the rights to vote on all, or substantially all, matters;

(b)

in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its constitution.

(7)

A majority of the members of the management body of a firm means—

(a)

where matters are decided at meetings of the management body by the exercise of voting rights, members holding a majority of the rights to vote on all, or substantially all, matters at such meetings;

(b)

in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its constitution.

(8)

Paragraphs 5 to 11 of Schedule 7 to the Companies Act 2006 (rights to be taken into account and attribution of rights) apply for the purposes of sub-paragraphs (6) and (7) as they apply for the purposes of section 1162 of that Act.

“Appropriate qualification”

3

(1)

The Secretary of State may by regulations provide for a qualification to be an appropriate qualification for the purposes of paragraphs 1 and 2 if—

(a)

it is a professional qualification in accountancy,

(b)

it is obtained from a body established in the United Kingdom (whether a body corporate or an unincorporated association), and

(c)

it meets, or the Secretary of State thinks that it meets, specified requirements.

(2)

The regulations may, in particular, provide for a qualification to be an appropriate qualification if it is recognised in accordance with the regulations.

(3)

Regulations under this paragraph that contain provision under sub-paragraph (2) may in particular—

(a)

provide for the making (by the Secretary or State or otherwise) of an order (a “recognition order”) recognising a qualification;

(b)

make provision about applications for a recognition order;

(c)

provide for the giving of directions or imposition of requirements in connection with such applications;

(d)

make provision about the circumstances in which the making of a recognition order may or must be refused;

(e)

make provision about the steps to be taken on making or refusing to make a recognition order;

(f)

provide for a recognition order to be revoked by a further order (a “revocation order”);

(g)

make provision about the circumstances in which a revocation order may or must be made;

(h)

make provision about the date on which a revocation order may or must take effect;

(i)

provide for a revocation order to contain transitional provision;

(j)

make provision about the steps to be taken by the person making a revocation order before or on making it.

(4)

The requirements that may be specified for a qualification to be an appropriate qualification or to be the subject of a recognition order include, in particular, requirements as to—

(a)

the persons to whom the qualification is open;

(b)

the course of instruction undertaken by persons to whom the qualification is awarded;

(c)

the professional experience of such persons;

(d)

the examinations passed by such persons;

(e)

the practical training undertaken by such persons;

(f)

the rules and arrangements of the body offering the qualification for ensuring or monitoring compliance with other specified requirements.

(5)

Regulations under this paragraph may in particular—

(a)

provide for exceptions to a specified requirement;

(b)

confer power to give or withhold recognition or approval for the purposes of a specified requirement.

(6)

In this paragraph, “specified” means specified in regulations under this paragraph.

Cases in which an individual need not hold appropriate qualification: domestic cases

4

(1)

An individual falls within this paragraph if any of the following sub-paragraphs applies in respect of the individual.

(2)

This sub-paragraph applies where the individual holds an appropriate qualification for the purposes of Chapter 2 of Part 42 of the Companies Act 2006 (eligibility of individuals and firms to act as statutory auditors) (see section 1219 of that Act).

(3)

This sub-paragraph applies where, immediately before 16 December 2014, the individual was qualified for appointment as an auditor under section 3 of the Audit Commission Act 1998 by virtue of the individual’s membership of a body listed in subsection (7) of that section.

(4)

This sub-paragraph applies where—

(a)

before 16 December 2014, the individual began a course of study or practical training leading to a professional qualification in accountancy offered by a body listed in section 3(7) of the Audit Commission Act 1998,

(b)

the person would have been qualified for appointment as an auditor under section 3 of that Act by virtue of subsection (5)(b) of that section if that qualification had been obtained before that date, and

(c)

the person obtained that qualification within the period of 6 years beginning with that date.

Cases in which an individual need not hold appropriate qualification: overseas cases

5

(1)

An individual falls within this paragraph if any of the following sub-paragraphs applies in respect of the individual.

(2)

This sub-paragraph applies where the individual—

(a)

is eligible to conduct audits of the accounts of bodies corporate incorporated or formed under the law of a third country in accordance with the law of that country, and

(b)

holds a professional qualification which covers all the subjects that—

(i)

are covered by an appropriate qualification, and

(ii)

are subjects of which knowledge is essential for the pursuit of the profession of local auditor.

(3)

This sub-paragraph applies where the individual is a specified state auditor who—

(a)

holds professional qualifications obtained in a specified state that are comparable to an appropriate qualification, and

(b)

has met a requirement to take an aptitude test or to complete an adaptation period, or to undertake both, imposed on the individual in accordance with Part 2 of the principal Recognition Regulations, if such a requirement is so imposed.

(4)

This sub-paragraph applies where the individual is an EEA auditor who, on or before 31 December 2020, was eligible for appointment as a local auditor by virtue of paragraph 6(1)(b) of Schedule 10 to the Companies Act 2006 as substituted by paragraph 28(3) of Schedule 5 to this Act.

(5)

This sub-paragraph applies where the individual has been authorised to act as a local auditor pursuant to the European Communities (Recognition of Professional Qualifications) Regulations 2007 (S.I. 2007/2781), and complies with the requirements of those Regulations that apply to a person acting as a local auditor.

(6)

In this paragraph—

• “EEA auditor” has the meaning given by paragraph 20A(1) of Schedule 10 to the Companies Act 2006;

• “the principal Recognition Regulations” means the Recognition of Professional Qualifications and Implementation of International Recognition Agreements (Amendment) Regulations 2023 (S.I. 2023/1286);

• “specified state” means one of the states specified in Schedule 1 to the principal Recognition Regulations;

• “specified state auditor” means an individual who is eligible to conduct audits of the accounts of bodies corporate that are incorporated or formed under the law of a specified state in accordance with the law of that state;

• “third country” means a country or territory outside the United Kingdom.

Part 2

Recognised qualifying bodies

“Recognised qualifying body”

6

In this Act, “recognised qualifying body” means a body that offers a qualification that is an appropriate qualification by virtue of regulations under paragraph 3(1) of Schedule 1C.

Fees

7

The Secretary of State may by regulations provide for the payment of fees by a body in respect of its—

(a)

making an application that would result in its becoming a recognised qualifying body, or

(b)

becoming such a body further to an application made by it, or

(c)

remaining such a body, having become so further to an application made by it.

Directions to secure compliance with international obligations

8

(1)

If it appears to the Secretary of State—

(a)

that any action proposed to be taken by a recognised qualifying body would be incompatible with assimilated obligations or any other international obligations of the United Kingdom, or

(b)

that any action which a recognised qualifying body has power to take is required for the purpose of implementing any such obligations,

the Secretary of State may direct the body not to take or, as the case may be, to take the action in question.

(2)

A direction under this paragraph may include such supplementary or incidental requirements as the Secretary of State thinks necessary or expedient.

(3)

A direction under this paragraph is enforceable by injunction by the High Court on the application of the Secretary of State.

Delegation of functions

9

(1)

The Secretary of State may by regulations—

(a)

provide for the Secretary of State’s functions under paragraph 7 or 8 to be exercisable, concurrently with the Secretary of State, by another person designated in the regulations;

(b)

make the designated person’s ability to exercise the functions subject to exceptions or reservations;

(c)

confer on the designated person such other functions supplementary or incidental to those under this paragraph as appear to the Secretary of State to be appropriate;

(d)

make provision about the application of the Freedom of Information Act 2000 to the designated person.

(2)

Regulations under this paragraph do not have the effect that—

(a)

the designated person is to be regarded as acting on behalf of the Crown, or

(b)

that its members, officers or employees are to be regarded as Crown servants.

(3)

Where regulations under this paragraph apply to the making of regulations under paragraph 7—

(a)

section 43(1) and (5) does not apply to regulations made by the designated person;

(b)

the designated person may not make regulations without the approval of the Secretary of State;

(c)

the Secretary of State may, after consultation with the body, by regulations vary or revoke any regulations made by the designated person;

(d)

any regulations made by the designated person must be published immediately after they are made;

(e)

a person is not to be taken to have contravened such regulations if the person shows that at the time of the alleged contravention the regulations had not been published;

(f)

the production of a printed copy of regulations purporting to be made by the designated person on which is endorsed a certificate signed by or on behalf of that person and stating—

(i)

that the regulations were made by the person,

(ii)

that the copy is a true copy of the regulations, and

(iii)

that on a specified date the regulations were published,

is evidence of the facts stated in the certificate;

(g)

a certificate purporting to be signed as mentioned in paragraph (f) is to be deemed to have been duly signed unless the contrary is shown;

(h)

any person wishing in any legal proceedings to cite regulations made by the designated person may require that person to cause a copy of them to be endorsed with a certificate as mentioned in paragraph (f).”