Auditors (Hansard, 25 July 1991)

§ Mr. Redwood

Yes. I have decided to recognise four supervisory bodies for company auditors under section 30 of the Companies Act 1989—the Institute of Chartered Accountants in England and Wales (ICAEW); the Institute of Chartered Accountants of Scotland (ICAS); the Institute of Chartered Accountants in Ireland (ICAO; and the Chartered Association of Certified Accountants (ACCA). I have also decided to recognise the accountancy qualifications offered by these four bodies as recognised professional qualifications for company auditors under section 32 of the Act. The rules and guidance of the four bodies, on the basis of which I have taken these decisions, include some amendments to those in the original applications. I shall be placing copies of the revised rules and guidance, excluding certain material supplied in confidence, in the Library of the House.

I am also actively considering an application from the Association of Authorised Public Accountants (AAPA) for recognition as a supervisory body, and expect to reach 839W a decision soon. Consideration of the application is not yet complete, but I am not aware at this stage of any problems in connection with it.

I have also received very recently an application from the Association of International Accountants (AIA) for recognition of its accountancy qualification. This application is under consideration.

In taking these decisions, I have had regard to the reports of the Director General of Fair Trading. The Director General found that the rules and guidance of the applicants relating to their professional qualifications were not likely to have significant anti-competitive effects. He reached the same conclusion on the applications to be recognised as a supervisory body, apart from the rules on ownership and control of audit firms. In the case of ACCA, he recognised that the rules were in line with the minimum requirements of the Act. The Director General did however find that the rules of the three institutes on the ownership and control of audit firms, which are more restrictive than the Act requires, were likely significantly to restrict, prevent or distort competition. Although he has welcomed some of the changes which the institutes have now made to their rules, these changes have not led him to alter this finding. I shall be placing a copy of his latest report in the Library.

Having considered the arguments carefully, I was not convinced that the anti-competitive effects identified by the Director General were likely to be significant; and I therefore decided to recognise the institutes as supervisory bodies on the basis of the revised ownership and control rules put forward by them; but I have indicated to the Director General that I would welcome a decision by him to review the operation of the new ownership and control rules in practice after two years.

The recognition of supervisory bodies for company auditors, and of professional audit qualifications, will clear the way for the commencement of the new regulatory arrangements for company auditors established by part II of the Companies Act 1989. I intend to bring the main operative provisions of part II into force from 1 October 1991. From that date, only firms and individuals who are members of a recognised supervisory body, and eligible for appointment as company auditors under the rules of that body, may accept new or renewed appointments as company auditors. Persons qualified as company auditors under existing legislation will however be able to complete after 1 October audit engagements accepted before then.

The commencement of part II will implement the UK's obligations under the eighth EC company law directive. It is designed to establish a new and effective regulatory regime for company auditors which will safeguard the traditional professional qualities of independence and integrity; introduce new monitoring arragements which will help the profession maintain high standards; and enable the profession to respond decisively to complaints or other evidence that one of its members may be falling short of those standards.