§ Mr. Rhodri MorganTo ask the Secretary of State for Wales if he will set out the guidelines for determining the audit arrangements for trading subsidiaries of local authorities and the relevant definitions for not-for-profit companies financed in whole or in part by local authorities causing them to be regarded as(a) privately influenced and (b) public sector influenced. [51312]
§ Mr. Ron DaviesThe basic framework for classifying local authorities' interests in companies is set out in Part V of the Local Government and Housing Act 1985. Section 69 of the Act describes the circumstances which would lead to a company being one which is treated as "influenced" by a local authority.
The Local Authorities (Companies) Order 1995 (SI 1995 No. 849) includes requirements applicable to companies subject to the influence of local authorities within the meaning of the 1989 Act.
In March 1995, the Welsh Office issued an explanatory guide to local authorities' interests in companies. Paragraphs 10 and 11 of this guide provides general advice on private sector influenced companies and public sector influenced companies. The question of which category an influenced company falls into is one for local authorities to decide in conjunction with their auditors and legal advisers.
386WNot all local authority trading subsidiaries are companies. Where such subsidiaries are not legally separate from the authority, auditors will be the same as that for the authority.
The Audit Commission is responsible for appointing auditors to local authorities in England and Wales. Appointed auditors should ensure that local authorities have complied with the provisions of the 1989 Act. This will include consideration of the classification of companies as well as other appropriate requirements. Auditors may also consider how local authorities have discharged their stewardship responsibilities in relation to transactions undertaken through the medium of a local authority company.
Audits of private sector or public sector influenced companies must be carried out by auditors registered under the Companies Acts, although the authority's auditor may seek assurance as to the adequacy of controls operated by the company to safeguard public funds.
In May 1996, the Audit Commission issued guidance to auditors on the audit approach to local authority companies in the form of Technical Release 11/96.
Copies of the Welsh Office guide to local authorities' interests in companies and of Technical Release 11/96 has been placed in the Library of the House.