The Government has introduced a bill that hopes to restore investor
confidence in companies and auditors following the Enron and
Worldcom scandals. Consulting services carried out by auditors will
soon need to be disclosed.
The Companies (Audit, Investigations and Community Enterprise)
Bill will implement safeguards recommended after recent Government
reviews of the accountancy profession.
DTI Minister Jacqui Smith said:
"This Bill completes a comprehensive package
of measures aimed at restoring investor confidence in corporate
governance, company accounting and auditing practices here in
Britain. Its aim is to raise corporate performance across the board
and beyond."
In particular, the bill some tackles concerns over the
reliability of financial reporting and the independence of auditors
by:
- Requiring directors to state that they have not withheld any
relevant information from their auditors;
- Requiring companies to publish details of non-audit services
provided by their auditors;
- Imposing independent auditing standards, monitoring and
disciplinary procedures on the professional accountancy
bodies;
- Strengthening the role of the Financial Reporting Review Panel
(FRRP) in enforcing good accounting and reporting, by giving it new
powers to require documents and broadening its scope;
- Allowing the Inland Revenue to pass information about suspect
accounts to the FRRP.
The Bill will also increase powers to investigate companies
by:
- Giving investigators a new power to get relevant information
from anyone and widening their document-gathering powers;
- Providing statutory immunity from breach of confidence claims
for individuals volunteering information in specified
circumstances;
- Giving investigators the power to require entry to, and remain
on, premises without obtaining a warrant. This will make it easier
to require documents and other information and to see the business
in operation, but is not a search and seize power, which will still
require a court warrant.
- Allowing a refusal to provide information to be treated as a
contempt of court. This is a more flexible procedure than using
criminal proceedings, with a better prospect of getting the desired
information.
Community Interest Companies
The bill will also create community interest companies, or CICs:
a new type of company for social enterprises, or businesses that
use their profits for the benefit of the local community or the
wider public.
CICs will offer the certainty and flexibility of the standard
company, but with a new feature: a legal "lock" to ensure that
assets and profits will be used for the community interest, not
private gain.
CICs will face fewer legal restrictions than charities but will
not enjoy charity-style tax breaks. They will be commercial
enterprises, competing with other businesses, but for a social
aim.
CICs will also be:
- easy to set up;
- able to issue shares to raise investment (but the dividends
paid on those shares would be capped, to protect the "asset
lock");
- required to produce annual reports (which will be made publicly
available) on how they have pursued their social or community
objectives and how they have worked with their stakeholders;
- allowed to transfer assets to other suitable organisations,
such as other CICs or charities.
