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.