Sections 199 to 203 of the Companies Act 1997 set out what the auditor must do, and what the company must let them do.
Section 199 — a report to the shareholders
(1) The auditor shall make a report to the shareholders on the financial statements audited by him.
(2) The report shall state the matters required by section 200 or section 201, as the case may be.
Note who the report is addressed to: the shareholders, not the board. That is the structural point of an audit — it is the shareholders’ check on the directors who prepared the accounts.
Section 200 — the report on a reporting company
(a) the work done by the auditor; and
(b) the scope and limitations of the audit; and
(c) the existence of any relationship (other than that of auditor) which the auditor has with, or any interests which the auditor has in, the reporting company or any of its subsidiaries; and
(d) whether the auditor has obtained all information and explanations that he has required; and
(e) whether, in the auditor’s opinion, so far as appears from an examination of them, proper accounting records have been kept; and
(f) whether, in the auditor’s opinion, the statements comply with generally accepted accounting practice, and where they do not, the respects in which they fail; and
(g) whether, in the auditor’s opinion — having regard to any information or explanations added under section 180(2) or 182(2) — the statements give a true and fair view of the matters to which they relate, and where they do not, the respects in which they fail.
The auditor must state whether, in their opinion, proper accounting records have been kept. A qualification on that point is a public statement that section 188 has not been complied with — and section 348A imposes personal liability on directors where proper accounting records were not kept.
Paragraph (c) is the transparency counterpart of the independence rules in sections 193 and 198: any relationship or interest short of outright disqualification must be disclosed in the report.
Where the auditor’s report indicates that the requirements have not been complied with, the auditor shall, within seven days after completing the report, submit a copy of the report and of the statements to the Registrar — who shall forthwith send copies to the Accounting Standards Board.
The obligation is on the auditor, not the company, and the timetable is short — seven days. Neither the board nor the shareholders can prevent it. That makes a qualified audit report a matter for the Registrar and the standard-setter, not merely an internal disagreement.
Section 201 — the report on an exempt company
(a) the work done; (b) the scope and limitations; (c) any relationship or interest the auditor has with or in the exempt company; (d) whether the auditor obtained all information and explanations required; (e) whether proper accounting records have been kept; and (f) whether the statements comply with section 180, and where they do not, the respects in which they fail.
First, paragraph (f) asks only about compliance with section 180 — generally accepted accounting practice and the true and fair addition — rather than separately about applicable financial reporting standards and a true and fair view. Second, there is no section 200(2) equivalent: an exempt company’s qualified report does not go automatically to the Registrar.
Section 201 applies “where the financial statements of an exempt company are audited” — recognising that an exempt company may choose to have an audit, or may be required to by a bank or a shareholders’ agreement, even though the Act does not compel one.
Section 202 — access to information
(1) The board shall ensure that an auditor has access at all times to the accounting records and other documents of the company.
(2) An auditor is entitled to require from a director or employee such information and explanations as he thinks necessary for the performance of his duties.
Where the board fails to comply with subsection (1), every director commits an offence, penalty under section 414(2).
Where a director or employee fails to comply with subsection (2), that person commits an offence, penalty under section 413(2). So an individual who stonewalls the auditor is personally exposed, whatever the board does.
It is a defence for an employee to prove that — (a) he did not have the information in his possession or under his control; or (b) by reason of the position he occupied or the duties assigned to him, he was unable to give the explanations required.
Note that the defence is available to an employee only. A director has no equivalent defence — consistently with the duty of care and the expectation that a director will inform themselves.
Note too that section 123 is no obstacle: giving information to the auditor is disclosure for the purposes of the company, and in any event as required by law.
Section 203 — attendance at shareholders’ meetings
(a) is permitted to attend a meeting of shareholders; and
(b) receives the notices and communications that a shareholder is entitled to receive relating to a meeting of shareholders; and
(c) may be heard at a meeting he attends on any part of the business which concerns him as auditor.
Failure by the board is an offence by every director, penalty under section 414(2). Schedule 2 clause 2(1) reinforces paragraph (b): notice of a shareholders’ meeting must be sent to every shareholder entitled to receive notice, every director and an auditor, not less than 14 days before.
Sections 203, 196 and 197 together give the auditor direct and protected access to the shareholders — to attend and be heard, to make representations if being replaced, and to have reasons for resigning circulated at the company’s expense.
For shareholders, that makes the annual meeting the practical opportunity to question the auditor — alongside the right under section 90(1) to have a reasonable opportunity to question, discuss or comment on the management of the company.
Sources
- Companies Act 1997 — ss 90, 123, 180, 182, 188, 193, 196–203, 348A, 413, 414; Schedule 2
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.