Changes to notification of auditor resignations

New provisions have come into force with effect from 1 October 2015 relaxing the notification rules which apply when an auditor resigns.

New provisions have come into force with effect from 1 October 2015 relaxing the notification rules which apply when an auditor resigns. 

Following the implementation of the Deregulation Act 2015 (Commencement No 3 and Transitional and Saving Provisions) Order 2015, where an auditor leaves office (due to resignation or shareholder removal) in relation to a financial period beginning on or after 1 October 2015, a company no longer needs to send a written notification to Companies House. An outgoing auditor will only do so if his statement indicates matters that he thinks should be brought to the attention of the company's shareholders or creditors or if the company is listed. 

In addition, a company only needs to inform the appropriate audit authority (usually the ICAEW or other accountancy body with which the firm is registered (Financial Reporting Council, if a listed company)) of the resignation/removal if:

  • it relates to a financial period beginning on or after 1st October 2015; and
  • the auditor resigned or was removed before the end of his term of office; and
  • the company does not reasonably believe that the only reasons for the resignation were ‘exempt reasons’. 

‘Exempt reasons’ are:

  • the auditor is ceasing to practise as an auditor;
  • the company is not required to be audited;
  • the company is being wound up under an insolvency procedure; or
  • where the company is a subsidiary of a UK parent company and its new auditor will be auditing the group accounts which will include the company concerned. 

The latter exemption will usually apply, and will therefore be particularly useful, following the share sale of a company when the company is included within the audit of the purchaser’s group going forward. 

The rules that require a statement to be sent by the auditor to the company itself, have also changed. This is of particular application to private limited companies. Historically a statement had to be sent from the auditor to the company as to the reason for his appointment coming to an end and any related information. If the reason is an exempt reason, such a notification no longer needs to be sent to the company. However an auditor will still send this notification if he thinks there is information which should be brought to the attention of the company's shareholders or creditors. Generally, this will mean that an auditor resigning as a result of a company acquisition will not need to send a statement to the company on his resignation/removal. 

Where an exemption does not apply, and the ICAEW or other audit authority must still be notified, the notification period has now been increased to 28 days. 

The changes do not materially affect the rights of an outgoing auditor to require a shareholders’ general meeting to be called, or the obligation on the company to circulate the auditor's statement, if there are matters that the auditor thinks should be brought to the attention of the company's shareholders or creditors or if it is a listed company. 

The amendments do not apply to LLPs. 

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