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Accountants Urge Businesses to Get Up to Date on Companies Act

Bradford chartered accountants and business consultants Watson Buckle have urged businesses to get to grips with the implications of the latest in a series of major changes to company law, particularly regarding audit issues.

The first measures under the Companies Act 2006 - the longest piece of legislation ever passed by Parliament - were introduced on 1 January 2007 and the last sections will come into force in October 2009.

The most recent changes, implemented on 6 April, include a new measure allowing companies to agree a limit on the liability of its auditor regarding the statutory audit of its accounts. Previously, an auditor who negligently audited the accounts would be liable to the company for all the loss it might suffer as a result.

Now an auditor and the company will be able to make what is known as a limited liability agreement, which may either limit liability to a proportion of losses suffered or impose an upper limit, or cap. A separate agreement will be needed for each audit and the terms of the agreement must be approved by the company’s shareholders.

A new criminal offence, punishable with a fine, is introduced for any auditor who knowingly or recklessly allows an audit report to contain misleading, false or deceptive information or leaves out information relating to problems with the accounts. Other new measures include:

if the auditor is a firm rather an individual, an individual within the firm identified as the senior statutory auditor must sign the audit
for accounting periods beginning after 5 April 2008, private companies will have nine months instead of ten to prepare and file their accounts with Companies House. The time period for public companies falls from seven to six months.

Chris Padgett, managing partner at Watson Buckle, said: “The introduction of these latest changes has been fairly low key and businesses may still not be fully familiar with the new measures and their implications.

“Any business requiring an audit needs to think very carefully about their limited liability agreement with their auditor and give careful consideration to the form it takes. What should be uppermost in their minds, however, is the quality of the audit and a good relationship with the audit provider, so businesses should not be too hasty to switch from an audit firm they work well with because another offers what seems to be a better limited liability agreement.

“However, companies may find themselves with more flexibility in negotiating audit fees as these changes do give them more bargaining power.

“Companies need to be clear about their options and implications under these latest measures, which contain some complex issues, and to prepare themselves for those being implemented over the coming months. They would be wise to seek the help and clarification from a qualified professional, such as an accountant experienced in business issues.”

For more information, contact Watson Buckle on 01274 516700.