Schedule 5 - Eligibility and regulation of local auditors

Local Audit and AccountabilityBill [Lords] – in a Public Bill Committee on 12th November 2013.

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Amendment proposed (this day): 123, in schedule 5, page 43, line 21, leave out

‘1221 (approval of third country qualifications)’.—(Roberta Blackman-Woods.)

Question again proposed, That the amendment be made.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

I remind the Committee that with this we are discussing the following:

Government amendment 22.

Amendment 125, in schedule 5, page 45, line 7, leave out paragraph (c).

Amendment 124, in schedule 5, page 46, line 3, at end insert—

‘(5A) The requirements under section (5) must in particular take full account of the need to understand the wider scope of public audit covering the audit of financial statements, regulatory, propriety and value for money.’.

Government amendments 23 and 24.

Photo of Chris Williamson Chris Williamson Labour, Derby North

I have to ask the Minister why it is necessary to allow people without appropriate qualifications to undertake the audit function. What would he say to individuals who think that he is dumbing down the audit function?

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I suggest that the hon. Gentleman goes back to this morning’s transcript, where he will see that I made it abundantly clear that that is not the case. As per the code of practice—I appreciate from earlier discussions that he is not acquainted with it—auditors must use people with appropriate experience. Only firms and individuals that have the right level of skills, qualifications and experience will be able to audit local bodies.

As I was about to say when we finished this morning, to omit the requirement under amendment 125 would mean that the Financial Reporting Council could not approve a qualification for local audit. With that and other assurances, I hope that the hon. Member for City of Durham will withdraw amendment 123.

Government amendments 22 to 24 amend the provisions on appropriate qualifications for local auditors. Under paragraph 8 of schedule 5, a person holds an appropriate qualification for the purposes of undertaking local audit work if the qualification is recognised by the Secretary of State in accordance with regulations or is an appropriate qualification under part 42 of the Companies Act 2006. Under amendment 23, the Bill will specify which existing professional qualifications are considered appropriate qualifications for local audit in the new framework. That will ensure that individuals qualified under the Audit Commission Act 1998 can undertake local audit in the new regime.

Under the current audit regime, some individuals undertake local audit work for firms of auditors appointed by the Audit Commission, but hold a qualification—for example, the Chartered Institute of Public Finance and Accountancy qualification, as was mentioned this morning—that is not recognised as a statutory audit qualification under the Companies Act. It has always been our intention that those individuals should continue to have their professional qualification recognised. Setting that out in the Bill, rather than through regulations, will provide clarity and certainty.

Photo of Chris Williamson Chris Williamson Labour, Derby North

To return to my point, why does the Minister think it is necessary to allow people to undertake the function if they do not have appropriate qualifications? He seems to be introducing additional measures to satisfy the Secretary of State that individuals who do not have an appropriate CIPFA qualification are eligible and suitably qualified to undertake the work, so why not simply refer only to people with the CIPFA qualification? I am interested in why he thinks it necessary to allow people without a relevant qualification to undertake the role.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I am not quite sure whether the hon. Gentleman has been listening, so I repeat that, under the current audit regime, some individuals undertake local audit work for firms of auditors appointed by the Audit Commission, but hold a qualification that is not recognised as a statutory audit qualification under the Companies Act. One example is the CIPFA qualification —the opposite of what he has just said. The hon. Member for City of Durham said that it should be such a qualification, so I am not sure whether he is now arguing with his Front-Bench colleagues, but he can take that up with them later.

Photo of Andrew Griffiths Andrew Griffiths Conservative, Burton

Perhaps the Minister will enlighten me about why the Opposition intend to prevent people who can currently undertake the job from continuing to do it?

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

That baffles me, but I suggest that the hon. Member for Derby North may not have appreciated my point. I am supporting the argument made by the hon. Member for City of Durham. I hope that, when he reads Hansard, he will be satisfied that we are doing exactly what the Opposition asked us to do, but I can only assume that he has misunderstood the point.

Amendment 22 is a necessary amendment that follows from amendment 23. As we are now specifying qualifications in the Bill, rather than through regulations,  it is necessary to modify section 1219(1)(a) of the Companies Act 2006 in paragraph 8 of schedule 5 to the Bill to state that a qualification is an appropriate qualification by virtue of that section, rather than referring to regulations. Without that amendment, the new provision in amendment 23 would not be effective.

Amendment 24 is a necessary consequential amendment to reflect the updated proposed provisions in amendment 23.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

I thank the Minister because Government amendments 23 and 22 go some way to address the issues raised in amendment 123. I hope that he was able to see from my nodding throughout his remarks that I understood that that was the case, so we will not press amendments 123 or 125. I am not sure, however, that his comments, helpful though they were, addressed the issues raised by amendment 124 about wider awareness of the public sector and relevant changes. I am quite happy for the Minister to intervene if he thinks I should be more reassured, but we will otherwise press amendment 124 to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 124, in schedule 5, page 46, line 3, at end insert—

‘(5A) The requirements under section (5) must in particular take full account of the need to understand the wider scope of public audit covering the audit of financial statements, regulatory, propriety and value for money.’.—(Roberta Blackman-Woods.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Division number 3 Decision Time — Schedule 5 - Eligibility and regulation of local auditors

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendments made: 23, in schedule 5, page 46, leave out lines 9 to 19 and insert—

‘(7) A person holds an appropriate qualification for the purposes of this Chapter if, immediately before the relevant time, the person was qualified for appointment as an auditor under section 3 of the Audit Commission Act 1998 by virtue of the person’s membership of a body listed in subsection (7) of that section.

(7A) A person holds an appropriate qualification for the purposes of this Chapter if—

(a) before the relevant time, the person began a course of study or practical training leading to a professional qualification in accountancy offered by a body listed in section 3(7) of the Audit Commission Act 1998,

(b) the person would have been qualified for appointment as an auditor under section 3 of that Act by virtue of subsection (5)(b) of that section if that qualification had been obtained before that time, and

(c) he person obtained that qualification within the period of 6 years beginning with that time.’.

Amendment 24, in schedule 5, page 46, line 20, leave out ‘subsection (7)’ and insert ‘subsections (7) and (7A)’.—(Brandon Lewis.)

Schedule 5, as amended, agreed to.

Clause 18 ordered to stand part of the Bill.