Commentary on Sections Part 1:  Auditors, Accounts, Directors' Liabilities and Investigations Chapter 1: Auditors.Summary and Background
13.The provisions in this Chapter amend the statutory framework for the regulation of auditors, as provided for in the Companies Act 1989. Under this framework, a company auditor must be a member of a recognised supervisory body and hold a recognised professional qualification. A professional accountancy body may act as a recognised supervisory body and/or offer a recognised professional qualification where it has been so recognised by the Secretary of State. The Secretary of State also has the power to recognise appropriate overseas qualifications as equivalent to a UK recognised professional qualification.
14.Five bodies are currently recognised by the Secretary of State as recognised supervisory bodies: the Institute of Chartered Accountants in England and Wales (ICAEW); the Institute of Chartered Accountants of Scotland (ICAS); the Association of Chartered Certified Accountants (ACCA); the Institute of Chartered Accountants in Ireland (ICAI); and the Association of Authorised Public Accountants.
15.Five bodies are currently recognised by the Secretary of State as offering recognised professional qualifications: the ICAEW; ICAS; ACCA; ICAI; and the Association of International Accountants.
16.The recognised supervisory bodies have day to day responsibility for ensuring the appropriate supervision of auditors and audit firms. The detailed requirements which they must observe in carrying out this supervision role are set out in Part 2 of Schedule 11 to the Companies Act 1989.
17.The provisions in this Chapter amend that Schedule by placing new requirements on the recognised supervisory bodies. The new requirements are designed principally to ensure the independence of the regulation of major public interest audit work, and to permit delegation of the Secretary of State's powers under Part 2 of the Companies Act 1989 (principally the power to recognise accountancy bodies as recognised supervisory bodies for auditors) to a wider category of persons than before.
18.Also relevant to the structure and funding of audit regulation are provisions in Chapter 2 which replace the Secretary of State’s grant-making power in section 256(3) of the Companies Act 1985 with a new power which enables the Secretary of State to make grants in respect of a wider range of activities relating to financial reporting and administration. Previously, section 256(3) has enabled the Secretary of State to make grants for the issuing or enforcement of accounting standards or for overseeing or directing such activity. This power has been used to fund in part the activities of the FRC (Financial Reporting Council) and its two associated Boards, the ASB (Accounting Standards Board) and the FRRP (Financial Reporting Review Panel). The extension to the power will enable grants to be made for the new activities that the FRC is taking on.
19.In accordance with the recommendations contained in the Government's report on its review of the regulatory regime of the accountancy profession, published in January 2003, the FRC has taken on the functions of the Accountancy Foundation Ltd (which was set up to provide non-statutory independent regulation of the accountancy profession in the UK).  The new FRC includes five Boards formed by subsidiary companies of the FRC.  These Boards have three main areas of responsibility:
	the setting of accounting and audit standards (through the ASB and the Auditing Practices Board (APB));
	their enforcement or monitoring (through the FRRP, the Accountancy Investigation and Discipline Board (AIDB), and the new audit inspection unit reporting to the Professional Oversight Board for Accountancy (POBA)); and
	the oversight of the major professional accountancy bodies (through the POBA).
20.Other provisions in Chapter 2 will enable the Secretary of State to impose a levy on bodies or persons towards the costs of a designated body (which the Government envisages will be the FRC). Currently, the FRC's costs are met by voluntary contributions divided equally between listed companies (collected alongside their listing fees), the accountancy profession and the Government. The levy is expected to be applied to those who currently contribute, should it prove necessary in order to ensure security of funding for the body concerned.
21.In addition, further provisions  exempt a body receiving a grant under section 16 (expected to be the FRC), its subsidiary bodies (currently the ASB, FRRP, APB, AIDB, POBA) and their individual members, officers and staff from liability in damages for things done or not done for the purposes of, or in connection with, the activities listed insection 16.  That list essentially covers all the regulatory activities of the FRC and its subsidiaries.