A commencement order has been signed, bringing all the Act's provisions into effect. An outline is given below with the dates of entry into force.  The complete order has been published by The Stationery Office and a link is provided here:

http://www.legislation.hmso.gov.uk/si/si2004/20043322.htm 

1 January 2005

- sections 3, 4, 5 amend an order-making power for the Secretary of State to delegate various of her audit supervision functions (including the power to recognise audit supervisory bodies) to the independent regulator (likely to be the Professional Oversight Board for Accountancy of the Financial Reporting Council), plus connected provisions on terms of delegation etc.

- section 10 changes the existing order-making power for the Secretary of State to authorise persons to enforce accounting requirements.

- section 13 provides a regulation-making power for the Secretary of State to give statutory authority to reporting standards and an order-making power to specify a body to issue such standards.

- section 14 provides an order-making power for the Secretary of State to appoint a body (likely to be the Financial Reporting Review Panel) to examine interim and non-company accounts.

- sections 16, 17, 18 provide a power for the Secretary of State to make grants to a body carrying out specified supervisory functions relating to audit and accounting (likely to be the Financial Reporting Council); a regulation-making power to impose a levy towards the costs of that body; and immunity from liability for the body and its members, staff, officers and subsidiaries.

- section 27, Schedule 3 enable the Secretary of State to appoint the community interest companies (CIC) Regulator and his/her staff.

6 April 2005

- sections 1, 2, 6, 8, 9, 11, 12, 15, 19, 20, 21-24, Schedule 1 strengthen auditor regulation, accounting enforcement and investigations,  and relax the prohibition on companies indemnifying directors.

1 July 2005

- sections 26, 28-63, Schedules 4-7 establish the statutory framework for community interest companies.

1 October 2005

- section 7 modifies an existing regulation-making power so that the Secretary of State can require more detailed disclosure by companies of the audit and non-audit services provided by their auditors.

- sections 25 and 64 and Schedules 2 and 8, which make consequential amendments and repeals, come into force in stages, on each of the above dates.

Objectives

This Act has two aims: improving confidence in companies and financial markets; and promoting social enterprise.

Content

The first Part of the Act:

strengthens the system of regulating auditors by:

• imposing independent auditing standards, monitoring and disciplinary procedures on the professional accountancy bodies; enabling the Secretary of State to delegate to the Financial Reporting Council (FRC) her powers to recognise the professional bodies; and securing the FRC's funding through a grant and a levy power;

strengthens the enforcement of accounting and reporting requirements by:

• extending the remit of the Financial Reporting Review Panel so that it can look at interim as well as annual accounts and reports; giving it a power to require information from companies it is investigating; and opening a gateway for the Inland Revenue to pass information on defective accounts to the FRRP;
• extending the Secretary of State's power to require more detailed disclosure of non-audit services provided by auditors to companies; giving additional powers to auditors to obtain information from companies; and requiring directors to state that they have not withheld relevant information from their auditors;

strengthens the company investigations regime by:

• requiring any person to provide relevant information to company investigators; giving investigators the right to require entry and remain on premises of a company under investigation; and providing protection from breach of confidence claims for people who voluntarily provide information in certain circumstances.
  
• The Act also relaxes the current prohibition on companies indemnifying directors against liability and permits companies to pay directors' defence costs as they are incurred.

The second part of the Act provides for community interest companies. The main points are:

• a statutory "lock" on assets and profits of CICs;
  
• a "community interest test" which companies must pass in order to be registered as CICs; 
• an annual community interest report which CICs must provide to show how their activities have benefited the community;
• a CIC regulator responsible for ensuring that CICs comply with their legal requirements;

Background

The measures to improve confidence in companies and markets are mostly recommendations from post-Enron reviews including the Co-ordinating Group on Audit and Accounting Issues chaired by Melanie Johnson and Ruth Kelly. They are the final part of the package, supporting other action already taken such as reform of the regulatory structure for the accountancy profession and changes to the Combined Code to strengthen the role of non-executive directors and audit committees.

The community interest company offers a purpose-made company vehicle for social enterprise, as recommended by the Strategy Unit report on the voluntary sector.

Further Information

A copy of the Act itself and a copy of the Explanatory Notes, which give a more detailed explanation of certain aspects of the Act can be found at www.legislation.hmso.gov.uk/acts/acts2004/20040027.htm 

A complete set of Regulatory Impact Assessments (1Mb) covering each measure in more detail, including an assessment of their impact on business and public expenditure.

Fact sheets about the Act (221 Kb)

Further information on CICs can be found at www.dti.gov.uk/cics

A draft of the regulations affecting Community Interest Companies (CICs) has now been published and can be found at  www.dti.gov.uk/cics

Guidance on the provisions in the Act on the regulation of auditors and the enforcement of accounting and reporting requirements that affect business can be found here.

Guidance on the provisions in the Act relaxing the prohibition on provisions protecting directors etc from liability can be found here . (243Kb)

Guidance on the investigations provisions in the Act can be found here.

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Last revised April 2005