The Companies (Audit, Investigations and Community Enterprise) Bill, published today, will implement safeguards recommended by post- Enron/Worldcom reviews.
Commenting on the Bill, DTI Minister Jacqui Smith said: "We want the UK to have the best system of corporate governance in the world. There is no denying that financial markets around the world have been badly shaken by the corporate failures of the last few years.
"This Bill completes a comprehensive package of measures aimed at restoring investor confidence in corporate governance, company accounting and auditing practices here in Britain. Its aim is to raise corporate performance across the board and beyond.
"The Bill tightens the independent regulation of the audit profession and strengthens the enforcement of company accounting, both concerns highlighted by the Enron and Worldcom scandals. It gives auditors greater powers to get the information they need to do a proper job, and increases company investigators' powers to uncover misconduct.
"The Bill will also create community interest companies - a new type of company that provides a vehicle for dynamic and sustainable businesses with strong social objectives. Community interest companies will harness the entrepreneurial spirit of individuals for the benefit of their communities, creating new ways to provide goods, services and additional social benefits such as employment and training.
"This Bill is an important part of our work to create the very best framework for thriving, competitive and responsible business."
The Bill will tackle the reliability of financial reporting and the independence of auditors by:
- Requiring directors to state that they have not withheld any relevant information from their auditors;
- Requiring companies to publish details of non-audit services provided by their auditors;
- Imposing independent auditing standards, monitoring and disciplinary procedures on the professional accountancy bodies;
- Strengthening the role of the Financial Reporting Review Panel (FRRP) in enforcing good accounting and reporting, by giving it new powers to require documents and broadening its scope;
- Allowing the Inland Revenue to pass information about suspect accounts to the FRRP.
- Giving investigators a new power to get relevant information from anyone and widening their document-gathering powers;
- Providing statutory immunity from breach of confidence claims for individuals volunteering information in specified circumstances;
- Giving investigators the power to require entry to, and remain on, premises without obtaining a warrant. This will make it easier to require documents and other information and to see the business in operation, but is not a search and seize power, which will still require a court warrant.
- Allowing a refusal to provide information to be treated as a contempt of court. This is a more flexible procedure than using criminal proceedings, with a better prospect of getting the desired information.
CICs will offer the certainty and flexibility of the standard company form, but with a new feature - a legal "lock" to ensure that assets and profits will be used for the community interest, not private gain.
CICs will face fewer legal restrictions than charities and will not get charity- style tax breaks. They will be commercial enterprises, competing with other businesses, but for a social aim. CICs will also be:
- Easy to set up, but subject to an objective and transparent eligibility test;
- able to issue shares to raise investment, but the dividends paid on those shares would be capped, to protect the "asset lock";
- required to produce annual reports (which will be made publicly available) on how they have pursued their social or community objectives and how they have worked with their stakeholders;
- allowed to transfer assets to other suitable organisations, such as other CICs or charities.
