The number of UK companies seeking new auditors has risen sharply in the last couple of years. This has shined a spotlight on the resigning auditors’ responsibilities to issue cessation statements under section 519 of the Companies Act 2006. ICAEW’s Quality Assurance Department would like to remind audit firms of their responsibilities in this area.
It is important that auditors who cease to act for a company need to understand how the rules impact them. Specifically, whether or not they must issue a s519 statement of reasons for ceasing to hold office, who it needs to go to and the date by when it needs to be issued.
Auditors of public interest entity (PIE) companies must always issue a s519 statement. Auditors of other companies must issue a s519 statement if they resign during their term of office unless the reasons for their resignation are exempt. Exempt reasons include the company taking advantage of audit exemption or the group auditor taking over.
Cessation statements issued under s519 must include:
- reasons for cessation; and
- any matters in relation to the cessation that need to be brought to the attention of the members and creditors.
Preparing a cessation statement is not just a tick-box exercise. Drafting a statement that complies with s519 can be difficult, given the possible sensitive nature of ‘matters’ relevant to the members and creditors, whilst not ‘tipping off’ under the Proceeds of Crime Act 2002. Cessation statements which properly include ‘matters’ are in the public interest, and can inform prospective audit firms’ risk assessments and acceptance decisions.
A key responsibility of the resigning audit firm is that it must send a copy of the s519 statement to Companies House when it includes matters to be brought to the attention of the members or creditors. This is in addition to the auditor’s responsibility to send copies to the company and ICAEW (or FRC), and it needs to be completed within the prescribed timeframe.
We have seen an increase in s519 statements not being filed at Companies House in a timely manner, or not being filed at all, as well as rejections for not meeting filing requirements which were not then re-submitted. Therefore, we recommend that audit firms conduct follow up checks to ensure that the statements they send to Companies House do appear on the public record. This will help avoid unwanted scrutiny where it may appear that statements with ‘matters’ have not been filed in a timely fashion and is also a critical step to help ensure the information contained in the statement is available to potential successor auditors.
We will continue to monitor the audits undertaken across ICAEW Registered Auditors and contact firms between monitoring visits about particular audit clients, or groups of audit clients. These contact points may take the form of a meeting and/or review of completed audit files and will be in addition to standard audit monitoring visits.
The objectives of our work, wherever possible, are to support firms to develop their audit practices and maintain high standards.
Useful links
Keep updated
Be the first to know when articles like this are released by following us on LinkedIn and subscribing to our monthly newsletter, Regulatory & Conduct News.
