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122 | Environmental and social transparency under the Companies Act 2006Annex 5: Regulatory implementation and compliance: the FRRP | 123(b)(c)securing, compliance by companies with the requirements of this Act (or,where applicable, of Article 4 of the IAS Regulation) relating to accountsand directors’ reports,to have satisfactory procedures for receiving and investigating complaintsabout companies’ annual accounts and directors’ reports, andotherwise to be a fit and proper person to be authorised.(2) A person may be authorised generally or in respect of particular classes of case,and different persons may be authorised in respect of different classes of case.(5) An authorisation order may contain such requirements or other provisionsrelating to the exercise of functions by the authorised person as appear to theSecretary of State to be appropriate.No such order is to be made unless it appears to the Secretary of State that theperson would, if authorised, exercise his functions as an authorised person inaccordance with the provisions proposed.(6) Where authorisation is revoked, the revoking order may make such provision asthe Secretary of State thinks fit with respect to pending proceedings.The Companies Act 2006 confers power on the Secretary of State to authorise‘a person’ to apply to court in respect of defective company accounts orreports, 312 and set out requirements or provisions for that person as appropriate.The Secretary of State must consider the person to have an interestin securing compliance, and to have satisfactory procedures for receivingand investigating complaints about accounts or reports. The person maybe authorized generally or in respect of particular classes of case, and differentpersons may be authorized in respect of different classes of case.The Companies (Defective Accounts and Directors’ Reports) (Authorised Person)and Supervision of Accounts and Reports (Prescribed Body) Order 2008It appears to the Secretary of State that the Financial Reporting Review Panel is aperson or body—(a)…(b)having an interest in, and having satisfactory procedures directed to—(i) securing compliance by companies with the requirements of theCompanies Act 2006(1) (or, where applicable, Article 4 of the IASRegulation(2)) relating to accounts and directors’ reports;having satisfactory procedures for receiving and investigating complaintsabout the annual accounts and directors’ reports of companies;(c) which is otherwise a fit and proper person to be authorised and a fit andproper body to be appointed;(d) which will exercise its functions as an authorised person and as a prescribedbody in accordance with the requirements of this Order:The Secretary of State makes the following Order in exercise of the powers conferredby…section 457(1), (2), (5) and (6) of the Companies Act 2006The Secretary of State made the Companies (Defective Accounts andDirectors’ Reports) (Authorised Person) and Supervision of Accounts andReports (Prescribed Body) Order 2008 to authorise the FRRP as such a‘person or body’, mandating it to secure compliance by companies with therequirements of the Companies Act 2006 313 relating to company accountsand directors’ reports.A.5.2Membership and appointmentAt the time of writing the FRRP was constituted by one Chairman, twoDeputy Chairmen, twenty-four members and one Secretary. FRRP membersare recruited by public advertisement, and other than the Chairmanand Deputy Chairman, they are unpaid.A.5.3Powers and capacityPursuant to its purpose, the FRRP has a range of legal powers.s459 Power of authorised person to require documents, information and explanations(1) This section applies where it appears to a person who is authorised under section457 that there is, or may be, a question whether a company’s annual accounts ordirectors’ report comply with the requirements of this Act (or, where applicable,of Article 4 of the IAS Regulation).(2) The authorised person may require any of the persons mentioned in subsection(3) to produce any document, or to provide him with any information or explanations,that he may reasonably require for the purpose of—(a) discovering whether there are grounds for an application to the courtunder section 456, or(b) deciding whether to make such an application.(3) Those persons are—(a) the company;(b) any officer, employee, or auditor of the company;(c) any persons who fell within paragraph (b) at a time to which the documentor information required by the authorised person relates.(4) If a person fails to comply with such a requirement, the authorised person mayapply to the court.(5) If it appears to the court that the person has failed to comply with a requirementunder subsection (2), it may order the person to take such steps as it directs forsecuring that the documents are produced or the information or explanations areprovided.(7) Nothing in this section compels any person to disclose documents or informationin respect of which a claim to legal professional privilege (in Scotland, to
124 | Environmental and social transparency under the Companies Act 2006Annex 5: Regulatory implementation and compliance: the FRRP | 125confidentiality of communications) could be maintained in legal proceedings.(8) In this section “document” includes information recorded in any form.Where it appears to the FRRP that a company’s accounts or reports are ormay be non-compliant with the requirements of the Companies Act 2006,the FRRP has powers to require companies, officers, employees or auditorsof the company to produce any ‘documents’ (information recorded in anyform), or provide any information or explanations which it may reasonablyrequire, for the purposes of discovering whether there are grounds foran application to court in respect of defective reports, or deciding whetherto make such an application. It also has a right to apply to a court to securecompliance with any of these demands, if within the scope of the law. Anexception applies to information which could be classed as subject to legalprofessional privilege. 314s456 Application to court in respect of defective accounts or reports(1) An application may be made to the court—…(b)by a person authorised by the Secretary of State for the purposes of thissection,for a declaration (in Scotland, a declarator) that the annual accounts of a companydo not comply, or a directors’ report does not comply, with the requirements ofthis Act (or, where applicable, of Article 4 of the IAS Regulation) and for an orderrequiring the directors of the company to prepare revised accounts or a revisedreport.The FRRP is authorised to make an application to court for a declarationof a company’s non-compliance with legal reporting standards, and foran order requiring the directors of the company to revise the accounts orreports. In this situation the court has a range of powers to implementcompliance. See Annex 5.4.4 below for details of these powers.The FRRP also maintains a legal costs fund of £2million for the purposesof pursuing any of the above court orders and/or declarations. 315A.5.4 Procedures 316A.5.4.1Selection of accounts or reports for scrutinyThere are a number of ways in which the FRRP decides which companyaccounts or reports to examine:- Sectoral focus – The FRRP liaises with the FSA and its ‘Standing AdvisoryGroup’, to identify which sectors of the economy are under strainor likely to give rise to difficult issues, and it then chooses a numberof key sectors, reviewing a selection of accounts in each. 317 Its prioritysectors for 2008/09 are banking, retail, travel and leisure, commercialproperty and house builders. 318- Risk model – The FRRP is developing a risk model to identify specificcases where accounting problems are more likely (e.g. cases of poorcorporate governance).- Topical issues – The FRRP looks at ‘topical’ accounting issues. Forexample, in late 2008 it is applying close scrutiny to impairment 319 andliquidity 320 in reporting.- Complaints – The FRRP responds to complaints from the public, thepress and the City.- Public authority request – If requested by the Secretary of State forBIS, Treasury, Bank of England, FSA, or HM Revenue & Customs, theFRRP will normally be prepared to review a specific set of accountsand deliver its findings to the authority concerned, drawing attentionto any matters which the FRRP believes to be relevant to that authority’sregulatory function. 321Selection is based on the FRRP’s assessment of the risk of non-complianceand the risk of significant consequences if there is non-compliance. 322A.5.4.2Initial considerationReports are reviewed by FRRP staff, who draw up a recommendation forthe Chairman and Deputy Chairman, who then decide whether there is, ormay be, a question of non-compliance, and therefore whether to proceed.If the Chairmen are of the view that there may be a question of non-compliance,but require more information to decide whether there may havebeen a breach, they will write to the company Chairman (and, if appropriateFinance Director) to request documents, information or explanationin relation to their doubt. If necessary they may for this purpose use theirpowers under the Companies Act 2006, as detailed above.
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