| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Evans of Temple Guiting: What we do not want to allow is random sampling. We do not want the FRRP to go on fishing expeditions and to approach firms where there is no reason to do so. The point I raised was this: within a group of companies, the FRRP finds a problem with one. It is then told by that company that the problem arises in other similar companies and so it decides to move on. I take the point made by my noble friend that that is not a precise example of the point I sought to make.
Lord Sharman: I have listened with great interest to the Minister. At the beginning of his remarks he had it absolutely right when he said that the bar should be raised just a little—as I have sought to do with my
amendment. I am indebted to the noble Lord, Lord Wedderburn, for helping me with the drafting of the amendment. What he suggested sounded much more reasonable.However, the issue is that of the fishing expedition, and I think we are at one on that. If there is a circumstance with no element of reasonableness in it, then we shall see an exponential explosion in the number of cases that arise. Industry and the FRRP itself will then become bogged down.
I should like to look in greater depth at what the Minister has said. In the mean time, I beg leave to withdraw the amendment.
Lord Sharman moved Amendment No. 72:
- Page 15, line 28, after "(3)" insert ", subject to subsection (3A),"
The noble Lord said: We are still considering Clause 12. This amendment seeks to address the issue of who should have the principal responsibility for providing information to bodies such as the FRRP. I have started on the premise that the principal responsibility for providing information about the accounts of a company should fall with that company, its board of directors, its officers and its employees. I am not in any way opposed to the notion that the FRRP should also be able to request that the auditors provide information and explanations. I support the provisions allowing the FRRP to request that company auditors provide documentation, because sometimes that may be unavailable from the company itself. However, I do not believe that the FRRP should have unrestricted access to all the working papers of the auditors, which is what this amendment addresses.
Amendment No. 72 would make the application subject to new subsection (3A), which would state:
- "Where the relevant person mentioned . . . is an auditor of the company, the reference to a document . . . does not extend beyond documents that have been exchanged between the auditor and the company, its officers or employees that are relevant to the particular matters being investigated".
Lord Freeman: I support the noble Lord, Lord Sharman. I have no idea what the opposition Front Bench will say about this amendment, but I associate myself with what the noble Lord, Lord Sharman, said for a number of simple, practical reasons. The FRRP is bound to ask a catch-all question of auditors for documents. If the FRRP does not know which documents to ask for, it will ask for all documents, working papers and, indeed, correspondence exchanged with the audit client—the company—relating to a specific issue. That is the only way in which a request system can work. The noble Lord, Lord Sharman, is right to say that that presents a problem.
The Minister should offer to reflect on two specific problems at a later stage in our proceedings. First, the audit staff will commit to writing fewer notes. That is
bound to happen. I know that the argument will be made that, in the case of Enron, Andersen shredded a lot of documents. The shredding, not the documents, was the offence as far as Andersen was concerned. Nobody knows what was in the documents that were shredded in the Enron case. However, if the Bill is passed and these provisions are included, the auditor's job of reaching a true and fair view will be made far more difficult.Secondly, when an auditor is preparing documentation, a lot of collateral information is collected—what other clients of the audit firm do, for example, in relation to calculating reserves of oil in the ground. If the FRRP requests all documents in relation to accounting treatment on reserves, for example, in the case of one company the auditor will have no chance to make a discretionary judgment but will have to release all the documents, including confidential collateral information which it is unfair to reveal. For those two reasons, I support my noble friend.
Lord Borrie: Does that mean that, if this amendment is agreed, no more information can be obtained from the auditor than can be obtained from a company?
Lord Freeman: No, not at all. As the noble Lord, Lord Borrie, will appreciate by studying Clause 12, the auditor has to respond to requests for information and explanations and must reveal all documents that have been exchanged with the company. The amendment tabled by the noble Lord, Lord Sharman, relates only to the internal working papers of the auditor. The provisions in Clause 12 that provide a let-out, which I am sure the noble Lord, Lord Borrie, has already put his finger on, do not go far enough in preventing the problems that the noble Lord, Lord Sharman, talked about.
The restrictions are that it is a defence to say that, as a professional firm, you complete legal professional privilege exemption. That will certainly not apply in many circumstances. The commitment by the FRRP not to pass on documents to third parties does not affect my argument; nor does the defence that documents obtained from the auditors will not be used as evidence in criminal proceedings. So none of those apply or in any way endanger or jeopardise the thrust of the argument made by the noble Lord, Lord Sharman.
Lord Wedderburn of Charlton: With respect, I have not quite understood the grounds of opposition. I understand the problem that it might be thought that this would give rise to requests and that the auditors would have to look into floods of documents. New subsection (3A) would apply to,
- "documents . . . exchanged between the auditor and the company, its officers or employees that are relevant".
On mentioning the Enron shredding problem, I wonder whether the noble Lord, Lord Freeman, did not overlook the fact that subsection (2) of the new clause applies to documents and "information or explanations". By limiting documents in that way, under new subsection (3A), one wonders whether that
might have some inhibiting effect on the effect of new subsection (2) where the authorised person may require any of these persons to provide "information or explanations". In a shredding case, presumably, it would be "information and explanations" that would be relevant. Do noble Lords intend to limit "information and explanations" relating to documents which once existed to limitation under new subsection (3A)?4.45 p.m.
Lord Sharman: That may be the inadequacy of my drafting. The reference in subsection (3A) is only to documents. It does not refer to "information and explanations". Therefore, my intention—I think this is what it says—is that the FRRP would be entitled to ask the auditor for any "information or explanations". It is only the documents—that is, working papers—that I am concerned about.
Lord Wedderburn of Charlton: Therefore, the FRRP could ask for "information and explanations" about any document.
Lord Hodgson of Astley Abbotts: I have two amendments in this group. Obviously, I listened carefully to the arguments on Amendments Nos. 72 and 79. I came to this point agnostic and listened with interest to the powerful points made. I should like to reflect on whether they are sufficiently strong to put the auditors in a special position.
My two amendments run in parallel because they focus on the potentially unreasonable demands that might result from the authorised person—planned to be the FRRP—having the power to demand that,
- "any officer, employee, or auditor of the company"
As I read it, under the Bill as currently drafted, the authorised person may require documents, information or explanations stemming from other companies or sources, which could result in excessive or even impossible demands being placed upon an officer or employee of the company. In theory, for example, an officer or employee could be asked to produce a document belonging to another company to which he has no access. The consequence of not providing the authorised person with the requested document will be an application to the court, under Section 4. The court could require the person to take such steps as it directs under Section 5 for securing the required documents.
If the authorised person wished to gain access to documents from other companies, surely the approach must be made to the other companies. We would like the Government to take that on board as a subset of
the important point raised by the noble Lord, Lord Sharman, on the special provision of auditors and auditors' working papers.
| Next Section | Back to Table of Contents | Lords Hansard Home Page |