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Companies Bill [HL]

moved, as an amendment to the Motion that this House do agree with the Commons in their Amendment 954, leave out ““agree”” and insert ““disagree””. The noble Baroness said: My Lords, in moving Amendment No. 954A to Amendment No. 954, I shall speak also to Amendment No. 957A, which deals similarly with Amendment No. 957. The amendments made in your Lordships’ House apply the Freedom of Information Act to two bodies to which certain audit functions of the Secretary of State will be delegated. Amendment No. 954 deals with the independent supervisor for audits carried out by the Auditors General. The more important amendment is Amendment No. 957, which deals with the Public Oversight Board, which as the Minister has explained, deals on the Secretary of State’s behalf with all other auditors of Companies Act companies. The Public Oversight Board, through its Audit Inspection Unit, examines the audits of listed companies and other important entities. The audit quality reports from these investigations remain private. Only the blandest summaries see the light of day. I explained this when we previously debated the matter in the House. The corporate governance rules which apply to listed companies positively require audit committees to make judgments about the effectiveness of their auditors every year, as part of the annual process of reappointing them, and of course from time to time companies put audits out to tender and consider new auditors. I must say that a man from Mars would think it extraordinary that we have two completely separate systems—one where individual directors have to make quite difficult decisions about audit quality and effectiveness, and another system of appraisal of audit quality, but with absolutely no connection between the two systems. As the chairman or as a member of an audit committee I can get no information from the Public Oversight Board that helps me make to make the judgments on behalf of the companies in which I am a director. Indeed, I was told by the senior partner on one of my companies that if I ask him for the report from the audit inspection unit, the Public Oversight Board tells him that he cannot reveal it. So I and my fellow directors are being asked to fly blind. The Freedom of Information Act may not be a perfect solution to getting more transparency, but I would feel much less passionate about the need to have this additional power if I thought the Public Oversight Board was going to move voluntarily in the direction of transparency. In June it issued a consultation document, setting out some options for releasing more information. ““Consultation”” is a bit of a misnomer because no attempt was made to consult directly with individual companies or their audit committees. A couple of months later, in late August, a letter was sent to some chief financial officers asking them to pass this so-called consultation on to their audit committees. I do not know how effective that was because I received one such communication, and I sit on the audit committees of four listed companies. The noble Lord, Lord Sharman, who is not here, has a similar story to tell on that. Putting that on one side, the consultation proposals did not come close to giving the kind of information that I have explained that we need. Auditors are not hiding behind this. At least one of the big four would value its transparency and those in the second tier would positively welcome the greater credibility that they believe that the release of those reports would give them. In the context of a very restricted audit market, that should not be underestimated. The Minister said again that we should wait for the Department for Constitutional Affairs to make up its mind about whether that should be extended. The right time to make a decision is when we are considering individual bodies to which Secretary of State functions are directed. That is what the Bill will do when enacted. The Secretary of State will pass his functions to those bodies. When he does so, the Freedom of Information Act stops applying to his functions. We should not let that continue. I beg to move. Moved, as an amendment to the motion that this House do agree with the Commons in their Amendment 954, leave out ““agree”” and insert ““disagree””.