Protecting Britain against Enron style corporate scandals and creating a new form of company for social enterprise are at the heart of new legislation unveiled by the Government today.
The Companies (Audit, Investigations and Community Enterprise) Bill, published today, will implement safeguards recommended by post- Enron/Worldcom reviews.
‘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,’ said DTI Minister Jacqui Smith.
Smith added: ‘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.’
According to the DTI, the Bill will tackle the reliability of financial reporting and the independence of auditors.
Some of the measures in the Bill include a requirement for directors to state that they have not withheld any relevant information from their auditors; the imposition of independent auditing standards, monitoring and disciplinary procedures; and allowing the Inland Revenue to pass information about suspect accounts to the Financial Reporting Review Panel (FRRP).
The Bill will also provide statutory immunity from breach of confidence claims for individuals volunteering information in specified circumstances; and allowing a refusal to provide information to be treated as a contempt of court.
In addition the Bill will create community interest companies (CICs), a new type of company for social enterprises, or businesses that use their profits for the benefit of the local community or the wider public.
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 and 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. CICs will also be able to issue shares to raise investment, but the dividends paid on those shares would be capped, to protect the ‘asset lock’.
A downloadable version of the Bill will be available from 3.30pm GMT at <A HREF=’http://www.publications.parliament.uk/pa/cm200304/cmbills/008/’>Parliamentary Publications</A>