Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008

rose to move, That the Grand Committee do report to the House that it has considered the Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008. The noble Lord said: The order represents the culmination of a process that started during the passages of the Charities Bill and Companies Bill through your Lordships’ House during 2005 and 2006. It is a rather technical order—I make no apologies for that because it needs to be—and the process is also somewhat technical. I shall take us through the explanation as carefully as I can so that the Committee can understand the order better. The object is to provide more a straightforward scrutiny regime for smaller charities. While saying that, I would like to record my thanks to the noble Lord, Lord Hodgson of Astley Abbotts, because during the passage of the Charities Bill through this House not once but twice—some 70 hours of scrutiny—he played a blinder and made an important contribution to ensuring that this order came about. During the passage of the Charities Bill and Companies Bill in 2005 the noble Lord proposed amendments to both Bills to bring about the alignment of the accounts scrutiny requirements for charities that are companies, which are currently scrutinised under company law, and those of non-company charities, which are currently scrutinised as a matter of charity law. We were receptive to the idea and sought the views of charity sector umbrella groups and relevant professional bodies, who also warmly welcomed the proposal, and amendments were made to both Bills. The order sets out to achieve two main changes. The first change that the order will make is to amend the Charities Act 1993 to apply the charity law accounts scrutiny provisions in place of the existing company law reporting accountant and audit requirements that apply to small charitable companies. This will ensure that charities in company form that are below the company law audit threshold will become subject to the same accounts scrutiny requirements under charity law as non-company charities, creating the level playing field that has long been called for by the sector and its professional advisers. Changes were made to the Companies Bill, in what are now Section 1175 of and Schedule 9 to the Companies Act 2006. They remove the current company law accounts scrutiny requirements that apply to charitable companies below the audit threshold. The Charities Bill was amended, in what is now Section 77 of the Charities Act 2006, to provide an order-making power to deal with the necessary changes required to be made to charity law following the removal of small charitable companies from the company law accounts scrutiny regime. The order we are examining today is made in the exercise of that power. Instead of the reporting accountant scrutiny regime under company law, 14,000 or so charitable companies will instead be required to undergo independent examination under charity law. Independent examination is a low-cost alternative specifically designed for charities. It is a review engagement rather than audit and has proved popular with the sector. Of those charitable companies that will be affected by this change, most will see a slight cost saving under the independent examiner scrutiny regime under charity law. For charitable companies with an income between £10,000 and £90,000, it will be a new requirement. However, as the impact assessment to this order makes clear, the vast majority—85 per cent—of charitable companies in this income bracket already opt for independent scrutiny of their accounts. As part of our commitment to proportionate regulation, we are consulting separately on a package of deregulatory proposals for charity law thresholds. The noble Lord, Lord Hodgson of Astley Abbotts, encouraged us to look carefully at thresholds during the passage of the Bill. The package includes a recommendation to increase the threshold above which independent examination of charity accounts is required from £10,000 to £25,000. The second change that this order makes relates to the preparation and scrutiny of group accounts by charities. It is already sector practice to prepare group accounts where a charity undertakes activities through subsidiaries. It is important to be able to understand the full range of activities and resources controlled by a charity not only directly, but indirectly through subsidiaries. Until new provisions were set out in the Charities Act 2006, there was no legal basis whatever for non-company charities to prepare such accounts. This order applies the same group accounts provisions of the Charities Act 2006 to company charities where there is no requirement for small charitable company-headed groups to do so under the Companies Act. In 2007, we published for public consultation a draft of this order, along with draft Charities (Accounts and Reports) Regulations which will be required to support the implementation of the Charities Act 2006, and this order. The changes to be made by this order were well supported on consultation. One of the concerns raised on consultation was about the complexity of the way in which the changes are being made to the legislation. Given that this order amends the Charities Act 1993, and that amendments to that Act will also be made by the commencement of provisions of the Charities Act 2006, the Office of the Third Sector will publish, on its website, an informal consolidation of Part 6 of, and Schedule 5A to, the Charities Act 1993, to show the changes that this order and the 2006 Act will make. We hope that this will be helpful to users of the legislation. We are also discussing consolidation of charity law with the Law Commission, with the aim of preparing a consolidation Bill. During the passage of the legislation, noble Lords made particular reference to that—and I think that noble Lords were right. In addition, the Charity Commission will issue updated guidance for charities and their professional advisers on the changes to the audit, accounting and reporting regime. Our aim is for the provisions of this order to come into force for charities’ financial years beginning on or after 1 April 2008. This is to bring these changes in at the earliest opportunity so that charities can benefit from them, as many charities financial years begin on or shortly after 1 April. However, it does give charities and their professional advisers significant time to prepare, as in effect most of the provisions will not bite until charities are preparing accounts and arranging for their scrutiny towards the end of their accounting year, which will not be until April 2009. The order will bring about changes that were initially approved by Parliament during the passage of the Charities and Companies Acts. The changes will be welcomed by the sector and the majority of its professional advisers, and will support what charities are already doing as a matter of best practice. So we shall reap the benefits of those things. I commend the order to the House. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008. 9th Report from the Joint Committee on Statutory Instruments.—(Lord Bassam of Brighton.)