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Companies Bill [HL]

My Lords, further to what the noble Lord, Lord Grabiner, has said, it is by no means certain that applying the Freedom of Information Act to the POB would result in all Audit Inspection Unit reports being available. One of the reasons for doubt is that the AIU may have a strong argument that its reports fall within the exemptions in the FOI Act. For example, the inspection process relies on openness and candour on the part of the inspectors and audit firms, and the prospect of reports becoming public would reduce that candour, damaging the system to an extent that would outweigh the public interest in disclosure. We have heard that argument a lot of times in different contexts, and it seems totally applicable here. The impact on how inspections are carried out is the main argument against disclosing the reports. The concern is that if the reports were published, audit firms would take a more defensive and legalistic approach to the disclosure of information to inspectors, and inspectors might feel that they had to be more circumspect in their criticism. The key objective of the inspection system is to improve audit quality through a constructive and collaborative process aimed at best practice rather than minimum standards. That could be undermined if the process became more formal and confrontational. Publication of results could encourage a rules-driven, litigious approach that would have the reverse of the desired effect of an inspection regime that improves audit quality through constructive dialogue. As noble Lords may be aware, the Public Oversight Board has consulted over the summer on disclosure by the AIU, and it is likely to report on the results soon. I understand that there was a good response from companies and members of audit committees, as well as from audit firms and professional bodies. The consultation document’s main proposal was that the AIU’s main report would include a section about a named audit firm if that firm had not made sufficient progress in addressing AIU recommendations. I understand that roughly three-quarters of respondents, including audit committee members, favoured either this proposal or no change from the current approach of never naming individual audit firms. It is very doubtful whether the reports would be available. The arguments for not publishing them are remarkably persuasive. On that basis, I urge the noble Baroness not to press her amendment.