Misleading the auditor: the section 501 offence

Q: What might a breach look like?

Illustration only. At a year end audit the auditor asks the finance manager whether a large trade debtor is still trading. The finance manager knows the customer entered administration two weeks earlier but replies that the customer is "slow but always pays", hoping to avoid a bad debt write off that would breach a bank covenant. That answer conveys an explanation the auditor is entitled to require under section 499, it is false in a material particular because it hides an event bearing directly on recoverability, and it was given knowingly. It falls within section 501(1). If a director also knew and approved a directors' report containing the section 418 statement, that director may separately be exposed under section 418(5); see the statement on disclosure of information to auditors. Contrast a bookkeeper who, asked for a list of accruals, sends a schedule that accidentally omits an invoice. There is no knowledge or recklessness, so no section 501(1) offence, although the error still has to be corrected.

Q: What mistakes do companies make?

Assuming only directors are at risk. The offence applies to any person giving the information, including junior staff and former employees. Giving a confident answer without checking. Answering a direct question without caring whether the answer is true can be reckless. Delaying requests to buy time. Failure to comply without delay is itself an offence unless compliance was not reasonably practicable. Refusing to involve lawyers. Privilege can be protected while still allowing the auditor what it needs, for example by letters of inquiry that the company authorises. Correcting things quietly after the event. If something said to the auditor turns out to be wrong, the safest course is to tell the auditor promptly and in writing. Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Section 501 of the Companies Act 2006 makes it a criminal offence to knowingly or recklessly give a company’s auditor information or explanations that are misleading, false or deceptive in a material particular, with a maximum of two years’ imprisonment. It is also a separate, lesser offence to fail without delay to provide information the auditor is entitled to require under section 499, unless it was not reasonably practicable to do so.

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What information can an auditor demand?

The starting point is section 499. An auditor has a right of access at all times to the company’s books, accounts and vouchers, in whatever form they are held, and may require certain people to provide the information or explanations the auditor thinks necessary for the performance of its duties. Section 499(2) lists those people:

any officer or employee of the company;
any person holding or accountable for any of the company’s books, accounts or vouchers;
any subsidiary undertaking of the company that is a body corporate incorporated in the United Kingdom;
any officer, employee or auditor of such a subsidiary, or anyone holding or accountable for its books, accounts or vouchers; and
anyone who fell within those categories at the time the information or explanations relate to.

The last category means former directors and staff can be asked about the period when they were involved. Outsourced bookkeepers and payroll bureaux that hold the company’s records fall within the second category.

For overseas subsidiaries, section 500 lets the parent company’s auditor require the parent to obtain information or explanations from the subsidiary, its officers, employees and auditors, and the parent must take all steps reasonably open to it to obtain them.

What exactly does the main offence cover?

Under section 501(1) a person commits an offence if they knowingly or recklessly make to an auditor of a company a statement, oral or written, that:

conveys or purports to convey any information or explanations which the auditor requires, or is entitled to require, under section 499; and
is misleading, false or deceptive in a material particular.

Several points follow from the wording. The offence applies to “a person”, not only to directors, so an accounts assistant or a credit controller can commit it. Oral answers count as much as documents, so a casual reply to a question from the audit senior is covered. The mental element is knowledge or recklessness, which excludes honest mistakes but includes answering without caring whether the answer is true. And the falsehood must be material, which rules out trivial slips.

The offence also reaches information the auditor is “entitled to require”, so it is no defence that the auditor did not formally invoke section 499 before asking a question.

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What are the penalties?

Section 501(2) sets the penalties for the main offence. On conviction on indictment the maximum is two years’ imprisonment, a fine, or both. On summary conviction in England and Wales the maximum is twelve months’ imprisonment, a fine not exceeding the statutory maximum, or both; in Scotland or Northern Ireland it is six months’ imprisonment, a fine not exceeding the statutory maximum, or both.

Is it an offence simply to not hand information over?

Yes, but a lesser one. Section 501(3) says a person who fails to comply with a requirement under section 499 without delay commits an offence, unless it was not reasonably practicable for them to provide the required information or explanations. Section 501(4) makes it an offence for a parent company, and every officer in default, to fail to comply with section 500.

Both of these are summary offences with a maximum fine of level 3 on the standard scale under section 501(5). In England and Wales, level 3 is £1,000 for offences committed on or after 1 October 1992 under section 122 of the Sentencing Act 2020. Section 501(6) preserves the auditor’s right to apply for an injunction (in Scotland, an interdict or order for specific performance) to enforce its rights under sections 499 and 500.

Can answers given to the auditor be used against the person?

Section 499(3) gives limited protection. A statement made in response to a requirement under section 499 may not be used in evidence against the person who made it in criminal proceedings, except proceedings for an offence under section 501. So an employee who admits an error to the auditor is not, by that answer alone, supplying evidence for an unrelated prosecution, but a lie told to the auditor can be used to prove the section 501 offence itself.

Section 499(4) also preserves legal professional privilege (in Scotland, confidentiality of communications). Nobody is compelled to disclose information over which such a claim could be maintained in legal proceedings. That is why, for example, an auditor investigating litigation asks the company to authorise its solicitors to respond, as described in auditor enquiries into litigation and claims.

What does the auditor do if it cannot get the information?

The auditor has its own statutory duty. Under section 498(3), if it fails to obtain all the information and explanations which, to the best of its knowledge and belief, are necessary for the purposes of the audit, it must state that fact in its report. Section 507(2)(b) makes it an offence for the individuals responsible for the audit to knowingly or recklessly cause the report to omit that statement.

Within the auditing standards, ISA (UK) 580 paragraph 11 requires the auditor to request a written representation that management has provided all relevant information and access agreed in the engagement terms. Paragraph 20 requires the auditor to disclaim an opinion if management does not provide that representation, or if there is sufficient doubt about management’s integrity that the representation is not reliable. Discovering that someone has deliberately misled the audit team will usually lead the auditor to reassess the reliability of everything else it has been told. The different forms of modified opinion are explained in audit opinions.

What might a breach look like?

Illustration only. At a year end audit the auditor asks the finance manager whether a large trade debtor is still trading. The finance manager knows the customer entered administration two weeks earlier but replies that the customer is “slow but always pays”, hoping to avoid a bad debt write off that would breach a bank covenant.

That answer conveys an explanation the auditor is entitled to require under section 499, it is false in a material particular because it hides an event bearing directly on recoverability, and it was given knowingly. It falls within section 501(1). If a director also knew and approved a directors’ report containing the section 418 statement, that director may separately be exposed under section 418(5); see the statement on disclosure of information to auditors.

Contrast a bookkeeper who, asked for a list of accruals, sends a schedule that accidentally omits an invoice. There is no knowledge or recklessness, so no section 501(1) offence, although the error still has to be corrected.

How does this fit with fraud and directors’ duties?

Misleading the auditor is often a symptom of something larger, such as concealment of fraud or of losses. The auditor’s separate responsibilities for fraud are covered in fraud and the auditor. For directors, the conduct is also likely to be a breach of their general duties, which may lead to civil claims by the company and is relevant to any later assessment of their conduct; see directors’ duties under the Companies Act.

What mistakes do companies make?

Assuming only directors are at risk. The offence applies to any person giving the information, including junior staff and former employees.
Giving a confident answer without checking. Answering a direct question without caring whether the answer is true can be reckless.
Delaying requests to buy time. Failure to comply without delay is itself an offence unless compliance was not reasonably practicable.
Refusing to involve lawyers. Privilege can be protected while still allowing the auditor what it needs, for example by letters of inquiry that the company authorises.
Correcting things quietly after the event. If something said to the auditor turns out to be wrong, the safest course is to tell the auditor promptly and in writing.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.