10. Company auditors Flashcards
- Company auditors
General overview
[10.01] Only an accounting entity can be appointed a company auditor. An accounting entity is defined in s 4. Basically, an accounting entity means a public accountant, an accounting corporation, an accounting firm, and an accounting limited liability partnership established under the Accountants Act (Cap 2).
Company auditors
- old sections repealed
[10.02] Section 10 provides for company auditors. The whole of the previous s 10 of the Act has been repealed and a new section substituted as reproduced above.
Who may be a company auditor
- only accting entity can be auditor
- prior written consent needed from such accting entity b4 apptment
[10.03] The new s 10 allows an accounting entity to be company auditors only. So long as a person prepares any report required by the Act to be prepared by an auditor of the company, he shall be considered to be a company auditor: see s 10(2). Prior written consent of the accounting entity shall be obtained before any company appoints him as such: see s 10(3) and (4). For definition of accounting entity, see s 4.
Subsection (5)
- in the event auditor is sued partners being appointed at that time r liable (not those joined later)
[10.04] Where an accounting firm is appointed a company auditor, it shall operate as if the partners of the firm who are public accountants of the firm at that time have been appointed. This subsection has effect when the auditor is sued by third parties for breach of their duties and responsibilities as the persons liable will be the public accountants of the firm at the time of appointment of the firm as auditor and not those who joined the firm later.
Subsection (6)
[10.05] In contrast, appointing an accounting corporation operates as an appointment of the directors who are practicing as public accountants in the corporation, regardless of when they are public accountants in the corporation. It includes employees who are practicing as public accountants in the corporation, regardless of when they are employed as such: see s 10(6)(b).
Conflicts of interest
- previous sections if auditor indebted to co deemed related to that co for more than $2.5k = cannot be auditor. But now can act as auditor but may face disciplinary action under Acctants Act
[10.06] The previous s 10 which prohibited certain categories of persons who are closely connected with the company to act as the company auditor was repealed. In situations of conflict of interests under the previous s 10(1)(b), for e.g. where the auditor is indebted to the company or to a corporation deemed related to that company by virtue of s 6 in an amount which exceeds $2,500, has been repealed. Instead, such a person may still act as an auditor to the company but may face disciplinary proceedings against public accountants under the Accountants Act (Cap 2).
[10.07] Instances where auditors have been disciplined by authorities were: An auditor who pre-signed an incomplete form 21 to be filed with the Monetary Authority of Singapore for a company but had instructed his audit manager, with whom he had gone through the form, to complete the form as discussed was not suspended from practice but fined the maximum fine of $500: Chew Kia Ngee v Singapore Society of Accountants [1988] 2 SLR(R) 597, [1988] SGHC 95 (High Court) applied in Tay Kim Chuan Patrick v Public Accountants Board [2002] 1 SLR(R) 102, [2002] SGHC 9 ; see further, Wong Kok Chin v Singapore Society of Accountants [1989] 2 SLR(R) 633, [1989] SGHC 103 (High Court). Hence, when an auditor has a conflict of interest by virtue of a debt exceeding $2,500 which he owes the corporation, and which interfered with his independent judgment of the financial health of the corporation, he would likely be subject to disciplinary proceedings. In addition, parties to any legal proceedings may cast aspersions on the financial statements purportedly audited by him as “true and fair”.
