Unit 1c - Auditors' rights, appointment, removal, resignation and regulation Flashcards
Auditors’ rights and duties
They have access to all records they require
They have a right to receive information and explanations of all transactions.
They have a right to attend and receive notice about general meetings and they have right to speak at general meetings on relevant matters.
What is an AGM?
What do auditors have rights to regarding them? What does this right give them the opportunity to do?
A general meeting is where the shareholders of the company come together, and the AGM ensures that there should be at least one every year. The auditors have the right to receive advance info about any resolutions proposed at these GMs. They also have the right to require that the company’s FS should be presented at the GM – as, if the F/S contained info they wanted to keep hidden, they would delay presenting them.
Their right to informed about, attend and speak at general meetings gives the auditors an opportunity to communicate directly with the shareholders – by whom they have been appointed and for whom they are acting.
What are the duties of the auditor?
To issue an auditor’s report, giving opinions on:
Truth and fairness of F/S
Whether the F/S are properly prepared
Any other opinion required
When leaving a client, to issue a ‘statement of circumstances’
After resignation, to supply information to the new auditors.
What are the requirements for an auditor?
An auditor:
Must pass an approved set of professional examinations, set by a RQB
Must become (and stay) a member of a RSB
The auditor must not be a director or employee of the company/associated companies
The auditor must not be an employee or business partner of a director or employee of the company, or of any associated companies.
Appointment of auditors
Auditors have to be reappointed by resolution at every AGM. Note that reappointment is not automatic. This is to prevent the incumbent auditors from simply staying in office. The requirement for a resolution means that the members have to take positive action to get auditors appointed.
Prior to the first AGM the directors can appoint the first auditors or if an auditor resigns, for example, because he or she falls ill, the directors can appoint another auditor to fill a casual vacancy. This appointment will only last until the next AGM.
If all else fails, in the UK, the secretary of state will ensure all companies have an auditor.
Resignation of auditors
Auditors can resign by giving written notice and a statement of circumstances to the company.
A statement of circumstances explains why they have resigned. Written notice must also be sent to the regulatory authority and the members by the company.
The thinking behind the statement of circumstance is that auditors may have resigned because they are deeply concerned about some aspect of the company activities. So the statement of circumstances explains why the auditor has resigned, which could, of course, have been cased by perfectly innocent reasons, for example, that the auditor wishes to cut back on work, or the auditor feels that the company is now too large for the auditing firm to deal with.
If the auditors are really concerned about the company and that’s why they have resigned, they could also require the directors to call a general meeting. The auditors can speak at these meetings and therefore they can address the members and explain their concerns and why they have resigned.
Removal of auditors
Auditors can be removed from office. This would normally be at instigation of the directors, but the resolution must be passed by the shareholders. They could be removed from office for perfectly legitimate reason. Perhaps the auditors failed to find a material fraud in the company and the directors have lost faith in them, or perhaps the company has now become international and a larger firm of auditors is needed.
However the big fear is that auditors were perhaps too good too strict on insisting that certain aspects of the financial statements should be changed, or perhaps they issued a modified auditors report because the directors refused to change the financial statements.
This is why the auditors are given the right to make representations about why they should stay in office. They have to deposit a statement of circumstance at company office and this should be sent to the regulatory authority. The auditors can also receive notices, speak at a general meeting at which the term of their appointment would have expired. This allows the auditors, if necessary, to explain to shareholders what has happened and that they’ve been removed without due cause.
Auditor regulation
Professional/International/National?
Professional - ACCA
International - IFAC
National - FRC in UK
Purpose of IFAC? what boards?
Serve the public interest by establishing and promoting adherence to high-quality professional standards. It has a number of boards including:
IAASB (international auditing and assurance standards board): sets international standards on auditing (ISAs) and other assurance standards
IESBA (International ethics standards board for accountants: issues the international code of ethics for professional accountants
The IAASB’s ISAs are adopted by the FRC in the UK which has local regulatory power. The IESBA’s code has been adopted by ACCA in its code of ethics and conduct.
