Week 7 (w/c 13th Nov) - Corporate Governance Flashcards
What is an Audit?
“An audit is the examination of the financial report of an organisation - as presented in the annual report - by someone independent of that organisation”
What is an auditor?
The auditor is an independent contractor appointed to check that the company accounts are accurate and properly prepared, and to report this to the shareholders
The accounts will either be prepared in-house or will be prepared by a separate accounting firm
How often is an auditor appointed?
Companies need to appoint an auditor every year
Can shareholders demand an auditor even when they have an exemption?
Even if company has an exemption, shareholders with > 10% of the voting rights can demand one
Usually, the first auditor is appointed by directors, then by ordinary resolution thereafter
What are the two main duties of an auditor?
The auditor:
Has to be a member of a recognised accountancy body (ACCA, ICAEW etc.)
Must be independent of the company – can’t be an officer or employee of the company (and cannot be in partnership with such persons)
What are the duties of an Auditor?
A company’s auditor, in preparing his report, must carry out such investigations as will enable him to form an opinion as to….
1) whether adequate accounting records have been kept by the company
whether the company’s individual accounts are in agreement with the accounting records and returns
If the auditor is of the opinion that either of these have not been met, this needs to be stated in the Auditor’s report
What is the act and section that lays out the duties of the auditor?
The duties of an auditor is laid out in the
Companies act 2006, section 498
What are the rights of an auditor?
An auditor of a company has the right of access at all times to the company’s books, accounts and vouchers (in whatever form they are held), and
may require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.
What must the auditor’s report state clearly?
A company’s auditor must make a report to the company’s members on all annual accounts of the company
The report must state clearly whether, in the auditor’s opinion, the annual accounts give a true and fair view:
(i)in the case of an individual balance sheet, of the state of affairs of the company as at the end of the financial year,
(ii)in the case of an individual profit and loss account, of the profit or loss of the company for the financial year,
What act must the auditor state its been prepared in accordance with?
The report must also state whether the accounts:
have been properly prepared in accordance with the relevant financial reporting framework; and have been prepared in accordance with the requirements of CA 2006.
What is an unqualified report?
Unqualified – Auditor is satisfied that all relevant compliances are satisfied and there are no material misstatements
What is an unqualified opinion in the auditors report?
Unqualified – Auditor is satisfied that all relevant compliances are satisfied and there are no material misstatements
“unqualified” means no qualifications (no exceptions or concerns). So, the auditor does not qualify their opinion with any additional caveats, reservations, or concerns—hence, it’s a “clean” or full approval.
What is a qualified opinion in an auditors report?
Qualified – The accounts are fairly presented but with one or more misstatement, due to:
- Deviance from relevant compliance or GAAP, or
- Limitation of scope i.e. auditor could not audit particular aspect
Qualified Opinion sounds more positive—like a professional qualification or credential. But in auditing, “qualified” means the auditor qualifies their approval with exceptions or concerns. It’s like adding a condition or reservation to the approval. For example, they might say, “The financial statements are fair, except for a specific issue.”
What is the auditors duty to the company?
The auditor’s work performed under a contract with the company
The auditor owes the company an implied “contractual duty of care”
If the auditor fails to carry out the work with reasonable care and skill, will be liable to the company as a whole for breach of contract
How can a company remove an auditor before the expriry of their term?
If they want to remove an auditor before the expiry of their term, they must pass an ordinary resolution at a meeting – special notice required (28 days). Auditor also has the right to make written representation and to speak at the meeting
