Auditors Appointment, Reappointment, Removal, Rights & Duties

Mwl. Helena Thomas

University of Dar es Salaam Business School

Company Audit
Table of Content Appointment of Auditor Re-Appointment of Auditor Ceiling on Number of Audit Qualifications and Disqualifications of Auditor Removal Of Auditor Rights of Auditor Duties of Auditor

LEGALITY OF AUDITORS APPOINTMENT, REMOVAL, RIGHTS AND DUTIES OF AUDITORS

These matters are given under Company Act, 2002, and it is covered under sect. 170 179; the act provide different types of appointment situations & appointing authority. Three different types of appointment are identified by Companies Act, 2002: (1) Appointment of Auditor by AGM using Resolutions Sect. 170[1] which talk about appointment and remuneration of auditors The words used to explain include Every company shall at each AGM at which accounts are laid, appoint an auditor/auditors to hold office from the conclusion of that general meeting until the conclusion of the next general meeting at which accounts are laid.
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 Notwithstanding the provisions of subsection (1), at any AGM at which accounts are laid, a retiring auditor, however appointed, shall be deemed to be re-appointed without any special resolution being passed unless: [a] He is not qualified for re-appointment or [b] A resolution has been passed at that meeting to appoint somebody instead of him or providing expressly that he shall not be re-appointed; or [c] He has given the company notice in writing of his unwillingness to be re-appointed: These reasons may lead to the need of passing special notice or resolution [sec. 174.-(1)] Shareholders using AGM may also be responsible to fill in any Casual Vacancy [definition given in slide No. 8] in case of resignation.
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Appointment of auditor

Appointment of auditor
Resolution defined: A legal term meaning a formal decision or statement agreed on by a group of people, especially after a vote. In the case of company this means group of shareholders usually during the AGM while voting in appoint new auditor or other things

Appointment of auditor
(2) Appointment of Auditor by the Power of Registrar If the company fail to appoint the auditor for any reasons at its AGM - sect. 170 [3] of companies act 2002 - provide the power for registrar [of company] to appoint the auditor to fill the vacancy: Where at a general meeting at which accounts are laid no auditors are appointed or re-appointed, the Registrar may appoint a person to fill the vacancy Following this the company is supposed to accept the registrar decision otherwise it will be subjected into punishment in terms of fine.

Appointment of auditor
(3) Appointment by Auditor by BOD or simply directors before 1st AGM date Following registration of coy but before 1st AGM, BOD/directors may appoint the 1st Auditor/auditors. This will carry out important auditing work in order to enable the company present its FSs before members of shareholders for its 1st AGM. This auditor shall hold office until the conclusion of that 1st AGM - provided that: (i) The company may at a general meeting remove any such auditors and appoint in their place any other persons who have been nominated for appointment by any member of the company and of whose nomination notice has been given to the members of the company not less than 14 days before the date of the meeting and (ii) If the directors fail to exercise their powers of appointing new auditor before 1st AGM as specified in subsection 4 - the company in AGM may appoint the first auditor/auditors and thereupon the said powers of the directors shall cease. BOD may also be responsible to fill in any Casual Vacancy other than resignation [definition of casual vacancy given in slide No. 8]
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Appointment of auditor
The category of appointment as given in subsection 4 means the company has just started operations but the AGM need to be presented with audited FSs the director are empowered to appoint the auditor to effect proper presentation of FSs Important concept - Casual vacancy [Mentioned at Company Act, 2002; sect. 170(6)] Is a situation where once the auditor is appointed but subsequently fails to occupy the office due to death, disqualification, resignation, insolvency etc.

Auditor appointment summarised

Appointment of an

Auditor

SHARE
BOD HOLDERS - AGM

Registrar

(a) First Auditor (b) Casual Vacancy other than resignation

(a) Subsequent Auditor (b) Casual Vacancy by resignation

Auditor not appointed by SH

(c) First Auditor not appointed by BOD

Auditors remuneration
Matters for auditors remuneration are given under sect. 170 [8] Meaning of remuneration compensation or payment given to auditor for services rendered this is not limited to audit fees but any sums paid by the company in respect of the Auditors expenses. Remuneration may be fixed either by [1] The directors or by the Registrar in the case of an Auditor being appointed by the directors or by the Registrar - as the case may be; OR [2] Fixed by the company in general meeting or in such manner as the company in general meeting may determine. Either case this shall be stated in a note to the company's annual accounts.
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Disqualification from appointment as auditor

A person or firm shall not be qualified for appointment as Auditor of a company unless he/she or in the case of a firm - every partner in the firm is a CPA holder None of the following persons shall be qualified for appointment as Auditor of a company An officer or employee of the company; A person who is a partner of or in the employment of an officer or employee of the company.
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Disqualification from appointment as auditor

Disqualified for auditor appointment extends to include other body corporate which is that companys subsidiary or holding company or a subsidiary of that companys holding company. If any person who is not qualified so to act is appointed as Auditor of a company, the company and every officer in default and every such person who acts as Auditor shall each be liable to a fine.
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Rights of auditor
(i) Right to information Every Auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, and shall be entitled to require from the officers of the company such information and explanation as he thinks necessary for the performance of the duties of the Auditors. An officer of a company commits an offence if, he knowingly or recklessly, makes to the company's Auditors a statement whether written or oral which conveys or purports to convey any information or explanations which the Auditors require, or are entitled to require, as Auditors of the company, and is misleading, false or deceptive in a material particular. A person guilty of an offence under this subsection is liable to imprisonment or a fine or both. The Auditors of a company shall be entitled to attend any general meeting of the company and to receive all notices of and other communication relating to any general meeting which any member of the company is entitled to receive and to be heard at any general meeting which they attend on any part of the business of the meeting which concerns them as auditors.
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Resignations & rights associated with resignations

An Auditor of a company may resign his office by depositing a notice in writing to that effect at the company's registered office. The notice is not effective unless it is accompanied by the statement required by section 179. In this it is stated that Where an Auditor ceases for any reason, to hold office, he shall deposit at the company's registered office a statement of any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company or, if he considers that there are no such circumstances, a statement that there are none. An effective notice of resignation operates to bring the Auditors term of office to an end as of the date on which the notice is deposited or on such later date as may be specified in it. The company shall within 14 days of the deposit of a notice of resignation send a copy of the notice to the Registrar of companies and if default is made in complying with this subsection, the company and every officer of it who is in default is guilty of an offence and liable to a fine and, for continued contravention, a default fine.
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Rights of auditors on resignation

In case that auditor think that there are circumstances which he considers should be brought to the attention of members or creditors of the coy then: Right to be heard - the Auditor may deposit with the notice a signed requisition calling on the directors of the company immediately duly to convene an extraordinary general meeting of the company for the purpose of receiving and considering such explanation of the circumstances connected with his resignation as he/she may wish to place before the meeting. The Auditor may request the company to circulate to its members- before the meeting convened on his requisition, or before any general meeting at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his resignation, a statement in writing (not exceeding a reasonable length) of the circumstances connected with his resignation.
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Rights of auditor on resignation

Coys obligation - The company shall [unless the statement is received too late for it to comply or unless the coy applies to the court not to do so]: In any notice of the meeting given to members of the company, state the fact of the statement has been made, and Send a copy of such a statement to every member of the coy to whom notice of the meeting is or has been sent. If the directors do not within twenty one days from the date of the deposit of a requisition under this section proceed duly to convene a meeting for a day not more than twenty eight days after the date on which the notice convening the meeting is given, every director who failed to take all reasonable steps to secure that a meeting was convened as mentioned above, is guilty of an offence and liable to a fine. If a copy of the statement mentioned above is not sent out as required because it was received too late or because of the companys default, the Auditor may (without prejudice to his right to be heard orally) require that the statement be read out at a meeting.
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Copies of a statement need not be sent out and the statement need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory or offensive matter. In this respect the court may order the company's costs on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
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Rights of auditor on resignation

 A company may also pass an ordinary resolution at any time to remove auditor from office, notwithstanding anything in any agreement between it and him may be due to passage of time or any problems: in that case; The company must give the existing auditor special notice of the meeting for resolution removing auditor from office. If the existing auditor wants to make representations the company must send these to every member of the company (unless the company applies to the court not to do so). Where a resolution removing auditor from office is passed, the company must give notice of that fact to the registrar within 14 days [sec. 174]. Failing of which the company and every officer of it who is in default shall be guilty of an offence and liable to a fine and, in the case of continued contravention, to a default fine. The auditor who has been removed from office has the right to attend, make representations to and be heard at the general meeting of the company at which his term of office would otherwise have expired or at which it is proposed to fill the vacancy caused by his removal as already described in his resignation and associated rights
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Auditors Removal

Removal of Auditor
Removal of Auditor

1st

Auditor

Subsequent
Auditor After Term No In GM reappointm ent In Between Term In GM with approval of C. Govt.
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After Term

In Between Term

No reappointment

Rights of an Auditor summarized

To access books of accounts of the company.[227(1)] To seek information and explanation from the officers of the company To visit branches where he is not satisfied with the details given by the branch auditor[228] To receive notice of AGM[231] To make any representation which the co. can send to all its shareholders or read out at the GM. To take advice from experts. To receive Branch Audit Report. To sign the audit report. To receive remuneration. To attend AGM. To speak at AGM. To be indemnified. Right of lien.
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