1.0
INTRODUCTION
The law has relevance
for auditors, especially, with regard to their
rights, obligations
and liabilities. In this note, you shall be looking at
the effects on
auditors of the Companies and Allied Matters Act of 1990,
the provisions in the
Act establishing the relevant accountancy bodies
(especially the
Institute of Chartered Accountants of Nigeria), and the
stipulations of other
branches of the law by considering the following:
· appointment
of auditors
· remuneration
of the auditors
· resolutions
as to appointment and removal of auditors
· disqualification
as auditors
· auditors’
reports
· rights
of auditors
· obligations
of auditors
· auditors’
liabilities.
2.0
OBJECTIVES
At the end of this note,
you should be able to:
· explain
the provisions of CAMA, 1990 regarding the
appointment and
remuneration of auditors
· explain
the procedure in respect of resolution to appoint and
remove auditors
· mention
categories of persons that cannot qualify as auditors
· enumerate
the essential elements of the auditors’ reports
· highlight
the rights and obligations of auditors
· explain
auditors’ liabilities and enumerate ways they can be
minimized.
3.0
MAIN CONTENT
3.1
Appointment of Auditors
CAMA (1990) provides
that auditors should be appointed to protect the
shareholders and
members of the public by reporting the financial
statements of every
limited liability company in a fair manner.
Specifically, Section
357 of CAMA (1990) stipulates as follows.
(1) Every company
shall at each Annual General Meeting (AGM)
appoint an auditor or
auditors to hold office from the conclusion
of that, till the
conclusion of the next AGM;
(2) At any AGM, a
retired auditor, however appointed, shall be reappointed
without any
resolution being passed unless:
(a) he is not qualified for re-appointment;
(b) a resolution has been passed at that meeting appointing
another
person instead of him or providing expressly that he shall not be
re-appointed;
(c) he has given the company notice, in writing, of his intention
to
resign or unwillingness to be re-appointed.
Provided that where notice is given of an intended resolution to
appoint
someone in place of a retiring auditor, and by reason of the
death,
incapacity or disqualification of that person or of those persons,
as the
case may be, the resolution cannot be proceeded with, the retiring
auditor shall not be automatically re-appointed by virtue of this
subsection.
(3) Where at an AGM, no auditor or auditors
are appointed or reappointed,
the commission may
direct the registrar to appoint a
person to fill the
vacancy;
(4) The company shall
within one week of the power of the registrar
under sub-section 3
of this section becoming exercisable, give
notice as required by
this section, the company and every officer
of the company who
are in default shall be liable to a fine of ten
naira for every day
during which the default continues;
(5) Subject as
hereafter provided, the first auditors of a company may
be appointed by the
directors at any time before the first AGM,
and auditors so
appointed shall hold office until the conclusion of
that meeting provided
that:
(a) the company may at a general meeting remove such auditors and
appoint in their place 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
(b) if the directors fail to exercise their powers under this
subsection,
the company in a general meeting may appoint the first
auditors, and thereupon the said powers of the directors shall
cease.
(6) The directors may
fill any casual vacancy in the office of the
auditors, but while
any such vacancy continues, the surviving or
continuing auditors,
if any, may act.
It can be summarized
by stating that the appointment of an auditor may
be done by the audit
committee made from the shareholders or directors
at the AGM.
3.2
Remuneration of the Auditors
Section 361 of CAMA
(1990) states that:
· The
remuneration of the auditors of a company in the case of an
auditor appointed
· by
the directors or by the registrar, fees may be fixed by the
directors or by the
· registrar
as the case may be…..
You should note here
that the auditors are paid by whoever appointed
them. This is subject
to negotiation between the auditors and those that
appointed them.
3.3
Resolutions as to Appointment and Removal of Auditors
Section 362 of CAMA
(1990), deals with this issue. It states as follows.
(1) A special notice
shall be required for a resolution at a company’s
AGM appointing as
auditor a person other than a retiring auditor;
(2) On the receipt of
notice of such an intended resolution as
aforesaid, the
company shall forthwith send a copy thereof to the
retiring auditor (if
any);
(3) Where notice is
given for such an intended resolution as aforesaid
and the retiring
auditor makes representations in writing to the
company (not
exceeding a reasonable length) and requests their
notification to
members of the company with respect to the
intended resolution,
the company shall unless the representations
are received by it
too late for it to do so:
(a) in any notice of the resolution given to members of the
company
to state the fact of the representations;
(b) send a copy of the representations to every member of the
board
to whom notice of meeting is sent.
3.4
Disqualification as Auditors
The Institute of
Chartered Accountants of Nigeria Act (1965) provides
that none of the
following persons shall be qualified for appointment as
auditors:
(a) an officer or
servant of the company;
(b) a person who is a
partner of or in the employment of any officer
or servant of the
company;
(c) a body corporate
(limited liability company);
(d) a non-member of
the Institute.
In the application of
the above, the disqualification shall extend and
apply to persons, who
in respect of any period of an audit, were in the
employment of the
company or were otherwise connected therewith in
any manner.
3.5
Auditors’ Reports
Auditors are required
to make a report to the members on the financial
statements examined
by them. The reports should be laid before the
company at the AGM
during their tenure of office, and the reports shall
contain statements as
to the true and fair view of the accounts.
The auditors’ reports
shall be read aloud before the company’s board of
directors in the
general meeting and every member is entitled to be
given a copy of the
reports.
3.6
Rights of Auditors
Under CAMA (1990),
every auditor of a company shall:
(a) have a right of
access, at all times, to the books and all relevant
materials of the company;
(b) be entitled to
require from the officers of the company such
information and
explanation as he thinks necessary for the
performance of his
duties;
(c) have a right to
report on the accounts;
(d) be entitled to
attend any AGM of the company and to receive all
notices of and other
communications relating to any general
meeting which any
member of the company is entitled to receive;
(e) have the right to
be heard at any general meeting which he
attends on any part
of the business of the meeting which concerns
him as auditor.
3.7
Obligations of Auditors
Auditors are obliged
to:
(a) conduct the audit
in accordance with their letters of engagement;
(b) do their work
honestly and carefully, and with competence;
(c) endeavor to
access every information relevant to the conduct of
audit;
(d) report on the
audit – unqualified or qualified or otherwise;
(e) express opinion
as to the truth and fairness of the financial
statements.
3.8
Auditors’ Liabilities
Auditors perform
audits and sign audit reports. These reports are the
auditors’ opinions on
the truth and fairness, etc. of the financial
statements. Auditors
are known to be competent and honest. So, if the
auditors opine that
the financial statements show a true and fair view,
readers of the
financial statements will have faith in them because they
have faith in the
auditors.
Therefore, the
auditor has a responsibility to do his work honestly and
with reasonable care
and skill as his work is relied upon by others.
At this point, we
have to note that:
(a) an auditor may
fail to exercise sufficient skill and care;
(b) consequently,
some fraud or error may be undiscovered, or he
may fail to discover
that the accounts fail to show a true and fair
view, or may contain
a material misstatement;
(c) as a result,
somebody who relies on the work of the auditor may
lose money;
(d) this loss of
money flows from the failure of the auditor to do his
job properly;
(e) the auditor may
have to make good from his own resources the
loss suffered by
another person, that is, to pay damages which
flow from his
negligence.
3.8.1
Minimizing Liabilities
Auditors can minimize
their potential liability for professional
negligence in several
ways, which include the followings.
(a) Not
being negligent;
(b) Following the
precepts of the auditing standards;
(c) Agreeing the
duties and responsibilities in the engagement letter
(Engagement letter
should specify the specific tasks to be
undertaken and
exclude specifically, those that are not to be
taken. It should also
define the responsibilities to be undertaken
by the client and
specify any limitations on the work to be
undertaken).
(d) Defining in their
report the precise work undertaken, the work not
undertaken, and any
limitations to the work. This is so that any
third party will have
knowledge of the responsibility accepted by
the auditor for the
work done;
(e) Stating in the
engagement letter the purpose for which the report
has been prepared and
that the client may not use it for any other
purpose;
(f) By stating in any
report the purpose of the report and that it may
not be relied on for
any other purpose;
(g) By identifying
the authorized recipients of report in the
engagement letter and
in the report;
(h) By defining the scope of professional
competence to include only
matters within the
auditors’ competence. Do not take on work
you are not
proficient in.
4.0
CONCLUSION
In this note, you
have seen that the law has relevance for the auditors. As
an auditor, you
should be conversant with all the relevant laws guiding
the professional
conduct of audit work.
5.0
SUMMARY
In this note, you
learnt that the law has relevance for auditors with
respect to the
following:
· appointment;
· remuneration;
· resolution
as to their appointment and removal;
· reports;
· rights,
obligations and liabilities.
0 comments:
Post a Comment