Appointment, resignation and removal of external auditors

Appointment, resignation and removal of external auditors:

Appointment:

The first auditor is appointed by the directors. The appointment is valid until the completion of the first annual general meeting. Subsequently, in each annual general meeting, directors will nominate the auditor to be appointed and shareholders will vote and approve the audit appointment by passing a simple majority.

Resignation:

Auditors can resign by simply not offering themselves for reappointment. Reasons could be that the client is growing too fast and the audit firm does not have enough capacity to cope with the change; audit risks are too high; the audit firm decides to focus on other clients. Auditor must give written notice to the directors of the company that he desires to resign.

Removal of external auditor:

An auditor of a company may be removed from office by resolution of the company at a general meeting.

Auditors’ rights and obligations:

Rights:

Access to all records - External auditor has a right of access at all times to the accounting and other records, including registers, of the company. (Management may cite some records as confidential records and refuse auditor’s access but this is not a valid excuse.)

Answer questions - An auditor is entitled to require from any officer of the company and any auditor of a related company such information and explanations as he desires for the purposes of audit.

General meetings – right to attend, receive all notices of general meetings.

Duties:

Audit opinion – on true and fairness of accounts

Issue a Statement of Circumstances – when leave the client, explaining whether there are any specific reasons for leaving.

Respond to new auditors (Professional clearance) – after leaving a client, to respond to any requests for information from the firm of auditors who replace them.

Procedures to be carried out by directors to remove auditor:

To remove the auditor from office before their term of office has expired, the directors of the company must proceed as follows:

Arrange for a meeting of the shareholders of the company.

Write to the shareholders providing notice of the meeting and the agenda. The notice must also be sent to the auditor.

Read out auditor’s statement of circumstances, if applicable

Allow auditor to address the shareholders if the auditor elects to do so

Answer shareholders’ questions on the removal of auditor

Count shareholder votes at the meeting on the resolution to remove the auditor from office. A simple majority of the shareholders is required to confirm the resolution.

Count shareholder votes on the appointment of the successor auditor.

File the auditor’s statement of circumstances along with notice of removal of auditor with the appropriate authorities (in the UK, it is the conduct committee in FRC).

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Categories: : Audit and Assurance (AA)