Role of auditors
1. Section 172 of the Act states the need for the appointment of independent auditors
Most companies are required to have their accounts audited.
An auditor is appointed to make an independent report to the company’s members as to whether the company’s financial statements have been properly prepared in accordance with the Companies Act 1965. The report must also say if a company’s accounts give a true and fair view of its affairs.
There are mainly two types of auditors:
These auditors are called from outside the company to access and evaluate financial statements of their clients or to perform necessary evaluation that is required. The services of external auditors are subject to renewal of contract at each AGM.
These are the company hired employees to access and evaluate the internal control procedure set by the company. Internal auditors report directly to the BoD or the top management. Internal auditors act as a first line of diligence against frauds and irregularities that exist in a company.
2. Duty of auditor
Section 174(1) of the Act states that every auditor of a company shall report to the members on the accounts required to be laid before the company in general meeting and on the company’s accounting and other records relating to those accounts and if it is a holding company for which consolidated accounts are prepared shall also report to the member on the consolidated accounts. An auditor shall, in a report under Section 174 of the Act, state whether the accounts and, if the company is a holding company for which consolidated accounts are prepared, the consolidated accounts are in his opinion properly drawn up –
(a) so as to give a true and fair view of the matters required by Section 169 to be dealt with in the accounts and, if there are consolidated accounts, in the consolidated accounts;
(b) in accordance with the provisions of the Act so as to give a true and fair view of the company’s affairs; and
(c) in accordance with the applicable approved accounting standards
3. Appointment of auditor
Section 172(1) of the Act states that at any time before the first annual general meeting of a company, the directors of the company may appoint, or (if the directors do not make an appointment) the company at a general meeting may appoint, a person or persons to be the auditor or auditors of the company, and any auditor or auditors so appointed shall, subject to this section, hold office until the conclusion of the first annual general meeting.
Section 172(2) of the Act states that a company shall at each annual general meeting of the company appoint a person or persons to be the auditor or auditors of the company, and any auditor or auditors so appointed shall, subject to this section, hold office until the conclusion of the next annual general meeting of the company.
4. Person or persons that cannot be appointed as an independent Auditor for the company.
Section 9 of the Act provides the circumstances where a person cannot act as the auditor for the company. Section 9(1) of the Act states that a person shall not knowingly consent to be appointed, and shall not knowingly act, as auditor for any company and shall not prepare, for or on behalf of a company, any report required by this Act to be prepared by an approved company auditor –
(a) if he is not an approved company auditor;
(b) if he is indebted to the company or to a corporation that is deemed to be related to that company by virtue of section 6 in an amount exceeding two thousand five hundred ringgit;
(c) if he is –
(i) an officer of the company;
(ii) a partner, employer or employee of an officer of the company;
(iii) a partner or employee of an employee of an officer of the company; or
(iv) a shareholder or his spouse is a shareholder of a corporation whose employee is an officer of the company; or
(d) if he is responsible for or if he is the partner, employer or employee of a person responsible for the keeping of the register of members or the register of holders of debentures of the company.
The penalty for contravention of this section is thirty thousand ringgit.
5. Deemed to be an officer of a company
Section 9(2) of the Act further states that for the purposes of subsection (1), a person shall be deemed to be an officer of a company if he is an officer of a corporation that is deemed to be related to the company by virtue of section 6 or except where the Minister if he thinks fit in the circumstances of the case directs otherwise, if he has, at any time within the preceding period of twelve months, been an officer or promoter of the company or of such a corporation.
Section 9(3) of the Act states that for the purposes of this section, a person shall not be deemed to be an officer by reason only of his having been appointed as auditor of a corporation.
6. Qualified consent of firm to act as auditor
Section 9 (4) of the Act states that a firm shall not knowingly consent to be appointed, and shall not knowingly act, as auditor for any company and shall not prepare, for or on behalf of a company, any report required by this Act to be prepared by an approved company auditor unless –
(a) all the partners of the firm resident in Malaysia are approved company auditors and, where the firm is not registered as a firm under any law for the time being in force, a return showing the full names and addresses of all the partners of the firm has been lodged with the Registrar; and
(b) no partner is disqualified under paragraph (1)(b), (c) or (d) from acting as the auditor of the company.
Section 9(5) of the Act states that if a firm contravenes subsection (4) each partner of the firm shall be guilty of an offence.
The penalty for an offence under this subsection is thirty thousand ringgit.
Section 9(6) of the Act states that no company or person shall appoint a person as auditor of a company unless that last-mentioned person has prior to the appointment consented in writing to act as such auditor, and no company or person shall appoint a firm as auditor of a company unless the firm has prior to the appointment consented, in writing under the hand of at least one partner of the firm, to act as such auditor.
Section 9(7) provides that the appointment of a firm in the name of the firm as auditors of a company shall take effect and operate as an appointment as auditors of the company of the persons who are members of that firm at the time of the appointment.
7. Filling in a casual vacancy
Section 172(3) of the Act states that subject to subsections (7) and (8), the directors of a company may appoint an approved company auditor to fill any casual vacancy in the office of auditor of the company, but while such a vacancy continues the surviving or continuing auditor or auditors, if any, may act.
8. Removal of auditor
Section 172(4) of the Act states that an auditor of a company may be removed from office by resolution of the company at a general meeting of which special notice has been given, but not otherwise.
Section 172(5) of the Act further states that where special notice of a resolution to remove an auditor is received by a company –
(a) it shall forthwith send a copy of the notice to the auditor concerned and to the Registrar; and
(b) the auditor may, within seven days after the receipt by him of the copy of the notice make representations in writing to the company (not exceeding a reasonable length) and request that, prior to the meeting at which the resolution is to be considered, a copy of the representations be sent by the company to every member of the company to whom notice of the meeting is sent.
The other subsections of Section 172 of the Act on the appointment and remuneration of auditors read as follows:
(6) Unless the Registrar on the application of the company otherwise orders, the company shall send a copy of the representations as so requested and the auditor may (without prejudice to his right to be heard orally) require that the representations be read out at the meeting.
(7) Where an auditor of a company is removed from office in pursuance of subsection (4) at a general meeting of the company –
(a) the company may, at the meeting, by a resolution passed by a majority of not less than three-fourths of such members of the company as being entitled so to do vote in person or, where proxies are allowed, by proxy forthwith appoint another person nominated at the meeting as auditor; or
(b) the meeting may be adjourned to a date not earlier than twenty days and not later than thirty days after the meeting and the company may, by ordinary resolution, appoint another person as auditor, being a person notice of whose nomination as auditor has, at least ten days before the resumption of the adjourned meeting, been received by the company.
(8) A company shall, forthwith after the removal of an auditor from office in pursuance of subsection (4), give notice in writing of the removal to the Registrar and, if the company does not appoint another auditor under subsection (7), the Registrar shall appoint an auditor.
(9) An auditor appointed in pursuance of subsection (7) or (8) shall, subject to this section, hold office until the conclusion of the next annual general meeting of the company.
(10) If a company does not appoint an auditor or auditors as required by this section, the Registrar may on the application in writing of any member of the company make the appointment.
(11) Subject to subsection (7), a person shall not be capable of being appointed auditor of a company at an annual general meeting unless he held office as auditor of the company immediately before the meeting or notice of his nomination as auditor was given to the company by a member of the company not less than twenty-one days before the meeting.
(12) Where notice of nomination of a person as an auditor of a company is received by the company whether for appointment at an adjourned meeting under subsection (7) or at an annual general meeting, the company shall, not less than seven days before the adjourned meeting or the annual general meeting, send a copy of the notice to the person nominated, to each auditor, if any, of the company and to each person entitled to receive notice of general meetings of the company.
(13) If, after notice of nomination of a person as an auditor of a company has been given to the company, the annual general meeting of the company is called for a date twenty-one days or less after the notice has been given, subsection
(11) shall not apply in relation to the person and, if the annual general meeting is called for a date not more than seven days after the notice has been given and a copy of the notice is, at the time notice of the meeting is given, sent to each person to whom, under subsection (12), it is required to be sent, the company shall be deemed to have complied with that subsection in relation to the notice.
(14) An auditor of a company may resign –
(a) if he is not the sole auditor of the company; or
(b) at a general meeting of the company, but not otherwise.
(15) If an auditor gives notice in writing to the directors of the company that he desires to resign, the directors shall call a general meeting of the company as soon as is practicable for the purpose of appointing an auditor in place of the auditor who desires to resign and on the appointment of another auditor the resignation shall take effect.
(16) The fees and expenses of an auditor of a company –
(a) in the case of an auditor appointed by the company at a general meeting – shall be fixed by the company in general meeting or, if so authorised by the members at the last preceding annual general meeting, by the directors; and
(b) in the case of an auditor appointed by the directors or by the Registrar – may be fixed by the directors or by the Registrar, as the case may be and, if not so fixed, shall be fixed as provided in paragraph (a) as if the auditor had been appointed by the company.
| Activity 2.14
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