Appointment powers and duties of an auditor
1. Introduction:
Every public company and every private company being a subsidiary of a public company is required to have the annual account and balance sheet audited by the auditor. the articles of association usually provide for the appointment of auditors and a periodical audit of accounts.
2. Meaning:
Black's Law Dictionary:
A person of a firm usually an accountant or an accounting firm, formally examines an individual's or entity's financial records or status.
3. Importance:
The role of the auditor is of great importance. he must not be influenced directly or indirectly by others in discharging his duties. He must prepare to hear arguments and decide on logical grounds. he should possess sound techniques of audit.
4. Appointment of auditors:
I. By directors:
The first auditor of the company must be appointed by the directors within sixty days of incorporation.
II. General meeting:
If directors do not appoint the auditors, the company in general meetings may appoint the first auditor.
III. By commission:
If the auditor is not appointed by the general meeting or directors of the company, the commission may appoint an auditor upon the application of any person.
5. Number of auditors:
A company may have an auditor or more auditors.
6. Conditions for the appointment of auditor:
No person other than a retiring auditor can be appointed an auditor by the company unless the following conditions are complied with.
The member intending to nominate such a person must give notice to the company of not less than 14 days before the date of the annual general meeting.
The company must send a copy of the notice to the retiring auditor.
The company should give a notice of not less than seven days thereof to the members either by the advertisement or in any other mode allowed by the articles.
7. Qualification for the appointment of auditor:
(a). In the case of public company:
In the case of a public company, a person can be appointed and can act as an auditor. if he is a charted accountant.
(b) In the case of a private company:
In the case of a private company, a qualified auditor is not necessary.
8. Disqualification:
The following persons are not eligible to act as auditors.
- A director or officer of the company.
- A partner of such director or officer.
- Any person in the employment of such director or officer in case of a public companies or subsidiaries companies.
- Any person is indebted to the company.
9. Powers of auditor:
Every auditor of a company has a right of access at all times to the books, papers, accounts, and vouchers of the company. He is entitled to require from the directors and officers of the company such information and explanation as may be necessary for the performance of his duties as an auditor. He is entitled to attend any general meeting of the company.
10. Duties of auditor:
The following are the duties of an auditor:
Duty to acquaint:
He must make himself acquainted with his duties under the articles and the companies ordinance 1984.
Duty to be honest:
He must be honest with the company.
Duty to take care:
He must take reasonable care. he is further justified in trusting the servants of the company provided he uses reasonable care.
Duty not to interfere in business:
He is not bound to advise on the running of the business and he should not concern with how the business is being carried on.
Inspection of books:
He must see that the books show the true financial position of the company.
Duty to make a report:
He must make a report on all material points of accounts.
Duty to inquire:
If anything, suspicious occurs he is bound to go deep into it.
11. Liabilities of an auditor:
Liabilities of on auditor are as under:
- If the auditor knowingly and willfully fails he shall be punishable with fine and other penalties as provided in this ordinance.
- If on account of the report of the auditor’s negligence any damage results to the company the auditor is liable.
- Any breach of duty causing loss to the company misfeasance proceeding may be instituted against him.
- If in any report, willfully makes a statement false he shall be liable to be punished with imprisonment of either description not exceeding three years and also a fine.
12. Term of auditors:
First auditors
The first auditors are to hold office upon the conclusion of the first annual meeting unless removed earlier by the company in the general meeting.
Subsequent auditors:
The auditor is to hold office unity after the next annual general meeting.
13. Remuneration:
The remuneration of the auditor is to be fixed by the.
- By company or
- By directors or
- By commission (if the auditor is appointed by it)
14. Removal of auditor:
The company may remove an auditor in a general meeting and may appoint a new auditor.
15. Conclusion:
To conclude I can say that, the company's ordinance 1984 provides a procedure for the appointment and remuneration of the auditor. the auditor of the company is entitled to attend the general meeting and to receive all notices