Rights of auditors according to Companies Act
In my previous article of Thursday, February 24, 2022, titled “COBE Act on auditing” I explained key legal requirements on the audit report in terms of the Companies and Other Business Entities Act (Chapter 24:31) (or the COBE Act).
This article addresses the rights of external auditors. For your ease of reference, I repeat some of the salient issues in my said previous article.
Auditors report
The auditor’s report is regulated by section 193 of the COBE Act.
Section 193(1) requires the auditor to make a report to the members (shareholders) on the accounts examined by him or her and on every financial statements laid before the company in general (members’ or shareholders’) meeting during his or her tenure of office and the report shall contain statements as to the following matters:
Whether, in his or her opinion, the financial statements or, in the case of a holding company submitting group accounts, the said accounts of the company and the group accounts are properly drawn up in accordance with this Act so as to give a true and fair view of the state of the company’s affairs as at the date of its financial statements for its financial year ended on that date, or In the case of a company registered as a commercial bank, an accepting house or a finance house in terms of the Banking Act (Chapter 24:20) whether, in his or her opinion, the financial statements or, in the case of a holding company submitting group accounts, the said accounts of the company and group accounts are properly drawn up so as to disclose the state of the company’s affairs as at the date of its financial statements for its financial year ended on that date, so far as is required by the provisions of this Act applicable to the
class of company concerned.
In terms of section 193(2) the auditor shall include in his or her report statements which, in his or her opinion, are necessary if: He or she has not obtained all the information and explanations which to the best of his or her knowledge and belief were necessary for the purposes of his or her audit.
So far as appears from his or her examination, proper financial records have not been kept by the company.
Proper returns adequate for the purpose of his or her audit have not been received from branches not visited by him or her.
The company’s financial statements are not in agreement with the financial records and returns from branches.
True and fair view
I explained that according to section 184(1) of the Act every statement of financial position shall give a true and fair view of the state of affairs of the company as at the end of its financial year, and every statement of comprehensive income of a company, shall give a true and fair view of the profits and losses (or income and expenditure) and other items of comprehensive income of the company for the financial year.
Section 184(9) of the Act is fundamental in that it requires that financial statements made in terms of this section (184) to comply with international financial accounting standards (also known as international financial reporting standards or IFRS in short) adopted by the Public Accountants and Auditors Board (“PAAB”) constituted under the Public Accountants and Auditors Act (Chapter 27:12
Rights of auditors In order to properly carry out their audit section 191 bestows on the external auditors
certain rights. Section 191(12) states that a company’s (external) auditors shall have the right:
Of full access to the company’s books, records, vouchers, securities and documents, and the right to verify the existence and value of the company’s assets and liabilities.
To ask any director or officer of the company for particulars which the auditor deems necessary for the performance of the auditor’s duties and responsibilities.
Of access to all current and former accounts of any company subsidiary thereto and be entitled to require from the officers of the holding or subsidiary company all such information and explanations in connection therewith as he or she may deem necessary.
To attend any general meeting 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 and to be heard at any general meeting which he or she attends on any part of the business of the meeting which concerns him or her as auditor.
Special resolution if changing auditors
According to section 191(13) special notice shall be required for a resolution at a company’s annual general meeting appointing as auditor a person other than a retiring auditor or providing expressly that a retiring auditor shall not be reappointed.
Conclusion
In order to properly carry out their mandate external auditors have clear rights in terms of section 191(12) of the COBE Act.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA(EBS,UK) is a legal
practitioner / conveyancer, chartered accountant, corporate rescue practitioner,
registered tax accountant and consultant in deal structuring and is an experienced
director of companies. He writes in his personal capacity. He can be contacted on +263
772 246 900 or gohofisi@gmail.com-The Herald
