COBE Act on auditing
Introduction
This article is aimed at giving insights into what the Companies and Other Business Entities Act (Chapter 24:31) (or the “COBE Act”) says on auditing of companies. The COBE Act came into effect on February 13, 2020 replacing the Companies Act (Chapter 24:03). The auditor’s report is regulated by section 193 of the COBE Act. Its salient features are explained below.
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
On February 17, 2022 I wrote an article titled “COBE Act on accounting records and financial statements”. In that article I explained that according to section 184(1) 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.
More importantly, I explained that 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
Appointment, remuneration, duties, powers and removal of auditors
This is covered by section 191 of the Act. The main features are explained hereunder.
General
Every company shall, at each annual general meeting, appoint an auditor to hold office
from the conclusion of that annual general meeting until the conclusion of the next
annual general meeting.
The directors may fill any casual vacancy in the office of auditor.
The remuneration of the auditor of a company shall be fixed by the company in general
meeting or in such manner as the company in general meeting may determine.
The relevant provisions of the Public Accountants and Auditors Act (Chapter 27:12) and
of generally accepted accounting practices shall apply to the terms of appointment,
qualifications, independence and work of the auditor.
In terms of section 191(9) a company’s auditor may not own share in the company or
perform non-audit services for the company, the latter if that is inconsistent with the
performance of audit services for the company.
According to section 191(11) no person shall serve as an auditor of a company for more
than five (5) consecutive years.
Where a person has served as the auditor or designated auditor of a company for two or
more consecutive years and then ceases to be such, such person shall not be reappointed as the auditor or designated auditor of that company until after the expiry of at least two further financial years.
For purposes of section 191(9) only section 191(10) defines an auditor as an individual
who is an auditor and any family member of that individual, and any firm that is an
auditor or any employee or agent of that firm who participates in that firm’s audit of the
company in question.
My view, based on the construction of sections 191-193 especially use of the words “he or
she” and “his or her” is that the auditor as contemplated by section 191(11) which places
a limit of five consecutive years is a natural person or individual.
When a private company shall not appoint an auditor
Section 191(7) addresses certain circumstances when a private company shall not be
required to appoint an auditor and these are:
The number of members in such company does not exceed ten (10).
None of the members of such company is (i) a public company or (ii) a private which is a
subsidiary, as determined by section 185 (“Meaning of holding company, subsidiary and
wholly owned subsidiary”), of a public company referred to section 191(7)(b)(i).
Such a company is not a subsidiary of a holding company which has itself appointed
auditors.
All the members in such company agree that an auditor shall not be appointed.
Conclusion
Audited financial statements are used by many users and are crucial in business. It is
therefore important that they comply with the requirements of the 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
