Auditing and assurance

1. Auditing and assurance Lecture 2bThe auditor and companies legislation UK campus students: English law Hong Kong: UK or HK law (refer to local course leader) Malaysia: Refer to local course leader Singapore: Refer to local course leader

2. CA 2006 and other statutes Limited companies • CA 06 Similar provisions apply to many other bodies • An example: The audit of Registered Social Landlords, mainly under the Housing Act, 1996. Terminology • Statutory audit • ‘Registered Auditor’ (RA) (UK) • ‘Senior statutory auditor’ (UK) = ‘Engagement partner’ in international ISA terminology

3. Limited companies: Exemption from audit No exemption • plc’s • Banks • Insurance companies and brokers • FSA authorised firms • TU’s • Employers’ organisations • When members (10% holding) demand an audit

4. Limited companiesExemption from audit (cont.) Exemption granted when the company: • Qualifies as a small company • Defined by CA 06 s477 • Turnover £6.5m (or less) • Balance sheet total £3.26m (or less) • Fifty employees (or less)

5. Reasons for auditor-related sections in statutes • COMPETENCE • INDEPENDENCE • TO DEFINE DUTIES • TO DEFINE RIGHTS

6. Stewardship accounting and the auditor Owners … statutory appointment of… Directors Auditors FS’s

7. Stewardship accounting and the auditor (cont.) FS’s Laid and presented Report on FS’s to owners to owners DIRECTORS, AUDITORS, MANAGERS / STAFF MANAGERS / STAFF

8. Appointment of auditors: CA06ss485-494 • For a NEW company • For period to first GM, by DIRECTORS • For an ESTABLISHED company • By MEMBERS at (A)GM

9. Appointment of auditors (cont.) • Period of appointment: • From the end of the GM (in which appointed) till the end of the next GM. y/e Ay/e B y/e C FS’s AGM 1 2

10. Appointment of auditors (cont.) • CASUAL VACANCIES • Directors may appoint (otherwise Secretary of State - 7 days) • ELECTIVE RESOLUTION • Private coys. • Deemed re-election

11. Appointment of auditors (cont.) • FEES • Fixed by MEMBERS at the GM (or directors or the Secretary of State in special circumstances if appointed by them) • Paid by company (legal entity) not its members. • AUDIT fee must be disclosed (in FS’s) • Fees paid for NON-AUDIT services must be disclosed Note: In practice the directors select the auditor(s) for election and negotiate fees

12. Resignation: CA06 ss510-526 • CA06 REQUIRE an auditor to give a reason(s) for resigning • Upon resignation the auditor must send to the registered office - • WRITTEN NOTICE of resignation • A STATEMENT OF CIRCUMSTANCES • The company must send a copy of the resignation to Registrar (14 days)

13. Resignation: CA06 ss510-526 (cont.) • The RA and company must… • Notify the POB* if a ‘major’ company • Major broadly - UK listed or turnover exceeding £500m • Notify the RSB** if a small company and before the end of term * Public Oversight Board ** Recognised Supervisory Body • More about these bodies in following lectures

14. Resignation: The ‘Statement’ • Copy to be sent by auditor to the Registrar of Companies • Must state: • There are no circumstances of the resignation that need to be drawn to the attention of members or creditors OR

15. Resignation: The ‘Statement’ (cont.) • The circumstances of the resignation that need to be drawn to the attention of members or creditors.In this case the COMPANY must send a copy to all those entitled to receive the FS’s. (Or apply for a court order where the matter is defamatory).14 days. • If not seeking re-election a ‘statement’ is still required.

16. Resignation: Auditor’s rights • The auditor may require… • an EGM • written statement to be sent to members • The right to have notice of, attend and speak at the (A)GM at which their term of office would have ended.

17. Removal of auditors • CA06 provides mechanisms that allows clear communication channels between the auditor and all Members • Removal at the end of term • by ORDINARY RESOLUTION (despite of any contract to the contrary) • Registrar to be notified within 14 days

18. Removal of auditors (cont.) • Removal before the end of term • By ORDINARY RESOLUTION with SPECIAL NOTICE • Copy to auditor • The notice must contain the fact that representations by the auditor have been made (if such representations have been made)

19. Removal of auditors (cont.) • If resolution passed: • The COMPANY must give notice of the resolution to the Registrar (14 days) and • The AUDITOR must send the ‘statement’ to the Registrar (28 days after depositing ‘statement’ with company).

20. Removal of auditors (cont.) Auditor’s rights • To make representations in writing • To require that these representations are circulated to members • To speak at the GM

21. Removal of auditors (cont.) Further rights 1 To receive notice, attend and speak at the (A)GM when term would have expired 2 To receive notice, attend and speak at the GM called to fill vacancy

22. ‘GAAS’ • Generally accepted auditing standards • The audit equivalent to GAAP • Therefore the framework of GAAS consists of legislation, standards, RSB (or national body) rules, current practice, worldwide practice and so forth.