Company Accounts and Auditors

COMPANY ACCOUNTS AND
AUDITORS
Introduction
It is important to note that companies cannot run very
well without accurate ,rigorous and verifiable
accounts system.
Passive investors and creditors do have trust in most
of the companies because of the accounts systems.
The area of accounts systems alongside auditors, is
quite vast. This topic therefore only looks at the role,
duties and liabilities of the companies auditors which
are closely linked to the companies ‘ accounts.
General requirements of companies
accounts
 According to Part X of the Act 1984 , especially
section 180, the Act requires that every company
should keep proper accounting records with respect to:
a) All sums of money received and spent by the
company
b) All sales and purchases of the company
c) The assets and liabilities of the company etc
These records should be kept at the registered office of
the company
Failure to comply to these requirements , every officer
who is in default is punished by a fine.
The Act further requires that every company shall
once every in every calendar year deliver to the
registrar for registration an annual return in a
prescribed form
Some contents of annual returns
a) The company’s name
b) The nature of the business
c) The company’s postal and physical addresses
d) Particulars of its directors and secretaries
e) Particulars of charges issued by the company
Documents to be prepared and dispatched
by directors
According to section 182 of the Act, directors are
supposed to prepare and dispatch to members and
debenture-holders the following documents:
1) Profit and loss account and balance sheet
2) A report by the auditors
3) A report by directors if it is a public or a group
company.
Note that the accounts must be approved by the board
of directors which should be signed on their behalf by
two directors.
Director’s Report- Section 189
 It consists of the directors report on the state of the
company’s affairs and the amount ,if any,
recommended to be paid as dividend.
 The report should be approved by the directors and
signed by two of them on behalf of the rest.
Auditors Report—Section 190
 It consists of a report addressed to the members of the
company by an auditor or auditors of the company.
 The auditors must be duly qualified and appointed by the

company and should appear on the company’s books of
accounts, every balance sheet, profit and loss account and
all group accounts
 They must whether in their opinion the accounts have been

properly prepared and whether in their opinion too, a true
and fair view is given by the company’s balance sheet and
profit and loss or group accounts.
The company Auditor(External)
To make sure that the company’s accounts serve the
purpose for which they were intended, that is, to give
the members and the public accurate information
about the true financial position of the company, the
accounts must be subjected to professional scrutiny by
external auditors
Appointment & Remuneration
Section 191 regulates the appointment of an auditor
It states that an auditor should be appointed by the
company within three months of its incorporation. This
should be done at AGM
The first appointment may be done by subscribers to
MOA-these arethe original members
If subscribers cannot make the appointment within a
month, then the directors can do so.
The directors may also fill any casual vacancies that
may arise in the auditor’s office between one annual
general meeting to the next one.
Note that the Act empowers the ROC to appoint an
auditor for the company should the company fail to do
so if the company continues to operate without one for
a period of three months
With regard to the remuneration of the auditor, it is
usually fixed by a general meeting.
The general meeting could pass a resolution on that.
But where the appointment is done by the directors,
subscribers or the registrar, such appointer may fix the
remuneration up to the time of the next annual general
meeting.
Auditor’s qualification
Section 192 provides for the qualification of an
auditor.
It states that an auditor shall be a person qualified and
eligible under the Public Accountants and Auditors
Act.
The auditor himself must give his consent to such
appointment
The Auditors duties
 The principle duty of the auditor is to report to members in a meeting
whether the accounts presented to them are a true and fair view of the
financial position of the company , and that they have been properly
prepared in accordance with Companies Act
 According to section 194 , while auditors carry out their duties , they
must act in such a manner as faithful ,diligent , careful , and ordinarily
skilful
 To fulfil their statutory duties , the auditors must carry out such
investigations as are necessary to form an opinion as to whether:
a) Proper accounting records have been kept, and proper returns are
adequate for the audit.
b) The accounts are in agreement with the accounting records
c) The information in the directors’ remuneration report is consistent
with the accounts.
Powers or Rights of the auditors
 They have the right of accessing all the books all the times, that
is accounts and vouchers of the company
 They have a right to acquire information and explanations from
the company’s officers ,employees or any other relevant person
 They have the right to receive notices of general meetings and
to attend such general meetings of the company
 They have the right to speak at such general meetings
 They have the right to receive copies of any written resolution
made at general meetings
 They have the right to apply to court for directors in relation to
any matter arising in connection with the performance of their
functions
Liability of Auditors
 Under section 532 any agreement between an auditor and a
company that seeks indemnify the auditor for their own
negligence , default , or breach of duty or trust is void.
 However under section 534, an agreement can be made
which limits the auditor’s liability to the company. Such
liability limitation agreements can only stand for one
financial year and must therefore replaced annually
 Liability can be limited to what is fair and reasonable having
regard to the auditor’s responsibilities, their contractual
obligations and professional standards expected of them.
 Such agreements must be approved by members and
publicly disclosed in the accounts or director’s report
Termination of Auditor’s appointment
 Departure of Auditors from office can occur in the
following ways
1) Auditors may resign their appointment by giving
notice in writing to the company
2) Auditors may decline reappointment
3) Auditors may be removed from office before the
expiry of their appointment by the passing of
ordinary resolution.35 days notice of the intention to
do so should be given.
4) Auditors do not have to be reappointed when their
term of appointment expires
Removal of an Auditor by the passing of
a resolution
 Section 193 regulates the removal of an auditor from office by the
passing of a resolution. The procedure is as follows:
1) The ordinary resolution is passed at a meeting
2) 35 days notice of the intention to move such a motion is given
to the company
3) The company should send a copy of the notice to the concerned
auditor as has right to be heard
4) The company then gives 21 days notice to its members for a
meeting
5) During the meeting the auditor must be allowed to speak so that
he defends himself
6) If a resolution is passed to remove him , the auditor is entitled to
remuneration up to the termination of his appointment.
THE END

Company Accounts and Auditors

Uploaded by

Copyright:

Available Formats

Company Accounts and Auditors

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Company Accounts and Auditors

Uploaded by

Copyright:

Available Formats

COMPANY ACCOUNTS AND

 The auditors must be duly qualified and appointed by the

 They must whether in their opinion the accounts have been

You might also like