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Auditing and assurance

This lecture explores the critical role of auditors in the context of UK company legislation, emphasizing key provisions from the Companies Act 2006. It covers the definitions and implications of statutory audits, the appointment and resignation processes of auditors, and statutory requirements for financial statements. A particular focus is given to the classification of companies, exemptions from audit requirements, and the rights of auditors concerning their appointment and removal. This knowledge is essential for students in auditing and assurance courses, ensuring comprehension of legislative frameworks.

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Auditing and assurance

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  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.

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