DUTIES OF AUDITOR
DUTIES
DUTIES TO THE COMPANY COMMON LAW DUTIES
STATUTORY DUTIES
DUTIES TO OUTSIDERS 1. Duties to a person who relied on the audited accounts 2. To ROC 3. To the trustees for debenture holders 4. To the Securities Commission and Stoc Exchange
DUTIES TO THE COMPANY The duty of an auditor is to carry out an audit on the company’s account and to verify on whether the accounts provide a true and fair view of its affairs before the accounts are circulated to the members. Caparo Industries PLC v Dickman & Ors. The court held that an auditor appointed to audit a company’s account owes a duty towards the audited company and its members as a body. If the auditor failed to exercise the standard of care that is expected of another reasonable auditor in same situation, the company may sue auditor under the tort of negligence.
COMMON LAW DUTIES • The auditor must exercise reasonable care and skill when performing his work. • Re Kingston Cotton Mill (1896), the court held that, “it is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably competent, careful and cautions would use. What is reasonable skill, care and caution must depend on the particular circumstances of each case.
STATUTORY DUTIES • Section 266(1) provides that the auditor has to report to the members on the company’s annual account. • For public company, the audited accounts must be laid before the company at its AGM • For the private company, the audited account will be laid down before the company at its member’s meeting. • Section 266(7) provides that the company is to send notice of the general meeting to the auditor. He has the right to attend and speak at the meeting within his capacity as an auditor.
• Public company- auditor need to attend AGM • Private company- is not required to hold an AGM, thus, auditor may be required to attend a members meeting if financial statement are laid. • Section 285(3), the auditor need not attend the meeting if he has arranged for another auditor to attend the meeting. He could also authorise his agent or his partner to attend the meeting.
DUTIES TO OUTSIDERS
Duties to a person who relied on the audited accounts • The auditor can only be sued by the company that has contractual obligation based on the doctrine of privity of contract. • A member , public or non member of the company cannot sue the auditor.
• However, there are situation where the auditor can be sued by a third party who relied on the audited accounts if the following conditions are fulfilled: a) The loss or damage suffered by the plaintiff was foreseeable; b) There was an existing proximity relationship between the auditor and the plaintiff; and c) It is reasonable to impose on the auditor a duty of care towards the plaintiff.
Duties to ROC • Section 266(8) requires an auditor to report to the ROC if in the course of the performance of his duties, he is satisfied that there has been breached of any provisions of the Companies Act • If the auditor is of the opinion that a serious fraud or dishonesty is being or has been committed against the company, he shall report the matter to the ROC (refer to section 266(11)(b) for the explanation of serious offence)
Duties to the trustees for debenture holders • Section 287 imposes certain duties on an auditor of a company which has issued debenture. The auditor should send a copy of the financial statements, report or certificate prescribed in the section to every trustee for the denture holders.
Duties to the Securities Commission and Stock Exchange • Section 276(3) of the Capital Markets and Service Act 2007, an auditor of a company which has issued debentures is required to immediately report to the Securities Commission if he becomes aware of any contravention of any provision of the Companies Act, or any irregularities that may have material effect on the ability of the borrower to repay any amount under the debenture. • The auditor also is required to report to the Stock Exchange if there is contravention of any provision of the security law and the rules of the Stock Exchange or any matter which may adversely affect to a material extent the financial position of the public listed company.