The Auditor and the Companies Act Cap 486 Notes

Introduction
Statutory audits are carried out as guided by the rules set out in the Companies Act Cap 486. The topic outlines the rules on the requirement for a company to follow. It outlines the rules on the auditor’s appointment, auditor’s resignation and dismissal, his remuneration and who qualifies to be a company’s auditor.

Auditors’ Appointment and Remuneration

Section 159 of the companies Act Cap 486 states:
(1) Every company shall at each annual general meeting appoint an auditor or auditors to hold office from the conclusion of that, until the conclusion of the next, annual general meeting.
(2) Notwithstanding the provisions of subsection (1), at any annual general meeting a retiring auditor, however appointed, shall be deemed to be reappointed without any resolution being passed unless –

  • he is not qualified for reappointment; or
  • a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be reappointed; or
  • he has given the company notice in writing of his unwillingness to be reappointed: Provided that where notice is given of an intended resolution to appoint some person or persons in place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution cannot be proceeded with, the retiring auditor shall not be deemed to be automatically reappointed by virtue of this subsection.

(3) Where at an annual general meeting no auditors are appointed or are deemed to be reappointed, the registrar may appoint a person to fill the vacancy.
(4) The company shall, within seven days of the registrar’s power under subsection (3) becoming exercisable, give him notice of that fact, and, if a company fails to give notice as required by this subsection, the company and every officer of the company who is in default shall be liable to a default fine.
(5) Subject as hereinafter provided, the first auditors of a company may be appointed by the directors at any time before the first annual general meeting, and auditors so appointed shall hold office until the conclusion of that meeting:

Provided that–

  • the company may at a general meeting remove any such auditors and appoint in their place any other persons who have been nominated for appointment by any member of the company and of whose nomination notice has been given to the members of the company not less than fourteen days before the date of the meeting; and
  • if the directors fail to exercise their powers under this subsection, the company in general meeting may appoint the first auditors, and thereupon the said powers of the directors shall cease.

(6) The directors may fill any casual vacancy in the office of auditor, but while any such vacancy continues the surviving or continuing auditor or auditors, if any, may act.
(7) The remuneration of the auditors of a company–

  • in the case of an auditor appointed by the directors or by the registrar may be fixed by the directors or by the registrar as the case may be;
  • subject to subparagraph , shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine.

For the purposes of this subsection, any sums paid by the company in respect of the auditors’ expenses shall be deemed to be included in the expression “remuneration” Section 159 of the Companies’ Act cap 486 states clearly that the following should be done:

  •  appoint an auditor during the company must annual general meeting
  • a retiring auditor who happens to be re – appointed is duly appointed
  • the registrar of companies have power to appoint an auditor if the company fails to appoint one during their annual general meeting
  • the must notify the registrar of companies within seven days that they were unable to appoint an auditor, failure to which the company and any officer who failed is liable to a default fine
  •  the first auditors of the company may be appointed by the directors of company before the first AGM
  • the remuneration of the auditors will be fixed by whoever appoints him or her

Resolution Relating to Appointment and Removal of Auditors
Section 160 of the Companies Act Cap 486 states
(1) Special notice shall be required for a resolution at a company’s annual general meeting appointing as auditor a person other than a retiring auditor or providing expressly that a retiring auditor shall not be reappointed.
(2) On receipt of notice of such an intended resolution as aforesaid, the company shall forthwith send a copy thereof to the retiring auditor (if any).
(3) Where notice is given of such an intended resolution as aforesaid and the retiring auditor makes with respect to the intended resolution representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so– and if a copy of the representations is not sent as aforesaid because received too late or because of the company’s default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting:
Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the court is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; and the court may order the company’s costs on an application under this section to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
(4) Subsection (3) shall apply to a resolution to remove the first auditors by virtue of subsection (5) of section 159 as it
applies in relation to a resolution that a retiring auditor shall not be reappointed.
In conclusion:

  • Every limited company must appoint an auditor to audit its books of accounts.
  • The directors have powers to fill a casual position or vacancy
  • The first auditors may be filled by the directors before holding the first annual general meeting.
  • In case the directors fail to appoint the first auditors, the shareholders can appoint in an AGM where the books of accounts are not being presented.
  • The company must notify the registrar of companies within one week of the failure to appoint an auditor.

Disqualifications for Appointment as Auditor
Section 161 of Companies Act Cap 486 states:
(1)A person or firm shall not be qualified for appointment as auditor of a company unless he, or in the case of a firm, every partner in the firm is the holder of a practising certificate issued pursuant to section 21 of the Accountants Act, 2008.
(2)  None of the following persons shall be qualified for appointment as auditor of a company–

  • an officer or servant of the company;
  • a person who is a partner of or in the employment of an officer or servant of the company;
  • a body corporate:
  • Provided that subparagraph (ii) shall not apply in the case of a private company.

References in this subsection to an officer or servant shall be construed as not including references to an auditor.

(3) A person shall also not be qualified for appointment as auditor of a company if he is, by virtue of subsection (2), disqualified for appointment as auditor of any other body corporate which is that company’s subsidiary or holding company or a subsidiary of that company’s holding company, or would be so disqualified if the body corporate were a company.

(4) If any person who is not qualified so to act is appointed as auditor of a company such person and the company and every officer in default shall each be liable to a fine not exceeding four thousand shillings. In conclusion Section 161 of Companies Act Cap 486 clearly states the following:

  • Any person or person who does not hold a practising certificate disqualified as an auditor
  • An officer of the company cannot be appointed as an auditor
  • A person who is a partner of an officer of the company cannot be appointed as an auditor
  • A relative of an officer of the company cannot be appointed as an auditor
  • If a person who cannot be appointed as an auditor is appointed in default then the appointing authority is liable to a fine of not exceeding five thousands shillings

Right of Access to Books and Attend Meeting
Section 162 stipulates that:
(1) The auditors shall make a report to the members on the accounts examined by them, and on every balance sheet, every profit and loss account and all group accounts laid before the company in general meeting during their tenure of office, and the report shall contain statements as to the matters mentioned in the Seventh Schedule.
(2) The auditors’ report shall be read before the company in general meeting and shall be open to inspection by any member.
(3) Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, and shall be entitled to require from the officers of the company such information and explanation as he thinks necessary for the performance of the duties of the auditors.
(4) The auditors of a company shall be entitled to attend any general meeting of the company and to receive all notices of and other communications relating to any general meeting which any member of the company is entitled to receive and to be heard at any general meeting which they attend on any part of the business of the meeting which concerns them as auditors.

Section 162 of the Companies’ Act Cap 486 clearly states the following:

  1. The auditors have the responsibility of making the auditors reports regarding all the books examined by them thereby expressing their opinion on the truth and fairness view regarding the books
  2. The auditor must be presented during the annual general meeting of the company
  3. The auditor must be give unrestricted accessed to books of accounts at all times as he/she may need
  4. It is the right of the auditor to attend the annual general meeting (AGM) of the company
  5. It is the right of the auditor to be heard in the annual general meeting (AGM) of the company
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