Auditors’ Rights, Appointment, Removal, Resignation and Regulation - ACCA Audit and Assurance (AA)

Summary

This Open Tuition lecture covers the rights and duties of auditors, including access to all company records and the ability to attend and speak at general meetings. Auditors have the right to resign if they encounter issues with information access or cooperation. Their primary duty is to issue an audit report expressing an opinion on the financial statements' accuracy. The lecture also touches on the regulatory framework, including ACCA, FRC, IFAC, and other bodies, ensuring auditors maintain professional standards and independence.

Takeaways

• 🔑 Auditors have extensive rights, including access to all records of the audit client, the entitlement to all necessary information, and the ability to attend and speak at general meetings.
• 🗣️ Auditors can resign from their position, particularly if they encounter issues such as lack of cooperation or access to information, which could hinder their ability to perform a proper audit.
• 📊 The primary duty of auditors is to issue an audit report that provides opinions on whether the financial statements present a true and fair view and are properly prepared.
• 🔍 Upon resignation or dismissal, auditors are required to issue a statement of circumstances explaining why they resigned or were removed, which is crucial for shareholders and other stakeholders.
• 🔄 Auditors must be reappointed annually at general meetings, and their resignation can occur for various reasons, including the company outgrowing the audit firm's capacity or the auditor nearing retirement.
• 🚫 There is a concern that auditors might be removed by directors if they are too effective, which is why the outgoing auditors are allowed to file a statement and speak at general meetings to clarify the reasons for their removal.
• 🌐 The regulatory framework for auditors includes organizations like ACCA, FRC, IFAC, and the PIOB, which oversee qualifications, ethical standards, and the alignment of financial reporting and auditing practices internationally.
• 🏛️ The International Federation of Accountants (IFAC) works towards harmonizing financial statement preparation and auditing standards globally to ensure consistency regardless of the company's nationality.
• 🏅 To be an auditor in the UK, one must be a member of a recognized qualifying body like ACCA and a recognized supervisory body, ensuring qualifications and ongoing professional development.
• 🚫 Auditors must maintain independence and cannot be directors, employees, or business partners of a director or employee of the client company to ensure objectivity and integrity in the auditing process.

Q & A

What are the rights of auditors according to the lecture?

Auditors have the right to access all records of the audit client, which can include Board minutes, payroll records, employee appraisals, contracts, and any other documentation. They are also entitled to all information and explanations required for sufficient appropriate audit evidence.

Are auditors allowed to attend and speak at general meetings?

Yes, auditors are allowed to attend general meetings and they can also speak at these meetings on relevant matters.

Under what circumstances might an auditor resign during an audit?

An auditor might resign if they are not given the right information or access to certain records, and they believe they won't be able to complete the audit properly, possibly due to attempts to hide fraud or confusion.

What is the auditor's prime duty?

The prime duty of the auditor is to issue an audit report giving opinions on whether the financial statements show a true and fair view and whether they have been properly prepared.

What happens if an auditor resigns or is removed?

If an auditor resigns or is removed, they must issue a statement of circumstances explaining why they resigned or were removed. This statement goes to the company's members.

Why might auditors be reappointed every year?

Auditors have to be reappointed at every annual general meeting, where they are put up for appointment again and members vote on it.

What are some innocent reasons for an auditor's resignation?

Innocent reasons for an auditor's resignation might include the client becoming too large or complex for the auditor's firm, or the auditor approaching retirement and wanting to reduce their workload.

What is the concern when auditors are removed?

The concern is that auditors might be removed by the directors because they are too effective, and the directors may replace them with new ones who are more compliant.

What is the role of the ACCA in regulating auditors?

The ACCA regulates its members by overseeing qualifications, ensuring continuing professional development, and maintaining behavioral standards. It can discipline members, including expelling them or fining them, and ensures they stay updated with current developments.

What is the purpose of the International Federation of Accountants (IFAC)?

IFAC aims to bring the preparation of financial statements and the auditing of those statements into line internationally, so that financial statements are drawn up according to the same accounting standards worldwide.

Who can be an auditor and what are the requirements?

In the UK, an auditor must be a member of a recognized qualifying body like the ACCA and a member of a recognized supervisory body. They cannot be directors or employees of the company and must be independent from the client.

Outlines

00:00

📜 Auditors' Rights and Duties

This paragraph discusses the rights and duties of auditors, focusing on their access to all records within an audit client's organization, including sensitive documents like Board minutes and payroll records. Auditors are also entitled to any information or explanations necessary for gathering sufficient audit evidence. They have the right to attend and speak at general meetings, allowing direct communication with company members. The paragraph also covers the circumstances under which auditors might resign, such as when directors withhold information or access to records, which could hinder the audit process and pose a risk to the auditor's reputation. Lastly, auditors have the right to ensure that corrected financial statements are circulated to shareholders if errors are discovered post-publication.

05:01

🔄 Auditor Appointment, Resignation, and Removal

Paragraph 2 delves into the process of auditor appointment, resignation, and removal. Auditors are subject to reappointment at annual general meetings, and their resignation can occur for various reasons, including the company outgrowing the auditor's capacity or the auditor nearing retirement. However, there is a concern that resignations might be due to a lack of cooperation or confidence issues with the directors. Shareholders and other stakeholders need to be aware of the reasons behind resignations to assess any underlying issues. The paragraph also addresses the removal of auditors, which can raise suspicions of the auditors being too effective, leading to their replacement. Outgoing auditors are required to file a statement of circumstances explaining the reasons for their resignation or removal. Additionally, the regulatory environment for auditors is discussed, including the role of professional bodies like ACCA, the FRC, IFAC, and the PIOB, which oversee the auditing profession and ensure adherence to professional standards.

10:02

🏛️ Regulatory Framework for Auditors

Paragraph 3 outlines the regulatory framework for auditors, emphasizing the role of various organizations in maintaining the integrity and quality of the auditing profession. It discusses the ACCA's responsibility for members' qualifications and professional development, as well as its disciplinary powers. The FRC's role in regulating financial reporting and governance in the UK is highlighted, along with the IFAC's efforts to standardize financial statement preparation and auditing standards internationally. The paragraph also mentions the PIOB, which provides broader input on the effectiveness of regulatory environments and standards from a variety of financial statement users. Furthermore, it outlines the requirements for becoming an auditor, including membership in a recognized qualifying body and a supervisory body, and the importance of auditor independence from the company they audit.

Keywords

💡Auditors Rights

Auditors Rights refer to the legal entitlements auditors have during the audit process. As mentioned in the script, these rights include access to all records of the audit client, which can range from board minutes to payroll records. This ensures that auditors have the necessary information to perform their duties effectively. The script also highlights that directors cannot withhold information on the grounds of confidentiality, which underscores the importance of transparency in the auditing process.

💡Audit Evidence

Audit Evidence is the information obtained by auditors to provide a basis for their conclusions about the financial statements. The script emphasizes that auditors are entitled to all information and explanations required to gather sufficient and appropriate audit evidence. This is crucial for auditors to form an opinion on the financial statements and ensure they present a true and fair view of the company's financial position.

💡General Meetings

General Meetings are gatherings where all members of a company are invited, often to discuss and vote on significant matters. The script points out that auditors have the right to attend and speak at these meetings, which allows for direct communication with the company's shareholders. This is an important aspect of auditors' duties as it enables them to address any relevant matters directly to those who have appointed them.

💡Resignation

Resignation in the context of auditing refers to the voluntary withdrawal of an auditor from their position before the completion of their term. The script discusses scenarios where auditors might resign, such as when they are not provided with the necessary information or access to records, which could hinder their ability to complete an audit properly. This could be due to potential fraud or non-cooperation from the company's directors, making resignation a protective measure for the auditor's reputation.

💡Regulatory Framework

The Regulatory Framework encompasses the rules, standards, and guidelines that govern the conduct of auditors. The script outlines various layers of regulation, including professional bodies like ACCA and international organizations like IFAC. These entities set standards for auditing and financial reporting, ensuring that auditors adhere to ethical and professional guidelines and maintain the integrity of the financial statements they audit.

💡True and Fair View

A True and Fair View is a principle in financial reporting that requires financial statements to present an accurate and unbiased reflection of a company's financial position. The script mentions that the primary duty of auditors is to issue an audit report expressing their opinion on whether the financial statements provide a true and fair view. This is central to the credibility of financial reporting and the confidence of investors and other stakeholders.

💡Statement of Circumstances

A Statement of Circumstances is a document that auditors are required to issue upon resignation or removal, explaining the reasons behind their departure. The script highlights the importance of this statement for shareholders and other stakeholders, as it provides transparency into any potential issues that may have led to the auditor's departure, such as a lack of cooperation or concerns about the financial statements' accuracy.

💡Appointment and Removal

Appointment and Removal pertain to the process by which auditors are selected and dismissed from their roles. The script explains that auditors must be reappointed at each annual general meeting, and if they resign or are removed, it is a matter of concern for shareholders. The reasons for appointment or removal can be varied, from the company's growth outpacing the auditor's capacity to more concerning reasons like a lack of confidence in the financial statements' integrity.

💡Professional Qualifying Body

A Professional Qualifying Body is an organization that oversees the qualifications, exams, and professional development of its members. In the context of the script, the ACCA is mentioned as an example of such a body, which not only certifies auditors but also regulates their conduct and ensures they maintain professional standards. This is important for maintaining the credibility and quality of auditing services.

💡Independence

Independence is a core principle in auditing that requires auditors to be free from any influence that could compromise their objectivity and impartiality. The script states that auditors must not be directors or employees of the company they audit, and they must be independent from any business partnerships with the company's directors or employees. This ensures that auditors can provide unbiased opinions on the financial statements and maintain the integrity of the audit process.

Highlights

Auditors have the right to access all records of the audit client, including board minutes, payroll records, and contracts.

Auditors are entitled to all information and explanations required for sufficient audit evidence; directors cannot withhold information due to confidentiality.

Auditors have the right to attend and speak at general meetings on relevant matters.

The general meeting is a key opportunity for direct communication between auditors and company shareholders.

Auditors may resign before or during an audit if they are not provided with the necessary information or access to records.

Resignation of auditors could be due to a lack of cooperation or potential fraudulent activities within the company.

Auditors have the right to ensure that amended financial statements are circulated to shareholders if errors are discovered.

The primary duty of auditors is to issue an audit report providing opinions on the true and fair view of financial statements.

Upon resignation or dismissal, auditors must issue a statement of circumstances explaining why they resigned or were removed.

Auditors are expected to communicate with new auditors about any significant issues or potential fraud suspicions.

Auditors must be reappointed at every annual general meeting, where members vote on their appointment.

There can be innocent reasons for auditor resignation, such as the client outgrowing the audit firm's capacity.

Shareholders and other stakeholders should be informed of the reasons behind auditor resignation to assess the implications.

Auditors may be removed by directors, raising suspicions of their effectiveness or uncovering of issues within the company.

Outgoing auditors are required to file a statement of circumstances explaining the reasons for their removal.

Auditors are part of a regulatory environment with multiple layers, including professional bodies and international standards boards.

ACCA members are regulated by ACCA, which oversees qualifications, professional development, and disciplinary actions.

The FRC is the UK's regulatory body for financial reporting and governance, ensuring standards are met.

IFAC, the International Federation of Accountants, works towards harmonizing financial statement preparation and auditing standards globally.

The Public Interest Oversight Board was established to provide external input on the effectiveness of the regulatory environment and standards.

To be an auditor in the UK, one must be a member of a recognized qualifying body and a recognized supervisory body, ensuring qualifications and ethical standards.

Auditors must maintain independence and cannot be directors, employees, or business partners of a director or employee of the client.

Transcripts

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chapter 3 is relatively short it deals

with auditors rights and duties

appointment resignation and the

regulatory framework within which they

operate

first of all auditors rights and very

important rights to access all records

in the audit client this can mean Board

minutes it can be payroll records it

could be appraiser records of employees

contracts any documentation any part of

the records at all the auditors have a

right to examine secondly they are

entitled to all information explanations

that they require in the quest for

sufficient appropriate audit evidence a

director is not allowed to say I can't

tell you because it's confidential the

argument is and of course once you open

the door to keeping some information

back claiming it's confidential

how do you know whether it's being kept

back for you know proper confidential

reasons or whether it's just the

director looking for an excuse to hide

something auditors are allowed to attend

general meetings and they're allowed to

speak at general meetings or relevant

matters if you remember the general

meeting is where all of the members are

invited and you have a big meeting

usually directors on a kind of a stage

the members all sitting in an auditorium

and the members often will vote at these

meetings but this is the one time where

there's a direct learning absolutely

direct communication possible between

the auditor who will only be sitting up

kind of often alongside the directors

but making clear that the auditor is not

a director can address directly the

members of the sea in a couple of slides

it is the members of the company its

shareholders who appointed the directors

and it is to those members and the big

monitors the members of the company the

shareholders who appointed the leading

the auditors and the auditors report to

the numbers of the company they can

receive proposed resolutions interesting

one before last there they can resign

the for model completion why would in

order to resign maybe before the start

or halfway through an audit well what

would happen if the directors were not

giving you the right information if they

were not giving you access to certain

records and so on and you know that you

won't be able to complete the audit

properly and there's danger there for

the auditor and there's a danger there

being associated with a company which is

maybe trying to bury fraud or company

which is trying to confuse the auditor

so probably better to stop and get out

even with the risk of unpaid fees than

try to hang in there and suffer perhaps

great reputational damage and then the

auditor can also have a right of

information circulated to shareholders

for example what would happen if the

financial statements came out and they

were wrong you know two months later

discovered with some error in the

financial statements a serious error

that it is possible for the auditors to

insist an amended set of financial

statements would be sent to the members

the duties of the auditors here the

prime one is to issue an audit report

giving opinions on whether the financial

statements show a true and fair view

whether the financial statements have

been properly prepared

we'll see in a moment that upon

resignation or being sacked the auditors

also must issue a statement of

circumstances this is basically saying

why they resigned or why they were

sacked and this goes to the members of

the company and also after they resigned

the auditors are supposed to talk to the

new auditors letting the new auditors

know whether there's anything that they

should know about that line to maybe

some major disagreement or some even

suspicion of fraud maybe that's why the

old auditors resigned appointment the

resignation and the removal and

appointment the auditors have to be

reappointed had every annual general

meeting so was then put up for

appointment again and for the members to

vote on that resignation auditors might

resign for what I would call innocent

purposes it might be that the client has

simply got much larger and more

complicated than the relatively small

firm of auditors can deal with maybe the

auditors kind of getting towards

retirement once they cut down a little

bit there plenty of innocent reasons for

resignation the big big don't however

the worry is that the auditors are

resigning because of some major perhaps

lack of confidence or major lack of

cooperation with the directors and it's

important for shareholders and others to

know why had the order to design this is

something some dark secret behind this

so to speak or is it a perfectly

innocent just flies me not growing us

and you needn't have to worry too much

about that that is called a statement of

circumstances the circumstances of why

you resigned

removal again the big problem is of

course you're always suspicious that

maybe the auditors are being removed by

the directors because they're too good

so the directors cut the reappoint new

ones but they would suggest that the

auditors were replaced why is that it

could be that they think the auditors

are doing a bad job that the companies

become international that the auditors

are still small and provincial there

could be a policy to change all of those

every five years every 10 years to get a

fresh set of eyes on it but always the

suspicions were being sacked or they're

being sacked because they're too good

and again the outgoing auditors the

sacked auditors if you like are entitled

to and required to file a statement a

circumstance that the company's offers

explaining the circumstances of the

removal they're also allowed to speak at

the general meeting where their term of

office would have expired so you get a

kind of last chance of telling it

straight to the members to who really

live the prime duty regulatory

environment several different layers if

you like first of all members of the

ACCA are regulated by the ACCA ACCA

looks after your qualification your

exams it insists that this continuing

professional development it looks after

behavior if you found guilty of a crime

for example or maybe found guilty of not

carrying out an audit properly they can

find you or ask you to leave the

professional room to leave the ACCA and

in many ways this is how professional

qualification like ACCA is different to

an MBA once you have an MBA degree it's

yours for life and amount

no matter how evil you become but you're

a member of the ACCA they retained

disciplinary powers

for you and you can be thrown out or

fined or they ensure that you keep up to

date with current developments in the UK

the FRC that's a financial reporting

Council which is our of the UK

regulators for reporting and governance

so if you like is a kind of statutory

body and then internationally there is

the I fact the International Federation

of accountants what they try to do one

of the important things they try to do

is to bring the preparation of financial

statements and the order to those

financial statements into line

internationally so that the matter which

nationalities have a unit for whatever

nationally the company is whose

financial statement you're looking at

they're drawn up according to the same

accounting standards and the same

standard of auditing will be done

finally not too important for you a

public interest oversight board this has

been set up because it was felt that

perhaps the the regulation of auditors

is Israel is almost too inwardly looking

it's kind of auditors looking after

auditors and countless regulating

accountants but of course very much what

accountants do when they're auditing is

they are doing the audit on financial

statements which I'm going to go to a

wide range of other businesses like

banking like insurance like stockbrokers

like investment trusts and so on and it

was thought may be quite useful to get

it some input into how effective the

regulatory environment and the

accounting standards and auditing

standards were could a bit of input from

our wider variety of users of the

financial statements I thought effects

purposes as well as what I said there to

serve the public interest strengthen the

worldwide accountancy profession

establish and promote adherence to

high-quality professional standards

within IFAC you have the IAASB and the

international auditing and assurance

standards board these are people who

basic

developed ISAs auditing standards for to

get kind of international quality almost

there's the IES BA the Ethics Board this

set would be looking at ethics in the

next chapter

this sets out ethical dines under which

accountants should act will see words

like independence integrity professional

competence and so on within the

requirements for professional

accountants and finally there's a tac

not so important for you transnational

auditors committee many companies now of

course are international or raise money

on international markets and we just

have to make sure that we take into

account international considerations

when designing accounting standards or

the audience who can be an auditor well

you have to be in the UK a member of a

recognized qualifying body that's the

ACCA you must be a member of the

basically recognized qualifying body

looks after your qualifications and then

to make sure you stay righteous the the

you have a member of the recognized

supervisory body which the ACC is also

one and their directors may not be I

think one auditors may not be directors

or employees of the company and they

have to be independent really from that

and they are not allowed to be an

employee or business partner of a

director or employee of the client