ACCOUNTANCY AND AUDITING
Auditing is entirely diferent from accounting in that the preparation of accounts is one thing; while their verification and critisim is another. This distinction is of the upmost importance when the question of legal liability arises, for this hinges on whether the auditor involved was instructed to perform accountancy work or auditing. You should take note that a professional accountant does not necessarily gurantee the acuracy of the accounts preparedby him. The accountant, when acting as auditor, undertakes to asceritain the true position of the particular concern, according to the information and explanations given to him and as shown by the books prepared generally by someone else.
The importance of this distinction could be cited in the case of Apfel V. Annan Dexter & Co (1926) where the defendants (Accountants) were instructed to prepare the account of a business for income tax purpose. The accountants carried out their job as accountants without discovering that large sum has been converted to personal use by the sons of the bankrupt, The Trustee of Apfel as plaintiff alleged that the defendants were employed as auditor whereas the defendant replied that they were employed only as accountant to prepare such accounts as where necessaryfor the purpose of income tax return. Quite in error language useage a bill of cost for professional services rendered stated in preparation and audit of your account. The court took the view that they had carried out what they were asked to do.
Namely accountancy work, nor audting.
This case is of great interest in that it emohasizes the importance of getting a clear definition grom the client of work to be involved. Where a full audit is not carried on his ltters of Engagement the extent of work he had agreed with his client to do.
DEFINITIONS AND QUALITIES OF AN AUDITOR
An auditor is a component and imoartial critic appointed to verify a financial or other state of accounts and to satisfy himself, that the statements exhibits a
correct view of the affairs of the business or organisation concerned.
QUALITIES: The qualities desirable in an auditor can be summarised as follows;
- Versed in the science of accountancy with the ability to apply its principles to the various and desimilar business of which he is auditor.
- Have a thorough grasp of the general principles of the lawwhich governs the matters with which he is likely to be brought into contact.
- Understand pratical business, endeavouring always to grasp the technicalities and business method of any concern whose accounts he undertakes to audit.
- Tact, caution, firmness, fairness, good temper, courage, intergrity, honesty, discretion, industry, judgement, patience, clearheadedness and reliability should be inculcated in an auditor.
- Not to be suspicious, but neither must he be credulous.
- He must have passed any of the recognised professional accountancy examinations and admitted as a member of that professional body such as the;
I. Institute of Chartered Accountants of Nigeria (ICAN).
II. The institute of Chartered Accountants of England and Wales, Scotland (ACA)
III. The Association of Certified Accountants, (ACCA)
IV. Certified Public Accountants (CPA)
THE APPOINTMENT AND REMUNERATION OF THE AUDITOR
The sole trader or partnership firm is under no obligation to appoint an auditor at all and there is consequently in the case of the firm, there should be agreement on the matter between the partners. In the case of cpmpanies under the companies act 1968, or the Companies Allied Matters Decree 1990, an audit is compulsory.
- Every company shall at each annual general meeting, appoint an auditor, or auditors to hold from the conclusion of that until the conclusion of the next annual meeting. S.357 91) of CAMD of 1990.
- At an annual general meeting a retiring auditor however appointed, shall be re-appointed without any resolution being passed unless-
- He is not qualified for re-appointement.
- Aresolution has being passed at the meeting appointing some other person instead of him or providing expressly that he shall not be re-appointed.
- He has given the company notice in writing of his unwillingness to be re-appointed
Provided that where notice is given of an intended resolution to appoint some person or persons in place of retiring auditor and by the reason of 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 automatically re-appointed by virtue of the sub-section. S. 357 CAMD 1990.
3. Where at an annual general meeting no auditor(s) are appointed the directors may appoint a person to fill the vancancy. S. 357.(3) CAMD 1990.
4. The company shall within one week of the directors power under the last foregoing subsection (3) become exercisable, give them notice of the fact, to the commission 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 guilty of an offence and be liable to a fine of #100, for every day during which the default continues S. 357 (4) CAMD 1990.
5. Subject as hereinafter provided, the first auditors of company maybe appointed by the directors at any time before the company is entitled to commence business and auditors so appointed shall hold office untill the conclusion of the next general annual meeting. Provided that –
- The company may at a general meeting remove any such auditors and appoint in their place any other person who have been nominated for appointment by any member of the company and of whose nomination notice have beeb given before the date of the meeting.
- If the first he directors fail to exercise their powers under this sub-section; the company may in a general meeting convened for that purpose appoint the first auditors and thereupon the said powers of the directors shall cease S. 357 (5) CAMD 1990.
6. The directors may fill any casual vacancy in the office of the auditor, but while any such vacancy continues, trhe serving or continuing auditor(s), if any, ACT S. 357 (6) CAMD 1990.
7. The remuneration of the auditors of a company.
- In case of an auditor appointed by the directors may be fixed by the directors.
- Shall subject to the foregoing paragragh be fixrd by the company in a general meeting may determine S. 357 (7) CAMD 1990.
For the purpose of this sub-section (7) renuneration include sums paid by the company in respect of the auditors expenses.
QUALIFICATIONS (S. 358 CAMD 1990)
- A person shall not be qualified for appointment as auditor of company for the purpose of this decree unless in Nigeria he is a member of a body of accountants in Nigeria established from time to time by an act or decree S. 358 (1). The Intitute of Chartered Accountants of Nigeria admits members of Chartered Accountants in UK, the Associsation Certifed Accountants also in UK and the Certifed Public Accountants in USA as their members in addition to those who passed their qualifying examinations.
- He is authorised by the Registrar of Trade as holding similar qualifications overseas,
DISQUALIFICATIONS (S. 358 Amended under Decree No. 32)
1. The provision of the Institute of Chartered Accounts Acts 1965 shall have effect in relation to any investigation or audit for the purpose of this Decree so however that none of the following persons shall be qualified for the appointment as auditor of the company that is:
- An officer or servant of the company.
- A person who is a partner or in the employment of an officer or servant of the company.
- A body coroperate.
2. A person shall also not qualify for appointment as an auditor of a company if he is under sub-section (6) of this section disqualified for appointment as auditor of any other body corprate which is that company subsidiary or holding company or would be so disqualified if the body corprate were a company.
3. Notwithstanding subsection (1) and (3) of CAMD Section 358, a firm is qualified for appointment as auditor of a company if, but only if, all the partners are qualified for appointment as auditors of it.
4. No person shall act as auditor of a company at a time when he knows that he is disqualified for appointment to the office and if an auditor of a company to his knowledge becomes so disqualified during his term of office, he shall thereupon vacate his office and give notice to the company that he has vacated it by reason of that disqualification.
5. No person who acts as auditor in contravention of sub-section (5), of this section or fails withput reasonable excuse to give notice of vacating this office as required by the sub-section shall be guilty of an offence and liable to a fine of #500 and for continued contravention to a daily default fine of #50.
- The auditors of a company shall make a report to its members on the accounts examinedby them and on every balance sheet and profit and loss account, and all group financial statement copies of which are to be laid before the company in a general meeting during the auditors tenure of office S. 359 (1).
- In addition to the report made under SS (1) of this section, the auditor shall in case of a public company also make a report to an Audit Committee which shall be establishedby the public company SS 359 (3)
COMPOSITION OF AUDIT COMMITTEE
- The audit committee reffered to in subsection (3) if this section shall consist of an equal number of directors and represntatives of shareholders of the company (subject to a maximumnumber of 6 members) and shall examine the auditors report and make recommendations thereon to the annual general meeting as it may think fit. provided, however, that such member of the audit committee shall not be entitled to remuneration and shall be subject to re-election annually S. 359 (4).
- Any member may nominate a shareholder as a member of the audit committee by giving notice in writing of such nomination to the secretary of the company at least 12 days before the annual general meeting.
OBJECTIVES AND FUNCTIONS OF AUDIT COMMITTEES [(S. 359 (6)]
Subject to such additional functions and powers that the company association may stipulate, the objectives and functions of the audit committee shall be to –
- Ascertain whether the accounting and reporting policies of the company are in accordance with the legal requirements and agreed ethical pratices.
- Review the scope and planning of audit requirement;
- Review the fingings on management matters in conjunction with the external auditor and deoartmental response thereon.
- Keep under review the effectiveness of the companys system of accounting and internal control
- .Make recommendations to the boeard in regard to the appointment, removal and renumaration of the external auditors of the company.
- Authrisethe internal auditor to carry out investigation into any activity of the company which may be of interest or concern of the committee.
DUTIES OF AUDITORS (S. 360)
1. It shall be the duty of the companys auditors, in preparing their report in carrying investigations as may enable them to form opinion as to the following matters whether:
- Proper accounting records have been kept by the company and proper returns adequate for their audit have been recieved from branches not visited by them.
- The companys balance sheet and (not consolidated) the profit and loss account are in agreement with the accounting records and returns.
2. If the auditors are of the opinion that proper accounting records have not ben recieved by the branches not visited by them, or if the balance sheet and (if not consolidated) the profit and loss accounts are in agreement with the accounting records and returns, the auditors shall state that fact in their report.
3. Every auditor of a company shall have the right to access all times of the companys book, accounts and vouchers and entitled to require from the companys such infomation and exolainations as he think necessary for the performance of his duties.