August 2014

ACC2034 Principles of Auditing

Tutorial 2 Week 3 - Additional Practice Questions (Suggested Solutions)

Tutorial
1. Who is not permitted to act as the auditor of company under the Companies Act,
1965?
Under section 9(1) of the Act, a person is prohibited from acting or accepting an
appointment as the auditor of a company if he is:
1) Not an approved company auditor;
2) Indebted to the company or its related company in an amount exceeding RM 2,500;
3) An officer of the company;
4) A partner, employer or employee of an officer of the company;
5) A partner, employee of an employee of an officer of the company;
6) A shareholder or his spouse is a shareholder of a corporation whose employee is
an officer of the company; or
7) Responsible for or if he is the partner, employer or employee of a person
responsible for keeping the members register or the register of debenture-holders
of the company.
2. State the main reporting responsibility of the auditor under the Companies Act,
1965.
Under Section 174(2) of the Companies Act, 1965, there are two main requirements
relating to the auditors reporting duties:
a) The auditor must state, whether in his opinion, the financial statements have been
properly drawn up in accordance with the provisions of the Act and applicable
approved accounting standards, so as to give a true and fair view of the companys
state of affairs and result of operations; and matters required by section 169 to be
dealt with in the financial statements; and
b) The auditor must state, whether in his opinion, the accounting and other records and
the registers required by the Act to be kept by the company, have been properly kept
in accordance with the Act.
3. Under what circumstances may an auditor be appointed under the Companies Act,
1965 resign from office?
An auditor appointed under the Act may resign from office at a general meeting of
company or if he is not the sole auditor of the company. The auditors resignation shall
take effect once a new auditor has been appointed in his place. Otherwise, he has to
hold office until the next AGM of the company.
4. Describe the major rights and duties of the auditor under the Companies Act, 1965
Rights
S172(6) Right to attend the general meeting at which his term of office would
otherwise have expired and any general meeting at which it is proposed that the
vacancy caused by his removal be filled.

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ACC2034 Principles of Auditing

S172(4) Right of access to the accounting records and other records of the
company, and to such explanations and information from company officers (including
directors) as are necessary to conduct the audit.
S172(5&6) Right, where special notice requesting removal of auditor is given, to
make representations in writing to the company, and to have these representations
sent to the members. Right to have his/her representations read out at the general
meeting.
S172(16) Right to remuneration or fees. The auditors remuneration or fees may be
fixed by the directors (if auditors are appointed by directors) or by the Registrar of
Companies (if appointed by the registrar) or the company in a general meeting (if
appointed by the members of the company in a general meeting). In practice, the
directors are given the authorisation by the members of the company to fix the
auditors remuneration.

Duties
S174(2) there are two main requirements relating to the auditors reporting duties:
a. The auditor must state, whether in his opinion, the financial statements
have been properly drawn up in accordance with the provisions of the Act
and applicable approved accounting standards, so as to give a true and fair
view of the companys state of affairs and result of operations; and matters
required by section 169 to be dealt with in the financial statements; and
b. The auditor must state, whether in his opinion, the accounting and other
records and the registers required by the Act to be kept by the company,
have been properly kept in accordance with the Act.
S174(3) Duty of the auditor to form an opinion whether:
o He has obtained all the information and explanations that he required;
o Proper accounting and other records (including registers) have been kept by
the Company;
o The returns received from branch offices of the company are adequate; and
o Procedures and method used by the company to arrive at the consolidated
accounts are appropriate in the circumstances.
S174(8A) The auditor shall report, in writing, to the Registrar of Companies, fraud
or dishonesty committed against the company or the Companies Act 1965 by officers
of the company

5. Explain the procedures that a company must follow in order to remove its auditor
before the expiration of the auditors term of office.
If a company wants to remove an auditor from office before the auditors term of office
has expired, the company may give notice of the proposed resolution in the general
meeting (S172(4-8).
Arrange for a meeting of the shareholders of the company.
Write to the shareholders providing notice of the meeting and the agenda. The
notice must also be sent to the auditor as the auditor is entitled to receive all
notices and other communication pertaining to his removal.

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ACC2034 Principles of Auditing

Attend the meeting and organise a counting of votes at the meeting on the
resolution to remove the auditor from office. In most situations, a simple majority
of the shareholders is required to confirm the resolution.
The auditor may make written representations about his proposed removal
under S172(5) such representation must be put before the members of the
company.
The auditor is entitled to attend and speak at the meeting.
If the auditor is removed, where necessary, obtain a statement of circumstances
from the auditor. If there are no circumstances that need to be brought to the
attention of the shareholders then a statement of no circumstances is required.
Where required by specific country legislation, deposit this statement along with
notice of removal of auditor, with the appropriate authorities.
Make arrangements to appoint another auditor as companies are normally
required to have auditors.