Muhammad Ammar Bin Khairul Rizan

2021858076
TAC2203E

LAW485
ASSESSMENT 2

Answer :
There are 2 issues found based on the question. First of all, whether the appointment of
auditor is according to Company’s Act 2016 and the second on is whether the directors are liable
towards the auditors fault which are attempt to cover certain wrongdoings and mismanagement
of funds by the Board of Directors.

Based on the Section 264 (1)(c)(i) , a person may act as an auditor only if he is approved
as a company auditor by the Minister charged with the responsibilities for finance. He must also
be a chartered accountant as defined under the Accountants Act 1967.This is where the
qualification of auditor may be appointed. Besides, He may not be appointed as the auditor of the
company unless he has given his written consent to the appointment according to Section
264(5)(a). Ahmad, Azlan and Abas who are the the majority shareholders of the company
appointed Kamarul to be the auditor. He is an engineer of the company and has no knowledge
on the financial affairs. Suddenly, it was found out that Kamarul have a lot of fundamental
mistakes on the auditor’s report prepared for the shareholders. Not only that, Saleh the minority
shareholder found that Kamarul also has an attempt to to cover certain wrongdoings and
mismanagement of funds by the Board of Directors. According to Duties Of An Auditor Section
266(1), it is the duties to report to members all the reports including company’s annual accounts.
The accounts will either be circulated to its members or laid before the company at its members’
meeting. The director must appointed to safeguard the interest of their members and report any
fraud to the directors. Based on Case WA Chip & Pulp Co. Ltd v Arthur Young & Co. (1987) an
auditor will breach his duty if, having detected a possible irregular not amounting to a suspicion
of fraud, fails to investigate further and report the matter. An auditor must An auditor must use
reasonable care and skill in carrying out the audit and in forming an opinion on the company’s
account. Failure to do this renders an auditor liable to the company in damages for breach of
contract. An auditor may also be liable in negligence. An auditor who uses less than the required
degree of care and skill is liable to the company for any loss suffered as a result. This can be
found on what Kamarul did that he has never made any effort to prepare a proper report. Thus,
the damages and cautious due to auditors’ fault is not sufficient to render because he was
negligence in carrying out the duty. It must further be proved that the damage caused was a result
of negligence. The general legal principle of causation is also relevant professional negligence
cases involving auditors. On Case Cambridge Credit Corp Ltd v Hutcheson (1985)
held that although the audit was carried out negligently, this was not the cause of the loss to the
company. The court found that the real cause of the loss was the dramatic downturn in the
economy at the time.

The conclusion is the mistakes have been made in the auditor’s report by Kamarul will
lead to the failure of the company and would suffer losses for the damages. If they did not take
any action with this matter, it will create a huge problem to other shareholders also the image of
the company will be bad.

According to Section 206, the removal of directors is allowed. In order to vote for the
replacement of directors, an ordinary resolution can be used. Only the directors can call a
meeting of the shareholders and provide notice to others. Directors can hold a general meeting as
an emergency only after gaining the consent of the members if a request for an ordinary
resolution has been made by a member.

In a nutshell, the appointment of auditor is not according to Company’s Act 2016. Next,
the directors are liable towards the auditors fault which are attempt to cover certain wrongdoings
and mismanagement of funds by the Board of Directors.