RULE & REGULATION RELATED TO AUDIT

THE NEED FOR REGULATION

• Harmonisation of auditing procedures, so that users of audit services are confident in the
nature of audits being conducted around the world.
• Focus on audit quality, so that the expectations of users are met.
• Adherence to a strict ethical code of conduct, to try and improve the perception of
auditors as independent, unbiased service providers.
Who needs audit (Companies having legal requirement of audit):
• Public limited companies/ listed companies
• Large companies (revenue 6.5 m or above, assets 3.5 m or above , employee more than 50)
 AUDIT EXEMPTION

• Small or owner-managed companies are often exempt. This is because there is less value
in an audit for these companies.
• The owners and managers of the company are often the same people.
• The impact of misstatements in the financial statements of small companies is unlikely to
be material to the wider economy.
• The audit fee and disruption of an audit are seen as too great a cost for any benefits the
audit might bring.
 WHO MAY ACT AS AUDITOR?

To be eligible to act as auditor, a person must be:

• A member of a Recognised Supervisory Body (RSB), e.g. ACCA, and allowed by the rules
of that body to be an auditor or
• Someone directly authorised by the state.
Who may not act as an auditor:
Any director or employee of the company even if he meets eligibility criteria and those
who have business or personal connections with them from auditing that company.
 AUDITOR'S APPOINTMENT

• Shareholders of the company appoint the auditor by voting them in.

• Directors – can appoint the first auditor or to fill a ‘casual vacancy'. This requires the
members’ approval at a members' meeting. In some countries the auditors may be
appointed by the directors as a matter of course.
Period of appointment:
• Auditors of public companies are appointed from one AGM to the next one.
 REMOVING THE AUDITOR

Auditors can be removed if:

• the auditor has sufficiently secured tenure of office, to maintain independence of
management.
• auditors can be removed if there are doubts about their continuing abilities to carry out
their duties effectively.
• Removal of the auditor can usually be achieved by a simple majority at a general meeting
of the company (AGM or EGM). There are some safeguards, such as a specified notice
period (14 days).
 RESIGNING AS AUDITOR

• In practice, if the auditor and management find it difficult to work together, the auditor will usually resign.
• The auditor issues written notice of the resignation and a statement of circumstances to the
members(shareholder) and regulatory authority (ACCA).
The auditors responsibilities on removal/resignation
• Deposit at the company’s registered (head) office:
– A statement of the circumstances connected with the removal/resignation or
– A statement that there are no such circumstances.
• Deal promptly with requests for professional clearance from new auditors.
 THE AUDITOR'S RIGHTS

During appointment as auditor

• Access to the company’s books and records at any reasonable time.
• To receive information and explanations necessary for the audit.
• To receive notice of and attend any general meeting of members of the company.
• To be heard at such meetings on matters of concern to the auditor.
 THE AUDITOR'S RIGHTS

On resignation
• To request a General Meeting (EGM) of the company to explain the circumstances of the
resignation.
• To require the company to circulate the notice of circumstances relating to the
resignation.
INTERNATIONAL STANDARDS ON AUDITING
(ISAS)

• It is their responsibility of International Audit and Assurance Standards Board (IAASB)

which is a subsidiary board of the International Federation of Accountants (IFAC) to
develop and promote International Standards on Auditing (ISAs).
• ISAs are professional guidance that the auditor must follow to ensure each audit is
performed consistently and to a required standard of quality.
• ISAs are not legal requirements. If a country has a law in place which is inconsistent with
the requirements of the ISAs, local law should be followed.
INTERNATIONAL STANDARDS ON AUDITING
(ISAS)

Development of ISAs
• For an ISA to be issued, a lengthy process of discussion and debate occurs to ensure the
members affected by the guidance have had an input.
• An exposure draft (ED) is issued for public comment and these comments may result in
revisions to the ED.
• Approval of two thirds of IAASB members is required for the ISA to come into force.