Chapter 17 Audit www.learnnowbiz.com Corporate Governance

Main Function Any company preparing a financial report must ensure that the report be audited. An exception is in small proprietary companies where shareholders have requested a statement without an audit. www.learnnowbiz.com Corporate Governance

Qualifications An auditor must be registered. For a auditing company to be registered: Each of its directors must be registered auditors. All shareholders must be individuals. The majority of voting shares are held by registered company auditors. It has adequate professional indemnity insurance. www.learnnowbiz.com Corporate Governance

Independence Auditors must avoid conflict of interest with clients. S324CD states that a conflict of interest occurs when a person reasonably recognises that an auditor is prevented from carrying out an audit in an impartial manner. S324CE and S324CK list what relationships must be avoided. www.learnnowbiz.com Corporate Governance

Proprietary Companies Appointment Proprietary Companies Auditor can be appointed by members or directors (S325) Public Companies Auditors are appointed by directors and subject to members approval (S327A) Listed Companies Auditor must be rotated every five years (S324DA) www.learnnowbiz.com Corporate Governance

Removal Auditor can be removed from office by a resolution of members (S329). Auditor cannot be removed by directors, and the ASIC must provide consent. www.learnnowbiz.com Corporate Governance

Duties and Responsibilities Statutory Functions Reporting to members of the company on the financial report presented by the directors to the AGM. S301, 308. Report to ASIC on breaches of the Corporation Act. Notification of a breach is required within 21 days. The Auditing and Assurance Standards Board (AUASB). www.learnnowbiz.com Corporate Governance

Other Functions of the Audit To make recommendations, such as in efficiency and effectiveness. Providing a a positive influence on the behaviour of audited organisations. www.learnnowbiz.com Corporate Governance

Liability of Auditors Corporations Act If the auditor fails to comply with statutory obligations, the company may have a claim against the auditor for breach of duty. Contract Law Auditors are in a contractual relationship with the company. A client may sue for a loss suffered from a breach of contractual terms. Negligence A company may bring an action under tort as well as contract. Auditors owe a duty of skill under common law. www.learnnowbiz.com Corporate Governance

Liability to Third Parties An injured third party can take action under a tort of negligence. This is because a duty of care does not depend on the existence of a contract. www.learnnowbiz.com Corporate Governance

Trade Practices Act S52 of the Trade Practices Act prohibits misleading and deceptive conduct. Similar provisions are contained in the Fair Trading Acts. They may offer a redress for shareholders and third parties against auditors. www.learnnowbiz.com Corporate Governance

Auditor’s Opinion In the auditor’s report the auditor seeks to conclude that the financial report gives a fair and true view. The auditor may be able to make the following modifications: Emphasis of matter Qualified opinion Disclaimer of opinion Adverse opinion www.learnnowbiz.com Corporate Governance