ACCA F4 - Corp and Business Law (ENG)

296 19: Other company officers  Part F Management, administration and regulation of companies

Appointment of auditors

Secretary of

State

 May appoint auditors if members fail to.

 Company must notify Secretary of State within 28 days of the general meeting where

the accounts were laid.

2.1.1 Eligibility as auditor

Membership of a Recognised Supervisory Body is the main prerequisite for eligibility as an auditor. An

audit firm may be either a body corporate, a partnership or a sole practitioner.

The Act requires an auditor to hold an 'appropriate qualification'. A person holds an 'appropriate

qualification' if they:

 Have satisfied existing criteria for appointment as an auditor

 Hold a recognised qualification obtained in the UK

 Hold an approved overseas qualification

2.1.2 Ineligibility as auditor

Under the Companies Act 2006, a person may be ineligible on the grounds of 'lack of independence'.

A person is ineligible for appointment as a company auditor if they are:

 An officer or employee of the company being audited

 A partner or employee of such a person

 A partnership in which such a person is a partner

 Ineligible by virtue of the above for appointment as auditor of any parent or subsidiary undertaking

where there exists a connection of any description as may be specified in regulations laid down by

Secretary of State.

2.1.3 Effect of lack of independence or ineligibility

No person may act as auditor if they lack independence or become ineligible. If during their term of office

an auditor loses their independence or eligibility they must resign with immediate effect, and notify their

client of their resignation giving the reason.

A person continuing to act as auditor despite losing their independence or becoming ineligible is liable to

a fine. However it is a defence if they can prove they were not aware that they lost independence or

became ineligible.

The legislation does not disqualify the following from being an auditor of a limited company:

 A shareholder of the company

 A debtor or creditor of the company

 A close relative of an officer or employee of the company

However, the regulations of the accountancy bodies applying to their own members are stricter than

statute in this respect.

2.2 Reappointing an auditor of a private company

The rules on appointment make reference to a meeting where the accounts are laid. This is not always

relevant for private companies as under the Act they are not required to hold an AGM or lay the accounts

before the members.