Appointment of Auditor In Private Company In Nigeria: You will agree with me that it is very important for every private company to have an external auditor who examines the financial statement of its company.
The primary objective of the auditor is to affirm to stockholders that the claims and financial statements delivered by the company are true and fair and also show compliance with relevant statutes and the financial reporting standard.
The Auditing process usually involves Four Distinct Procedures:
Auditors Distinct Procedures
1. Confirming the accuracy of the original transactions;
2. Verifying the completeness and accuracy of the transaction’s recording
3. Ensuring that financial statements have been prepared from and are in agreement with the records;
4. Confirm that financial statements show a true and fair view and comply with the relevant statutes and financial reporting standards.
In simple terms, the auditor will make clear a firm’s genuine financial situation, assisting investors, shareholders, and other stakeholders. It will also assist directors in making future decisions regarding the company.
In this article, there will be detailed information related to the procedure for the appointment of an auditor in a private company in Nigeria in a normal circumstance and a circumstance other than normal.
Procedures For The Appointment Of An Auditor In A Private Company In Nigeria
The appointment of the auditor of a private limited liability company is governed by the Companies and Allied Matters Act, Section 357. This section provides the following information;
Every Private Limited liability company is required by law to appoint an auditor or auditors to audit the financial statement of the company by permission of three-quarters or 75% of members present and voting at the annual general meeting (AGM). This approval must be given at each AGM.
A retiring auditor may be reappointed without a resolution being passed, according to Section 357 of the Companies Allied Matter Act, provided that:
a) He is not qualified for re-appointment
b) He has declared his unwillingness to be re-appointment by the company stockholders through writing
c) At that annual general meeting (AGM), a proposal to appoint another auditor in place of him was approved.
If the required notice of an intended resolution to replace the retiring auditor with another person or persons has been given, and the resolution cannot be carried out due to the death, incapacity, or disqualification of any one of those persons, or all of those persons, as the case may be, the retiring auditor shall not be automatically re-appointed.
Because of this, a resolution requesting the reappointment of that auditor will need to be passed.
The above is the normal procedure for the appointment of the auditor of a private limited liability company in Nigeria.
So if the above is the procedure for the appointment of an auditor by the stockholders of a company for normal circumstances.
What then should the company do in an unusual circumstance? How should they appoint an auditor in this type of circumstance?
Well, stay with me till the end because those are questions I will be explaining next.
Procedure For The Appointment Of An Auditor In Circumstances Other The Normal Circumstance
The Companies and Allied Matters Act’s Section 357’s subsections (3) to (6) allow for the appointment of an auditor in situations other than the norm, as follows:
a) First Unusual Circumstance: When no auditor was appointed or re-appointed at the end of the Annual general meeting (AGM)
Solution: The Director of the company may appoint an auditor to fill the position but on the condition that he gives compulsory notice to the Corporate Affairs Commission on the fact that no auditor was appointed in the concluded Annual General Meeting (AGM). The notice must be sent within one week of the appointment of the auditor.
In case of lack of notification, The company and each officer who is in default are both in violation of the law by not sending this notice to the CAC. The punishment is a fine of #100 per day for the duration of the default.
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b) Second Unusual Circumstance: When the company is just starting operation and there have not been any previous Annual General Meetings to appoint an auditor
Solution: The first auditor of the company may be chosen by the director of the company before the company is permitted to conduct business. Until the conclusion of the company’s first AGM, the director-appointed auditor will serve in that capacity.
At the First Annual General Meeting, the stockholder may decide to retain the auditor appointed by the director for the next operation year or they may decide to replace him.
c) Third Unusual Circumstance: Any temporary/casual vacancy in the position of an auditor may be filled by the director, although the acting auditor, if any, may continue to serve at that time.
A casual or temporary vacancy may occur in the following circumstances;
a) if the appointed auditor is not suitably competent for the position
b) If the appointed auditor passes away (dies) before the end of his term of office
c) If the appointed auditor leaves (resigns) his position prior to the end of his tenure
d) If the members fail to appoint a new auditor at the annual general meeting after receiving notice of a motion to remove the auditor.
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Those are the procedures for the appointment of an auditor in a private company in Nigeria but there are certain qualifications a serving auditor or potential auditor must possess in order to qualify for the position of an auditor in a company.
One of which is He or she must be a member of a body of accountants in Nigeria as stated in section 358 subsection 1 of the Companies and Allied Matters Act.
Subsection 5 requires an auditor to vacate his office and give notice of writing to the company if it comes to his knowledge during his tenure that he is disqualified from holding that office.
You can drop your questions in the comment section if you have any.