AUDITORS AND INVESTIGATION The subscribers of capital are not in direct control of the application of the capital, which

is left, to the control of directors and superior officers of the company. In these circumstances it becomes necessary to have someone to safeguard their interests. The persons who safeguard the interests of shareholders are called auditors. The auditor is a servant of the shareholders and his duty is to examine the affairs of the company on their behalf at the end of the year and report to them what he has found. Appointment of auditors A company is required at each annual general meeting to appoint an auditor(s) to hold office until the conclusion of the next annual general meeting. Failure by a company to appoint auditor(s) entitles members to make an application to the registrar to appoint an auditor. A retiring auditor is to be reappointed without any resolution being passed at the meeting unless: a) He is not qualified for re-appointment b) A resolution has been passed appointing someone else. c) A resolution has been passed that he shall not be reappointed. d) He has given the company a written notice of his unwillingness to be reappointed. Any casual vacancy in the office of auditor may be filled by the directors, but while such vacancy continues the serving auditors may act. No person than a retiring auditor may be appointed at an annual general meeting unless a special notice of the resolution has been given and a copy of it has been sent to the retiring auditor forthwith. The retiring auditor is entitled to make representations in writing and have them circulated among the members, and speak at the meeting. Disqualification for appointment as auditor A part from private companies, a person is not qualified for appointment as auditor unless:Page 1 of 4

1. he is a member of one or more professional bodies specified in the first column of the schedule to the accountants. 2. He is authorized by the registrar to be appointed as having similar qualifications obtained outside i.e. United Kingdom, South Africa, Zimbabwe or India has adequate knowledge and experience acquired in the course of his employment. 3. He has practiced in Kenya as an accountant before 26 th may 1959. 4. He has been appointed and practiced before 26 th may 1959 as auditor of an existing company. The following persons are not qualified to be appointed as directors: a) An officer or servant of the company. b) A person who is a partner or in the employment of an officer or servant of the company. c) A body corporate. d) A person disqualified for appointment as auditor of a subsidiary or holding company. Appointment of an unqualified person as auditor renders such person and the company and every officer in default liable to a fine up to four thousand shillings. Remuneration of auditor Remuneration of the auditors of a company may be fixed by the company in a general meeting or in such a manners as the company in general meeting may determine. In case of an auditor appointed by directors or registrar his remuneration is determined by the directors or the registrar as the case may be (sec. 159(75). Position of auditors 1. Auditors as agents of the members An auditor is an agent of the company even when he is not appointed by them and his duty is to examine the affairs of the company on their behalf and at the end of the year report to them what he has found.

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It was observed in Spackman vs. Evans (1868) that although an auditor is an agent of the shareholders, the shareholders are not necessarily bound by notice of everything of which notice is given to the auditor. If the auditor is negligent in the course of his audit and this result in loss to the shareholders he is liable to the shareholders, but his liability would not extend to third parties. (2) Auditor as an officer of the company as an auditor is liable for default in the performance of his duty to the company; he may to some extent be regarded as an officer of the company (3) Auditor as an employee The relationship between an auditor and a company is that of a professional man and a client rather than that of an employee and employer. Auditors report As per the seventh schedule, an auditors report must contain the following; a) The accounts examined by him. b) The balance sheet and profit and loss account. c) Every document annexed to be balance sheet and profit and loss account (i.e. notes to the accounts) laid before the company in a general meeting during his tenure of officer. An auditor is said to have reported if after having affixed his signature to the report annexed to the balance sheet; he forwards that report to the secretary of the company or directors. Matters to be expressly stated in the auditors report. 1. Whether auditors have received all information necessary for their audit. 2. Whether proper books of accounts of account have been kept by the company and proper returns have been received from the branches not visited by them. 3. (a) Whether the companys balance sheet and profit and loss account (or consolidated accounts) dealt with by the report are in agreement with the books of accounts and returns.

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(b) Whether, in their opinion and to the best of their information and according to the explanations given to them, the said accounts give the information required by the Act in the manner so required and give a true and fair view. (i) (ii) In the case of the balance sheet, of the state of affairs as at In the case of profit and loss account of the profit or loss in its the end of its financial year. financial year. Rights and powers of auditors 1. Right to access books of account and vouchers. An auditor has a right to access at all times to the books and vouchers of the company and is entitled to require from the officers of the company such information and explanations as he thinks necessary for the performance of his duties as auditor. 2. Right to attend any general meetings of the company and to receive any notices which members are entitled to receive. Duties of auditors Duties of auditors are set out in section 159 to 162 of the act. The duties of auditors: 1. 2. They must acquit themselves with their duties as laid down by articles and They must report to members on the accounts laid before the company in companies Act. general meeting, during that tenure of office. 3. They must be honest and must exercise a reasonable skill and care or else they may be sued for damages.

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