Regulation of Audit and Assurance Services Learning Objectives

REGULATION OF AUDIT AND ASSURANCE SERVICES
Learning Objectives:
At the end of this lecture;
Students must be able to discuss and have an understanding of;
 the statutory guides relating to the Audit assignment in line with CAMA CAP C20 LFN
2004.
 Auditors responsibilities and duties according to CAMA.
 The appointment, power, resignation of an auditor as stipulated by CAMA.
Need for Regulation
Audit and Assurance services are regulated primarily for the Public interest. Investors take
economic decisions on the basis of the credibility auditors lend to financial statements whenever
they audit and certify the financial statements true and fair. Thus, it can be said that auditors give
an impartial, professional view on issues that matter to users of financial and other information.
It is important therefore that this view can be trusted. Auditors therefore need to operate within
ethical boundaries and in compliance with standards, laws and regulations.
Sources of Regulation: Regulation of Audit and Assurance services is effected through:

 Legal Regulation – Most countries, including Nigeria, have legal requirements
associated with some assurance providers, particularly auditors. Examples of these legal
requirements are found in CAMA (Companies and Allied Matters Act), 2004, ICAN Act
1965, Banks and other Financial Institutions Act 1991, Insurance Act 2003, Securities
and Exchange Commission (SEC) Act 2007, EFCC Act, the Audit Act, Financial
Reporting Council of Nigeria (FRCN) Act 2011 etc.
 Ethical Regulation – Auditors are given ethical guidance by the professional Bodies e.g.
ICAN, law and IFAC (International Federation of Accountants).
 Professional Regulation – Auditors are required to carry out audits according to
professional standards (International Standards on Auditing –ISAs and Nigerian
Standards on Auditing- NSAs). As assurance provision goes ‘global’ the harmonization
of such professional guidance has become necessary.
CAMA and the Auditor

Sections 357 – 369 of CAMA relate to the Auditor and his work.
.1 Appointment of an Auditor – s.357
Every company shall at each Annual General meeting (AGM) appoint an auditor or
auditors to audit its financial statements. The auditor’s tenure shall run from the
conclusion of the AGM where he was appointed till the next AGM.
The directors may appoint an auditor in the following circumstances:

 Where at an AGM, no auditors are appointed or re-appointed;
 The appointment of the first auditors of the company before the company is entitled to
commence business;
 To fill any casual vacancy in the office of the auditor, but while any such vacancy
continues, the surviving or continuing auditor (s) may act.
A retiring auditor however appointed, shall be re-appointed without any resolution being passed
unless –
 He is not qualified for re-appointment;
 A resolution has been passed at the meeting appointing another auditor or providing
expressly that he shall not be re-appointed; or
 He has given the company notice in writing of his unwillingness to be re-appointed.
.2 Qualification of the Auditor – s. 358

A person shall not be qualified for appointment as an auditor of a company, unless he is a
member of a body of Accountants in Nigeria.
The following persons however are disqualified from serving as an auditor of a company:
 An officer or servants of the company;
 A person who is a partner of or in the employment of an officer or servant of the
company;
 A person or firm who or which offer to the company professional advice in a consultancy
capacity in respect of secretarial, taxation or financial management.
 A body corporate.
.3 Reports of the Auditor – S. 359

The auditors of a company are required to make a report to the members of the company on the
accounts examined by them, and on every Balance Sheet (Statement of financial position) and
statement of Profit or loss, and all group financial statements, copies of which are laid before the
company in a general meeting during the auditors’ tenure of office.
In the case of a public company, the auditor also makes a report to the audit committee which
shall be established by the company. By the provisions of this section (s.359), the committee
shall consist of an equal number of directors and representatives of the shareholders of the
company (subject to a maximum of number of six members). The committee examines the
independent auditor’s report (including the management letter or letter of weakness) and makes
recommendations thereon to the annual general meeting as it thinks fit.
The objectives and functions of the committee as specified by the Act, are to:
 ascertain whether the accounting and reporting policies of the company are in accordance
with legal requirements and agreed ethical practices;
 review the scope and planning of audit requirements;
 review the findings on management matters in conjunction with the external auditor and
departmental responses thereon;
 keep under review the effectiveness of the company's system of accounting and internal
control;
 make recommendations to the Board in regard to the appointment, removal and
remuneration of the external auditors of the company; and
 authorise the internal auditor to carry out investigations into any activities of the
company which may be of interest or concern to the committee.
.4 Duties and Powers of the Auditor – S. 360

The auditor, in preparing his report has as his duty, to carry out such investigations as may
enable him form an opinion as to whether:
proper accounting records have been kept by the company and proper returns adequate for his
audit have been received from branches not visited by him;
the company’s Balance sheet and (if not consolidated) its profit or loss account are in agreement
with the accounting records and returns.
If the auditor is of the opinion that proper accounting records have not been kept or that adequate
returns have not been received from branches not visited by him or that the balance sheet and the
profit or loss account are not in agreement with the accounting records and returns, the auditor
shall state that fact in his report.
To ensure effective discharge of his duties, the Act confers the following powers on the auditor:
 every auditor of a copy shall have unrestricted access at all times to the company’s
books, accounts and vouchers;
 every auditor of a company shall be entitled to require from the company’s office
such information and explanations as he thinks necessary.
.5 Remuneration of the Auditor – S. 361.
In the case of auditors appointed by the directors, their remuneration may be fixed by the
directors; or the remuneration may be fixed by the company in a general meeting or in such
manner as the company in general meeting may determine.
.6 Removal of the Auditor – S.362

A company may, by ordinary resolution, remove an auditor before the expiration of his term of
office, notwithstanding anything in the agreement between the company and the auditor. A
special notice of 28 days is required for this purpose. Within 14 days of passing the resolution
removing an auditor, the company shall give notice of that fact the Corporate Affairs
Commission (CAC)
.7 Rights of the Auditor – S. 363

A company’s auditor shall be entitled to attend any general meeting of the company and to
receive all notices of, and other communications relating to any general meeting which a
member of the company is entitled to receive. He is also to be heard on any part of the meeting
which concerns him as auditor.
In addition, an auditor who has been removed from office has the right to attend:
 the general meeting at which the term of his office would otherwise has expired;
 any general meeting at which it is proposed to fill the vacancy caused by his removal;
.8 Special Notice – S.364

Special notices are required for a resolution at an annual general meeting of a company to
transact the following business relating to the auditor:
 appointing as auditor a person other than a retiring auditor;
 filling a casual vacancy in the office of auditor;
 re-appointing as auditor a retiring auditor who was appointed by the directors to fill a
casual vacancy; or
 removing an auditor before the expiration of his term of office.
.9 Resignation of the Auditor – S.365

An auditor of a company may resign his office by depositing a notice in writing to that effect at
the company’s registered office. Such notice of resignation by the auditor shall not be effective
unless it contains either –
 a statement to the effect that there are no circumstances connected with his resignation
which he considers should be brought to the notice of thee members or creditors of the
company; or
 a statement of any such circumstances as mentioned above.
Where a notice of resignation is deposited at the company’s registered office, the company shall
within 14 days, send a copy of the notice to CAC.
.10 Power of Auditors in respect of Subsidiary companies - S367

If the subsidiary is incorporated in Nigeria, it is the duty of the subsidiary and its auditors to give
the auditor of the holding company, such information and explanations as those auditor may
reasonably require.
.11 Liability of Auditors for negligence - S368
 A company’s auditor shall in the performance of his duties, exercise all such care,
diligence and skill as is reasonably necessary;
 Where the company suffers loss or damage due to the failure of the auditor to discharge
his duties, in such manner, the auditor shall be liable for negligence and the director may
institute an action for negligence against him in the court.
 If the directors fail to institute an action against the auditor under subsection (2) of this
section, any member may do so after the expiration of 30 days’ notice to the company of
his intention to institute such an action.
.12 False statement to the auditors - S369

Any officer or director of the company who gives misleading, false or deceptive information on
which the auditors acted upon, shall be liable to one year imprisonment or fine of N500 or both.

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REGULATION OF AUDIT AND ASSURANCE SERVICES

At the end of this lecture;

Students must be able to discuss and have an understanding of;

Need for Regulation

Sources of Regulation: Regulation of Audit and Assurance services is effected through:

CAMA and the Auditor

The directors may appoint an auditor in the following circumstances:

.2 Qualification of the Auditor – s. 358

.3 Reports of the Auditor – S. 359

.4 Duties and Powers of the Auditor – S. 360

.6 Removal of the Auditor – S.362

.7 Rights of the Auditor – S. 363

.8 Special Notice – S.364

.9 Resignation of the Auditor – S.365

.10 Power of Auditors in respect of Subsidiary companies - S367

.12 False statement to the auditors - S369

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