2.

Other company officers

a) Discuss the appointment procedure relating to, and the duties and powers of, a company secretary. (a) b) Discuss the appointment procedure relating to, and the duties and powers of, company auditors. (a)

COMPANY SECRETARY Every limited company must have a company secretary. He/she must have requisite skill and knowledge to discharge their functions (s 2 !". #here are no specific qualifications for the company secretary of a private company $eyond $eing as competent as can $e e%pected of a company officer. However& the act sets a few guidelines on qualifications' stating that the person should' Have $een a company secretary as at 22/(2/() *.& which is when the detailed rules on appointment came into effect. Have $een employed as a company secretary for three out of the last five years (preceding appointment". +e a mem$er of one of a list of qualifying $odies e.g. ,--, and the .-/,. 0ust $e a solicitor& $arrister or advocate in the 12. +e employed in a position or $e a mem$er of a professional $ody that appears to qualify him to act as company secretary. , company with more than one director should have one of them acting as company secretary $efore they appoint one. However& a soled director cannot $e the company secretary at the same time $ut a company can have two or more 3oint secretaries. #he specific duties of company secretary are set $y the directors $ut he/she has a general duty of ensuring the company complies with statutory o$ligations' including' Esta$lishing and maintaining company statutory registers. 4iling accurate returns with the registrar on time. Organi5ing and minuting company and $oard meetings. Ensuring that accounting records meet statutory requirements. 0onitoring statutory requirements of the company. /igning company documents as may $e required $y law. #he com$ined code on corporate governance gives the -/ more duties including' 4acilitate induction of $oard mem$ers and assist with professional development. ,dvise the chairman and the $oard on all governance issues. Ensure good information flows within the $oard and its committees. On powers& the company secretaries act as agents to e%ercise ostensi$le authority. #hey are allowed to enter into administrative type contracts e.g. employing staff etc. AUDITORS #he corporate governance structure specifies the distri$ution of rights and responsi$ilities among different participants in the corporation& such as& the $oard& managers& shareholders and other stakeholders& and spells out the rules and procedures for making decisions on corporate affairs. ,uditors have an e%tremely important role to play in that

regard6 they are appointed to ensure that the interests of the shareholders in a company are $eing met. #heir key function is to produce independent and authoritative reports confirming& or otherwise& that the accountancy information provided to shareholders is relia$le. #he law relating to company auditors is to $e found in ss.7 897)8 -ompanies ,ct (-," () : as altered $y -, () ). Even where a company has passed an elective resolution to dispense with laying accounts& the accounts are still required to $e prepared& audited and circulated. -onsequently every company& only e%cepting dormant private companies& is required to appoint an auditor& who must $e appropriately qualified and in other respects eligi$le (s.7 8((" -, () :". Qualifications #he essential requirement for any person to act as a company auditor is that they are& eligi$le under the rules& and a mem$er of& a recogni5ed supervisory $ody (s.2: -, () )". #his in turn requires them to hold a professional accountancy qualification. /upervisory $odies; are ones esta$lished in the 12 to control the eligi$ility of potential company auditors and the quality of their operation (s.7* -, () )". #he recogni5ed supervisory $odies are6 (a" #he .nstitute of -hartered ,ccountants in England and <ales' ($" #he .nstitute of -hartered ,ccountants of /cotland' (c" #he .nstitute of -hartered ,ccountants in .reland' (d" #he ,ssociation of -hartered -ertified ,ccountants' and (e" #he ,ssociation of ,uthori5ed =u$lic ,ccountants. #he first four $odies mentioned a$ove are also recogni5ed as qualifying $odies;& meaning that accountancy qualifications awarded $y them are recogni5ed professional qualifications for auditing purposes. #here still is the small possi$ility of unqualified $ut appropriately e%perienced individuals acting as auditors in relation to what used to $e known as e%empt private companies; (s.7 -, () )". , person is ineligi$le for appointment as auditor if they are either6 (a" an officer or employee of the company (the auditor $eing specifically declared not to $e an officer or employee"' and/or ($" a partner or employee of a person in (i" a$ove& or is a partnership of which such a person is a partner (-, () )& s.2>". .t is a criminal offence to act while ineligi$le. Appointment and remo al ,uditors are appointed annually (s.7 : -, () :"& generally& at each annual general meeting. <here a company has passed an elective resolution to dispense with the annual reappointment of auditors& they are& nonetheless& deemed to $e re?appointed automatically for each year. #he first auditors are usually appointed $y the directors or& in default& $y the company in general meetings (s.7 : -, () :". #he first auditors hold office until the conclusion of the first meeting at which accounts are laid& although they can& of course& $e re?elected. .f

auditors are not appointed& or re?appointed& then the /ecretary of /tate may appoint auditors to act (s.7 >((" -, () :". 1nder the -om$ined -ode on -orporate @overnance& a company;s audit committee must $e involved in the appointment and dismissal of $oth the e%ternal and internal auditors. ,udit committees must have annual procedures to ensure the independence and o$3ectivity of the e%ternal auditor which should involve a consideration of all relationships $etween the company and the firm carrying out the e%ternal audit. ,n auditor may $e removed at any time $y an ordinary resolution of the company (s.7)((("". #his does& however& require special notice. ,ny auditor who is to $e removed or not re?appointed is entitled to make written representations and require these to $e circulated or have them read out at the meeting (s.7)(, -, () :". ,n auditor may resign at any time (s.7)2 -, () :". Aotice of resignation must $e accompanied $y a statement of any circumstances that the auditor $elieves ought to $e $rought to the attention of mem$ers and creditors (paya$les"& or alternatively a statement that there are no such circumstances (s.7)8 -, () :". #he company is required to file a copy of the notice with the registrar of companies within (8 days (s.7)2 -, () :". <here the auditor;s resignation statement states that there are circumstances that should $e $rought to the attention of mem$ers& then he may require the company to call a meeting to allow an e%planation of those circumstances to the mem$ers of the company (s.7)2,((" -, () :". Ri!"ts and duties #he auditors have the right of access at all times to the company;s $ooks and accounts& and officers of the company are required to provide such information and e%planations as the auditors consider necessary (s.7 ), -, () :". .t is a criminal offence to make false or reckless statements to auditors (s.7 ), -, () :". .t should $e noted that the Companies (Audit, Investigations And Community Enterprise) Act 2**8 (-(,.-E"," significantly strengthened the power of auditors. 1nder s.7 ), of the -ompanies ,ct () : a company;s auditors were entitled to require from the company;s officers such information and e%planations as they thought necessary for the performance of their duties as auditors. .t always was a criminal offence for an officer of the company to provide misleading& false or deceptive information or e%planations. However& it was not an offence for them to fail to provide any information or e%planation that the auditors required of them. #hat anomaly has $een remedied $y the -(,.-E", as follows6 9 /. of -(,.-E", makes it a criminal offence to fail to provide information or e%planations required $y the auditor'

9 /. also entitles the auditor to require information and e%planations from a wider group of people than merely the officers of the company. -onsequently employees may now $e su$3ect to the auditor;s authority' 9 su$section (8" makes it an offence for a parent company to fail to take all steps reasona$ly open to it to o$tain the information or e%planations which the auditor has required it to o$tain from its non?12 su$sidiary and those associated with it' and the offence applies also to any officer of the company who knowingly and willfully authori5es or permits the failure' 9 /.) requires that Birectors; Ceports must contain a statement that the directors are not aware of relevant information which has not $een disclosed to the company;s auditors. #he directors are placed under the duty to ensure that they have taken all the steps they should have taken as a director to make themselves aware of such information and to esta$lish that the auditors are aware of it. .t will $e a criminal offence to issue a false statement. #he stated purpose of s.) is to ensure that each director will have to think hard a$out whether there is any information that they know a$out or could ascertain which is needed $y the auditors in connection with preparing their report. ,uditors are entitled to receive notices and other documents in connection with all general meetings& to attend such meetings and to speak when the $usiness affects their role as auditors (s.7)* -, () :". <here a company operates on the $asis of written resolutions rather than meetings& then the auditor is entitled to receive copies of all such proposed resolutions as are to $e sent to mem$ers (s.7 (+ -, () :". ,uditors are required to make a report on all annual accounts laid $efore the company in a general meeting during their tenure of office (s.27: -, () :". #hey are specifically required to report on certain issues6 (a" <hether the accounts have $een properly prepared in accordance with the ,ct' and ($" <hether the individual and group accounts show a true and fair view of the profit or loss and state of affairs of the company and of the group& so far as concerns the mem$ers of the company' (c" <hether the information in the Birectors; Ceport is consistent with the accounts presented. 1nder s.27> -, () : auditors are required to investigate6 (a" <hether the company has kept proper accounting records and o$tained proper accounting returns from $ranches. ($" <hether the accounts are in agreement with the records' and state6 (i" <hether they have o$tained all the information and e%planations that they considered necessary' (ii" <hether the requirements concerning disclosure of information a$out directors and officers; remuneration& loans and other transactions have $een met' and rectify any such omissions. #he -ompanies ,ct places further duties on auditors relating to such issues as6 (a" #he valuation of non?cash consideration for share allotment $y a pu$lic company or a company converting to a pu$lic company (ss.88 D (* -, () :"' ($" =urchase or redemption of own shares $y payment out of capital (s.(>7 -, () :"'

(c" 4inancial assistance for purchase of own shares (s.(:! -, () :". Potential lia#ilities Caparo Industries plc v Dickman (())*" -ompany accounts were audited in accordance with the -ompanies ,ct () :. #he respondents& who already owned shares in the company& decided to purchase more shares and take over the company after seeing the accounts. #he accounts were inaccurate. #he respondents then incurred a loss& which they $lamed on the negligently audited accounts. .t was held that& when the accounts were prepared& a duty of care was owed to mem$ers of the company (that is& the shareholders"& $ut only so far as to allow them to e%ercise proper control over the company. #his duty did not e%tend to mem$ers as individuals and potential purchasers of shares. #he onus was clearly on the appellants in these circumstances to make their own independent inquiries& as it was unreasona$le to rely on the auditors.