In recent years, several corporate scandals arising from financial carelessness and generally poor corporate governance practice have highlighted the importance of the role of Auditors and their independence in carrying out their duties. An Auditor is a qualified independent person or firm appointed by a company to investigate its accounts and Financial Statements in order to confirm the financial position of the company.

 

Every company is required by law to appoint an Auditor(s). Section 357 of the Companies and Allied Matters Act (CAMA) requires every company to appoint an Auditor or Auditors at every Annual General Meeting (AGM) by way of approval of 75% or three-quarters of the members present and voting at the AGM. Such Auditor(s) appointed at the AGM shall hold office until the next AGM.

 

Under CAMA, the requirements for the appointment of auditors apply to both public and private companies and the Act states that an audit must be conducted in line with the standard requirements of the Institute of Chartered Accountants of Nigeria Act (ICAN). In practice, most auditors appointed by Nigerian companies are Accountants licensed by either the Institute of Chartered Accountants of Nigeria (ICAN) or members of the Association of National Accountants of Nigeria (ANAN).

 

Section 358 (1) and (2) of CAMA specifically excludes the following persons from being appointed as Auditors of a company:

 

  1. An officer or employee of the Company;
  2. A person who is a partner or an employee of an officer or an employee of the company;
  • A company; and
  1. Former employees of the company in any way connected with the company during any period of auditing shall not be appointed as auditor of that company.

 

It is important to point out that a firm (as opposed to a company) can be appointed as an auditor of a company as long as all the partners of that firm are persons individually qualified to be appointed as auditors of a company.

 

The Securities and Exchange Commission 2014 Code of Corporate Governance for Public Companies (the SEC Code) also places some restriction on the appointment of auditors to public companies. Section 33 of the SEC Code provides that:

 

  1. Companies must rotate the audit firms acting as external auditors. The external audit firms cannot continue to act as Auditors once appointed for a period of 10 (ten) consecutive years. The external firm which was replaced after 10 years cannot be re-appointed until 7 years after their disengagement.
  2. Companies must also require external audit firms to rotate the audit partners assigned to undertake the external audit of the Company from time to time to guarantee independence.

 

A company, in appointing an external Auditor, must ensure that such a person or firm is not only professionally qualified and conscientious, but must also ensure that his sense of judgment and independence is not impaired by any limitations imposed by law or other conflict of interest.

 

Written by:

Jonathan Nimpar

Associate

Email: jnimpar@kennapartners.com

www.kennapartners.com