1. Chapter 17 Audit
Corporate Governance

2. Main Function
Any company preparing a financial report must ensure that the report be audited. An exception is in small proprietary companies where shareholders have requested a statement without an audit.
Corporate Governance

3. Qualifications An auditor must be registered.
For a auditing company to be registered:
Each of its directors must be registered auditors.
All shareholders must be individuals.
The majority of voting shares are held by registered company auditors.
It has adequate professional indemnity insurance.
Corporate Governance

4. Independence
Auditors must avoid conflict of interest with clients. S324CD states that a conflict of interest occurs when a person reasonably recognises that an auditor is prevented from carrying out an audit in an impartial manner. S324CE and S324CK list what relationships must be avoided.
Corporate Governance

5. Proprietary Companies
Appointment
Proprietary Companies
Auditor can be appointed by members or directors (S325)
Public Companies
Auditors are appointed by directors and subject to members approval (S327A)
Listed Companies
Auditor must be rotated every five years (S324DA)
Corporate Governance

6. Removal
Auditor can be removed from office by a resolution of members (S329). Auditor cannot be removed by directors, and the ASIC must provide consent.
Corporate Governance

7. Duties and Responsibilities
Statutory Functions Reporting to members of the company on the financial report presented by the directors to the AGM. S301, 308. Report to ASIC on breaches of the Corporation Act. Notification of a breach is required within 21 days. The Auditing and Assurance Standards Board (AUASB).
Corporate Governance

8. Other Functions of the Audit
To make recommendations, such as in efficiency and effectiveness.
Providing a a positive influence on the behaviour of audited organisations.
Corporate Governance

9. Liability of Auditors
Corporations Act If the auditor fails to comply with statutory obligations, the company may have a claim against the auditor for breach of duty. Contract Law Auditors are in a contractual relationship with the company. A client may sue for a loss suffered from a breach of contractual terms. Negligence A company may bring an action under tort as well as contract. Auditors owe a duty of skill under common law.
Corporate Governance

10. Liability to Third Parties
An injured third party can take action under a tort of negligence. This is because a duty of care does not depend on the existence of a contract.
Corporate Governance

11. Trade Practices Act
S52 of the Trade Practices Act prohibits misleading and deceptive conduct. Similar provisions are contained in the Fair Trading Acts. They may offer a redress for shareholders and third parties against auditors.
Corporate Governance

12. Auditor’s Opinion
In the auditor’s report the auditor seeks to conclude that the financial report gives a fair and true view. The auditor may be able to make the following modifications:
Emphasis of matter
Qualified opinion
Disclaimer of opinion
Adverse opinion
Corporate Governance