TOPIC 3:COMPANIES ACT 1965 REQUIREMENTS & MIA BY-LAW

References: Chapter 4 & The Companies Act 1965

AUD390 2011

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CA ACT & MIA BY-LAWS

QUALIFICATION OF AUDITOR

APPOINTMENT, DISMISSAL &RESIGNATION

DUTIES &RESPONSIBILITIES

MIA BY-LAWS REQUIREMENTS

S8 requires a company to appoint an approved company auditor

An approved company auditor is a qualified person approved by the Ministry of Finance to act as an auditor, is of good character and competent to perform duties of an auditor under the CA Act. A person planned to be an approved company auditor must have a professional accountancy qualification with adequate practical training before being recognized as MIA member holding the designation of public or licensed accountant

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S9 highlight necessary qualifications of an auditorS9(1): a person shall not be appointed as

auditor for any company if:S9(1a) – if he not an approved company

auditorS9(1b) – if he indebted to company, its

holding or subsidiaries company in an amount exceeding RM2,500

S9(1c) – if he is: An officer of the company A partner, employer or employee of an

officer of the company

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A shareholder or his spouse is a shareholder of a company whose employee is an officer of the company

S9(1d) – if he is responsible for or if he is the partner, employer or employee of a person responsible for the keeping of the register of members or debentures holders

S9(2) –a person is deemed an officer of company if he/she had been an officer of the company for the preceding period of 12 months

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S174 (1-3) DUTIESAuditor’s duty to make a report to

members on the accounts & the company’s accounting and other records relating to those accounts in the general meeting

Auditor’s duty to express an opinion in his report: True & fair view of the accounts as

required by S169 Books, records and register are properly

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Disclose names of subsidiaries of which he is not the auditor

Duty to report of any defects, irregularities in the accounts

Auditor’s duty to form an opinion as to each of the following matters To ensure that he has obtained all the

information and explanation To ensure that proper accounting and

other records have been kept by the company

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To ensure that returns received from branch offices of the company are adequate

To ensure that procedures & method used by the holding or subsidiary were appropriate to the circumstances of the consolidation

To attend any general meeting & to receive all communications relating to any general meeting which may concern the auditor in his capacity as auditor

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S174(4-9) POWER OR RIGHTS OF AUDITORSA right of access at all times to the books

& recordsA right to information & explanation he

considers necessaryA right to attend any general meetings

that concerns him as an auditorA right to make written representations

when the company proposes to dismiss him as an auditor

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To attach auditor’s report to annual report and to be read in General meeting

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S172(1): Powers of Directors to appoint Auditor before 1st AGM. If the directors do not appoint the first auditor, the members are entitled to do so in the general meeting

S172(2): A company shall appoint auditor at each AGM. The term of office of auditor starts from his appointment at the present AGM until the conclusion of next AGM. The company must at every AGM appoint or reappoint auditors to hold office until the conclusion of the next AGM

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S172(3): Power to directors to appoint auditor to fill any casual vacancy (termination of business-winding up cases, etc.)

S172(10): Power to CCM to appoint auditor after the dismissal/removal of auditor if the company does not appoint another auditor on the application in writing of any member of the company to make the appointment

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S172(4): Dismissal of auditor at general meeting of which special notice of an ordinary resolution to remove an auditor has been given

S172(5): On receipt of special notice, the company must sent a copy of the special notice to the auditor concerned & CCM. The auditor may within 7 days after the receipt of the special notice by him, make representations in writing to the company and request that representations be sent by the company to all members entitled to receive notice of the general meeting

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S172(8&10) A company shall inform in writing of the removal of auditor the registrar. The power to CCM to appoint auditor after the dismissal/removal of auditor if the company does not appoint another auditor

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S172(14) An auditor may resign If he is not the sole auditor of the company

orAt a general meeting of a company

S172(15) An auditor shall give notice of resignation to directors and the resignation will only be effective on the appointment of another auditor

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Established by MIA, as per requirement under S10(a) of the Accountant Act 1967

1st issued on April 1990. Revised in 2002 and the latest revision specifically on MIA By-Laws on Professional Independence, which came into forced from July 2004

Sample of MIA By-Laws bylaws200701.pdf

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Purpose of the establishment to inculcate of sound professional practice

and for the prevention of illegal dishonorable practice by members

To be observed by auditors as a standard of conduct in their daily professional life

It is important for the auditor to gain public confidence in the quality of their service

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Define a members’ duties to community which covers the qualities of integrity, objectivity, competency and professionalism expected of accountants Integrity: adherence to moral & ethical

principles, soundness of moral character or simply honest

Objectivity: impartiality (unbiased) in performing all services

Competency: have the necessary skills & proficiency to carry out the professional work

Professionalism: member in at all times perform his work objectively & impartially & free from any influences

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Regarded as the auditor’s most critical characteristics (differ from any other professionals)

Define as an attitude of mind characterized by integrity & an objective to professional work. Auditor should be, and be seen to be, free in each professional assignment he undertakes, of any interest which might distract from objectivity

Independence in auditing – taking an unbiased viewpoint in the performance of audit tests, the evaluation of the results and issuance of the audit reports

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“should be, and be seen to be” – Auditor not only have to maintain an independent attitude in fulfilling their responsibilities, but also the users of financial statements have confidence in that independence

These 2 objectives are identified as Independence in Fact

Exists when the auditor is actually able to maintain an unbiased attitude throughout the audit

Independence in Appearance The result of other’s interpretation of this independence

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Factors that can compromise independence:Personal or blood relationship with the

clientHas direct or indirect material financial

interest in the client’s company e.g. buying shares, high audit fees, etc.

He has within proceeding period of 12 months was an employer or employee of an officer of the company

Giving/guaranteeing a loan to a client or accepting a loan from a client/loan guaranteed by a client

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Being indebted to a client for more than RM2,500

Heavy involvement in other servicesAcceptance of undue hospitality

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Competence Member should have formal education in

accounting, adequate practical experiences and continue professional education through Continuing Professional Education (CPE)

CPE is important due to the rapid changes and expansion in knowledge that is required for accountants to discharge their professional obligations effectively & responsibly

CPE Program comprises structured & unstructured learning

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Structured CPE learning may be obtained through courses, conferences, seminars or from post graduate studies

Unstructured CPE learning include private study and technical research for practical

Due care Member is a professional responsible in

fulfilling their duties diligently and carefully

E.g. consideration of the completeness of the working papers, the sufficiency of audit evidence and the appropriateness of the audit reports

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Prohibit a member from using a trade name or fictitious name to practice the profession

Member in public practice shall practice as an auditor or licensed accountant In his own name; or In the name or names of his partner or

partners, being auditors or licensed accountants; or

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In the name of a firm existing at the time of the coming into operations of the Accountants Act 1967 or formed thereafter provided that the partners in M’sia are eligible to he registered as auditor or licensed accountants

By-law 6 on Description and Designatory Letters is related to Method of PracticeRequires every member in describing himself

as an accountant in M’sia shall use the designatory letters “C.A.(M) or L.A.(M)”

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Advertising & Publicity are the use of various media, such as magazines and radio to communicate favorable information about the services of the CA firmMembers are prohibits from advertising

by any means, except:- Issuing circulars to their clients or to

persons with whom there has already been established a professional connection

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Publish the firm name & address for the purposes such as advertisement for vacancies, for sale of business or property on behalf of the client, or a receiver, or to announce change of address or telephone numbers

Firm’s stationery or name plate or business cards do not include a claim that the member is a specialist in many aspects of public interest

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Solicitation consist of various means that CA firm use to engage new clients, other than accepting new clients that approach the firmFor e.g. taking prospective clients to lunch

to explain firm’s services, offering seminars on current tax law changes to potential clients & advertisements in the Yellow pages

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Distinction to be drawn between advertising & the need to impart knowledgeConducting seminars & publishing articles

for the purpose of disseminating accounting knowledge are permitted, with condition such activities do not tantamount to deliberate promotion of the member

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Professional fees charged should be a fair reflection of the value of the work performed for the client, taking into account of:The skill & knowledge required for the

type of work involvedThe level of training & experience of the

persons necessarily engaged in the workThe time necessarily spent by each

person engaged in the worksThe degree of responsibility & urgency

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No member shall mislead his client of the public by charging an unrealistically low fee which may result in the lowering or compromising professional standardsAudit fee that less than RM800 is

unrealistic lowExcept ~ Member may charge charitable

bodies & non profit organisation low fees or no fees at all provided that there is no element of any inducement to secure professional work by such action

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By-law 13 Rule on Commission is related to FeesObjective: To discourage the payment or

acceptance of commission by members in their dealings, which could compromise in ethical & professional standards

Prohibit member from paying a commission to obtain a client, or accepting a commission for a referral to a client of products or services

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Prohibits a member from using confidential information acquired in the course of the professional work for personal advantage, except with the consent of the client

However, a member may disclose confidential information without the consent of the client under the following situations: For the purpose of discharging his duties

to his client

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In accordance with the provision of any written law or where disclosure is compelled by the process of law

Where disclosure is reasonably necessary to protect the member’s interest

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Provides guidance on the changes in professional appointment when there is disagreement between the existing accountant and the client over ethical or technical principles in the course of work

Procedures that a member must exercise before accepting a new client1. The successor auditor should get the

prospective client’s permission to communicate with the existing predecessor auditor. If the permission is not given, the successor auditor should decline the appointment.

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2. The successor auditor should inquire the predecessor auditor whether there is any professional reason for the proposed change. If there are such reasons, the successor auditor should request the predecessor auditor to provide him with all necessary details in order to decide the acceptance of the appointment.

3. If the successor auditor does not receive a reply to his inquiry, he is required to send a reminder to the predecessor auditor or communicate with him through other means.

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4. If no response within a reasonable period after sending of 2 reminders, the successor auditor should inform the predecessor auditor of his attention to accept the engagement.

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1. The meaning of an “approved company auditor” in accordance with CA Act.2. 3 reasons for disqualification of a person from acting as an auditor.3. State and explain the provisions pertaining to the appointment of auditors.4. Explain the auditor’s reporting responsibilities under S 174(2) of the CA Act.5. What are the auditor’s right under CA Act.6. Explain the requirement under CA Act regarding the auditor resignation.7. What are the rules in dismissal of an auditor at an AGM.8. What is the main objectives of the MIA By-Laws.9. Explain the need for a code of professional ethics for the members of MIA.10. Explain the concept of independence in audit and its importance.11. List 4 factors which are likely to impair an auditor’s independence.12. Every MIA member is required to fulfill the ‘Continuing Professional Education” (CPE) in order to maintain membership. CPE programs comprise structured and unstructured forms of learning. Identify the three forms of structured CPE activities.13. State 2 conditions as stipulated in the MIA-By Laws that every member must comply with in advertising their services.

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