AUDITING

BAC2664 (New), BAC2287(Old)

Lecture 2
Topic 2
The Requirements of Companies Act, 1965

1
 T2 - The Requirements of
Companies Act 1965 (CA 1965)

Auditor’s:
• Appointment,
• Resignation,
• Withdrawal,
• Responsibilities,
• Powers, duties and rights.
2
 Requirements of CA 1965
• The entity’s financial statements (FS) of every
company regardless of size, registered under the Act
is required to be audited annually, by an approved
company auditor.

• The objective of an audit of FS is “to express an

opinion” whether:
(i) the FS are prepared, in all material respects, in
accordance with an identified financial reporting
framework” (ISA 200).
(ii) the FS give a true and fair view of the company’s
state of affairs and result of operations and in
accordance with applicable approved accounting
standards; S174(2)(a)
3
 Requirements of CA 1965

(iii) the accounting records and other records

(including registers) examined by him are properly
kept in accordance with the Act; S174(2)(b) and
(iv) the directors report made pursuant to S169 so far
as it is required by the Act to deal with matters dealt
with in the accounting and other records examined
by the auditor, gives a true and fair view of these
matters.

4
 (S8) Eligibility for Appointment
as Auditors
• Any person may apply to the Minister charged
with responsibility for finance to be approved as
a company auditor for the purposes of this Act.

• The Minister charged with responsibility for

finance may, if he is satisfied that the applicant is
of good character and competent to perform the
duties of an auditor under this Act, upon
payment of the prescribed fee, approve the
applicant as a company auditor.

5
(S9) Disqualifications of Auditors
• A person shall not knowingly consent to be appointed,
and shall not knowingly act, as auditor for any company
and shall not prepare, for or on behalf of a company, any
report required by this Act to be prepared by an
approved company auditor:

(a) if he not an approved company auditor;

(b) if he is indebted to the company or to a corporation that

is deemed to be related to that company by virtue of S6
in an amount exceeding RM2,500:

6
(S9) Disqualifications of Auditors
(c) if he is:
(i) an officer of the company,
(ii) a partner, employer or employee of an officer of the company,
(iii) a partner or employee of an employee of an officer of the
company; or
(iv) a shareholder or his spouse is a shareholder of a corporation
whose employee is an officer of the company: or

(d) if he is responsible for or he is the partner, employee of a person

responsible for the keeping of the register of members or the register
of holders of debentures of the company.

Any violation of S9 will carry a penalty of RM2,000.

Officer (S6): director, secretary, employee of the corporation, has at any

time within the preceding period of 12 months, been an officer or
promoter of the company or of such a corporation.

7
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation

Appointment and remuneration of auditors

2. At any time before the first AGM of a company, the
directors of the company may appoint, or (if the
directors do not make an appointment) the company at
a GM may appoint, a person or persons to be auditor or
auditors of the company, and any auditor or auditors so
appointed shall, subject to this section, hold office until
the conclusion of the first AGM.

(in the case of a newly incorporated company)

8
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation

Appointment and remuneration of auditors

2. A company shall at each AGM of the company
appoint a person or persons to be the auditor or
auditors of the company, and any auditor or
auditors so appointed shall, be subject to this
section, and hold office until the conclusion of
the next AGM of the company.

(in the case of an existing company)

9
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation
Appointment and remuneration of auditors
3. Subject to subsection (7) & (8), the directors of a
company may appoint an approved company
auditor to fill any casual vacancy in the office of
auditor of the company, but while such a
vacancy continues, the surviving or continuing
auditor or auditors, if any, may act.

(in the case of a casual vacancy, arising due to

death, insanity, bankruptcy)
10
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation
Fees and expenses of an auditor
2. In the case of an auditor appointed by the
company at a AGM, fees and expenses shall
be fixed by the company at the GM or, if so
authorised by the members at the last
preceding AGM, by the directors; and
3. In the case of an auditor appointed by directors
or by the Registrar, fees and expenses may be
fixed by the directors or by the Registrar, as
the case may be and, if not fixed, shall be fixed
as provided in paragraph (a) as if the auditor
had been appointed by the company.
11
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation
Removal of auditors

S172(4) – an auditor may be removed from office by resolution of the

company at a GM of which special notice has been given, but not
otherwise.

S172(5) – where a special notice of a resolution to remove an auditor is

received by a company:
6. It shall forthwith send a copy of the notice to the auditor concerned
and to the Registrar; and
7. The meeting may be adjourned to a date not earlier than 20 days
and not later than 30 days after the meeting and the company
may, by ordinary resolution, appoint another person as a auditor,
being a person, notice of whose nomination as auditor has, at
least 10 days before the resumption of the adjourned meeting,
been received by the company.

12
 (S172) Appointments, Removals,
Remunerations, Fees, Resignation
Resignation of auditors

S172(14) – An auditor may resign:

4 If he is not the sole auditor of the company; or
5 At a GM of the company, but not otherwise.

S172(15) – If the auditor gives notice in writing to the

directors of the company that he desires to resign, the
directors shall call a GM of the company as soon as
practicable for the purpose of appointing an auditor in
place of the auditor who desires to resign and on
appointment of another auditor, the resignation shall
take effect.

13
 (S174) Duties of Auditors
S174(1) Every auditor of a company shall report to the members on the accounts
required to be laid before the company at the GM and on the company’s
accounting and other records relating to those accounts.

S174(2) An auditor shall, in a report under this section, state:

5 Whether the accounts and, if the company is a holding company for which
consolidated accounts are prepared, the consolidated accounts are in his
opinion properly drawn up:
(a) so as to give a true and fair view of the matters required by S169 to be
dealt with in the accounts and, if there are consolidated accounts, in the
consolidated accounts: and
(b) in accordance with the provisions of this Act so as to give a true and fair
view of the company’s affairs;
2 Whether the accounting and other records and the registers required by this
Act to be kept by the company and, if it is a holding company, by the
subsidiaries other than those which he has not acted as auditor, have been,
in his opinion, properly kept in accordance with the provisions of this Act.

14
 (S174) Duties of Auditors
S174(3) It is the duty of an auditor of a company to form an opinion
as to each of the following:
1 Whether he has obtained all the information and explanations that
he required;
3 Whether proper accounting and other records (including registers)
have been kept by the company as required by this Act;
4 Whether the returns received from branch offices of the company
are adequate; and
5 Whether the procedures and methods used by a holding company
or subsidiary in arriving at the amount taken into any consolidated
accounts were appropriate to the circumstances of the
consolidation,
and he shall state in his report particulars of any deficiency, failure
or shortcoming in respect of any matter referred to in this
subsection.

15
 S174(4) Powers & Rights of
Auditors
S174(4) An auditor of a company has the right of access at all
reasonable times to the accounting and other records (including
registers) of the company, and is entitled to require from any officer
of the company and any auditor of a related company such
information and explanation as he desires for the purpose of the
audit.

S174(7) An auditor of a company or his agent authorised by him in

writing for the purpose is entitled to attend any GM of the company
and to receive all notices of, and other communications relating to,
and to receive all notices of, and other communications relating to,
any GM which a member is entitled to receive, and to be heard at
any GM which he attends on any part of the business of the meeting
which concerns the auditor in his capacity as auditor.

16
 References
• Lecture Notes
• Tutorial Questions
• Chapter 1 - Auditing & Assurance Services in Malaysia,
Messier/Glover/Prawitt/Margaret Boh, 3rd edition
• Past Exam Questions
• Articles
• Revision Chapter 1 – Definition of an Audit
• Figure 1-1, Page 5 – Overview of Principal-Agent
relationship
• Figure 1-2, Page 12 – An overview of the FS Audit
• Figure 1-3, Page 17 – Major Phases of an Audit
• Exhibit 1-1, Page 20 – Standard Auditor’s Report

17