Chapter 2.

Rules and Regulations

Topics to Cover
 Regulatory environment and mechanism of Regulatory environment
 Relationship between ISA and national Standard
 Statutory regulations governing the appointment
 Resignation and removal of auditor

Instructor: Mr. Fida Hussain Shah (ACA, ACCA)

Deputy Director (Finance),
Aror University, Sukkur.
 Chapter Overview
·
 Most companies are required to have an audit by law, but some
small companies are exempt. The outcome of the audit is the
·
audit report, which sets out the auditor's opinion on the
financial statements.
·

 The law gives auditors both rights and duties. This allows
·
auditors to have sufficient power to carry out an independent
and effective audit.
·
 There are various legal and professional requirements on
appointment, resignation and removal of auditors which must
be followed.
 Requirements for the eligibility, registration and training of
auditors are extremely important as they are designed to
maintain standards in the auditing profession.
 International Standards on Auditing are set by the
International Auditing and Assurance Standards Board.
 Resignation and Removal of Auditor
Auditor’s Resignation:
 Resignation Notice: Auditors must deposit a written notice along with a statement
of relevant circumstances, or a statement confirming no such circumstances, to the
company.
 Notice to Regulatory Authority: The company is responsible for sending a notice of
resignation to the regulatory authority.
 Statement of Circumstances: Auditors send a statement of circumstances to
the regulatory authority and the company distributes it to everyone entitled to receive
a copy of accounts, especially in the case of quoted companies.
 Convening of General Meeting: Auditors can request directors to call an
extraordinary general meeting to discuss the resignation circumstances. Directors must
send out meeting notices within 21 days of receiving the requisition.
 Statement Prior to General Meeting: Auditors may require the company to circulate
a different statement of circumstances to meeting attendees.
 Other Rights of Auditors: Auditors have specific rights, including receiving
notices related to general meetings and the ability to speak on matters concerning
 Resignation and Removal of Auditor
Auditor’s Resignation:
 Regulatory Compliance: Following proper resignation procedures
is essential to comply with UK regulations.
 Transparency: Providing a statement of circumstances ensures
transparency in the resignation process.
 General Meeting Convening: Auditors' rights to request an
extraordinary general meeting help address any concerns related
to their resignation.
 Communication: Requiring the company to circulate a statement
of circumstances ensures that all stakeholders are informed.
 Protecting Auditor Rights: Auditors have specific rights to
receive notices and speak at general meetings, safeguarding their
interests.
 Auditor’s Removal & Rights
 Notice of Removal
 Special notice (28 days) required for auditor removal, with a copy sent to the auditor.
 Alternatively, if an elective resolution is in place, a written resolution can be used to terminate
the auditor's appointment.
 Directors must convene a meeting within a reasonable period.

 Representations
 Auditors have the right to make representations explaining why they should continue in office.
 The company may be required to include a statement in the notice of removal regarding these
representations and send a copy to members.
 If Resolution Passed
 (a) The company must notify the regulatory authority about the auditor's removal.
 (b) Auditors must deposit a statement of circumstances at the company's registered office within
14 days of ceasing to hold office. This statement must also be sent to the regulatory authority.
 Auditor Rights: Auditors have the right to receive notice of and speak at:
 (a) General meetings where their term of office would have expired.
 (b) General meetings where a casual vacancy caused by their removal is to be filled.
 Auditor’s Appointment

 Directors have the authority to appoint auditors under specific circumstances:

 Before the company's first period for appointing auditors.
 Following a period when the company did not have an auditor (as exempt), at any time before
the next period for appointing auditors.
 To fill a casual vacancy.
 Members can appoint auditors by ordinary resolution:
 During a period designated for appointing auditors.
 If the company should have appointed an auditor during the designated period but failed to do
so.
 If directors fail to appoint an auditor.
 The Secretary of State can appoint auditors if no auditors are appointed as per
the above provisions.
 Regulatory Environment & Mechanism of
Regulatory Environment,
 National Level Regulation
 Accounting and auditing profession varies globally.
 Regulation ranges from strict legislative oversight to self-regulation.
 Examples from the UK, France, Germany, and the USA showcase this diversity

 Companies Act 2006 (UK)

 Defines Recognized Supervisory Bodies (RSBs).
 Examples of RSBs include ACCA, ICAEW, and ICAS.

 Professional Qualifications
 Prerequisites for RSB membership.
 Offered by Recognised Qualifying Bodies (RQBs) approved by the government.
 RQBs include ACCA, ICAEW, and ICAS, among others