Appointment and Rights of Auditors under the Companies Act 2016

• Private Companies: The term lasts until 30 days after the circulation of the financial statements. In many cases, an auditor may be deemed reappointed automatically unless the Board, the constitution, or members holding $\geq 5\%$ of voting rights object.
• Public Companies: The term lasts until the conclusion of the next AGM.

Exam Tip: Remember that for public companies, the appointment is a central part of the AGM process, whereas private companies have more flexibility with Board-led appointments and automatic reappointments.

Replacing Outgoing Auditors: Removal vs. Resignation

When an auditor's tenure ends before their term is complete, it is categorized as either a removal or a resignation. The procedures and rights involved are distinct under the CA 2016.

Removal (Sec. 276-278)

Removal is an action initiated by the members of the company. To remove an auditor, the company must follow a specific procedure involving special notice and the passing of an ordinary resolution at a general meeting. Because removal can be a sensitive matter, the law protects the auditor by allowing them to submit written representations and the right to be heard at the meeting.

Resignation (Sec. 281-282)

Resignation is an action initiated by the auditor themselves. The auditor must provide written notice to the company's registered office. To maintain transparency, the auditor is required to submit a statement of circumstances to the Registrar (and to the stock exchange if the company is listed).

In public companies, a resigning auditor has the additional right to request a general meeting to explain the reasons for their departure to the members.

Rights and Responsibilities of Auditors

To perform their duties effectively and maintain independence, auditors are granted significant statutory rights and responsibilities.

Access to Information and Records (Sec. 266)

One of the most powerful tools an auditor possesses is the right of access. Under Section 266, auditors have the right to:

• Access company accounting records and registers at all reasonable times.
• Request information and explanations from company officers.
• Access subsidiary records and obtain information from subsidiary officers or auditors when preparing consolidated financial statements.

The law takes the obstruction of these rights very seriously. Any person who denies access or refuses to provide information without a lawful excuse can face up to 3 years' imprisonment, a fine of RM500,000, or both.

Reporting Responsibilities

The primary duty of the auditor is to report to the members on the company's financial statements. Under Section 266(2), the auditor must express an opinion on whether the financial statements provide a "true and fair view" and comply with the Companies Act 2016 and approved accounting standards. If the financial statements depart from approved standards, the auditor is legally required to report the nature of the departure and its implications.

Attendance at General Meetings (Sec. 285)

Auditors are expected to be present when financial matters are discussed:

• Public Companies: Auditors must attend every AGM where financial statements are presented to answer questions regarding the audit.
• Private Companies: Auditors must attend a general meeting if a resolution requiring their attendance is proposed and notice has been given.

Failure to attend without a valid excuse (such as circumstances beyond their control or sending an authorized representative) constitutes an offence.

Remuneration and Protection

Auditors have a statutory right to receive remuneration, which is typically determined by the party that appointed them (the members, the Board, or the Registrar). Furthermore, in cases where an auditor is removed, they may have the right to seek compensation or damages.

Summary Table: Auditor Rights and Penalties