Appointment and removal of company auditors
This article explains the role of a company auditor. It details which types of companies must appoint an auditor and the circumstances when an auditor is not required. It also explains the procedure for appointing and removing auditors from office.
- What is an auditor
- Must all company accounts be audited?
- Are all types of small companies eligible for the exemption?
- What should a company do with the audited accounts?
- How is a company auditor appointed?
- What does an auditor do?
- Can my accountant be my auditor?
- What and who are recognized supervisory bodies?
- Is an auditor only concerned with annual accounts?
An auditor makes an independent report to a company's members as to whether its financial statements have been properly prepared in accordance with the Companies Act. The report must also say if a company's accounts give a true and fair view of its affairs.
No. If they qualify for exemption and wish to take advantage of it, dormant companies and certain small companies do not have to have their accounts audited.
- Qualify as small;
- Have a turnover of not more than £6.5 million; and
- Have a balance sheet total of not more than £3.26 million.
A company which falls into any of the following categories must have its accounts audited:
- A parent company or subsidiary undertaking (unless dormant for the period during which it was a subsidiary) except where the group:
- qualifies as a small group or would qualify if all the bodies; corporate in the group were companies; and
- the turnover for the whole group is not more than £6.5 million net (or £7.8 million gross); and
- the combined balance sheet total is not more than £3.26 million net (or £3.9 million gross)
- a public company unless the company is dormant
- a company that at any time in the financial year in question was:
- a company that is an authorised insurance company, a banking company, an e-money issuer, a MiFID (ie Markets in Financial Instruments Directive) investment firm or a UCITS (ie Undertakings for Collective Investment in Transferable Securities) management company;
- a company that carries on insurance market activity; or
- a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers' association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5)).
A company where an audit is required by a member or members holding at least 10% of the nominal value of issued share capital, or holding 10% of any class of share or - in the case of a company limited by guarantee - 10% of its members in number.
Some flat management companies that would otherwise qualify for exemption may have to prepare audited accounts to comply with the terms of their lease.
Audited accounts must be sent to Companies House annually.
The directors appoint the first auditor of the company. The auditor then holds office until the end of the first meeting of the company at which its accounts are laid before the members. At that meeting the members of the company can re-appoint the auditor, or appoint a different auditor, to hold office from the end of that meeting until the end of the next meeting at which accounts are laid.
However, private companies can pass an 'elective resolution' not to lay accounts before the members in a general meeting. If this is done, then the auditor has to be re-appointed, or a new one appointed, at another meeting of the company's members that must be held within 28 days of the accounts being sent to the members.
Private companies can also pass an elective resolution dispensing with the need to appoint an auditor every year. If that happens, the auditor already appointed remains in office without further formality until a resolution is passed to re-introduce annual appointment or to remove him or her as auditor.
The auditor will check the accounts and accounting records of the company and prepare a report for the company's members.
The report will say if the company's annual accounts have been properly prepared in accordance with the Companies Acts and if they give a true and fair view of the company's financial affairs. The auditor will also consider if the information given in the directors' report is consistent with the annual accounts.
If in the auditor's opinion, the accounts or directors' report does not comply with the Companies Act, the auditor will say so in the report.
An auditor must be independent of the company, therefore, a person cannot be appointed as an auditor if they are:
- An officer or employee of the company or an associated company;
- A partner or employee of such a person, or a partnership of which such a person is a partner.
If your accountant does not fall into one of the above categories and if he or she has a current audit-practising certificate issued by a recognised supervisory body, they may act as the company's auditors.
These are bodies recognised by the Secretary of State as having rules designed to ensure that auditors are of the highest professional competence. Each recognised body has strict regulations and a disciplinary code to govern the conduct of their registered auditors. The five recognised bodies are:
- The Institute of Chartered Accountants of Scotland;
- The Institute of Chartered Accountants in England and Wales;
- The Institute of Chartered Accountants in Ireland;
- The Association of Chartered Certified Accountants;
- The Association of Authorised Public Accountants.
Yes. However, there is nothing to stop you employing an auditor for other purposes, such as keeping the books or compiling the tax return, provided he (or she) does not take part in the management of the company.
Yes. The members of a company may remove an auditor from office at any time during his (or her) term of office or decide not to re-appoint the auditor for a further term. They must give the company 28 days' notice of their intention to put a resolution to remove the auditor, or to appoint somebody else, to a general meeting. A copy of the notice of the intended resolution must be sent to the auditor, who then has the right to make a written response and require that it be sent to the company's members
If an auditor ceases for any reason to hold office, he must deposit a statement at the company's registered office. The statement should set out any circumstances connected with his ceasing to hold office that he considers should be brought to the attention of the members and creditors of the company.
If there are any such circumstances, the company must send a copy of the statement to all the members of the company unless a successful application is made to the court to stop this. If the auditor does not receive notification of an application to the court within 21 days of depositing the statement with the company, the auditor must within a further 7 days send a copy of the statement to Companies House for the company's public record.
If there are no such circumstances, the auditor must deposit a statement with the company to that effect. This statement need not be circulated to the members.
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