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The contents of this document are the copyright of the Director of Corporate
Enforcement. Nothing herein should be construed as a representation by, or
on behalf of, the Director of Corporate Enforcement as to his understanding
or interpretation of any of the provisions of the Companies Acts 1963 to
2001 or as to the interpretation of any law.
1.0 Introduction 2
2.0 Principal Duties and Powers of Auditors 3
1
1.0 Introduction Information Book 1 – Companies
Information Book 2 – Company
Directors
The Companies Acts 1963-2001 contain
Information Book 3 – Company
extensive provisions detailing how the
Secretaries
affairs of companies are to be
conducted. These provisions describe Information Book 4 – Members and
how the various participants in Shareholders
companies should discharge their duties
Information Book 5 – Auditors
and obligations. In addition, partici-
pants are accorded substantial rights Information Book 6 – Creditors
and powers in order to enable them to Information Book 7 – Liquidators,
assert their rights and, if necessary, Receivers and
defend their personal and/or corporate Examiners
interests.
In addition to information on the
The Director of Corporate Enforcement relevant duties and powers, each book
is of the view that the extensive require- contains information on the penalties
ments of the Companies Acts make it for failure to comply with the require-
difficult for many non-professional ments of the Companies Acts and useful
participants in company affairs to be addresses and contact points.
well informed of their rights and obliga-
Each book has been prepared for use by
tions under the law. This has, in part,
a non-professional audience in order to
contributed to an inadequate standard
make the main requirements of
of compliance with company law in the
company law readily accessible and
past.
more easily understandable.
Section 12(1)(b) of the Company Law
The Director of Corporate Enforcement
ODCE DECISION NOTICE D/2002/1 INFORMATION BOOK 5 - AUDITORS
2
It is important to note that where 2.0 Principal Duties and
readers have a doubt as to their legal Powers of Auditors
obligations or rights, they should seek
independent professional legal or
accountancy advice as appropriate.
2.1 Companies’ and Directors’
As changes are made to company law in
Responsibilities for the Preparation of
the future, the Director intends to keep
Annual Financial Statements
this guidance up to date. He also
welcomes comment on its content, so Before examining auditors’ responsibili-
that future editions can remain as ties and duties, it is helpful to first
informative as possible. revisit companies’ and company
directors’ responsibilities with regard to
the preparation of annual financial
Office of the Director of Corporate statements.
Enforcement
Generally, companies and their directors
November 2002 are required to prepare accounts on an
annual basis. The annual accounts are
prepared from the information
contained in the company’s books of
account and other relevant information.
The contents of the financial statements
are set out in Information Book 1 –
Companies. The directors are also
required to annex a report to the
accounts (known as the directors’
report1). This is a report by the directors
to the members of the company. It is
1 The Directors’ Report is required by section 158 of the 1963 Act (as amended). Its contents are prescribed by section 158 of the 1963 Act and by sections 13 and 14 of the Companies (Amendment) Act, 1986.
3
2.2 What is an Auditor prepared in accordance with the
Companies Acts (and any other
An auditor is an independent profes-
relevant legislation) and accounting
sional person qualified to perform an
standards;
audit. In practice, a firm of auditors will
usually be appointed to act as auditors • issue a report to the members of
to a company. the company containing a clear
expression of their opinion on the
2.3 What is an Audit financial statements.
For the purposes of the Companies 2.4 What Does an Audit Involve
Acts, an audit is an examination of the
During the course of an audit, auditors
financial statements of a company
will normally perform the following
performed by an auditor or firm of
types of audit work:
auditors. The objective of performing an
audit is to enable the auditor to provide • furnish the company with a ‘letter
the members of the company with an of engagement’, in which the
independent, professional and informed auditor sets out the directors’ and
opinion on the financial statements auditors’ respective responsibilities
prepared by the directors. and the scope of the audit;
By reporting their opinion, the auditors • obtain a knowledge of the
of the company provide reasonable company’s business and industry;
assurance to the members of the • plan the audit, with a view to, inter
company that the financial statements alia, identifying the areas of the
give a true and fair view of the state of financial statements most likely to
the company’s affairs at a particular be susceptible to the risk of error
point in time (i.e. at the financial year or misstatement;
end) and of its profit (or loss) for the • where one exists, evaluate the
ODCE DECISION NOTICE D/2002/1 INFORMATION BOOK 5 - AUDITORS
period under review and that they have company’s system of internal
been prepared in accordance with the control (internal control systems are
Companies Acts and applicable explained in summary in Appendix
accounting standards. E to Information Book 1);
In performing their audits, auditors are • examine, on a test basis, the
required to comply with professional evidence relevant to the amounts
standards as set down by the Auditing and disclosures contained in the
Practices Board, an independent financial statements;
standard setting body. • assess the significant estimates and
In carrying out an audit, auditors are judgements made by the directors
required to: in the preparation of the financial
statements;
• carry out procedures to obtain
• determine whether the accounting
sufficient appropriate audit
policies are reasonable and have
evidence to enable them to
been adequately disclosed;
determine with reasonable
confidence whether the financial • review the overall presentation of
statements give a true and fair the financial statements;
view; • examine any significant events in
• evaluate the overall presentation of the post balance sheet period i.e. in
the financial statements in order to the period between the date to
ascertain whether they have been which the financial statements are
4
made up and the date the audit is from one year to the next are
completed; comparable.
• on completion of the audit, provide Overall, the financial statements will
the directors with a letter setting not give a true and fair view unless the
out any problems encountered (e.g. information contained in them is
errors, weaknesses in internal sufficient in quantity and quality to
controls etc.) during the course of satisfy the reasonable expectations of
the audit and making recommenda- the readers to whom they are addressed
tions to address the problems i.e. the members. The auditor’s opinion
encountered (this letter is referred seeks to enhance the credibility of the
to as a ‘management letter’); financial statements by providing
• issue the auditors’ report to the reasonable assurance from an indepen-
members of the company (see dent source that they give a true and
below). fair view.
2.5 What does ‘True and Fair View’ Mean 2.6 When is an Audit Required
Under the Companies Acts2 companies’ In general, every company must have its
financial statements are required to give financial statements audited annually.
a true and fair view of the state of the However, certain companies can be
company’s affairs and of their profit (or exempted from the requirement to have
loss) for the period in question. an annual audit provided that they
However, the Acts do not define the comply with certain conditions3. It
term ‘true and fair view’. As a general should be noted however that where a
rule, a set of financial statements will be company can avail of the exemption to
considered to give a true and fair view have an audit performed, the require-
where they have been prepared in ments to maintain proper books of
accordance with: account and to prepare annual financial
5 Section 160 Companies Act, 1963 as amended by section 183 Companies Act, 1990
6 6 Section 193(1) Companies Act, 1990
By law, the directors are required to account are maintained, the auditors are
disclose certain information in the required to notify this to the Registrar
financial statements e.g. detailed partic- of Companies, who in turn will notify
ulars of directors’ emoluments such as the Director of Corporate Enforcement.
salaries, fees, taxable expenses, pension
Where the Director of Corporate
contributions and other benefits. Where
Enforcement subsequently requests the
the financial statements do not provide
auditors to do so, they are required to
this information, the auditors are
furnish the Director with such informa-
required to provide it in their report.
tion, including an explanation of the
Where the auditors cannot report reasons for their opinion and give the
positively on any of the above matters, Director access to documents, including
they may find it necessary to ‘qualify’ facilities for inspecting and copying
their audit report giving reasons for the them.
qualification. A qualified audit report
can take two forms, namely: 2.10.3 Duty to Report Indictable
Offences8
• a ‘disclaimer of opinion’, in which
the auditors state that they are As a result of the Company Law
unable to form an opinion as to Enforcement Act, 2001, auditors are
whether the financial statements now required to make a report to the
give a true and fair view. A Director of Corporate Enforcement
disclaimer of opinion will arise where during the course of, and by
where the scope of the auditors’ virtue of, carrying out an audit,
information comes into their possession
work has been limited in some way
which leads them to form the opinion
e.g. they have been unable to gain
that the company, or an officer or agent
access to all of the books and
of it, has committed an indictable
records, or;
offence under the Companies Acts.
7 Section 194 Companies Act, 1990 as amended by section 74 Company Law Enforcement Act, 2001
8 Section 194(5) Companies Act, 1990 as inserted by section 74 Company Law Enforcement Act, 2001
9 The guidance, which is contained in Decision Notice D/2002/2 ‘The Duty of Auditors to Report to the Director of Corporate Enforcement’, is available on the ODCE website (address: www.odce.ie). As
the guidance was issued jointly with the Auditing Practices Board (APB), the guidance has also been published in the form of an APB Audit Bulletin.
10 Section 193(6) Companies Act, 1990 7
• to the company under their reasonable steps to obtain such informa-
contract; and/or; tion and explanations for the auditors.
• to those parties to whom they owe
2.11.2 Right of Notification and
a duty of care for negligence,
Attendance at Company General
including the company, the
Meetings14
members and, in certain limited
circumstances, prospective Auditors are entitled to attend any
shareholders. general meeting of the company and to
Auditors cannot exclude their liability receive the same notices and communi-
to the company, nor can auditors have a cations relating to meetings as the
company indemnify (insure) them members. They also have the right to be
against any liability to third parties in heard at all general meetings on any
respect of negligence. part of the meeting that concerns them.
11 Section 187(12)(a) Companies Act, 1990 as inserted by section 72 Company Law Enforcement Act, 2001
12 Section 193 Companies Act, 1990
13 Section 197(3) Companies Act, 1990 states: “An officer of a company who fails to provide to the auditors of the company or of the holding company of the company, within two days of the making of
the relevant request, any information or explanations that the auditors require as auditors of the company or of the holding company of the company and that is within the knowledge of or can be
procured by the officer shall be guilty of an offence”.
14 Section 193 Companies Act, 1990
8 15 Section 161 Companies Act, 1963 as amended by section 184 Companies Act, 1990
3.0 Penalties Under the Administrative Fines
Companies Acts Under the provisions of the Company
Law Enforcement Act, 2001, the
Director of Corporate Enforcement also
has the discretion to impose an adminis-
3.1 Penalties for Criminal Offences
trative fine rather than initiating a
Court Imposed Penalties summary prosecution. Where the
Director chooses this course of action,
Under the Companies Acts, provision is
provided that the fine is paid and the
made for two types of criminal offence,
default in question is remedied within
namely summary and indictable
21 days, no prosecution will ensue16.
offences. A summary offence is
generally of a less serious nature and is 3.2 Civil Penalties
tried before a judge only in the District
Court. Indictable offences are generally Disqualification
of a more serious nature. Indictable
In addition to fines and penalties, there
offences can, in the same way as
are also provisions for other sanctions
summary offences, be tried in the
under the Acts. Persons convicted on
District Court before a judge only.
indictment of an indictable offence
However, the distinction between a
relating to a company or involving
summary offence and an indictable
fraud or dishonesty are automatically
offence is that, due to their more serious
disqualified from acting as company
nature, indictable offences can also be
directors/officers (see Appendix B to
tried in the Circuit Court i.e. before a
Information Book 2 – Company
judge and jury. Where this course is
Directors).
taken, the indictable offence is said to
be prosecuted on indictment. The Director of Corporate Enforcement
18 Section 12B(1) Companies (Amendment) Act, 1982 as inserted by section 46 Company Law Enforcement Act, 2001
10