SECTION B ‘There are FIVE questions. Answer ANY FOUR questions QUESTION 2 (a) ® The rights, duties and responsibilities of an auditor are sometimes confused with those of management by stakeholders. Some of them are of the view that the auditors are the same as the management of the company. This is based on the fact that the auditors and management of a company are both concemed with financial reporting. Although there is common ground regarding the actual work done, the functions of the auditors and management are essentially different. Consequently, their respective rights, duties and responsibilities will also differ. REQUIRED: Outline and explain any three: (i) Rights of auditors. G marks) (ii) Duties of the auditor. (3 marks) Assume that you have been properly appointed as an auditor of MAKARI Enterprises Ltd. As part of your first interim audit of the company you attended a wages payout. The exercise brought to light the fact that some of the wages were drawn for non-existent employees. Further enquiry revealed more that some of the wages were in fact for the personal domestic staff of the five directors of the company and that this had been a practice for some years. ‘The practices were never authorized by any policy documents of MAKARI Enterprises Ltd. You indicated that the matters should be reported to the shareholders. It seems that the directors were unhappy about your reaction of reporting the matter to the shareholders. You have been accordingly informed that your services are no longer required. You have received a special notice of general meeting of the company to be held for the purpose of dismissing you as one auditor of MAKARI Enterprises Ltd in due course. REQUIRED: () State the procedures applied to protect the removal of an auditor from the office. (8 marks) (ii) From the scenario above, State whether the auditor may be removed in the manner proposed. Give reasons. (6 marks) (Total: 20 marks) Intermediate Level, May 2017 19ANSWER 2 (@) Rights and Duties of an Auditor @ ai) Rights of Auditors Duties Rights of access to records ~ the auditor has the right to access the company’s books of account, records, vouchers and other documents necessary to collect evidence. Right of information and explanations ~ auditor can ask any of the officers or other persons associated with the company to provide information ot explanations essential to discharge their duties effectively as an auditor. Right to receive resolutions — auditor has the right to receive a copy of any written resolution proposed and any further related to it in the same way as a member of the company. Right to attend and speak — auditor has a right to speak and to be herd at general meetings of the company on any matter which concerns him as an auditor. of Auditor Ascertain adequate of accounting records — auditor must check whether proper and adequate accounting records have been maintained and prepared, adequate returns have been received from the branch not, visited by them. ‘Check compliance with legislation — it is the duty of the auditor to ensure that the applicable provisions of the laws have been complied with while preparing the financial statements. Verification of records — it is the auditors’ duty to examine, compare and verify the accounting records and returns with the financial statements. If the accounting records do not agree with the financial statements or are incomplete, then it is the duty of the auditor to report this fact to the shareholders. To provide an opinion on truth and faimess — it is the duty of the auditor to make sure that he prepare the audit report stating whether in his/her opinion, the financial statements give a true and fair view of state of affairs and of its income statements for the period ended, comply with the reporting framework and other relevant statutory provisions. Adequate disclosure — auditor should make sure that the financial statements and all other material disclosures are made in accordance 68 Tnlemediate Level, May 2017() (ii) with the applicable laws and other reporting framework. For example, the auditor needs to verify whether all the payments and benefits accruing to directors from the company are properly disclosure in the accounts. Procedures to protect the removal of an auditor. The appointment and removal is placed on the shoulders of shareholders — it is the shareholders who can appoint, remunerate and remove the auditor from the office. Directors are not empowered to remove the auditors — directors can only recommend to the shareholders if they think the auditor is to be removed from the office. Right to make representation — auditors have the right to make representation to the shareholders as to why they should not be removed from the office. This gives them the chance to defend their position before the shareholders. Depositing the statement of circumstances — when resigning the auditors are required to deposit the Statement of Circumstances to the shareholders, explaining clearly the reasons for their resignation. This afford them the chance to express themselves to the shareholders as to whether there are pressures from the directors/management. Requirement for professional clearance - during the professional clearance the auditor may get a chance to express themselves whether there are any professional reasons for not accepting the assignment by the outgoing auditor. 1 will not be removed as there is no professional reasons for terminating my services Reasons: (a) There is no professional reasons for terminating. As an auditor I will applied all professional ethies in performing my duty. (6) As known auditor’s proposal was to help safeguarding the company’s assets to maximize shareholder's wealth as the auditor performed, (©) The auditor also performed in considering public interest since these transactions has impacts on tax. Intermediate Level, May 2017 69