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Chapter 2

1.3 Auditor appointment, removal and resignation

Appointment of auditors

The following parties can appoint the auditor:

 Members (shareholders) – of the company appoint the auditor by voting them
in.

 Directors – can appoint the first auditor or to fill a ‘casual vacancy’. This requires
the members’ approval at a members' meeting. In some countries the auditors
may be appointed by the directors as a matter of course.

 Secretary of State – if no auditors are appointed by the members or directors.

Auditors of public companies are appointed from one AGM to the next one.

Auditors of private companies are appointed until they are removed.

Removal of auditors

Arrangements for removing the auditor have to be structured in such a way that:

 the auditor has sufficiently secure tenure of office, to maintain independence of
management.

 auditors can be removed if there are doubts about their continuing abilities to
carry out their duties effectively.

Removal of auditors can usually be achieved by a simple majority at a general
meeting of the company.

There are some safeguards, such as a specified notice period, to prevent the
resolution to remove the auditors being ‘sprung’ on the meeting.

Auditors can circulate representations stating why they should not be removed if
applicable.

A statement of circumstances must be sent to the company and the regulatory
authority to set out issues surrounding the cessation of office whenever and however
they cease to be auditor.

Resignation of auditors

In practice, if the auditors and management find it difficult to work together, the
auditors will usually resign.

The auditor issues written notice of the resignation and a statement of circumstances
to the members and regulatory authority.

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