Company Management

Question 1

What’s a statutory auditor?

Answer 1

A ‘statutory auditor’ is an external auditor whose appointment is required by law to review the financial statements of certain companies.

Question 2

What’s the function of an auditor?

Answer 2

The function of an auditor is to provide the shareholders with an independent report as to whether, in the auditor’s opinion, the financial statements presented by the directors give a true and fair view of the state of affairs of the company, its profits (or losses) for the relevant period) and its financial position.

Question 3

Difference between accountant and an auditor?

Answer 3

• Accounting is concerned with the process of identifying, measuring and communicating financial and related information.

The function of the auditor is to:
- form and express an opinion on the financial statements.

• ensure that the financial statements have been properly prepared in accordance with the accounting provisions of the Companies Act.
• make certain disclosures in the public interest.

Question 4

Auditors must report their opinion as to what?

Answer 4

• whether the directors’ report is consistent with the statutory financial statement.
• whether, in the auditors’ opinion, these statements are properly prepared in accordance with the relevant financial reporting framework and the legal requirements.
• and they provide a true and fair view of the financial affairs of the company.

Question 5

In accordance with the companies act 2014, the audit report should also include what?

Answer 5

1 - whether the auditor has obtained all the information and explanations which, to the best of his or her knowledge and belief, are necessary for the purposes of the audit.

2 - whether, in their opinion, the accounting records of the company were sufficient to permit the financial statements to be readily and properly audited.

3 - whether, in their opinion, information and returns adequate for the audit have been received from branches of the company not visited by him or her.

4 - in the case of entity financial statements, whether they are in agreement with the accounting records and returns.

Question 6

The statutory auditor has certain rights to enable him/her to gather the information required to prepare the port to be presented to the company at a general meeting.

What are these rights?

Answer 6

The right to:

• Access at all reasonable times to the accounting records of the company.
• question the relevant persons in the company and receive explanations and information.
• information and explanations concerning subsidiary companies
• attend any general meetings of the company and to receive all notices and communications regarding the general meetings.
• be heard at the general meetings on matters concerning the auditors

Question 7

What are the duties of the auditor?

Answer 7

Duty to report to members - the auditor must report to the members via the auditor’s report, confirming “as to whether, in the auditor’s opinion, the financial statements presented by the directors give a true and fair view of the financial affairs of the company”.

Duty to report any failure by the directors to keep proper books of account - the auditor is under an obligation to report to the Registrar of Companies within 7 days if the directors do not keep proper accounting records.

Duty to act with professional integrity - a statutory auditor has a duty under the codes of practice of the professional accountancy bodies to which he/she belongs to act with professional integrity.

Duty to ensure compliance with tax law - where an auditor becomes aware that the the company is committing an offence in relation to taxation, the auditor must communicate the offence to the company and request that it take remedial action to rectify the situation or the auditor must notify an officer of the Revenue Commissioners.

Duty to notify the Director of Corporate Enforcement and provide details where an auditor is of the opinion that a company, its offices or agents have committed a category 1 or 2 offence under the Companies Act.

Question 8

Give an example of a case that shows an auditor’s common law duty of skill and care.

Answer 8

[Hedley Byrne & Co. Ltd v Heller and Partners Ltd]

• Hedley Byrne & Co Ltd (Hedley Byrne) was an advertising firm.
• Easipower Ltd (Easipower) submitted a large order to Hedley Byrne.
• Concerned about Easipower’s financial position, Hedley Byrne enquired with National Provincial Bank about obtaining a report from Easipower’s bank, Heller & Partners Ltd (Heller).
• Heller replied to Hedley Byrne in a letter, stating that Easipower was good for conducting business with. Heller wrote in this letter “without responsibility on the part of this bank“.
• The response was also provided for free.
  Easipower went into liquidation and Hedley Byrne lost £17,000.

-Held: there was no liability due to a valid disclaimer.

However, noted that a duty could arise if an auditor fails to perform his or her duty with reasonable skill and care.

Question 9

Give an example of a case where it was held by the court that:

Auditors of a public company owe no duty of care to the public at large who rely on accounts when purchasing shares in a company;

nor was any duty owed to individual shareholders who purchased additional shares.

Answer 9

[Caparo Industries plc v. Dickman]

Caparo Industries took over Fidelity by buying their shares, but found that Fidelity’s accounts were in an even worse state than had been revealed by the directors or the auditors.

Caparo sued Dickman for negligence in preparing the accounts and sought to recover its losses.

In Ireland, an auditor is only liable in negligence to a third party where he or she knew or ought to have known that the third party would act in reliance on his or her report.

Question 10

An auditor is liable to the company for a loss caused by negligent performance of his duty.

Give an case where auditor’s where found to be negligent.

Answer 10

[Thomas Gerrard & Sons Ltd]

• A managing director falsified accounts by including nonexistent stock.
• As a result of these overstated profits, additional taxes were paid by the company and dividends declared which otherwise would not have been.
• The auditors became suspicious when they noticed altered invoices, but accepted the MD’s explanation.

Held: the auditors were found to be negligent.

• By not investigating the irregularities further, they failed in their duty to exercise reasonable care and skill.

Question 11

A small private company limited by shares (LTD) is exempt from an audit provided it meets 2 of the what following criteria?

Answer 11

• turnover of the company does not exceed €8.8 million.
• the balance sheet total of the company does not exceed €4.4 million.
• the average number of employees of the company does not exceed 50.

Question 12

A medium-size private company is exempt from an audit if it meets what criteria?

Answer 12

• the turnover of the company does not exceed €20 million.

- the balance sheet total does not exceed €10 million

Question 13

What other companies can avail of the audit exemption?

Answer 13

• CLGs

- Dormant Companies.

Question 14

Can an audit exemption be lost?

Answer 14

Yes, if the company does not meet all of its filing requirements.

Question 15

What is the role of the company secretary?

Answer 15

• The role of the company secretary is to advise the board on its responsibilities under company law and to ensure that these are complied with.
• Every company must have a company secretary, who can also be a company director, though if a company has only one director, that person may not also be the company secretary.

Question 16

One of the duties of a Company Secretary is to maintain registers required under company law.

What registers are these?

Answer 16

• register of members
• register of directors and secretaries
• register of directors’ and secretaries’ interests in shares and debentures
• register of the instruments which create charges

Question 17

One of the duties of a Company Secretary is to related to meetings.

What are these:

Answer 17

• convenes meetings of members
• maintains minutes of meetings
• supplies financial statements to members in advance of meetings within specified timeframes
• ensures financial statements are available for viewing by those who are entitled to do so.

Question 18

There are 5 main types of company meeting.

What are they?

Answer 18

• Annual general meetings
• Extraordinary general meetings
• meetings of the board of directors
• class meetings
• court-ordered meetings

Question 19

A private company limited by shares can pass avoid having an Annual General Meeting (AGM) if they sign a written resolution saying what?

Answer 19

1 - acknowledging receipts of the financial statements that would have been laid before the meeting

2 - resolving all such matters as would have been resolved at that meeting

3 - confirming no change is proposed in the appointment of the person (if any) who stands appointed as statutory auditor of the company.

Question 20

The Companies Act requires the AGM to consider what?

Answer 20

• the company’s statutory financial statements (balance sheet, profit & loss a/c, etc.)
• the auditor’s report
• the director’s report

Question 21

The constitution of the company will then outline any other ordinary business that needs to be carried out by the AGM, including?

Answer 21

• declaration of dividends;
• the election of directors and auditors in place of those retiring, or the
• reappointment of retiring directors or auditors;
• fixing the remuneration of auditors or directors

Question 22

When does a company require an extraordinary general meeting (EGM)?

Answer 22

A company requires an EGM if it is proposed to do something new.

All business at an EGM constitutes special business (i.e. business other than ordinary business of the company).

Question 23

What can an EGM be convened by?

Answer 23

• a member or members, unless the constitution of the company provides otherwise;
• members of a company with 50% or more of paid-up share capital or voting rights;
• the directors, following a request by members of a company with a shareholding of not less than 10% of the paid-up capital.
• by a court

Question 24

What are the best practices for a meeting of a board of directors?

Answer 24

• the directors elect a chairperson of the meeting among themselves
• the chairperson has a casting vote
• the managing director has the second casting vote

Question 25

What is the ‘indoor management rule’ (Rule in Turquand’s case)

Answer 25

The ‘indoor management rule’ provides that outsiders to the company are entitled to presume that the internal regulations of the company are adhered to correctly according the company’s constitution.

Question 26

What is a resolution?

What are the 2 types of resolutions?

Answer 26

A resolution is a decision requiring approval by the voting members of the company.

• Ordinary resolutions
• Special resolutions

Question 27

What are ordinary resolutions?

Answer 27

Ordinary resolutions are resolutions that require a simple majority of votes cast, in person or by proxy, by members of the company entitled to vote at a general meeting.

Question 28

What are special resolutions?

Answer 28

Special resolutions are required for alteration to the authorized capital, most of the provisions of the company’s constitution, change of company name, reduction in share capital, certain types of company liquidations, or variation of class rights.

They require a majority of not less than 75% of the votes cast, in person or by proxy, by members of the company entitled to vote at a general meeting.

Question 29

What are unanimous written resolutions?

Answer 29

This a resolution in writing signed by all members of a company entitled to attend and vote on such resolutions at a general meeting.

It is deemed valid and effective as if the resolution had been passed at a general meeting.

Question 30

What is a majority written resolution?

Answer 30

An ordinary or special resolution can also be passed by a majority written resolution. This resolution is deemed to be passed at a meeting held 7 or 21 days after the last member to sign (depending on whether it is ordinary or special). All such resolutions must be delivered to the CRO.

This doesn’t apply to:

• a resolution to remove a director
• a resolution to effect the removal of a statutory auditor from office.

Question 31

There are 2 methods for voting.

What are they?

Answer 31

1 - On a show of hands, every member, or proxy, present has one vote only.

2 - On a poll, every member, whether present in person or by proxy, has one vote for every share held.

Question 32

Under the Companies Act 2014, a poll can only be validated by what?

Answer 32

a - the chairperson

b - at least 3 members present in person or their proxies

c - members or proxies representing not less than 10% of the total voting rights or 10% of the paid-up capital

Question 33

What is a ‘proxy’?

Answer 33

A ‘proxy’ is a person appointed by shareholders to attend, speak and vote on behalf at a general meeting.

A proxy need not be a member of the company.

Question 34

Why must accounting records be kept?

Answer 34

(a) - record and correctly explain the transactions of the company.
(b) - enable, at any time, the assets, liabilities, financial position and profit and loss of the company to be determined with reasonable accuracy.
(c) - enable the directors to ensure that the statutory financial statements of the company and the directors’ report comply with company law; and
(d) - enable the financial statements of the company to be audited.

Question 35

What is an annual return?

Answer 35

All companies with a share capital are obliged to file an annual return on an annual basis with the CRO within 28 days of the annual return date.

The annual return is a document containing general information about a company’s directors and registered office, shareholders and share capital. It is a separate document to the company’s annual accounts and must contain certain prescribed information.

Question 36

What information must an annual return contain?

Answer 36

• the name and registered number of the company;
• the address of the registered office of the company;
• the financial period covered by the return;
• details of all shares issued for cash or other consideration, any calls made on shares that have been received or remain unpaid, any commission paid or discounts given on shares or debentures;
• particulars of the total amount of indebtedness of the company that is secured by mortgages or charges, which are required to be registered;
• A list of all persons, including names and addresses, who are members of the company, and of persons who have ceased to be members since the date of the last return;
• details of shares held by each of the existing members, specifying the shares transferred since the date of the last return;
• Particulars of the directors and secretaries to be entered in the company’s register of directors and secretaries.
• Except for the first annual return made by the company after it is incorporated, the following documents that have been, or are to be, laid before the relevant general meeting, must be annexed to the annual return:

– the statutory financial statements of the company (balance sheet and profit and loss account);

– The directors’ report, including the directors’ compliance statement; and

– The statutory auditors’ report.

Question 37

What are the Registers that must be Maintained by a Company?

Answer 37

– register of members

– register of directors and secretaries

– register of interests;

– register of debenture holders

– the minute books.