Chapter 7

Question 1

Statutory Duties - Keeping Accounting Records

Answer 1

• Keep proper accounting records for a period of not less than 5 years from the end of the financial year in which those transactions relate to.
• Failure to do so -> every officer has an offence
• Fine <12 months

Question 2

Statutory Duties - Keeping Accounting Records - Records kept must

Answer 2

• Sufficiently explain transactions and financial position of the company
• Enable true and fair P&L and BS to be prepared
• Kept in a manner for them to be properly audited

Question 3

Statutory Duties - Keeping Accounting Records - Directors

Answer 3

• All directors may at any time inspect records.
• Members can only be given copy of audited financial statements.
• Public accountant who has obtained order of court to act on behalf of director can also access the records.

Question 4

Statutory Duties - Keeping Minute Books

Answer 4

Minute books are books that records within one month’s proceedings of meetings.

Question 5

Statutory Duties - Maintenance of registers

Answer 5

Company must maintain

i) Register of members (only public companies)
ii) Register of substantial shareholders
iii) Register of debenture holders
iv) Register of directors, CEO, managers, secretaries, and auditors
v) Directors and CEO’s shareholdings
vi) Register of charges

Question 6

Statutory Duties - Maintenance of internal controls (public only)

Answer 6

• Every public company must devise and maintain a system of internal accounting controls to protect public investors.
• Provide reasonable assurance that
• -Assets are safeguarded against loss from unauthorized use of disposition
• -Transactions are properly authorized
• -Transactions are recorded to permit true and fair view of financial statements
• -Maintain accountability of assets

Question 7

Statutory Duties - Preparing and presenting financial statements

Answer 7

-Directors must present before the company financial statements for the period immediately preceding the current one to show the true and fair view of the financial position and performance of the company at every AGM. Financial statements must comply with requirements of accounting standards.

Question 8

Statutory Duties - Preparing and presenting financial statements - AGM

Answer 8

• AGM must be held not later than 18 months after incorporation.
• Once in every calendar year at intervals not exceeding 15 months.
• Private company: Financial statements must be updated to a date not more than 6 months before AGM
• Public company: Financial statements must be updated to a date not more than 4 months before AGM

Question 9

Statutory Duties - Preparing and presenting financial statements - Private Companies dispense holding of AGM

Answer 9

-Company must keep at registered office copy of each document laid at is AGM or if dispensed of AGM, copy of all related documents sent to persons entitled to attend the meeting.

Question 10

Statutory Duties - Directors Statement

Answer 10

Directors must prepare statement signed by two of the directors stating:

• whether in their opinion accounts give a true and fair view of the financial position and performance of the company
• as of the date of statement there are reasonable grounds to believe that the company will be able to pay its debts with its due

Question 11

AGM - Quorum

Answer 11

Number of members who must be present in order for meeting to proceed to business.

Question 12

AGM - Attendance

Answer 12

• Person or Proxy
• Proxy appointment must be effected by director’s resolution and evidenced by certificate.
• Proxy forms must be submitted within 72 hours before the meeting

Question 13

AGM - Chairman

Answer 13

• Need not be a member
• Usually company articles provide that chairman of BOD is chairman of AGM
• However if unable, members may appoint one member to be chairman
• Role is to maintain order at meeting

Question 14

AGM - Special Resolution

Answer 14

At least 75% of persons/proxies must specify intention to propose the resolution.
For public companies <28 days of meeting.

Question 15

AGM - Ordinary Resolution

Answer 15

Simple majority supporting is sufficient

Question 16

AGM - Recording of Minutes

Answer 16

Companies must keep minutes of meetings with its directors and members in minute book within 1 month of the meeting. Minutes must be signed by chairman of meeting. Constitutes as evidence. Kept at registered office and open for all to inspect.

Question 17

AGM - Lodging of Annual Return

Answer 17

• Lodged to registrar 1 month after AGM.

- Must be current as of date of AGM or within 14 days after AGM.

Question 18

AGM - Decisions

Answer 18

• Scrutiny of the company’s audited accounts for previous accounting period
• Appointment of directors
• Appointment of auditors
• Declaration of final dividend

Question 19

AGM - Exemption

Answer 19

• Company is private
• Articles does not insist that physical meeting is to be conducted
• unanimous resolution passed at previous meeting that agree that AGM need not be convened

Question 20

Reasons for Audit

Answer 20

• Report to members on preparation of financial statements

- Report to ACRA any breaches of the companies act detected during the audit

Question 21

Audit Requirements

Answer 21

• Financial statements must be audited not less than 14 days before AGM
• Copy of audited accounts must be sent to all members entitled to receive notice before AGM not less than 14 days before AGM. If not it is an offence under the companies act.

Question 22

Powers and Duties of Auditors - Auditors’ Report

Answer 22

Auditor must report to members

• Financial statements which are to laid before company in AGM
• Company’s accounting and other records

Question 23

Powers and Duties of Auditors - Access to Documents

Answer 23

He has rights to access all documents to assist him in preparing the records.

Question 24

Powers and Duties of Auditors - Access to information from individuals

Answer 24

Entitled to require information from any officer in the company and any auditor of related company.

Question 25

Powers and Duties of Auditors - Punishment for Obstructing access

Answer 25

Failure/restriction/obstruction by any officer or auditor or related company to give access to required information may be an offence.

Question 26

Powers and Duties of Auditors - Content of Report - State in Report

Answer 26

- Whether financial statements are in compliance with requirements of accounting standards - Whether there is any non-compliance with standards - Whether there is any defect or irregularity in accounts - Whether auditor is not satisfied on any matter and reasons they are dissatisfied.

Question 27

Powers and Duties of Auditors - Content of Report - Form an opinion

Answer 27

- Whether auditor obtained all information required - Whether proper accounting records have been kept by the company - Whether returns received from branch offices are adequate - Whether procedures used to arrive at amounts in consolidated statements were appropriate for consolidation - Whether he agrees with the form they are prepared

Question 28

Powers and Duties of Auditors - Auditors Report at AGM

Answer 28

Attached to the accounts and if required by member read before the company in the general meeting and be open to inspection by any member. Auditor/representative is allowed to: - Attend any general meeting of the company - Receive notices relating to any general meeting at which a member is entitled to receive - Speak at any general meeting which he attends

Question 29

Powers and Duties of Auditors - Duty to report breaches

Answer 29

Auditor is responsible to report immediately to the Registrar on any breach of provisions of the act which cannot be adequately explained in his report. -If he has reason to believe that serious offence involving fraud or dishonesty is being committed against the company by its officers, he must report directly to the minister. -Serious offence = >2 years imprisonment or >$100000 involved

Question 30

Powers and Duties of Auditors - Duty of Care and Skill

Answer 30

An auditor must exercise a reasonable degree of care and skill when performing his duties. If auditor is negligent and resulted in loss being suffered, he can be sued - Under the law of contract by persons who have a contractual relationship with him - Under the law of tort of negligence by persons to whom he owes a tortious duty of care (plaintiff was relying on his skills)

Question 31

Case Law on Standard of Care by reasonable auditor

Answer 31

- Must audit the financial affairs of the company throughout the accounting period. Fraud must be reported even if not material - Comply with FRS and SSA - Can make mistakes - Must keep in mind possibility of fraud but is not obliged to detect every single fraud - Not generally expected to investigate every aspect but must act honestly that he cannot certify true what he does not believe to be true. If there is suspicion he must - ---actively investigate possibility of fraud - ---obtain sufficient evidence to form his opinion - ---warn management or members

Question 32

Audit Committee

Answer 32

To check on dishonest practices of publicly listed companies. ->3 persons To ensure impartial and independent from executive management of the company -must not be executive directors of the company or related corporation -must not be family or adopted family -must to be any person having a relationship with that in the judgement of the BOD would interfere in carrying out functions of the audit committee. Chairman must not be -Executive director or employee of related corporation.

Question 33

Audit Committee function

Answer 33

- Ensure affairs of company are properly carried out - Assist the auditor to acquire sufficient knowledge of the business by reviewing with the auditor the audit plan. - Review draft audit report - Nominate persons to act as auditor for AGM

Question 34

Statutory Meeting

Answer 34

Public company limited by shares required by law to conduct statutory meeting. - Must not be held earlier than 1 month or less than 3 months after the date on which the company is entitled to commence business. - Held once - Purpose is to consider company's "statutory report" - "Statutory report" prepared by directors to report to members details of matters specified in companies act. - Prepared by directors and signed by two of them. - Copy must be sent to registrar and every member at least 7 days before meeting.

Question 35

Member's Resolution

Answer 35

A member wishes to raise additional matters to be included in the agenda for consideration at a meeting. Any number of members may make a written requisition for resolutions to be considered at AGM. But number must represent >5% the total voting rights of all the members having a right to vote at the meeting. OR not less than 100 members who hold shares in the company each having paid up not less than $500 in his shares. Must be made at least one week before meeting. Company secretary must then circulate resolution to other members of the company.