Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

State your views on the following:
a. “The auditor can always exercise lien on books and documents of his client for non-payment of fees due to him.”

b. All-in-One Limited in general meeting authorized its Board of Directors to fill up the vacancy in the office of auditor, which was caused the resignation of an auditor.
c. Some of the shareholders of RNP Limited have written letters to auditor of the company demanding copies of audit report for their perusal and further action. The auditor is in no mood to oblige the shareholders.
a. Answer
As per general law any person having lawful possession of property of same other person may retain the property for non-payment of fees due to him on account of the work done him on such property. The Institute of Chartered Accountants of England and Wales has upheld the auditor’s right of lien on books and documents if the following conditions are fulfilled:

(i) Documents retained must belong to the client;

(ii) The documents must have come to the possession of the auditor and the authority of the client;

(iii) The auditor has done some work on such documents for a fee but such fee was not paid to him.

(iv) Only such of the documents on which work was done or in connection with which work was done can be retained for non-payment of fees.

However, in the case of companies under section 2063 of the companies Act, books of accounts and records should be kept at the registered office or at such other place upon a resolution of the Board of Directors being passed, ultimatum where of is given to the Registrar of Companies. Further if the books of the company are retained the auditor, he must provide facility for inspection the directors and others authorized under the Act. Taking into account these restrictions it may be said that it is mostly impractical for the auditor to exercise the right of lien in the case of company books and records. His working papers being his own property, the question of lien as then does not arise.
Casual vacancy arising in the office of auditor on account of resignation of an auditor cannot be filled up the Board of Directors. Only the company in general meeting shall fill up the vacancy caused resignation of the auditor. The power cannot be delegated to the Board of Directors, the appointment the Directors is not valid. As per Sec 113 of Companies Act 2063 Where the annual general meeting of a company fails to appoint an auditor for any reason or where the annual general meeting itself cannot be held or where the auditor appointed pursuant to this Act ceases to continue his/her office for any reason, the Office may, at the request of the board of directors of the company, appoint another auditor.

c. Answer
It is no part of the duty of the auditor to send a copy of his report or to allow inspection thereof each member of the company individually or to see that the report is read before the company in general meeting. The duty of the auditor is confirmed only to forwarding his report on the

accounts to the secretary of the company. It will be for the secretary or the Directors to convene the general meeting and send the financial statements and the Auditor’s report to members or others entitled to receive it.
The action of the auditor is not obliging the shareholders is perfectly held in law.

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