- This topic has 2 replies, 2 voices, and was last updated 5 years ago by
.
- Posts
In the first page it was clearly stated that the Shareholders should appoint the External Auditor. In page 14 (Audit committee role) it says that making recommendations to the BOD about the appointment of the External Auditor. (Note is clear). My point is should the BOD and Audit committee recommend the appointment of the External Auditor or should the shareholder ( the principals) choose the Eternal Auditor in isolation from the BOD( agents )recommendations as this might create conflict of interest giving that the BOD would always follow the BOD recommendations because they are mostly passively attendant to the company management ?
You don’t really need practical details here because specifics will depend on jurisdiction/legal framework and specific provision (whereas AA is a global exam). But, in general and briefly:
– Audit committee recommends to BoD
– BoD recommends to shareholders
– shareholders accept recommendation
If BoD does not accept the audit committee’s recommendations, this should be (best practice) communicated to the shareholders – i.e. shareholders would be informed that the auditor put forward by the BoD was not on the recommendation of the audit committee.
You have to put this all in context of the legal provisions (assumed knowledge of LW). Most years the directors are going to propose the re-appointment of the current auditor. This would be on the agenda of the annual general meeting (AGM) and the resolution passed if a majority (50%) of shareholders vote for it. An auditor can similarly be removed from office by a 50% vote. If institutional investors, for example, (rather than individuals) want a change of auditor they can put a resolution on an agenda to be voted on in general meeting, etc, etc, etc. It takes a lot of effort to successful oppose recommendations – its easier for shareholders to sell their shares if not happy.
- You must be logged in to reply to this topic.