Audit of Companies and Auditing Standards
This domain tests company audit law and the authority of auditing standards: appointment, disqualification, powers and duties of auditors, rotation, CARO, and the framework of SAs, SQC, SAEs and SRSs.
Core rules
- Section 139: the first auditor is appointed by the Board within 30 days of incorporation; if the Board fails, members appoint within 90 days at an extraordinary general meeting. The auditor holds office until the first annual general meeting.
- Section 141 lists disqualifications, including body corporate status, officer or employee status, relative’s security holding or indebtedness, business relationships and fraud convictions.
- Section 143 gives the auditor access to books and records and requires reporting on accounts, compliance and fraud.
- Section 139(2) mandates rotation for listed companies and prescribed classes: an individual auditor for five consecutive years and a firm for ten years, with a five-year cooling-off period.
- CARO 2020 prescribes additional reporting for specified companies.
- SAs are mandatory; SQC governs firm-level quality control; SAEs and SRSs apply to specific engagements.
Worked example
A newly incorporated company fails to appoint its first auditor at the Board meeting within 30 days. The members must appoint the first auditor within 90 days at an extraordinary general meeting. The auditor then holds office until the first annual general meeting. The Board cannot make a belated appointment after the 30-day period.
Traps
Saying members always appoint the first auditor; confusing casual vacancy rules; applying rotation to all companies; and assuming CARO applies universally.
Exam focus
Appointment timelines, disqualifications, rotation and reporting duties.