Statutory Books and Accounts For CSC Students - Malaysia

Corporate Secretary
Certificate
Statutory Books and

Accounts
1
Statutory Books or Registers
 These are records or details to be maintained
by company as required by law.
 It is the duties of the company’s directors to
maintained these statutory books and
registers.
 The duties are generally delegated, entrusted
and performed by professional such as
company secretary and accountants.
2
Statutory Books and Records
 A company is required to keep an properly
maintained various registers, minutes and
accounting records in a form that can be inspected.
- Register of members [CA 158 (1)]
- An index of members where the company has
more than 50 members [CA 158 (5)]
- Register of substantial shareholders [CA 69L] – for
public company
- Register of debenture holders [CA 70(1)]
- Register of interest holders [CA 92]
- Register of options [CA 68A]
3
Statutory Books and Records
-Register of directors, managers and secretaries [CA
141(1)]
-Register of directors shareholdings [CA 134 (1)]
-Register of charges [CA 115(2)]
-All minutes of company general meeting [CA 156]
-All minutes of meetings of directors and managers
[CA 156]
-Accounting and other records [CA 167(1)]
-Register of Transfer/ register of Allotment
 No set form is prescribed for the registers.
 A register may take the form of a bound book or any
other permanent records [CA 358(1)]
4
Register of Members
A person may become a member in several ways:
 Subscribing to the memorandum
 A director undertaking to take and pay for qualification

shares
 Applying for and receiving an allotment of shares
 Accepting a transfer of shares from present member
 Receiving shares by transmission on death or

bankruptcy of a member
 Holders of convertible notes exercise their right to
convert them into shares of the company
5
Register of Members – CA 158
 Every company must keep a register of members –
CA 158(1)
 The register will contain :
- Name of members
- Address
- Identity Card / Passport No.
- Occupation
- Nationality / Race
- Date of birth
- Date entered as member
- Date ceased as member
- Number of shares or amount of the member hold and
charged or movement in his holdings
6
 On incorporation, the subscribers to the memorandum
become members of company and their names are
entered in the register of members – CA 16(6)
 Subscribers becomes members as soon as the company
is incorporated
 The articles may require a director to hold qualification
shares which may be fixed by the company in general
meeting – Table A, art. 71
 Shares may also be issued to existing members or new
members by way of ‘cash’ or ‘consideration other than
cash’ (Form 24)
 Where there is allotment exercise, the shares alloted has
to be updated to the respective page of register of
members/ (allotment). 7
 The amount shares updated to the register shall as
per Form 24
 Where there is a transfer, both the buyer and the
seller of the shares need to be updated to the
register of members/ (transfer)
 The amount of the shares so transfer and updated
in the register shall as per Form 32A
 If the allotment or transfer involved a director, the
register of directors shareholding must be updated
accordingly.
8
 Where a company has more than 50 members, an index of
member must be maintained unless the register itself is in
such a form as to constitute an index – CA 158(5)
 The index will be kept together with the register of members
 The register of members is usually to be kept at the
company’s registered office – CA 159(1)
 However, if the work of maintaining the register is done at
another office of the company within Malaysia, the register
may be kept at that office – CA 159(1)(a)
 If a company arranges with some other person to maintain
the ROM on its behalf , then the register may be kept at that
person office if that office is in Malaysia – CA 159(1)(b)
9
 A foreign company which has share capital and has any
member resident in Malaysia may have to keep a branch
register at its registered office or at some other places in
M’sia – CA 342(1)
 This requirement need only be fulfilled if a member applies
in writing for registration of his shares in co’s branch register
– CA 342(2)
 If foreign co prohibit public from subscribing its shares, is
not required to maintain a branch register in M’sia – CA
342(4)
 A foreign co’s branch register is treated in the same manner
as the register of members of a Malaysian company –
CA345 & 346
10
 A company may close its register of member after
giving not less than 14 days notice to the Registrar.
But the closure cannot be more than 30 days in
aggregate in any calendar year – CA 160(1)
 Generally, this may occur prior to the payment of
dividend or before a rights or bonus issue
 The ROM is open to inspection by any member free
of charge – CA 160(2)
 Any other person may inspect a company’s register
of members or obtain a copy of the register on
payment of a small fee – CA 160(3)
11
 A person who is a trustee, executor or administrator of the estate
of the deceased person may be registered in the ROM of a
company or branch register of a foreign in that capacity – CA
163(1)
 This enable the personal representative of the deceased
shareholder to become registered as holder of his shares for
purpose of administration of the estate
 The liability of such trustee, executor or administrator will be the
same as if the share had remained registered in the name of the
deceased
 However, it is not compulsory for a personal representative to be
registered in respect of the shares of the deceased shareholders,
and the personal representative may effectively transfer such
shares notwithstanding that he is not registered as holder – CA
103(2)
12
 Except the above, no other case will notice of trust
of shares, whether express, implied or constructive,
be entered on a register or branch register – CA
163(4)
 A company having a share capital may maintain a
branch register outside Malaysia – CA 164(1)
 This branch register is treated as part of the
company’s register of members. A duplicate of the
branch register must be kept in Malaysia – CA
164(4)
13
Register of substantial shareholders
(CA 69L) – for public company
 A company to which Division 3A of Part IV of the Act
applies must maintain a register of substantial
shareholders
 This include all companies with any shares listed on
the KLSE, all public companies and other bodies
which the Minister has declared to be companies for
the purpose of this division – CA 69B(2)
 The register will contain the name of the substantial
shareholders together with the details of these
shareholders’ interest in the shares of the company
– CA 69L+69E to 69G
14
 The purpose of substantial shareholding provision is to enable
directors and shareholders of the company defined in S.69B(2)
to ascertain the identity of the holders of large numbers of share
and the extent of their shareholding
 Jenkins Committee provided two reason why such disclosure is
important:
1. The directors, other shareholders and employees of the
company, all of whom may be materially affected, ought to be
able to ascertain the identity of any substantial shareholder
especially where there is reason to believe that someone is in
the process of buying for control and
2. Even when the substantial shareholder is not in the process of
buying for control, it may be of interest to the others concerned
to know that someone is in the position to veto a special
resolution
15
 A substantial shareholder is a person who has an
interest in 5% or more of the voting shares of the
company – CA 69D(1)
 The person mentioned above include both natural
persons (citizens and non-citizens) and artificial
persons, even if they are not resident or carrying on
business in Malaysia – CA 69C
 Where a company’s share capital is divided into
classes, a person who has an interest in 50% or
more of the voting shares of any class is also a
substantial shareholders – CA 69D(2)
16
 A substantial shareholders must give notice in
writing to the company of his name, address, full
particulars of the shares in which he has an interest,
stating the nature of the interest – CA 69E(1)
 If there is any change in the interest of a substantial
shareholder or if a person ceased to be substantial
shareholder, notice in writing must also be given to
the company – CA 69F & 69G
 Notice must be given to the company within seven
days of a person becoming substantial shareholder,
changing the nature of his interest or ceasing to be
a substantial shareholder – CA 69E(2), 69F(2)
&69G(2) and for non-resident member,within 14
days – CA 69J(2) 17
 For public listed company listed on KLS, statutory form
need to be lodged with the company and KLSE
Forms Lodged with Particulars

Form 29A Co. & KLSE Notice of interest of
(S 69E(1)) substantial shareholder
Form 29B Co. & KLSE Change in interest of

(S 69F(1)) substantial shareholder
Form 29C Co. & KLSE Notice of person ceasing

(S 69G(1)) to be substantial
shareholder
18
 Failure to give notice to the company is an offence
and a court may on the application of the Minister
make orders (inter alia) restraining the defaulting
shareholder from dealing in the shares in which h
has an interest, restricting his voting rights or
entitlement to dividends, or selling the shares in
question – CA 69N(1)
 Failure to comply with S.69E, 69F, 69G or 69J will
attract a penalty of RM 1 million, default penalty of
RM 50,000 – CA 69M
19
 A company with any of its shares listed on a stock exchange
may require disclosures from members of beneficial interest in
its voting shares, whether as beneficial owner or trustee. If as
trustee, who the beneficiaries are – CA 690(1)
 Where it is disclosed that shares are held on trust for
someone else, the company may also require this other
person to inform it whether he holds his interest as beneficial
owner or as trustee, and if the latter, for whom –CA 690(2)
 A company is also entitled to require any member to inform it
of any voting agreement that he may have in relation to
shares held by him – CA 690(3)
 These is to enable a company to discover exactly who
controls the votes attached to the shares held by its members.
20
 The disclosure of trust relationship is not confined to
substantial shareholders
 The information received on this is noted in a separate
portion of the register of substantial shareholders – CA
690(4)
 Failure to comply with a notice requiring disclosure of
information or deliberately makes a statement that is false in
materials particulars, is an offence under S.690(6) that
carries imprisonment term.
 The register of substantial shareholders will be kept at the
registered office of the company – CA 69L(2)
 The register may be inspected by an member free of charge,
ang by any other person on payment of a small fee
21
Register of debenture holders (CA 70(1))
 A company which has issued debentures (other
than bearer debentures) must keep a register of
debentures holders at its registered office or some
other place in Malaysia – CA 70(1)
 The register will contain the names and addresses
of the debenture holders and the amount of
debenture held by them
 The register is open to inspection by any registered
holder of debenture and by any shareholder, such
person may also obtain a copy of register on
request on payment of a small fee – CA 70(3)
& 70(5)
22
Register of interest holders
(CA 92) – for public company
 Companies may generates funds in other ways
besides by issuing shares or borrowing. A company
may set up some sort of investment scheme and
invite participation by other person in the scheme
such as a joint venture with others, set up a unit
trust or franchise its operations. Such activities may
lead to “interest” of “participatory interest” – CA
84(1)
 The person who participate in these activities with
the company are holders of interest
 A public company that creates any interest other
than shares or debentures must maintain a register
of interest holders – CA 92
23
Register of interest holders
(CA 92) – for public company
 This register will contain the names and
addresses of the interest holders, together
with details of their holdings and date they
became and ceased to be the interest
holders – CA 92(1)
 The register of interest holders is maintained
in the same way as the register of members –
CA 92(2)
24
Register of options (CA 68A) –
for public company
 An option is a contract whereby a company agrees
to issue a certain number of shares to a person at a
future date, if he chooses to take up the shares
 If the person does so, he is said to exercise an
option and can require the company to allot shares
with some considerations (exercise price)
 While an option holder is not a member of the
company until he exercises the option, he may be
the holder of rights with some value, especially if the
shares of the company have a value in excess of
their nominal value or exercise price
25
for public company
 For example, the company may issue
convertible debenture or convertible notes
where the company borrow money and give
the creditors an option to convert the loan
into shares at a future date
 A company may also issue warrant or
transferable subscription right (TSR) that give
the holders the right to convert the warrants
or TSRs into company shares on a future
date at a pre-determined price.
26
for public company
 The company that gives the options over its
unissued shares must maintain a register of
options with the following details (CA 68A(1))
- the identity of the holder
- the date on which the option granted
- the number and description of the shares to
which the option has been granted
- details as to when the option can be exercised
 The company is require to enter the necessary
particulars into the register within 14 days after
grant of option
27
Register of directors, managers
and secretaries (CA 141(1))
 Every companies must keep a register of directors,
managers and secretaries – CA 141(1)
 This register will contains the full names, addresses, other
occupation (if any) and identification (NRIC No, Passport
No. or such other similar evidence – CA 149(9) as well as
date of appointment and date of removal/ registration of the
company’s directors, managers and secretaries
 In addition, the register must contained a directors written
consent to appointment (CA 123(1)) and particulars of any
other directorships pf public companies or subsidiaries of
public companies which he hold
 The particulars updated to the register must be the same
as per the Form 49
28
Register of directors, managers
and secretaries (CA 141(1))
 If there is any change (whether by addition or
removal) in the company’s directors, managers and
secretaries or in the residential address of such
persons, the company must lodged the prescribed
return or notice with the registrar within one month –
CA 141(6)
 The register may be inspected by members of the
company free of charge and by other persons on a
payment of a fee – CA 141(5)
 A director is obliged to give notice in writing to his
company of such events or matters as are
necessary for the company to maintain the register
in relation to him – CA 135(1)©
29
Register of directors
shareholdings (CA 134(1))
 Every company must be keep a register of directors’
shareholdings – CA 134(1)
 This register will contain particulars of :
1. Shares, debentures or participatory interest of the company
or its related corporation which are held by the directors
2. The nature and extent of the above
3. Rights or options of the directors in respect of the
acquisition or disposal of shares in the company or its
related corporations
4. Contracts to which any of the directors may be party or
under which any of them is entitled to benefit, being contract
under which a person has a right to call for or make delivery
of shares in the company or its related corporation
30
Register of directors
shareholdings (CA 134(1))
 A director must disclose the information necessary for
the company to maintain the register by giving notice in
writing to the company – CA 135(1)(a) & (b)
 The register of directors’ shareholdings is kept at the
company’s registered office and is open to inspection by
members free of charge and by other persons on
payment of a fee – CA 134(8)
 Any person is entitled to be supplied with a copy of the
register on request upon payment of a fee – CA 134(9)
 The register must be produced at the commencement of
each AGM of a company and kept open and accessible
during the meeting to all person attending – CA 134(11)
31
Register of charges (CA 115(2))
 Any companies that creates fixed or floating charge
over its property must keep a register of charges at
its office – CA 115(2)
 The register should contain:
- short description of the property charged
- amount of the charge
- name of the person entitled to the charge
 The register of charges may be inspected by any
creditors and members of the company for free and
by other person on payment of a fee – CA115(3)
32
Register of Transfer/ Register of Allotment
 No statutory provision but generally kept for records and

practical purpose
 Both the registers record transaction in chronological order
 Generally, the details are:
- serial number of the transfer(T1, T2…) or allotment (A1,
A2…)
- date of the transfer or allotment
- number of shares transferred or allotted
- consideration : in cash or in kind
- surrendered share certificate number (for transfer only)
- Transferor and transferee ( for transfer) or allotee (for
allotment)
- New share certificate number
33
Register of Transfer/ Register of Allotment
 The register of transfer give an overview of all

transfer occurred since incorporation up to
current date
 The register of allotment give full account of
all shares issued since incorporation to
current date – this generally will indicate the
number of shares issued and paid up capital
of the company
34
All minutes of company general meeting and
meetings of directors and managers (CA 156)
 Every company must keep minutes of all genera meetings

and meetings of its directors and of its managers within 14
days of the date which the relevant meeting were held – CA
156(1)
 The minutes are evidence of the proceedings to which they
relate – CA 156(2)
 Where the minutes had been signed and entered, they are
prima facie evidence that the meeting has been duly held
and convened, that all appointments are valid that the
proceedings were duly conducted – CA 156(3)
 The minutes books of general meeting may be inspected by
any member of the company without charge – CA 157(1)
35
Registered Office
 A company must have a registered office within
Malaysia from the day that it begins carry on
business or as from the 14th day after incorporation,
whichever is earlier – CA 119(1)
 Notice of the registered office (Form 44) need to be
lodged with the Registrar within one month after the
date of incorporation or any changes – CA 120
 Document may be served on a company by leaving
them or sending them by registered post to the
registered of the company, whether or not the
company is still carrying on business from that office
36
Accounting and other records (CA 167(1))
 Part of opportunity cost of incorporation is the loss of
informality and privacy
 A sole proprietor or partnership may conduct its business
on the simplest term and keep matters informal – need
not disclose their doings to public and could keep its
accounts on a simple sheet of used paper, if he so
desired
 Companies are required to maintain detailed accounts
and to have proper balance sheet and profit and loss
accounts prepared and audited every year
 These account are generally available for inspection by
public (as they are attached to the Annual Return)
37
 Every company must keep such accounting and other
records as are necessary to explain the transaction and
financial position of the company and to allow the profit and
loss account and a balance sheet to be prepared – CA
167(1)
 This obligation is cast expressly upon the directors and
managers of the company
 Accounting records include invoices, receipts, orders for
payment of money, bills of exchange, cheques, promissory
notes, vouchers and other documents of prime entry – CA
4(1)
 Appropriate entries shall be made in the accounting and
other records within 60 days of the completion of the
transactions which they relate – CA 167(1A)
38
 The accounting records must be kept for 7 years after the
completion of the transactions or operations to which they
relate – CA 167(2)
 The records must be kept at the company’s registered office
or any other place as the directors think fit – CA 167(3)
 If the records of operations outside Malaysia are kept
outside Malaysia, statement and return must be sent and
kept at a place in Malaysia, to enable a profit and loss
account and balance sheet to be prepared – CA 167(4)
 The accounting records are open to inspection by any
director (CA 167(3)), or if court order obtained, by an auditor
acting for a director – CA 167(6)
39
 At every general meeting of the company of a company,
the directors must lay before the meeting a profit and
loss account made up to a date not more than six
months before the date of the meeting – CA 169(1)
 A balance sheet made up to the same date as the profit
and loss account must also be laid before the meeting at
the same time – CA 169(3)
 Both the profit and loss account and the balance sheet
must be audited – CA 169(4)
 The form of the account is prescribed in the Ninth
Schedule of the Act. The schedule generally reflect
standard accounting practice.
40
 The balance sheet and P&L account must give a true and fair
view of the state of the company’s financial affairs and its profit
and loss for the accounting period it relates – CA 169(14)
 The accounts must be accompanied by:
- a directors’ report (CA 169(5)) which contains the following
details (CA 169(6)):
- names of directors
- a review of operations
- net amount of profit and loss
- details of any significant changes in the co’s state of affairs
- details of co’s principal activities, any changes of them
- amount of dividend to be paid as recommended by directors
- details of shares and
- steps taken by directors to write off any bad debts
41
- A statement of directors (CA 169(15))
- states that in the directors’ opinion the B/S and P&L are drawn
up to give a true and fair view of the state of affairs and results of
the business
- Statutory declaration (CA 169(16))
- contains declaration of the directors’ opinion as to the
correctness or otherwise of the B/S and P&L
- An auditor report
For public listed company, additional statement:
- Statement on corporate governance
- Audit committee report
- Statement on internal control
42
 A directors’ report is made in accordance with a resolution
of the directors and signed by at least 2 of them, reporting
on the profit and loss of the company and the state of its
affairs as at the end of the financial year – CA 169(5)
 A statement of directors is signed by 2 directors on behalf
of the directors stating whether P&L account and balance
sheet present a true and fair view of the business and
financial state of the company – CA 169(15)
 The statutory declaration may be made by one of the
director or where the directors are not primarily responsible
for the financial management of the company, by the
person so responsible and state the opinion as to the
correctness or otherwise of the accounts – CA 169(16)
43
 An auditors’ report will report on the auditors’
independent professional opinion whether the
company’s financial statements have been properly
drawn up in accordance with CA and GAAPs and
give a true and fair view of the company financial
position to which they relate.
 For public listed companies, additional statement is
required as per Malaysian Code on Corporate
Governance
 A statement on corporate governance will give an
overview of how the company applied the 13 broad
principles and the extent of compliance to the 33
best practices set out in the Code
44
 The audit committee report will report on the

composition, term of reference and the
activities of the committee in the financial
period as well as any irregularities
 The statement on internal control will report
on the state of internal controls in the
company and the activities and actions taken
to ensure a proper internal control system is
in place
45
 “Financial year” is defined as the period in respect of
which any P&L account laid before the AGM is
made up, whether that period is a year or not – CA
4(1)
 In order to facilitate the preparation of consolidated
accounts, the FY of a holding company must
coincide with FY of each of its subsidiaries
 The directors of a holding company that is not a
foreign company are required to ensure that the FY
of each subsidiary coincides with the FY of the
holding company within 2 years after any
corporation become a subsidiary of the holding
company – CA 168(1)(a) & (b)
46
 The directors must ensure that the financial years
do not cease to coincide – CA 168(2)
 If there 9s good reason for the FYs of a holding
company and its subsidiaries not to coincide, the
directors may apply in writing to the Registrar for an
order authorising the subsidiary to have a different
FY to the holding company – CA 168(3)
 KLSE Listing Requirement (Para 9.22, Part K,
Chapter 9), issued Jan 2001, formalised
requirement that listed cos. release quarterly
financial reports not after than two months after the
end of each quarter of a financial year.
47
 The term “true and fair” is not defined in the Act, but means
that the accounts must not be misleading
 The directors are required to take all reasonable steps to
ensure that the Act’s provisions regarding accounts are
complied with – CA 171(1)
 A copy of the accounts accompanied by auditors report
must be sent to all person entitled to receive notice of
general meetings at least 14 days before the meeting at
which the accounts are to be laid before the members – CA
170(1)
 Any member of a company or debenture holder may
request a copy of the accounts, which must be furnished
without charge by the company – CA 170(2)
48
Relief as to Form and Contents of
Accounts and Reports
 The directors of a co may apply to the Registrar in
writing for an order relieving them from compliance
with the Act regarding the form and content of
accounts, consolidated accounts, or directors’ report
– CA 169A(1)
 The registrar will not make such as order unless he
is of the opinion that compliance with Act would
render the accounts or reports misleading or in
appropriate or it would impose unreasonable burden
on the company or its officers – CA 169A(3)
49
Auditors – Appointment, Qualification
and Remuneration
 Every company must have auditors as ‘watchdogs’;
if they smell anything wrong, they must bark
 For this reason, the provisions of the Act dealing
with appointment and removal of auditors are
designed to ensure that the auditors retain a
measure of independence
 The Act is especially careful to provide that a
change of auditors will be accompanied with some
publicity, thereby precluding the possibility of quietly
removing the auditors to cover up misdeeds
50
Auditors – Appointment, Qualification
and Remuneration
 The 1st auditors are appointed by the directors or the
company at a general meeting at any time before the
first AGM and hold office until the conclusion of the first
AGM – CA 172(1)
 Thereafter, the auditors are appointed at each AGM –
CA 172(2)
 The term of office of the auditors is from the time of
appointment until the conclusion of the following AGM
 Casual vacancy (e.g. on death of an auditor) may be
filled by the directors’ but it is not compulsory, as the
remaining may continue to act as such until their term of
office expires – CA 172(3)
51
Auditors – Appointment, Qualification and
Remuneration
 If the company or the directors do not appoint the
auditors, the Registrar may do so on the written
application of any member – CA 172(10)
 The act seems to contemplate that individuals will
be appointed as auditors. However, in practice it is
common to appoint a firm of accountants as
auditors. Such an appointment operates as an
appointment of all partners of the firm at the time as
auditors of the company – CA 9(7)
 In order to be an auditor, a person must be an
approved company auditors who has the necessary
qualification and approved by Minister of Finance –
CA 8(1)
52
Remuneration
 A person may not knowingly consent to be appointed as
auditor or function as such if he is (CA 9(1)):
a. Not an approved company auditor
b. Indebted to the company or its related corporations in an
amount exceeding RM2,500
c. An officer of the company or is a partner, employer or
employee of an officer of the company
d. A partner or employee of an employee of an officer of the
company
e. A shareholder or his or her spouse is a shareholder of a
corporation whose employee is an officer of the company or
f. Responsible for, or if he is a partner, employer or employee
of a person responsible for the keeping of the register of
members or the register of holders of debentures of the
company
53
Remuneration
 It is necessary before an appointment is made to
obtain the written consent of the person or firm
which is to be appointed as auditor – CA 9(7)
 An auditor may be nominated for re-appointment at
the AGM, there are no special notice requirement. If
a new auditor is nominated, notice of his nomination
must be given by a member to the company at least
21 days before the AGM – CA 172(11)
 Upon receipt of notice of nomination of an auditor,
the company must sent the notice to each auditor
and to all persons entitled to receive notice of
general meeting at least 7 days before the meeting
– CA 172(12)
54
Remuneration
 The requirement of notice where a new auditor is
nominated ensures that there will be due publicity if
a change of auditor is proposed
 The fees and expenses of an auditor are fixed by
the company at a general meeting or by the
directors or by the Registrar, depending on which
party made the appointment
 The general meeting may delegate its duty to the
directors. On the other hand, if the directors or
Registrar fail to fix the remuneration, the general
meeting may do so – CA172(16)
55
Auditors – Resignation and Removal
 Once appointed, an auditor continues in office until the
conclusion of the AGM following his appointment
 An auditor’s term of office may come to an end prematurely by
death, resignation or removal
 An auditor of the company may resign (CA 172(14):
a. If he is not the sole auditor of the company; or
b. At a general meeting of a company but not otherwise
Literally interpreted, the section provides:
a. An auditor of the co may resign if he is not the sole auditor of
the company but not otherwise
b. An auditor of the company mat resign at a general meeting, but
not otherwise
56
 An auditor may resign by giving notice in writing to the
directors, who must then call a general meeting as soon
as practicable – CA 172(15)
 On the appointment of the new auditor by the general
meeting, the resignation of the old auditor takes effect –
CA 172(15)
 An auditor may be removed by an ordinary resolution of
a general meeting
 Special notice – 28 days (CA153) must be given of such
a resolution – CA 172(4)
 Upon receipt of the notice proposing the removal of the
auditor, the co must send a copy of the notice to the
auditor concerned and to the Registrar – CA 172(5) 57
 The auditor who is to be removed has the right to have his
say. The auditor may within 7 days of receipt of notice in
writing make representations in writing with the request that
copies of the representations be sent by the co to all
members entitled to attend the meeting – CA 172(5)(b)
 The auditor may require that the representations be read at
the meeting – CA 172(6). He may also speak at the
meeting
 However, if the content are deemed defamatory or
irrelevant or detrimental to the interest of the company in
nature, the company may apply to the Registrar for an
order to waive the representations be read out at the
general meeting – CA 172(6)
58
 This enable the auditors to defend himself against
any imputation that may be made against him
 It also ensures that the company cannot remove
an auditor to avoid a scandal or to cover up
misdeeds
 In the event where the auditor is removed from a
general meeting where special notice has been
duly served, Form 11 must be lodged within 30
days of passing the ordinary resolution
59
 If the resolution to moved the auditor is passed, the
meeting may appoint someone else immediately –
CA 172(7)
 The nomination may be made in the meeting itself
 The resolution to appoint the new auditor must be
passed by three – fourths majority – CA 172(7)(a)
 The form 11 for the special resolution must be
lodged with Registrar within 14 days
 If it is not desired to appoint a replacement auditor
or if three quarters majority cannot be obtained, the
meeting may be adjourned to a date not earlier than
20 days and not later than 30 days after the meeting
at which the auditor was removed – CA 172(7)(b)
60
 At the resumed meeting, a new auditor may be
appointed by ordinary resolution
 The Form 11 with the ordinary resolution must be lodged
within 30 days from passing at the adjourned meeting
 The person must have been nominated by notice to the
company at least 10 days before the resumed meeting
 If the company does not appoint another auditor, the
Registrar may do so – CA 172(8)
 An auditor appointed to replace one removed
prematurely will hold office until the conclusion of the
annual general meeting following his appointment – CA
172(9)
61
Auditors – Duties and Power
 An auditor’s function is to certify the correctness of
the company’s accounts, to detect errors and to
detect fraud, the detection of fraud is generally
regarded as being of primary importance (Frankston
& Hastings Corporation v Cohen)
 His function is discharged by making a report to the
members of the company in accordance with CA
174 and in the appropriate case, by reporting to the
management of the company or the Registrar any
irregularities that he has discovered
62
Summarily, the auditors performs two core functions:
 Reports to members of the co on various matters
relating to the preparation of the co’s financial
statements - to give members independence
assurance that information received from
management are reliable
 To report on any breaches of the Companies Act,
discovered as part of the audit, that have not been
appropriately dealt with
 Audit cannot guarantee financial report is free from
material misstatement but provide “reasonable
assurance” on accountability matters
63
 Auditor is required to report to the members on the
accounts laid before the general meeting and on the
company’s accounting and other records – CA
174(1)
 In the report, the auditor must state whether in his
view the accounts are properly drawn up so as to
give a true and fair view of the co’s affairs or profit or
loss and whether the accounting and other records
of the co and its subsidiaries have been properly
kept in accordance with the Act – CA 174(2)(b)
 If the auditor is not satisfied that the accounts,
records and registers are in order, he must state this
in his report, together with his reason – CA 174(2)(e)
64
 The auditor must also form an opinion as to whether
he ahs obtained all the information and explanations
that he required
 The auditors’ report must be furnished to the
directors in time for them to lay it before the annual
general meeting, but no offence is committed by the
auditors if the directors have not submitted the
accounts in sufficient time for the auditor to make
this report
 In the case of the company that have subsidiaries,
the auditor must also report to the members on the
consolidated accounts of the group – CA 174(1)
65
 Must state his opinion on whether the consolidated
accounts give a true and fair view – CA 174(2)(a)(i)
 Where the company has issued debentures to the public,
the auditor is obliged to send a copy of his report to the
trustee for the debentures holders – CA 175(1)
 To enable the auditor to perform his statutory duties, he
has right of access at all times to the co’s records and
registers, and he is entitled to get any information or
explanations that he requires from the officers of the co
and from the auditors of a related corporation – CA
174(4)
 In the case of auditor of holding co, from the officers and
auditors of any subsidiary – CA 174 (5)
66
 The auditor or his authorised agent is entitled to
attend all general meeting of the company and to
receive all notices of such meeting – CA 174(7)
 He may also speak at general meeting on matters
which concern him in his capacity as auditor
 Where an auditor discovers any irregularities or
suspect fraud or dishonesty, he has an obligation to
bring these matters to the attention of the co’s
management or directly to the members
 An auditor is protected against suits for defamation if
the statement he has made in discharge his duty is
false and defamatory, he is not liable is he acted
without malice – CA 174A(1)
67
Auditors – Duty of care and skill
 Like all other professionals, an auditor is obliged to
exhibit a reasonable degree of care and skill in the
performance of his duties (Nelson Guarantee
Corporation v Hodgson)
 An auditor is not in breach of his duty merely
because he turns out to have been mistaken about
some matters; a breach will only occur if it can be
shown that a reasonable auditor would not have
made such a mistake
 He has a duty to be honest, in that he must not
certify what he does not believe to be true
68
Auditors – To whom the duty is owed
 An auditor’s duty will be owed primarily to the company he
is auditing, as that is the person with whom he has
contractual relations
 The Act provides that auditor must report to the members of
the company (CA 174(1)). This suggest that the auditor
owes a duty to the members as well as to the co. It is
therefore possible that the members might sue the auditor if
he breaches his duty to them but he should show that he
had suffered damage in some way from the negligence of
the auditor
 The auditor may also be liable to person other than the co
and its members where he ought to know that another
person is rely on his judgment (Hedley Byrne & Co v Heller)
69
Auditors – Indemnity and Exoneration
from liability
 A company cannot indemnify an auditor against liability for
negligence, default, breach of duty or breach of trust
 Any such provision, whether contained in the co’s articles or in a
contract with the auditor, is void – CA 140(1)
 If the auditor is sued and obtains judgment in his favour, the co
may indemnify him against cost of defending the proceedings –
CA 140(3)
 An auditor who is sued for negligence, default, breach of duty or
breach of trust may apply to court to be excused from liability
under S.354
 The court may relieve the auditor from liability if it is satisfied that
he acted honestly and reasonably and that, having regard to all
circumstances of the cases, he ought fairly be excused – CA
354(1)
70
Adoption of Accounts
 CA 169(1) provides that the directors has to
lay before the co at its AGM the audited
accounts which means there must be a
formal tabling of the audited accounts in AGM
 The Articles normally provide that “ to
consider the account” in the AGM – Table A,
art 46
 It is common practice to submit a resolution
at a general meeting that the audited
accounts be received, approved and adopted
71
Annual Returns
 Every company must lodge an annual return, signed by a
director, manager or secretary, with the registrar within one
month of its AGM –CA 165(4) & (5)
 The matter to be stated in the annual return are prescribed
in the Eight Schedule (Co. with a share capital), including :
- company’s name
- address of registered office
- summary of shares issued for cash or otherwise
- details of indebtedness secured by charge
- details of members
- particulars of directors and secretary and
- name and address of auditors
72
Annual Returns
 The annual return must be made up to the date of
AGM of the co or a date not later than the 14th day
after the date of the general meeting
 A co with a share capital must attach a copy of its
last audited balance sheet and profit and loss
accounts, unless it is exempt private co
 Exempt private co means a private co in the shares
of which no beneficial interest is held directly or
indirectly by any corporation and which has no more
than 20 members none of them is a corporation –
CA 4
73
Annual Returns
 Particulars of the directors, managers, secretaries
and auditors of the company at the date of the
return and a list of members must also be included
 CA 166 exempt public co with more than 500
members from having to attach a list of members,
provided that reasonable facilities are provided for a
person to inspect and take copies of its list of
members and particulars of shares transferred
 Once the annual return is lodged, it becomes a
public document, which may be inspected by
anyone who pays the prescribed fee
74

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 A director undertaking to take and pay for qualification

 Accepting a transfer of shares from present member

 Receiving shares by transmission on death or

Forms Lodged with Particulars

Form 29B Co. & KLSE Change in interest of

Form 29C Co. & KLSE Notice of person ceasing

 No statutory provision but generally kept for records and

 The register of transfer give an overview of all

 Every company must keep minutes of all genera meetings

 The audit committee report will report on the

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