Auditor of removal

3 Key Takeaways

• Auditor removal is the termination of an auditor’s appointment before their term ends.
• Shareholders have the right to remove an auditor through a resolution at a general meeting.
• The Companies Act 2006 outlines the procedures and requirements for auditor removal.

What is Auditor Removal?

Auditor removal is the process by which a company’s shareholders or directors terminate the appointment of an existing auditor before their term of office expires. This can occur through a voluntary resignation by the auditor or a forced removal initiated by the company. In the UK, the Companies Act 2006 governs the procedures and requirements for auditor removal, ensuring a fair and transparent process.

Importance of Auditor Removal

• Accountability: Auditor removal provides a mechanism for holding auditors accountable for their performance and ensuring that they maintain high professional standards.
• Independence: It allows companies to replace an auditor if there are concerns about their independence or objectivity, maintaining the integrity of the audit process.
• Resolving Conflicts: Auditor removal can be used to resolve conflicts or disagreements between the company and the auditor, ensuring a smooth and effective audit process.

How Auditor Removal Works

1. Notice of Intention: The company must give the auditor special notice of their intention to propose a resolution for their removal. This notice must be given at least 28 days before the general meeting.
2. Auditor’s Right to Representation: The auditor has the right to make representations to the company’s shareholders in writing or at the general meeting.
3. Shareholder Resolution: The shareholders vote on the resolution to remove the auditor. An ordinary resolution, requiring a simple majority vote, is needed for removal.
4. Statement of Circumstances: If the auditor is removed, they have the right to request a statement of the circumstances surrounding their removal, which must be circulated to the shareholders.

Real-World Applications

Auditor removal is a relatively rare occurrence, but it can happen in situations where there is a breakdown in the relationship between the company and the auditor. This can occur due to disagreements over accounting treatments, concerns about the auditor’s independence, or conflicts of interest.

In some cases, auditor removal may be initiated by regulatory bodies if they find evidence of misconduct or negligence by the auditor.