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Auditors’ rights under the New Hong Kong Companies Ordinance

Many people who are acting as directors and/or secretary are not familiar with the Companies Ordinance, particularly about the new enhanced rights of auditors.  In compliance with the law properly, attention is drawn to two important requirements as follow.

First of all, auditors are now able to request wider range of persons for information and explanation in doing their audit work: (s412)

For those who fail to provide the required information,  they commit an offence and are liable to a fine of Level 4 (i.e. <HK$25,000) and in case of a continuing offence, a daily fine of <HK$700.

Complaints may be lodged through the Companies Registry in respect of any non-compliance.  Therefore if any people who are in contravening s.412 may risk being prosecuted.

Another enhancement is about the term of office of auditors and notification requirements.  Usually the director(s) is/are allowed to appoint the first auditors at the Board meeting or by a Board Resolution.  Generally speaking, the term of office is one financial year and expires at the forthcoming Annual General Meeting (“AGM”) during which auditors may be retired, replaced or re-appointed.   Once the auditors are re-appointed at the first AGM (i.e. the generally agreed by members of the company), the New Companies Ordinance explicitly deems such re-appointment of auditors year after year in s.403. During the next term of office, the auditors’ termination of office, however caused, may trigger burdensome administration and filing requirements.   There also trigger auditors’ saying about the company which could adversely affect the image.

For example, If the auditors are not re-appointed at the next AGM, they should be notified so (s.401) and the retiring auditors are having the duty of give a statement of circumstances under s.425(1).

Section 410 of the New Companies Ordinance gives an auditors qualified privilege for statements made in the course of performing duties as auditors of the company.  In particular, in the absence of malice, an auditors are not liable for defamation in respect of any cessation statement or statement of circumstances connected with their cessation of office.

In this regard,  the company should take particular care about the change in auditors.

A separate article has described there exists client acceptance and continuance under the auditing standards.   If auditors are not very satisfy the management acts or how they keep the books of records,  they may seek resignation or retirement,  whereby the statement of circumstances would be issued.