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8/12/2019 LAW 485 - Academic Writing on Directors and Company Secretary and Auditors
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1.0 DIRECTOR
1.1 WHO IS DIRECTOR?
A companyis a business entity whereby it is associated or collected of
individual real persons and/or other companies, who each provided some
form of capital. This group has a common purpose or focus and an aim of
gaining profits. This collection, group or association of persons can be made
to exist in lawand then a company is itself considered a "legal person". The
name company arose because, at least originally, it represented or was
owned by more than one real or legal person. Therefore to operate the
company, it needs a person who called a director.
Any person can be a director, but only for those who is qualified as
required under the alaysia !ompanies Act 1#$ %!A&. As stated under the
Act1,it requires at least ' directors and both of them must have principal or
only place residence within alaysian'. (n addition, it includes any person
occupying the position of a director of a corporation by whatever name called
and include a person in accordance with whose directions and instructions the
director of a corporation are accustomed to act and an alternate or substitute
director and a director is an officer of a company but he is not an employee
unless he has separate contract of employment as a salaried executive).
*econdly, the director must be at their natural person+of full age $and
the limit maximum age of - that is other than private company, which is not a
subsidiary of a public company#. owever, there will be exception to
restriction of age if he is already occupied the office as a director, he may be
continue to hold the position after reaching the limit or at least of the
1*ection of the Act
2*ection 1''%1& of the Act.
3*ection + of the Act.40atural person here means as described by corporation lawis a real human being, as
distinguished from a corporation, which is often treated at law as a fictitious person.5*ection 1''%'& of the Act. (n alaysia, full of age is 12 years.
6*ection 1'%1&
1
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members of the company supported his appointment or reappointment that
approved by a resolution of the company. This also mentioned in (n addition
section 1)$ of the Act obliged the director to give disclosure to the company in
writing of the date he will return to - within 1+ days after becoming a director.
Any failure to comply with will cost the director imprisonment for ) years or
fifteen thousand ringgit.
The first ' directors must be appointed and named in 3A 4 A3A 2by
the subscribers, which then lodged to the 5egistrar of !ompanies.
*ubsequent appointments of directors are arranged by the A3A of the
company. The A3A of most public or private company are in accordance with
Table A %Article #)61&
A person whom wishes to be a director must first lodge with the
!ompanies !ommission of alaysia %or **& a document called 7Form
48A8. This form is a statutory declaration by the director, that he is must not
be an undischarged ban9rupt, he must not have been convicted of criminal
offence involving fraud or dishonesty and must not have been imprisoned for
an offence under *1)', *1)'A or under *)-) of !ompanies Act , the person
may not be a director or promoter or is in any way whether directly or
indirectly concerned or ta9es part in the management of a corporation, and
under section 1)-, the person is not convicted whether within or without
alaysia.
owever, in certain events directors may be removed from office by
disqualification arising under the statutory provisions or under the terms of the
articles. :or public companies, general meeting may by ordinary resolution
remove a director before the expiration of his or her period in office
notwithstanding the provision of the articles of any other agreement between
the director and the company1-. ;nder *ection *1') %'&4%)&, the director must
be given a special notice within '2 days by written representation and by
7Section 129(2) of the Act8Section 122(3) and 123(1) of the Act9 Section 125(1) of the Act10Section 28 of the Act
'
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addressing the meeting before a vote is ta9en for him to defense. ect to
limitations on their authority to do so as imposed either by law, the company?s
articles of association or other legal instruments. Therefore, there are three
main duties of director %a& :iduciary duties, %b& =uties of s9ill, care and
diligence and %c& *tatutory duties.
1.3 WHAT ARE DIRECTORS DUTIES INCUDE UNDER FIDUCIAR!
11Table A, Article #12Case: Soliappan V i! "o#e $ n%
)
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DUTIES?
:irstly, director has a =uty to exercise power in good faith and in the
best interest of the company. The directors occupy a fiduciary position and
must therefore exercise their power in good faith and in the interest of the
company as a whole. As stated under *1)' of the Act, 7a director shall at all
times act honestly and use reasonable diligence in the discharge of the duties
of his office8.1)
The fiduciary duties of a director are to act bona fide in the interest of a
company. Acting bona fide in the interest of a company is to act with good
faith for the benefit of the company. A director is under a duty to ensure that
any act he underta9es is with a view to enhancing the interest of the company
either by enhancing profits, reducing costs or even positive publicity of the
company. @here a director is required to act bona fide in the interest of a
company, he must act according to what he considers, not what a court may
consider, is in the interest of the company Re Smith and Fawcett Ltd (1942)
Ch 304. Although the directors may act honestly for the benefit of the
company, the directors may still be held liable if they have exercises their
power for collateral purpose.
*econdly, director has a duty to avoid conflict of interest whereby
directors should not enter into engagement in which there is possibility that
the directors? personal interest could conflict with those of the company, which
they were bound to protect.1+
Thirdly, director has a duty to act for proper purposes whereby a
13Ca"#$ %#rc"' ( )#o*& + RE Sm',& + Fa-c#,, ,7 to act honestly refers to acting bona fide in the interest of the company in the performance ofthe functions attaching to the office of director.814Ca"#$ Coo/ + D##/"7The directors of a company carrying on the business of railway construction contractorobtained a contract in their own name. The director also procured a resolution of the companyratifying their conduct.
3n an action brought by shareholders to the Brivy !ouncil that it was held that it was a breachof trust on the part of the director and that the benefit of the contract belonged to the companyand they were bound to account to the company for it8.
+
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director might be acting honestly in what he considers to be the company?s
interest and yet still are in breach of his fiduciary duties. This would occur if he
misapplies the company?s assets or he uses the powers he is delegated for
the wrong purpose. (n addition if a director misapplies the company?s assets
he is in breach of his duty to the company. (t does not matter whether he is
acting honestly, or in what he considers the interest of the company because
the breach lies in misusing the company?s property.1$
owever, if there is a breach of fiduciary duties %a& the company may
sue for damages or for the return of specific property %b& the company may
claim any secret profit that the director made and %c& the exercisable of the
power which in breach of director?s duties may be declared to be invalid.
1.4 WHAT DIRECTORS DUTIES INCUDED UNDER DUTIES OF
STI CARE AND DIIENCE?
15Ca"#$ RE D2oma,'c ,7A payment was made to an ex6director as compensation for loss of office. This payment wasnot disclosed to the shareholders as required by a section which is equivalent to *1) of our!A. Therefore, it was a payment that the company could not lawfully ma9e.H#$
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The rule is that the director not has to possess any s9ill for the >ob and
the fact that he is uns9illful is not a breach of contract. e must also exercise
the care and s9ill expected of a person of his experience and is diligent in
managing the companyDs affairs. Thus there is no such thing as a passive
director.
A director who is passive by not being involved in the companyDs
management has breached his duty of care, s9ill and diligence. These duties,
except those expressly limited to directors, apply equally to any officers of the
company who are authoriEed to act on its behalf and particularly to those
acting in managerial capacity. This was clearly stated under *ection 1)'%1& of
the Act. Fxample of case arises regarding the exercise this duty is RE City
Equitable Fire n!urance C" Ltd where, a director need not exhibit in the
performance of his duties a greater degree than may be reasonably be
expected from a person of his 9nowledge and experience and a director owes
duty of care to the company of which he is auditor and the standard is that of
reasonable care in that he must ta9e care in the affairs of the company as he
would reasonably ta9e in his own affairs. 3ther example is #uc$erby % Elli"t.1#
1. WHAT ARE THE STATUTOR! DUTIES AND EA IA5IITIES
OF DIRECTOR?
Firstly,directors may rely on information, professional or expert advice,
167The company runs a gaming club without license. This was an offence under the custom
and exercise act 1$'. uc9erby was a director of the company and she was charged withthe offence on that basis that offence committed by the company was attributable to herneglect. The evidence showed that although she was a director, she 9new little of thebusiness and the running of the business was left to her co6director and the manager of thecompany.H# The magistrate convicted uc9erby on the principle that as director, she should haveexercised some control over the co6director and the manager.H'*& Co2r, H# !ourt quashed the conviction and stated that there was no generalprinciple that each director has to exercise some degree of control over the company?sbusiness. (t was proper for the director to leave the matters to another director or to an officialof the company. As long as there was no reason to distrust the delegates, a director was
entitled to believe what they say. owever, once there is a reason for suspicion, a directorwho trusts a delegate does so at his own ris9.8
#
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opinions, etc. presented by individuals retained by the company to provide
such advice. A directors reliance is made on reasonable grounds where it is
made in good faith and was made after an independent assessment by him,
having regard to his knowledge of the company and the complexity of the
corporate structure or operation. In addition, directors are to ensure that
dividends are paid from profits and not capital.
Secondly,directors are to seek shareholders approval at the general
meeting of the company prior to carrying into effect any arrangement or
transaction of substantial value relating to the company. This includes the
acquisition and/or disposition of property whose value, profit or shares value
exceeds 25% of the total assets of the company, net profit or issued share
capital of the company.
Further, directors must also obtain shareholders approval prior to
issuing new shares. Any transaction between the company and a director or a
substantial shareholder, where the transaction is of substantial worth requires
prior approval to be obtained from the shareholders at the companys general
meeting. For the purposes of discharging this duty, substantial worth is
defined as a value exceeding 25% of the total assets of the company, or the
net profits, or the issued share capital of the company, whichever is the
highest.
Thirdly, as stated under section 167(1) and 169, director has a duty to
maintain proper accounts and registers of members or transfers of shares and
to make the same available for inspection when required. @here, the proper
accounts explaining the transactions and financial position of the companyand enable true and fair profit and loss accounts and balance sheets.
=irector also has to ma9e sure that the documents is required to be attached
thereto and to be prepared from time to time. Therefore, those records have
to be 9ept in such manner as to enable them to be conveniently and properly
audited.
Fourth, a director must not place himself in a position where theirpersonal interests and duties to the company are likely to directly or indirectly
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conflict. Given that it is not uncommon for individuals to hold directorships in
more than one company at any time, directors should be cautious when
contracting with another company in which they hold directorships or are
substantial shareholders. Such individuals are generally duty-bound to either
declare their interests in a particular transaction to the other directors or show
that there could be no possibility of conflict.
Fifth, a director or persons related to him such as a spouse or child,
having direct or indirect interests in a contract involving the company must
declare such interests as soon as is reasonable to the board of directors and
in any way interested, whether directly or indirectly, in a contract involving the
company, shall not participate in any discussion pertaining to that contract. He
shall only be counted to make up the quorum of the meeting.17
Sixth, a director dealing with sensitive information regarding
transactions must not use such information for their own profit, even if the
company does not ultimately utilize the information because such information
is deemed to be Company property. Directors wishing to act on such
information should firstly communicate the same to the Company and obtain
the consent of the other directors.
Eight, companies are generally prohibited from giving loans to its
directors, subject to certain exceptions as stated under section 618and section
133 of the Act19.
Nine, a director is deemed guilty of an offence for any untrue
statements or willful non-disclosure in prospectuses as it was describes under
Security Commission Act 1993, section 32B. The section clearly defined
where any statements or information is required to be submitted to the
Commission in relation to or in connection with any proposal submitted
pursuant to section 32; (a) an applicant, any of its officers or associates, (b)
financial adviser or an expert or (c) any other person shall not submit or cause
17Section 131(5) & 131(6)18
=eemed to be related to the company, or enter any guarantee or provide any security inconnection with a loan made to such a director by any other person19
A !ompany shall not ma9e a loan to a director of the company and vice versa.
2
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to be submitted any statement or information that is false or misleading,
submit or cause to be submitted any statement or information from which
there is a material omission or Engage in or aid or abet conduct that he knows
to be misleading or deceptive or is likely to mislead or deceive the
Commission.
Finally but not least, it is an offence for directors to knowingly
authorize, direct or consent to the advertising, circulation or publication of
misleading or false statements or reports and directors obtaining payment
from a company through fraudulent, deceitful or dishonest means, or by
making false promises is guilty of an offence.
6.0 CO%7AN! SECRETAR!
6.1 WHO IS THE SECRETAR! OF THE CO%7AN!?
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@ith more complex developments in company legislation and the
creation of business collaborations that result in larger groups of companies,
the role of a company secretary has evolved from >ust a normal employee to
one who is far more important in any company. A company secretary of today
is a 9ey officer who is endorsed with heavier responsibilities and greater
power, duties which demand for ethical behavior from company secretaries at
all times.
!ompany secretary is a profession much misunderstood by people and
is usually confused with other private secretary. The need to have a company
secretary is a legal requirement. Fvery company incorporated under S#c,'on
13 o9 Compan'#" Ac, 1: ;
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The legal requirement for every company to have at least a company
secretary is due to the fact that a registered company, being an artificial
person and a separate legal entity created by law which is distinct from its
incorporators created by incorporation needs human agent to whom all
dealings and correspondence with the company can be addressed to, thus
the creation for the post of company secretary. The company secretary is
legally enshrined as an important officer to a company. (n practice, large listed
companies and groups of companies do employ full6time employees who are
the secretary of all the companies within the group %i.e. group secretary&.
owever, most companies, especially the small or medium6siEed companies
do not employ an in6house secretary. (nstead, the service of an external
secretary of a professional secretarial firm is engaged.
A director may hold the secretary duties as long as he is qualified
under the !A 1#$ to act as secretary'1.owever, in certain situations, he
cannot act in both capacities. This is because there will be a time when he is
required to attestation the company?s common seal. Anything required to be
done by or in relation to the secretary may, where the secretary for some
reason is not capable of acting or where the office is vacant, be done by or in
relation to any assistant or deputy secretary or if there is no assistant or
deputy secretary capable of acting, by or in relation to any officer of the
company authoriEed generally or specifically in that behalf by the directors.
'.' WHAT ARE THE STATUTOR! DUTIES OF CO%7AN!
SECRETAR!
The !A 1#$ sets out the statutory requirement to have a qualified
21(tDs clearly stated in the !ompanies Acts 1#$ *ection 1)A %a& 4 %b& that persons who is
registered with alaysia (nstitute of Accountant, alaysian (nstitute of *ecretaries andAdministrators, has a licensed secretary with !! or a lawyer %e/she must be registerwith alaysian
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The company secretary must have a good wor9ing 9nowledge of the
requirements placed upon the directors under the !A 1#$ and ensure that
the company complies with such requirements and all changes and to liaise
with shareholders. e has to ensure that legally required documentation is
prepared, convene general and board meetings, file accounts and annual
return within the specific time required under the !A 1#$, carry out
instruction of the board. As chief administration officer, he may have the prime
role for interfacing with management, act as the primary channel of
communication between the company and the *toc9 Fxchange %for listed
company& and ensure the requirements of the Iisting 5equirements of
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The !A 1#$ inflicts regulations for good conduct of the company?s
affairs. The statutory compliances are bac9ed6up by criminal sanctions and in
the event of breach, the company and every officer of the company who is in
default is liable to a fine or imprisonment, or both.
;nder S#c,'on 13;1=;E= o9 , CA 1: ', amplifies that the
secretary shall not be relieved from liability for any act or omission done
before the secretary vacated the office. S#c,'on 13C o9 , CA 1: stated
that, if a person continues to act as a secretary for the company after he is
disqualified, without leave of the !ourt, he and every director who 9nowingly
permits him to act in that capacity, are guilty of an offence.
6.4 EA 7OSITION OF CO%7AN! SECRETAR!
The secretary of a company is a servant of the company, whose duty is
to act in accordance with instructions given to him by the directors. This was
interpreted from the view of Iord Fsher .5. ''e cannot, for instance,
summon a general meeting on his own authority, register a transfer unless
instructed to do so by the directors or borrow money for the purpose of the
company without the authority. :urthermore, he has no implied authority to
22"A secretary is a mere servant8 his position is that he is to do what he is told, and no personcan assume that he has any authority to representanything at all" %
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ministerial and administrative wor9 at the registered office of the company is
carried on. e is solely responsible to the managing director or manager and
the directors for the smooth running of office wor9. (n fact Dthe secretary is the
real principal officer of a company who is the proper person to correspond on
behalf of the company in all routine matters. To substantiate, it may be stated
that under the !ivil Brocedure !ode, no evidence of competency is required
for the secretary to sign pleadings on behalf of the company in connection
with civil suits.
7ro9#""or o-#r &a" "2mm# 2p , po"','on o9 , company "#cr#,ary
am'ra>y a" 9oo-"$
"(t is arguable, therefore, that the secretary has also graduated as an
organ of the company. Though appointed by the directors he is not their
servant but an officer of the company" with substantial authority in the
administrative sphere and with powers and duties derived directly from the
articles and the !ompanies Acts. Andin performing his statutory duties he is
clearly entitled to resist interference from the members, board of directors or
managing director. @here he differs from them is that he has no responsibility
for corporate policy or for ma9ing managerial decisions, as opposed to playing
an administrative role in ensuring that the policy and managerial decisions are
implemented.
1#
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3.0 AUDITORS OF CO%7AN!
3.1 WHO IS AUDITOR?
(t is a requirement under the !ompanies Act of alaysia') that every
private limited company doing business in alaysia must appoint an approved
company auditor for auditing its accounts and reporting to the members of the
company annually. (n other words, annual audit in alaysia is mandatory for
every private limited company doing business in alaysia, regardless of the
siEe of the company. As an integral component of the legal and regulatory
framewor9 affecting companies, audit provides reasonable assurance as to23
Section 172 of the Act
1
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the truth and fairness of a companyDs financial information and increases the
reliability of accounts due to the independent third party verification.
The laws in alaysia also require that an approved company auditor
must perform a company?s annual audit. An approved auditor in alaysia is a
person approved by the inistry of :inance'+. The inistry will grant an audit
license for approved auditors in alaysia, which is renewable every ' years.
The applicant to be an approved company auditor in alaysia is required to
be a member of alaysian (nstitute of Accountants %(A&, obtained with
recogniEed academic or professional qualification and has relevant
professional practical experience. The approved company auditor auditing the
company doing business in alaysia must also be external or independent.
*uch auditors are called external because they are not employed by the entity
being audited. A partnership firm of auditors in alaysia may be appointed as
auditors in the firmDs name. (n practice, most of the appointments of auditors
in alaysia are in the name of the audit firm. Fvery partner of the audit firm in
alaysia must individually be an approved company auditor.
An audit in alaysia involves performing procedures in order to obtain
audit evidence about the amounts and disclosures in the financial statements.
An audit of financial information enhances the credibility and reliability of
financial information and statements. Therefore, an auditor must be
independent as one of the ob>ectives of an audit is to provide ob>ective and
independent report on the reliability of information.
24Section 8 of the Act
12
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3.6 THE NEED A77OINT%ENT AND RESINATION OR RE%O(A OF
AUDITOR
!urrently, every company must have its accounts audited and must
appoint an auditor or auditors.
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a shareholder or his spouse is a shareholder of a corporation whose
employee is an officer of the company and if he is responsible for or is the
partner, if he employer or employee of a person responsible for the 9eeping of
the register of members or the register of holders of debentures of the
company.
:or public interest entities'#, the provisions of the *ecurities
!ommission Act 1) states that an approved company auditor must register
with the Audit 3versight ect to subsections %& and %2&, the directors of a company may appointan approved company auditor to fill any casual vacancy in the office of auditor of thecompany, but while such a vacancy continues the surviving or continuing auditor or auditors,if any, may act. A casual vacancy occurs due to the death or incapacity of any of the auditors.28
*ection 1'%1& and %'& of the Act29
*ection 1'%1-& of the Act30and any auditor or auditors so appointed shall, sub>ect to this section, hold office until theconclusion of the next annual general meeting of the company.31
*ection 1'%1+& of the !ompanies Act 1#$.7 An auditor of a company may resign6%a& if heis not the sole auditor of the company or %b& at a general meeting of the company,but nototherwise.
'-
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directors must proceed to call for a general meeting as soon as practicable for
the purpose of appointing an auditor in place of the resigning auditor.
The resignation is only effective on the appointment of another
auditor)'. At the same time, the auditor needs to give a written explanation to
the 5egistrar of !ompanies stating the reasons for resignation. :or auditors of
public listed entities, he will also need to submit the written explanation to the
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the auditors are required to report on the consolidated accounts. The auditors?
report is a formal document. :urthermore, *. 1+%)& of Gthe !ompanies Act?
provides that auditors must form an opinion on the matters specified therein
and state the particulars of any deficiency, failure or shortcoming in respect of
any of those matters. The reason for such a requirement is to have an
independent assurance that the financial information received from the
company?s management is reliable)). (n fact the credibility of the financial
information is enhanced due to the fact that it is being audited)+. 0evertheless,
it is not provided as to when the auditor?s report )$should be submitted for the
purposes of deliberation during the annual general meeting.
Additionally, *. 1+%'&%a&%ii& and %iii& of Gthe !ompanies Act? provides
that the auditors shall report whether the accounts have been properly drawn
up in accordance with the provisions of Gthe !ompanies Act? and applicable
approved accounting standards respectively. This duty is equally applicable if
it concerns consolidated accounts. !onversely, it is unclear whether it means
that the auditors? are obliged to report to the members on breaches of Gthe
!ompanies Act? by the directors)#.
(n the case of consolidated accounts, the auditors must report which
subsidiary companies they have not acted as auditors). :urther, the auditor
must report whether he has considered the accounts and auditor?s reports of
all subsidiaries of which he has not acted as auditor being accounts that are
included in the consolidated accounts)2.
:urther, the auditor must report whether he is satisfied that theaccounts of the subsidiaries are in form and content appropriate and proper
for the purposes of preparing consolidated accounts). e must also state
33%#anrahan' Ram!ay and Sta&led"n' 2000&.34%"und' illin*ham and Carmicheall' 199+&35*. 1-%1& of Gthe !ompanies Act? only provides that the auditor?s report must be furnished tothe directors of the company in time to enable them to attach it to the annual report.
36%
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whether he has received satisfactory information and explanations for those
purposes. :inally, the auditors have state whether the auditor?s report on the
accounts of any subsidiary was made sub>ect to any qualification+-. (t can be
seen that the auditor of a holding company must also be concerned with the
accounts, registers and reports of the subsidiary companies. This is an
extensive duty imposed on the auditors. This duty is pivotal since there are
many companies, which are within a group of companies.
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%!armichael, 1+&, stability of financial and economic sector and the rights
and interests of those persons and bodies mentioned earlier. A higher audit
quality will provide better information to investors and thus generate a more
efficient investment %an, 12&.
Auditor is sub>ect to all laws that govern behavior generally. ore
specifically, the responsibility of an auditor is influenced by a
combination of relevant professional and legal requirements. (n
determining what is the necessary professional audit standard and
practice, the expertise, 9nowledge and experience of the auditing
profession will be ta9en into account. :urther, auditors are also
accountable with legal responsibility for their examination and reports
that they render to the company. The legal haEards facing auditors are
numerous and generally are very difficult to foresee in relation to any
particular audit. Any breaches of their statutory, contractual duties can
expose them to potential litigation by in>ured parties and even to the ris9
of criminal prosecution under certain circumstances.
'+
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CONCUSION
(n the eye of the laws and regulation in a company, the role of
every 9ey personnel are inter6related even though their duties and
responsibilities may differ. At the top of the hierarchy, the director
empowers everyone and seconded by the secretary who deals with the
company on a daily basis or as whenever is required. The auditor, who
is the external party, unli9e the other two mentioned, 9eeps and ensures
that the companyDs financial boo9s are updated and legal. The unity of
these three personnel forms nerve of the corporation in heading the
companyDs activities in a lawful manner.
'$
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REFERENCES
Almer, 5, and
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