Removal of Company Auditors
Are you dissatisfied with your company’s auditor? Maybe you find that their prices are too high, or the service standards are sub-par. This guide will walk you through the 5 steps you’ll need to take to remove your company auditor in Singapore.
Summary steps on removal of company auditor:
- Call for a shareholder’s general meeting, with special notice
- Send a written notice to ACRA and the auditor you wish to terminate
- Pass a special resolution to remove the auditor
- Appoint a new auditor
- Update ACRA
Role of a company auditor
An auditor will:
- Make sure that a company’s financial reports are accurate
- Make sure that the accounts comply with financial reporting standards
Accounting reports are one of the most fundamental ways that shareholders, and other interested parties, evaluate the strength (or weakness) of a business. These reports will be the basis of evaluating whether the company can continue to operate as a going concern. It is thus crucially important to ensure that these reports are reliable, so that the best business decisions can be made.
Who is exempt from having a company auditor?
If your company has been dormant since its formation, or since the end of the previous financial year, then you don’t need to appoint an auditor.
If your firm has been actively conducting business, then only private companies can be exempted from having an auditor. Publicly-traded firms must have an auditor.
If your private firm fits the following profile, then you are exempt from appointing a company auditor:
- Companies with less than $10 million in annual revenue
- Total value of assets less than $10 million
- Fewer than 50 employees
You only need to fulfill 2 out of 3 of the above criteria.
Step 1: Call for a shareholder’s general meeting, with special notice
The first step to remove a company auditor is to call for a shareholder’s general meeting. The law recognises that the removal of an auditor is a serious decision. You must therefore give special notice to all shareholders for this meeting.
A special notice means you’ll have to:
- Provide written notice 28 days in advance, OR
- Provide written notice 14 days in advance, IF practical reasons mean that a 28-day advanced notice is not possible
Special notices are meant to provide shareholders with adequate time to consider the issues to be discussed, and to prepare robust arguments and defenses. This optimises the quality of decision-making for the company. Removing an auditor should not be a discussion that is suddenly sprung on shareholders.
Step 2: Send a written notice to ACRA and the auditor you wish to terminate
Upon sending out the special notice to shareholders, you must then immediately inform two parties:
- The auditor you want to remove
What to send: Send them a copy of the special notice, informing them that you wish to remove the auditor.
Incumbent auditor’s privilege: The auditor you wish to remove has the legal right to respond to your notice to terminate their services. They may submit a representation (i.e. a written defense), and request that prior to the general meeting, this representation is sent out to all shareholders who will be in attendance. These rights are provided for under Section 205(5)(b) of the Companies Act.
The auditor may also request that their representations be read during the meeting, so that it is not simply glossed over by other matters. If this request is made, you must comply.
Deadline: The auditor must do this within 7 days of receiving your special notice.
This allows the auditor to present their case to shareholders directly, without intervention from management or the Board. This allows shareholders to view both sides of the argument to remove the auditor. This is helpful if, for example, the Board’s decision to remove the auditor is being motivated by schemes that may not be in the best interests of shareholders. For example, the Board may wish to select another auditor prepared to massage its financials more enthusiastically than the current one.
In the event where an auditor is being forced out to achieve such aims, shareholders can at least hear from the auditor directly, and make their own judgements. If need be, shareholders can then question the directors on their motives.
Penalties: It’s important to comply with the requirements to send these written notices, and to allow the auditor to present their case.
If company directors breach these rules, the punishments are a fine of up to $5,000. This fine applies to both the company itself, and every single director found guilty.
Step 3: Pass a special resolution to remove the auditor
There are two kinds of resolutions that companies can pass at shareholder meetings:
- Ordinary resolution: At least 50% of all votes
- Special resolution: At least 75% of all votes
Under Section 205 (4) of the Companies Act, you must pass a special resolution to remove an auditor. If you receive at least 75% of shareholders’ votes in favour of your resolution, then you can proceed to remove the auditor.
A special resolution, rather than an ordinary one, is required because of the central role that auditors play in safeguarding the accuracy of a company’s accounts. Having a high bar of 75% of votes ensures that companies cannot simply swap auditors around easily, e.g. to find an auditor that will play fast and loose with accounting standards to achieve nefarious aims. This helps to protect the interests of shareholders, and to ensure the general stability and investability of financial markets.
Step 4: Appoint a new auditor
You have 2 methods you can use to appoint a new auditor.
Option 1 – Appoint a new auditor at the same shareholder meeting
At the same time that you remove the auditor, you may also hold a vote to appoint a new auditor. The appointment of the new auditor must also be passed by a special resolution (at least 75% of all votes cast in favour of the resolution).
Option 2 – Appoint a new auditor later
If you don’t wish to appoint a new auditor immediately, you can do so later, within a specified time limit.
Here are the steps to do so:
- Schedule a new shareholder’s general meeting. This meeting must take place within 20 to 30 days of the previous meeting where you removed the auditor.
- Take note that 20 days is the legal minimum. You can’t hold the meeting earlier than this. 30 days is the legal maximum. See Section 205 (7)(b) of the Companies Act.
- Send a written notice to all shareholders at least 10 days BEFORE the general meeting.
- This notice must inform shareholders that a new auditor is going to be appointed. Provide background details of the proposed auditor.
- Hold the meeting, and pass an ordinary
The key difference here is that if you hold the shareholder’s meeting later, you only have to pass an ordinary resolution (vs a special resolution) to get the new auditor appointed.
This may be a good option to consider if the Board feels that the choice of auditor may cause contention amongst some shareholders. Some shareholders may even purposely vote against Board decisions as a form of leverage to get their interests carried out. 75% is not an easy bar to clear if you have many shareholders.
Step 5: Update ACRA
You must update ACRA within 14 days of your appointing a new auditor.
Here are the steps to update your ACRA records:
- Go to BizFile+
- Log in using your CorpPass
- Click “File eServices”
- Click “Local Company”
- Click “Make Changes”
- Click “Change in Company Information Including Appointment/Cessation of Company Officers/Auditors”
Once you’ve completed step 5 – give yourself a pat on the back! Your company auditor has been successfully removed and replaced.