A company’s auditor reports on the work of the directors, yet the directors usually run the company day to day. If the directors could pick, pay and sack the auditor as they liked, the audit would be worth little.
Company law therefore puts the appointment of the auditor in the hands of the shareholders, protects the auditor from dismissal, and gives the auditor rights that let the work be done. The Companies and Allied Matters Act (CAMA) 2020 sets these rules for Nigeria.
This topic covers how auditors are appointed, who may not act, how they are removed or resign, the auditor’s statutory duties and rights, and what management is responsible for. Examiners test the procedures step by step, the time limits (14 days, one week, 14 days’ notice) and the list of people who may not act.
The previous topic covers the Financial Reporting Council of Nigeria (FRC) rules on rotation and non-audit services.
In 30 seconds
Shareholders appoint the auditor at each annual general meeting (section 401). A retiring auditor is reappointed automatically unless he is unqualified, a special resolution replaces him, or he gives written notice that he will not serve. The directors appoint the first auditors and fill casual vacancies.
Section 403 bars officers, their partners and employees, and bodies corporate, and treats debtors owing more than ₦500,000, shareholders and their spouses, debenture register keepers, and recent accounts staff or consultants as unqualified. Directors cannot remove an auditor: shareholders do so by ordinary resolution with special notice (section 409), and the company tells the Commission within 14 days. A resigning auditor sends a statement of circumstances (sections 412 and 413).
The auditor reports under section 404 and has the rights in sections 407 and 410. Management, not the auditor, prepares the financial statements and prevents and detects fraud.
Appointment of auditors (section 401)
The normal rule
At each annual general meeting (AGM), the company must appoint an auditor or auditors to audit the financial statements. The auditor holds office from the end of that AGM until the end of the next one.
Reappointment of a retiring auditor
At the AGM, a retiring auditor, however he was first appointed, is reappointed without any resolution. This default protects the auditor. The default does not apply if:
- he is not qualified to be reappointed;
- a special resolution has been passed at the meeting appointing someone else in his place, or saying expressly that he shall not be reappointed; or
- he has given the company written notice that he is unwilling to be reappointed.
There is one proviso. Suppose notice is given of a resolution to appoint someone in place of the retiring auditor. The resolution cannot go ahead because the proposed person has died, become incapable or been disqualified. In that case the retiring auditor is not automatically reappointed.
When no auditor is appointed at the AGM
If the AGM neither appoints nor reappoints an auditor, the directors may appoint someone to fill the vacancy. Within one week of the directors’ power becoming exercisable, the company must tell the Commission. If it does not, the company and every officer in default commit an offence and are liable to a penalty set by the Commission in its regulations.
First auditors
The directors may appoint the first auditors at any time before the company is entitled to commence business. They hold office until the end of the next AGM. Two further rules apply:
- The company may remove first auditors at a general meeting and appoint another person nominated by any member, provided notice of that nomination was given to the members at least 14 days before the meeting.
- If the directors fail to use their power, the company may appoint the first auditors at a general meeting called for that purpose, and the directors’ power then ends.
Casual vacancies
The directors may fill a casual vacancy in the office of auditor. While the vacancy lasts, any surviving or continuing auditor may act.
Banks and insurers, and the auditor’s fee
For entities such as banks and insurance companies, the appointment of the external auditor needs regulatory approval. The auditor’s pay is set, in principle, by whoever makes the appointment. Where shareholders appoint, they usually delegate the fee to the board of directors, because the directors know the scope of the work better.
The board may in turn delegate the task of recommending or approving the fee to the audit committee.
Who may not act as auditor (section 403)
Being a member of a professional body such as Institute of Chartered Accountants of Nigeria (ICAN) is the first test. Company law then adds exclusions, so that the auditor is independent of the company. Section 403 of CAMA 2020 separates two groups.
| Group | Who |
|---|---|
| Prohibited from acting as auditor of the company | An officer or servant of the company; a partner of, or a person employed by, an officer or servant of the company; a body corporate |
| Not qualified for appointment | A debtor to the company or its subsidiaries for more than ₦500,000; a shareholder or the spouse of a shareholder; a person with an interest in keeping the register of debenture holders; an employee or consultant who has been engaged for more than one year in maintaining or preparing any of the company’s financial statements or records |
Each exclusion removes a conflict. An officer cannot audit his own work. A debtor may go easy on a company he owes money to. A person who prepared the accounts would be checking his own work, and a shareholder or a shareholder’s spouse has a financial stake in the result.
A body corporate cannot be an auditor under the section, so the appointment is of an individual or a firm of individuals.
Removal of auditors (section 409)
The directors can appoint auditors in certain cases, but it would be wrong to let them remove auditors. If they could, a disagreement over an item in the financial statements or over the way the audit was done could be settled by dismissing the auditor. That would silence the auditor. The proper course is for the directors to recommend new auditors to the shareholders, and for the shareholders to decide.
In Nigeria the ordinary shareholders can dismiss the auditor by passing an ordinary resolution with special notice at a general meeting. The company must then, within 14 days, give notice of the removal to the Commission in the prescribed form. If it does not, the company and every officer in default are liable to a penalty set by the Commission in its regulations.
Resignation of auditors (sections 412 and 413)
An auditor may resign during his term. Common reasons are:
- management or those charged with governance have consistently shown a lack of integrity;
- significant fees remain unpaid;
- the firm can no longer keep its independence, for example after a corporate action; and
- the client is no longer profitable for the firm.
Company law protects the shareholders by making sure they learn of any circumstances behind a resignation. The procedure is:
- The auditor resigns in writing to the company at its registered office. The company passes the resignation letter to the appropriate regulatory authority.
- The auditor prepares a statement of the circumstances that led to the resignation, if he thinks they matter to shareholders or creditors. If there are no such circumstances, he states that.
- The company sends the statement to the Commission within 14 days of receiving it, and to everyone entitled to the company’s financial statements (mainly shareholders). The one exception is where the court rules that the auditor is using the statement to defame the company with needless publicity.
- The auditor may require the directors to call a shareholders’ meeting to discuss the circumstances of the resignation.
- If the company defaults, the company and every officer in default are liable to a penalty set by the Commission in its regulations.
The syllabus also notes that a resigning auditor must give his reasons to the shareholders and tell the authorities, so the statement of circumstances is the way he does so.
Duties of the external auditor (section 404)
The primary duty is to examine the financial statements and give a report on them. The report goes to the shareholders with the financial statements. In it, the auditor states his opinion on whether the financial statements:
- give a true and fair view (or present fairly) of the financial position and performance of the company; and
- have been prepared in accordance with the applicable financial reporting framework.
Section 404 and the Fifth Schedule add matters on which the auditor must also form an opinion. The report must state if any of them is not satisfied.
| Matter | What the auditor must say |
|---|---|
| Information and explanations | Whether the auditor has obtained all the information and explanations that, to the best of his knowledge and belief, were needed for the audit |
| Books and returns | Whether, in his opinion, the company has kept proper books of account, so far as appears from his examination, and whether proper returns adequate for the audit have come from branches he did not visit |
| Agreement with the books | Whether the statement of financial position and the profit and loss account (unless framed as a consolidated profit and loss account) agree with the books of account and returns |
| True and fair view and legal form | Whether, to the best of his information and according to the explanations given, the statements give the information the Act requires and give a true and fair view of the state of the company’s affairs at the year end and of its profit or loss for the year, subject to any matters the First Schedule allows to be left undisclosed |
| Group statements | For a holding company that prepares group statements, whether they have been properly prepared under the Act and give a true and fair view of the state of affairs and profit or loss of the company, its subsidiaries and associates |
The result of the audit is an opinion, which means that the auditor has applied professional judgement. The syllabus treats this as a limit of the statutory audit: an opinion is not a statement of fact, so others may disagree with it. The auditor also does not check every transaction, so there is a risk that he misses a significant item and forms the wrong judgement.
Rights of the external auditor (sections 407 and 410)
The law gives the auditor rights so that he can do the job:
- access to all accounting books and records at all times;
- the right to all information and explanations from management that he needs to conduct the audit properly;
- the right to receive notice of all shareholders’ meetings, such as the AGM, and to attend them;
- the right to speak at shareholders’ meetings on matters that concern the audit or the auditor. This matters when the auditor disagrees with the directors and has no other effective way to reach the shareholders; and
- where the company uses written resolutions, the right to receive a copy of each one.
What management is responsible for
Many people think the auditor is responsible for the accounts. In fact, management and those charged with governance are responsible for:
- preventing and detecting fraud;
- preparing the financial statements; and
- designing and operating effective internal controls, for example authorising payments above a set amount, monthly bank reconciliations and a monthly trade payables control account reconciliation.
They must also give the auditor access to information relevant to the financial statements, any additional information the audit needs. Unrestricted access to people the auditor needs to speak to. At the end of the audit they must give written representations to the auditor, which a later topic covers.
The rules in more depth
Why the retiring auditor is reappointed automatically
If reappointment needed a vote each year, directors who disliked an auditor could simply fail to propose him. The automatic rule reverses the burden. The auditor stays unless the shareholders act, by special resolution, with notice, and in public. Changing the auditor then needs the shareholders to take a positive step that they must justify.
Why the directors get a limited power to appoint
Directors can fill vacancies because a company cannot go without an auditor. But their power is narrow. It covers first auditors, a casual vacancy, and the case where the AGM appointed nobody. The shareholders keep the ultimate say, and can remove first auditors at a general meeting if a member nominates someone else with 14 days’ notice.
The time limits at a glance
| Event | Time limit |
|---|---|
| Company tells the Commission that directors have power to fill the vacancy after the AGM | Within one week |
| Notice to members of a nomination to replace first auditors | At least 14 days before the meeting |
| Company notifies the Commission of the removal of the auditor | Within 14 days |
| Company sends the resigning auditor’s statement to the Commission and to those entitled to the financial statements | Within 14 days of receiving it |
A date calculation
A company receives an auditor’s resignation statement on 3 March. It must send the statement to the Commission and to shareholders within 14 days, which means by 17 March (3 + 14). If the shareholders removed the auditor at a meeting held on 20 June, the company must notify the Commission by 4 July (20 June has 10 days left in June, and 4 more are needed in July).
Worked example: replacing an auditor
Scenario. The directors of Aba Plastics Ltd disagree with the auditors, Bello and Co, over how inventory was valued. They pass a board resolution to dismiss Bello and Co and appoint a replacement. The shareholders object, and call a general meeting. Three people are proposed as the new auditor.
Mrs Chuma is a sole practitioner whose husband holds shares in Aba Plastics Ltd. Mr Dike has maintained the company’s accounting records as a consultant for 18 months. Mr Eze owes ₦600,000 to a subsidiary of Aba Plastics Ltd. Advise.
- The board resolution. The directors have no power to remove an auditor. If they could, they would be able to silence an auditor with whom they disagree. The board resolution does not remove Bello and Co.
- The correct route. The shareholders may dismiss the auditor by ordinary resolution with special notice at a general meeting. The company must then tell the Commission within 14 days. The directors may recommend a new auditor to the shareholders, but the shareholders decide.
- Mrs Chuma. A shareholder or the spouse of a shareholder is not qualified. Mrs Chuma is the spouse of a shareholder, so she may not be appointed.
- Mr Dike. An employee or consultant engaged for more than one year in maintaining or preparing the financial records is not qualified. He has done so for 18 months, so he may not be appointed.
- Mr Eze. A debtor to the company or its subsidiaries for more than ₦500,000 is not qualified. He owes ₦600,000, which is ₦100,000 over the limit, so he may not be appointed.
- Conclusion. Bello and Co remain in office until validly removed. If the shareholders do remove them, none of the three nominees can be appointed, and a qualified, independent person must be found. The auditors may attend the meeting and speak on the matter, which is their right under the Act.
How to score full marks
- Follow the sequence the law follows. For appointment, answer in the order: AGM appointment, automatic reappointment and its three exceptions, directors’ limited powers (first auditors, no appointment at AGM, casual vacancy), then fee. Each stage is a mark.
- Give the section number and the time limit together. “Section 409, company notifies the Commission within 14 days” earns more than “the company must tell the authorities”.
- For removal questions, explain why directors cannot remove. The reasoning, to protect the auditor’s independence from silencing, is often worth two marks on its own.
- For eligibility questions, use two lists. Prohibited and not qualified. Name each person and, if marks allow, give the reason. For a scenario, apply each category to each named person and state the conclusion.
- For resignation questions, number the steps. Five steps, with the 14-day limit and the court exception, give a clean full-mark answer.
- For duties and rights, separate them. Do not mix section 404 opinions with section 407 and 410 rights. Two headings make the structure visible.
- Time. Spend time in proportion to marks and finish scenarios with a one-line conclusion for each person or party.
Common mistakes in the exam
- Saying the directors can remove the auditor. Only shareholders can, by ordinary resolution with special notice.
- Writing special resolution for removal. Removal needs an ordinary resolution with special notice, while a special resolution is the way to prevent reappointment or to appoint someone else at the AGM.
- Mixing the 14-day time limits with the one-week notice to the Commission after the AGM.
- Leaving out the automatic reappointment of a retiring auditor and its three exceptions.
- Saying that a body corporate may act as auditor. Section 403 prohibits it.
- Listing a debtor of ₦500,000 or less as disqualified. The limit is more than ₦500,000.
- Saying the auditor is responsible for preparing the financial statements or preventing fraud. These are management’s duties.
- Forgetting that the resigning auditor’s statement may be withheld from shareholders if the court finds that he is seeking to defame the company.
Quick revision
- Section 401: AGM appoints; term runs to next AGM; retiring auditor reappointed unless unqualified, special resolution against, or his written notice.
- Directors appoint first auditors, fill casual vacancies, and fill the gap if the AGM appoints nobody (company tells the Commission within one week).
- First auditors can be removed at a general meeting on a member’s nomination with 14 days’ notice.
- Section 403: prohibited (officer or servant; partner or employee of one; body corporate). Not qualified (debtor over ₦500,000; shareholder or spouse; debenture register keeper; accounts employee or consultant over one year).
- Section 409: ordinary resolution with special notice; Commission told within 14 days.
- Sections 412 and 413: written resignation, statement of circumstances, Commission within 14 days, auditor may call a meeting.
- Section 404 duties and the Fifth Schedule matters. Sections 407 and 410 rights: access, information, notice and attendance, speaking, written resolutions.
- Management: prevent and detect fraud, prepare financial statements, run internal controls, give access, give written representations.
Practice questions
These are original questions written in the style of the ICAN exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. Under section 401 of CAMA 2020, an auditor appointed at an AGM holds office until:
- The end of the financial year
- The conclusion of the next AGM
- The directors decide otherwise
- Five years have passed
Show the answer
B. The term runs from one AGM to the next.
Question 2. Which one of the following is NOT a ground on which a retiring auditor loses automatic reappointment?
- He is not qualified for reappointment
- He has given written notice that he is unwilling to be reappointed
- A special resolution has appointed another person in his place
- The directors prefer another firm
Show the answer
D. The directors’ preference has no effect. Only the three listed grounds apply.
Question 3. Who has the power to remove an auditor from office in Nigeria?
- The directors, by board resolution
- The audit committee alone
- The shareholders, by ordinary resolution with special notice
- The Commission only
Show the answer
C. Directors cannot remove the auditor. Section 409 gives the power to shareholders.
Question 4. After the shareholders remove an auditor, the company must notify the Commission within:
- 7 days
- 14 days
- 30 days
- 60 days
Show the answer
B. 14 days, in the prescribed form.
Question 5. A person is NOT qualified to be auditor of a company if he is a debtor to the company or its subsidiaries for more than:
- ₦50,000
- ₦250,000
- ₦500,000
- ₦5,000,000
Show the answer
C. The limit is more than ₦500,000.
Question 6. Which one of the following is NOT listed in the syllabus as barred from acting as auditor?
- The spouse of a shareholder
- An officer of the company
- A member of ICAN with no link to the company
- A body corporate
Show the answer
C. An independent member of a professional body is eligible. The other three are barred or not qualified.
Question 7. When an auditor resigns, the company must send his statement of circumstances to the Commission within:
- 7 days of receipt
- 14 days of receipt
- 21 days of receipt
- 30 days of receipt
Show the answer
B. 14 days of receipt, and to those entitled to the financial statements.
Question 8. The first auditors of a company are appointed by:
- The directors, before the company may commence business
- The shareholders at the first AGM only
- The Commission
- The audit committee
Show the answer
A. They hold office until the end of the next AGM, and the company may remove them at a general meeting.
Question 9. Which of these is a statutory right of the external auditor?
- To set the directors’ pay
- To access all accounting books and records at all times
- To vote at the AGM as of right
- To appoint the audit committee
Show the answer
B. Access to books and records is the first of the rights in sections 407 and 410.
Question 10. Which one of the following is the responsibility of management rather than the auditor?
- Forming an opinion on the financial statements
- Preventing and detecting fraud
- Attending shareholders’ meetings as of right
- Reporting on the Fifth Schedule matters
Show the answer
B. Management also prepares the financial statements and runs internal controls.
Written questions
Question 11 (10 marks). Explain how auditors are appointed under CAMA 2020, covering the AGM appointment, reappointment of a retiring auditor, first auditors, vacancies and remuneration.
Question 12 (20 marks). (a) Explain why directors are not given the power to remove an auditor, and state how an auditor may be removed. (6 marks) (b) Describe the procedure that applies when an auditor resigns. (8 marks) (c) State the statutory rights of the external auditor. (6 marks)
Question 13 (10 marks). At the AGM of Orji Mills Plc on 15 May 2024, no auditor was appointed because the retiring auditor, Bala and Co, had given written notice that it would not serve again. The directors then appointed Cole and Co. Mr Cole, the proprietor, is employed by the company secretary as an assistant. Another candidate, Ms Dara, is the wife of a shareholder.
Advise the company on (a) the directors’ power to appoint and the notice that must be given, (b) the eligibility of the two candidates, and (c) how the shareholders could later replace the auditor appointed. (10 marks)
Model answers
Show the model answer to Question 11
Appointment at the AGM. Under section 401, the company must at each AGM appoint an auditor or auditors to audit the financial statements. The auditor holds office from the end of that AGM until the end of the next. (2 marks)
Reappointment. A retiring auditor is reappointed without a resolution unless he is not qualified, a special resolution has appointed someone else or said he shall not be reappointed, or he has given written notice that he is unwilling to serve. If a replacement resolution cannot go ahead because the proposed person has died, become incapable or been disqualified, the retiring auditor is not automatically reappointed. (3 marks)
Directors’ powers. If no auditor is appointed or reappointed at the AGM, the directors may fill the vacancy, and the company must tell the Commission within one week. The directors may appoint the first auditors before the company may commence business, and they hold office until the next AGM. The company may remove them at a general meeting and appoint a member’s nominee on 14 days’ notice.
The directors may fill casual vacancies, and a continuing auditor may act meanwhile. (3 marks)
Regulated entities and fees. For banks and insurers the appointment needs regulatory approval. The fee is set by the appointer, usually delegated to the board, which may delegate to the audit committee. (2 marks)
Show the model answer to Question 12
(a) Removal (6 marks). If directors could remove the auditor, a disagreement with the auditor over an item in the financial statements or the conduct of the audit could be ended by dismissing him. That would silence the auditor and destroy independence. (2) The proper course is for the directors to recommend new auditors and for the shareholders to decide.
(1) Under section 409, the ordinary shareholders remove the auditor by an ordinary resolution with special notice at a general meeting (2), and the company must notify the Commission within 14 days, failing which the company and officers in default face a penalty (1).
(b) Resignation (8 marks). The auditor resigns in writing to the company at its registered office, and the company passes the letter to the regulatory authority (2). The auditor prepares a statement of the circumstances leading to resignation if he thinks they are relevant to shareholders or creditors, or a statement that there are none (2).
The company must send the statement to the Commission within 14 days of receipt, and to everyone entitled to the financial statements, unless the court rules that the auditor is using it to defame the company with needless publicity (2). The auditor may require the directors to call a shareholders’ meeting to discuss the circumstances (1). If the company defaults, it and each officer in default are liable to a penalty (1).
(c) Rights (6 marks). Access to all accounting books and records at all times (1.5); all information and explanations from management needed for the audit (1.5); notice of, and the right to attend, all shareholders’ meetings (1); the right to speak at those meetings on matters concerning the audit or the auditor (1.5); and a copy of any written resolution (0.5).
Show the model answer to Question 13
(a) Directors’ power (4 marks). The retiring auditor is reappointed automatically unless he gives written notice that he is unwilling, and Bala and Co did so (1). Where the AGM appoints no auditor, the directors may fill the vacancy (1). The company must tell the Commission within one week of the power becoming exercisable, which is by 22 May 2024 (1).
If it fails, the company and each officer in default commit an offence and face a penalty set by the Commission (1).
(b) Eligibility (4 marks). Section 403 prohibits a person who is employed by an officer of the company. The company secretary is an officer, and Mr Cole is employed by him, so Mr Cole cannot act (2). A shareholder or the spouse of a shareholder is not qualified, so Ms Dara cannot act (2). The directors must find a qualified, independent person.
(c) Later replacement (2 marks). The directors cannot remove an auditor. The shareholders may do so by ordinary resolution with special notice at a general meeting (1), and the company must notify the Commission within 14 days (1).
Pathfinder on appointment, removal and rights of auditors under CAMA 2020
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
One of the strategies after the auditors resigned is to appoint a new independent auditor. This topic gives the rules for appointment and replacement.
Revise first: Appointment of auditors (section 401)
Section A is a single compulsory case with several requirements. It has drawn on ethics, quality management, group audits and reporting. Practise the scenario method in this topic before you attempt it.
Revise first: How to score full marks
Source: ICAN Pathfinder, Advanced Audit, Assurance and Forensics. Diets covered: May Diet, 2026 and November Diet, 2025.
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