Emali Co. Ltd. has undergone a period of substantial growth following its establishment five years ago. At the last annual general meeting Smith & Co. Associates, tow-partner firms of Certified Public Accountants were re-appointed as auditors. However, Smith & Co. Associates have decided that they do not have the necessary resources to audit the enlarge company. Required: Briefly, explain how Smith & Co. Associates may resign from its appointment before the next annual general meting

If Smith & Co. wish to resign from its appointment before the next AGM, they must carry out the following procedures:

1. Smith & Co. must deposit written notice of their resignation at the registered office of Emali Co. The resignation is effective on the day it is received unless the auditors have specified some later date

2. Smith & Co. must accompany such notice with a statement that either: –

a) There were no circumstances connected with this resignation which they consider should be brought to the notice of the members or creditors of the company or
b) A statement detailing any such surrounding circumstances which in the case of Smith & Co. for example in this case Smith & Co could state that their resignation was as a result of the fact that they believe that their firm does not have the capacity to serve the company as a result of its rapid growth.

Additional considerations (do not form part of the answer) Resignation under different circumstances
Where the auditors are resigning due to a disagreement with management in addition to depositing the explanatory Statement at the company‘s registered office, the auditors may attach a signed requisition for the directors to convene an extra ordinary General Meeting in order for circumstances surrounding his resignation can be brought to the attention of shareholders. A 28 days notice for the meeting is required.

Before the meeting is convened, the auditors may request the coy to circulate to its members a written statement of circumstances. If for any reason this fails to happen, the statement can be read out at the meeting.

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