Restmount Kenya Ltd. was formed on 1 October 1997 in order to export tea and coffee to European markets. The Directors are unsure as to their responsibilities and the nature of their relationship with the external auditors. The audit partner has asked you to visit the client and explain to the directors, the fundamental aspects of the accountability of the directors and their relationship with the auditor. Required: Explain to the directors of Rest mount Kenya Ltd: -Procedures for the appointment of an auditor of a public company under the Companies Act

Procedures for appointment of auditor

The appointment of a statutory auditor is governed by the Company‘s Act Cap 486.

S.259 (2) provides that ―every company shall at each annual general meeting appointan auditor or auditors to hold office from the conclusion of that, until the conclusion of the next, annual general meeting.‖

The auditor‘s appointment thus runs for approximately a year from the moment the meeting ends. This section makes it clear that it is the company (i.e. the members/shareholders) which appoints the auditor(s) and not the directors.

However, in practice it is important to note that there will be occasions where the company is wholly, or mainly made up of director shareholders. Also in most cases the directors; acting as agents of the company will choose or recommend to the shareholders which auditing firm to appoint.


S.259 (2)‖ a retiring auditor shall be deemed to be re-appointed without any resolutionbeing passed unless: –
a) He is not qualified for appointment; or
b) A resolution has been passed at that meeting (i.e. annual general meeting) appointing somebody instead of him or providing expressly that he shall not be re-appointed; or
c) He has given the company notice in writing of his unwillingness to be re- appointed.

According to this provision of the company‘s Act an appointed auditor is deemed to be automatically re-appointed come the next annual general meeting for another term in office unless any of the three mentioned situations exist.

S.259 (3) ―Where at an annual general meeting no auditors are appointed or deemed to be appointed, the registrar may appoint a person to fill the vacancy‖

The directors have the duty of informing the registrar of the failure by the company to appoint an auditor within seven (7) days.


S. 259 (5)-the first auditors of a company may be appointed by the directors at any time before the annual general meeting, and the auditors so appointed shall hold office until the conclusion of that meeting.

In default of appointment, the first auditors by the directors the company may do so. Where the directors have appointed the first auditors, the company may at a general meeting remove such auditors and appoint in their place any other persons who have been nominated for appointment by any member of the company. Notice of nomination to be given to the members at least 24 days before the date of the meeting.

Casual vacancies

S. 159 (6) ―The directors may fill any casual vacancy in the office of the auditor, but while any such vacancy continues the surviving or continuing auditor(s), if any may act.‖

A casual vacancy may arise out of any of the following reasons;
a) Death of the auditor
b) Incapacitation
c) Resignation

i.e. a casual vacancy arises when any of the above circumstances arise leaving the office of the auditor vacant before the expiry of the term in office under the contract.

The directors of the company may fill a casual vacancy in the office of the auditor.

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