The audit requirements and processes for pub-lic limited liability companies may soon change as the Securities and Exchange Commission (SEC) is considering a new guideline that will require external auditors to be more affirmative about the internal control system of the company being audited.
As part of new rules aimed at strengthening corporate governance in public companies, SEC, the apex capital market regulator, is seeking to alter the responsibility of external auditors with regard to the internal control system of companies being audited while also granting greater independence to audit committee to conduct independent investigations into the accounts of a company.
A draft of the new rules obtained by The Nation indicated that external auditors would now be required to issue an affirmative statement on the adequacy and effectiveness of the internal control system of the company being audited, contrary to the current practice.
“An Auditor of a public company shall in his report to the company, issue a statement as to the existence, adequacy and effectiveness or otherwise of the internal control system of the public company,” the draft indicated.
Under the current practice, the external auditors are only required “to consider internal control system relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control”.
Besides, beyond the current rule that stipulate change of external auditing firm after 10 years of service to a company, companies shall now require external auditing firms to rotate audit partners assigned to undertake external audit of the company from time to time to guarantee independence.
According to the new rules, audit personnel shall be regularly changed without compromising continuity of the external audit process within the time frame of three years.
The draft further strengthened the audit committee as it seeks to empower audit committee to investigate any matter within its terms of reference, independently or through the internal audit.
A public company is required to make available all resources for such investigation by the audit committee, including providing access to external advice, where such necessary. The draft provides a supplementary interpretation to the provisions of the Companies and Allied Matters Act (CAMA) on membership of the audit committee. While CAMA requires equal number of directors and shareholders’ representative on the audit committee, the draft underlines that majority of the board members of the audit committee shall be non-executive directors
A source at SEC said the draft rules, which are currently undergoing rule-making process, are aimed at addressing some of the corporate governance lapses that had adversely affected the capital market in the past.
The source was referring to some accounting scandals, highlighted by the Cadbury Nigeria’s accounting overstatement scandal, which had been glossed over by external auditors.