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Enhancement of Auditor's rights

(I) Introduction

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The new Companies Ordinance ("the new CO") enhances the rights of auditors. Pursuant to section 412 of the new CO, auditors may require information and explanation for the performance of their duties from a wider range of persons, including persons holding or accountable for any accounting records of the company or a Hong Kong incorporated subsidiary of the company.

 
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It also empowers auditors to require the company to obtain information and explanation for the performance of their duties from persons holding or accountable for the accounting records of a non-Hong Kong incorporated subsidiary.

 
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A person who fails to provide the required information or explanation to auditors commits an offence and is liable to a fine not exceeding $25,000 and, in the case of a continuing offence, a daily fine not exceeding $700.

 
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Section 410 of the new CO gives an auditor qualified privilege for statements made in the course of performing duties as auditor of the company. In particular, in the absence of malice, an auditor is not liable for defamation in respect of any cessation statement or statement of circumstances connected with his or her cessation of office.

 
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Under section 425(1) of the new CO, the auditor's duty to make a statement of circumstances connected with the cessation of office is extended from cases of resignation of auditors to the situations where the auditor is removed from office and where a retiring auditor is not reappointed.

 

(II) Relevant Provisions of the new CO

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Sections 410, 412, 413 and 425

 

(III) Transitional Arrangements

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The relevant provisions in the Companies Ordinance (Cap. 32) ("the old Ordinance") which impose duties on a company, its officers and its subsidiary to give to the auditor information and explanation for the purposes of an audit and the provisions which give the auditor a right of access to the company's books and accounts (i.e. sections 133 and 141(5)) continue to apply in relation to a financial year beginning before the commencement date of the new provisions and ending on or after that commencement date.

 
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The relevant provision in the old Ordinance relating to the statement of circumstances given by an auditor who resigns (i.e. section 140A) continues to apply in relation to a resignation of a person appointed as auditor for a financial year beginning before the commencement date of the new provisions and ending on or after that commencement date.

 

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