Accounting Project Topics

An Examination of the Procedures for the Appointment and Removal of External Auditor by Public Limited Liability Companies: (A Case Study of Orange Drugs Nigeria Limited Imo State)

An Examination of the Procedures for the Appointment and Removal of External Auditor by Public Limited Liability Companies (A Case Study of Orange Drugs Nigeria Limited Imo State)

An Examination of the Procedures for the Appointment and Removal of External Auditor by Public Limited Liability Companies: (A Case Study of Orange Drugs Nigeria Limited Imo State)

Chapter One


Auditing has been defined by the American committee of Basic Auditing concepts as “A systematic process of objectively obtaining and evaluating evidence regarding the assertions about economic action to ascertain the degree of correspondence between those assertions and established criteria and communicating the result to interested user”

This definition brings out the major beneficiaries of the Auditors opinion, which are the management of the company. The investing public and regulatory bodies rely on the opinion of the external auditors in basing their own assertions of the financial strengths of the company. This shows the level of importance attached to the auditor’s final report.

This study aims to critically examines the procedure adopted by public companies in the appointed and removal of their external auditor with a view to

  • Establishing, if auditors have a good knowledge of their removal before hand.
  • Determine the reasons for the removal of an external auditor.
  • Determine it laid down law governing removal and appointment of auditors are competent, and if they are followed by public companies.
  • Determine it directors have under influence over the removal and appointment of external Auditors.
  • If shareholders are given the chance to vote during public companies AGM for or against the removal of the existing company auditors.

For knowledge of these would help in ensuring that auditors of companies are credible and accepted by all shareholders in the company hence ensuring proficiency of the final report.



For a company to run effectively and efficiently there is always the dare need for the auditing of company accounts by a reliable and experienced auditor who would apply due skill, care and diligence in the performance of his duty so as to state without prejudice and personal interest the true position of the company finances and also do as much to prevent the incurring of liability in carrying out his duty. This underscores the need for having an auditor in a firm who is not threatened.

This can only be achieved through ensuring that the companies policies regarding the appointment of a new auditor in a firm who is not threatened.

This can only be achieved through ensuring that the companies policies regarding the appointment of a new auditor and removal or retirement of an existing one is in accordance with CAMA 90 so as not to ensure their wroth and also ensure continued interest of the companies shareholders and investors and also assured the financial regulators and other external members of the general public of the reliability of the company at all times.

This chapter aims to critically explain the rules of CAMA 90 on the process for appointing and removing of external auditors by looking at sections of law and also going a general view of the auditing profession as a whole.


An audit is a universal term for the process of thoroughly looking into the interior components of an organization to make sure it professes its true position. For the purpose of this work an audit is an examination and expression of opinion on the results and state of affairs of an enterprise as mush as its financial operations and records can reveal.

We have mainly two types of audit, internal audit and external audit.

An internal audit is an audit done by an auditor who is employed in the company to crosscheck all transactions over a financial year and express opinion on its fairness before such account are published.

An external audit is one carried out by an independent auditor appointed by the company shareholders for a particular duration of time to look into all the financial and relevant monetary transactions over a financial project.

However, audit can also be sub-divided into:

  1. Statutory Audit: This is an audit imposed by law. It is carried out because the law requires it. Although the extent of work can on arrangement
  2. Private Audit:- this is an audit not imposed by law. There the duties of the external auditor are stated in his engagement letter, his duties are not limited not restricted by statute.
  3. Management Audit: – it is also called deficiency or operational audit, it is an inquiry into the effectiveness and efficiency of management. It determines it objectives set are achieved under a given management.
  4. Interim Audit: it is an audit conducted before the end of a financial year. It is required by management on their financiers


The main objectives of carrying out an audit assignment are determined by the type and purpose for which the audit is carried out. Traditional audit has the objectives of searching for errors and fraud in transactions but modern system audit has the main objective of ensuring that the internal control mechanism of the organization is reliable and produce true and fair accounts. There are three main objectives of every audit.

  1. To verify and report upon accounts and financial statements prepared by a client or his staff.
  2. To ensure that the correctness of the account is not impaired by fraud and error that should have been detected in the normal curse of audit.
  3. To prevent error and fraud by the deterrent and moral effect of the audit.





Research methodology refers to as the method used by the researcher to collect data or the project topic. The data collection objectively of the research centre on audit administration, it’s an examination of the procedure for the appointment and removal of external auditor and also as a tool for achieving it benefit. Therefore, in this chapter, the researcher discussed the methods used in collecting data and how it was investigated and these include.


It was mentioned earlier that research will be conducted in order to make this work successful. Now, the conduct has been done among relevant institutions in Imo State metropolis, the main area of study was “Orange drugs Nigeria limited.


The population for this study is made up of the staff of Orange drugs limited, Imo State. The population to be surveyed includes audit staff and administrative staff. The population of the study for orange drugs Imo State represented by the table below.



In this chapter, it present data used to analyze the research study. It also contains the discussion of findings.

The responses collected in respect of the questions are analyzed as follows:

Question: How soon after the end of the accounting period do you go for annual audit of client?





The companies and allied matter Act (CAMA) 1990 has made provisions concerning the procedure for the appointment and removal of external auditors. All these provisions are made to uphold the dignity of the auditing profession and ensure mutual relationship existing between prospective and exiting auditors when an audit Assignment is to be terminated.

Removal of an auditor can only be effective when the auditor indicates his willingness to resign, but if at the companies AGM.

Appointment of auditors should be done by an ordinary resolution of the AGM in all situations except when the company is newly formed or a casual vacancy exists and management appoints another auditor but should be ratified at the next or first AGM by its members.

Remuneration of the Auditor should be approved by members or management supplies to special cases and it should be on chargeable time.

The auditor retires at the expiration of his tenure while he looses his job if another be appointed before the expiration of his tenure. The auditor should receive notice of AGM meetings and have account to book of the company at all times and receive explanations in letter of representation on nay conflicting issue.

The outgoing auditor should give the incoming one every information he needs about the company for the purpose of his audit.


Auditor has been fund to stay in office for a long period and almost always fill the expiration of their tenure of office unless for some few cases where they may indicate willingness to retire before the companies AGM. Orange drugs limited auditors were recommended by orange drugs international as a following of the auditors of their group accounts, this was done as a result of the confidence reposed on the auditors over their years to auditing the accounts but dwindling fortunes and persistent loss of income from major contracts handled by the company in Nigeria made the company look into the auditor position in the companies fortunes and the company eventually terminated its contract before the end of its next AGM. They employed the services of a new firm to take over audit but the outgoing auditor wrote representations to reasonable number of shareholders stating that he was unjustly removed which lead to misunderstanding between management and auditors.

AMA’s has set its provision to ease the procedure for removing an auditor and which has reduced the occurrence of such problem between management and auditor. It gives conditions under which an auditor can be removed and the options go to him to either receive compensation for any damages caused.


The aim of any company formed is to make profit and as such companies may go into any extent to actualize this aim. Hence the procedure for appointing of auditors should be made more strict by CAMA so that companies may not take advantage of loopholes in the law to employ service of unqualified auditors or those who would only act as a stood to management in the perpetuation of fraudulent acts to either enrich themselves or reduce the amount of taxes they would pay by making manipulations in the books.

Existing auditors should not expose confidential information about companies to it rivals after the expiration of his contract, the auditors must adhere to the professional principle of confidentiality after his appointment.

Also, the auditor committee should comprise of non executive director instead of CAMA’s provision of executive directors because they are also part of management hand with their inclusion in the audit of the firm. They may connive with management to stamp on the auditors rights.

The level of independence accorded to auditors should be more strict to that auditor may not be unduly removed from office by management when they activities planned. This would also help to strengthen and secure another roles the auditor plays in the company.

Limited liability companies should be allowed to employ the services of more than one auditor so that the audit function would not be monopolized by only one audit firm. Audit appointment be raised on merit if a client refuses to grant and existing auditor permission to discuss its affairs with the prospective auditors the prospective auditor not accept such appointment.

An auditor should be informed before hand in the basis for which his fees would be paid and how it would be paid. Shareholders should be encouraged to play a more active role in the appointment of the auditors.


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  • Institute of chartered accountants of Nigeria (1997), path Finder, Jerothelacho Associates Limited, Lagos.
  • Woolf, Emile (2000), Auditing Today, Englewood cliffs, prentice-Hall, London.
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  • Mayo Associates limited (1989), OE II Auditing and investigation Bpp publishing limited London
  • Mair, W.C, Wood, D. R and Davis, K.W. (1976), Computer control and Audit, institute of internal Auditors, America.
  • AICPA, professional Standards, volume 2, Commerce clearing house, section ET 301, code of professional conduct, Rule 301).
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