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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional appointments

Dalton & Co has audited Meridian Ltd, a listed company, for six years. Meridian's board wants to appoint Dalton & Co as auditor for the next year. Which party normally has the formal power to appoint the external auditor of a company in line with good governance practice?

The shareholders appoint the external auditor, usually acting on the recommendation of the audit committee. This protects auditor independence from management. The finance director, internal audit and lenders do not hold the formal appointment power, so they cannot validly appoint the auditor.

  1. AThe shareholders, on the recommendation of the audit committeeCorrect
  2. BThe finance director, after negotiating the fee
  3. CThe internal audit function, based on its annual assessment
  4. DThe company's bankers, as the main providers of finance

Explanation

Good governance practice is that the shareholders appoint the auditor, normally on the audit committee's recommendation, which protects independence from management. The finance director and internal audit have no authority to appoint, and lenders do not appoint the auditor of the company.

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