1.

0 DIRECTOR
1.1 WHO IS DIRECTOR?
A company is a business entity whereby it is associated or collected of
individual real persons and/or other companies, who each provided some
form of capital. This group has a common purpose or focus and an aim of
gaining profits. This collection, group or association of persons can be made
to exist in law and then a company is itself considered a "legal person". The
name company arose because, at least originally, it represented or was
owned by more than one real or legal person. Therefore to operate the
company, it needs a person who called a director.
Any person can be a director, but only for those who is qualified as
required under the alaysia !ompanies Act 1"#$ %!A&. As stated under the
Act
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, it requires at least ' directors and both of them must have principal or
only place residence within alaysian
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. (n addition, it includes any person
occupying the position of a director of a corporation by whatever name called
and include a person in accordance with whose directions and instructions the
director of a corporation are accustomed to act and an alternate or substitute
director and a director is an officer of a company but he is not an employee
unless he has separate contract of employment as a salaried executive
)
.
*econdly, the director must be at their natural person
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of full age
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and
the limit maximum age of ,- that is other than private company, which is not a
subsidiary of a public company
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. .owever, there will be exception to
restriction of age if he is already occupied the office as a director, he may be
continue to hold the position after reaching the limit or at least / of the
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*ection , of the Act
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*ection 1''%1& of the Act.
3
*ection + of the Act.
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0atural person here means as described by corporation law1 is a real human being, as
distinguished from a corporation, which is often treated at law as a fictitious person.
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*ection 1''%'& of the Act. (n alaysia, full of age is 12 years.
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*ection 1'"%1&
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members of the company supported his appointment or reappointment that
approved by a resolution of the company
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. This also mentioned in (n addition
section 1)$ of the Act obliged the director to give disclosure to the company in
writing of the date he will return to ,- within 1+ days after becoming a director.
Any failure to comply with will cost the director imprisonment for ) years or
fifteen thousand ringgit.
The first ' directors must be appointed and named in 3A 4 A3A
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by
the subscribers, which then lodged to the 5egistrar of !ompanies.
*ubsequent appointments of directors are arranged by the A3A of the
company. The A3A of most public or private company are in accordance with
Table A %Article #)6,1&
A person whom wishes to be a director must first lodge with the
!ompanies !ommission of alaysia %or **& a document called 7Form
48A8. This form is a statutory declaration by the director, that he is must not
be an undischarged ban9rupt, he must not have been convicted of criminal
offence involving fraud or dishonesty and must not have been imprisoned for
an offence under *1)', *1)'A or under *)-) of !ompanies Act
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, the person
may not be a director or promoter or is in any way whether directly or
indirectly concerned or ta9es part in the management of a corporation, and
under section 1)-, the person is not convicted whether within or without
alaysia.
.owever, in certain events directors may be removed from office by
disqualification arising under the statutory provisions or under the terms of the
articles. :or public companies, general meeting may by ordinary resolution
remove a director before the expiration of his or her period in office
notwithstanding the provision of the articles of any other agreement between
the director and the company
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. ;nder *ection *1') %'&4%)&, the director must
be given a special notice within '2 days by written representation and by
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Section 129(2) of the Act
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Section 122(3) and 123(1) of the Act
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Section 125(1) of the Act
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Section 28 of the Act
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addressing the meeting before a vote is ta9en for him to defense. <ut under
*1'2 %'&, it is independent right of removal without giving special notice but a
proper procedure must be followed whether a director is removed in
accordance with the A3A
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or under section 1'2.
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=irectors are considered as 7officers8 or 7agents8 of a company and
have the capacity to enter into contracts on behalf of the company, sub>ect to
limitations on their authority to do so as imposed either by law, the company?s
articles of association or other legal instruments. Therefore, there are three
main duties of director1 %a& :iduciary duties, %b& =uties of s9ill, care and
diligence and %c& *tatutory duties.
1.3 WHAT ARE DIRECTORS DUTIES INCUDE UNDER FIDUCIAR!
11
Table A, Article #"
12
Case: Soliappan V i! "o#e $ n%
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DUTIES?
:irstly, director has a =uty to exercise power in good faith and in the
best interest of the company. The directors occupy a fiduciary position and
must therefore exercise their power in good faith and in the interest of the
company as a whole. As stated under *1)' of the Act, 7a director shall at all
times act honestly and use reasonable diligence in the discharge of the duties
of his office8.
1)

The fiduciary duties of a director are to act bona fide in the interest of a
company. Acting bona fide in the interest of a company is to act with good
faith for the benefit of the company. A director is under a duty to ensure that
any act he underta9es is with a view to enhancing the interest of the company
either by enhancing profits, reducing costs or even positive publicity of the
company. @here a director is required to act bona fide in the interest of a
company, he must act according to what he considers, not what a court may
consider, is in the interest of the companyA Re Smith and Fawcett Ltd (1942)
Ch 304. Although the directors may act honestly for the benefit of the
company, the directors may still be held liable if they have exercises their
power for collateral purpose.
*econdly, director has a duty to avoid conflict of interest whereby
directors should not enter into engagement in which there is possibility that
the directors? personal interest could conflict with those of the company, which
they were bound to protect.
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Thirdly, director has a duty to act for proper purposes whereby a
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Ca"#$ %#rc&#"' ( )#o*& + RE Sm',& + Fa-c#,, ,.
7 to act honestly refers to acting bona fide in the interest of the company in the performance of
the functions attaching to the office of director.8
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Ca"#$ Coo/ + D##/"
7The directors of a company carrying on the business of railway construction contractor
obtained a contract in their own name. The director also procured a resolution of the company
ratifying their conduct.
3n an action brought by shareholders to the Brivy !ouncil that it was held that it was a breach
of trust on the part of the director and that the benefit of the contract belonged to the company
and they were bound to account to the company for it8.
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director might be acting honestly in what he considers to be the company?s
interest and yet still are in breach of his fiduciary duties. This would occur if he
misapplies the company?s assets or he uses the powers he is delegated for
the wrong purpose. (n addition if a director misapplies the company?s assets
he is in breach of his duty to the company. (t does not matter whether he is
acting honestly, or in what he considers the interest of the company because
the breach lies in misusing the company?s property.
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.owever, if there is a breach of fiduciary duties1 %a& the company may
sue for damages or for the return of specific property %b& the company may
claim any secret profit that the director made and %c& the exercisable of the
power which in breach of director?s duties may be declared to be invalid.
1.4 WHAT DIRECTORS DUTIES INCUDED UNDER DUTIES OF
STI0 CARE AND DII1ENCE?
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Ca"#$ RE D2oma,'c ,.
7A payment was made to an ex6director as compensation for loss of office. This payment was
not disclosed to the shareholders as required by a section which is equivalent to *1), of our
!A. Therefore, it was a payment that the company could not lawfully ma9e.
H#3.$ <uc9ley C held that the directors responsible for ma9ing the payment were liable in
respect of it on the grounds of misapplication of the company?s fund. This was so even though
he found that the directors concerned had acted honestly, out of ignorance of law.8
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The rule is that the director not has to possess any s9ill for the >ob and
the fact that he is uns9illful is not a breach of contract. .e must also exercise
the care and s9ill expected of a person of his experience and is diligent in
managing the companyDs affairs. Thus there is no such thing as a passive
director.
A director who is passive by not being involved in the companyDs
management has breached his duty of care, s9ill and diligence. These duties,
except those expressly limited to directors, apply equally to any officers of the
company who are authoriEed to act on its behalf and particularly to those
acting in managerial capacity. This was clearly stated under *ection 1)'%1& of
the Act. Fxample of case arises regarding the exercise this duty is RE City
Equitable Fire n!urance C" Ltd where, a director need not exhibit in the
performance of his duties a greater degree than may be reasonably be
expected from a person of his 9nowledge and experience and a director owes
duty of care to the company of which he is auditor and the standard is that of
reasonable care in that he must ta9e care in the affairs of the company as he
would reasonably ta9e in his own affairs. 3ther example is #uc$erby % Elli"t.
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1.4 WHAT ARE THE STATUTOR! DUTIES AND E1A IA5IITIES
OF DIRECTOR?
Firstly, directors may rely on information, professional or expert advice,
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7The company runs a gaming club without license. This was an offence under the custom
and exercise act 1"$'. .uc9erby was a director of the company and she was charged with
the offence on that basis that offence committed by the company was attributable to her
neglect. The evidence showed that although she was a director, she 9new little of the
business and the running of the business was left to her co6director and the manager of the
company.
H#3.A The magistrate convicted .uc9erby on the principle that as director, she should have
exercised some control over the co6director and the manager.
H'*& Co2r, H#3.A !ourt quashed the conviction and stated that there was no general
principle that each director has to exercise some degree of control over the company?s
business. (t was proper for the director to leave the matters to another director or to an official
of the company. As long as there was no reason to distrust the delegates, a director was
entitled to believe what they say. .owever, once there is a reason for suspicion, a director
who trusts a delegate does so at his own ris9.8
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opinions, etc. presented by individuals retained by the company to provide
such advice. A directors reliance is made on reasonable grounds where it is
made in good faith and was made after an independent assessment by him,
having regard to his knowledge of the company and the complexity of the
corporate structure or operation. In addition, directors are to ensure that
dividends are paid from profits and not capital.
Secondly, directors are to seek shareholders approval at the general
meeting of the company prior to carrying into effect any arrangement or
transaction of substantial value relating to the company. This includes the
acquisition and/or disposition of property whose value, profit or shares value
exceeds 25% of the total assets of the company, net profit or issued share
capital of the company.
Further, directors must also obtain shareholders approval prior to
issuing new shares. Any transaction between the company and a director or a
substantial shareholder, where the transaction is of substantial worth requires
prior approval to be obtained from the shareholders at the companys general
meeting. For the purposes of discharging this duty, substantial worth is
defined as a value exceeding 25% of the total assets of the company, or the
net profits, or the issued share capital of the company, whichever is the
highest.
Thirdly, as stated under section 167(1) and 169, director has a duty to
maintain proper accounts and registers of members or transfers of shares and
to make the same available for inspection when required. @here, the proper
accounts explaining the transactions and financial position of the company
and enable true and fair profit and loss accounts and balance sheets.
=irector also has to ma9e sure that the documents is required to be attached
thereto and to be prepared from time to time. Therefore, those records have
to be 9ept in such manner as to enable them to be conveniently and properly
audited.
Fourth, a director must not place himself in a position where their
personal interests and duties to the company are likely to directly or indirectly
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conflict. Given that it is not uncommon for individuals to hold directorships in
more than one company at any time, directors should be cautious when
contracting with another company in which they hold directorships or are
substantial shareholders. Such individuals are generally duty-bound to either
declare their interests in a particular transaction to the other directors or show
that there could be no possibility of conflict.
Fifth, a director or persons related to him such as a spouse or child,
having direct or indirect interests in a contract involving the company must
declare such interests as soon as is reasonable to the board of directors and
in any way interested, whether directly or indirectly, in a contract involving the
company, shall not participate in any discussion pertaining to that contract. He
shall only be counted to make up the quorum of the meeting.
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Sixth, a director dealing with sensitive information regarding
transactions must not use such information for their own profit, even if the
company does not ultimately utilize the information because such information
is deemed to be Company property. Directors wishing to act on such
information should firstly communicate the same to the Company and obtain
the consent of the other directors.
Eight, companies are generally prohibited from giving loans to its
directors, subject to certain exceptions as stated under section 6
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and section
133 of the Act
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.
Nine, a director is deemed guilty of an offence for any untrue
statements or willful non-disclosure in prospectuses as it was describes under
Security Commission Act 1993, section 32B. The section clearly defined
where any statements or information is required to be submitted to the
Commission in relation to or in connection with any proposal submitted
pursuant to section 32; (a) an applicant, any of its officers or associates, (b)
financial adviser or an expert or (c) any other person shall not submit or cause
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Section 131(5) & 131(6)
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=eemed to be related to the company, or enter any guarantee or provide any security in
connection with a loan made to such a director by any other person
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A !ompany shall not ma9e a loan to a director of the company and vice versa.
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to be submitted any statement or information that is false or misleading,
submit or cause to be submitted any statement or information from which
there is a material omission or Engage in or aid or abet conduct that he knows
to be misleading or deceptive or is likely to mislead or deceive the
Commission.
Finally but not least, it is an offence for directors to knowingly
authorize, direct or consent to the advertising, circulation or publication of
misleading or false statements or reports and directors obtaining payment
from a company through fraudulent, deceitful or dishonest means, or by
making false promises is guilty of an offence.
6.0 CO%7AN! SECRETAR!
6.1 WHO IS THE SECRETAR! OF THE CO%7AN!?
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@ith more complex developments in company legislation and the
creation of business collaborations that result in larger groups of companies,
the role of a company secretary has evolved from >ust a normal employee to
one who is far more important in any company. A company secretary of today
is a 9ey officer who is endorsed with heavier responsibilities and greater
power, duties which demand for ethical behavior from company secretaries at
all times.
!ompany secretary is a profession much misunderstood by people and
is usually confused with other private secretary. The need to have a company
secretary is a legal requirement. Fvery company incorporated under S#c,'on
138 o9 Compan'#" Ac, 18:4 ;<CA 18:4 =0 be it a public company %listed and
non6listed&, a private limited company or a company limited by guarantee for
charitable purposes, must have at least a company secretary and does not
require the company to engage the secretary on a full6time basis. The
!ompany *ecretary must be a full aged natural person
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and has their
principal or only place of residence in alaysia. :urthermore, the person must
not be declared ban9rupt and is not convicted of any offence 2n.#r S#c,'on
130 ;1= o9 ,&# CA 18:4. .e has to be a member of the professional body
prescribed by the inister under S#c,'on 138A o9 ,&# CA 18:4 and also
ceases to be a holder of a valid license issued under S#c,'on 1385 o9 ,&# CA
18:4.
The secretary must be appointed by the directors and must be present
at the registered office of the company himself or by his agent or cler9 on the
days and at the hours during which the registered office is to be accessible to
the public. Thus, the office of the secretary is legally recogniEed and is a
statutory requirement as he is an officer of the company. The office of the
secretary must not be left vacant for more than one month at any one time. (t
is the duty and responsibility of the board of directors to ensure that a suitable
and capable company secretary is appointed to perform the functions and
duties of a company secretary.
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0atural here implies that secretary is a living person, not a firm or an organiEation offering
secretarial service.
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The legal requirement for every company to have at least a company
secretary is due to the fact that a registered company, being an artificial
person and a separate legal entity created by law which is distinct from its
incorporators created by incorporation needs human agent to whom all
dealings and correspondence with the company can be addressed to, thus
the creation for the post of company secretary. The company secretary is
legally enshrined as an important officer to a company. (n practice, large listed
companies and groups of companies do employ full6time employees who are
the secretary of all the companies within the group %i.e. group secretary&.
.owever, most companies, especially the small or medium6siEed companies
do not employ an in6house secretary. (nstead, the service of an external
secretary of a professional secretarial firm is engaged.
A director may hold the secretary duties as long as he is qualified
under the !A 1"#$ to act as secretary
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.owever, in certain situations, he
cannot act in both capacities. This is because there will be a time when he is
required to attestation the company?s common seal. Anything required to be
done by or in relation to the secretary may, where the secretary for some
reason is not capable of acting or where the office is vacant, be done by or in
relation to any assistant or deputy secretary1 or if there is no assistant or
deputy secretary capable of acting, by or in relation to any officer of the
company authoriEed generally or specifically in that behalf by the directors.
'.' WHAT ARE THE STATUTOR! DUTIES OF CO%7AN!
SECRETAR!
The !A 1"#$ sets out the statutory requirement to have a qualified
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(tDs clearly stated in the !ompanies Acts 1"#$ *ection 1)"A %a& 4 %b& that persons who is
registered with alaysia (nstitute of Accountant, alaysian (nstitute of *ecretaries and
Administrators, has a licensed secretary with !! or a lawyer %.e/she must be register
with alaysian <ar, or relevant authorities&.
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company secretary but provide no guidance as to what shall be the role of a
company secretary. The question 7@hat does a company secretary do8 is not
an easy one to answer, as the role of the company secretary is not an easy
one to describe. (t is uncommon for company secretaries to 7double6up8 as
legal officers, finance officers or even human resource officers.
Therefore, a company secretary has two roles to play, in the
Administrative role as the chief administrative officer and in the Advisory role
in relation to the board in respect to compliance issues.
The office of the company secretary, particularly in large companies, is
now regarded as a position of importance with significant responsibilities and
influence. *ir Cohn .arvey6Cones, the former !hief Fxecutive of (!(
commented that the company secretary is an absolutely 9ey appointment
more important than that of any director. A company secretary has a prime
responsibility to G9eep the company legal?. .e is the guardian, ensuring
fulfillment of the company?s obligation to comply with legislation, the facilitator
easing communication between the board and management and the
confidante, supporting all members of the board and particularly the chairman
and !hief administrative office of the company %including being a legal ?officer?
of the company with all the attendant responsibilities and liabilities that
description entails H section + of !A 1"#$&.
The main duties of the !ompany *ecretary are to understand and
interpret the requirements and obligations contained in the emorandum and
Articles of Association and guide the board on these. .e also maintains
statutory registers which entails updating and updating the various statutory
boo9s including register of members, register of directors, register of
substantial shareholders, register of directors? interests and securities
holdings, register of charges, update 5egistrar of !ompanies H responsible
for advising the 5egistrar of !ompanies promptly of all changes in the
directorate, creation and discharge of charges, allotment of shares,
submission of annual returns and other statutory returns, that ensures
compliance with !ompany Iaw.
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The company secretary must have a good wor9ing 9nowledge of the
requirements placed upon the directors under the !A 1"#$ and ensure that
the company complies with such requirements and all changes and to liaise
with shareholders. .e has to ensure that legally required documentation is
prepared, convene general and board meetings, file accounts and annual
return within the specific time required under the !A 1"#$, carry out
instruction of the board. As chief administration officer, he may have the prime
role for interfacing with management, act as the primary channel of
communication between the company and the *toc9 Fxchange %for listed
company& and ensure the requirements of the Iisting 5equirements of <ursa
alaysia *ecurities <erhad %<ursa *ecurities I5& are complied with.
.e acts as chairman?s and/or the board?s confidante. This is often one
of the roles played by the company secretary particularly where he is not also
a director as he can bring an ob>ective view to the wor9 of the board. (t is also
often possible for the company secretary to be aware of internal development
at which the board are not aware and thus provide a valuable communication
conduit to the !hairman which act as chief administrative officer. .e also
protects the company?s assets, ensure all proper returns are made and in
time, oversee legal matters and the arrangements to allow shareholders and
others to inspect certain records of the company and to provide access to
statutory and other bodies to inspect other records.
6.3 IA5IITIES OF THE CO%7AN! SECRETAR!
Jiven the fact that a company secretary is an officer of a company, as
with the directors, he or she has fiduciary duties to perform for the company.
.e or she is required to act honestly and in good faith. .e is also personally
liable to criminal charges if he or she commits wrongful acts, and also can be
penaliEed with fines. @rongful act is as simple as failure to lodge annual
return and submission of the accompanying documents to !!.
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The !A 1"#$ inflicts regulations for good conduct of the company?s
affairs. The statutory compliances are bac9ed6up by criminal sanctions and in
the event of breach, the company and every officer of the company who is in
default is liable to a fine or imprisonment, or both.
;nder S#c,'on 138;1=;E= o9 ,&# CA 18:40 ', amplifies that the
secretary shall not be relieved from liability for any act or omission done
before the secretary vacated the office. S#c,'on 138C o9 ,&# CA 18:4 stated
that, if a person continues to act as a secretary for the company after he is
disqualified, without leave of the !ourt, he and every director who 9nowingly
permits him to act in that capacity, are guilty of an offence.
6.4 E1A 7OSITION OF CO%7AN! SECRETAR!
The secretary of a company is a servant of the company, whose duty is
to act in accordance with instructions given to him by the directors. This was
interpreted from the view of Iord Fsher .5.
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.e cannot, for instance,
summon a general meeting on his own authority, register a transfer unless
instructed to do so by the directors or borrow money for the purpose of the
company without the authority. :urthermore, he has no implied authority to
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"A secretary is a mere servant8 his position is that he is to do what he is told, and no person
can assume that he has any authority to represent anything at all" %<arnett vs.*outh Iondon
Tramways !o&.
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bind the company by ma9ing any representation.
The secretary of a company, being the chief administrative officer of
the company by virtue of his office, is also an agent of the company in a
restricted sense. .e has ostensible authority to enter into contracts on behalf
of the company regarding matters connected with office administration. As an
agent, he must conduct the business with reasonable care and diligence and
shall be made liable and accountable for any secret profits made by him in the
course of his employment.
A company is liable in respect to all such acts of its secretary as done
by him within the scope of his authority, and it is immaterial whether the
secretary was acting in his own interests, or in the interests or supposed
interests of the company. (t may be noted that a secretary is not an agent of
the company li9e the directors. .e is an agent in the capacity of a servant and
cannot act for the company without authority from the directors except as
regards to matters covered within his administrative function.
The secretary is also an "officer" of the company within the meaning of
*ection '%)-&. As "officer" of the company he may incur liability to statutory
penalties by reason of non6compliance with the requirements of the Act. :or
instance, he may be held liable for default in holding the statutory meeting and
filing the statutory report under *ection 1#$, for default in registering certain
resolutions and agreements as required under *ection 1"'.
The secretary, li9e any other officer of the company, will be punishable
with imprisonment, if he falsifies the boo9s of the company, or if he willfully
and 9nowingly ma9es a material false statement in the <alance *heet or in
certain returns, reports, certificates or other documents of a company which is
being wound up %*ections $)" to $+1&. Again, misfeasance proceedings may
also be ta9en against him if he has misapplied any money or property of the
company or has been guilty of breach of trust %*ection $+)&.
<esides, a secretary is the chief officer under whose supervision all the
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ministerial and administrative wor9 at the registered office of the company is
carried on. .e is solely responsible to the managing director or manager and
the directors for the smooth running of office wor9. (n fact Dthe secretary is the
real principal officer of a company who is the proper person to correspond on
behalf of the company in all routine matters. To substantiate, it may be stated
that under the !ivil Brocedure !ode, no evidence of competency is required
for the secretary to sign pleadings on behalf of the company in connection
with civil suits.
7ro9#""or 1o-#r &a" "2mm#. 2p ,&# po"','on o9 ,&# company "#cr#,ary
a.m'ra>3y a" 9o33o-"$
"(t is arguable, therefore, that the secretary has also graduated as an
organ of the company. Though appointed by the directors he is not their
servant but an officer of the company" with substantial authority in the
administrative sphere and with powers and duties derived directly from the
articles and the !ompanies Acts. And in performing his statutory duties he is
clearly entitled to resist interference from the members, board of directors or
managing director. @here he differs from them is that he has no responsibility
for corporate policy or for ma9ing managerial decisions, as opposed to playing
an administrative role in ensuring that the policy and managerial decisions are
implemented.
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3.0 AUDITORS OF CO%7AN!
3.1 WHO IS AUDITOR?
(t is a requirement under the !ompanies Act of alaysia
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that every
private limited company doing business in alaysia must appoint an approved
company auditor for auditing its accounts and reporting to the members of the
company annually. (n other words, annual audit in alaysia is mandatory for
every private limited company doing business in alaysia, regardless of the
siEe of the company. As an integral component of the legal and regulatory
framewor9 affecting companies, audit provides reasonable assurance as to
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Section 172 of the Act
1,
the truth and fairness of a companyDs financial information and increases the
reliability of accounts due to the independent third party verification.
The laws in alaysia also require that an approved company auditor
must perform a company?s annual audit. An approved auditor in alaysia is a
person approved by the inistry of :inance
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. The inistry will grant an audit
license for approved auditors in alaysia, which is renewable every ' years.
The applicant to be an approved company auditor in alaysia is required to
be a member of alaysian (nstitute of Accountants %(A&, obtained with
recogniEed academic or professional qualification and has relevant
professional practical experience. The approved company auditor auditing the
company doing business in alaysia must also be external or independent.
*uch auditors are called external because they are not employed by the entity
being audited. A partnership firm of auditors in alaysia may be appointed as
auditors in the firmDs name. (n practice, most of the appointments of auditors
in alaysia are in the name of the audit firm. Fvery partner of the audit firm in
alaysia must individually be an approved company auditor.
An audit in alaysia involves performing procedures in order to obtain
audit evidence about the amounts and disclosures in the financial statements.
An audit of financial information enhances the credibility and reliability of
financial information and statements. Therefore, an auditor must be
independent as one of the ob>ectives of an audit is to provide ob>ective and
independent report on the reliability of information.
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Section 8 of the Act
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3.6 THE NEED0 A77OINT%ENT AND RESI1NATION OR RE%O(A OF
AUDITOR
!urrently, every company must have its accounts audited and must
appoint an auditor or auditors. <efore directors of the company appoint a
proposed auditor or audit firm in alaysia as the companyDs auditor, they must
obtain an approved consent in writing from the proposed audit firm in
alaysia. ;nder the provisions of the !ompanies Act
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, an approved
company auditor shall not knowingly consent to be appointed and act as
auditor of any company nor shall he prepare for an on behalf of a company
any report if that person is indebted to the company, its holding company or
subsidiaries in an amount exceeding 5',$--.--, if he an officer of the
company, if he a partner, employer or employee of an officer of the company,
if he a partner or employee of an employee of an officer of the company, if he
25
*ection "%1& of the Act
1"
a shareholder or his spouse is a shareholder of a corporation whose
employee is an officer of the company and if he is responsible for or is the
partner, if he employer or employee of a person responsible for the 9eeping of
the register of members or the register of holders of debentures of the
company.
:or public interest entities
'#
, the provisions of the *ecurities
!ommission Act 1"") states that an approved company auditor must register
with the Audit 3versight <oard before he can act as an auditor of a public
interest entity. (t is a mandatory to appoint an auditor at any time before the
first annual general meeting %AJ& and such auditor shall hold office until the
next general meeting. The director also has the authority and responsibility to
appoint an auditor where there is a casual vacancy
',
.

The directors is
responsibility to appoint auditors
'2
and this can be made by either a circular
resolution of the board or at a board meeting. (f directors have not appointed
an auditor, the shareholders may appoint the auditors at a general meeting.
And if both have not appointed any auditors yet, the 5egistrar may do so by
the written application of the member
'"
. *hareholders at each subsequent
AJ
)-
appoint subsequent auditors.
.owever, according to *ection "%#&, a written consent of a person shall
be needed before he may appoint as an auditor.
An auditor in alaysia may resign at a general meeting
)1
. An auditor
needs to give notice in writing to the directors that he intends to resign and the
26
A public listed company or one listed in the stoc9 exchange, licensed institution licensed
under the <an9ing and :inancial (nstitutions act 1"2", a Ta9aful operator registered under the
Ta9aful Act 1"2+, an insurance company licensed under the (nsurance Act 1""#.
27
*ection 1,'%)& 7*ub>ect to subsections %,& and %2&, the directors of a company may appoint
an approved company auditor to fill any casual vacancy in the office of auditor of the
company, but while such a vacancy continues the surviving or continuing auditor or auditors,
if any, may act. A casual vacancy occurs due to the death or incapacity of any of the auditors.
28
*ection 1,'%1& and %'& of the Act
29
*ection 1,'%1-& of the Act
30
and any auditor or auditors so appointed shall, sub>ect to this section, hold office until the
conclusion of the next annual general meeting of the company.
31
*ection 1,'%1+& of the !ompanies Act 1"#$.7 An auditor of a company may resign6%a& if he
is not the sole auditor of the company1 or %b& at a general meeting of the company,but not
otherwise.
'-
directors must proceed to call for a general meeting as soon as practicable for
the purpose of appointing an auditor in place of the resigning auditor.
The resignation is only effective on the appointment of another
auditor
)'
. At the same time, the auditor needs to give a written explanation to
the 5egistrar of !ompanies stating the reasons for resignation. :or auditors of
public listed entities, he will also need to submit the written explanation to the
<ursa alaysia.
5emoval of auditors in alaysia needs to be performed at a general
meeting where special notice has been given. This special notice needs to be
given to the 5egistrar of !ompanies and to the auditor.
3.3 WHAT IS THE DUTIES AND O5I1ATIONS OF AUDITOR?
(n order for auditors to carry out their statutory duties and obligations
effectively, they must be familiar with Gthe !ompanies Act?. The !orporate Iaw
5eform !ommittee %!I5!& recommended that the current regime that relies
on statute to state the general duty of auditors to report whether the accounts
give a true and fair view of the company?s financial position in its
5ecommendation '.$, %!ompanies !ommission of alaysia, '--,&. (t is a
statutory attempt to outline what the auditor?s report should contain %*ingh,
1",#&. 0evertheless, the concern is whether the scope of Gthe !ompanies Act?
in providing for the duties and obligations of auditors is exhaustive &er !e.
<y virtue of *. 1,+%1& and %'& of Gthe !ompanies Act?, an auditor is
required to prepare an auditor?s report and give his Gtrue and fair view? of the
matters required by *.1#" of Gthe !ompanies Act?. (f it is a holding company,
32
*ection 1,'%1$& of the !ompanies Act 1"#$.
'1
the auditors are required to report on the consolidated accounts. The auditors?
report is a formal document. :urthermore, *. 1,+%)& of Gthe !ompanies Act?
provides that auditors must form an opinion on the matters specified therein
and state the particulars of any deficiency, failure or shortcoming in respect of
any of those matters. The reason for such a requirement is to have an
independent assurance that the financial information received from the
company?s management is reliable
))
. (n fact the credibility of the financial
information is enhanced due to the fact that it is being audited
)+
. 0evertheless,
it is not provided as to when the auditor?s report
)$
should be submitted for the
purposes of deliberation during the annual general meeting.
Additionally, *. 1,+%'&%a&%ii& and %iii& of Gthe !ompanies Act? provides
that the auditors shall report whether the accounts have been properly drawn
up in accordance with the provisions of Gthe !ompanies Act? and applicable
approved accounting standards respectively. This duty is equally applicable if
it concerns consolidated accounts. !onversely, it is unclear whether it means
that the auditors? are obliged to report to the members on breaches of Gthe
!ompanies Act? by the directors
)#
.
(n the case of consolidated accounts, the auditors must report which
subsidiary companies they have not acted as auditors
),
. :urther, the auditor
must report whether he has considered the accounts and auditor?s reports of
all subsidiaries of which he has not acted as auditor being accounts that are
included in the consolidated accounts
)2
.
:urther, the auditor must report whether he is satisfied that the
accounts of the subsidiaries are in form and content appropriate and proper
for the purposes of preparing consolidated accounts
)"
. .e must also state
33
%#anrahan' Ram!ay and Sta&led"n' 2000&.
34
%("und' )illin*ham and Carmicheall' 199+&
35
*. 1,-%1& of Gthe !ompanies Act? only provides that the auditor?s report must be furnished to
the directors of the company in time to enable them to attach it to the annual report.
36
%<axt, 1"2$&
37
*. 1,+%'&%c&%i& of the Act
38
*. 1,+%'&%c&%ii& of Gthe !ompanies Act?
39
*. 1,+%'&%c&%iii& of the Act
''
whether he has received satisfactory information and explanations for those
purposes. :inally, the auditors have state whether the auditor?s report on the
accounts of any subsidiary was made sub>ect to any qualification
+-
. (t can be
seen that the auditor of a holding company must also be concerned with the
accounts, registers and reports of the subsidiary companies. This is an
extensive duty imposed on the auditors. This duty is pivotal since there are
many companies, which are within a group of companies.
<esides that, the auditors of a public company are under a duty to
report to the 5egistrar if the auditor is of the opinion that a serious offence
involving fraud or dishonesty is being or has been committed against the
company or Gthe !ompanies Act? by officers of the company
+1
. A concern is
that the duty is only imposed on auditors of a public company or a company,
which is controlled by a public company.
As stated in the Iisting 5equirements of <ursa alaysia *ecurities
<erhad also provides the external auditor with the right to convene an audit
committee meeting to consider any matter that he external auditor believes
should be brought to the attention of the board
+'
.

The right to request for a
meeting of the board is particularly relevant in view of auditorsD duty of care
+)
.
Iastly, the auditor has the right to receive any notices or
communication relating to any general meeting, which a member is entitled to
receive.
Auditors are under a duty to audit the company. 0evertheless, if the
duties and obligations of auditors are minimal, eventually, the use of a
company to do business will be misused and abused. The duties and
obligations of auditors must be expanded for the sa9e of capital mar9et
40
*. 1,+%'&%c& %iv& of the Act
41
*. 1,+%2A& of the Act 4 !ompanies %Amendment& Act '--, %Act A1'""& in Culy '--,
42
Baragraph 1$.'$, Iisting 5equirements of <ursa alaysia *ecurities <erhad '--1.
43
,aniel! - .nder!"n %1""$& 1) A!I! #1+.
')
%!armichael, 1",+&, stability of financial and economic sector and the rights
and interests of those persons and bodies mentioned earlier. A higher audit
quality will provide better information to investors and thus generate a more
efficient investment %<alachandran and 0agara>an, 1"2,&.
Auditor is sub>ect to all laws that govern behavior generally. ore
specifically, the responsibility of an auditor is influenced by a
combination of relevant professional and legal requirements. (n
determining what is the necessary professional audit standard and
practice, the expertise, 9nowledge and experience of the auditing
profession will be ta9en into account. :urther, auditors are also
accountable with legal responsibility for their examination and reports
that they render to the company. The legal haEards facing auditors are
numerous and generally are very difficult to foresee in relation to any
particular audit. Any breaches of their statutory, contractual duties can
expose them to potential litigation by in>ured parties and even to the ris9
of criminal prosecution under certain circumstances.
'+
CONCUSION
(n the eye of the laws and regulation in a company, the role of
every 9ey personnel are inter6related even though their duties and
responsibilities may differ. At the top of the hierarchy, the director
empowers everyone and seconded by the secretary who deals with the
company on a daily basis or as whenever is required. The auditor, who
is the external party, unli9e the other two mentioned, 9eeps and ensures
that the companyDs financial boo9s are updated and legal. The unity of
these three personnel forms nerve of the corporation in heading the
companyDs activities in a lawful manner.
'$
REFERENCES
Almer, 5, and <rody, 5. '--'. .n em&irical in-e!ti*ati"n "/ c"nte0t1
de&endent c"mmunicati"n! between audit"r! and ban$er!2 anagerial
Auditing Cournal. 1?;8=$+,26 +2.
!ompanies !ommission of alaysia, !orporate Iaw 5eform !ommittee,
Re-iew "/ the C"m&anie! .ct 1934 5 Final Re&"rt, %Kuala IumpurA
!ompanies !ommission of alaysia '--,&.
<alachandran, <.L., and 0agara>an, 0.C. 1"2,. m&er/ect in/"rmati"n'
in!urance and audit"r!6 le*al liability2 !ontemporary Accounting 5esearch.
3$'216)-1.
*ecurities !ommission Act 1"").
www.internationalconference.com.my/.../'$$6 ...
httpA//www.businessdictionary.com/definition/9ey6person.html
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