The Registrar General’s Department has cautioned companies to abide by the directive to rotate external auditors every six years as prescribed in the Companies Act 2019 (Act 992) Section (139).
Per the law, “an auditor shall hold office for a term not more than six years and is eligible for appointment after a cooling off period of not less than six years.”
In a letter signed by the Registrar General, Jemima Oware, she explained that the six years’ term runs from the date of appointment of the auditor and the beginning of the term of office of the auditor as agreed upon by the company.
The clarification was triggered after the Institute of Chartered Accountants, Ghana (ICAG) wrote to the Registrar General’s Department seeking further explanation on the rotation of auditors in the Companies Act.
Mrs. Oware stressed that the act prohibits an auditor from working with a company for more than six years until after the cooling off period of not less than six years. “As the Act came into force on August 2, 2019, it is expected that companies comply immediately with the requirements and consider rotation of their auditors at the next annual general meetings,” the letter directed.
She added that the move was intensified in the wake of the banking sector crisis to ensure that auditors are not complacent in their advisory role.
Banking Consultant, Nana Otuo Acheampong, in an interview with the B&FT stated that ICAG must clearly outline the sanctions associated with a breach of rotation of auditors to companies.
He explained that even though the law was adopted from the USA in 2010, it has become applicable in many jurisdictions to enhance good corporate governance. “Familiarity breeds contempt, that is the reason why you have to change your auditor after every six years,” he said.
He added that the ‘Big Four’ auditing firms including EY, PwC, Deloitte, KPMG have adopted it in countries that do not even recognize the rotation law as a measure of accountability.
The Companies Act
One major deficiency, the rotation of auditors, the Companies Act seeks to cure is the tendency of overlooking inappropriate acts by management and boards of companies due to familiarity.
The act is also targeted at ensuring that external auditors maintain high level of professionalism by exposing wrongdoings and financial indiscipline. In addition, the Act enables external auditors to scrutinize the reports of internal auditors to ensure their independence and integrity to expose cover-ups.
Banking sector cleanup
In the wake of the collapse of banks in Ghana, some financial observers were worried external auditors couldn’t blow the whistle in detecting financial malfeasance in the process of auditing account statements of banks.
Findings by the Bank of Ghana showed that boards of some banks did not observe good corporate governance as outlined by the Banking Act. Poor corporate governance among senior management teams and boards that reflected in the operations of banks were in many cases overlooked by external auditing firms.
Even though some auditors have maintained that some critical documents were concealed from them during the period, some financial analysts have pointed out that such acts couldn’t have been perpetrated without the connivance of auditing firms.