Reforms Relating to the Office and Powers of Auditors

This chapter explores the conceptual and legal underpinnings of the term “auditor,” examining the various designations attributed to auditors by legislative instruments and judicial interpretation. It further investigates key issues concerning the eligibility, appointment, resignation, removal, rights, powers, and privileges of auditors—all critical to ensuring their effectiveness in safeguarding corporate accountability. The chapter also considers potential reforms to strengthen the authority and functional capacity of auditors in fulfilling their professional obligations. The term “auditor” derives from the Latin word *audire*, meaning “to listen,” reflecting the historical role of auditors as individuals who relied on the representations made by others—particularly companies—when preparing reports. This etymology underscores the auditor’s dependence on the accuracy, completeness, and honesty of the information provided by the audited entity, which in turn directly influences the integrity of the auditor’s report. The origins of auditing can be traced back to medieval times, where it was essential for the verification of accounts of public institutions such as the Exchequer, as well as boroughs, manors, merchants, commercial enterprises, and landed estates. Despite its longstanding presence, the term “auditor” is not statutorily defined in Malaysian law. Under Section 2 of the Capital Markets and Services Act 2007 (CMSA 2007), an “auditor” is referenced as an “approved company auditor” as defined by the Companies Act. The Companies Act 2016 (CA 2016), in Section 2(1), defines an “approved company auditor” as a person approved under Section 263 and whose approval has not been revoked. While this provision outlines the qualifications and administrative status of an auditor, it does not comprehensively define the auditor’s role or scope of duty. The designation “approved company auditor” implies that the individual possesses both the technical competence and good character necessary to undertake auditing tasks. Moreover, such a person is expected to have a sound understanding of the legal and regulatory framework governing audit practice. Auditors form an essential component of the corporate structure, as recognized in Crichton v Victorian Dairies Ltd [1965] VR 49, where the court emphasized the crucial role of external auditors in assessing a company’s financial health—a role that stakeholders heavily rely upon. In Newton v Birmingham Small Arms Co (1906) 2 Ch 378, the English court affirmed that auditors’ rights cannot be restricted or negated by a company’s internal regulations. This legal safeguard ensures that auditors may exercise their powers freely and independently, thereby enabling them to discharge their duties effectively. Through this examination, the chapter aims to clarify the evolving legal landscape surrounding the role of auditors, while highlighting areas where further reform may be necessary to enhance their effectiveness and preserve public trust in corporate financial reporting.