Is it possible to revoke the voluntary appointment of an auditor?
What is a statutory auditor
Statutory auditors are professionals who are responsible for reviewing and verifying the annual accounts, and other financial statements or accounting documents, prepared by companies and other institutions in accordance with the regulatory framework. Their ultimate purpose is to issue a report indicating whether the annual accounts are true and fair and thus to ensure a certain degree of certainty in all dealings with third parties. In this article, we look at the possibility of revoking the voluntary appointment of an auditor.
How is an auditor appointed?
The appointment of statutory auditors may be:
- compulsory, as required by law when at least two of the parameters set out in art. 263.2 of the Corporate Enterprises Act are met (turnover over 5,700,000 euros, volume of assets over 2,850,000 euros and/or average number of employees over 50); or
- voluntary, when so agreed or required by the shareholders (in the latter case only shareholders with at least 5% of the share capital have this right in accordance with art. 265.2 of the Corporate Enterprises Act).
With regard to the term of appointment, the regulations indicate that the first appointment must be for a period of between three and nine years; subsequent appointments must be for a maximum of three years.
But is it possible to revoke the appointment of auditors? The answer is yes, but what should be taken into account?
In which cases can the appointment of statutory auditors be revoked?
First, there must be just cause. Prior to the entry into force of the auditing regulations, it was sufficient to state in the revocation that there was just cause. After its entry into force, it is now necessary to state what just cause exists.
Therefore, what is just cause? Failure of the auditor to deliver the report in due time and form, a change of shareholders, breach of independence or incompatibility rules, breach of the duty of secrecy, breach of auditing rules or the loss of the auditor’s status as a person subject to audit are some examples.
It should not be forgotten that the agreement of both parties is also sufficient for the purposes of revocation.
On the other hand, it is also important to take into account whether the appointment was mandatory, due to the fulfilment of two of the parameters mentioned at the beginning, or voluntary.
In the mandatory case, it is sufficient if the administrative body or the General Meeting so decides or approves, provided there is just cause.
When can the voluntary appointment of a statutory auditor be revoked?
However, where the appointment has been voluntary, it is necessary to consider whether the revocation may infringe the rights of minority shareholders in this respect.
In other words, if the revocation is approved at the General Meeting without the unanimous consent of all the shareholders, it cannot be carried out because, as the Directorate General for Legal Certainty and Public Faith has been defending: ‘… in companies that are not legally bound by the obligation to verify the appointment of the auditor protects the individual rights of the shareholders, the revocation of the appointment of the auditor previously made will only imply the disappearance of the obligation to verify if these rights are not prejudiced. This is the case if all shareholders have given their consent…’.
However, it would appear that the voluntarily appointed auditor could be revoked, even without the consent of all shareholders, if: ‘… the revocation, because of the time at which it is carried out, does not prejudice the exercise by minority shareholders, where appropriate, of the right contemplated in Article 265.2 of the Corporate Enterprises Act’.
What this means is that, if the revocation takes place before the minority shareholders can exercise their right to demand the appointment of an auditor, there would be no problem in this respect, as they would still have a period of three months from the end of the financial year to be audited.
Consequently, the voluntary revocation of the appointment of an auditor is possible provided that (i) there is just cause, (ii) it is unanimously agreed at the General Meeting and/or (iii) the revocation takes place before the end of the financial year, as this is the point from which minority shareholders with at least 5% of the share capital can demand the appointment of an auditor.
In any case, a case-by-case analysis is desirable in order to ensure that partners’ expectations are not frustrated by a lack of compliance with these and additional requirements.
Do you need advice? Access our area related to the appointment of a voluntary auditor: