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Commercial and Corporation Law Essay

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Added on  2020-03-16

Commercial and Corporation Law Essay

   Added on 2020-03-16

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Commercial and Corporation Law Essay_1
ESSAY2 | P a g eThe Corporations Act, 20011 provides the rules for governance of the companies in Australia. Under section 198A(1) of this act, the business of the company is to be run on the directions of the directors of the company2. As a result of this, the board of the company becomes a key body. The audit committees preside over the financial functions of the company, which makes this committee, another crucial body for the company. And so, the members who form a part ofthe board of the company and its audit committees have to be carefully elected. An attractive pool for selection of members of these two bodies is the retired audit firm partners. The reasonfor deeming as an attractive pool stems from their knowledge of the company’s position and also regarding their field, where they get ample exposure3. However, this puts a question over their autonomy and their impartial behaviour towards the company. In this regard, an independence test becomes crucial before bringing such members on board. The following discussion revolves around the need for this independence test.The financial statements of any company have to be audited in a proper manner. There is a need for the financial statements to be prepared in a manner that a true and fair position of thecompany is depicted. This is also important with regards to making certain that there is proper corporate governance in the company and that its capital market functions are performing in a correct manner. The validity of the financial statements is enhanced when the audit of the financial statements is done in a proper manner, which not only allows the company to make sound capital decisions, but also helps in bringing the cost of capital, down. The former audit partners are usually aware off the flaws and conditions of the company and upon them joining 1 Corporations Act, 2001 (Cth)2 Corporations Act 2001, s198A(1)3 Dan M. Guy and Stephen A. Zeff, Retired Audit Firm Partners on Boards: Independence Considerations (2017) <http://www.ruf.rice.edu/~sazeff/PDF/Guy-Zeff-Feb02DM.pdf>
Commercial and Corporation Law Essay_2
ESSAY3 | P a g ethe board, they can certainly help in the betterment of the company, and also in fulfilling the requirement covered under section 297 of this act, which requires the company’s financial statements to show a fair and true view of the performance and position of the company for the particular period for which it has been drawn4. Before bringing such retired ex-audit firm members on audit committee or the board of the company, they are required to fulfil the independence criteria. A statutory requirement of the nation requires a general standard of independence to be adopted. Subdivision 35 of Part 2M.46of this act provides the provisions for the independence requirement of a former auditor. Under this section, there has to be absence of any and all conflict of interest. This means that inany situation, such a condition should not be formed where the auditor deliberately avoids, or fails to exercise fairness and instead opt for prejudice while conducting audit. This is with a particular reference to the provisions covered under 324CD of the Corporations Act7. There is also a need to fulfil the requirements of autonomy which are stated in Division 3, 4 and5 of Part 2M.4 of this act, along with section 307C8. Apart from the statutory requirements, ASIC has also stated that there is a need fulfil the professional obligations in terms of the APES 110 Code of Ethics for Professional Accountants, Auditing Standard ASA 220 Quality Control for an Audit of a Financial Report and Other Historical Financial Information and Auditing standard 4 Corporations Act 2001, s2975 Corporations Act 2001, sdiv36 Corporations Act 2001, Pt2M.47 Corporations Act 2001, s324CD8 Corporations Act 2001, s307C
Commercial and Corporation Law Essay_3

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