Deadline for auditors‘ appointments (“out of cycle”)
June 22, 2018
Some entities (corporations) have an obligation to have their financial statements or consolidated financial statements certified by an auditor designated by the entity in accordance with Act No. 563/1991 Coll., On Accounting, in the manner prescribed by the law regulating the activities of auditors. Such legal regulation would be Act No. 93/2009 Coll., On Auditors, which stipulates that the auditing firm or the statutory auditor performing audit activities in his own name and on its own account shall be designated by the supreme body of the legal entity, for example, in the capital companies by the General Meeting. The most common opportunity to make such appointment for the next accounting period is usually the ordinary General Meeting of the company where, inter alia, the financial statements for the previous accounting period are being approved.
However, what happens in a situation when the capital company has not selected auditor for the next accounting period at the time of its ordinary general meeting or when it does not have the possibility to determine who that would be for other reasons, i.e. out of the ordinary cycle? Should the company turn to legal regulation to find what would be the deadline to meet this obligation and make the appointment, it will not find a simple, clear-cut answer. There is no specific deadline, whether in the above-mentioned Act on Auditors, nor in any other legal regulation.
Therefore, one needs to take into account the procedures applied by the auditors (such as the time required for preparation and perhaps additional time to participate in physical inventories etc.) as well as the statutory requirements which lay down that auditors are first appointed by the General Meeting (taking into account the time it takes to convene such a meeting and make the appointment) and only following this appointment the fact that the person legally representing the entity (corporation) is authorized to conclude a statutory audit contract (which may or may not require additional time). Obviously, this entire process and its precise timeline may vary corporation to corporation, but we must conclude, to err on the side of caution, that auditors should be designated within a reasonable period before the end of the accounting period for which the financial statements should be audited by such auditor. Appointing auditors very close to the end of the accounting period or making such appointment even subsequently, which although not advised it is indeed technically possible, may subject the corporation to the risk that the auditors may feel the need to include in their report a reservation tied to the limitation of scope of their activities.
Mgr. Michaela Langerova