Replacing Your Auditor: Procedure and Pitfalls

A change of auditor in Mauritius happens for ordinary reasons: a fee dispute, a shift in the group's reporting needs, a firm that gives up the engagement, or a conflict that makes the relationship untenable. Whatever the cause, the risk is the same. If the switch is badly sequenced, the company may reach its year end with no auditor in place, or with a new auditor who has received nothing useful from the old one.

This page covers the procedure from the moment a change is on the table. It does not repeat how to pick a firm; for that, see choosing and appointing an auditor. It assumes the company is one that must be audited. If you are not sure that it is, check whether your company needs an audit first, because an exempt company may not need to replace anyone.

This is general information, not advice. The exact procedure depends on the company's constitution, its category and the terms of the engagement, so have an adviser confirm the position before acting.

Why companies change auditor

Most changes fall into three groups, and the group shapes the procedure.

• Company-led change. The board or shareholders decide to move to another firm, for example after a tender or a review of what the audit costs.
• Auditor resignation. The firm decides it can no longer act. Searches for "auditor resignation Mauritius" usually come from here: the company receives a resignation and must find a replacement quickly.
• Forced change. A conflict of interest, a loss of the firm's licence or a regulatory concern makes the existing appointment impossible to continue.

In the first case you control the timetable. In the other two the clock is set by someone else, which is why the company should keep a shortlist of firms it could approach.

The procedure at a glance

Step 1: Decide, and write down why

Start with a board decision. A short, factual board minute is enough: the reason for the change, any disagreement with the outgoing auditor on accounting treatment or scope, and the person authorised to run the process.

Do not skip the "why". If a later question arises, for instance from a regulator or from a lender reading the accounts, the record of the reason matters more than the decision itself. A change prompted by a genuine disagreement on an accounting judgment will attract more scrutiny than a routine rotation.

Directors remain responsible for the accounts throughout. The change of auditor does not shift that duty, as explained in directors' duties under Mauritian company law.

Step 2: Manage the outgoing auditor's exit

How the exit works depends on who starts it.

If the company ends the engagement

Read the engagement letter before sending anything. It normally sets out how the relationship ends, what notice applies and how fees for work already done are settled. Giving notice in the wrong form is a common pitfall, and so is assuming that an unpaid invoice entitles the company to hold back information the auditor needs to be able to hand over.

If the auditor resigns

Treat a resignation letter as a trigger for action, not as the end of the matter. Check three things:

1. Whether the letter states a reason, and whether any matter it mentions needs to be brought to the shareholders.
2. Whether the resignation takes effect immediately or at a later point, such as after the current audit is completed.
3. Whether the company must act within a statutory period to fill the vacancy. The Companies Act sets the rules on auditors; confirm the applicable provisions and any deadline with your adviser rather than relying on a general summary.

Keep the original letter. It forms part of the company's records.

Step 3: Secure the incoming auditor's acceptance

Never put a name to the shareholders before the firm has agreed. The incoming auditor will usually:

• run its own independence and conflict checks;
• ask for permission to contact the outgoing auditor;
• agree the scope and the engagement letter;
• ask about unresolved matters from the last audit.

Giving that permission promptly is in the company's interest. A new auditor who cannot speak to the old one will normally hesitate, and the delay falls on the company.

Step 4: Pass the right resolution

The removal of one auditor and the appointment of another are decisions that follow the Companies Act and the company's constitution. Which body decides, and by what majority, can differ from one company to another. For the difference between the types of decision, see ordinary and special resolutions. If the shareholders are to decide outside a meeting, written resolutions may be the practical route, provided the constitution allows it. If the matter is dealt with at a meeting, the annual meeting of shareholders is often the natural place, but a change cannot always wait for it.

Whatever the route, the resolution should name the outgoing firm, name the incoming firm, and state the financial year or years the new appointment covers.

Step 5: Run the handover

The handover is where most of the practical problems arise. Professional rules govern what the outgoing auditor shares, and they do not oblige it to hand over everything. The company should therefore prepare its own material rather than rely on the old firm.

That figure illustrates a broader point: records relevant to an audit have long retention periods, so the company, not the auditor, must be able to produce them. The Companies Act provides that the share register must be kept for at least seven years after the transaction concerned.

Prepare a pack for the new auditor containing:

• the signed prior-year financial statements and the previous audit report;
• the trial balance, ledgers and supporting documents for the open year;
• the registers the auditor will test, see statutory registers;
• minutes and resolutions for the period;
• a list of open items and known disputes.

Step 6: Update records and tell the people who rely on the audit

Several parties need to hear of the change, and none is informed automatically.

Do not assume that the Registrar must be told in the same way as a change of director or secretary. Those changes carry a notification duty to the Registrar within 28 days, with a fine of up to Rs 200 000 for each director and the secretary in case of failure under section 142 of the Companies Act. That rule concerns directors and the secretary, not auditors, so do not copy it across. Ask your adviser whether any filing is triggered by the auditor change in your company's case.

Where the new audit firm will make filings on the company's behalf, note that audit firms, company service providers and certain larger companies must use the online filing service for their filings and payments under the Companies Regulations.

Special case: companies with a global business element

A company holding a Global Business Licence, or an Authorised Company, is a "global business entity" for tax purposes. Its auditor change will often involve the FSC as well as the company's own advisers, because the audited accounts are a regulatory deliverable. The company should check whether its licence conditions require notification.

A separate point causes confusion. Changing the corporate service provider is a different process from changing the auditor. For a Global Business Licence holder, an application to appoint a new FSC-licensed corporate service provider (Management Licence) must be accompanied by the fee set under the FSC Rules, and the same applies to a change of registered agent for an Authorised Company. Do not treat the two as one exercise.

Common pitfalls

• Appointing before obtaining consent. The resolution names a firm that then declines.
• Leaving a gap at year end. No auditor is in place when fieldwork should start.
• Ignoring the engagement letter. Notice terms and fee provisions are overlooked.
• Not preparing a handover pack. The company waits for the old firm to supply what it holds.
• Forgetting third parties. The bank learns of the change only when covenant accounts arrive from an unexpected firm.
• Treating the change as a dispute. A neutral, documented process protects the company if the outgoing firm later complains.
• Missing the link to deadlines. A late start affects the company's yearly routine; place the change within your compliance calendar.

Checklist

• Board decision minuted, with the reason for the change
• Engagement letter of the outgoing auditor reviewed
• Resignation or termination letter obtained and filed
• Incoming auditor has accepted in writing
• Consent given for the two firms to communicate
• Resolution passed in the form the Companies Act and the constitution require
• Handover pack prepared and delivered
• Bank, group parent and corporate service provider informed
• Any regulator-specific notification checked with an adviser
• Internal records and calendar updated