The Legal Regime of Auditors According to the Company Legislation in Jordan

Financial statements of companies constitute a major source of information for the public and investors particularly. In large part, investment decisions are based on financial statements which must be reliable. If company financial statements cannot be trusted, investors are victimized.Due to the significance role an auditor plays in the company's affairs, the Jordanian legislator enacted several provisions in order to organize the auditor's rights and duties. The legislator carved out a special section in the Company Legislation No. 22 of 1997 to deal with matters such as election of an auditor, contents of auditor's report, attendance of the general assembly meetings, and prohibitions.



II. Development of the Auditing Profession in Jordan



Regulation of the audit profession in Jordan is relatively recent. In 1961, audit practice was unorganized and practitioners were not required to satisfy any level of academic knowledge or work experience.This means that any person is eligible to practice. The first audit law was enacted in 1961 and presented certain conditions that had to be fulfilled by an individual licensed to practice audit. However, the Law of Practicing the Auditing Profession No. 10 of 1961 permitted licensing of individuals possessing intermediate school certificates and six years of experience. The Law of Practicing the Auditing Profession No. 10 of 1961 also did not fully specify prohibited activities for an auditor and duties and rights of an auditor.Given the economic developments in Jordan and establishment of public shareholding companies in record numbers, there was a need for an audit law that provides a better organization of the profession. This led to the issuance of the Law of the Audit Profession No. 32 of 1985. The Law revised the provisions concerning qualifications and required that in order to be licensed the auditor must possess at least a community college degree in accounting and must set for an exam administered by the Audit Profession Council.



In 2003, a new law was enacted to streamline the governance of the audit profession.



A. Election of Auditors

The Company Law No. 22 of 1997 specified which companies should appoint an auditor. These companies include public shareholding company, limited liability company, and private shareholding company.The Company Law excluded from the list general and limited partnerships and mahassa company (silent company).Management of the company nominates auditor(s) among those authorized to practice in Jordan. The general meeting of shareholders then votes in favor of or against that auditor.



B. Auditors Independence



The auditor must be objective in reviewing financial statements. To be objective, the auditor must maintain his independence. The Company Law of 1997 does not define the term "independence."Rather, the Company Law states the kinds of relationships and activities that create conflict of interest and could cause the auditor to jeopardize his independence.



C. Duties of Auditors



Although the auditor comes to the company as a contractor under a contract, he assumes a responsibility transcending any employment relationship. The auditor is an agent for shareholders whose interests he is charged to protect.Thus, the auditor-agent owes duties to the shareholder-principal. The Company Law articulates several duties for an auditor.The auditor owes a duty of confidentiality. The auditor is prohibited from disclosing to shareholders and others any information that comes to his knowledge in the course of exercising his work.However, the duty of confidentiality does not apply when an auditor discovers fraud or any other violation of the laws. In the latter case, the auditor shall disclose these violations and report them to the appropriate authorities. In sum, the duty of confidentiality is not absolute but rather subsides when it conflicts with the interest of shareholders and others in obtaining crucial information.



D. Auditor's Report and its Content

The origin of the modern auditor's report can be traced to late nineteenth century British audit reporting practices.The purpose of auditor's report is to evaluate a company's financial information and state auditor's opinion on the balance sheet and profits and losses account. Auditors are required to present a report to the general meeting of shareholders.The Company Law of 1997 sets forth mandatory information that must be included in the auditor's report.



Applicable legal requirements generally derive from relevant auditing standards and various laws. Auditors can be sued by the company which they audit its accounts, shareholders, and users of financial statements. If the company has more than one auditor who committed an illegal act or erred, then they are jointly liable.



Bashar Malkawi