Scope of the duty of care of a company auditor

1. Salmah, Amran, Adam, Azril, Atila and Zarina are directors of the company, Budi Mulia Bhd. In Mei 2018, Adam, Azril, Atilla and Zarina decided to increase the capital of the company. Pursuant to a resolution at a board meeting, they issued 100,000 one-ringgit shares to the employees of the company at par value. This was done on the understanding that those senior management staff who were issued shares would vote in favours of the directors when the need arose. Salmah and Amran were opposed to such issuance of shares.
In August 2018, the company entered into a contract with Maju Sdn Bhd for the purchase from them of RM1 million worth of office equipment. It has recently been discovered that Adam and Azril are the majority shareholders of Maju Sdn Bhd. This fact was however not disclosed either at the board meeting or the general meeting.
Two months ago, Atila and Zarina negotiated a contract on behalf of the company with Kemudi Bhd under which Budi Mulia Bhd would earn a profit of RM5,000. Last month, Atila and Zarina diverted the benefit of the contract to another company XYZ Sdn Bhd, a company which was set up by Attila and Zarina and the shareholders of which were none other than the four directors, Adam, Azril, Atila and Zarina.
Salmah and Amran seek your advice as to whether there have been any breaches of director’s duties to the company by any or all the directors in respect of the above matters. They also seek your advice on whether their removal as directors is valid. Advise them.
(15 marks)
2. David is the sole auditor of Kenanga Bhd , a company dealing in food and health products. During the course of the audit of Kenanga Bhd’s accounts, David discovered certain transaction which may be in breach of the companies Act 2016. The directors of Kenanga Bhd had not been satisfied with the way David had been conducting the audit of the company’s account and wish to replace him. Discuss the nature and scope of the duty of care of a company auditor in the auditing of the company’s accounts.

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