Audit exemption consent

A buyer of shares who reads the target’s financial statements may find they are not audited. Whether that was allowed depends on the corporation’s statute and on a consent its shareholders gave. Ask to see the signed consent or resolution in the minute book review. See how to verify a seller’s financial statements and compilation, review and audit engagements.

What the statutes say

Under section 163 of the Canada Business Corporations Act, the shareholders of a corporation that is not a distributing corporation may resolve not to appoint an auditor. The resolution is not valid unless all the shareholders consent to it, including shareholders not otherwise entitled to vote, and it is valid only until the next succeeding annual meeting of shareholders. Under section 148 of Ontario’s Business Corporations Act, a corporation is exempt for a financial year from the requirements of Part XII regarding the appointment and duties of an auditor if it is not an offering corporation and all of its shareholders consent in writing to the exemption in respect of that year.

What to check or ask

• Which statute governs the corporation. This entry covers the federal and Ontario Acts only; check the rules where the company is incorporated.
• Whether a signed consent or resolution exists for each year the statements were unaudited.
• Whether every shareholder on the securities register signed, including any who hold non-voting shares.
• Whether a lender or the purchase agreement asks for audited statements regardless.