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

auditors , company , jordan , legal , legislation , regime

حمل الدراسة من المرفقات

Bashar H. Malkawi*

I. Introduction

Financial statements of companies constitute a major source of information for the public and investors particularly. In large part, investment decisions are ****d on financial statements which must be reliable. If Company financial statements cannot be trusted, investors are victimized.[1] An auditor, through his professional opinion, plays an important role in validating financial statements. The auditor examines what is stated in company's books and records and prepares a report which summarizes his conclusions regarding the financial standing of a company.[2] In addition, the auditor may propose solutions for weaknesses in company's finance and assist management in increasing production capacity of the company.
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.
The purpose of this article is to assess the Legal Regime of Auditors as provided in the Company Legislation of 1997. The article starts by providing an overview of the development of the auditing profession in Jordan. Then, the article analyzes in detail the specific provisions related to Auditors in the Company Legislation of 1997. Finally, the article concludes by arguing that many provisions that relate to Auditors lack precision and there is inconsistency between rights and duties of Auditors as provided in the Company Legislation and other relevant legislations and regulations.
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.[3] 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.[4] In sum, the Law of Practicing the Auditing Profession No. 10 of 1961 provided lax conditions for practicing auditing.
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.[5] The Audit Profession Council has the right to supervise the audit profession. The 1985 Law specified ten acts that are prohibited to do by auditors. These acts include unethical advertising, disclosure of clients' information, and deliberately giving wrong opinions on financial statements.

* Department of Law, Yarmouk University, LL.B. 1999; James E. Rogers College of Law, University of Arizona, LL.M. 2001; Washington College of Law, American University, S.J.D. 2005.
[1] Jordan had its headline-grabbing corporate scandals involving companies and banks. One corporate scandal involved Petra Bank which was Jordan’s second bank. Due to poor auditing controls, Petra Bank collapsed and became one of the biggest corporate scandals in Jordan’s history. See A Delicate State of Affairs, The Economist (Oct. 4, 2003). Other cases involved four local banks. See Isam Qadamani, White Revolution in Banks, Al-Rai Newspaper (July 2, 2007).

[2] Over the years, there have been charges that companies hide information and claims of fraud on the part of auditors. See M. Al-Basheer, The Non-Seriousness of the Regulatory Authorities Prevented Stopping Corruption and Failure of Companies, Al-Rai Newspaper (Apr. 21, 2001).

[3] See N.S. Khouri, The Evolution of the Audit Profession in Jordan, Al-Iqtisadi Al-Urduni (The Jordanian Economist) 82-83 (1994).

[4] See K.A. Abdullah, The Audit Profession in Jordan and Kuwait: A Comparative Analytical Study, 9.2 Dirasat Journal 131-151 (1982).

[5] The Audit Profession Council is mainly government-dominated and consists of twelve members such as the chairman of the Accounting Bureau, head of the Income Tax Department, and governor of the Central Bank of Jordan. See Khouri, supra note 3, at 83. See also M. Al-Basheer, Regulations…Is there Anyone to Respond!!!! Vol. 47 The Auditing Journal 1 (2001).

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