What Are the Rights and Powers of an Auditor Under Section 266 of the Companies Act 2016

Auditors play a very crucial role in the transparency, accuracy, and accountability of financial reporting in any company. Their work does not only safeguard the interests of shareholders, but it also increases the credibility of the financial statement. Section 266 of the Companies Act 2016 (Act 777) expressly provides the rights and powers of an auditor in Malaysia as a means of protecting his or her independence and effectiveness in executing his or her duties.

Knowledge about the Legal Authority of an Auditor.

Auditors are contracted to report on financial statements of a company. Their effort extends further than checking the numbers- they must meet the accounting standards, identify anomalies, and give the real and fair picture of the financial status of the company.

1. Duty to Report to Members.

Section 266(1) states that an auditor has to report to the members of the company on:

• The accounting records and the financial statements;
• It is the consolidation of financial statements of a holding company; and
• Any malpractices or inconsistencies to the financial statements.

In the case of public companies, this report should be tabled in front of the Annual General Meeting (AGM), whereas in the case of private companies, this report can be distributed to members or it can be presented in a general assembly.

2. Basic Requirement of the core auditors in the opinion and duties.

Under Section 266(2), auditors have to make opinions on the following critical aspects:

• Whether the financial statements represent a true and fair perspective of the financial affairs of the company.
• The compliance of the statements with the Companies Act 2016 and approved accounting standards.
• Proper records and returns in branch offices have been kept.
• Consolidation processes of group accounts are suitable or not.

These opinions bring transparency and integrity in financial reporting and make members have a true picture of the financial health of the company.

Important Rights and powers of an auditor.

The Act gives auditors wide powers in law to carry out their functions in an effective and uninterrupted manner.

1. Right of Access to Company Records.

The company has the right under Section 266(4) of being able to be accessed by the company auditors, all the time, regardless of whether it is reasonable or not.

• Accounting records,
• Registers, and
• Other documentation, which is pertinent.

This right gives the auditors the ability to check all the transactions and to have access to all information to back up their findings of audit.

2. Entitlement to Access Information and Clarifications.

An auditor might seek clarification by any party that is an officer of a company or even by the auditor of another company. This includes:

• Explanations of ambiguous deals,
• Reasons behind abnormal accounting records, and
• Reasons about the work of the subsidiaries.

Failure to provide cooperation to auditors is a criminal offence that is punishable by imprisonment up to three years or a fine of up to RM500, 000 or both as per the Section 266(12).

3, Right of Access to Subsidiary Records.

In the case of holding companies, records of subsidiaries are also available to the auditors in the preparation of financial statements prepared in a consolidated form (Section 266(5)). They have the right to demand information and explanations of officers or auditors of such subsidiaries at the cost of the holding company.

4. Entitlement to Hold and Be Heard during General Meetings.

Under Section 266(7), the auditors are entitled to:

• Get notice and communications of all general meetings,
• Attend such meetings, and
• The auditors should be heard on their issues.

This is to ensure the auditors are able to explain their reports directly to the shareholders hence accountability and transparency.

5. Authority to Report Abnormalities and Crime.

The auditors must also report breach to the Companies Act or any other grave offence of fraud or dishonesty (Section 266(8)-(9)).

In case the matter can not be satisfactorily dealt with by the means of their audit report or communication to directors, they are to report the matter in writing to the Registrar of Companies (SSM).

Non-reporting of such things may result in harsh penalties such as up to five-year of imprisonment or RM3 million as a fine.

Accountability in True and Fair Financial Statements.

The final responsibility of the auditor is to give an opinion that is independent and not biased on whether the financial statements of the company are accurate and true of its activities. This requires auditors to:

• Confirm that the standards of accounting are met,
• Evaluate sufficiency of accounting records,
• Diagnose abnormalities, and
• Consolidate effective group financials.

Any failure, inadequacy or incompleteness of the accounting system or compliance with the Act of the company must be apparent in their report.

Penalties against Obstructing or Misleading auditors.

Section 266 adversely prevents any interference or obstructing activities of an auditor in the course of his work. Any officers that deny auditors access to records or does not offer an explanation is an offence that can be punished through imprisonment or fines.

These provisions are guarding the independence of the auditor as well as the reliability of the auditing process.

The relevance of the Rights and Powers of Auditors.

Independence and legal authority of the auditor is critical in ensuring that there is confidence in the Malaysian corporate reporting system. Allowing an auditor to have complete access to the financial data, Section 266 will make sure that each company is transparent and accountable- this way, investors, shareholders, and the interest of the population are not harmed.

Our Commitment as Your Audit Partner

At HL Khoo Group, we take pride in ensuring that every audit engagement is conducted with independence, transparency, and professionalism.
As part of our audit arrangements, we provide you with clear guidance on the rights and powers of auditors under Section 266 of the Companies Act 2016, ensuring that your business remains compliant and that financial reporting reflects a true and fair view.

For more information, you may refer to the official Companies Act 2016 (Act 777) provided by the Suruhanjaya Syarikat Malaysia (SSM):
👉 Companies Act 2016 (Act 777) – Powers and Duties of Auditors, Page 289

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