LEGAL & FINANCE: Audit rules shake-up prompts warning.
The standards, issued by the Auditing Practices Board, potentially jeopardise certain sales of shares in a private company which rely upon an auditor's valuation.
Frequently, pre-emption rights provide that those wishing to sell shares have to offer them to the existing shareholders at a price deemed fair by the company's auditors. However, with the introduction of these new standards, auditors may now have to decline to provide such a valuation where it involves a high degree of subjectivity or it has a material effect on the financial statements of the company.
Where this occurs, there may be no alternative valuing mechanism in place, effectively preventing any sale.
Damian Beard, associate in Higgs & Sons' corporate department, believes shareholders need to take a careful look at their company documents in order to prevent potential difficulties occurring.
He said: "The articles of association of a company usually require a shareholder to sell his or her shares based on the auditor's valuation. If an auditor is unable to provide this, then there is often no alternative provision set out. As a result, sellers may end up having to go to court to seek a valuation of their shares."
An exemption to the ruling does exist for small entities. This covers unlisted companies fulfilling two or more of the following criteria - a turnover of not more than pounds 5,600,000; net assets, as shown on the balance sheet, of no more than pounds 2,800,000; and not more than 50 employees.
Mr Beard said: "We recommend that companies review their shareholders' agreements and articles of association in light of these new standards, in order to prevent this happening
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|Publication:||The Birmingham Post (England)|
|Date:||Sep 23, 2005|
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