Who approves the auditor’s report?

As I stated earlier, it is the board that approves the auditor's report on the corporation's financial statements.

Board approves the report
When the auditor completes his report, it has to be approved by the board.

The board may pressure the auditor to show the corporation’s financial statements in as favourable a light as possible while staying within GAAP. (If an AGM is late, a board may blame the auditor for not having his work done on time. Most likely what is happening is that there are missing records, the board has been stalling or the auditor is resisting management’s pressure to pretty-up the books.)

The biggest business corporations are known to pressure the outside auditors to present their finances favorably. The big auditing companies regularly bend under the pressure.

The small auditing firms that audit condos can face similar pressure. At an AGM I attended, the auditor told the owners that one particularly damming sentence in the auditor's notes at the back of the audited financial reports was removed at the board's insistence.

If the auditor won't bend at least some, he may loss this contract and likely others. The condo industry is a small one so word gets around and the lawyers, developers and property managers may not hire an auditor who they consider too rigid.

A board that wants to downplay bad news can go “opinion shopping” for a more agreeable auditor. The board will have to persuade the owners to replace the uncooperative auditor but that should not be too hard to pull off.

Another problem with the Act is that it holds the auditor to GAAP, a rules-based standard instead of a principled-based accounting standard. As long as GAAP are met, questionable management practices do not have to be clearly reported to the owners.

Owners do not approve the financial statements
The owners do not vote on whether or not they approve or reject the audited financial statements at the AGM.

The auditor presents his report and then takes questions. The auditor must answer all pertinent questions about the financial statements. That is it.

All the owners vote on is whether or not they will re-appoint the auditor for the next fiscal year.

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