Appointing the auditor is a decision for the partners, not the manager; it has a maximum term that may not be exceeded; and removal and resignation each follow procedures and notifications measured in days. Yet the same mistakes recur in this file: an appointment by a contract the manager signs alone, the same firm kept for a full decade and more, an auditor removed without notifying the competent authority, or a resignation left without a replacement until the filing deadline has passed.
This guide brings together the provisions of the Companies Law, issued by Royal Decree No. M/132 of 1443H, and its Implementing Regulation issued in January 2023, on the appointment of the auditor, the term, removal, resignation and change — with what each step means in practice.
First: who appoints the auditor, and what does the appointment resolution set?
Article 18 of the Law provides that the company shall have an auditor — or more — from those licensed in the Kingdom, appointed, with their fees, term and scope determined, by the partners, the general assembly or the shareholders as the case may be, and may be reappointed. In a joint-stock company, appointing the auditor, setting the fees, reappointing and removing them fall within the competence of the ordinary general assembly (Article 87), and the founders appoint the first auditor in the bylaws where one is required (Article 61). Micro and small companies are exempt from the obligation to appoint, subject to conditions we covered in when a company must appoint an auditor.
The practical consequence: the engagement letter the manager signs with the firm does not take the place of the partners’ resolution. The resolution is recorded in the minutes of the partners’ or general assembly meeting, naming the auditor and setting the term, the fees and the scope, and the engagement letter is built on it.
Second: how long does the auditor stay? Term limits and rotation
The Law delegated to the Regulation the setting of the maximum term of an individual auditor, an audit firm and the partner supervising the audit (Article 18(1)), and Article 6 of the Implementing Regulation set the following limits, subject to the periods in other laws and the adopted code of professional conduct and ethics:
| Case | Maximum | Basis |
|---|---|---|
| Individual auditor | 10 consecutive financial years | Implementing Regulation, Art. 6(a) |
| Audit firm | 10 consecutive financial years; may be reappointed afterwards on the recommendation of the audit committee, if any, or where other offers exist, up to 20 consecutive years in total | Regulation, Art. 6(b) |
| Engagement partner supervising the audit at the firm | 10 consecutive financial years | Regulation, Art. 6(b) |
| An auditor who stopped for less than two financial years | May be reappointed for the remainder of the maximum | Regulation, Art. 6(c) |
| An auditor who has exhausted the maximum | May be reappointed after two financial years from the end of their work | Regulation, Art. 6(d) |
These limits have a practical effect on companies whose firm has been in place for years: count the consecutive financial years since the first year the firm audited, determine when the supervising partner or the firm itself must change, and arrange the transition before the final year rather than after it; the new auditor needs time to understand the business and verify opening balances, as explained in preparing your business for its first audit.
Third: removing the auditor — the right and the procedure
The partners, the general assembly or the shareholders may remove the auditor, without prejudice to the auditor’s right to compensation for any damage where justified. The manager or the chairman of the board must notify the competent authority of the removal decision and its reasons within no more than five days of its issue (Article 18(2)). Removal is therefore a collective, reasoned and notified decision, not a termination the manager decides by letter.
Fourth: the auditor’s resignation — what follows?
The auditor may resign by written notice to the company; the engagement ends on the date of the notice or on a later date stated in it, without prejudice to the company’s right to compensation for any damage where justified. The resigning auditor must provide the company and the competent authority with a statement of the reasons for resigning, and the manager or the board must convene the partners or the general assembly to consider the reasons and appoint another auditor (Article 18(3)). A resignation in the middle of the financial year, or shortly before the filing deadline, is among the most dangerous events a business can face, because the replacement starts from zero and needs evidence for the whole period.
Fifth: the minority’s right to demand an auditor despite the exemption
Even in an exempt company, one or more partners or shareholders holding at least 10% of the shares carrying voting rights may demand in writing that an auditor be appointed (Article 19(3) of the Law). The Regulation requires the request to be submitted in writing to the manager or the board at least thirty days before the end of the financial year, and the manager, on receiving it, must convene the partners or the general assembly to vote on the appointment (Article 8 of the Regulation). When filing the statements, the manager attaches a declaration that the appointment requirement does not apply and that no holders of the prescribed percentage have requested an auditor (Article 7(2) of the Regulation).
Sixth: independence — what the Law forbids the auditor
The Law requires the auditor to be independent under the adopted professional standards, and prohibits them from taking part in founding, managing or sitting on the board of the company they audit; from being a partner of any of its founders, managers or board members, or an employee or relative of theirs; from buying or selling shares in it during the audit; and from performing technical, administrative or consulting work in it except as the regulations allow (Article 20). The Regulation refers the definition of permitted work to the code of professional conduct and ethics and SOCPA’s instructions (Article 9). That is why bookkeeping and the audit are not placed with the same firm — see the difference between audit, review and compilation.
Seventh: recurring mistakes in the auditor file
- Appointment without a partners’ resolution: a contract the manager signs alone, with no minutes setting the term, fees and scope.
- Exceeding the maximum term without counting consecutive years or rotating the supervising partner.
- Removal by letter from the manager, without a collective decision and without notifying the competent authority within five days.
- A resignation left without a replacement until the filing deadline approaches, so the statements are filed late or without a report.
- Late appointment after the year end, so the auditor cannot attend the count or send confirmations on time and the opinion is exposed to qualification — see types of auditor opinion.
- Engaging the auditor for work that impairs independence, such as preparing the statements or keeping the books.
Frequently asked questions
Who appoints the auditor in a limited liability company?
The partners, by a resolution naming the auditor and setting the term, fees and scope, under Article 18 of the Companies Law; a contract signed by the manager alone does not take its place.
What is the maximum term of an auditor?
Ten consecutive financial years for an individual auditor, and ten years for an audit firm, renewable on the recommendation of the audit committee or where other offers exist up to twenty consecutive years, provided the supervising partner does not exceed ten consecutive years (Article 6 of the Implementing Regulation of the Companies Law).
Can the manager remove the auditor?
No. Removal is the prerogative of the partners, the general assembly or the shareholders, and the manager or the chairman must notify the competent authority of the decision and its reasons within five days of its issue (Article 18(2)).
What happens if the auditor resigns during the year?
They provide a statement of reasons to the company and the competent authority, and the manager or the board must convene the partners or the general assembly to consider the reasons and appoint another auditor (Article 18(3)); the new auditor starts from zero, so the sooner the appointment, the better the chance of completing the audit before the filing deadline.
Can a minority partner demand an auditor in an exempt company?
Yes. Holders of at least 10% of the voting shares may demand it in writing at least thirty days before the end of the financial year, and the manager must convene the partners to vote on the appointment (Article 19(3) of the Law and Article 8 of the Regulation).
Can the same firm be reappointed after the maximum term?
Yes, after two financial years from the end of its work; a firm that stopped for less than two years may be reappointed for the remainder of the maximum (Articles 6(c) and 6(d) of the Regulation).
How we help
At Al-Mousa & Al-Tamimi Certified Public Accountants we review the auditor file of your business — the partners’ resolution, its term, the count of consecutive years and rotation — prepare the engagement letter on that basis, observe the independence rules, and, when an audit transfers to us, handle the professional communication with the predecessor auditor and verify opening balances well before the filing deadline.
See our external audit service · Read next: when must a company appoint an auditor? · Preparing your business for its first audit · Contact us
Sources: Companies Law, Royal Decree No. M/132 dated 1/12/1443H — Saudi Laws Portal (Articles 18, 19, 20, 61 and 87; Arabic); Implementing Regulation of the Companies Law — Umm Al-Qura official gazette, 25/6/1444H (Articles 5, 6, 7, 8 and 9; Arabic). This article is general guidance and is not a substitute for advice on a specific case.
