Ghulam Abbas 03009001533 GAsad@facebook.

com
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Ghulam Abbas 03009001533 GAsad@facebook.com
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Statutory Report
(a) Need and requirements
i. In case of public limited company only.
ii. For holding statutory meeting 3 to 6 months after commencement of business
iii. Meeting notice of 21 days along with auditor report on financial statements to be sent to
members of company.
(b) Contents and working areas of audit
i. Shares detail regarding paid off capital and their allotment for cash consideration
ii. Shares allotted for consideration other than cash such as in exchange for some assets of
services rendered.
iii. Receipt and payment statements of company
iv. No income statement and balance sheet is to examine. (Because of loss not shown to
share holders. Confidence of public not discloses weak position of company.)
v. Confirmation of minimum of subscription. (sale of shares limit)
vi. Normally business record related to such statements up to 3-4 months after
commencement will be examine.
(c) Audit Work
i. Shares allotment
Examination of MOA regarding authorized capital details of shares.
Examination of prospectus issued capital and its terms and conditions
Examination of subscription received through different banks.
Examination of allotment record.
Confirmation with register of members
Examination for other than cash
ii. Receipts and payments
Vouching of cash book transactions relating to the period selected.
Conformation of balance from bank statement
Audit work to be completed within three weeks of the starts
(d) Form of report
Directors:
We have examined the following statements annexed to our report as required under section
157(5) of companys ordinance 1984. We report that these statements have been found corrected
by us.
i. Share allotment statements for cash consideration
ii. Share allotment statements for other than cash consideration
iii. Receipts and payments statements for period ending on 31 October 2012.
We further report that:
i. One of the directors has not purchased his qualification share.
ii. There is under invoicing machinery, reporting Rs. 5 millions.
iii. Under writing commission @2% has been given to HBL for underwriting services (Normal rate
1%)
Date should be 20
th
Nov. not more than.
Yours truly
Abbes Asad
Chartered Accountant

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Prospectus Report 53(1)
(a) Need ad Requirement
i. By a public limited only
ii. At the time of issue of prospectus
iii. Included and published as a part of prospectus
iv. Related with financial results of business for guidance of general public and
prospective/aspect shareholders
(b) Requirement and contents and Detail
i. Summary of latest profit and loss account for the 5 years working. ( so that the general
public could know the trend of business)
ii. Summary of latest 5 years balance sheet
iii. Detail of dividend declared o different shares, its rates of declaration and source of
payment.
(c) Detail of Audit Work
i. Receiving latest 5 years annual reports
ii. Examining the summary prepared on the bases of 5 years P&L account and B.S. as
described in the annual report.
iii. Excluding any abnormal capital profit or loss
iv. Carefully examining the audit making a part of the annual reports
v. Receiving mints of the latest 5 years AGM and confirming the types of shares on which
dividend was declared, its rates and source of payments.
vi. Work to be completed within maximum 1 weak
(d) Form of Report
We have examine the following statements annexed to our report as required under section 53
subsection 1 of companies ordinance 2002.
To be published as a part of prospectus of the company and these statements have been found
correct by us.
We further report that:
Capital profit amounting to Rs. 50 million due to sale of business land has been included
in the last year profit summary.
The company has declared last year dividend in the form of bonus share as compare to
cash dividend in the past 4 years.
Company has been declared bonus shares for dividend purpose in the past 5 years.
There is a capital profit on revaluation of assets amounting to Rs. 50 millions.










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Audit Report
(a) Needs and requirements:
i. For the purpose of AGM
ii. Every public limited company and its subsidiary company
iii. 14 days notice of meeting plus audit report to be send to every member
iv. Meeting to be held within 4 months of the end of the financial year with an extension
from SECP for 2 months
v. Meeting to be held once in every calendar year but maximum gap should not be more
than 15 months.
(b) Contents and Scope
i. Whether or not proper books of accounts maintained by the company as required under
section 130.
ii. Whether are not final accounts prepared according to legal requirements
iii. Whether are not the financial statements are reflecting a true and fair view of business
affairs
iv. Whether are not expenditures incurred for business purpose
v. Whether are not Zakat has been deducted according to legal requirements.
(c) Audit work
i. Deciding the type of audit that it is continuous or final in consultation of management
ii. Preparation of audit program and allocation of duties to the team members
iii. Collecting of books of accounts and their related vouchers and evidence for audit purpose
iv. Vouching of different transactions according to the audit program
v. Verification of all assets and liabilities
vi. Horizontal (previous year) and vertical ( current year) analysis carried out
vii. Knowing the major differences and its reasons of abnormality
viii. Discussing the major differences with the management to resolve the issue
ix. Finalizing the possible qualifications (objections)
x. Examining the record of distribution of dividend on the bases of previous of AGM and
deduction of Zakat on the nominal value of share holding from the dividend amount
(d) Submission of report to the share holders through company management














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Solvency Report 362(2)
i. Required at the time of liquidation of the company
ii. Voluntary liquidation by the members of the company
iii. Directors claim and report regarding payment to all creditors (outsiders)
iv. Auditors report in support of directors claim of solvency
v. Auditors to examine profit and loss account prepared closed to the proposed meeting of
liquidation after the previous year end
vi. Auditor to review the current market position for sale of all assets and their possible
payments within a specified period
vii. The auditors opinion should not be considered as a guarantee for payment rather than it will
be directors responsibility.


Auditors Opinion relating to different Reports

(a) Un-Qualified opinion:
Un-qualified opinion used in un-qualified report where financial statements as already
accurate and all have been amended as per auditors advised.
(b) Qualified Opinion:
Qualified opinion used in a qualified report where the auditors dissatisfaction and objection
raised have not been properly resolved.
i. The auditor used the words except for above after mentioning the objection where
the disagreement is reasonably estimated such as amounts of sales or any other
account and provision for depreciation.
ii. The auditor used the word subject to above when the difference cannot be
reasonably estimated but it exists there such as reserve for bad debts and existence of
contingent liability etc.
(c) Adverse Opinion:
Adverse opinion is that where the difference is so much. Material and financial statements have
not been prepared according to GAAP. The auditor used the phrase that the financial statements
do not give true and fair view.
(d) Dis-Claimer:
This opinion is given when due to lack of evidence provided for reaching uncertainty is not
resolved and auditors are not in a position to get full information.
The auditor will use the word not in a position to express an opinion their upon.
(Normally this type of opinion is carried out in private limited companies and small companies.






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Letters relating to auditors
i. Offer Letter
Issued by the company to the auditors after obtaining informal/verbal consent
ii. Consent Letter
Issued by the auditors to the company after analyzing the offer letter
iii. Appointment Letter
Issued by the company to the auditor after fulfilling legal requirements of necessary
resolution by the share holders or directors.
iv. Audit Engagement Letter
Issued by the auditor to the company explaining the scope of audit and management
responsibility regarding internal control and maintaining proper books of accounts.
v. Weaknesses Letter
Written by the auditor to the companys management during continuous audit or after
submission of the audit report pointing out the weaknesses of internal control and areas of
further improvement.
It also serves for developing better working relationships in future. It is also called post audit
or management letter or comments letter.
vi. Third Party Letter
Written by the auditors to outside parties connected with companys business. For example
confirmation from banks, creditors etc. some time it is also called circulation account.
vii. Communication Letter
Written by the new auditor to the old auditor for knowing any professional reason of removal
of old auditor or getting knows objections.
viii. Enquiry Letter
Sent through the management of the company to the legal advisor for obtaining the details of
legal cases of against the company and their chances of decisions in near future (with in one
year). For example contingent items, taxation exemption etc.
















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Reasons for increase/decrease in Gross Profit and Net Profit

Gross profit of a company has been decreased by 10% but net profit increased by 20%. You are required
to know the reasons of its genuine or manipulation.
(a) Genuine Possibility
These circumstances can be genuine reasons for this decreased in GP and increase in NP.
i. Carrying out horizontal analysis and knowing the major variation
ii. Avoiding interest payment by paying a bank loan (May they have paid bank loans that is
why that the interest will be low because of decrease in bank loans.)
iii. Receiving profit on investment
iv. Less bad debts due to cash sales policy
v. Capital profit arising from sale of fixed assets or premium on issue of shares.
vi. Less selling expenses by avoiding commissions and rebates.
(b) Manipulation
i. Less provision for depreciation by changing the methods or rates
ii. Less reserve for bad debts
iii. In-correct allocation of expenses from revenue to capital such as repair charged to asset
account
iv. Avoiding record of accrued expenses for example last months salary etc.
v. Revaluation of fixed assets
vi.
vii. changing the method of stock from FIFO to LIFO




















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Code of Professional Ethics of Auditors
Meaning:
Rules and regulations which are self imposed and morally excepted by the auditors and in-accordance
with the direction of ICAP
i. Integrity and Honesty
Fairness in working and finding the results and reporting properly
ii. Professional Competency
Knowing the ever increasing audit practices and accepting the job of their related field.
iii. Secrecy and Confidential Working
Not telling secretes of the business to third party unless authorized by the client or it is a
requirement of law.
iv. Obeying professional guidelines of ICAP issued from time to time
v. Avoiding un-due publicity for their business with exception of establishment of new firm,
change in addresses, and information for membership book of ICAP and receiving any
distinction award.
vi. Avoiding personal interest in the business of client, for example taking loans, accepting
gifts, and other trade relationships.
vii. Receiving fair audit fee and no other commission etc.
viii. Due honor/respect for other audit firms both in public and private
ix. Providing professional resources to the new auditor in response to the communication
letter.
x. Crop-border activities:
Appointed in other country independently or jointly the auditor will be required to follow the
requirements of the international federation of accountancy if there are stricter from the local
requirements of law.
xi. Joint appointment responsibilities:
Where a joint job is for the joint audit firm, the duties will be different but the responsibilities
will be joint. For example ones duty is to examine to the expenses and other is responsible
for liabilities, but negligence of one will be required from both.














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Terminologies
1. Audit
2. External Audit:
Independent auditor outside the business
3. Interim Audit:
Audit of part of year accounts, not full year.
4. Offer Letter:
5. Audit engagement letter
6. Horizontal Analysis
Comparison with previous year
7. Vertical Analysis
8. Management representation letter
It is letter representation the management letter in response of the engagement letter
answering various points raised by the auditor such as ICQ etc.
9. Correct Allocation
Proper treatment of revenue and capital accounts
10. Double entry system
11. Teeming and leading
Adjustment and re-adjustment of deficiency in an account for a certain period
12. Divisible Profit
Profit legally available for dividend purpose
13. Capital Profit
Profit realized on sale of fixed asset and other un-usual items such as premium on
issuance of shares.
14. Investigation
A detailed enquiry from within and outside the business and beyond the accounting
record also for particular purpose such as advances or loan from bank, knowing the
reason of declining business, proposed purchase and sale etc.
15. Negligence liability
No proper care on examine the account resulting loss to the business as was held in
Arbitage V/S Brewer and knit
16. Misfeasance liability
Where auditor has not completely fulfilled his duty resulting loss to business.
Loss not reported or not proper reported as held in London and General Bank Ltd Case.
Where loan advances by the bank was not recoverable but where shown as good loan as
auditor report was. (Value of the assets as shown in the B/S depends on realization.)
17. Libel Liability
Injuring the good will of a person by personal remarks instead of qualification about
account.
As was held in Weld Blundell case V/S Stephen Case.
(only accounts verification, not person name)

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18. Stock taking
Physical inspect of closing stock.
19. ICQ
List of questions
20. Audit Sampling
The techniques of test checking used for selecting sample for audit purpose.
21. Errors and frauds
Un-intentional mistake without any material benefit
22. Material Difference
A major difference of actual and disclosed position
23. Qualified report
24. Unqualified report
25. Proper authorization
Approval of a voucher by relevant authority
26. Correct casting
Proper confirmation of calculations
27. Vouching
Examination of voucher to confirm its fairness with the related transaction
28. Verification
Examination of assets and liabilities shown in balance sheet in respect of their existence,
valuation, ownership and proper disclosure
29. Proper disclosure
Placement of different assets and liabilities in balance sheet according to their relevant
group with required detail
30. Code of ethics
31. Principle errors
32. Clerical errors
33. Moral Check
A check as employees mind not involve in ir-regulaties due to internal check, audit and
external audit.
34. Letter of communication
35. True and correct view
36. True and fair view
37. Working Papers
Detailed worked out for each item at financial statements and given in the notes attached.
38. Risk management
39. Deferred taxation
40. Underwriting commission
Commission paid to financial institution for guarantee of issued capital.
41. Auditor is a watch dog and not blood hound. On test checking principle said like that.
42. International Accounting Standard
43. ISA

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44. Quality Control Review
Checking the quality of audit procedure adopted by the delegation, allocation and
supervision of audit team.
45. Peers review
Review of one audit firm by another.
46. Adverse report
47. No opinion report
48. Walk through test
Overall observation of accounting system followed in business. What kind of principle
followed?
49. Compliance Test
Selection of same sample transaction to confirm the follow up of accounting procedure.
50. Substantive test
Detailed and analytical review of horizontal and vertical data nature
51. Planning memorandum
System and procedure followed for preparation of audit program and its further detail.
52. Scanning
Detailed examination of some important transaction by senior auditors.
53. Flow chart
General chart prepared to reflect the flow of transaction from beginning to end.
54. Cut off point
A fixed data set out to confirm the final stage of accuracy such as physical inspection of
closing stock on business closing year.