Corporate Law

Lecture No. 8
AUDIT
Appointment and remuneration of auditors [Section 246]

Introduction of Auditor:
As discussed earlier, the annual financial statements of the company should be audited by an auditor
before they are sent to the members or filed to Commission or registrar and also they shall be
accompanied by the auditor’s report. Company should always have an auditor appointed under the
Companies Act 2017 except for a private company having paid up capital not exceeding Rupees 1 million
or such higher amount as may be notified by the Commission. Audit is not only a year end task rather
office of the auditor should not be vacant and any vacancies should be filled in within given timeframes.

The auditors’ duty is to express an opinion on the truthfulness/fairness or otherwise of the accounts.

Auditor may be appointed in his individual capacity or in the capacity of a firm. Auditors must be eligible
to work as auditors under relevant provisions of the Companies Act 2017 as well as the other applicable
laws. Usually companies appoint only one auditor however for large companies two or more joint
auditors may be appointed but the expression used in the Act is a plural as the ‘auditors’ even for a single
auditor.

Most of the companies are required to appoint the practicing Chartered Accountants as their auditors and
the exception is only for the private companies with a paid up capital of less than Rupees three millions.

Appointment and removal of first auditors and their remuneration [Section 246]
After the incorporation of a company, first auditors of the company shall be appointed by the directors of
the company within ninety days after the date of incorporation of the company, the directors are also
entitled to fix the remuneration of the auditors so appointed by them.

If the first auditors are not appointed as such by the directors, Commission may appoint the auditors and
fix their remuneration. The company shall be required to give a notice to the Commission regarding its
power becoming exercisable.

Appointment of subsequent auditor

First auditors shall retire on the date of first annual general meeting and in their place the new auditors
shall be appointed by members by passing a resolution in the general meeting.

1 From the desk of Mr. Talal M. Arif

Right of retiring auditor to make representation
If a notice is received from any person appointing any person other than the existing auditor, then such
notice from the member shall be sent to the retiring auditor forthwith. The retiring auditor has got right to
make representation in writing at least two days before the general meeting. The representation shall be
read out at the meeting before taking up the agenda for appointment of the auditor it shall be mandatory
for the auditor or a person authorized by him in writing to attend the general meeting in person.

Casual Vacancy
Casual vacancy in the office of the auditor arising due to the resignation or death etc. of the auditor shall
be filled by the directors within 30 days of such casual vacancy. Until such vacancy is so filled, the
surviving auditor if any may continue to act as auditor.

If auditors are not appointed in case of casual vacancy by the directors of the company within thirty days
of the occurrence of vacancy then Commission shall appoint auditor to fill in the casual vacancy.
Commission shall also be empowered to appoint auditors and fixed their remuneration when the auditors
appointed by the company are unwilling to act as auditors.

An auditor appointed to fill the casual vacancy shall hold the office of the auditor till the conclusion of
next annual general meeting.

Qualification of Auditors
For a public company and its subsidiaries and a private company having paid up capital of more than and
equal to Rupees 3 million , the qualification of auditors is a Chartered Accountant within the meeting of
Chartered Accountant Ordinance 1961. Further a firm majority of whose partners practicing are Chartered
Accountant may be appointed by its firm name as auditors of a company and may act in its firm name.

As per relevant provision of Chartered Accountant Ordinance 1961, only that person can act as a auditors
who have obtained a valid certificate of practice from the institute of Chartered Accountant of Pakistan.
Furthermore, a body corporate cannot be appointed as auditor of any company-the auditor has to be a
natural person or the firm of natural person who have obtained a valid certificate of practice from the
institute of Chartered Accountants of Pakistan.

Auditor’s rights to access the records and information (Section 248)

Auditor’s rights to access information

Every auditor of a company has a right to access at all times to the books, accounts and vouchers of the
company, in whatever form they are held,

Auditor’s right to call branch’s information

Auditors has right to access to such copies of , extracts from, the books and accounts of the branch as
have been transmitted to the principal office of the company;

2 From the desk of Mr. Talal M. Arif

Auditor’s rights to demand information from certain persons

Auditor has right to require any of the following person to provide him with such information or
explanations as he thinks necessary for the performance of his duties as auditor;

 any director, officer or employee of the company;

 any person holding or accountable for any of the company’s books,
 accounts or vouchers;
 any subsidiary undertaking of the company;
 any officer, employees or auditor of any such subsidiary undertaking of the company or any
person holding or accountable for any books, accounts or voucher of any such subsidiary
undertaking of the company.

Auditor’s rights in respect of general meetings

The auditor is entitled to attend, receive all notices of any general meeting.

The Auditor is entitled to be heard at any general meeting which he attends on any part of the business
which concerns him as auditor.

Auditor’s report (Section 249)

Duty of the Auditor

The auditor’s duty is to express an opinion in the form of a report to the members of the company on the
accounts and books of the accounts of the company.

The auditor makes a report on balance sheet, profit and loss account or income and expenditure account
and every other statement, which is to be presented to the members of the company in annual general
meeting including notes to the accounts.

Signature of an adult report (Section 251)

The auditor’s report must

 state the of the auditor and the engagement partner

 be signed
 be dated
 Indicate the place at which it is signed.

If the auditor is an individual then the report must be signed by him, if it is a firm then it must be
signed by the partnership firm with the name of the reporting partner.

3 From the desk of Mr. Talal M. Arif