SHORTCUT TO BUSINESS LAW CAF-3

Chapter 27 – Accounts & Audit (Part 2)

Daniyal Zahid Butt, ACA

Shortcut to Business Law CAF-3 Chapter 27 – Accounts & Audit (Part 2) Daniyal Zahid Butt, ACA
Audit

2.1 Appointment and remuneration of auditors [246]

First auditor Subsequent auditor Casual vacancy

Time of appointment within 90 days at AGM within 30 days
of incorporation of Co. of such vacancy
Appointed by & Directors Members Directors
remuneration fixed by (by passing resolution in
meeting)
(on recommendation of
directors after obtaining
consent of the proposed
auditors.)
Retirement of auditor on date of 1st AGM till next AGM till next AGM

 members may remove auditor from office

o before the expiration of the term of the office
o by passing a special resolution,
 in this case the new auditor will be
o appointed by the board
o with the approval of the SECP

SECP power
 If the Co. fails to appoint auditor within time of appointment; or
 appointed auditors are unwilling to act as auditors of Co.
 SECP may
o on its own motion; or
o on an application made to it by the Co. or any of its members
 direct to make good the default
 within such time as may be specified in order

 In case the Co. fails to report compliance within the period so specified
 SECP shall appoint auditors of Co.
 who shall hold office till conclusion of the next AGM

Notice for appointment by member

1. Inform registrar within 14 days
 Notice for appointment of the auditor shall be sent by
 of any appointment, removal or retirement of
 any member having 10% or more of shareholding of the Co.
the auditor
 at least 7 days before the date of meeting
2. In case of appointment,
 Co. shall circulate this notice to the retiring auditor; and  the consent of the concerned auditor is also
 upload it on its website required
 along with intimation
Rights of retiring auditor
1. the retiring auditor shall have a right 2. Such representation shall be read out at the meeting
 to make a representation in writing to the Co.  before taking up the agenda for appointment of the auditor
 at least 2 days before the date of general
meeting 3. it shall be mandatory for the auditor
(or a person authorized by him in writing)
 to attend the general meeting.

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Shortcut to Business Law CAF-3 Chapter 27 – Accounts & Audit (Part 2) Daniyal Zahid Butt, ACA

2.2 Qualification and disqualification of auditors [247]

Qualification of auditors

1. Auditors must be a Chartered Accountant (CA)

having valid certificate of practice from ICAP for other than these Co.
for following Co.  the auditors must be
i. Public Co.  CA or Cost & Management Accountant
ii. Co. which is subsidiary of public Co.  having valid practicing certificate from
iii. Private Co. having paid up capital ≥ Rs. 3million respective institute

2. A firm, where majority of partners (practicing in Pak) are CAs.

 may be appointed by its firm name as auditors of a Co. and may act in its firm name.

3. a body corporate cannot be appointed as auditor of any Co.

 the auditor has to be a natural person or the firm of natural persons

Disqualification of auditors
1. Director/officer/employee 6. Convicted
a) a person who is a director, officer or employee of  A person who has been convicted by the court
the Co.  of an offence involving fraud
b) a person who held such a position at any time  and a period of 10 years has not elapsed from the
during the preceding 3 years date of such conviction
c) a person who is a partner or employee of
a director, officer or employee of the Co.

2. the spouse of a director of the Co. 7. A body corporate

3. Indebted 8. Ethics
 a person who is indebted to the Co.  A person who is not eligible to act as auditor
(other than in the ordinary course of business)  under the code of ethics as adopted by ICAP/ICMAP
 A person is not considered as indebted
 if unpaid utility dues for ≤ 90 days to utility 9. Shares in Co.
Co.  a person or his spouse or minor children,
 if owes less than 1,000,000 to a credit card or in case of a firm, all partners of such firm
issuer  who holds any shares of an audit client or any of its
4. Guarantee associated Co.
 a person who has
 given a guarantee or provided any security Such person shall be eligible to become auditor of Co.
 in connection with the indebtedness of any 3rd  if such a person holds shares prior to his appointment
person as auditor,
 to the Co. (other than in the ordinary course of  the fact shall be disclosed on his appointment as
business of such entities) auditor; and
 such person shall disinvest such shares within 90 days
5. Business relationship of such appointment.
 Person or a firm who, directly or indirectly, has
business relationship with the Co.
 other than in the ordinary course of business of such
entities

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Shortcut to Business Law CAF-3 Chapter 27 – Accounts & Audit (Part 2) Daniyal Zahid Butt, ACA

Other considerations relating to disqualification

1. If after appointment auditor becomes disqualified,
 he shall deem to vacate office with effect from date he becomes disqualified

2. Person disqualified as auditor of a Co.

 shall also be disqualified for
o its Holding Co.,
o its Subsidiary Co.; and
o Subsidiary Co. of its Holding Co..

3. If an unqualified/disqualified person is appointed as auditor;

 It shall be void and SECP may appoint a qualified person in this place

2.3 Auditor’s right to access the records and information [248]

Auditor’s right to access information
 Every auditor of a Co. has a right to access at all times
 to the books, accounts and vouchers of the Co.,
 in whatever form they are held,
Auditor’s right to call branch’s information
 Auditor 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 Co.;
Auditors’ right to demand information from certain persons
 Auditor has the right to require any of the following persons
 to provide him with such information or explanations as he thinks necessary
 for the performance of his duties as auditor:
o any director, officer or employee of the Co.;
o any person holding or accountable for any of the Co.’s books, accounts or vouchers;
o any subsidiary of the Co.;
 any officer, employee or auditor of any such subsidiary of the Co. or
 any person holding or accountable for any books, accounts or vouchers of any such subsidiary
of the Co.
Auditor’s right 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

2.4 Auditors’ report

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

 The auditor makes a report on

o balance sheet,
o profit and loss account or income and expenditure account and
o every other statement, including notes to the accounts,
 which is to be presented to the members of the Co. in annual general meeting.

Following are matters to be stated by the auditor in his report:

1. It shall be stated that:

 they have obtained all the information and explanations
 which in their knowledge and belief were necessary for the purposes of the audit;

 if any information or explanation is not provided by the Co. or any of its officer,
 the auditors shall report that they were not provided

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Shortcut to Business Law CAF-3 Chapter 27 – Accounts & Audit (Part 2) Daniyal Zahid Butt, ACA

2. Opinion as to:
1. Accounts
 whether the books of accounts are adequate as per requirements of Companies Act, 2017
 whether the accounts are in conformity with the requirements of the Act and with books of accounts.
2. True and fair view
 whether the said financial statements
 give the information required by the Act and give a true and fair view:
o of the state of the Co.’s affairs as at the end of its financial year;
o of the profit or loss for its financial year; and
o cash flow statement for its financial year;
3. For business
 whether the expenditure incurred, investments and guarantee extended by the Co. during the year
o were for the business of the Co. and
o were in line with the objects of the Co..
4. Zakat
 whether the responsibility of the Co. regarding
 deduction and payment of Zakat under relevant law
 has been discharged.
3. Negative/qualified opinion
 State the reasons and factual position known to him
 if his above stated opinions is negative or is qualified (positive opinion but with exceptions)
4. Reference
 If auditor's report makes reference to some other report or statement,
 such report be annexed to auditor's report and be considered a part of report.
5. SECP direction
 SECP may also direct any Co. or class of companies
 that the auditor’s report shall also include a statement of additional matters as specified

Auditor presence in meeting for listed Co.

 auditor or a person authorized by him in writing
 shall be present in the general meeting
 in which financial statements and auditor’s report are to be considered.

Review of statement of compliance

 SECP may direct that
 the statement of compliance to be attached with Directors Report,
 shall be reviewed by the auditor
o who shall issue a review report to the members
o on the format as specified.

Signature of an audit report [251]

 The auditor’s report must
o state the name of the auditor and the engagement partner
o be signed be dated
o indicate the place at which it is signed.

 If the auditor is an individual

o then the report must be signed by him,
 if it is a firm
o then it must be signed by the partnership firm
o with the name of the engagement partner.

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