Auditor

Definition: The body which organizes an audit is termed as an auditor. He is the one who
performs reports after due examination of accounting records and accounting statements,
and he will be forming an impression/assumption regarding financial statements and will
be reflecting a true and fair view of records

Appointment of Auditors

1. Within thirty days from the date of the registration of the Company other than the
Government Company, it’s Board of Directors need to appoint an individual or a firm as
the first auditor of the company. The members shall ratify the appointment of the first
auditor in the first annual general meeting of the company.

2. However, in a case where the Board of Directors fails to appoint the first auditors of
the company they shall inform the members of the Company. Thus, the members shall
appoint the first auditors of the company within ninety days at an extraordinary general
meeting. The auditor so appointed shall hold the office until the conclusion of the first
AGM.

3. Subsequent Auditors wil be l appointed by the company in annual general meetings.

Re-appointment of a Retiring Auditor

The members can not re-appoint the retiring auditor,

1. If he is disqualified for re-appointment.

2. If he has given a notice in writing to the company expressing his unwillingness to be
re-appointed.
3. When a special resolution has been passed by the members not to appoint a particular
auditod.

Qualification of a Company Auditor:

1. The auditor of a co. may be either, an individual or a firm

2. In the case of an individual, he should be a Chartered Accountant within the meaning
of Chartered Accountants Act i.e. he should be holding certificate of practice.
3. In the case of firm of auditor’s all the partners of a firm shall be chartered accountants.

Disqualification of a Company Auditor:

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1. A body corporate. A company cannot audit any other company,
2. An officer or employee of the company.
3. A person who is either a partner or employee of an officer or employee of the
company.
4. A person who has taken debt from the company for amount exceeding Rs. 1,000.
5. A person who has taken guarantee of another person who has taken a loan exceeding
Rs. 1,000 from the company.
6. A person who holds shares or debentures of the company cannot audit that company.

7. A person, who is disqualified for being appointed as auditor of a company, is

automatically disqualified for being auditor of its holding company or its subsidiary
company or any other subsidiary of holding company.

8. A person who is partner or who in the employment, of an officer or employee of the

company.

9. A person or a firm who (whether directly or indirectly) has business relationship with
the company, or its subsidiary, or its holding or associate company or subsidiary of such
holding company or associate company.

10. A person whose relative is a director or is in the employment of the company as a

director or key managerial personnel.

11. A person who has been convicted by a court of an offence involving fraud and a
period of 5 years has not elapsed.

12. A person who is engaged in the business of brokerage including spouse,partner or

employee or blood relative of such person.

13. It must be noted that the aforesaid provisions are applicable to all types of auditors
i.e. cost auditors, statutory auditors and secretarial auditors

Power and Duties of an Auditor

POWERS

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1. Every auditor has a right of access to the books of account and vouchers of the
company at all times, whether they are at the registered office of the company or at any
other place.

2. The auditor of a holding company also has a right of access to the records of the
subsidiary company if they are necessary for the purposes of the consolidation.

3. An auditor also has a right to receive notice of any general meeting. He may attend it
himself or through his authorized representative who is also qualified to be an auditor. He
also has a right to be heard on any part of the business which concerns him.

3. The auditor also has a right to receive information and explanation regarding the
matters which are necessary for the performance of his duties. He needs to know
whether:

(a). The company makes loans and advances against proper security and the terms of
these are prejudicial to the interests of the company.

(b) Transactions that merely represent a book entry is in the interests of the company.

(c) In the case of a company which is not an investment or banking company, it sells the
assets. They are in the form of shares, debentures, and other securities at a price less than
their purchase price.

(d). The company shows the loans and advances that it makes as deposits.
It charges the personal expenses to revenue account.

(e). It states in the books and documents that where it has allotted the shares in cash, it
has received the cash or not. Also, whether the position in the books and Balance Sheet is
correct and not misleading
(f) The remuneration of the auditor of a company shall be fixed in its general meeting or
in such manner as may be determined therein.

(g). Auditor has power to fine any emplyee or officer of company for not providing
informations.

(h) It is a prime requirement that the company must send all notices and communication
to the auditor, relating to any general meeting, and he shall attend the meeting either
through himself or through his representative.

(i). the company must mention in their prospectus the name, address and consent of the
auditors of the company.

DUTIES

1. Auditor to sign audit reports :

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The auditor of the company shall sign the auditor’s report or sign or certify any other
document of the company and financial transactions or matters, which have any adverse
effect on the functioning of the company mentioned in the auditor’s report shall be read
before the company in general meeting and shall be open to inspection by any member of
the company.

2. Make report:
The auditor shall make a report to the members of the company on accounts examined by
him on every financial statement.

3. Audit report of Government Company :

The auditor of the government company will be appointed by the SECP and Auditor-
General of Pakistan and such auditor shall act according to the directions given by them.

4. Auditing Standards :
Every auditor shall comply with the auditing standards.

5. Fraud Reporting :
If an auditor of a company, in the course of the performance of his duties as auditor, has
reason to believe that an offence involving fraud is being or has been committed against
the company by officers or employees of the company, he shall immediately report the
matter to the Central Government within such time and in such manner as may be
prescribed.

6. Winding up:
at the time of voluntary winding up of a company it is a mandatory requirement that
auditor should attach the copy of the audits of the company.

7. Auditor's duty to care

Every auditor must observe due care and deligence while conducting audit of accounts
and inspecting the vouchers etc.

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