6. Compliance with legal requirements

Question 1

Which companies are required to get their audit done in pak?

Answer 1

In Pakistan, audit of annual financial statements is required for all types of companies except a private company having a paid up capital of Rs. 1 Million or less.

Question 2

Explain appointment of first auditor?

Answer 2

The first auditor is appointed by the Board of Directors within 90 days of incorporation of the company.
If the directors fail to appoint the first auditor within 90 days of incorporation, Commission may appoint the auditor.

Question 3

Explain the appointment of subsequent auditor?

Answer 3

Subsequent auditor is appointed by the members at each AGM.

If the members fail to appoint subsequent auditor at an AGM, the commission may appoint the auditor.

Question 4

Explain the appointment in case of casual vacancy?

Answer 4

Casual vacancy is filled by Directors within 30 days of its occurrence.
If the directors fail to fill the casual vacancy within 30 days of its occurrence of the vacancy, Commission may appoint auditor.

Question 5

Explain the appointment in case of mid-term removal?

Answer 5

If the auditor is removed before the expiry of his term, Board of Directors shall appoint the auditor with prior approval of the Commission.

Question 6

What if a disqualified person is appointed by the company?

Answer 6

If a disqualified person is appointed as an auditor, the appointment shall be void and Commission shall appoint a qualified auditor in his place.

Question 7

What if the appointed person does not wanna act?

Answer 7

If the appointed auditor is not willing to act, the Commission may appoint auditor.

Question 8

What is the tenure of auditor?

Answer 8

The tenure of an auditor is from the date of appointment till the conclusion of next AGM.

Question 9

Explain removal of auditor before AGM or Mid-Term removal?

Answer 9

An auditor may be removed before expiry of his term by Members by passing a Special Resolution.

Question 10

Tell about remuneration of auditor?

Answer 10

The remuneration of the auditor is fixed by:
Members or
Board or Commission.

Question 11

Whose signature is there on the audit report?

Answer 11

If the auditor is an Individual, report shall be signed by him.
If the auditor is a Partnership firm, report shall be signed by:
Partner of the firm meeting the qualification criteria.
In the name of the firm.

Question 12

Explain step wise procedure for appointment of auditor?

Answer 12

1. Recommendation by directors
2. Recommendation by members
3. Right of the retiring auditor
4. Appointment at AGM
5. Notification after appointment

Question 13

Explain recommendation by members?

Answer 13

A member or members having 10% or more shareholding in a company can also propose an auditor if:
the consent of proposed auditor has been obtained by the member
member has sent a notice for resolution to company at least 7 days before the AGM.
Company shall send the copy of this notice to retiring auditor and shall also post it on the website.

Question 14

What are the rights of retiring auditor?

Answer 14

The retiring auditor has the right to make a representation in writing to the company. This representation shall be made at least 02 days before the AGM.
If any representation is made by the retiring auditor:
it shall be read out at the AGM before taking up the agenda for appointment of the auditor.
it shall be compulsory for the auditor or the person authorized by him in writing to attend the meeting.

Question 15

What are the ethical responsibilities of outgoing auditor?

Answer 15

1. to reply to the incoming auditor’s Professional clearance letter with permission of the client.
2. If representation was made, submit copy to ICAP.
3. If removed in mid-term, immediately file with ICAP a Statement of facts.

Question 16

What are the ethical responsibilities of Incoming auditor?

Answer 16

1. Incoming auditor shall send Professional Clearance Letter to outgoing with permission of client.
2. If representation was made, incoming shall obtain its copy.
3. If removed mid-term, incoming shall also inform ICAP about the offer and shall not accept offer until clearance from ICAP.

Question 17

What are the rights of auditor with respect to information?

Answer 17

The auditor has a right to:
Access company’s books, accounts and vouchers
Access to such copies of books and accounts that may be transmitted to principal office of the company.
To require such information that he thinks is necessary for the purpose of audit.

Question 18

What are auditor’s rights with regard to General meetings?

Answer 18

1. Right to receive all notices of general meetings which the members of company are entitled to receive.
2. Right to attend general meetings.
3. Right to speak at general meetings on audit-related matters.
4. Right to make representation in writing if change of auditor is proposed.

Question 19

What are the statutory duties of the auditor?

Answer 19

Audit shall be conducted in accordance with ISAs and auditor shall examine and report:
if he has obtained all information and explanations necessary for purposes of audit
if proper books of accounts have been kept by the company
if financial statements have been drawn and are in agreement with books of accounts and returns
if financial statements give information required by the companies act and also true and fair view
if investments, expenditure were for the purpose of company’s business
if zakat was deducted and deposited or not.

Question 20

What is the qualification criteria of statutory audit?

Answer 20

Statutory audit of:
public company
private company which is a subsidiary of public company
private company with a paid up capital of more than 03 million
shall be conducted by CA or a firm of CAs.
Audit of other companies may be conducted by:
CA or a firm of CAs
CMA or a firm of CMAs

Question 21

Explain the relationship between qualification and partners of firm?

Answer 21

Qualification criteria applies on engagement partner.

Disqualification criteria applies on all partners. If one partner is disqualified, the whole firm is disqualified.

Question 22

Write down the disqualification criteria?

Answer 22

If partner or his spouse or his children hold any shares in the company or its associated company.
If partner is indebted to the company.
If partner has business relationship other than the ordinary course of business with the company.
If partner was/is an employee in last 3 years.
If spouse in a director in the company.
If a person is a body corporate.

Question 23

What are cost accounting records?

Answer 23

A company engaged in production, processing, manufacturing or mining activities is required to keep prescribed particulars relating to following cost accounting records:
Utilization of material
labor and other inputs or items of cost.

Question 24

When should we conduct cost audit?

Answer 24

When a company is required to keep cost accounting records, commission may direct that an audit of cost accounts of the company shall be conducted in manner as may be specified in the order.

Question 25

Who is authorized to conduct audit of cost accounting records?

Answer 25

Audit of cost accounts shall be conducted by an auditor who is:
CA
CMA