CHAPTER 1 APPOINTMENT AND REMUNERATION OF AUDIT

Question 1

Within how many days of incorporation must the first auditor be appointed?
a) 30 days
b) 60 days
c) 90 days
d) 120 days

Answer 1

90 days

Question 2

Who appoints the first auditor of the company?
a) Members at the AGM
b) Board of Directors (BOD)
c) Shareholders
d) SECP

Answer 2

Board of Directors (BOD)

Question 3

Until when does the term of the first appointed auditor last?
a) 30 days
b) Until the second AGM
c) Until the next AGM
d) Until removed by SECP

Answer 3

c) Until the next AGM

Question 4

Who appoints the auditor for subsequent terms after the first appointment?
a) Directors
b) Members on recommendation of the BOD
c) SECP
d) Shareholders holding 10% shares

Answer 4

b) Members on recommendation of the BOD

Question 5

What is the time limit to fill a casual vacancy of an auditor?
a) 7 days
b) 15 days
c) 30 days
d) 90 days

Answer 5

c) 30 days

Question 6

Under which circumstances will SECP appoint an auditor?
a) Auditor is removed by a special resolution
b) Auditor not appointed within 90 days of incorporation
c) Casual vacancy not filled by directors within 30 days
d) Both b and c

Answer 6

d) Both b and c

Question 7

Who fixes the remuneration of the auditor in case SECP appoints the auditor?
a) Members
b) Directors
c) SECP
d) Shareholders holding at least 10% shares

Answer 7

c) SECP

Question 8

How many days before the AGM must a notice be given to the company for proposing a new auditor?
a) 3 days
b) 5 days
c) 7 days
d) 10 days

Answer 8

c) 7 days

Question 9

If a retiring auditor wishes to make a representation, how many days before the AGM must it be submitted?
a) 1 day
b) 2 days
c) 5 days
d) 7 days

Answer 9

b) 2 days

Question 10

What action must the company take upon receiving notice of appointment of a new auditor?
a) Forward it to the SECP
b) Inform all shareholders
c) Send a copy to the retiring auditor and post it on the website
d) Call an emergency meeting

Answer 10

c) Send a copy to the retiring auditor and post it on the website

Question 11

What is the maximum period allowed for the company to intimate SECP about the appointment of a new auditor?
a) 7 days
b) 14 days
c) 30 days
d) 45 days

Answer 11

Answer: b) 14 days

Question 12

Who can remove an auditor before the conclusion of the AGM?
a) Members by an ordinary resolution
b) Members by a special resolution
c) Directors through majority approval
d) SECP on its own motion

Answer 12

Members by a special resolution

Question 13

Which of the following is a correct sequence for appointing an auditor in case of non-compliance by the company?
a) Members → SECP → Directors
b) SECP → Members → Directors
c) Directors → Members → SECP
d) Directors → SECP → Members

Answer 13

d) Directors → SECP → Members
(Explanation: If the first auditors are not appointed within 90 days by the directors, SECP steps in. If SECP does not act, members may appoint the auditor.)

Question 14

If an auditor is removed by a special resolution, what must happen next?
a) SECP automatically appoints the next auditor.
b) The board appoints the next auditor with SECP’s prior approval.
c) Members directly appoint the next auditor at the AGM.
d) The casual vacancy remains until the next AGM.

Answer 14

The board appoints the next auditor with SECP’s prior approval.

Question 15

A company fails to appoint an auditor during the AGM, and the casual vacancy is not filled by the directors within 30 days. What is SECP’s responsibility in this scenario?
a) Issue a penalty notice to the company for non-compliance.
b) Appoint an auditor at its discretion or on an application from members.
c) Order the AGM to appoint a new auditor.
d) Transfer the case to a court for further proceedings.

Answer 15

Appoint an auditor at its discretion or on an application from members.

Question 16

A member holding 12% shares in a company intends to propose a new auditor at the AGM. Which of the following conditions must be fulfilled to make this valid?
a) The member must give 14 days’ notice to the company and obtain the auditor’s consent.
b) The member must submit a notice 7 days before the AGM and obtain the proposed auditor’s consent.
c) The member must submit the proposal directly at the AGM without prior notice.
d) No additional conditions are required if the member holds more than 10% shares

Answer 16

The member must submit a notice 7 days before the AGM and obtain the proposed auditor’s consent.

Question 17

If SECP appoints an auditor due to the company’s failure to comply, who is responsible for fixing the auditor’s remuneration?
a) Directors
b) SECP
c) Members in an extraordinary general meeting
d) Members during the AGM

Answer 17

SECP

Question 18

A company’s retiring auditor objects to the appointment of a new auditor and submits a representation to the company. What is the company’s obligation?
a) Ignore the representation and proceed with the new appointment.
b) Ensure the representation is read at the AGM and sent to all members.
c) Allow the retiring auditor to present the representation at a board meeting.
d) Forward the representation directly to SECP for review.

Answer 18

Ensure the representation is read at the AGM and sent to all members

Question 19

. Which of the following is NOT a valid reason for SECP to appoint an auditor?
a) The company fails to appoint an auditor within 90 days of incorporation.
b) Members request SECP to appoint an auditor due to mismanagement by directors.
c) Casual vacancy is not filled by directors within 30 days.
d) Auditors appointed by members are unwilling to act.

Answer 19

b) Members request SECP to appoint an auditor due to mismanagement by directors.
(Explanation: Mismanagement by directors is not a specified reason for SECP intervention.)

Question 20

If a company fails to intimate SECP within 14 days of an auditor’s appointment, what are the potential consequences?
a) SECP may invalidate the auditor’s appointment.
b) The company may face penalties for non-compliance under the Companies Act.
c) The appointment will be escalated to the AGM for approval.
d) The company’s financial statements will be considered unaudited

Answer 20

b) The company may face penalties for non-compliance under the Companies Act.

Question 21

Under what circumstances can SECP appoint an auditor on its own motion, without an application from the company or members?
a) The company fails to conduct an AGM.
b) The company fails to appoint an auditor after removal by a special resolution.
c) Directors refuse to comply with member recommendations for appointment.
d) Directors fail to appoint the first auditors within 90 days of incorporation.

Answer 21

d) Directors fail to appoint the first auditors within 90 days of incorporation.

Question 22

Which of the following statements is true regarding the retirement of an auditor?
a) The retiring auditor has no right to address the AGM.
b) A retiring auditor is automatically reappointed unless explicitly removed.
c) The retiring auditor cannot oppose the appointment of a new auditor.
d) The retiring auditor cannot make any representations once notice is given.

Answer 22

A retiring auditor is automatically reappointed unless explicitly removed

Question 23

A private limited company was incorporated on March 1, 2025. By June 30, 2025, the directors failed to appoint the first auditor. What action can SECP take in this case?
a) SECP can impose a penalty and order the company to appoint an auditor at the next AGM.
b) SECP can appoint an auditor on its own motion or upon receiving an application from the members.
c) SECP can extend the timeline for the company to appoint an auditor.
d) SECP can cancel the company’s incorporation for non-compliance.

Answer 23

SECP can appoint an auditor on its own motion or upon receiving an application from the members.

Question 24

During an AGM, members failed to appoint an auditor for the next term. The board of directors also failed to fill the casual vacancy within 30 days. What should happen next?
a) SECP must appoint an auditor for the company.
b) The company must call an extraordinary general meeting to appoint an auditor.
c) The retiring auditor automatically continues for another term.
d) The company must notify SECP about the vacancy and wait for approval.

Answer 24

SECP must appoint an auditor for the company.

Question 25

A member holding 15% shares of a company wants to propose a new auditor during the AGM. The member submits a notice 4 days before the AGM with the proposed auditor’s consent. Is this valid?
a) Yes, because the member holds more than 10% shares.
b) No, because the notice must be submitted at least 7 days before the AGM.
c) No, because SECP must approve such proposals in advance.
d) Yes, because the consent of the proposed auditor has been obtained

Answer 25

No, because the notice must be submitted at least 7 days before the AGM.

Question 26

A company’s retiring auditor submitted a representation opposing their removal 2 days before the AGM. The company received the representation but did not read it during the AGM or circulate it to members. What is the consequence?
a) The company’s decision to appoint a new auditor becomes invalid.
b) The retiring auditor loses their right to make further objections.
c) The company violates its obligations under the Companies Act 2017 and may face penalties.
d) SECP automatically intervenes and appoints an independent auditor.

Answer 26

The company violates its obligations under the Companies Act 2017 and may face penalties.

Question 27

The members of a company passed a special resolution to remove the existing auditor during the middle of their term. Who will appoint the next auditor, and under what conditions?
a) The members must appoint the next auditor immediately at an extraordinary general meeting.
b) The directors will appoint the next auditor with prior approval from SECP.
c) SECP will appoint the next auditor directly without consulting the company.
d) The retiring auditor automatically continues until a replacement is found

Answer 27

The directors will appoint the next auditor with prior approval from SECP

Question 28

A company failed to notify SECP about the appointment of a new auditor within 14 days after the AGM. What will happen next?
a) The auditor’s appointment will be deemed invalid.
b) SECP may impose penalties on the company for non-compliance.
c) The company must appoint a new auditor within 30 days.
d) SECP will take over and appoint an auditor for the company

Answer 28

SECP may impose penalties on the company for non-compliance.

Question 29

A retiring auditor, whose term ends at the AGM, was not reappointed because the members approved a new auditor. The retiring auditor was not informed about the proposal for the new auditor. Is this compliant?
a) Yes, as long as the new auditor’s appointment was approved at the AGM.
b) No, because the retiring auditor must be notified about any proposed replacements.
c) No, because SECP’s prior approval is required for a change in auditors.
d) Yes, as long as the retiring auditor did not object to the change

Answer 29

No, because the retiring auditor must be notified about any proposed replacements

Question 30

A company’s auditor resigned, and the directors appointed a replacement within 30 days. When does the replacement auditor’s term end?
a) At the conclusion of the next board meeting.
b) At the conclusion of the next AGM.
c) At the end of the financial year.
d) At the conclusion of the auditor’s remaining term

Answer 30

) At the conclusion of the next AGM.

Question 31

A member holding 8% shares in the company proposes a new auditor at the AGM. Can the proposal be considered?
a) No, because the member does not hold at least 10% shares.
b) Yes, because any member can propose an auditor during the AGM.
c) No, because the proposal must be supported by SECP.
d) Yes, if the board approves the proposal before the AGM

Answer 31

No, because the member does not hold at least 10% shares

Question 32

The directors appointed an auditor to fill a casual vacancy, but the auditor refused to act. What should the company do next?
a) The company should call an AGM to appoint a new auditor.
b) SECP should be notified, and the company should request an appointment.
c) The directors should immediately appoint another auditor within the 30-day time frame.
d) The retiring auditor automatically continues until a new appointment is finalized.

Answer 32

SECP should be notified, and the company should request an appointment.