Chapter 6

Question 1

Who has the appointing authority for auditor.

Answer 1

First auditor:

1. By Directors within 90 days of incorporation.
2. If not appointed, Commission.

Subsequent auditor:

1. By members at AGM.
2. If not appointed, Commission.

Casual vacancy: (death, disqualification)

1. By directors within 30 days of occurrence.
2. If not appointed, Commission

Mid-term removal of auditor:
1. By directors with prior approval of Commission.

If disqualified person is appointed:

1. Appointment is void.
2. Commission will appoint now.

If appointed auditor is unwilling to act:
1. Commission will appoint now

Question 2

What is the normal tenure of an Auditor.

Answer 2

from date of appointment till conclusion of next AGM

Question 3

How an auditor can be removed.

Answer 3

1. At AGM (=Retirement):
   Tenure completes. New appointment made.
2. Before AGM (= Mid-term Removal):
   By members through Special Resolution.

Question 4

How the remuneration of an auditor is determined.

Answer 4

Determined

1. by members; or
2. by the board (if appointed by Board) or Commission (if appointed by Commission).

Question 5

Who can sign the auditor’s report

Answer 5

If auditor is individual, report shall be signed by himself.

If auditor is a partnership firm, report shall be signed by:

1. By Partner of firm.
2. In the name of firm

Question 6

Procedures for Appointment and Removal of Statutory Auditor

Answer 6

1. Recommendation by Directors:
   i. BOD shall recommend an auditor after obtaining consent of proposed auditor.
   ii. Send recommendation with notice of AGM to members and Retiring auditor.
   (Retiring auditor can also be recommended.)
2. Recommendation by Members:
   i. Obtain consent of proposed auditor.
   ii. 10% shareholder.
   iii. Send notice 07 days before AGM.
   Company to send notice to retiring auditor and upload on website.
3. Right of Retiring Auditor:
   i. To make representation in writing, atleast 02 days before AGM.
   ii. Representation to be read out at AGM before taking agenda for appointment of auditor.
   Retiring auditor or an authorized person shall attend AGM.
4. Appointment at AGM:
   i. By members through resolution.
5. Notification after Appointment:
   i. To Registrar within 14 days of appointment

Question 7

Ethical Responsibilities of Outgoing Auditor:

Answer 7

1. To reply to Professional Clearance Letter with permission of client.
2. To file ICAP a copy Representation in writing (if made at AGM).
3. To file ICAP “Statement of Facts/Circumstances” (in mid-term removal).

Question 8

Ethical Responsibilities of Incoming Auditor:

Answer 8

1. To send Professional Clearance Letter with permission of client.
2. To obtain and read a copy of Representation in writing (if made at AGM).
3. To inform ICAP about the offer and shall not accept offer until prior clearance from ICAP. ICAP usually give clearance in 15 days (in mid-term removal).

Question 9

Statutory Rights of Auditor with regard to information.

Answer 9

1. To access company‘s books, accounts and vouchers.
2. To access books, accounts and vouchers of branches as have been transmitted to principal office.
3. To require information from :
   i. any employee, officer, director of company, or
   ii. any employee, officer, director of subsidiary of company, or
   iii. person who holds company’s books etc.

Question 10

Rights of Auditor with regard to the general meeting:

Answer 10

Rights with regard to the general meeting:

1. To receive notices general meetings.
2. To attend general meetings. However, in case of a listed company or when a representation in writing is made, it is the duty of auditor to attend AGM.
3. To speak at general meetings.
4. To make representation in writing if change of auditor is propossed.

Question 11

Statutory Duties of Auditor

Answer 11

To report:

1. whether F/S conform with AFRF and give information required by companies act, 2017 and give true and fair view.
2. whether all information and explanations obtained.
3. whether proper books of account kept as required by companies act, 2017.
4. whether F/S drawn up as per Act, and in agreement with books of account.
5. whether investments, expenditure and gaurantees extended were for the purpose of business.
6. whether zakat deductible at source under Zakat and Usher ordinance, 1980 has been deducted and deposited

Question 12

What cost accounting records are required to kept.

Answer 12

1. Utilization of Material.
2. Utilization of Labour.
3. Utilization of other inputs or items of cost.

Question 13

Which company is required to maintain Cost Accounting Records

Answer 13

A company engaged in production, processing, manufacturing or mining activities

Question 14

When to conduct Cost Audit.

Answer 14

It is conducted when Commission may direct that audit of cost account of company shall be conducted in manner as may be prescribed in order.

Question 15

Which persons are authorized to conduct Cost Audit.

Answer 15

1. A Chartered Accountant within the meanings of Chartered Accountants Act, 1961
2. Cost and Management Accountant within the meaning of Cost and Management Accountant Act, 1966.

Such auditor shall have same powers, duties and liabilities as an auditor of company and other powers, duties and liabilities as may be prescribed.

Question 16

Which Company is required to conduct its audit and by whom.

Answer 16

Statutory Audit of:
1. Public Company
2. Private company which is a subsidiary of a public company.
3. Private company with PUC of more than 03 million).
should be conducted by Chartered Accountant or a Firm of Chartered Accountants

Statutory audit of companies is conducted by:

1. A CA or a firm of CA
2. A CMA or a firm of CMA

Question 17

What is the disqualification criteria for a statutory auditor.

Answer 17

1. Shareholding by a partner (or spouse or minor child) in audit client (or
   associated company). If so, disclose and dispose within 90 days of appointment.
2. Indebtedness of a partner to company, except:
   i. In ordinary course of business, or
   ii. Upto 1 million to a credit card issuer, or
   iii. Upto 90 days to a utility company.
3. Business relationship with company (except ordinary course of business).
4. Employee/Director (current or in last 3 years)
5. Employee/Partner of an employee of company.
6. Spouse of Partner is a Director in company.
7. Body corporate.
8. if he has given Guarantee to company for indebtedness of third person.
9. Convicted of fraud in last 10 years
10. If he is not eligible for appointment under ICAP Code of Ethics.

IF a person is disqualified for a company, he is also disqualified for its holding, subsidiary and holding’s other subsidiaries.