CHAPTER NO 1 (COMPANY LAW PORTION) DISQULIFICATION CRITERIA OF AUDITOR

Question 1

A person is not considered indebted to the company if unpaid utility dues are for less than how many days?
a) 60 days
b) 30 days
c) 90 days
d) 120 days

Answer 1

90 days

Question 2

Which of the following is a disqualification for being appointed as an auditor of a company?
a) A person who has been a director of the company during the preceding 3 years
b) A person who holds shares in the company’s subsidiary company
c) A person who owes less than 1,000,000 to a credit card issuer in the ordinary course of business
d) None of the above

Answer 2

a) A person who has been a director of the company during the preceding 3 years

Question 3

Within how many days must an auditor disinvest shares held in the company if appointed?
a) 30 days
b) 60 days
c) 90 days
d) 120 days

Answer 3

90 days

Question 4

A person convicted of an offense involving fraud is disqualified from being an auditor for how many years after conviction?
a) 5 years
b) 10 years
c) 15 years
d) No time limit

Answer 4

10 years

Question 5

Under which code of ethics is a person disqualified if not eligible to act as an auditor?
a) ICAP and ICMA code
b) SECP regulations
c) IFRS guidelines
d) Company’s internal code

Answer 5

ICAP and ICMA code

Question 6

If an unqualified person is appointed as an auditor, what is the role of SECP?
a) Penalize the company
b) Appoint a qualified person in their place
c) Disqualify the person retroactively
d) Notify the board of directors

Answer 6

Appoint a qualified person in their place

Question 7

If an auditor becomes disqualified after appointment, when does the disqualification take effect?
a) Immediately after appointment
b) From the date they are notified
c) From the date they become disqualified
d) At the end of the fiscal year

Answer 7

From the date they become disqualified

Question 8

ABC Ltd. is appointing an auditor. Mr. X is a former director of the company and resigned from the position 2 years ago. Mr. X also holds shares in a subsidiary of ABC Ltd. Which of the following statements is correct regarding Mr. X’s eligibility to be appointed as an auditor?
a) Mr. X is eligible because his directorship ended more than 1 year ago.
b) Mr. X is disqualified because he was a director in the preceding 3 years.
c) Mr. X is eligible if he disinvests his shares within 90 days of appointment.
d) Mr. X is disqualified because he holds shares in the company’s subsidiary

Answer 8

b) Mr. X is disqualified because he was a director in the preceding 3 years.

Question 9

Mr. Y, an auditor, owes Rs. 1,200,000 to a credit card issuer in the ordinary course of business. However, he has no overdue utility bills. Which of the following best describes his eligibility to be appointed as an auditor of XYZ Ltd.?
a) Mr. Y is disqualified because he owes more than Rs. 1,000,000 to a credit card issuer.
b) Mr. Y is eligible because the credit card debt is in the ordinary course of business.
c) Mr. Y is disqualified only if he fails to repay the debt within 90 days.
d) Mr. Y is eligible because he has no overdue utility bills.

Answer 9

Mr. Y is disqualified because he owes more than Rs. 1,000,000 to a credit card issuer.

Question 10

A firm is appointed as the auditor of a company. The firm’s senior partner holds a personal guarantee for a loan taken by the company from a third party. Which of the following statements is correct?
a) The firm is eligible to act as an auditor because the guarantee is for a third party.
b) The firm is disqualified because the guarantee creates an indirect business relationship.
c) The firm is disqualified only if the loan exceeds Rs. 1,000,000.
d) The firm is eligible if the guarantee is disclosed and approved by the board of directors.

Answer 10

The firm is disqualified because the guarantee creates an indirect business relationship

Question 11

Mr. Z is appointed as an auditor of PQR Ltd. and its holding company. During his tenure, it is discovered that he holds minor shares in the holding company that he inherited. What should Mr. Z do to retain his position?
a) Nothing, as inherited shares do not disqualify him from being an auditor.
b) Disclose the shareholding to the board of directors within 30 days.
c) Disclose the shareholding and disinvest the shares within 90 days of appointment.
d) Resign immediately, as holding shares in the holding company disqualifies him

Answer 11

Disclose the shareholding and disinvest the shares within 90 days of appointment

Question 12

XYZ Ltd. appoints an auditor who was previously convicted of fraud 8 years ago but served his sentence. However, the company’s directors claim the conviction is no longer relevant. What is the correct course of action?
a) The appointment is valid because 8 years have passed since the conviction.
b) The appointment is invalid because 10 years have not elapsed since the conviction.
c) The appointment is valid if the auditor provides a declaration of fitness.
d) The appointment is invalid, but the company can seek SECP’s approval.

Answer 12

The appointment is invalid because 10 years have not elapsed since the conviction.

Question 13

A company appoints an auditor, Mr. A, who is later found to have a business relationship with the company through a firm he owns. Which of the following actions should the company take?
a) Continue with Mr. A as the auditor since his firm’s relationship is indirect.
b) Replace Mr. A with a qualified auditor immediately upon discovery.
c) Seek SECP approval to retain Mr. A as the auditor.
d) Allow Mr. A to serve until the next annual general meeting.

Answer 13

Replace Mr. A with a qualified auditor immediately upon discovery.

Question 14

Which of the following scenarios would disqualify a body corporate from being appointed as an auditor
) The body corporate owes unpaid utility bills for 60 days.
b) The body corporate is the subsidiary of the company it is auditing.
c) The body corporate holds shares in an associated company.
d) The body corporate has no physical presence in the country.

Answer 14

The body corporate is the subsidiary of the company it is auditing.

Question 15

Mr. B was an employee of XYZ Ltd. three years and two months ago. He has applied to be the company’s auditor. Which of the following is true?
a) Mr. B is disqualified because he was an employee of XYZ Ltd. in the preceding three years.
b) Mr. B is eligible because his employment ended more than three years ago.
c) Mr. B is disqualified if he has shares in XYZ Ltd.
d) Mr. B is eligible only if approved by the shareholders

Answer 15

Mr. B is eligible because his employment ended more than three years ago

Question 16

Ms. C, an independent professional, is indebted to a utility company owned by ABC Ltd. for Rs. 800,000. She wants to be appointed as the auditor of ABC Ltd. Which statement is correct?
a) Ms. C is eligible because the debt is under Rs. 1,000,000.
b) Ms. C is disqualified because she is indebted to a utility company associated with ABC Ltd.
c) Ms. C is eligible only if the debt is repaid within 90 days of her appointment.
d) Ms. C is disqualified if the debt remains unpaid for more than 90 days

Answer 16

Ms. C is eligible because the debt is under Rs. 1,000,000.

Question 17

A firm of auditors has a partner whose spouse holds shares in DEF Ltd. The firm is being considered for appointment as DEF Ltd.’s auditor. Which of the following is true?
a) The firm is disqualified unless the partner’s spouse disinvests the shares within 90 days.
b) The firm is disqualified immediately due to the spouse’s shareholding.
c) The firm is eligible if the spouse’s shares are below a threshold of 5%.
d) The firm is eligible if the partner discloses the shareholding in writing

Answer 17

The firm is disqualified unless the partner’s spouse disinvests the shares within 90 days

Question 18

Mr. D provided a personal guarantee for a loan obtained by GHI Ltd. from a third-party bank. GHI Ltd. wants to appoint Mr. D as its auditor. Which of the following statements is correct?
a) Mr. D is eligible if the guarantee is disclosed in the company’s financial statements.
b) Mr. D is disqualified because he has provided a guarantee to a third party on behalf of the company.
c) Mr. D is disqualified only if the guarantee exceeds Rs. 1,000,000.
d) Mr. D is eligible if he withdraws the guarantee before his appointment.

Answer 18

Mr. D is disqualified because he has provided a guarantee to a third party on behalf of the company

Question 19

Mr. E owns a consultancy firm that provides tax advisory services to JKL Ltd. Mr. E is approached to act as the auditor of JKL Ltd. Which statement is accurate?
a) Mr. E is eligible because tax advisory services do not involve auditing.
b) Mr. E is disqualified because he has a business relationship with JKL Ltd.
c) Mr. E is disqualified only if his business relationship involves financial services.
d) Mr. E is eligible if his tax advisory contract ends before his appointment

Answer 19

Mr. E is disqualified because he has a business relationship with JKL Ltd.

Question 20

Mr. F was convicted of fraud 7 years ago and has served his sentence. DEF Ltd. intends to appoint him as their auditor. What is the correct course of action?
a) Mr. F is disqualified because 10 years have not passed since his conviction.
b) Mr. F is eligible if the conviction does not relate to financial matters.
c) Mr. F is eligible if approved by SECP.
d) Mr. F is disqualified permanently for fraud-related offenses.

Answer 20

Mr. F is disqualified because 10 years have not passed since his conviction.

Question 21

A company is considering appointing an auditor who has been reported to the ICAP for a professional misconduct violation but has not yet been penalized. Which of the following applies?
a) The auditor is disqualified immediately due to the complaint.
b) The auditor is eligible until a decision is made by ICAP.
c) The auditor is disqualified unless cleared by SECP.
d) The auditor is eligible if the misconduct is unrelated to auditing

Answer 21

The auditor is eligible until a decision is made by ICAP.

Question 22

ABC Ltd. appoints an auditor who is later found to be unqualified under the law. SECP is notified of this fact. What steps will SECP take?
a) SECP will penalize ABC Ltd. for appointing an unqualified auditor.
b) SECP will replace the auditor with a qualified person immediately.
c) SECP will allow the auditor to serve until the next financial year.
d) SECP will issue a warning and require the company to find a new auditor.

Answer 22

SECP will replace the auditor with a qualified person immediately.

Question 23

Mr. G is the auditor of MNO Ltd. and is asked to also act as the auditor for its wholly owned subsidiary. Which of the following applies?
a) Mr. G is eligible to act as the auditor of both companies.
b) Mr. G is disqualified from auditing the subsidiary due to a conflict of interest.
c) Mr. G can audit both companies if approved by SECP.
d) Mr. G can audit the subsidiary only if MNO Ltd. discloses the arrangement.

Answer 23

Mr. G is eligible to act as the auditor of both companies

Question 24

Scenario: Ms. H is indebted to a utility company owned by PQR Ltd. She owes Rs. 1,500,000, of which Rs. 1,200,000 has been overdue for 120 days. Can Ms. H be appointed as the auditor of PQR Ltd.?
a) Ms. H is disqualified because her utility dues exceed Rs. 1,000,000.
b) Ms. H is disqualified because her dues have been overdue for more than 90 days.
c) Ms. H is eligible if she settles the overdue amount before her appointment.
d) Ms. H is eligible if approved by the shareholders.

Answer 24

Ms. H is disqualified because her dues have been overdue for more than 90 days.

Question 25

A firm of auditors is appointed by XYZ Ltd. Later, it is discovered that one of the partners’ minor children holds shares in XYZ Ltd. What should happen next?
a) The partner should resign immediately to protect the firm’s appointment.
b) The firm is disqualified unless the shares are disinvested within 90 days.
c) The firm is disqualified immediately due to the shareholding.
d) The firm remains qualified if the shares are held by a minor.

Answer 25

) The firm is disqualified unless the shares are disinvested within 90 days

Question 26

ABC Ltd. appoints an unqualified auditor knowingly. What penalty is ABC Ltd. subject to under the law?
a) A fine imposed by SECP and the disqualification of the board of directors.
b) A penalty at Level 2 as defined by SECP regulations.
c) Suspension of financial reporting privileges.
d) Removal of the auditor and a public notice by SECP.

Answer 26

A penalty at Level 2 as defined by SECP regulations.