Chapter6 (Compliance with legal requirements')

Question 1

what are appointing authorities for auditor?

Answer 1

1) Bord of directors
2) Members
3) Commision

Question 2

Circumstances under which board of directors can appoint Auditor.

Answer 2

1) Appointment of first auditor
2) Appointment in case of casual vacancy
3) Appointment in case of mid-term removal

Question 3

Circumstances under which commission appoint auditor.

Answer 3

1) If directors fail to appoint auditor within 90 days of incorporation.
2) If the members fail to appoint subsequent auditor at an AGM.
3) If the directors fail to fill casual vacancy within 30 days.
4) If disqualified person is appointed as auditor.
5) If appointed auditor is unwilling to act.

Question 4

who has appointment authority of auditor?

Answer 4

1. board of directors
2. commission

board of directors’ directors appoint auditor within 90 days of incorporation company.

commission would appoint auditors if board of directors fail to appoint auditor.

Question 5

who has appointment authority of subsequent auditor?

Answer 5

1. members
2. commission

subsequent auditor is appointed by members at each AGM.

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

Question 6

who has appointment authority in case of casual vacancy?

Answer 6

1. directors
2. commission

Directors: directors have authority to appoint an auditor in case of casual vacancy (i.e., death of sole-proprietor or disqualification during audit)
this should be done within 30 days of occurrence.

commission: commission would appoint auditor if directors fail to appoint auditor within 30 days of occurrence of vacancy.

Question 7

who has authority to appoint auditor in case of mid-term removal of auditor?

Answer 7

if an auditor is removed before expiry of his term,board of directors shall aappoint the auditor with prior approval of the commission.

Question 8

what would be the procedure if a disqualified person is appointed by the company?

Answer 8

if a disqualified person is appointed as auditor, this appointment should be void and commission would appoint a qualified auditor in his place.

Question 9

what would be the procedure if an appointed auditor is unwilling to act.

Answer 9

if an appointed auditor is unwilling to act, commission will appoint auditor.

Question 10

what would be the tenure of the auditor?

Answer 10

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

Question 11

when auditor would be removed?

Answer 11

1. at AGM/retirement.
2. before AGM/mid-term removal.

Question 12

how auditor is removed at AGM?

Answer 12

an auditor is declared retired at AGM and new appointment is made for next period.

Question 13

how mid-term removal of auditor is done?

Answer 13

an auditor could be removed before his expiry date by members by passing a resolution.

Question 14

who would fix remuneration of auditor?

Answer 14

remuneration of auditor shall be fixed:
1. by members; or
2. by the board or commission if the auditor is appointed by the board or commission by the case may be.

Question 15

what would be the procedure of signature of auditor rreport?

Answer 15

if auditor is an individual, reports shall be signed by him.

if auditor is a partnership firm, report shall be signed:
1. by a partner of the firm
2. in the name of firm.

name of engagement partner shall also be mentioned in the report.

Question 16

what are legal procedures for appointment of statutory auditor?

Answer 16

1. recommendation by directors.
2. recommendation by members.
3. right of retiring auditor.
4. appointment at AGM.
5. notification after appointment.

Question 17

what is procedure of recommendation of auditor by board of directors?

Answer 17

board of directors shall recommend an auditor, after obtaining consent of proposed auditor.
a notice of recommendation shall be sent o members and retiring auditor along with a notice of AGM(retiring auditor may also be recommended for re-appointment)

Question 18

what is procedure of recommendation by members?

Answer 18

a member or members have 10% or more shareholding in company can also propose an auditor. Provided:
1. a consent of proposed auditor has been obtained by member, and
2. member has sent a notice for resolution of change of auditor, to company at least 7 days before AGM.

COMPANY SHALL FORTH WITH SEND COPY OF THIS NOTICE TO RETIRING AUDITOR AND SHALL ALSO POST ON ITS WEBSITE.

Question 19

what are the rights of retiring auditor?

Answer 19

retiring auditor has right to make a representation in writing to company. This representation shall be made at least 02 days before the date of AGM.

If such a representation is made by retiring auditor:
a. it shall be read out at AGM before taking up the agenda for appointment of the auditor.
b. it shall be compulsory for the auditor, or a person authorised by him in writing to attend the general meeting.

Question 20

what would be the procedure for appointment at AGM?

Answer 20

At AGM, members will pass a resolution to appoint auditor from proposed auditor.

Question 21

what woulb be the procedure of notification after appoinment?

Answer 21

company shall send notice of appointment of auditor (along with auditors written consent) to registrar within 14 days.

Question 22

what would be the ethical responsibilities when there is change of outgoing auditor(existing/predecessor)?

Answer 22

1. to reply promptly to incoming auditors’ professional clearance letter with permission of client.
2. outgoing auditor will file with ICAP a copy of representation in writing (if made).
3. in case of midterm removal, predecessor auditor must immediately file with ICAP a statement of facts/circumstances.

Question 23

what would be the ethical responsibilities of incoming auditor(proposed/successor) ?

Answer 23

1. income auditor shall send professional clearance letter to outgoing auditor with permission of client.
2. incoming auditor shall obtain a copy of representation in writing (if made by retiring auditor)
3. in case of midterm removal, incoming auditor shall also inform ICAP about the offer, and shall not accept offer of appointment without prior clearance from ICAP.ICAP usually gives clearance within 15 days.

Question 24

exam tip

Answer 24

be careful while answering.

1. legal procedure or ethical procedure
2. change of auditor during tenure or end of tenure
3. incoming auditor or outgoing auditor

Question 25

what are statutory rights of auditor?

Answer 25

1. auditors right to information 2. rights with regard to general meeting

Question 26

what are auditors' rights to information?

Answer 26

an auditor of the company has a right: 1. of access to the company's books accounts and vouchers (in (whatever form they are held). 2. to access to such copies of books and accounts of the branch as have been transmitted to principal office of the company. 3. to require such information and explanation as he thinks necessary for the purpose of audit: a. from any director, officer or employee of the company. b. from any subsidiary of company (Or its director, officer or employees) c. from any person who holds any of company's books, accounts, vouchers.

Question 27

what are rights of auditor with regard to general meeting?

Answer 27

1. rights to receive all notices of any general meetings which members of company are entitled to receive. 2. rights to attend general meeting. however, in case of listed company (or if representation in writing is made by retiring auditor), it is duty of auditor, or a person authorized by him in writing to attend AGM. 3. right to speak at general meeting on audit related matters. 4. right to make representation in writing if change of auditor is proposed.

Question 28

what are statutory duties of an auditor?

Answer 28

auditor shall conduct audit in accordance with ISAs as applicable in Pakistan and shall examine and report: 1. whether he has obtained all the information and explanations which, to the best of his knowledge and belief, were necessary for the purpose of the audit. 2. whether proper books of account have been kept by the company as required by the companies ACT,2017. 3. whether financial statements have been drawn up in conformity with the companies ACT,2017, and are in agreement with the books of account and returns. 4. whether financial statements conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the companies ACT,2017 and give true and fair view. 5. whether investments made, expenditure incurred and guarantees extended during the year were for the purpose of the company's business. 6. whether zakat deductible at source under the zakat and usher ordinance,1980, was deducted by the company and deposited in the central zakat fund.

Question 29

what is qualifications criteria of statutory auditor?

Answer 29

statutory audit of: 1. a public company 2. a private company which is subsidiary of a public company 3. a private company with a paid-up capital of 03 million or more. shall be conducted by a charted accountant or a firm of charted accountants (having valid certificate of practise) from ICAP. statutory audit of other companies shall be conducted by: 1. a charted accountant or a firm of charted accountant having valid certificate of practise from ICAP. 2. a cost and management accountant or firm of cost management accountants (having a valid certificate of practise from ICMAP.

Question 30

what is disqualification criteria of a statutory auditor?

Answer 30

a person or a firm cannot be appointed as statutory auditor of a company: 1. if he or his spouse or minor child holds any share in the audit client or any of its associated company. however, if such a person holds shares at the time of appointment, he can be appointed if he discloses the fact at the time of appointment and disposes shares within 90 days of appointment. 2. if he is indebted to the company, (other than ordinary course of the business of such entity) in following cases auditor will not be considered indebted.: a. if sum payable to a credit card issuer does not exceed Rs.1 million, or b. if sum payable to utility company remains unpaid up to 90 days. 3. if he has business relationship with the company (other than in audit course of business of such entities). 4. if he is or was an employee (or officer or director) of the company in last three years (from date of appointment) 5. if he is an employee or partner of the employee (or officer or director) of the company 6. if his spouse id director in company. 7. if he is a body corporate. 8. if he has given guarantee or security to company for indebtness of third person. 9. if he has been convicted by a court of an offence involving fraud in last 10years. 10. if he is not eligible of appointment as an auditor under code of ethics by ICAP/ICMAP. if a person is disqualified for a company, he is also disqualified for its holding, subsidiaries, and holding other subsidiaries.

Question 31

exam tip pg.# 84

Answer 31

khud prho r likhoooo :-(

Question 32

what is procedure of maintaining cost accounting records?

Answer 32

a company engaged in production, processing, manufacturing or mining activities is required to prescribed particulars relating to following records: 1. utilisation of material, 2. utilisation of labour, 3. utilisation of other inputs or items of cost.

Question 33

which person is authorised to conduct audit of cost accounting record?

Answer 33

audit of cost accounts is conducted by the person who is. 1. chartered accountant within the meaning of charted accountant, ordinance 1961, or 2. cost and management accountant within the meaning of the cost and management accountants Act,1966. such auditor shall have the same powers, duties and liabilities as an auditor of the company and such other powers, duties and liabilities. as may be prescribed.