how does an audit conduct

8/12/2019 How Does an Audit Conduct

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What is AUDIT

Audit refers:

An official inspection of an organization's accounts, typicallyby an independent body.

Appointment of auditors(1) Every company shall at each annual general meeting appointan auditor or auditors to hold o ce from the conclusion of thatmeeting until the conclusion of the next annual general meeting:[Provided that an auditor or auditors appointed in a generalmeeting may be removed before conclusion of the next annualgeneral meeting through a special resolution !

(") Appointment of a partnership by the #rm name to be theauditors of a company shall be deemed to be the appointment ofall the persons $ho are partners in the #rm at the time ofappointment

(%) &he #rst auditor or auditors of a company shall be appointedby the directors $ithin sixty days of the date of incorporation ofthe company' and the auditor or auditors so appointed shall holdo ce until the conclusion of the #rst annual general meeting:

Provided that

(a) the company in a general meeting may remove any suchauditor or auditors and appoint in his or their place any otherperson or persons $ho have been nominated for appointment byany member of the company and of $hose nomination notice hasbeen given to the members of the company not less thanfourteen days before the date of the meeting' and

(b) f the directors fail to exercise their po$ers under this subsection* the company in general meeting may appoint the #rstauditor or auditors:


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[Provided further that the auditors appointed in an annual generalmeeting shall not be removed during their tenure except throughspecial resolution!

(+) &he directors may #ll any casual vacancy in the o ce of anauditor* but* $hile any such vacancy continues* the surviving orcontinuing auditor or auditors* if any* may act

(5) Any auditor appointed to fill in any casual vacancy shall hold office until theconclusion of the next annual general meeting.

(6) Where the first auditors are not appointed under clause (b) of the proviso tosub-section (3) ithin one hundred and t enty days of the date of incorporation ofthe company! or here at an annual general meeting no auditors are appointed! or

here auditors appointed are un illing to act as auditors of the company! or herea casual vacancy in the office of an auditor is not filled ithin thirty days after theoccurrence of the vacancy! "#or auditors are removed by the company! the$ommission% may appoint a person to fill the vacancy.

(&) 'he company shall! ithin one ee of the $ommission s po er under sub-section (6) becoming exercisable! give notice of that fact to the $ommission.

(*) 'he remuneration of the auditors of a company shall be fixed(a) +n the case of an auditor appointed by the directors or by the $ommission! as

the case may be, and(b) +n all other cases! by the company in general meeting or in such manner as thegeneral meeting may determine.

Qualification and disqualification of auditors

(") A person shall not be ualified for appointment as an auditor!(i) in the case of a public company or a private company hich is subsidiary of a

public company unless he is a $hartered Accountant ithin the meaning of the$hartered Accountants rdinance! "/6" (0 of "/6"), and

(ii) +n the case of a private company having paid up capital of three million rupeesor more unless he is a $hartered Accountant ithin the meaning of the $harteredAccountants rdinance! "/6" (0 of "/6").%


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(1) A firm hereof all the partners practicing in 2a istan are $harteredAccountants may be appointed by its firm name as auditors of a company referredto in sub-section (") and may act in its firm name.

(3) one of the follo ing persons shall be appointed as auditor of a company!namely4

(a) a person ho is! or at any time during the preceding three years as! a director!other officer or employee of the company,

(b) a person ho is a partner of ! or in the employment of! a director! officer oremployee of the company,

(c) the spouse of a director of the company,

(d) a person ho is indebted to the company,

(e) a body corporate,

(f) a person or his spouse or minor children! or in case of a firm! all partners ofsuch firm ho holds any shares of an audit client or any of its associatedcompanies4

2rovided that if such a person holds shares prior to his Appointment as auditor!hether as an individual or a partner in a firm the fact shall be disclosed on his

appointment as auditor and such person shall disinvest such shares ithin ninetydays of such appointment.%

Explanation: eference in this section to an officer7 or employee7 shall beconstrued as not including reference to an auditor.

(8) A person shall also not be ualified for appointment as auditor of a company if

he is! by virtue of the provisions of sub-section (3)! dis ualified for appointment asauditor of any other company hich is that company s subsidiary or holdingcompany or a subsidiary of that holding company.

(5) +f! after his appointment! an auditor becomes sub9ect to any of thedis ualifications specified in this section! he shall be deemed to have vacated hisoffice as auditor ith effect from the date on hich he becomes so dis ualified.


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(6) A person ho! not being ualified to be an auditor of a company! or being orhaving become sub9ect to any dis ualification to act as such! acts as auditor of acompany shall be liable to fine hich may extend to t enty five thousand rupees.

(&) 'he appointment as auditor of a company of an un ualified person! or of a person ho is sub9ect to any dis ualifications to act as such! shall be void! and!

here such an appointment is made by a company! the $ommission may appoint aualified person in place of the auditor appointed by the company.

Engagement Letter

When e appoint an auditor! e rite a letter to the auditor . When the

auditor replies for that letter !that letter ill be called an engagement letter

Audit working Paper: +f an auditor gathers the evidences and sho his opinion and eep it! its

no n as Audit or ing 2aper7: 'he ob9ective of audit or ing papers are 4

'o eep an evidence.'o supervise'o revie

'o 2lan

: Audit or ing 2aper consist of three type of files4

;ummary


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Correspondence File

: All the letters given to the client or ta en@received by the client are recordedin $orrespondence nglish language and a daily ne spaper in Brdu


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language having circulation in the 2rovince in hich the stoc exchange on hichthe company is listed is situate.

(3) Where notice is given of such a resolution and the retiring auditor ma es ithrespect thereto a representation in riting to the company not exceeding areasonable length and re uests its communication to the members of the company!the company shall! unless the representation is received by it too late for it to do so

(a) +n any notice of the resolution given to members of the company! state the factof the representation having been made, and

(b) send a copy of the representation to every member of the company to homnotice of the meeting is sent hether before or after receipt of the representation bythe company, and if a copy of the representation is not sent as aforesaid because it

as received too late or because of the company s default! the auditor may! ithout pre9udice to his right to be heard in person! re uire that the representation shall beread out at the meeting4

2rovided that it shall not be necessary to send out or to read out the representationat the meeting if! on the application either of the company or of any other person

ho claims to be aggrieved! the registrar is satisfied that the rights conferred bythis section are being abused to secure needless publicity for defamatory matter,and the registrar may order the company s costs on an application under thissection to be paid in hole or in part by the auditor! not ithstanding that he is not

a party to the application.

(8) ;ub-section (3) of this section shall apply to a resolution to remove the firstauditors by virtue of sub-section (3) of section 151 as it applies in relation to aresolution that a retiring auditor shall not be reappointed.

(5) >very company shall! ithin fourteen days from the date of any appointment of an auditor! send to the registrar intimation thereof! together ith the consent in

riting of the auditor concerned.

(6) >very company shall! ithin fourteen days from the date of retirement! removalor other ise ceasing to hold office of an auditor! send intimation thereof to theregistrar.

Powers and duties of auditors


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(") every auditor of a company shall have a right of access at all times to the boo s! papers! accounts and vouchers of the company! hether ept at theregistered office of the company or else here! and shall be entitled to re uire from

the company and the directors and other officers of the company such informationand explanation as he thin s necessary for the performance of the duties of theauditors

(1) +n the case of a company having a branch office outside 2a istan! it shall besufficient if the auditor is allo ed access to such copies of! and extracts from! the

boo s and papers of the branch as have been transmitted to the principal office ofthe company in 2a istan.

(3) 'he auditor shall ma e a report to the members of the company on the accountsand boo s of accounts of the company and on every balance-sheet and profit andloss account or income and expenditure account and on every other documentforming part of the balance-sheet and profit and loss account or income andexpenditure account! including notes! statements or schedules appended thereto!

hich are laid before the company in general meeting during his tenure of office!and the report shall stat

(a) Whether or not they have obtained all the information and explanations hichto the best of their no ledge and belief ere necessary for the purposes of the

audit,

(b) Whether or not in their opinion proper boo s of accounts as re uired by thisrdinance have been ept by the company,

(c) Whether or not in their opinion the balance-sheet and profit and loss account orin the income and expenditure account have been dra n up in conformity ith this

rdinance and are in agreement ith the boo s of accounts,

(d) hether or not in their opinion and to the best of their information andaccording to the explanations given to them! they said accounts give theinformation re uired by this rdinance in the manner so re uired and give a trueand fair vie

(+) +n the case of the balance-sheet! of the state of the company s affairs as at theend of its financial year,


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(ii) in the case of the profit and loss account or the income and expenditureaccount! of the profit or loss or surplus or deficit! as the case may be! for itsfinancial year, and

(iii) +n the case of the statement of changes in financial position or sources andapplication of funds of a listed company! of the changes in the financial position orthe sources and application of funds for its financial year,

(e) Whether or not in their opinion-

(i) 'he expenditure incurred during the year as for the purpose of the company s business, and

(ii) 'he business conducted! investments made and expenditure incurred during theyear ere in accordance ith the ob9ects of the company, and

(f) Whether or not in their opinion Ca at deductible at source under the Da at andBsher rdinance! "/*E(0F+++ of "/*E)! as deducted by the company and deposited in the $entral Da at


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general meeting hich any member of the company is entitled to receive! and to beheard at any general meeting hich he attends on any part of the business hichconcerns him as auditor4

2rovided that! in the case of a listed company! the auditor or a person authoriCed byhim in riting shall be present in the general meeting in hich the balance-sheetand profit and loss account and the auditor s report are to be considered.

(&) +f any officer of a company refuses or fails! ithout la ful 9ustification! theonus hereof shall lie on him! to allo any auditor access to any boo s and papersin his custody or po er! or to give any such information possessed by him as and

hen re uired! or other ise hinders! obstructs or delays an auditor in the performance of his duties or the exercise of his po ers or fails to give notice ofany general meeting to the auditor! he shall be liable to fine hich may extend to

five thousand rupees and in the case of a continuing offence to a further fine hichmay extend to one hundred rupees for every day after the first during hich thedefault! refusal or contravention continues.

(*) 'he provisions of this section shall apply mutatis mutandis to the auditorappointed for audit of the boo s of account of a li uidator.

"nspection of auditor#s report

'he auditor s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.

Signature on audit report

(") nly the person appointed as auditor of the company! or here a firm is soappointed in pursuance of sub-section

(1) of section 158! only a partner in the firm practicing in 2a istan! shall sign the

auditorHs report or sign or authenticate any other documents of the companyre uired by la to be signed or authenticated by the auditor.

(1) 'he report of auditors shall be dated and indicate the place at hich it is signed.

Penalties ($n Company)


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+f default is made by a company in complying ith any of the provisions ofsections 151 to 158 or 156 to 15*! the company and every officer of the company

ho is no ingly and ilfully a party to the default shall be punishable ith finehich may extend to "#fifty thousand rupees and in the case of continuing default

to a further fine hich may extend to t o thousand rupees for every day after thefirst during hich the default continues%.

Penalties ($n auditor)

(") +f any auditor s report is made! or any document of the company is signed orauthenticated other ise than in conformity ith the re uirements of section "5&!section 155 or section 15& or is other ise untrue or fails to bring out material factsabout the affairs of the company or matters to hich it purports to relate! theauditor concerned and the person! if any! other than the auditor ho signs thereport or signs or authenticates the document! and in the case of a firm all partnersof the firm! shall! if the default is ilful! be punishable ith fine hich may extendto 1#one hundred% thousand rupees.

(1) +f the auditor s report to hich sub-section

(") applies is made ith the intent to profit such auditor or any other person or to put another person to a disadvantage or loss or for a material consideration! theauditor shall! in addition to the penalty provided by that sub-section! be punishable

ith imprisonment for a term hich may extend to "#one year% and ith fine hichmay extend to 1#one hundred% thousand rupees.

how does an audit conduct

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