Legal Consideration Regarding Auditing-Fundamentals of Auditing-Lecture Notes, Study notes of Auditing

Download Legal Consideration Regarding Auditing-Fundamentals of Auditing-Lecture Notes and more Study notes Auditing in PDF only on Docsity! Lesson 06 LEGAL CONSIDERATION REGARDING AUDITING The Audit Requirement • Not all limited companies are required to have their financial statements audited. Nor are all companies required to produce financial statements in the same formats as many exemptions may apply to small and medium sized companies. • Broadly speaking, small companies are exempt from the audit requirement, small and medium sized companies may file abbreviated accounts with the registrar of companies and small companies may prepare accounts with reduced disclosures for their members. Appointment, Duties, Rights and Liabilities of Auditor Appointment: First Auditors a) The first auditors of a company shall be appointed by the directors within 60 days of incorporation of the company [252(3)] b) The first auditors will hold office till the first annual general meeting [252(3)]. c) If the directors fail to appoint the first auditors, the members shall appoint the first auditors, provided further that the auditors such appointed shall not be removed during the tenure expect through a special resolution [(252(6)]. d) Where the first auditors are not appointed either by the directors or by the members within 120 days of incorporation of the company, the Securities & Exchange Commission of Pakistan (Commission) will appoint the auditor [252(6)]. Subsequent Auditors (a) At each annual general meeting the company (members) shall appoint the auditors [252(1)]. (b) The auditors shall hold office from the conclusion of that meeting till the conclusion of next annual general meeting [Section 252(1)]. (c) If no auditors are appointed at annual general meeting Commission shall appoint an auditor. To exercise this power the company must give notice to Commission within one week of these powers having become exercisable [252(7)]. Note: Provided that an auditor or auditors appointed in a general meeting may be removed before conclusion of the next annual general meeting through a special resolution [252(1)]. Casual Vacancy a) Any casual vacancy shall be filled by directors. [Sec 252(4)]. b) Auditors so appointed shall hold office till next annual general meeting.[Sec 252(5)] c) If directors do not appoint auditors to fill casual vacancy within 30 days, Commission may appoint an auditor.[Sec 252(6)] Commission’s powers to appoint auditors [252(6)] The Securities & Exchange Commission of Pakistan may appoint an auditor if the following situations arise: a) First auditors are not appointed within 120 days from incorporation; b) Subsequent auditors are not appointed in annual general meeting; c) Casual vacancy is not filled within 30 days; and d) Auditors appointed are unwilling to act as auditors. To exercise this power, the company must give notice to Commission within one week of its powers becoming exercisable. docsity.com SUMMARY Auditors Time of appointment Appointing Authority Term of Office Appointing Authority in default Remarks First 1st Auditors Within 60 days of Incorporation Directors Till first AGM Members Members shall appoint 1st auditors at a general meeting within 120 days. After 120 days SECP may make the appointment. Subsequent Auditors AGM Members Till next AGM SECP If auditors are not appointed in Auditors AGM. AGM, SECP may appoint auditors. Casual Vacancy Within 30 days of the vacancy Directors Till next AGM SECP After 30 days of vacancy. Vacancy of the vacancy AGM SECP may appoint auditors. Remuneration of Auditors [252(8)] Fixation of remuneration of auditors depends upon the authority appointing the auditors, i.e. i) If auditors are appointed by directors, directors shall fix the remuneration. ii) If auditors are appointed by COMMISSION, COMMISSION shall fix remuneration. iii) In all other cases, the members (Company) shall fix the remuneration. Note: Minimum hourly rates are also recommended by The Institute of Chartered Accountants of Pakistan (ICAP) which is specified in members’ Handbook Volume II (Part II ATR-14). SUMMARY Appointing Authority Remuneration Fixed by a) Directors Directors b) Commission Commission c) In all other case Members (Company) Procedure for Change of Subsequent Auditors/ Removal of Auditors / Appointment of New Auditors (Section-253) New auditors can be appointed in place of retiring auditors if the following requirements are fulfilled. a) Notice from a member is required for a resolution at the AGM (253(1)). b) The member shall give notice to the company at least 14 days before the AGM that he intends to propose the appointment of another person as auditor (253(2)). c) On receipt of the notice the company shall send a copy of such notice to the: i) retiring auditor, forthwith ii) members, at least seven days before the AGM. (253(2)) d) In case of a listed company, notice shall be published at least in one issue of an English and an Urdu daily newspaper having circulation in the province where the stock exchange(s) is situate on which the shares of the company are listed. e) The retiring auditor can make representations and the company shall send a copy of representation to a member or it may be read at AGM. Provided that the representation cannot be sent OR read at the AGM if the Registrar does not permit so on the application of the company or any other person. (253 (3)). f) A company within 14 days after the AGM shall notify to the Registrar of the i) appointment of new auditors with their consent letter. 253(5). docsity.com