Professional Documents
Culture Documents
An Internship Report On Chartered Accountant Firm: CHAPTER # 1 Introduction
An Internship Report On Chartered Accountant Firm: CHAPTER # 1 Introduction
Accountant Firm
TABLE OF CONTENTS
CHAPTER # 1 Introduction
Introduction
Types of Chartered Accountants
Role of ICAP
Auditing
Taxation
Management Consultancy
Professional consultancy
Corporate Services
Chapter # 4 Auditing
Origin of Auditing
History of Auditing in Pakistan
Definition of Auditing
Objects of Auditing
Types of Auditing
Auditing Procedure
Audit Programme
Duties and obligation of students and principels of CA firm
How to Conduct Audit
Auditors Report
Chapter # 5 Taxation
I Introduction
II Income tax
Tax period
Registration
Record of Sales Tax
Return of sales tax
Responsibility of sales tax
Turnover tax rules
Rates of sales tax
Services of CA firm related to Sales tax
Introduction
Assistance of clients in Budgetary control system and profit forecasting
Assistance of client in compliance with corporate legislation.
Other services
Incorporation of Companies
Methods of Business
Sole Proprietorship
Partnership
Company
Registration of the Company
Availability
Documents for registration in case of Non Profit concern
Foreign Company
Post Incorporation services
Chapter # 1
Introduction
C.A firms provide tax, audit and advise on other legal matters to the financial aspect of
the organization under the rule and regulation of the CA by laws of the International
Accounting Standards.
The main aim behind the establishment of the institute of Chartered Accountant of
Pakistan was to conduct the training of CA students and provided highly dedicated
professionals though a process of conducting and passing specific examinations
successful students were then admitted the members of the institute and after the
fulfillment of certain conditions, eligible members were entitled to practice and were
allowed to train CA students. With the passage of the time the institute ofChartered
Accountant of Pakistan in playing its role as one of the most organized professional
body of the country.
Head office
The head office of Ghafoor & Co is Opp: GPO Rehmat Lane, sadder Road, Peshawar
Cantt.
The principal of this Chartered Accountant firm is Abdul Ghafoor. At present time
Ghafoor & Co constitute 15 staff members out of which 9 are the students of this firm
and remain are the staff. Mr. Asif Bukhari is office manager; Mr. Atta Mohammad is
Audit manager.
ORGANIZATIONAL STRUCTURE
Total 475
CHAPTER # 2
INSTITUTE OF CHARTERED ACCOUNTANTS
OF PAKISTAN (ICAP)
Introduction
The affairs of the Institute are managed by the Council, which discharges the
functions assigned to it under the Ordinance.
The Council is composed of 16 members, the members of the Institute elect
12 members from the profession and the Federal Government nominates 4. The
Council is elected for a term of 4 years. One of the government nominees was elected
as President from 1961 to 1986. However, since 1986 the Council from amongst its
elected members is electing the President. The Council also elects two Vice Presidents
every year, one each from Northern and Southern Region.
Following standing committees besides various other committees assists the Council:
Executive Committee
Examination Committee
Investigation Committee
Two Regional Committees - North and South, each of which comprises of 6 elected members, also
assist the Council.
Names of Council Members are:
President
Zafar Iqbal Sobani, FCA
Vice-President (South)
Asad Ali Shah, FCA
Vice-President (North)
Hidayat Ali, FCA
Members:
Imran Afzal, FCA
Syed Ahmad, FCA
Muhammad Shoaib Ansari
A. Husain A. Basrai, FCA
Mujahid Eshai, FCA
Dr. Tariq Hasan
Nasimuddin Hyder, FCA
Khaliq-Ur-Rahman, FCA
Dr. Faizullah Khilji
Fazal Mahmood, FCA
Masud Muzaffar
Abdul Rahim Suriya, FCA
Syed Mohammad Shabbar Zaidi, FCA
MANAGEMENT
The President is the Chief Executive of the Institute. The administrative head of
the Institute is the Executive Director/Secretary who functions under the directions of
the Council, Executive Committee, The President and the Vice Presidents.
TYPES OF CA
A.C.A’ s
F.C.A’ s
The head office of ICAP is in Clifton Karachi in its own premises. It has regional offices
at in Lahore and Islamabad.
Head Office
Regional Office
155-156, West Wood Colony, Thokar Niaz Baig, Raiwind Road, Lahore,Pakistan
Phone: (92-42) 5414486, 5423623 Fax: (92-42) 5423624
E-mail: Lahore@icap.org.pk
Islamabad Office
Institute’s website
www.icap.org.pk
ROLE OF ICAP:
1. Regulate the training of CA students.
One of the main roles of CA is to regulate the training of CA student and test their
knowledge through examination held twice a year or as a semester system. The
success full trainees are then admitted as a member of the institute subject to fulfilling
certain specified conditions. During the training the student are given some
scholarships by the of the firm. These firms normally are given the training to other
trainee in the month of July & June, because in these months there is a lot of work.
The ICAP also grains a certificate to its members and allow eligible members to train CA
student. All professional chartered accountants who want to open chartered firm are
required to get a license of practice from the ICAP
The ICAP also exercise a disciplinary control over the activities of the members and
conduct of its students. All the CA firm are bound by law to obey the entire rules and
regulations of the ICAP otherwise his license will be cancelled.
ICAP also provide assistance in streamlining the financial sector to the Government. It
provides assistance to the Government in achieving its objective for reviving the
economy of the country.
CAPTER # 3
1- Auditing
CA firms provide the services of auditing to their clients. According to the companies
ordinance 1984 all the public and private limited companies are required that Chartered
Accountant must sign their accounts. The welfare organization and NGO’s are also
required to get their accounts audited by the Chartered Accountant firm. Because the
government as well as other donors to these welfare organizations and NGO’s depend
upon the account duly singed by the Chartered Accountant firm, because their
certificate serves as a sign of trust.
CA firms audit the accounts of their and check all the major books along with subsidiary
books and vouchers with supporting evidence. After this process then they express
their opinion upon the accuracy or inaccuracy of the accounts. They write an audit
report and also mention the various transactions, which are not duly verified. They also
write audit report to the management in which they express any weakness of the
management how to control these weaknesses. They are rendering for such services
charges some fee.
2- Taxation
The CA firm provides tax services to their clients. Some firms are specially deals in tax.
The client who needs the services regarding to tax pay fee for such services and the
auditor gives him a very useful service by the tax returns.
3- Management Consultancy
4- Professional Consultancy
CA firm also provide the professional consultancy services to their clients. When
appointed as consultants, they valuate sick units for the purpose of privatization.
Evaluate the reports and bid documents in respect of the sick projects prepared for the
Privatization Commission Government of Pakistan. CA firm s also provides the
professional assistance in the establishment or the organization.
5- Corporate Services
The Chartered Accountant firms are also providing the corporate services in the
connection with the corporate law authority.
Chapter # 4
Auditing
Introduction
Origin of Auditing
Usually origin of audit is traced to the middle ages, but infect the introduction of
large scale production gave birth to audit, after the industrial revolution during the
18th century.
In the beginning there was small-scale production was smaller, the technology
was simply and has a low capital. But with the passage of time, these things were all
improved and enlarged and thus proper checking of them became very much necessary
in the audit.
After its emergence on August 14, 1947 of Pakistan adopted the Auditor’s
Certificate Rules, 1932 for regulating the audits and accounting profession. Necessary
amendments were made in 1950 on the affairs of the accountancy profession were then
administered under the Auditor’s Certificate Rules 1950. In the 1950, Registered
Accountants Firms formed a private body Knows as “Pakistan Institute Of Accountants”
with the objects and ultimate goal of having an autonomous association in the country.
So the institute of Chartered Accountants of Pakistan was established on July 01, 1961.
Definition of Audit
The word audit is derived form the Latin word “AUDIRE” which means “To
Hear”. In the past whatever the owner of the business suspected fraud, they appoint
certain persons to check the accounts. Such persons would hear the accountants what
ever they had to say in the connection with the accounts.
Spicer & Pegler have defined the audit as “ such an examination of the
books, accounts and vouchers of a business, which will enable the auditor to satisfy
himself that the balance sheet is properly drawn up, so as to give a true and fair view
of the state of the affairs of the business, and whether the profit and loss account gives
true and fair view of the profit and loss for the financial period, according to the best of
information and explanation given to him and as shown by the books, and it not, in
what respect he is not satisfies”.
A leading American Account Montgomery define it as “ Auditing is a
systematic examination of the books and records of a business or other organization, in
order to ascertain or verify, and to report upon the facts regarding its financial
operations and the results thereof,
From the above definition it as clear that an auditor has not only to see
the arithmetical accuracy of the books of account but also has to go further and find out
whether the transactions entered in the books of the original entry are correct or not,
how is he to find out?
He can do this by inspecting comparing, checking reviewing the vouchers
supporting the transaction in the books of account and examining the correspondence
minute book of the shareholders and directions memorandum of association and
articles of association etc.
OBJECTS OF AUDIT
1- To verify statements:
The auditor has to discover errors and frauds, if any, which might have
been committed intentionally or unintentionally. Intact it is a very difficult task to
discover intentional errors and frauds. Sometimes the clients may not provide actual
fact and figure and in such case its is so difficult for the auditor. As a matter of fact this
was the primary object of auditing but now it is considered to the secondary object.
3- To prevent errors and frauds
Types of Audit
1- Internal Audit
Internal audit is the independent appraisal of activity within an organization for the
review of accounting, financial and other business practices as a protective and
constructive arm of management. It is a type of control, which functions by measuring
and evaluating the effectiveness of the other type of controls.
In other words internal audit consists of continuous critical review of financial and
operating activities by a staff of auditors functioning as full time salaried employees.
Internal audit implies an audit of the accounts by the employees of the business. A
separate staff that may or may not have professional audit qualification does the work.
The function of the internal auditor is same as that of an auditor.
In addition to that the internal auditor has to see that there is no wastage and the
business is carried on efficiently.
In internal audit we prepare a management report. The auditor has to report to the
management that the system and policies prescribed by them have been implemented,
whether the internal control and internal check established were adequate, whether the
actual result obtained were varying from the estimate enable the management top
achieve the objective of the company in the planned manner. Impartial qualified
chartered accountant do the internal audit. In internal audit the management wish that
the auditor discovered as many errors as possible so that they can be efficiently
prevented.
2- External Audit
A- Management Audit
Auditing Procedure
An audit planning i.e. an audit plans relating to extent and scope of an audit.
Developing the audit programme i.e. the procedure that are needed to implement the
audit plan.
An audit programmed is a written scheme of the exact details of the work to be done by
the auditor and his staff in connection with a particular audit.
The audit programme must be developed with due care and skill particular attention
should be given to the following.
1- He will throughout his term of training serve in his principal’s office on his principal’s
business of public accountant or occupation.
2- He will not at any time during the said term destroy, cancel, spoil, embezzle or take
copies of books, papers, plans, documents, monies of his principal, partner or for his
clients.
3- He will at all times keep the secrets of the principal or his partner or of their clients.
4- He will readily obey and execute the lawful and reasonable commands of the principal
during the said term.
1- He will by the best means in his power and to the most of his skill and knowledge
instruct the trainee student and afford him such reasonable opportunities as nay be
required to enable him to acquire the art, science and knowledge of accountancy.
2- He will at the expiration of the said term use his best means and endeavors at the
request, cost and charges of the trainee student to cause to be admitted on the register
of members, pursuit to the chartered accountant ordinance 1961.
3- He will allow trainee student leave of the absence for a period no exceeding six months
is all.
HOW TO CONDUCT AUDIT
The audit work is operated with the help of the following techniques:
1. Ticking.
2. Casting.
3. Calling Over
4. Vouching.
5. Verification.
6. Reporting.
1. TICKING:
Ticking indicates the placing of a mark against an entry in the book to
denote that the auditor has examined it for a certain purpose. Variously
shaped marks are used to denote checking of additions, posting, carry-
forward, tracing, extraction of balances etc. Ticks are generally put in
indelible pencil, although some auditors also use pen and ink for this
purpose.
To ensure consistency, most of the good auditors use a tick chart,
which is required to be learnt by heart by all the members of the audit staff.
2. CASTING:
Casting refers to the checking of additions of books of accounts and
financial statements. It is essential that arithmetical accuracy be checked so
that frauds or errors (if any) may be detected. A junior member of audit
staff normally does this job. Most of the auditors use mechanical appliances
or adding machines to check the casting of the books of accounts.
3. CALLING-OVER:
A sizable part of the work of audit consists in the comparison of entries
in two or more books of an entry in a book with its supporting evidence or
voucher. This is usually carried out by two clerks, one reading the item to
the other. Care should be used to see that the whole of the important detail
of each item is checked and not merely the amount. Special care in checking
postings to personal ledgers is needed as to names and title of account;
otherwise a wrong posting may remain undetected. Clarity in pronunciation
is essential. There may be a confusion between ninety and nineteen, Sixty
and sixteen and so on. Thus it is advisable to pronounce ninety as ninetie,
sixty as sixtie and so on. Similarly when calling out a figure as Rs. 80.90,
there should be a pause between 80 and 9, lest it should be understood as
89.
4. VOUCHING:
The function of the voucher is to authenticate an entry and the auditor
must satisfy himself that it does this. It must correspond in date and account
to the entry in the books. It must be in respect of the entire client and entry
must be correctly passed in the books. The act of vouching consists of
checking the documentary evidence such as
Invoices
Cash memos,
Bills,
Receipts,
Vouchers,
Minutes
Reference to legal documents etc. as should establish the accuracy and
truthfulness of the entries appearing in the books of account, and in those
cases where it is not so, the matters are noted for discussion and if the
auditor still remains unsatisfied, the outstanding matters are reported to the
client.
5. VERIFICATION:
When an auditor has couched the entries appearing in the books of
account, his duty is not thereby fully discharged. If appointed for audit under
the act, he has to report whether or not the balance sheet exhibits a true
and correct view of the state of affairs of the company. For this purpose, he
should satisfy himself on the following points:
That each asset and liability is correctly valued and correctly stated in the
balance sheet.
That the assets actually existed at the date of the balance sheet.
That they are not property of the business.
That they are not suffering from a charge except that disclosed in the
balance sheet.
The techniques of audit carried out to achieve the foregoing objectives
are known as verification.
6. REPORTING:
After the above steps have been carried out, the auditor will then be
required to submit his report. The form and the contents will depend upon
several factors, e.g. the legal status of the appointing authority, the contract
for the scope of work to be done, whether the audit is being conducted
under the companies’ ordinance 1984. Banking companies ordinance 1962,
insurance Act, 1938, etc. The points to be considered while drafting a report
in respect of sole traders and partnership concerns will be dealt with a length
in a separate chapter of this book. However, the form of auditor report to be
submitted after the annual audit of accounts of a company has been
prescribed as Form 35-A annexed to the companies Rules, 1985.
Modern trends follow the under noted sequence:
Examination of the accounting system.
Evaluation of internal controls.
Sample checking of vouchers.
Verification of assets and liabilities.
Submission of auditors report.
Having studied the theoretical side of auditing, let now proceed with
practical side of an audit, i.e. how should an audit be conducted? There are
some common features with all types of audits. The auditor should have the
following program.
PRELIMINARY WORK:
See whether the opening balance agrees with the cash balance as shown by the
balance sheet of the previous year.
Compare the cash sales with cash register if that is in use. If it is not in use
enquire into the internal check system regarding the cash sales and compare the copies
of the cash memos with the cash sales.
Check a few transactions regarding receipt of cash from debtors with the
counterfoils of the receipt book and with any other documentary evidence available.
If any asset has been sold out. Examine any documentary evidence, which may
be available and see that the sale has not been treated as sale of goods. Check the
discounts in the nominal ledger and enquire the system of granting loans.
Check cash payments to the creditors with receipt received from the payees.
Check the payments into the bank with the passbook and the counter of the
paying in book.
Prepare the bank reconciliation statement to agree the balance as per cashbook
and bankbook.
Check carefully the receipts and payments just before the closing year to
ascertain any fictitious receipts or payments.
Ask the banker to send statements of balances on different accounts if necessary,
total both the sides of the cashbook in order to find out whether the balance as shown
by the cashbook is correct.
Verify the cash in hand by actually counting it and see whether it agrees with the
balance shown by the cashbook.
If there are many cashbooks in use, verify all the cash in hand at the same time.
Pay attention to pay – in – transit. Carefully examine the I.O Us petty cashbook
vouch the debit side of the cashbook with the credit side of the cashbook paying
particular attention to the dates on which the receipt and payments were recorded.
Check the petty cashbook with the postage book.
Check the total of the different columns and cross – additions.
Verify the cash balance of petty cashbook by actually counting the cash.
Enquire into the internal check system regarding purchases and see that they are
make by responsible officer.
Vouch the purchase book with invoices.
See that the goods that have been entered in the stock book have also been
entered in the purchases book and vice versa.
If a columnar purchases book is used, see that the invoices are properly entered
in to.
See that the discount is deducted from the invoice before it is posted. Test the
purchase order book with goods inwards book and the go down keeper’s book.
See that entries in the purchase book have been correctly posted to the ledger.
Check the additions of the purchases book and see that the total loss has been correctly
carried to the trading account.
See that the purchases do not include the purchases of fixed assets.
Purchase into the internal check system regarding the returns outwards.
Check the returns outward book with the credit notes and examine the
correspondence.
Check the addition of this book and find out whether the amount has been
correctly posted.
See the total of the cashbook has been correctly posted to the ledger. See that
the sales do included good sold on sale or return bass or consignment out wards.
Enquire into the internal check system regarding the return inwards.
Check the return inward book with the go down keepers book and gatekeepers book, if
any.
Compare the return inwards book with the counter foils or the carbon copies of
the credit notes and outward book.
Check the addition of this book.
Check the postings to the ledger.
Examine the correspondence regarding the goods returned.
Test the additions and the extent ions of the wages book or wages sheets.
Check the deductions made of account of fines, sickness, insurance, provident fund.
Compare the wages book with the time and piece work records maintained by the
gate keeper, foreman and the go down keeper or the time recording clock, if in use.
Check drawn for payment of wages.
See that there is no loophole in the method of unpaid wages.
Compare the opening balance in the ledger with the balance sheet of the previous year.
Check the entries in the bill payable book with the correspondence and any other
documentary evidence available.
Check the addition of the bill payable book and verify the bills in hand.
Check the opening balance with the balance sheet of the previous year.
Vouch the entries in the individual accounts with the correspondence, cashbook,
purchase book, journal, returns outward book, bill payable book and other books of
original entry.
Compare the individual balances with the schedule of debtors supplied by management.
Test a few balances by getting statement of account from a few debtors with the
permission of client.
Check the balances in the ledger and see whether the total of all these balances agree
with the total of schedule of debtors.
See that sufficient provision is made for bad and doubtful debts
If the debtors include directors, managing agents, etc, see that such debtors are shown
in the balance sheet according to the company act.
Vouching Of Nominal Ledger:
Check the different accounts from the cashbook, journal, etc.
Check the balance of the accounts in the ledgers.
Ascertain that necessary adjustments have been made for the following:
Experiences incurred but both yet paid.
Expenses paid in advance.
Income receivable but not yet received.
Income received in advance.
Verify the entries with the subsidiary books.
See that balances are correctly carried to the concerned accounts.
CHARITABLE INSTITUTIONS:
An order to conduct the audit of the charitable institution the following points
should be take in to consideration.
Examine the constitution, rules and regulations of the charitable institution of the trust
deed, if any,
Check that the funds for specific purposes have been dealt with according rules.
Vouch the receipts of donations and subscription as shown on the debit side of the cash
book with the counterfoil of the receipt book, register of the subscription list of the
donors notified in the newspaper from the time to time, correspondence of any other
evidence available.
Vouch the income from investments register and see that the income tax
deducted from dividends received recovered from income tax authorities, if a charitable
institution is not liable to tax.
Vouch receipt of rents from the properties belonging to the charitable institution,
with rent roll, agreements with the tents, etc.
Vouch the payment book with the minute book of the trustees or the managing
committee regarding importing payments.
Verify the purchase of investments by referring to the bought notes and physically
examine such investment in case such investments are lodged with the band, get a
certificate from the bank.
Verify the Cash and Bank Balance.
Check that accounts are drawn up in accordance with the regulations.
CLUBS:
Study the constitution by laws of the club particularly in regards to the powers of
the officials operation of the bank accounts, etc.
Examine the minute book of the club.
Vouch the receipt of cash on account of admission fee and subscriptions with the
counterfoils in the receipt books in list of the members.
See that life membership fee is carried to income according to the rate of the club.
Enquire into the system of supplying meals, refreshments etc. to the members and
vouch the receipt of cash, vouch the payment of account of purchase of crockery,
furniture, provision etc.
See the expenditure properly allocated between capital and revenue.
Verify the assets, particularly allocated between capital and revenue.
Educational institutions (School, Colleges or Universities)
Examine the university Act, the rules and regulations, trusts deeds, charters, etc.,
ascertain the management of the institution and especially the rules, etc., which affect
the accounts.
Study the minute book of management, governing body or managing committee
of the educational institution or the senate of the university as the case may be check
the cash receipt on account of fees, etc., by referring the counterfoils of the fee receipt
books and the register of the students.
Fee outstanding or paid in advance must be adjusted and accounted for.
Ascertain the system of recover of fines and the extra such as examination fee,
fees for the duplicate copy of diplomas, hostel rent, electricity charges, building fund,
etc., and their recovery and treatment in accounts.
See that a responsible officer has granted the free studentship.
Vouch the payment of salaries to the members of the staff by reference to salary
register, the cashbook, the receipt, the counterfoils of the chequebook and the
passbook.
Particular attention should be paid to any increment earned by the members of
the staff and see whether the management committee has sectioned them.
Reference may also be made to the copies of the letter of appointment or
agreements.
Capital expenditure should be vouched as usual but see that the necessary
sanction is there.
See that the internal check system regarding the purchase of provision, linen,
etc/. For the boarders is efficient.
See that the outstanding assets liabilities are taken into account.
See that investment representing prize endowment fund are kept apart and that
they are not mixed up with an ordinary investment.
Money relating to provident fund should be invested in securities and should be shown
as separated as liabilities, Investment representing the provident fund should be shown
separately on the asset side.
See that the refund of income of income tax deducted from dividends or interest
on securities has been claim as educational institution are usually accepted from the
payment of income tax on such income.
AUDITORS REPORT
The auditor after checking the books and record of the company or any type
organization write an audit report. The auditor report is very essential for man people
for example. The credit institution, which gives credit to the company dependent upon
the auditor reports similarly the government institution, which gives donation to the
NGO’s, depends similarly the auditor’s reports.
Auditor’s report to the board of Directors:
We have examined the annexed consolidated financial statements comprising
consolidated Balance Sheet of ________ Limited and its subsidiary companies as at
___________ and the related consolidated profit and loss account and consolidated
cash flow statement to gather with the notes forming part therefore for the year ended
__________ we have also expressed separate opinions on the financial statements of
__________ Limited and its subsidiary companies except for _________ Limited and
__________ Limited, which were audited by other firms of Chartered Accountants;
whose report has / have been furnished to us and our opinion in _______ so far as it
relates to the amounts included for such company, is based solely on the report of such
other auditors.
These financial statements are the responsibility of the Holding company’s
management. Our responsibility is to express an opinion on these financial statements
based on our examination.
Our examination was made in accordance with the generally accepted auditing
guidelines an accordingly included such tests of accounting record such other auditing
procedure as we considered necessary in the circumstances. In our opinion the
consolidated financial statements examined by us represent fairly the financial position
of ________ Limited and its subsidiary companies as at ________ and the results of
their operation for the year then ended.
Place ______________ Chartered Accountants.
The balance sheet and profit and loss account together with the notes there on
have been drawn up in conformity with the books of account and are further in
accordance, 1984 and are in agreement with the books of account and are further in
accordance with the accounting policies consistently applied. The business conducted
investment made and the expenditure incurred during the year were in accordance with
the objects of the company. In our opinion and to the best of our information and
accounting to the explanation give to us, the balance sheet, profit and loss account and
cash flow statement together with the notes forming part thereof, given the information
required ____ and of the profit and cash flows for the year then ended: an in our
opinion no Zakat was deductible at source under the Zakat and Ushr ordinance, 1980.
CHAPTER # 5 TAXATION
INTODUCION
The rang of CA firm in the area of taxation covers personal and corporate tax planning
supplemented by representation on behalf to client before the central board of revenue
obtaining clarification etc, and before Assessing and Appellate Authorities.
Tax planning.
Personal taxation.
Corporate taxation
At the time of separation the highest and the administrative executive authority for
revenue collection in Pakistan is the central Board of Revenue (C.B.R), which was
constituted under CBR Act 1924. It is a statutory body appointed by the central
government for the purpose of tax collection in the country. The Board consists of few
members and all the revenue authorities are subordinate to it. Central board of
Revenue is responsible for collection of revenue income come from income tax\, sales
tax, wealth tax and excise duty and there are various departments like income tax and
sales tax departments for the collection of such taxes.
A Chartered Accountant firm deals in the area of income tax, sales tax and wealth tax
on behalf of its clients including individuals, firm and corporation etc, we will discuss
tax, income tax, wealth tax and sales tax In separate sections.
Income Tax
Sales Tax
Income tax is the major source of revenue collection by C.B.R income tax departments
is responsible in the country for the collection of income tax law provides guideline for
the proper administration of the whole system.
(1) There shall be the following income tax authorities for the purposes of this
Ordinance, namely: -
(a) Central Board of Revenue;
(2) The Central Board of Revenue shall exercise the general administration of this
Ordinance.
(3) The Regional Commissioners of Income Tax and the Commissioners of Income Tax
(Appeals) shall be subordinate to the Central Board of Revenue and the Commissioners
of Income Tax shall be subordinate to the Regional Commissioners.
(4) Subject to sub-section (5), the taxation officers shall be subordinate to the
Commissioners of Income Tax.
(5) A taxation officer invested with the powers and functions of the Commissioner,
under sub-section (2) of section 209, shall be subordinate to the Regional
Commissioner of Income Tax.]
(2) Subject to such orders or directions as may be issued by the Central Board of
Revenue, any income tax authority may appoint any income tax authority subordinate
to it and such other executive or ministerial officers and staff as may be necessary.
(3) All appointments, other than of valuers, chartered accountants or experts, made
under this Ordinance, shall be subject to rules and orders of the Federal Government
regulating the terms and conditions of persons in public services and posts.]
Jurisdiction of Income Tax Authorities (Under Section 209)
(1) Subject to this Ordinance, the Regional Commissioners, the Commissioners and the
Commissioners (Appeals) shall perform all or such functions and exercise all or such
powers under this Ordinance as may be assigned to them in respect of such persons or
classes of persons or such areas as the Central Board of Revenue may direct.]
(2) The Central Board of Revenue or the Regional Commissioner may, by an order,
confer upon or assign to any taxation officer all or any of the powers and functions
conferred upon or assigned to the Commissioner, under this Ordinance, in respect of
any person or persons or classes of persons or areas [1][as may be specified in the
order].
(3) An order under sub-section (2) by the Regional Commissioner shall be made only
with the approval of the Central Board of Revenue.
(4) The taxation officer referred to in sub-section (2) shall, for the purposes of this
Ordinance, be treated to be the Commissioner.
(5) Within the area assigned to him, the Commissioner shall have jurisdiction, -
(a) In respect of any person carrying on business, if the person’s place of business is within
such area, or where the business is carried on in more than one place, the person’s
principal place of business is within such area; or
(b) In respect of any other person, if the person resides in such area.
(7) No person shall call into question the jurisdiction of a Commissioner after that
person has furnished a return of income to the Commissioner or, where the person has
not furnished a return of income, after the time allowed by any notice served on the
person for furnishing such return has expired.
(9) Where, in respect of any proceedings under this Ordinance, an income tax
authority is succeeded by another, the succeeding authority may continue the
proceedings from the stage it was left by that authority’s predecessor.]
(1) For the purposes of the imposition of tax and the computation of total income, all
income shall be classified under the following heads, namely:–
(2) Subject to this Ordinance, the income of a person under a head of income for a
tax year shall be the total of the amounts derived by the person in that year that are
chargeable to tax under the head as reduced by the total deductions, if any, allowed
under this Ordinance to the person for the year under that head.
(3) Subject to this Ordinance, where the total deductions allowed under this
Ordinance to a person for a tax year under a head of income exceed the total of the
amounts derived by the person in that year that are chargeable to tax under that head,
the person shall be treated as sustaining a loss for that head for that year of an amount
equal to the excess.
(4) A loss for a head of income for a tax year shall be dealt with in accordance with
Part VIII of this Chapter.
(5) The income of a resident person under a head of income shall be computed by
taking into account amounts that are Pakistan-source income and amounts that are
foreign-source income.
(6) The income of a non-resident person under a head of income shall be computed
by taking into account only amounts that are Pakistan-source income.
The word tax has been used in the ordinance to mean income tax, super tax, surcharge
and additional tax, penalty, fee or other charges liable or payable under the income tax
ordinance.
Assesses means a person by whom any tax or any other sum of money is payable
under the ordinance.
Types of Assessee
For the computation of tax payable assesses may be divided into the following
categories.
(a) Individual, Artificial Judicial Person
(b) Registered firm
Company
Local Authority
Cooperative Society
For the purpose of rates of tax a company may either be a
1. Public Company
2. Private Company
3. Banking Business
4. Moddarba Company
Assessment year means the period of 12 months beginning on the 1 stJuly of the next
year mean the financial year next preceding the assessment year i.e. 12 month
commencing from 1st July and ending on 30th June next preceding the assessment year
or such period specified by notification be Central board of Revenue as income year for
any person or any source of income or any period which, under the provisions of
income tax ordinance, is deemed to be an income year.
There are some industries for which Central Board of Revenue describes special income
years. All other assesses are require to close their income year on 30th June.
TAX YEAR Under Section (74)
(1) For the purpose of this Ordinance and subject to this section, the tax year shall
be a period of twelve months ending on the 30th day of June (hereinafter referred to as
‘normal tax year’) and shall, subject to sub-section (3), be denoted by the calendar
year in which the said date falls.
(2) Where a person’s income year, under the repealed Ordinance, is different from
the normal tax year, or where a person is allowed, by an order under sub-section (3),
to use a twelve months’ period different from normal tax year, such income year or
such period shall be that person’s tax year (hereinafter referred to as ‘special tax year’)
and shall, subject to sub-section (3), be denoted by the calendar year relevant to
normal tax year in which the closing date of the special tax year falls.
(i) in the case of a class of persons having a special tax year different from a normal tax
year may permit, by a notification in the official Gazette, to use a normal tax year; and
(ii) in the case of a class of persons having a normal tax year may permit, by a notification in
the official Gazette, to use a special tax year.]
(3) A person may apply, in writing, to the Commissioner to allow him to use a twelve
months’ period, other than normal tax year, as special tax year and the Commissioner
may, subject to sub-section (5), by an order, allow him to use such special tax year.
(4) A person using a special tax year, under sub-section (2), may apply in writing, to
the Commissioner to allow him to use normal tax year and the Commissioner may,
subject to sub-section (5), by an order, allow him to use normal tax year.
(5) The Commissioner shall grant permission under sub-section (3) or (4) only if the
person has shown a compelling need to use special tax year or normal tax year, as the
case may be, and the permission shall be subject to such conditions, if any, as the
Commissioner may impose.
(6) An order under sub-section (3) or (4) shall be made after providing to the
applicant an opportunity of being heard and where his application is rejected the
Commissioner shall record in the order the reasons for rejection.
(7) The Commissioner may, after providing to the person concerned an opportunity of
being heard, by an order, withdraw the permission granted under sub-section (3) or
(4).
(8) An order under sub-section (3) or (4) shall take effect from such date, being the
first day of the special tax year or the normal tax year, as the case may be, as may be
specified in the order.
(9) Where the tax year of a person changes as a result of an order under sub-
section (3) or sub-section (4), the period between the end of the last tax year prior to
change and the date on which the changed tax year commences shall be treated as a
separate tax year, to be known as the “transitional tax year”.
(10) In this Ordinance, a reference to a particular financial year shall, unless the
context otherwise requires, include a special tax year or a transitional tax year
commencing during the financial year.
(11) A person dissatisfied with an order under sub-section (3), (4) or (7) may file a
review application to the Central Board of Revenue, and the decision by the Central
Board of Revenue on such application shall be final.]
Assessment means determination of total income and tax payable by a Tax refundable
to the assessee. It includes re-assessment and Additional assessment.
(1) Where a taxpayer has furnished a complete return of income (other than a revised
return under sub-section (6) of section 114) for a tax year ending on or after the
1st day of July, 2002, -
(a) The Commissioner shall be taken to have made an assessment of taxable income for that
tax year, and the tax due thereon, equal to those respective amounts specified in the
return; and
(b) The return shall be taken for all purposes of this Ordinance to be an assessment order
issued to the taxpayer by the Commissioner on the day the return was furnished.
(2) A return of income shall be taken to be complete if it is in accordance with the
provisions of sub-section (2) of section 114.
(3) Where the return of income furnished is not complete, the Commissioner shall
issue a notice to the taxpayer informing him of the deficiencies (other than incorrect
amount of tax payable on taxable income, as specified in the return, or short payment
of tax payable) and directing him to provide such information, particulars, statement or
documents by such date specified in the notice.
(4) Where a taxpayer fails to fully comply, by the due date, with the requirements of
the notice under sub-section (3), the return furnished shall be treated as an invalid
return as if it had not been furnished.
(5) Where, in response to a notice under sub-section (3), the taxpayer has, by the
due date, fully complied with the requirements of the notice, the return furnished shall
be treated to be complete on the day it was furnished and the provisions of sub-section
(1) shall apply accordingly.
(6) No notice under sub-section (3) shall be issued after the end of the financial year
in which return was furnished, and the provisions of sub-section (1) shall apply
accordingly.]
Return of total income mean the return of total income in the prescribed form, setting
for such particulars and accompanied by such statements, certificates and other
documents and verified in prescribed manner.
(i) Has been charged to tax in respect of any of the two preceding tax years;
(ii) Claims a loss carried forward under this Ordinance for a tax year;
(iii) Owns immovable property with a land area of two hundred and fifty square yards or more
or owns any flat located in areas falling within the municipal limits existing immediately
before the commencement of Local Government laws in the provinces; or areas in a
Cantonment; or the Islamabad Capital Territory.]
(a) Shall be in the prescribed form and shall be accompanied by such annexures, statements
or documents as may be prescribed;
(b) Shall fully state all the relevant particulars or information as specified in the form of
return, including a declaration of the records kept by the taxpayer; [2][and]
(c) Shall be signed by the person, being an individual, or the person’s representative where
section 172 applies.]
(2A) A return of income filed electronically on the web or any magnetic media or
any other computer readable media as may be specified by the Board shall also be
deemed to be a return for the purpose of sub-section (1); and the Board may, by
notification in the official Gazette, make rules for determining eligibility of the data of
such returns and e-intermediaries who will digitise the data of such returns and
transmit the same electronically to the Income Tax Department under their digital
signatures.]
(4) Subject to sub-section (5), the Commissioner may, by notice in writing, require
any person who, in the Commissioner’s opinion, is required to file a return of income
under this section for a tax year[3][or assessment year] but who has failed to do so to
furnish a return of income for that year within thirty days from the date of service of
such notice or such longer period as may be specified in such notice or as the
Commissioner may allow.
(5) A notice under sub-section (4) may be issued [in respect of one or more] [of the]
last five completed tax years [or assessment years].
(6) Any person who, having furnished a return, discovers any omission or wrong
statement therein, may furnish a revised return within five years of the date that the
original return was furnished.
(7) Every return purporting to be made or signed by, or on behalf of a person shall be
treated as having been duly made by the person or with the person’s authority until the
person proves the contrary.
(1) Where the entire income of a taxpayer in a tax year consists of income
chargeable under the head "Salary", the taxpayer may, instead of furnishing a return as
required under section 114 furnish –
(a) A certificate from the person’s employer in the prescribed form stating such particulars,
and accompanied by such statements, and verified in such manner, as may be
prescribed, and such certificate shall be, for the purposes of this Ordinance, treated as
a return of income furnished under section 114.
Provided that a taxpayer shall not be required to furnish a certificate, if his employer has
furnished for the same tax year, Annual Statement of Deduction of Income Tax From
Salary as prescribed under the Income Tax Rules, 2002.]
(2) The following persons shall not be required to furnish a return of income for a tax
year solely by reason of sub-clauses (iii) through (vii) of clause (b) of sub-section (1) of
section 114 –
(a) A widow;
(b) An orphan below the age of twenty-five years;
(3) Any person who is not obliged to furnish a return for a tax year because all the
person’s income is subject to final taxation under sections 5, 6, 7, [113A,] [113B,] 148,
153, 154, 156 [, 156A, sub-section (3) of section 233, clause (a) and (b) of sub-section
(1) of section 233A] or sub-section (5) of section 234] shall furnish to the
Commissioner a statement showing such particulars relating to the person’s income for
the tax year in such form and verified in such manner as may be prescribed.
Abbreviation Description
IND Individual
R.F Registered Firm
A.O.P Association of Persons
H.U.F Hindu Undivided Family
U.R.F Unregistered Firm
A.L.V Annual Letting Value
A Sales tax is imposed on the sales of goods and services, it is collected by the
retailer at the point of sales and is computed on a fixed percentage of the retail price.
Sales tax department, which comes under the central Board of Revenue, is responsible
for the collection of sales tax under the sales tax Act 1990
Tax Period
Tax period means a period of one month or such other period as the Federal
Government may specify in the official gazatted by a notification.
Registration:
Every person or entity ho makes a taxable supply in Pakistan in the course of any
taxable activity carried out by him and whose total turnover from taxable supplies
made in any period exceeds Rs. 2.5 million in case of manufactures and Rs. 5 million in
case of retailers.
Every registered person making taxable supplies shall furnish not later then the
due date a true and correct return in the prescribed form to a designated bank specified
by the Board, the tax due and paid and such other information are may be prescribed.
Sub section 3(A) of section 3 shifts the responsibility of payment of sales tax in
case of any of the goods as may be specified by the Federal Government to a person
receiving the goods instead of the person supplying such goods.
1- Chartered Accountants firms provides services to its clients for the registration under
sales tax act 1990.
2- The Central Board of Revenue has also appointed Ghaffor & Co under section 32(A) of
the sales tax act 1990 for the audit of business concerns.
3- Chartered Accountants firm provides all types of consultancy services in the area of
sales tax.
4- They help their clients in compilation of Sales Tax Return . In a CA firm sales tax
consultants also go for hearing of appeals for refund before collectorate of sales tax on
behalf of its clients. It also appeals for claims against additional taxes.
CHAPTER # 6
CONSULTANCY SERVICES
Chartered Accounts firm provides number of services to its clients i.e. individuals, firm,
corporation, Association of persons etc.
There are some major consultancy services, which is provided by the Chartered
Accounts firm.
I. Feasibility report.
II. Pre-investment proposals.
III. Disinvestments report.
Feasibility report is the Pre-investment of forecasting for investments prepared by a
Chartered Accounts firm. Feasibility report is the Pre-investment planning before the
starting of a project. Feasibility report are prepared to show future investment, costs
and applicability of the plan of a project, and forecasting of profits for coming five
years, and give report of disinvestments about any firm or the Chartered Accounts firm.
C.A firm guides the corporation and firm in the corporate affairs including share
valuation report, assistance in public floatation or companies, rights issue, business
acquisitions, mergers and valuations of assets and liabilities.
Services provided in the field of Human Resource Development include the following:
Other Services:
Ghafoor & Co also provides the services of book keeping and maintenance of account
on behalf of its clients firms. It also prepares review reports and accounting manuals for
them.
Chapter # 7
Mission Statement
"To develop a fair, efficient and transparent regulatory framework, based on
international legal standards and best practices, for the protection of investors and
mitigation of systemic risk aimed at fostering growth of a robust corporate sector and
broad based capital market in Pakistan"
Vision
"The development of modern and efficient corporate sector and capital market, based
on sound regulatory principles, that provides impetus for high economic growth and
foster social harmony in the country."
Strategy Statement
"To develop an efficient and dynamic regulatory body that fosters principles of good
governance in the corporate sector, ensures proper risk management procedures in the
capital market, and protects investors through responsive policy measures and effective
enforcement practices. "
Some of the services being offered by the Chartered Accounts firm in the corporate
sector with description of procedures involved are discussed in brief as under.
1- Incorporate of companies:
1- Sole proprietorship
In the sole proprietorship, an individual on his own account carries out a business or a
profession. No formal procedure of formality is required to be followed for setting up a
sole proprietorship concern.
2- Partnership
o Registered firms
o Unregistered firms.
Registered firms
The income of the registered firm is subject to super tax, before distribution to the
partners. Also the individual income of the partnership is subject to income tax at the
usual rates.
Un- registered firms
Un-registered firms faces of the income tax on there income of the partners are not
liable to pay tax on the share of profit received from these firms.
iii- Company
A company has a legal entity formed under the companies ordinance 1984, it have from
with the share capital or without of the share capital. A company having share capital
may be formed as:
a- Company limited by shares
b- Company limited by guarantee
c- Un-limited company
Liability of its members is limited to the extent of their shares in the paid up capital of
the company with further classification as to the public limited companies and private
limited companies.
Public limited companies can be formed by at least seven members by subscribing their
name to the Memorandum & Article of Association of the company while the word
“Limited” or “Ltd” is used as the last word of its name.
Private limited companies can be formed by at least two persons by subscribing their
names to the Memorandum & Article of Association of the company while the word
“private limited” is used as the last word of its name.
Company limited by guarantee means a company having the liability of its members
limited by memorandum & Article of Association to such on amount as the even of its
winding up. The company limited by guarantee is usually formed on the “No profit
basis”. Company limited by guarantee uses the word “(Guarantee) limited” as the last
word of its name.
C- Un-Limited Company
Un-limited companies are those companies which having the liabilities of its members
are unlimited.
2 - Registration of a Company;
In case of the public limited company, there are seven or more persons associated for
any lawful purpose many, or by subscribing their names to the memorandum & Article
of Association and complying with the requirements of the company’s ordinance 1984 in
respect of the registration. And in case of the private limited company there are two or
more persons associated in this regard.
I case of private limited company, the following documents are to be supported for
registration ,
Four copies of memorandum and article of association duly signed by promoters while
one copy duly stamped.
Declaration on prescribed form 1 regarding compliance with the requirement of the
company’s ordinance 1984 signed by one of the proposed director or an advocate or
Chartered Accountant or Cost Management Accountant.
Address of registered office of the company on form 2.
Particulars of Chief Executive, Directors and other officers on form 29.
In case of public limited company, the following additional documents are required to
be field with the concerned registrar.
List of persons to act a chief Executive and Directors on form 27.
Consent of the Chief Executive and Directors on form 28.
All documents meant for registration of a public limited company along with a license
from the Securities and Exchange Commission of Pakistan, which is in Islamabad. The
application for obtaining the requisite license from the Securities and Exchange
Commission of Pakistan should be accompanied by draft of Memorandum and Articles of
Association, list of promoters, declaration, names of associated companies and
estimates of annual income and expenditure under section (42).
6. Foreign Company
A foreign company i.e. a company incorporated from out side Pakistan is required to
deliver the following document to the concern register with in 30 days of the
establishment of its place of business in Pakistan.
The services being performed by a firm of charted accountants in the corporate sector
of matters of post incorporation of various companies, as described above is a long list.
The major areas in which the services are performed by Chartered Accountant firms are
mentioned below: