Auditor

Introduction:
An auditor of a company is an independent professional who examines the
financial records of a company to ensure that they are accurate and compliant
with applicable laws and regulations. The auditor of a company plays an
important role in ensuring the accuracy and transparency of a company's financial
information. They help to protect the interests of shareholders and other
stakeholders by providing an independent and objective assessment of the
company's financial statements.
Relevant provision
Section 246 to 249 of the companies act, 2017.
Appointment of auditors section 246
Appointment by board section 246 (1):
The first auditor or auditors of a company shall be appointed by the board within
ninety days of the date of incorporation of the company; and the auditor or
auditors so appointed shall retire on the conclusion of the first annual general
meeting.
Appointed by the company in the annual general meeting section 246 (2):
Subject to the provisions of sub-section (3), the subsequent auditor or auditors
shall be appointed by the company in the annual general meeting on the
recommendation of the board after obtaining consent of the proposed auditors, a
notice shall be given to the members with the notice of general meeting. The
auditor or auditors so appointed shall retire on the conclusion of the next annual
general meeting.
Shareholders' Right to Propose Auditors for Appointment section 246 (3):
a member or members having not less than ten percent shareholding of the
company shall also be entitled to propose any auditor or auditors for
appointment whose consent has been obtained by him and a notice in this regard
has been given to the company not less than seven days before the date of the
annual general meeting. The company shall forthwith send a copy of such notice
to the retiring auditor and shall also be posted on its website.
Right of retiring auditor section 246 (4):
Where an auditor, other than the retiring auditor is proposed to be appointed,
the retiring auditor shall have a right to make a representation in writing to the
company at least two days before the date of general meeting. Such
representation shall be read out at the meeting before taking up the agenda for
appointment of the auditor.
Provided that where such representation is made, it shall be mandatory for the
auditor or a person authorized by him in writing to attend the general meeting in
person.
Removal through a special resolution section 246 (5):
The auditor or auditors appointed by the board or the members in an annual
general meeting may be removed through a special resolution.
Filing of any casual vacancy section 246 (6):
Any casual vacancy of an auditor shall be filled by the board within thirty days
from the date thereof. Any auditor appointed to fill in any casual vacancy shall
hold office until the conclusion of the next annual general meeting:
Provided that where the auditors are removed during their tenure, the board
shall appoint the auditors with prior approval of the Commission.
If a company fails to appoint section 246 (7):
If the company, fails to appoint—
(a) the first auditors within a period of ninety days of the date of incorporation of
the company;
(b) the auditors at an annual general meeting; or
(c) an auditor in the office to fill up a casual vacancy within thirty days after the
occurrence of the vacancy;
(d) if the appointed auditors are unwilling to act as auditors of the company;
the Commission may, of its own motion or on an application made to it by the
company or any of its members direct to make good the default within such time
as may be specified in the order. In case the company fails to report compliance
within the period so specified, the Commission shall appoint auditors of the
company who shall hold office till conclusion of the next annual general meeting.
Remuneration of the auditors section 246 (8):
The remuneration of the auditors of a company shall be fixed—
(a) by the company in the general meeting;
(b) by the board or by the Commission, if the auditors are appointed by the board
or the Commission, as the case may be.
Intimation to the registrar section 246 (9):
Every company shall, within fourteen days from the date of any appointment of
an auditor, send to the registrar intimation thereof, together with the consent in
writing of the auditor concerned.
Qualification and disqualification of auditors section 247:
(1) A person shall not be qualified for appointment as an auditor—
(a) Chartered Accountant Certification Requirement
in the case of a public company or a private company which is subsidiary of
a public company or a private company having paid up capital of three
million rupees or more unless such person is a chartered accountant having
valid certificate of practice from the Institute of Chartered Accountants of
Pakistan or a firm of chartered accountants;
(b) Qualification Criteria for Auditors in Various Types of Companies:
in the case of a company other than specified in clause (a), unless such
person, is a chartered accountant or cost and management accountant
having valid certificate of practice from the respective institute or a firm of
chartered accountants or cost and management accountants, having such
criteria as may be specified.
Provided that for the purpose of clause (a) and (b), a firm whereof majority
of practicing partners are qualified for appointment shall be appointed by
its firm name to be auditors of the company.
Partnership firm section 247 (2):
Where a partnership firm is appointed as auditor of a company, only the partners
who meet the qualification requirements as provided in sub-section (1), shall be
authorized to act and sign on behalf of the firm.
Disqualification of auditors section 247 (3):
None of the following persons shall be appointed as auditor of a company,
namely—
(a) Former or Current Director, Officer, or Employee of the Company
A person who is, or at any time during the preceding three years was, a
director, other officer, or employee of the company.
(b) Partnership or Employment Connection with a Company Director, Officer,
or Employee
A person who is a partner of, or in the employment of, a director, officer, or
employee of the company.
(c) Spouse of a Director
The spouse of a director of the company.
(d) Indebtedness to the Company beyond Ordinary Business Transactions
A person who is indebted to the company other than in the ordinary course
of business of such entities.
(e) Guarantees or Security Provided for Third-party Indebtedness to the
Company
A person who has given a guarantee or provided any security in connection
with the indebtedness of any third person to the company other than in the
ordinary course of business of such entities.
(f) Business Relationships Beyond Ordinary Business Transactions
A person or a firm who, whether directly or indirectly, has a business relationship
with the company other than in the ordinary course of business of such entities.
(g) Conviction for Fraud Offense within the Last Ten Years
A person who has been convicted by a court of an offense involving fraud and a
period of ten years has not elapsed from the date of such conviction.
(h) Ineligibility of a Body Corporate as an Auditor
A body corporate.
(i) Ineligibility Based on Ethical Code of Chartered Accountants and Cost and
Management Accountants
A person who is not eligible to act as an auditor under the code of ethics as
adopted by the Institute of Chartered Accountants of Pakistan and the Institute of
Cost and Management Accountants of Pakistan.
(j) Ownership of Shares in an Audit Client or Associated Companies
A person or his spouse or minor children, or in the case of a firm, all partners of
such a firm who hold any shares of an audit client or any of its associated
companies.
Provided that if such a person holds shares prior to his appointment as an
auditor, whether as an individual or a partner in a firm, the fact shall be disclosed
on his appointment as an auditor, and such person shall disinvest such shares
within ninety days of such appointment.
Auditor´s rights section 248
(1) Auditor's Rights of Access and Information
An auditor of a company has specific rights for access and information as
follows:
(a) Access to Company's Books, Accounts, and Vouchers
(a) The auditor has the right of access at all times to the company’s books,
accounts, and vouchers (in whatever form they are held).
(b) Access to Branch's Books and Accounts
(b) The auditor also has the right of access to such copies of, and extracts from,
the books and accounts of the branch as have been transmitted to the principal
office of the company.
(c) Right to Require Information from Various Parties
(c) Additionally, the auditor has the right to require any of the following persons
to provide him with such information or explanations as he thinks necessary for
the performance of his duties as an auditor:
(i) Any director, officer, or employee of the company.
(ii) Any person holding or accountable for any of the company’s books, accounts,
or vouchers.
(iii) Any subsidiary undertaking of the company.
(iv) Any officer, employee, or auditor of any such subsidiary undertaking of the
company or any person holding or accountable for any books, accounts, or
vouchers of any such subsidiary undertaking of the company.
(2) Consequences of Officer's Refusal or Obstruction
(2) If any officer of a company refuses or fails, without lawful justification, the
onus whereof shall lie on him, to allow any auditor access to any books and
papers in his custody or power, or to give any such information possessed by him
as and when required, or otherwise hinders, obstructs, or delays an auditor in the
performance of his duties or the exercise of his powers, or fails to give notice of
any general meeting to the auditor, or provides false or incorrect information, he
shall be liable to a penalty as provided under section 252.
Duties of auditors:
According to section 249:
(1) Audit Conduct and Compliance with International Standards on Auditing A
company's auditor shall conduct the audit and prepare the report in accordance
with the requirements of International Standards on Auditing, as adopted by the
Institute of Chartered Accountants of Pakistan.
(2) Examination for Opinion on Accounting Records and Financial Statements (2)
A company's auditor must perform an examination to form an opinion about: (a)
Whether adequate accounting records have been maintained by the company,
and whether returns adequate for their audit have been received from branches
not visited by the auditor; and (b) Whether the company's financial statements
align with the accounting records and returns.
(3) Auditor's Report on Accounts and Financial Statements (3) The auditor shall
create a report for the company's members regarding the accounts, books of
accounts, financial statements, and other related documents that will be presented
at the general meeting. The report should include the following statements:
(a) Confirmation of Obtaining Necessary Information and Explanations;
(b) Assessment of Proper Books of Accounts Maintenance;
(c) Confirmation of Conformity with Accounting Standards and Agreement with Books of
Accounts and Returns;
(d) Affirmation of True and Fair View in Financial Statements;
(e) Opinion on Business Purpose of Investments, Expenditure, and Guarantees;
(f) Verification of Deduction and Deposit of Zakat as per Legal Requirements; Explanation: If the
auditor's report refers to any other report or statements they've made, those references should
be annexed and treated as part of the auditor's report.
(4) Explanation for Negative or Qualified Responses (4) In cases where responses to matters in
subsections (2) or (3) are negative or qualified, the report should include the reasons for such
responses along with the factual context based on the auditor's information.
(5) Commission's Authority to Specify Additional Matters (5) The Commission may direct,
through a general or special order, that the auditor's report, for companies generally or specific
classes, should also encompass additional matters as specified by the Commission.
(6) Expression of Unmodified or Modified Opinion (6) The auditor shall express an unmodified
or modified opinion in their report, adhering to the requirements of International Standards on
Auditing adopted by the Institute of Chartered Accountants of Pakistan.
(7) Review Report for Statement of Compliance (7) The Commission may direct that the
auditor review the statement of compliance as stated in section 227(4) of this Act and issue a
review report to the members, following the format specified by the Commission.
(8) Auditor's Rights at General Meetings (8) The company's auditor has the right to attend any
general meeting, receive notices and communications related to such meetings, and be heard
on matters concerning them as the auditor. In the case of a listed company, the auditor or an
authorized representative must be present during the general meeting discussing the financial
statements and auditor's report.