This Blog is written by Mr. Nazakat Ali, Associate Audit and Assurance Services. Please read this blog and provide your valued comments.
Appointment of an auditor
An auditor is a person who is assigned the job to audit the financial statements of a company in accordance with the provisions of law and auditing standards as applicable in Pakistan.
What is Audit
An audit is an unbiased examination and valuation of the financial statements of an organization to form an independent opinion.
How is an Auditor of a company appointed?
- The directors appoint the first auditor of the company within sixty days of the date of incorporation of the company under section.
- The first auditor holds office until the conclusion of the first annual general meeting of the company.
- If the directors fail to appoint first auditor, the members in general meeting of the company may appoint the first auditor.
- In case, the first auditor is not appointed within one hundred and twenty days of the date of incorporation of the company, the Commission may appoint the auditor to fill the vacancy.
- On the conclusion of first annual general meeting, first auditor stands retired.
- Thereafter, the auditor is appointed by the members at an annual general meeting and such auditor holds the office until the conclusion of the next annual general meeting.
- The retiring auditor of the company is, however, eligible for re-appointment.
How is an Auditor appointed in case of casual vacancy?
- Casual vacancy of the auditor is filled by the directors
- But the surviving auditor may continue to hold office till vacancy is filled.
- Auditor appointed to fill up the casual vacancy holds office till the conclusion of the next annual general meeting
When does the Commission appoint Auditor
The Commission has the power to appoint auditor under the following circumstances: –
- If first auditor is not appointed within one hundred and twenty days of the date of incorporation of a company.
- Auditor is not appointed at an annual general meeting and directors also fail in filling the vacancy within thirty days thereafter.
- Auditor appointed is unwilling to act as auditor of the company.
- A casual vacancy in the office of an auditor is not filled within thirty days after the occurrence of the vacancy.
- Auditor is removed by the members through special resolution in a general meeting
- Where a company appoints an unqualified person as auditor or a person who is subject to any disqualifications to act as an auditor.
Who is qualified for appointment as auditor
A chartered accountant is qualified to become the auditor of
- A public company or
- A private company which is a subsidiary of a public company or
- A private company having paid up capital three million rupees or more.
- An association not for profit
- And companies limited by guarantee , are also required to appoint a chartered accountant as auditor
Who is disqualified for appointment as auditor
Following persons are ineligible for appointment as auditor of a company:-
- Present or past director, officer or employee of the company during the preceding three years.
- A partner or person in the employment of a director, officer or employee of the company.
- Spouse of a director of the company.
- A person who is indebted to the company. A person who owes a sum of money not exceeding five hundred thousand rupees to a credit card issuer or a sum to a utility company in form of unpaid dues for a period not exceeding ninety days, shall not be deemed to be indebted to the company.
- A body corporate.
- A person or his spouse or minor children, or in case of a firm, all partners of such firm who holds 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 auditor, whether 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 within ninety days of such appointment. Such listed company shall take measures to ensure that the auditor disclose the interest in listed company within fourteen days of appointment.
- A person who is disqualified for appointment as auditor of the company’s subsidiary or holding company or a subsidiary of that holding company.