Week 2

Audit Regulations &

Standards
Reviewed by: Kashif Gulzar
LEGAL PROVISIONS RELATED TO
AUDITORS:
Companies Act, 2017 Sections 246 – 253
Section 246. Appointment, removal
and fee of auditors
• Appointment

Within 90 days
Appointed by Remunerations Stands Retire on Date of
First Auditors à à from à à
Board of Directors Determine by BOD 1st AGM
Incorporation

Proposed By BOD Hold office till next

Subsequent Remuneration
à or Shareholder of à At every AGM à à AGM and can be
Auditors Determine in AGM
10% reappointed
Section 247. Qualification and
disqualification of auditors
The following persons shall not be appointed as auditor of a company, namely:
a) a person who is, or at any time during the preceding three years was, a director, other officer or employee of the company.
b) a person who is a partner of or in the employment of, a director, officer or employee of the company
c) the spouse of a director of the company
d) a person who is indebted to the company other than in the ordinary course of business of such entities
e) 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) a person or a firm who, whether directly or indirectly, has business relationship with the company other than in the ordinary course of business of such
entities
g) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction
h) a body corporate
i) a person who is not eligible to act as auditor under the code of ethics as adopted by the ICAP and ICMAP and
j) a person or his spouse or minor children, or in case of a firm, all partners of such firm who hold any shares of an audit client or any of its associated
companies.
Section 248. Auditors’ right to
information
An auditor of a company has a right:
a) of access at all times to the company‘s books, accounts and vouchers (in whatever
form they are held); and
b) b.of access to such copies of, an extracts from, the books and accounts of the branch
as have been transmitted to the principal office of the company;
c) c.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 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; and
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.
Section 249. Duties of auditor
1. A company‘s auditor shall conduct the audit and prepare his report in compliance with the requirements of International
Standards on Auditing as adopted by the Institute of Chartered Accountants of Pakistan.
2. A company‘s auditor must carry out such examination to enable him to form an opinion as to-
(a)whether adequate accounting records have been kept by the company and returns adequate for their audit have
been received from branches not visited by him; and
(b) whether the company‘s financial statements are in agreement with the accounting records and returns.
3. The auditor shall make out a report to the members of the company on the accounts and books of accounts of the
company and on every financial statements and on every other document forming part of such statements including notes,
statements or schedules appended thereto, which are to be laid before the company in general meeting and the report shall
state-
(a)whether or not they have obtained all the information and explanations which to the best of their knowledge and
belief were necessary for the purposes of the audit and if not, the details thereof and the effect of such information on the
financial statements;
(b)whether or not in their opinion proper books of accounts as required by this Act have been kept by the company;
(c)whether or not in their opinion the statement of financial position and profit and loss account and other
comprehensive income or the income and expenditure account and the cash flows have been drawn up in conformity with
the requirements of accounting and reporting standards as notified under this Act and are in agreement with the books of
accounts and returns;
Section 249. Duties of auditor
(Continued...)
(d)whether or not in their opinion and to the best of their information and according to the
explanations given to them, the said accounts give the information required by this Act in the manner so
required and give a true and fair view-
(i)in the case of the statement of financial position, of the state of affairs of the company as at the
end of the financial year;
(ii)in the case of the profit and loss account and other comprehensive income or the income and
expenditure account, of the profit or loss and other comprehensive income or surplus or deficit, as the
case may be, for its financial year; and
(iii)in the case of statement of cash flows, of the generation and utilisation of the cash and cash
equivalents of the company for its financial year;
(e)whether or not in their opinion-
(i)investments made, expenditure incurred and guarantees extended, during the year, were for
the purpose of company‘s business; and
(ii)zakat deductible at source under the Zakat and Usher Ordinance, 1980 (XVIII of 1980), was
deducted by the company and deposited in the Central Zakat Fund established under section 7 of that
Act.
Section 251. Signature of auditor’s
report
1. The auditor‘s report must state the name of the auditor, engagement partner,
be signed, dated and indicate the place at which it is signed.
2. Where the auditor is an individual, the report must be signed by him.
3. Where the auditor is a firm, the report must be signed by the partnership firm
with the name of the engagement partner.
REGULATORY AUTHORITIES OF
AUDIT:
• National Level:
• a) Securities and Exchange Commission of Pakistan (SECP)
• b) Institute of Chartered Accountants of Pakistan (ICAP)
• c) Institute of Cost and Management Accountants of Pakistan (ICMAP)
• International Level:
• International Federation of Accountants (IFAC)
• o Global organization and leader in accounting profession.
• o Supports development and implementation of standards
• Following boards are under IFAC:
International Auditing and International Ethics Standards International Accounting International Public Sector
Assurance Standards Board Board for Accountants (IESBA) Education Standards Board Accounting Standards Board
(IAASB) (IAESB) (IPSASB)
Issues International Standard on Code of Ethics Defines professional educational Public sector accounting
Auditing and training requirements standards
INTERNATIONAL STANDARDS ON
AUDITING: (ISA)
• International Standards on Auditing (ISA) are professional standards
for the performance of financial audits of financial information. These
standards are issued by the International Federation of Accountants
(IFAC) through the International Auditing and Assurance Standards
Board (IAASB).
INTERNATIONAL STANDARDS ON
AUDITING: (ISA)
Some examples are:
• ISA 200: Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with International Standards on
Auditing
• ISA 300: Planning an Audit of Financial Statements
• ISA 315: Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and Its Environment
• ISA 500: Audit Evidence
• ISA 700: Forming an Opinion and Reporting on Financial Statements
Key Takeaway
• Legal Provisions Companies Act 2017
• Regulatory Authorities of Audit
• International Standards on Auditing