A person shall be qualified for appointment as an auditor if he is a chartered accountant within the meaning of the Chartered Accountants Ordinance 1961.
He can be appointed as auditor Of (A) public limited company or (B) a private limited company which is a subsidiary to a public company or (C) private limited company with a capital of rupees 3 million or more. Let’s discuss below the qualification and disqualification of an auditor:
Qualification and Disqualification of an Auditor
Qualification of an Auditor
A chartered accountant and management accountant can be appointed to an auditor of a private company having paid up capital of million or more in accordance with provisions of Income Tax Ordinance.
A firm in which all the partners practicing in Pakistan are chartered accountants may be appointed by its firm name as auditors of a company and may act in its firm name.
Disqualification of an Auditor
The following persons cannot become auditors of the company.
- A person who is a director, other officer or employee of the company.
- A person who was a director, other officer or employee of the company at any time during preceding three years.
- A person who is a partner of a director, officer or employee of the company,
- A person who is an employee of a director, officer or employee of a company.
- The spouse of a director of the company,
- B person who is indebted to the company.
- A body corporate.
- A disqualified person for one company cannot become an auditor in another company if it is a subsidiary or holding company.
Status of an Auditor in a Company
An auditor performs different roles in different situations during the conduct of an audit. A chartered accountant may assume a dual duty of preparing accounts and their audit. In this case, he is considered as a servant of the company.
A chartered accountant is called agent of the company so far he accepts the duty of audit only. An auditor is treated as an officer of the company under various sections of the Companies Ordinance 1984.
Read More: Professional & Personal Qualities of an Auditor
Company Servant
They auditor may be considered as a servant if he accepts dual duty preparing ‘the accounts and their audit. A person who oversees the accounts he is treated as an accountant. When he conducts the work of audit he is called an auditor.
He is considered as company servant when accepts a duty of accountant as well as an auditor. A servant cannot give an independent opinion on the company matters.
A servant cannot work in many companies at the same time. An auditor can get his work completed by his assistants. In these circumstances, an auditor cannot be considered as a servant of the company.
Company Agent
The auditor is appointed by shareholders for audit work. He is considered an agent of shareholders. He is bound to report to shareholders about the company matters.
Sometimes the auditor is appointed by directors even then he is considered as an agent of shareholders.
In some court cases, the auditors are treated as an agent of members. The agency relationship is created between shareholders and auditors.
Justice Cran worth says that the auditors may be agents of shareholders, so far as it relates to the audit of the accounts. For the purpose of an audit, the auditors will bind the shareholders.
Justice Chelmsford said that it would be an unreasonable conclusion from the mode of appointment of these officers that they were thereby constituted agents so as to conclude the shareholders by their knowledge of any unauthorized act of the director.
Justice Turner is of the view that these were auditors of the company appointed by shareholders. These auditors were within the scope of their duty, at least as much the agent of the shareholders as the directors were, and the false and fraudulent representations were discoverable by them.
Thus an auditor is an agent of shareholders so far the audit of accounts is concerned.
Company Officer
An auditor is appointed by shareholders to examine the books of accounts. As per engagement letter, he is not an officer of the company.
The auditor is considered as an officer of the company under the Companies Ordinance 1984. The following sections are stated as a reference.
Section 205: Every company shall E.oep a register of its directors and officer with complete bio-data. Such information is to be provided to the register within a certain period, Failure to comply with thing section there is Sec.205.
Section 220: Every company shall keep a register of directors/ officers and other people who hold at least ten percent interest in the company. Such register shall be produced in case of need. In case of failure, there will be a fine up to rupees ten thousand.
Section 221: The directors, officers, and other persons shall give notice to the company to enable him to meet the requirements of section 220.
The failure to meet the requirements there is a punishment of two years and fine up to five thousand rupees.
Section 222: The directors, officers, and another person who is or has been the beneficial owner of the any of its securities more than ten percent, shall submit such information in prescribed Performa to the registrar and the commission. In case of failure, there is a fine of thirty thousand rupees.
Section 223: The directors, officers; and other persons hold more than ten percent of securities shall not practice short selling directly or indirectly. In case of failure, there is a fine of thirty thousand rupees.
Section 224: The directors, officers, and other persons who hold more than ten percent of securities may make any gain by purchase and sale of securities within a period of fewer than six months.
He shall render the amount of gain to the company and sent information to the registrar and commission. In case of failure, there is fine of thirty thousand rupees.
Section 260: The auditor’s report may be false. It may not meet the legal requirements. It may fail to disclose true position of the company affairs. He shall be punishable up to two thousand rupees.
Section 261: The registrar has the powers to call for information or explanation about any document, notice, advertisement, or other communication within fourteen days. There is fine up-to twenty thousand rupees if the auditor fails to company with the order of the registrar.
Section 268: There is a duty of all officers and other persons to give to the inspector all assistance relating to an investigation. In case of failure, there is wilt be a jail up to one year and fine up to ten thousand rupees.
Section 351: The court may summon before it any person having any property, books or papers or the company. Failure to comply with this section there is a penalty
Section 352: The inspector may apply the court that fraud or irregularity has been committed in the promotion or formation of a company. The court can order for public examination of management including auditor. The failure to comply with the order of the court there is a penalty.
Section 412: The court has powers .to assess damages against management, including an auditor for misapplication or retention of money or property or, has been guilty of misconduct or breach of trust. The concerned person is responsible to pay damages.
Section 417: The directors or auditors may destroy, mutilate or falsify any book, paper or securities or he knows about such acts. There may be a jail up to buy years or fine up to twenty thousand rupees or both.
Section 418: The directors, auditors may commit any offense which is criminally liable. The liquidator or registrar may prosecute the offender. The person concerned may be held responsible for compensating the company.
Section 474: The auditor is responsible for offenses. The registrar, shareholder or creditors can appeal before the court or Securities and Exchange Commission of Pakistan for fixing responsibility on the auditor.
Section 482: When any unimportant case is filed in the court of law just to tease the auditor or another person. The court may compel the member or creditor to pay compensation to the defender.
