Lecture 6

BBA 7th Semester
THE AUDITOR
Definition:
“The auditor is the individual or firm carrying on the audit of the enterprise and the
partners of such individual or in such firm”.
“An auditor is a person appointed to examine the books of account and the accounts of
a registered company to report upon them to the company members”.
 Provisions of Companies Ordinance 1984:
The provision concerning the company auditors are contained in “The Pakistan
Companies Ordinance, 1984”, in sections 252 to 260, dealing with matters as under:
Section Detail
252 Appointment and remuneration of auditors
253 Provision as to resolutions relating to appointment and removal of auditor
254 Qualification and disqualification of auditors
255 Powers and duties of auditors
256 Reading and inspection of auditors’ report
257 Signature on audit report etc.
258 Audit of cost accounts
259 Penalty for non-compliance with provisions by companies
260 Penalty for non-compliance with provisions by auditors
 Qualification of an Auditor:
The Pakistan Companies Ordinance, 1984, has provided certain qualification of
company auditor, which are as under:
SECTION 254(1)
A Person shall be qualified for appointment as auditor of:
a) A public limited company

b) A private limited company which is a subsidiary of a public limited company.
c) A private limited company with capital of rupees three million or more
If has is a chartered accountant within the meaning of the Chartered Accountants

Ordinance, 1961 and has obtained the certificate of practice as auditor.
In addition to a chartered accountant, a cost and management accountant within

the meaning of the Cost and Management Accountant Act-1966, shall also be a
person qualified for appointment as an auditor of a private limited company with
capital of rupees 3 million or more.
SECTION 254 (2)
A firm in which all the partners practicing are chartered accountant may be
appointed by their firm name as auditors of a company referred to in sub section (1)
and may act in their firm’s name.
 Disqualification of an Auditor:
SECTION 254 (3)
The following persons cannot be appointed as auditor of the company.
a) Any director, officer or employee of the company.

b) A person who was a director, officer or employee of the company at any time
during preceding three years.
c) A person who is a partner of a director, officer or employee of the company.
d) A person who is an employee of a director, officer or employee of a company.
e) The spouse of a director of the company.
f) A person who is indebted of the company.
g) A body corporate (because of its features of a limited liabilities).
SECTION 254 (4)
A disqualified person for one company cannot become an auditor in another

company.
 Appointment of the First Auditor(s):

i. By director [Section 252 (3)]:
The first auditor or auditors of a newly incorporated company shall be
appointed by the directors within sixty days (60 days) of the date of
incorporation of the company and the auditor or auditors so appointed
shall hold office until the conclusion of the first annual general meeting.
ii. By Shareholders [Section 252 (3)]:
If the directors fail to appoint the auditor or auditors within sixty days (60
days) of the date of incorporation of company, the shareholders have a right to
appoint the first auditor or auditors within the next sixty days (60 days).
iii. By Securities and Exchange Commission 252 (6):
If the directors or shareholders of the company fail to appoint the first
auditor or auditors within one hundred and twenty days (120 days) of the
date of incorporation of the company, the Securities and Exchange
Commission of Pakistan has the right to appoint the first auditor or
auditors.
 Appointment Procedure of Auditor(s):
The auditor of a public limited company may be appointed as under:
i. Board of Directors’ Approval:

Board of directors in their meeting approve the proposed auditor for
appointment by members in annual general meeting of the company.
ii. Notice of Meeting [Section-253(1)(2)]:
A notice for resolution at company’s annual general meeting for
appointment of auditor other than a retiring auditor is sent to the
members at least 21 days before the annual general meeting.
Company should send a copy of such notice to the retiring auditor
[Section-253(2)].
iii. Approval by Members [Section-252(1)]:
Every company at annual general meeting pass resolution of

appointment of auditor to hold office from the conclusion of that
meeting until the conclusion of the next annual general meeting.
iv. Intimation to Auditor:

The company within seven days of the appointment give intimation to
auditor so appointed. The auditor on receipt of intimation from the
company about his appointment informs about his/her acceptance or
refusal of such appointment.
v. Intimation to Securities and Exchange Commission [Section 253(5):
Every company shall within fourteen days form the date of any
appointment of an auditor, send to the Securities and Exchange
Commission intimation thereof, together with the consent in writing of
the auditor concerned.
vi. Register of Directors, Officers, Etc. [Section-205(1)]:
The particulars of auditor are recorded in the register of directors, officer,
etc., maintained by the company at its registered office.

Lecture 6

Uploaded by

Copyright:

Available Formats

Lecture 6

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Lecture 6

Uploaded by

Copyright:

Available Formats

BBA 7th Semester

A Person shall be qualified for appointment as auditor of:

a) A public limited company

If has is a chartered accountant within the meaning of the Chartered Accountants

In addition to a chartered accountant, a cost and management accountant within

SECTION 254 (3)

The following persons cannot be appointed as auditor of the company.

a) Any director, officer or employee of the company.

SECTION 254 (4)

A disqualified person for one company cannot become an auditor in another

 Appointment of the First Auditor(s):

The auditor of a public limited company may be appointed as under:

i. Board of Directors’ Approval:

Every company at annual general meeting pass resolution of

iv. Intimation to Auditor:

You might also like