Audit and Assurance

Chapter 3
The statutory audit
 The regulatory framework

International Standards
on Auditing (ISAs)

Advantages and limitations

of statutory audits

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The regulatory framework

 Requirement for external audit

 Eligibility to act as external auditor

 Appointment of auditors

 Retirement of auditors

 Removal of auditors

 Rights and duties of auditors

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The Regulatory Framework
 Requirement for external audit

 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. Chartered accountant holding
certificate from the Institute of Chartered Accountants of
Pakistan or a firm of chartered accountants; and

 Less than 3 million, 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:

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Eligibility as Auditor
 Eligibility to act as external auditor

– Professional qualifications

– Professional competence

• Professional integrity

• Appropriate technical standards

• Monitoring by regulatory body

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 Appointment of Auditor (sec246)
 Appointment of First Auditor

– By the Board within 90 days of date of incorporation .

– In case of failure member shall appoint in AGM.

Subsequent Auditor

By the shareholders at the annual general meeting on the

recommendation of board.

Casual Vacancy :

By the board within thirty days from the date thereof.

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Retirement of Auditor (246)
 First Auditor

Shall retire on the conclusion of the first annual general

meeting

 Subsequent Auditor /Causal Vacancy

– The auditor or auditors so appointed shall retire on the

conclusion of the next annual general meeting.

– 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 . Attend the AGM

– .
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Removal of auditors (246)
The auditor or auditors appointed by the board or the
members in an annual general meeting may be removed
through a special resolution.

Provided that where the auditors are removed during

their tenure, the board shall appoint the auditors with
prior approval of the Commission.

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Remuneration of the auditors (246)
 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.

 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.
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Rotation of Auditor
 Every Public Sector Company in the financial sector
shall change its external auditors every five years.

At a minimum, rotate the engagement partner after

every five years

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Ineligibilty as Auditor
– Ineligible to act as an Auditor: (sec 247 (3))

• 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;
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 RIGHTS AND DUTIES OF
AUDITOR(248)
 Duties of the Auditor  Rights of the Auditor
– Examine the financial statements – Access to all books and
records
– Issue an audit report with opinion
• True and fair view – All information and
explanations necessary
• Compliance with accounting
standards & legislation – To attend all meetings of
shareholders
• Maintenance of proper
accounting records – To speak at shareholders
meetings on matters of the
• Agreement with accounting audit
records
• Accuracy of Directors
remuneration & consistency of
directors report
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International Standards on Auditing
(ISAs)
 Purpose
– To provide high level of assurance and consistent
auditing standards for audits of all companies
• ISAs contain basic principles and procedures
• Any departure must be justified by auditor

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Advantages and limitations of
statutory audits
 Advantages  Limitations

– Increases credibility of – Cost

Financial statements
– Disruption caused to staff
– Confirms management during the audit
have performed duties

– Assurance on compliance
with non-statutory
requirements

– Feedback on the
effectiveness of internal
control

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