ADVANCED

Auditing
 Shareholder Information BOD

External Auditor I
N
F
Independent O
R
M

Internal Auditor A
T
I
O
• External auditor appointed by N
shareholders
• Internal auditor appointed by BOD
(Audit Committee) Employees
 Shareholder Information BOD

Section 233: The directors of every company shall at some date not
later than eighteen months after the incorporation of the company
and subsequently once at least in every calendar year lay before the
company in annual general meeting a balance-sheet and profit and
loss account.

The balance-sheet and the profit and loss account or income and
expenditure account shall be audited by the auditor of the company
and the auditor’s report shall be attached thereto.
Assurance = Confidence
a) A three party relationship: 1) intended user, (2)
responsible party and (3) the Practitioner
b) A subject matter: data to be evaluated that has
been prepared by the responsible party i.e.
historical financial information, non-financial
performance (key performance indicators),
processes (internal control) and behavior
(compliance with laws and regulations).
c) Suitable criteria: The subject matter is evaluated or
measured against criteria in order to reach an
opinion (Accounting Framework).
d) Evidence: Sufficient appropriate evidence needs
to be gathered to support the required level of
assurance.
e) An assurance report: A written report (Audit
Report) containing the practitioner's opinion is
issued to the intended user, in the form
appropriate to a reasonable assurance
engagement or a limited assurance engagement.
 LEVELS OF ASSURANCE
Absolute Not used in cases of FS

High but not absolute

Reasonable Positive form of opinion (Audit)

Risk greater than Reasonable

Limited Negative form of opinion (Review)
The degree of assurance that can be provided about the reliability
of the financial statements will depend on:
• the amount of work performed in carrying out the assurance
process, and
• the results of that work
 A
Absolute S
S T
U E
Reasonable R S
A T
N I
C
N
E
Limited G

The objective of a reasonable assurance engagement (audit)

is a reduction in assurance engagement risk to an acceptably
low level. The conclusion would usually be expressed in a
positive form.
Why auditor gives reasonable assurance only?
1. It is not objective, judgments are to be made (what to
test, how to test, risk assessment, audit opinion)
2. Not all items are tested (sampling risk)
3. Limitations of accounting and control system (human
error, unusual transactions, possibility of collusion
and fraud, controls override)
4. Inherent limitation of Audit Report (standard report
format, users may not understand the report)
5. Audit report issued a long time after the year end
An external audit provides the following benefits:
• Increases the credibility of published F/S.
• Confirms to management that they have performed their
statutory duties correctly.
• Provides assurance to management that they have complied
with non-statutory requirements, such as CG requirements.
• It provides feedback on the effectiveness of internal
controls. Where internal controls are weak or inadequate,
the auditor will give recommendations for improvement.
• Even where a statutory audit is not required, for example
due to small company statutory exemption limits, an audit
will increase the credibility of published F/S.
Limitations of Audit
• Its cost. The cost of an audit can be very high.
• Disruption caused to a company’s staff during the audit.
• Some items in the subject matter might be estimates.
• Most fraud will include an attempt to deliberately conceal
the truth or misrepresent information.
• In order to balance cost and efficiency the auditor
routinely uses sampling rather than tests every item.
• Irrespective of how robust a client’s systems are, they will
always incorporate some degree of inherent limitation.
• Audit evidence is persuasive rather than conclusive.
• Auditor expresses an Opinion on financial statements
• Financial statements are prepared using a General purpose
framework
• Opinion is that Financial statements are presented fairly (True &
Fair view)
• Audit is conducted in accordance with ISA, and relevant ethical
requirements (Code of Ethics)
 REPORTING FRAMEWORK
General Purpose Financial Statements: caters to
common financial information needs of a wide range of
users

Special Purpose framework: caters to the special needs

of specific users of financial statements i.e. financial
statements prepared using cash basis, or guidelines
provided by regulatory bodies under specific situations
i.e. at the time of liquidation.
 SECP NOTIFICATION 10 SEP 2015
Public Interest Company (PIC)
• Public Company according to PSCCG 2012
• Utility or public service company
• Holding assets in fiduciary capacity (banks, pension fund etc)
• In process of filing to issue a class of security
Large Size Company
• Turnover more than 1 billion, or
• Paid up capital more than 200 million
PIC and Large Size Company will prepare financial statements
according to IFRS (Accounting framework will be IFRS)
 FINANCIAL REPORTING FRAMEWORK (2)
Small Size Company to use Accounting & Financial Reporting
Standards (AFRS) for Small Size Entities (SSE). Small Size
Company is other than a non-listed public company having:
a) paid-up capital not exceeding Rs. 25 million, and
b) turnover not exceeding Rs.100 million.
Medium Size Company is to use IFRS for SMEs:
A non-listed company which is not a:
• a) Public Interest Company; or
• b) Large Sized Company; or
• c) Small Sized Company other than a non-listed public
company.
 QUALIFICATION OF AUDITOR
COMPANIES ACT 2017
Section 247: Qualification and disqualification of auditors

A person shall not be qualified for appointment as an auditor:

• In the case of a public company or a private company which is
subsidiary of a public company unless he is a Chartered Accountant;
and having valid certificate of practice from the Institute of Chartered
Accountants of Pakistan or a firm of chartered accountants
• In the case of a private company having paid up capital of three million
rupees or more unless he is a Chartered Accountant
A firm of Chartered Accountants may be appointed by its ‘firm name’ as
auditors of a company and may act in its firm name.
None of the following persons shall be appointed as
auditor of a company:
• A person who is, or at any time during the preceding
three years was, a director, other officer or employee
of the company
• A person who is a partner of , or in the employment
of, a director, officer or employee of the company
• the spouse of a director of the company
• A person, his spouse, minor children, or all partners
of a firm who holds any shares of an audit client or
any of its associated companies. (If he holds shares
before appointment than to disinvest within 90 days).
• 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;
• a person who is not eligible to act as auditor under the code
of ethics as adopted by the ICAP and ICMAP;
• A body corporate
• A person who is indebted to the company. Except:
a) Debt not exceeding 1,000,000 to credit card issuer; or
b) Unpaid dues (more than 90 days) of utility company
The appointment as auditor of a company of an unqualified
person, or of a person who is subject to any disqualifications to
act as such, shall be void.
RIGHTS AND DUTIES OF AUDITOR
248. Auditors’ right to information.—(1) 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) 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) 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.

(2) If any officer of a company refuses or fails, without lawful justification, the onus whereof shall lie on
him, to allow any auditor access to any books and papers in his custody or power, or to give any such
information possessed by him as and when required, or otherwise hinders, obstructs or delays an
auditor in the performance of his duties or the exercise of his powers or fails to give notice of any
general meeting to the auditor or provides false or incorrect information, he shall be liable to penalty as
provided under section 252.
Section 250. Audit of cost accounts

Where any company or class of companies is required an audit of

cost accounts of the company shall be conducted in such manner and
with such stipulations as may be specified in the order by an auditor
who is a chartered accountant within the meaning of the Chartered
Accountants Ordinance, 1961, or a cost and management accountant
within the meaning of the Cost and Management Accountants Act,
1966; and

Such auditor shall have the same powers, duties and liabilities as an
auditor of a company and such other powers, duties and liabilities as
may be specified.