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How Does An

Conduct ?
What is AUDIT

Audit refers:
To an independent examination of
the financial statements of an
enterprise, conducted with a view to
expressing an opinion as to whether
those statements give a true and fair
A person who conducts an audit, and give
their opinion on the financial statements
according to the standards.
The organization's management prepares the financial report.
It must be prepared in accordance with legal requirements and
financial reporting standards.
The organization's directors approve the financial report.
Auditors start their examination by gaining an understanding
of the organization's activities, and considering the economic
and industry issues that might have affected the business
during the reporting period.
For each major activity listed in the financial report, auditors
identify and assess any risks which could have a significant
impact on the financial position or financial performance, and
also some of the measures (called internal controls) that the
organization has put in place to mitigate those risks.
Based on the risks and controls identified, auditors
consider what management does has done to ensure
the financial report is accurate, and examine
supporting evidence.
Auditors then make a judgment as to whether the
financial report taken as a whole presents a true and
fair view of the financial results and position of the
organization and its cash flows, and is in compliance
with financial reporting standards and, if applicable,
the Corporations Act.
Finally, auditors prepare an audit report setting out
their opinion, for the organization's shareholders or
Appointment of the Auditor
Every company shall at each annual general meeting
appoint an auditor or auditors
The first auditor or auditors of a company shall be
appointed by the directors within sixty days of the date of
incorporation of the company
if the directors fail to exercise their powers then company
members are liable to appoint the auditor within 120 days
and if it is not done then SECP will appoint the auditor
after getting the letter from the director within 120 days.
Whoever will appoint the auditor will
recognize/determine the fees of auditor.
Qualification of auditors
He should be a Chartered Accountant within the
meaning of the Chartered Accountants
Ordinance, 1961 (X of 1961)
In the case of a private company having paid up
capital of is less than three million rupees, then
a cost management accountant can be appointed
Disqualification of auditors
A person who is, or at any time during the preceding 3 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 who is indebted to the company
If he is not paid the charges of utility bills for 90 days
A person who holds the share (Investment) of the company is
ineligible . But if he has the share, then he has to sell those
shares within 90 days
If a persons spouse or minor children holding the shares then
he is ineligible .
Engagement letter
When we appoint an auditor, we write a
letter to the auditor . When the auditor
replies for that letter ,that letter will be
called an engagement letter
Audit working Paper
If an auditor gathers the evidences and
show his opinion and keep it, its known as
Audit working Paper
The objective of audit working papers are :
To keep an evidence.
To supervise
To review
To Plan

Audit working Paper consist of three
type of files:
Summary File (Permanent File)
Correspondence File
Current File
Summary File (Permanent File)
All the information which is permanent in
nature is kept on here like:
Knowledge of the business
Engagement letter
Legal agreement paper
Accounting system and Internal control
Correspondence File
All the letters given to the client
or taken/received by the client are
recorded in Correspondence File

Current File
All the detail of current audit is filed in
current file, audit program, trial Balance
Adjusting entries adjusted trial balance .
Any Information which dont occur in
Correspondence and summary files will be
filed in the current file .
Audit Evidence
Step for gain an evidence:
Analytical Procedure
Powers and duties of auditors
Auditor has the right to access any account in books,
accounts at all time which is necessary to preform his
On the basis of the books he gives an opinion if the
opinion is true and fair its called as an unqualified reports
otherwise qualified
In the case of a company having a branch office outside
Pakistan, it shall be sufficient if the auditor is allowed
access to such copies of, and extracts of that branch to
preform his job.
The auditor shall make a report to the members of the
company on the accounts and books of accounts of the
Removal of the Auditor
Any member will give notice that he/she doesnt like or
want to remove an auditor and will mention the
appointment too
Before at least 14 days of AGM notice must be submitted.
Before AGM this notice shall be distributed among all the
members of the meeting
In case of public company circulation of notice must be
given any newspaper English and Urdu of the same
province when shares are listed in stock market.
Incoming /new auditor removing previous auditor.
Penalties (On companies)
Those who violate the sections 252 to 254
or 256 to 258, of Company ordinance 1984
then will be charged penalties
50,000 and in the case of continuing
default to a further fine which may extend
to 2000 for every day after the first during
which the default continues.
Penalties (On auditor)
If an auditor bring changes intentionally in
any audit to bring profit to the company
then he may be charge 100000 Rs fine
if do any auditing for the purpose of profit
to one party and disadvantages to any other
will be charge a fine of 100000 Rs or
imprisonment for 1 year or may be both
Inspection of auditors report
The auditors report shall be read before
the company in general meeting and shall
be open to inspection by any member of
the company.
Signature on audit report
Only the person appointed as auditor of the
company, who is practicing in Pakistan,
shall sign the auditor's report
The report of auditors shall be dated and
indicate the place at which it is