Lesso
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06
LEGAL CONSIDERATION REGARDING AUDITING
The Audit Requirement
•Not all limited companies are required to have their financial statements audited. Nor are all
companies required to produce financial statements in the same formats as many exemptions may
apply to small and medium sized companies.
•Broadly speaking, small companies are exempt from the audit requirement, small and medium sized
companies may file abbreviated accounts with the registrar of companies and small companies may
prepare accounts with reduced disclosures for their members.
Appointment, Duties, Rights and Liabilities of Auditor
Appointment:
First Auditors
a) The first auditors of a company shall be appointed by the directors within 60 days of
incorporation of the company [252(3)]
b) The first auditors will hold office till the first annual general meeting [252(3)].
c) If the directors fail to appoint the first auditors, the members shall appoint the first
auditors, provided further that the auditors such appointed shall not be removed during
the tenure expect through a special resolution [(252(6)].
d) Where the first auditors are not appointed either by the directors or by the members within
120 days of incorporation of the company, the Securities & Exchange Commission of
Pakistan (Commission) will appoint the auditor [252(6)].
Subsequent Auditors
(a) At each annual general meeting the company (members) shall appoint the auditors [252(1)].
(b) The auditors shall hold office from the conclusion of that meeting till the conclusion of
next annual general meeting [Section 252(1)].
(c) If no auditors are appointed at annual general meeting Commission shall appoint an auditor.
To exercise this power the company must give notice to Commission within one week of
these powers having become exercisable [252(7)].
Note: Provided that an auditor or auditors appointed in a general meeting may be removed before
conclusion of the next annual general meeting through a special resolution [252(1)].
Casual Vacancy
a) Any casual vacancy shall be filled by directors. [Sec 252(4)].
b) Auditors so appointed shall hold office till next annual general meeting.[Sec 252(5)]
c) If directors do not appoint auditors to fill casual vacancy within 30 days, Commission may
appoint an auditor.[Sec 252(6)]
Commission’s powers to appoint auditors [252(6)]
The Securities & Exchange Commission of Pakistan may appoint an auditor if the following situations arise:
a) First auditors are not appointed within 120 days from incorporation;
b) Subsequent auditors are not appointed in annual general meeting;
c) Casual vacancy is not filled within 30 days; and
d) Auditors appointed are unwilling to act as auditors.
To exercise this power, the company must give notice to Commission within one week of its powers
becoming exercisable.
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