AUDITING ATR-11(Reformatted 2002) APPOINTMENT OF AUDITORS

1.       This Technical Release supersedes ATR-11 “Appointment of Auditors” issued on July 10, 1982.

2.       The Issue The ATR seeks to explain certain aspects relating to the appointment of auditors.

3.       Raison d’être Additional clarifications/guidance in respect of following matters are required.

(a)     What shall be the procedure if no auditors are appointed at an annual general meeting?
(b)     Can retiring auditors continue to hold office, if no auditors are appointed at an annual general meeting?
(c)     In case of default in complying with the provisions of section 252 of the Companies Ordinance 1984 (the Ordinance) and no auditors are appointed until the next annual general meeting,
(i)       can an auditor or auditors appointed at the next annual general meeting be considered auditors for the period from the conclusion of last annual general meeting?
(ii)     Whether the incoming auditor or auditors are required to communicate with the retiring auditor or auditors at the last annual general meeting ?
(d)     Can an auditor or auditors audit pending accounts of a Company?
(e)     In case no auditors are appointed at an annual general meeting and also the accounts are not prepared before the meeting, can the retiring auditors continue to hold the office to complete the audit of the accounts which is in progress.

4.       Technical Committee’s Recommendations
4.1   Under sub-section
(1) of section 252 of the Ordinance, every company is required to appoint an auditor or auditors at each annual general meeting to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting. Further sub section

(6) of section 252 of the Ordinance requires that, where at an annual general meeting no auditors are appointed, the Securities and Exchange Commission of Pakistan (the Commission) may appoint a person to fill the vacancy. Whenever such situation arises, the Company under sub section

(7) of section 252 of the Ordinance is required to give notice of that fact to the Commission, within one week of the Commission’s power becoming exercisable. The remuneration of auditors so appointed shall be fixed by the Commission. In case of default by a company in complying with any of the provision of section 252 of the Ordinance, the company and every officer of the company who is knowingly and willfully a party to the default shall be punishable with fine which may extend to two thousand rupees. (Section 259) 4.2   As explained in para

4.1 above, only the Commission can appoint an auditor or auditors if no auditors are appointed at an annual general meeting. Therefore retiring auditors can not continue to hold the office.

4.3 In case of continuing default in complying with the provision of section 252 of the Ordinance, the office of auditors shall remain vacant and auditors appointed at the next annual general meeting can not be considered auditor for the default period. Further the company shall remain at default in complying with the requirements of section 252 of the Ordinance. Although the office of auditors remained vacant and there are no retiring auditors, the incoming auditors should communicate with the retiring auditors of the last annual general meeting.

4.4 Since the auditors are appointed for a period up to the conclusion of the next annual general meeting, they can audit more than one year’s accounts during their period in the office. However such situation can only arise if a company fails to prepare and present the accounts at the annual general meeting as required under section 230 of the Ordinance. Under sub-section
(6) of the section 233 of the Ordinance, any person who is a party to the default in complying with this requirement shall:
(a)     in respect of a listed company, be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than ten thousand rupees nor more than twenty thousand rupees, and a further fine which may extend to two thousand rupees for every day after the first during which the default continues; and
(b)     in respect of any other company, be punishable with imprisonment for a term, which may extend to six months and with fine, which may extend to five thousand rupees.

4.5 As explained in para
4.1 above, only the Commission can appoint an   auditor or auditors if no auditors are appointed at an annual general meeting. Therefore retiring auditors cannot continue to hold the office to complete the pending audit of the accounts. In such a situation, the commission may appoint the retiring auditor to hold the office until the next annual general meeting.