Powers/Rights of an Auditor (255)

i) Right of access to books of account and vouchers 255(1). ii) Right to

receive information and explanations. iii) Right of access to books and papers
of branch 255(2). iv) Right to receive notices of general meetings and to
attend those meetings. (255(6)). v) Right to make representation where
another person is being appointed as auditor. (253(3)).

Duties of an Auditor

a) Duties of auditor under section. (255(3)) are: i) To give a report to the

members on the accounts, books of account, balance sheet and profit and
loss account examined by him. (255(3)). ii) Where any matter reported upon
is answered in the negative or with a qualification the report shall include
reasons for such qualification with factual position. iii) To include in the report
of the company such matters as directed by the Federal Government.

iv) To attend those general meetings of a listed company, either himself or

through authorized person, in which the balance sheet, profit and loss
account and the auditors’ report are to be considered.

b) To make report for inclusion in prospectus. (Section 53 read with Part I of

Schedule II). c) To certify receipts and payments account in the statutory
report (Section 157). d) To make report on declaration of solvency in case of
voluntary winding up. e) To exercise reasonable care and skill in carrying out
his duties and make such inquiries as considered necessary.

Reading and Inspection of Auditors’ Report (Section-256)

Auditor’s report shall be read in general meeting and shall be open to
inspection by the members. Signature & Date On Auditors’ Report (Section-
257).

(a) The person appointed as auditor shall sign the auditors’ report or other
documents required under the law.

(b) The report should indicate the date and place.

Audit of Cost Accounts

Where a company is required to maintain any records relating to its costs of

production etc., it will also get these accounts audited. The auditor, in this
case, shall be a Chartered Accountant or a Cost and Management
Accountant.

Auditors’ Liabilities

The liabilities of auditors of a company can be studied under following heads:

a) Civil Liabilities.

Civil liabilities mean the disputes over losses caused to one party by
acts of another. The civil liabilities of an auditor can be for:- i) Negligence ii)
Misfeasance

i) Liability for Negligence (under law of agency)

Auditor being agent of the Shareholders is required to carry out his

duties with reasonable care and skill. If he fails to do so, he is liable to make
good any loss caused to the third party. Major legal decision .

Auditors should inspect securities, test check stock wherever it is

practicable and where it is not he should state in his report that he has
accepted a certificate. In the light of Part-A of Addendum to ISA-8,
“Attendance at Physical Inventory Counting” and SAP – 3 “Verification of
Inventories”, the position of auditors as held in Kingston Cotton Mills Co. Ltd.
is no longer valid.

ii) Liability for Misfeasance

The term misfeasance means breach of duty. If auditor does something

wrong in the performance of his duties resulting in a financial loss to the
company, he is guilty of misfeasance. For example auditor’s duties are laid
down in section 255 of the Companies Ordinance, 1984. If auditor does not
perform his duties properly and the company suffers loss he is liable for
misfeasance.

b) Criminal Liabilities. Section 260

If auditor fails to comply with the requirements of Sections 157, 255 or 257,
he shall be punishable with fine up to Rs. 100,000/-. If he knowingly makes a
false report for profit to himself or to put another person to a disadvantage or
loss for a material consideration, he shall also be punishable with
imprisonment for a period of one year.

If charges of forgery are brought against an auditor, he may be liable to

imprisonment for a term which may be extended to 2 years or fine up to Rs.
20,000 or both.

If in any report the auditor makes a false statement he shall be liable to

imprisonment for a term up to 3 years and a fine not exceeding Rs. 20,000.

Disqualifications for appointment as auditor

None of the following persons shall be qualified for appointment as auditor

of a company—

(a) a body corporate

(b) an officer or employee of the company

(c) a person who is a partner, or who is in the employment, of an officer or

employee of the company

(d) a person who is indebted to the company for an amount exceeding one
thousand rupees, or who has given any guarantee or provided any security in
connection with the indebtedness of any third person to the company for an
amount exceeding one thousand rupees

(e) a person holding any security of that company after a period of one
year from the date of commencement of the Companies (Amendment) Act,
2000.

Explanation :For the purposes of this section, “security” means an

instrument which carries voting rights.

Explanation : References in this sub-section to an officer or employee shall

be construed as not including references to an auditor.

(4) A person shall also not be qualified for appointment as auditor of a

company if he is, by virtue of sub-section (3), disqualified for appointment as
auditor of any other body corporate which is that company’s subsidiary or
holding company or a subsidiary of that company’s holding company, or
would be so disqualified if the body corporate were a company.

(5) If an auditor becomes subject, after his appointment, to any of the

disquali-fications specified in sub-sections (3) and (4), he shall be deemed to
have vacated his office as such.