Auditor Definition? The division of labour has become possible due to the industrial revolution. The large-scale companies were formed to do business. The capital was collected from the general public through sate of shares. The shareholders were not professional managers. The need of professional management was felt to run the companies smoothly. The separation of ownership from management was necessary. In order to protect the rights of owners, there was a demand of professional persons who could know the work of accounting and auditing. As a result professional auditors appeared on the business scene to examine the work done by management.
An auditor is usually a charted accountant. A person obtains required educational qualification. Then he becomes trainee with firm of chartered accountants. He gets practical training for a number of years during the same period he is required to pass professional examination. After passing the examination he is granted a license to do work as independent chartered accountant. Thus auditor is expert in the field of accounting and auditing. He is competent to give his opinion about business entity after going through relevant accounting and other records. An independent person can provide true and fair view about the performance of’ any concern. He can note the accounting standards, management policies, and other rules and regulations have been followed. An auditor can protect the rights of people who are away from business. The shareholders appoint the auditors so they report about the performance of management. The law states the rights, duties, and liabilities of auditors. They claim fee from their clients for their services. In fact audit is accountability of management to save the owners from losses. Let discuss various auditor definition below;
1. F. C. De Paula says that auditor is the individual or firm carrying out the audit of the enterprise and the partners of such individual or in such firm.
2. E.R Martin says that an auditor is a person appointed to examine the books of accounts and the accounts of a registered company and to report upon them to company members.
3. According to International Standard on Auditing the auditor means the person with final responsibility for the audit. Audit firm means either the partners of å firm providing audit services or a sole practitioner providing audit sanitizes, as appropriate.
APPOINTMENT OF AUDITOR
A. APPOINTMENT BY DIRECTORS
1. FIRST AUDITORS. Directors shall appoint the first auditor or auditors of a company within sixty days from the date of incorporation of company. The auditors so appointed shall hold office until conclusion of first annual general meeting.
2, CASUAL VACANCY. The directors repay fill any casual Vacancy in the office of auditor within 30 days of its occurrence. While any such vacancy continues the surviving or continuing auditor or auditors, if any, may act as auditor. Any auditor appointed to fill in any casual vacancy shall hold office-until the conclusion of next annual general meeting.
B. APPOINTMENT BY SHAREHOLDERS
1. FIRST AUDITORS. The shareholders shall appoint the first auditors of a company within 120 days from the date Of incorporation if directors fail to exercise their powers of appointing the first auditors. The auditors so appointed shall hold office until the end of the first annual general meeting.
2. ANNUAL APPOINTMENT. Every company shall at each annual general meeting appoint an auditors to hold office from the conclusion of x that meeting until conclusion of next annual general meeting. A firm of auditors may be appointed as auditors of company. All persons shall be treated as auditors who were partners in the firm at the time of appointment.
C. APPOINTMENT BY COMMISSION
1. FIRST AUDITORS. The first auditors of a company shall be appointed by the Securities and Exchange Commission of Pakistan if the shareholders in the general meeting do not appoint the first auditors within 120 days from the date of incorporation of a company.
2. CASUAL VACANCY. The Securities and Exchange Commission of Pakistan can appoint auditors to fill the casual vacancy when (a) first auditor or auditors are not appointed within 120 days from the date of incorporation of company (b) no auditors are appointed in the annual general meeting (c) auditors appointed are unwilling to act as auditors of company and (d) casual vacancy in the office of auditor is not filled within 30 days of its occurrence.
D. APPOINTMENT UNDER INCOME TAX ORDINANCE
A chartered accountant or cost and management accountant can be appointed as auditor of a private company having share capital of Rs. 0.5 million or more as per provisions of Income Tax Ordinance.
PROCEDURE FOR APPOINTMENT OF FIRST AUDITOR
1. CONSENT OF AUDITOR: Consent from proposed auditors is obtained first. He should be chartered accountant in case of public company and any other person in case of other company.
2. BOARD OF DIRECTORS’ APPROVAL: A board of directors meeting is convened within 60 days of incorporation of the company to consider and approve the appointment of first auditors. The approval may be given through a resolution circulated among all directors and signed by
3. FILING OF RETURN: Particulars of auditors are filed on Form 29 in days of appointment. Copy of consent of auditors is also enclosed with return. Bank challan of Rs.200 being filing fee is charged.
4. REGISTER OF OFFICERS: The particulars of auditors are recorded in the register of officers maintained by the company under section 205 of the Companies Ordinance 1984.
5. ADVICE TO AUDITORS: Auditors are advised of their appointment as auditors of the company.
PROCEDURE FOR APPOINTMENT OF SUBSEQUENT AUDITOR
1 . CONSENT OF AUDITOR: Consent from proposed auditors is obtained first. He should be chartered accountant in case of public company and any other person in case of other company.
2. BOARD OF DIRECTORS’ APPROVAL: Board of directors consider the proposal and recommend them for appointment as auditors in general meeting.
3. NOTICE OF MEETING: Notice of annual general meeting which includes appointment of auditors and fixation of remuneration as an item of agent is sent to the members at least 21 days of date of annual general meeting.
4. APPROVAL BY MEMBERS: Appointment of auditors and, fixation of their remuneration is, considered by the members in annual general meeting and approved by them.
5. FILING OF RETURNS: Particulars of auditors are filed on Form 29 in duplicate within 14 days of appointment. Copy of consent of auditors is also enclosed with return. Bank challan of Rs.200 being filing fee is enclosed.
6. REGISTER OF OFFICERS: The particulars of auditors are recorded in the register of officers maintained by the company under section 205 of the Companies Ordinance 1984.
7. ADVICE TO AUDITORS: Auditors are advised of their appointment forthwith coming through commission.
REMUNERATION OF AUDITOR
1. REMUNERATION IS FIXED BY DIRECTORS. The directors may appoint the auditor or auditors. The appointing authority has right to fix remuneration. The directors of the company have bowers. to fix the remuneration.
2. REMUNERATION IS FIXED-BY SHAREHOLDERS. The shareholders can appoint auditor or auditors at annual general meeting. The appointing authority has right to fix remuneration. The shareholders can decide about the remuneration of auditor or auditors.
3. REMUNERATION IS FIXED BY COMMISSION. The Securities and Exchange Commission of Pakistan may appoint auditor or auditors. In this case the Commission has right to fix remuneration. The Securities and Exchange Commission of Pakistan has powers to fix remuneration of auditor or auditors.
REMOVAL OF AUDITOR
A company can remove its auditor through special resolution passed with the support Of three-fourth majority of the members in genera! meeting. The company has no power to appoint the replacement of the auditor because the commission has got the powers to appoint his replacement.
PROCEDURE FOR REMOVAL OF AUDITOR
1. BOARD MEETING: The proposal for removal of auditors is considered and approved by the directors in the board of directors meeting.
2. NOTICE TO AUDITORS: Notice for removal is given to the auditors.
3. REPRESENTATION BY AUDITOR: The auditor is allowed to make representation against his removal.
4. NOTICE TO MEMBERS: Notice accompanied with representation is sent to the members. The notice also contains proposal Of recommending appointment of new auditor to the commission.
5. GENERAL MEETING: The proposal of removal of auditors is considered and approved by members as a special resolution. The chairman may allow the auditors to present his representation. The members also approve recommendation for appointment of new auditors to the commission.
6. NOTICE TO COMMISSION: The Company has to give notice within one week of the removal of the auditors.
7. APPOINTMENT OF AUDITOR: Application is made for appointment of new auditors in place of removed auditors. It would be appropriate if the name of the proposed auditors is also given along with proposed remuneration Bank challan of Rs.500 is enclosed.
8. REMUNERATION OF AUDITOR: The remuneration of the auditor appointed under the situation is also fixed by the commission.
9. REGISTER OF OFFICERS: on receipt of the appointing auditors, the notification is made on form 29 within 14 days and particular’s’ of such auditors are entered in register of officers.
10. REMOVAL OF EXISTING AUDITORS: Removal of existing auditors is notified on Form 29 within 14 days and copy of special resolution on form 26 within 15 days. Bank challan of Rs.400 is enclosed.