SOLVED ACC311 Assignment 1 Solution and Discussion

[zareen]

SEMESTER FALL 2019
FUNDAMENTALS OF AUDITING (ACC311)
ASSIGNMENT
DUE DATE: 27TH NOVEMBER, 2019 MARKS: 10
Learning Objective
The students are expected to develop an understanding on auditor’s appointment and qualification in light of Companies Act 2017.
Learning Outcomes
After going through this activity, the students will be able to understand how an individual or company can be appointed as an auditor.
Assignment
Following are some independent scenarios with reference to appointment & qualification of an auditor:
Scenario 01:
Barkat Enterprises (a public limited company) dissatisfied with the performance of their current auditors decided remove them. In the recent AGM of the enterprise, one of its directors, Waseem proposed his own chartered accountancy firm, running under his name as M/S Shafee & Co. as the new auditors for the enterprise. The board has approved this proposal and appointed M/S Shafee & Co as their new external auditor.
Scenario 02:
MTM, a renowned yarn manufacturing firm has recently transformed its legal status into a private limited company with paid up capital of Rs. 3.20M. After the registration, it hired a chartered accountancy firm, Nabi Associates as external auditor for the audit purpose.

Scenario 03:
Ahsan after completing his CA qualification started his own audit firm with his class mate Asghar 5 years ago. Asghar’s wife, Sara is working as a director at Ahmar & Sons (a private limited company) and holds 35% shares in it. Recently, she used her influence in the company’s board meeting to appoint her husband’s firm as the company’s external auditor.
Scenario 04:
Since the first day of December 2017, Shahbaz is running his own audit firm providing service in all walks of business including audit. On October 01, 2019 he was offered an opportunity to work as an external auditor of a limited company. He is happy for this offer as he had spent some good time of 2 years in that company as its finance manager before starting his own audit firm.
Scenario 05:
Zeeshan has been working as an employee at Hussain Limited for the last 2 years. Before this joining, he was working as an audit trainee with an audit firm registered with the ICAP. Now, he has passed all the examinations of his chartered accountancy qualification and is planning to start his own audit firm. On knowing this, his employer, Hussain Limited has offered him to work as the company’s external auditor.
Requirement
Read carefully provisions of the Section 254 of the Companies Act 2017. Give your opinion, in light of the said section, on the appointments of individuals in the above scenarios as an external auditor.
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[zareen]

Assignment Solution ACC311
(Fundamentals of Auditing) Fall 2019
Due Date: 29 November, 2019
Solution
Scenario 01:
Marks: 10
According to Companies Act 2017 [Section 247], the person who is a partner or employee of a director, other officer or employee of the company cannot be appointed as auditor. So, the appointment of M/s Shafee & Co as external auditor is not legally permissible as Mr. Waseem – director of Barkat enterprises is also a partner of M/s Shafee & Co
Scenario 02:
According to Companies Act 2017 [Section 247], the public company having paid up capital of three million or more must hired the chartered accountant or chartered accountancy firms as external auditors. So, the appointment of Nabi Associates as external auditor is legally permissible as MTM (Pvt) have 3.2M paid up capital.
Scenario 03:
According to Companies Act 2017 [Section 247], the person who is a spouse of company’s director cannot be appointed as auditor. So, the appointment of Mr. Ahsan’s company as external auditor is not legally permissible as Mr. Ahsan is a spouse of company’s director i.e. Miss Sara.
Scenario 04:
As per Companies Act 2017 [Section 247], a persons who is Present directors, other officer or employees of the company or who held these offices during the last three years cannot be appointed as external auditor. So, Mr. Shahbaz cannot be appointed as external auditor as he holds the company office as an officer in preceding 2 years.
Scenario 05:
Mr. Zeeshan cannot be appointed as external auditor of Hussain Enterprises as he is still employee of the company which is against the conditions of Companies Act 2017 [Section 247] for appointment of auditors.

[zareen]

Assignment Solution ACC311
(Fundamentals of Auditing) Fall 2019
Due Date: 29 November, 2019
Solution
Scenario 01:
Marks: 10
According to Companies Act 2017 [Section 247], the person who is a partner or employee of a director, other officer or employee of the company cannot be appointed as auditor. So, the appointment of M/s Shafee & Co as external auditor is not legally permissible as Mr. Waseem – director of Barkat enterprises is also a partner of M/s Shafee & Co
Scenario 02:
According to Companies Act 2017 [Section 247], the public company having paid up capital of three million or more must hired the chartered accountant or chartered accountancy firms as external auditors. So, the appointment of Nabi Associates as external auditor is legally permissible as MTM (Pvt) have 3.2M paid up capital.
Scenario 03:
According to Companies Act 2017 [Section 247], the person who is a spouse of company’s director cannot be appointed as auditor. So, the appointment of Mr. Ahsan’s company as external auditor is not legally permissible as Mr. Ahsan is a spouse of company’s director i.e. Miss Sara.
Scenario 04:
As per Companies Act 2017 [Section 247], a persons who is Present directors, other officer or employees of the company or who held these offices during the last three years cannot be appointed as external auditor. So, Mr. Shahbaz cannot be appointed as external auditor as he holds the company office as an officer in preceding 2 years.
Scenario 05:
Mr. Zeeshan cannot be appointed as external auditor of Hussain Enterprises as he is still employee of the company which is against the conditions of Companies Act 2017 [Section 247] for appointment of auditors.