Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Answer/Comment on the following: (25=10 June 2019)
a) Explain the disqualifications of auditors as per Section 64 of Banks and Financial Institutions Act, 2073.
b) RGS & Co. a firm of Chartered Accountants has three partners, namely, R, G & S. The firm is allotted the audit of BY Ltd. Mr. R, partner in the firm subsequently holds 100 shares in BY Ltd. Comment.

Answer:
a) Disqualifications for appointment as auditor:
Following persons or any firm or company in which such person is a promoter or partner shall not be eligible to be appointed as an auditor of a licensed institution and shall in de facto cease to hold office of auditor even though such person is already appointed:
i) A promoter, director, chief executive officer of bank or financial institution or his or her family member;
ii) An officer, employee, or internal auditor of the bank or financial institution;
iii) A person working as a partner of any director or employee or chief executive officer of the bank of financial institution;
iv) A borrower, substantial shareholder or associated person or any person with financial interest of the bank or financial institution;
v) A person who has been punished in an offense relating to audit, and a period of five years has not elapsed after he or she has served the punishment;
vi) A person who is insolvent in Nepal or foreign country;
vii) A person, firm, company or institution having subscribed one percent or more of the shares in the concerned bank of financial institution;
viii) A person who has been punished the court for a criminal offense involving moral turpitude, and a period of five years has not elapsed after he or she has served the punishment; and

ix) A person who is disqualified to be appointed as an auditor as per relevant laws.

b) As per section 112(1)(g) of the Companies act, a substantial shareholder of the company or a shareholder holding one percent or more of the paid-up capital of the company or his close relative is disqualified from being an auditor.
In the given case, Mr. R is a partner of RGS & Co, Chartered Accountants and RGS & Co. has been allotted the auditor of the BY Ltd. Mr. R partner of the firm has 100 shares of By Ltd. As per the company act, a substantial shareholder of the company or his close relative is disqualified from being an auditor. Mr. R holds only 100 shares which is not substantial shareholder of the company. So, RGS & Co. can be auditor of the company.



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