Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Comment on the following situation: (4 Marks each, June 2005)
a) The Annual General Meeting of the M/s J.J Pharmaceutical Ltd. was held recently. At the Annual General Meeting, a resolution was passed the entire body of shareholders restricting some powers of the statutory Auditors.

Restriction of Powers of Statutory Auditors:
An auditor of a company shall have right of access at all the times to the books of accounts and vouchers of the company whether kept at the a Head Office or other places and shall be entitled to require from the offices of the company such information and explanations as the auditor may think necessary for the purpose of his audit. These specific rights have been conferred the Statute on the auditor to enable him

to carry out his duties and responsibilities prescribed under the Act, which cannot be restricted or abridged in any manner. Hence any such resolution even if passed entire body of shareholders is ultra vires and therefore void. Any regulations, which preclude the auditors form availing themselves of all information to which they are entitled under the Companies Act, are inconsistent with the Act.

b) Mr. Ram Narayan, FCA is a director in finance company M/s Sun Gabha Finance Company Ltd. He is also partner in a firm of Chartered Accountants, M/s Ram Laxman& Co. Mr. Laxman Aryal, FCA is also a partner of that firm. He is also a proprietor of M/s Laxman& Co., Chartered Accountants. If M/s Sun Gabha Finance Company Ltd. wants its account audited by:
i. M/s Ram Laxman& Co. and
ii. Mr. Laxman Aryal, FCA under his proprietorship firm M/s Laxman & Co., Chartered Accountants.

A firm of chartered accountants in which a director is a partner cannot be appointed as auditors of the company. Similarly, any partner of such firm is also disqualified for such appointment. Therefore, (i) M/s Ram Laxman& Co. or (ii) Mr. Laxman Aryal in his individual capacity cannot be appointed as auditor/s of M/s Sun Gabha Finance Company Ltd.

c) M/s ABC & Co., Chartered Accountants, were appointed as the first auditors of Manakamana Bank Ltd. the Board of Directors.

As per Section 86 of Company Act 2053, Auditors of a public ltd. company shall be appointed the General Meeting of the members. However, if an auditor needs to be appointed before the first general meeting, the board can appoint an auditor to audit the books of account. Hence, appointment of M/S ABC & Co., chartered accountants as first auditor of the bank the board would be valid only
If there has been no general meeting was held already. The tenure of the first auditor will hold valid till next annual general meeting.

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