Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Give your opinion on the following issues:
a) Your spouse is a director in a public limited company. You receive an offer of appointment from the company to audit its annual financial statements. What considerations would you have in mind in deciding whether to accept or not to accept the offer.

Answer Hint:
As per Sec 112 (e) 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 to act as an auditor, also the independence would be affected being a familiarity threat, So I would not accept the appointment.

b) Mr. Ram Sundar a Chartered Accountant, is tax consultant of ABC Ltd. for the current fiscal year. For this purpose, he has to attend the company from 9 a.m. to 3 p.m. and is paid monthly

ANSWER

remuneration of Rs. 50,000. ABC Ltd. intends to appoint Mr. Ram Sundar as its statutory auditor at the annual general meeting. (5 Marks, June 2006) Answer Hint:
Though, Mr. Ram Sundar is appointed as Tax consultant for the current year, he has to attend company on regular basis as an employee. So, as being employee of the company, he disqualifies to be appointed as a statutory auditor of the company.
c) In case of M/s XY Company Ltd., which is partly owned the Government of Nepal, 50% final dividend was declared on its paid-up capital of Rs. 1,00,00,00,000 the Board of Directors. Such dividend was distributed to its shareholders. Comment on above in line with the provisions of Company Ordinance, 2062.

Answer:
As per provisions of the law, the final dividend of a company shall be declared only the shareholders in the general meeting based on the recommendation of Board of Directors. Under Sec 182 (2), the company owned Nepal Government fully or partly can distribute dividend only after prior approval of Government of Nepal. Nepal Government may issue necessary directive for the distribution of dividend such company.
The Board of directors can only propose the dividend, which shall become final only after approval shareholders at the AGM. The Board is empowered to declare the interim dividend only.
Hence, in the given case, the action of M/s XY Ltd.’s board of directors is not in accordance with the law and the auditor should qualify his report to this effect.



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