Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

As an auditor, comment on the following situations in line with Companies Act, 2063.
a) In case of reappointment of existing auditor at the Annual General Meeting, the auditor refused to accept appointment. State whether the Board of Directors could fill up the vacancy.
The appointment of an auditor is complete only on the acceptance of the office the auditor. Therefore, it can be deemed that in case an auditor refuses to accept the appointment then in that case no auditor has been appointed. In such situation, the Company Registrar Office at the request of the board of directors may appoint another audit under Sec 113 of the Companies Act 2063. Therefore, Board of Directors could not appoint the auditor in such case directly.

b) The Chief Accountant of M/s Apex Manufacturing Ltd. is of the opinion that there is insufficient profit in the current year to declare dividend after setting of the accumulated losses of previous years. The company is considering to declare dividend without setting off the accumulated losses of the previous years from the current year profit. The company also plans to set off such accumulated losses against existing revaluation reserve. Give your comment as an auditor of M/s Apex Manufacturing Ltd.


As per section 182 (6) of the Companies Act 2063, the company is required to set off fully the pre- operating expenses, depreciation as per the recognized accounting standards, any other payments that are required to be segregated and the accumulated losses of the previous years prior to payment or distribution of dividend from profit of the company.

In view of above provision, the amount of accumulated loss of previous years should be set off fully against current revenue profit before payment or distribution of dividend.
Since, mere revaluation of assets does not result in realized gain, and thus, as per the sound accounting practice, the accumulated losses should not be adjusted against revaluation reserve because this would amount to setting off actual losses against unrealized gains. Therefore, if the accumulated loss is set off against revaluation reserve, and then dividend is declared from out of revenue profits, it would amount to payment of dividend out of capital without making good the amount of accumulated loss. Hence the opinion of Chief Accountant of M/s Apex Manufacturing Ltd. is not correct.

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