Enquiry:

Background Information:

1- Audit Firm issued quotation of audit fee against a request from Private Limited Company.
2- The Company appointed them as their auditors in AGM, without complying with the requirements of Section 253 of the Companies Ordinance, 1984.
3- On intimation of appointment from Company, the new Auditors inquired, if the Company has complied with the requirements of Section 253 of the Companies Ordinance, 1984 and wrote to retiring Auditor for professional clearance.
4- Retiring Auditor responded that due to non-compliance by the Company, they believe new appointment is invalid and question of professional clearance does not arise.
5- On receiving information from the Company, regarding non-compliance with section 253, the new auditors sought views of SECP and ICAP on the matter, who suggested that the new appointment is valid.
6- Views of SECP and ICAP were shared with retiring Auditors, whereas no response was received thereafter, despite several reminders.

Queries:

A) Would the new auditor be guilty of professional misconduct in terms of clause 7 & 8 of Part 1 of 1st Schedule to Chartered Accountants Ordinance, 1961, if he accepts the appointment, even after obtaining attached clarification from SECP and ICAP;

B) If the Institute believes that accepting this engagement would lead to a professional misconduct, would the new auditor be required to resign from the position (since Company believes, based on SECP opinion, that they have appointed the auditors) or should he simply refrain from accepting the engagement (since, the appointment has not yet been accepted by the new Auditors);

C) If the new auditor resign, and the Company fills in casual vacancy by appointment of another firm other than retiring auditors, would that other firm be guilty of professional misconduct in terms of Clause 8 of Part 1 of 1st Schedule to Chartered Accountants Ordinance, 1961;

D) If the new auditor refuses to accept the appointment, based on non-serving of notice and Commission appoints them again u/s 252(6) of the Companies Ordinance, 1984 or SECP appoints any firm other than retiring auditors, would the new auditor appointed by the Commission be guilty of professional misconduct, if they accept the engagement.

Opinion:

The Committee discussed your enquiry and its views on each of the questions are as follows:

On Query A, B & C, the Committee is of the view that provisions related to professional misconduct in case of acceptance of appointment of auditor by practicing member are appropriately covered in Schedule 1 of Part 1 of the Chartered Accountants Ordinance, 1961 and under section 210 ‘Professional Appointment’ of the revised ICAP Code of Ethics 2015.

On Query D, the Committee is of the view that an auditor appointed under section 252(6) is also required to communicate in writing with the outgoing auditor before accepting the appointment.

(February 06, 2017)