Enquiry:

One of our clients, at their AGM appointed another firm as their Auditor for the audit of
next financial year without complying with the provision stated in section 253(2) of Companies Ordinance 1984 as notice of this was not sent to us being the retiring auditor.

We are of the view that the appointment of new auditor was not legally valid as the said provisions of Companies Ordinance were not followed, accordingly NOC to incoming auditor for acceptance of this assignment was not given.

Based on above anomaly in their appointment, the incoming auditor resigned and our client again approached us to appoint us as Auditors for next year.

We have accepted the assignment however are we required to request retiring auditor to give NOC given their appointment was not valid?

Opinion:

The Committee would like to draw your attention to the requirements of the Companies
Ordinance 1984, CA Ordinance 1961 and ICAP Code of Ethics:

253  Provisions as to resolutions relating to appointment and removal of auditors. – (1) A notice shall be required for a resolution at a company’s annual general meeting appointing as auditor a person other than a retiring auditor.

(2) The notice referred to in sub-section (1) shall be given by a member of the company to the company not less than fourteen days before the annual general meeting, and the company shall forthwith send a copy of such notice to the retiring auditor and shall also give notice thereof to its members not less than seven days before the date fixed for the annual general meeting and, if the company is a listed company, shall also publish it at least in one issue each of a daily newspaper in English language and a daily newspaper in Urdu language having circulation in the Province in which the stock exchange on which the company is listed is situate.

Please also refer clause 7 of Part 1 of 1st Schedule of Chartered Accountants Ordinance 1961 which mentions that:

“A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he:

(7) Accepts a position as auditor previously held by another member of the Institute without first communicating with him in writing.”

Section 210.14 of the ICAP Code of Ethics requires the proposed auditor to obtain permission in writing from existing auditor before accepting engagement.

Based on above, the retiring auditor is supposed to receive the notice required under section 253(1) (reproduced above). However, in this case as the compliance of section 253(2) is not made, the Committee is of the view that appointment of new auditor was not legally valid and in effect no auditor is appointed in AGM so the provisions of section 252 (6) and (7) will be applicable and hence the issue of obtaining NOC is not relevant in this situation.

Note: Due to the fact that the matter could have legal implications, the Committee sought legal opinion also. Lawyer strongly recommended that the concerned auditor and the company should seek advise from their own legal advisor on the matter.

(December 02, 2015)