Certificate in Accounting and Finance Stage Examination

08 May 2024
75 minutes – 41 marks
Additional reading time – None

CAF 8 – AUDIT AND ASSURANCE

Q. 1 (a) Woodworks (Pvt.) Limited (WPL) was incorporated on 5 October 2016 with a paid up capital of Rs. 10
million. On 15 January 2017, the directors appointed Murad & Co., Chartered Accountants as first auditors
of WPL.
Under the provisions of the Companies Act, 2017 briefly discuss:
(i) the appointment of Murad & Co. as the first auditors of the Company. (02)
(ii) how the remuneration of the first auditors may be fixed. (02)

(b) Under the provisions of the Companies Act, 2017 explain the circumstances in which the Commission
may appoint the auditors of the Company. (02)

Q. 2 A partner in a firm of chartered accountants has been approached to accept appointments as auditor of two
separate companies.
(i) Jenkins Ltd, in which his adult son is a 10% shareholder
(ii) Davidson Ltd, of which his brother-in-law is a director
State whether it would be acceptable for the partner to accept each of these appointments under Companies
Act 2017, and why. (02)

Q. 3 The directors of Super Textiles Ltd., a newly formed company have written to you with a view to securing
your services as auditor, within their letter you note the following comments:-

Your duties and rights as auditor will he determined by the board of our company. In the main, these duties
are in line with the requirements of the Companies Act 2017 but in the event of conflict or exclusion we will
indemnify you against any legal action brought as a consequence of the position adopted. The board also
retains the right to dismiss you at any time without necessarily disclosing the reasons for their action?
(a) What is your relationship as the auditor to the directors of Super Textiles Ltd (i.e. are you bound to
follow instructions of directors?). (02)
(b) would you agree with the directors that they have the authority to dismiss you ? (02)
(c) Can you accept the above audit engagement? Why or why not? (02)

Q. 4 State whether the following statements are true or false (i.e. can be possible or not), in accordance with
Companies Act 2017.
(a) Director can appoint auditor in first general meeting; (01)
(b) If auditor is not appointed in the general meeting, he is appointed in the next general meeting. (01)
(c)Power and duties of auditor can be limited by the management. (01)
(d) Appointment of the auditors of private limited company is not compulsory under provisions of the
Companies Act, 2017. (01)
(e) The auditor and one of the directors of the company are real brothers. (01)
(f) The auditor after appointment has been allotted 10 percent shares of the company. (01)
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Q. 5 In the light of Companies Act, 2017 comment on each of the following independent scenarios:

(a) Partners of Ubaid & Co., Chartered Accountants have authorised Zehra, who is a chartered accountant,
to sign the audit report of Tufail Limited. Zehra is a manager in the firm and has been managing the audit of
Tufail Limited for a number of years. (02)

(b)Fareed, a director of Tameer Limited, got married to Hira, a chartered accountant. Hira is a senior
employee of Salman & Co., Chartered Accountants who are also the auditors of Tameer Limited. (02)

(c) Brass Limited wants to appoint Jafer & Co., Chartered Accountants as their statutory auditor. One of the
partners in Jafer & Co. had served on the Board of Brass Limited for many years as a government nominee.
(02)

Q. 6 Under the provisions of the Companies Act, 2017 briefly describe whether Murad is eligible to be appointed
as an auditor of the company in each of the following independent situations:

(i) Murad, a partner in Delta and Company, Chartered Accountants, is also a director in Gama Limited
(GL). His firm has received an offer for appointment as auditors of Star Limited (SL). Both GL and SL are
subsidiaries of Pluto Limited (PL). (03)

(ii) Murad is a sole proprietor in Murad and Company, Chartered Accountants. He has received an offer for
appointment as auditor of Super Energy Limited (SEL), a power generation company in Multan. Murad has
not paid his electricity bills to SEL for the last two months. (02)

Q. 7 Comment on each of the following independent situations in the light of the requirements of the
Companies Act, 2017:
(a) Abid is a partner in AFL & Company, Chartered Accountants. AFL has accepted an offer for
appointment as auditors of Saima Limited (SL). Saima, the wife of Abid, owned 11% shares in SL. She also
works as SL’s General Manager Marketing. Saima disposed of the shares held by her to Abid’s father,
within 30 days of the appointment of AFL but continues to remain employed in SL. (03)

(b) The total paid up capital of IJK Limited is Rs. 990 million whereas its ordinary share capital is Rs. 130
million. LMN Limited holds 50 million non-voting preference shares and 2 million ordinary shares in IJK
Limited. The par value of both types of shares is Rs. 10 each.

Bilal and Company has received an offer for appointment as auditors of IJK Limited.

Faryal, the wife of a partner in Bilal and Company, is a director in LMN Limited. Faryal also holds 10,000
shares in LMN Limited. (04)

Q. 8 What procedures should be performed by auditor after it has decided to accept a proposed audit client.
(03)

(THE END)