An Internship Report On Chartered
Accountant Firm
TABLE OF CONTENTS
CHAPTER # 1 Introduction
Some what about Chartered Accountant Firm Organizational Structure
Geographical list of CA firms in Pakistan CA firms abroad
Chapter # 2 Institute of Chartered Accountants ofPakistan ( ICAP)
Introduction
Types of Chartered Accountants Role of ICAP
Chapter # 3 Services Rendered by a CA Firm
Auditing Taxation Management Consultancy Professional consultancy Corporate Services Chapter # 4 Auditing Origin of Auditing
History of Auditing in Pakistan Definition of Auditing
Objects of Auditing Types of Auditing Auditing Procedure Audit Programme
Duties and obligation of students and principels of CA firm How to Conduct Audit
Auditors Report
Chapter # 5 Taxation
II Income tax
Sources of income tax law Definition of income Definition of Tax Definition of Assesses Definition of Assessment Assessment year Income year
Return of total income filing of return of income tax when to file return of total income
III Sales tax
Tax period Registration
Record of Sales Tax Return of sales tax
Responsibility of sales tax Turnover tax rules
Rates of sales tax
Services of CA firm related to Sales tax
Chapter # 6 Consultancy Services
Introduction
Assistance of clients in Budgetary control system and profit forecasting Assistance of client in compliance with corporate legislation.
Other services
Chapter # 7 Corporate Sector Services
Incorporation of Companies Methods of Business
Sole Proprietorship Partnership
Company
Registration of the Company Availability
Documents for registration in case of Non Profit concern Foreign Company
Chapter # 1
Introduction
Some what about Chartered Accountant Firm.
A firm runs by one or more partners authorized by institute of chartered Accountant of Pakistan Ordinance 1961 to conduct internal and external audit of public and private limited companies, NGO‟s and the other organization.
C.A firms provide tax, audit and advise on other legal matters to the financial aspect of the organization under the rule and regulation of the CA by laws of the International Accounting Standards.
The main aim behind the establishment of the institute of Chartered Accountant of Pakistan was to conduct the training of CA students and provided highly dedicated professionals though a process of conducting and passing specific examinations successful students were then admitted the members of the institute and after the fulfillment of certain conditions, eligible members were entitled to practice and were allowed to train CA students. With the passage of the time the institute ofChartered Accountant of Pakistan in playing its role as one of the most organized professional body of the country.
Ghafoor & Co was established as a Chartered Accountant Firm in 23rd April 1990. This firm has provided useful services to the Govt, private department and other institutions. From his high talented he has produced a large number of clients.
Head office
The head office of Ghafoor & Co is Opp: GPO Rehmat Lane, sadder Road, Peshawar Cantt.
The principal of this Chartered Accountant firm is Abdul Ghafoor. At present time Ghafoor & Co constitute 15 staff members out of which 9 are the students of this firm
and remain are the staff. Mr. Asif Bukhari is office manager; Mr. Atta Mohammad is Audit manager.
ORGANIZATIONAL STRUCTURE
Head of the Office(Principal) : Abdul Ghafoor F.C.A General Manager / Tax Consultant: Syed Asif Aziz ud Din Bukhari
I.T.P Audit Manager: Syed Ul Asim
M.Com , I.T.P
Organization Structure
At present the Organizational Structure of GHAFOOR & CO is as
under.
GEOGRAPHICAL LIST OF CA FIRMS INPAKISTAN
S.NO CITY
CA FIRMS
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Abottabad
Faisalabad
Gujranwala
Hyderabad
Islamabad
Karachi
Lahore
Mirpur (A.J.K)
Multan
Peshawar
Queta
Raheem Yar Khan
Rawalpindi
Sialkot
01
25
09
06
40
198
186
01
12
21
02
02
12
03
Total
518
PAKISTANI CA FIRMS IN ABROAD
S.No Country
CA FIRMS
01
02
03
04
05
Canada
Kuwait
U.A.E
U.K
USA
08
20
202
142
103
Total
475
CHAPTER # 2
OF PAKISTAN (ICAP)
Introduction
The Institute of Chartered Accountants of Pakistan (ICAP)was established
on July 1, 1961 to regulate the profession of accountancy in the Country. It is a statutory autonomous body established under the Chartered Accountants Ordinance 1961.With the significant growth in the profession, the CA Ordinance and Bye-Laws were revised in 1983.
In view of globalization of the accountancy profession, the Institute is in the process of updating the Ordinance and Bye-Laws once again.
The head office of the Institute is in Clifton, Karachi in its own premises. The Institute also has regional offices at Lahore andIslamabad. The ICAP is a member of International Federation of Accountants (IFAC), International Accounting
Standards Board (IASB), Confederation of an Asian & Pacific Accountants (CAPA)and South Asian Federation of Accountants (SAFA).
Brief History of The Institute
The accountancy profession in this subcontinent originated with the concepts of limited liability and statutory audit, which were introduced in the subcontinent with the promulgation of the Companies Acts in 1850 and 1857. However, the accountancy profession took some discernible shape in early part of the current century and in 1920 the Government of India formed an Indian Accountancy Board to advise the government on the conduct and development of this profession. The Auditor's Certificate Rules were published in 1932 whereby government authorities sought to regulate the accountancy profession.
When Pakistan came in existence in 1947, the 1932 Auditors Certificate Rules were adopted temporarily. In 1950 a new set of Auditor's Certificate Rules mainly based on the old rules, was published for regulating the profession in Pakistan. A person who satisfied the conditions laid down regarding practical training and theoretical knowledge could have his name placed on the register maintained by the Ministry of Commerce and was entitled to use the designation Registered Accountant". The Companies act in force allowed only a Registered Accountant to act as the auditor of a public company. In 1952 the Registered Accountants formed a body known as the Pakistan Institute of Accountants to look after their interest and to take up with the Ministry of Commerce matters affecting the profession. The Government began to realize that the accountancy profession was growing in importance and in June 1959 the Department of Accountancy was set up in the Ministry of Commerce with a Controller of Accountancy to deal with the profession instead of a Section Officer. In 1961 The Institute of Chartered Accountants of Pakistan was formed as a statutory autonomous body.
The head office of Institute of Chartered Accountants Of Pakistan is in Karachi
Chartered Accountants Avenue, Clifton Karachi, 75600 (Pakistan).
COUNCIL OF THE INSTITUTE
The affairs of the Institute are managed by the Council, which discharges the functions assigned to it under the Ordinance.
The Council is composed of 16 members, the members of the Institute elect
12 members from the profession and the Federal Government nominates 4. The
Council is elected for a term of 4 years. One of the government nominees was elected as President from 1961 to 1986. However, since 1986 the Council from amongst its elected members is electing the President. The Council also elects two Vice Presidents every year, one each from Northern and Southern Region.
Following standing committees besides various other committees assists the Council: Executive Committee
Examination Committee
Investigation Committee
Three other key committees are:
Professional standards and Technical Advisory Committee
Quality Control Review Committee
Education & Training Committee
Two Regional Committees - North and South, each of which comprises of 6 elected members, also assist the Council.
Names of Council Members are:
President
Zafar Iqbal Sobani, FCA
Vice-President (South)
Asad Ali Shah, FCA
Vice-President (North)
Hidayat Ali, FCA
Members:
Imran Afzal, FCA
Syed Ahmad, FCA
Muhammad Shoaib Ansari
A. Husain A. Basrai, FCA
Mujahid Eshai, FCA
Dr. Tariq Hasan
Nasimuddin Hyder, FCA
Khaliq-Ur-Rahman, FCA
Dr. Faizullah Khilji
Fazal Mahmood, FCA
Masud Muzaffar
Abdul Rahim Suriya, FCA
MANAGEMENT
The President is the Chief Executive of the Institute. The administrative head of the Institute is the Executive Director/Secretary who functions under the directions of the Council, Executive Committee, The President and the Vice Presidents.
The Executive Director in performance of his functions is assisted by: Secretary
Director Technical Services
Director Professional Standards Compliance Director Education & Training
Director Examinations Regional Director North
The prime responsibilities of Executive Director include Personnel Management; Financial Management; Office Administration; Publications; Information Systems; Conducting and performing Secretarial functions for the Council and Executive Committee Meetings.
The Secretary performs the functions regarding Investigation committee admission of members, grant of Fellowships, issuance of Practice Certificates as Chartered Accountants or Management Consultants, grant of permission to train students, restoration of names of the members on the Members' Register, monitoring of professional ethics of members and students.
Director Technical Services assists the Professional Standards and Technical
Advisory Committee to develop standards, technical releases and other technical pronouncements for the guidance of the members of the Institute. He also studies member‟s queries on technical matters, makes relevant research and prepares draft responses for consideration of the appropriate committees of the Institute. The other committees to which he provides secretariat support are Accounting Standards for Islamic Financing and Investment, Publication Committee etc. Additionally he also closely co-ordinates with International Professional Bodies such as SAFA, CAPA, IASC, IFAC and Accounting and Auditing Standards Board of the Accounting and Auditing Organization for Islamic Financial Institutions.
Director Professional Standards Compliance aims to provide assurance to
the public that practicing members are complying with professional standards in all areas of public practice. The department has been established to offer a constructive and educational opportunity for practicing members to enhance the quality of service provided to clients. The Director reports directly to the Quality Control Review Committee, the role of which is to ensure audits are carried out in accordance with International Statements on Auditing. Secretariat support is also provided to the ICAP
Committee on Corporate Governance and the department will be closely involved in establishing a corporate code of governance within Pakistan.
Director Education & Training performs his functions under the direction and
control of Education and Training Committee and is mainly responsible for regulating of education and training; planning, programming and implementation of Education and Training schemes; co-ordination of the Continuing Professional Education (CPE) program for members; registration of students at the pre-foundation stage; management of training contracts of "trainee students"; administration of coaching classes and correspondence course/study material; updating of syllabus; counseling and guidance to students; maintenance of members CPE records. Additionally he co-ordinates with International Accountancy bodies on Education, Training and CPE matters.
Director Examinations performs its functions under the control and guidance of the
Examination Committee. The main functions of the department are processing of examination applications; registration of examinees (presently over 7000); printing of examination papers and stationery; conducting of examinations and entrance tests; co-coordinating with Papers Setters and Examiners; coding and decoding and communication of results; distribution of medals and awards to students.
Regional Director North performs his functions in close co-ordination with the
VP North and with the Executive Director of the Institute. He is primarily responsible for all activities in North including office administration; financial management; co-ordination of Education & Training programs; administration of coaching classes and correspondence courses; secretarial support to Northern Regional Committee; conducting of CPE seminars, guidance and counseling to students, supervision of approved colleges and educational centers and also su Technical Services
The Technical Department is mainly responsible for service and support to the large base of members, including:
Review and adoption of international accounting and auditing
standards;
Development of local standards and technical releases;
Development of Accounting Standards for Islamic Financing and
Investment;
Preparation of draft proposals for Finance Bill and Corporate Laws;
Response to the queries of members and other agencies
The above support is implemented through following Committees composed of
Chartered Accountants in public practice and industry and also eminent learned persons from public life:
Professional Standards and Technical Advisory Committee
Accounting and Auditing Standards Committees
Technical Advisory Committees
Committee on Accounting Standards for Islamic Financing and
Investment
The Technical Department also coordinates with International professional bodies such as IASC, IFAC, SAFA, CAPA and Accounting & Auditing Organization for
Islamic Financial Institutions. TYPES OF CA
The institute provides two types of chartered Accountants.
A.C.A‟ s F.C.A‟ s
ACA denotes to associate; members of Chartered Accountants who have passed
professional examination in compliance with the ICAP‟ s rules and regulations whereas FCA indicates to the Chartered Accountants who have been practicing in public sector for five year after completing their CA training.
HEAD OFFICE OF ICAP
The head office of ICAP is in Clifton Karachi in its own premises. It has regional offices at in Lahore and Islamabad.
Head Office
Charted Account Avenue, Clifton, Karachi- 75600, Pakistan Phone: (92-21) 9251636-39 Fax: (92-21) 9251626
E-mail: info@icap.org.pk
Regional Office
155-156, West Wood Colony, Thokar Niaz Baig, Raiwind Road, Lahore,Pakistan Phone: (92-42) 5414486, 5423623 Fax: (92-42) 5423624
E-mail: Lahore@icap.org.pk
Islamabad Office
G-10/4, Mauve Area, Islamabad, Pakistan Phone: (92-51) 9266281 (92-51) Fax: 9266052 Email: Islamabad@icap.org.pk
Institute’s website
ROLE OF ICAP:
1. Regulate the training of CA students.
One of the main roles of CA is to regulate the training of CA student and test their knowledge through examination held twice a year or as a semester system. The
success full trainees are then admitted as a member of the institute subject to fulfilling certain specified conditions. During the training the student are given some
scholarships by the of the firm. These firms normally are given the training to other trainee in the month of July & June, because in these months there is a lot of work.
2. Grains certificate of practice
The ICAP also grains a certificate to its members and allow eligible members to train CA student. All professional chartered accountants who want to open chartered firm are required to get a license of practice from the ICAP
3. Exercise Disciplinary Control:
The ICAP also exercise a disciplinary control over the activities of the members and conduct of its students. All the CA firm are bound by law to obey the entire rules and regulations of the ICAP otherwise his license will be cancelled.
4. Assistance to the Government:
ICAP also provide assistance in streamlining the financial sector to the Government. It provides assistance to the Government in achieving its objective for reviving the economy of the country.
CAPTER # 3
SERVICES RENDERED BY THE CA FIRM
Chartered Accountant firms render various types of services to their clients.
According to the types and nature of the clients. The nature of service also differs from
firm to firm, which includes corporate services, feasibility report, professional
consultancy etc. Firm has bow been widened individuals, corporations, association of
persons, non profit making organizations and Non-Governmental Organizations
(NGO’s).
Chartered Accountant firms provide professional services in the field of auditing,
taxation, and management consultancy to utmost satisfaction of their client. Today the
services rendered by a CA firm in such a wide variety has made it more and more
worthwhile. The detail of services by the CA firms in the various fields is follow.
1- Auditing
CA firms provide the services of auditing to their clients. According to the companies ordinance 1984 all the public and private limited companies are required that Chartered Accountant must sign their accounts. The welfare organization and NGO‟s are also required to get their accounts audited by the Chartered Accountant firm. Because the government as well as other donors to these welfare organizations and NGO‟s depend upon the account duly singed by the Chartered Accountant firm, because their certificate serves as a sign of trust.
CA firms audit the accounts of their and check all the major books along with subsidiary books and vouchers with supporting evidence. After this process then they express their opinion upon the accuracy or inaccuracy of the accounts. They write an audit report and also mention the various transactions, which are not duly verified. They also write audit report to the management in which they express any weakness of the management how to control these weaknesses. They are rendering for such services charges some fee.
2- Taxation
The CA firm provides tax services to their clients. Some firms are specially deals in tax.
The client who needs the services regarding to tax pay fee for such services and the auditor gives him a very useful service by the tax returns.
3- Management Consultancy
CA firms provide management consultancy to their clients. In management consultancy include development and implementation for accounting system, manuals and management information system. In order to make their management efficient they
appoint staff may or may not have a professional auditor‟s qualification. Sometimes the company independent auditors to conduct the internal audit of their accounts. The auditor checks the system and the policies of the management along with the books of accounts. The auditor has to report to the management whether the policy and plans of activities prescribed by them have been implemented, whether the internal check and internal control established are adequate, whether the actual result are obtained and varying form the estimates, and to enable the management to achieve the objective of the company in a planned manner.
4- Professional Consultancy
CA firm also provide the professional consultancy services to their clients. When appointed as consultants, they valuate sick units for the purpose of privatization. Evaluate the reports and bid documents in respect of the sick projects prepared for the Privatization Commission Government of Pakistan. CA firm s also provides the
professional assistance in the establishment or the organization.
5- Corporate Services
The Chartered Accountant firms are also providing the corporate services in the connection with the corporate law authority.
Chapter # 4
Auditing
Introduction Origin of Auditing
Usually origin of audit is traced to the middle ages, but infect the introduction of large scale production gave birth to audit, after the industrial revolution during the 18th century.
In the beginning there was small-scale production was smaller, the technology was simply and has a low capital. But with the passage of time, these things were all improved and enlarged and thus proper checking of them became very much necessary in the audit.
History of Audit profession in Pakistan
After its emergence on August 14, 1947 of Pakistan adopted the Auditor‟s Certificate Rules, 1932 for regulating the audits and accounting profession. Necessary amendments were made in 1950 on the affairs of the accountancy profession were then administered under the Auditor‟s Certificate Rules 1950. In the 1950, Registered Accountants Firms formed a private body Knows as “Pakistan Institute Of Accountants” with the objects and ultimate goal of having an autonomous association in the country. So the institute of Chartered Accountants of Pakistan was established on July 01, 1961.
Definition of Audit
The word audit is derived form the Latin word “AUDIRE” which means “To Hear”. In the past whatever the owner of the business suspected fraud, they appoint certain persons to check the accounts. Such persons would hear the accountants what ever they had to say in the connection with the accounts.
The international standards of auditing (ISA) has defined as “ An audit is the independent examination of financial statements or related information of an entity
whether profit oriented or not, and irrespective of its size, or legal form, when such an examination is conducted with a view to expressing an opinion thereon”.
Spicer & Pegler have defined the audit as “ such an examination of the books, accounts and vouchers of a business, which will enable the auditor to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of the affairs of the business, and whether the profit and loss account gives true and fair view of the profit and loss for the financial period, according to the best of information and explanation given to him and as shown by the books, and it not, in what respect he is not satisfies”.
A leading American Account Montgomery define it as “ Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify, and to report upon the facts regarding its financial operations and the results thereof,
From the above definition it as clear that an auditor has not only to see the arithmetical accuracy of the books of account but also has to go further and find out whether the transactions entered in the books of the original entry are correct or not, how is he to find out?
He can do this by inspecting comparing, checking reviewing the vouchers supporting the transaction in the books of account and examining the correspondence minute book of the shareholders and directions memorandum of association and articles of association etc.
OBJECTS OF AUDIT
The Main Object Of Audit Are As Follows.
1- To verify statements:
The auditor has to verify the accounts and financial statements prepared by the clients and his staff. The auditor‟s responsibility and respect to his appointment is to verify each and every transaction thoroughly.
2- To discover errors and frauds:
The auditor has to discover errors and frauds, if any, which might have been committed intentionally or unintentionally. Intact it is a very difficult task to discover intentional errors and frauds. Sometimes the clients may not provide actual fact and figure and in such case its is so difficult for the auditor. As a matter of fact this was the primary object of auditing but now it is considered to the secondary object.
3- To prevent errors and frauds
Detection of frauds is considered to be one of the most important duties of an auditor. As a matter of fact originally audit was conducted mainly with a view detect fraud whenever it was suspected. The system of internal check aims at the prevention of fraud. In this way if the staff of the account deportments knows that the accounts prepared by them are subject to audit, they are very careful to see that no fraud or errors is committed.
Types of Audit
There are two types of audit, which are as
follow.
1- Internal Audit
Internal audit is the independent appraisal of activity within an organization for the review of accounting, financial and other business practices as a protective and constructive arm of management. It is a type of control, which functions by measuring and evaluating the effectiveness of the other type of controls.
In other words internal audit consists of continuous critical review of financial and operating activities by a staff of auditors functioning as full time salaried employees. Internal audit implies an audit of the accounts by the employees of the business. A separate staff that may or may not have professional audit qualification does the work. The function of the internal auditor is same as that of an auditor.
In addition to that the internal auditor has to see that there is no wastage and the business is carried on efficiently.
In internal audit we prepare a management report. The auditor has to report to the management that the system and policies prescribed by them have been implemented, whether the internal control and internal check established were adequate, whether the actual result obtained were varying from the estimate enable the management top achieve the objective of the company in the planned manner. Impartial qualified chartered accountant do the internal audit. In internal audit the management wish that
the auditor discovered as many errors as possible so that they can be efficiently prevented.
2- External Audit
External audit is conducted to report to the shareholders of the company. It is obligatory audit in which the shareholder appoints external auditors. The auditors only check the system and policies of the business. He has only to check the accounts and express their opinion about the accuracy or inaccuracy of the accounts and reports the facts and figures of audit to the shareholders of the company.
Other types of Audit
A - Management Audit
An independent review and examination which is concerned with the identification of those functional and operational areas where management has failed to achieve the required standards of performance, and the evaluation of management decisions with the aim of monitoring and improving the total efficiently and effectiveness of the organization.
B - Private Audit
Private audit is not a statutory audit but is performed by an independent auditor because the owners, proprietors, members, trustees, etc, require it.
Auditing Procedure
An audit planning i.e. an audit plans relating to extent and scope of an audit.
Developing the audit programme i.e. the procedure that are needed to implement the audit plan.
Examination of the accounting system
Evaluation of internal controls
Simple checking of vouchers
Verification of assets and liabilities
Audit Programme
An audit programmed is a written scheme of the exact details of the work to be done by the auditor and his staff in connection with a particular audit.
The audit programme must be developed with due care and skill particular attention should be given to the following.
Exact scope of duties of an auditor Books of original entry and ledger in use
The system of book keeping employed and its weaknesses System of internal check and the extent of its reliability
Special provisions contained in the legal documents e.g. Partnership Deed, Memorandum and Articles of Association etc, affecting the duties of an auditor
General nature and routine of the business
Duties and obligations of students and principals in CA firm
The duties and obligations of a student in a CA firm are
1- He will throughout his term of training serve in his principal‟s office on his principal‟s business of public accountant or occupation.
2- He will not at any time during the said term destroy, cancel, spoil, embezzle or take copies of books, papers, plans, documents, monies of his principal, partner or for his clients.
3- He will at all times keep the secrets of the principal or his partner or of their clients. 4- He will readily obey and execute the lawful and reasonable commands of the principal
during the said term.
Duties and obligations of a principal in a CA firms are
1- He will by the best means in his power and to the most of his skill and knowledge instruct the trainee student and afford him such reasonable opportunities as nay be required to enable him to acquire the art, science and knowledge of accountancy.
2- He will at the expiration of the said term use his best means and endeavors at the request, cost and charges of the trainee student to cause to be admitted on the register of members, pursuit to the chartered accountant ordinance 1961.
3- He will allow trainee student leave of the absence for a period no exceeding six months is all.
HOW TO CONDUCT AUDIT
The Operation Of Audit
The audit work is operated with the help of the following techniques:
1.
Ticking.
2.
Casting.
3.
Calling Over
4.
Vouching.
5.
Verification.
6.
Reporting.
1. TICKING:
Ticking indicates the placing of a mark against an entry in the book to
denote that the auditor has examined it for a certain purpose. Variously
shaped marks are used to denote checking of additions, posting,
carry-forward, tracing, extraction of balances etc. Ticks are generally put in
indelible pencil, although some auditors also use pen and ink for this
purpose.
To ensure consistency, most of the good auditors use a tick chart,
which is required to be learnt by heart by all the members of the audit staff.
2. CASTING:
Casting refers to the checking of additions of books of accounts and
financial statements. It is essential that arithmetical accuracy be checked so
that frauds or errors (if any) may be detected. A junior member of audit
staff normally does this job. Most of the auditors use mechanical appliances
or adding machines to check the casting of the books of accounts.
3. CALLING-OVER:
A sizable part of the work of audit consists in the comparison of entries
in two or more books of an entry in a book with its supporting evidence or
voucher. This is usually carried out by two clerks, one reading the item to
the other. Care should be used to see that the whole of the important detail
of each item is checked and not merely the amount. Special care in checking
postings to personal ledgers is needed as to names and title of account;
otherwise a wrong posting may remain undetected. Clarity in pronunciation
is essential. There may be a confusion between ninety and nineteen, Sixty
and sixteen and so on. Thus it is advisable to pronounce ninety as ninetie,
sixty as sixtie and so on. Similarly when calling out a figure as Rs. 80.90,
there should be a pause between 80 and 9, lest it should be understood as
89.
4. VOUCHING:
The function of the voucher is to authenticate an entry and the auditor
must satisfy himself that it does this. It must correspond in date and account
to the entry in the books. It must be in respect of the entire client and entry
must be correctly passed in the books. The act of vouching consists of
checking the documentary evidence such as
Invoices
Cash memos,
Bills,
Receipts,
Vouchers,
Minutes
Reference to legal documents etc. as should establish the accuracy and
truthfulness of the entries appearing in the books of account, and in those
cases where it is not so, the matters are noted for discussion and if the
auditor still remains unsatisfied, the outstanding matters are reported to the
client.
5. VERIFICATION:
When an auditor has couched the entries appearing in the books of
account, his duty is not thereby fully discharged. If appointed for audit under
the act, he has to report whether or not the balance sheet exhibits a true
and correct view of the state of affairs of the company. For this purpose, he
should satisfy himself on the following points:
That each asset and liability is correctly valued and correctly stated in the
balance sheet.
That the assets actually existed at the date of the balance sheet.
That they are not property of the business.
That they are not suffering from a charge except that disclosed in the
balance sheet.
The techniques of audit carried out to achieve the foregoing objectives
are known as verification.
6. REPORTING:
After the above steps have been carried out, the auditor will then be
required to submit his report. The form and the contents will depend upon
several factors, e.g. the legal status of the appointing authority, the contract
for the scope of work to be done, whether the audit is being conducted
under the companies‟ ordinance 1984. Banking companies ordinance 1962,
insurance Act, 1938, etc. The points to be considered while drafting a report
in respect of sole traders and partnership concerns will be dealt with a length
in a separate chapter of this book. However, the form of auditor report to be
submitted after the annual audit of accounts of a company has been
prescribed as Form 35-A annexed to the companies Rules, 1985.
Modern trends follow the under noted sequence:
Examination of the accounting system.
Evaluation of internal controls.
Sample checking of vouchers.
Verification of assets and liabilities.
Submission of auditors report.
HOW TO CONDUCT AUDIT:
Having studied the theoretical side of auditing, let now proceed with
practical side of an audit, i.e. how should an audit be conducted? There are
some common features with all types of audits. The auditor should have the
following program.
PRELIMINARY WORK:
See that your appointment is an auditor and examine the reverent
resolution about your appointment.
Enquirer into the system of book keeping followed by the business
concern. Get a list of books maintained by the concern. Find out the Name of
the directors and their Powers.
Enquirer is the people who writes those books of account and also
obtain the specimen signatures of these officers.
Enquirers into the system of internal check and see whether it is
efficient, or not more cautious.
It is the partnership audits examine the partnership deed.
If it is the audit of limited company, examine its memorandum and
articles of association and prospectus, if any.
Enquire into the nature of the business concern.
Examine the profit and loss account balance sheet, auditors and
directors reports of the previous year. If a business is of technical nature,
acquaint yourself with the technical side of the business.
Vouching Of CASH BOOK:
See whether the opening balance agrees with the cash balance as shown by the balance sheet of the previous year.
Compare the cash sales with cash register if that is in use. If it is not in use
enquire into the internal check system regarding the cash sales and compare the copies of the cash memos with the cash sales.
Check a few transactions regarding receipt of cash from debtors with the counterfoils of the receipt book and with any other documentary evidence available. If any asset has been sold out. Examine any documentary evidence, which may be available and see that the sale has not been treated as sale of goods. Check the discounts in the nominal ledger and enquire the system of granting loans.
Check cash payments to the creditors with receipt received from the payees. Check the payments into the bank with the passbook and the counter of the paying in book.
Prepare the bank reconciliation statement to agree the balance as per cashbook and bankbook.
Check carefully the receipts and payments just before the closing year to ascertain any fictitious receipts or payments.
Ask the banker to send statements of balances on different accounts if necessary, total both the sides of the cashbook in order to find out whether the balance as shown by the cashbook is correct.
Verify the cash in hand by actually counting it and see whether it agrees with the balance shown by the cashbook.
If there are many cashbooks in use, verify all the cash in hand at the same time. Pay attention to pay – in – transit. Carefully examine the I.O Us petty cashbook vouch the debit side of the cashbook with the credit side of the cashbook paying particular attention to the dates on which the receipt and payments were recorded.
Check the petty cashbook with the postage book.
Check the total of the different columns and cross – additions.
Verify the cash balance of petty cashbook by actually counting the cash.
VOUCHING OF PURCHASE BOOK OR PURCHASE JOURNAL:
Enquire into the internal check system regarding purchases and see that they are make by responsible officer.
Vouch the purchase book with invoices.
See that the goods that have been entered in the stock book have also been entered in the purchases book and vice versa.
If a columnar purchases book is used, see that the invoices are properly entered in to.
See that the discount is deducted from the invoice before it is posted. Test the purchase order book with goods inwards book and the go down keeper‟s book.
See that entries in the purchase book have been correctly posted to the ledger. Check the additions of the purchases book and see that the total loss has been correctly carried to the trading account.
See that the purchases do not include the purchases of fixed assets. Purchase into the internal check system regarding the returns outwards. Check the returns outward book with the credit notes and examine the correspondence.
Check the addition of this book and find out whether the amount has been correctly posted.
VOUCHING OF SALES BOOK OR SALES JOURNAL:
Compare the entries in the sales book with orders received book, carbon copies of the invoices, the go down – Keepers book, if any.
Check the additions of sales book.
See the total of the cashbook has been correctly posted to the ledger. See that
the sales do included good sold on sale or return bass or consignment out wards.
Vouching Of Sales Return (Return Inwards)
Enquire into the internal check system regarding the return inwards.
Check the return inward book with the go down keepers book and gatekeepers book, if any.Compare the return inwards book with the counter foils or the carbon copies of the credit notes and outward book.
Check the addition of this book. Check the postings to the ledger.
Examine the correspondence regarding the goods returned.
Vouching Of Wages Book:
Enquire into the system of preparation of wages sheets or wages book.
Find out the method of employment of casual warders.
Ascertain the system of payment of wages.
Test the additions and the extent ions of the wages book or wages sheets. Check the deductions made of account of fines, sickness, insurance, provident fund. Compare the wages book with the time and piece work records maintained by the gate keeper, foreman and the go down keeper or the time recording clock, if in use. Check drawn for payment of wages.
See that there is no loophole in the method of unpaid wages.
Compare the opening balance in the ledger with the balance sheet of the previous year. Check the entries in the bill receivable book with the correspondence or any other book
available.
Check that the proceeds of the bill are properly accounted for and account of the acceptor is credited with the amount.
If any bill is dishonored, see that the account of the individual is debited with the amount of the bill together with the nothing charges, etc. and examine the return dishonored bill.
Check the additions in the bill receivable book and verify the bills in hand.
Vouching Of Bill Payable Book:
Compare the opening balance in the ledger with the balance sheet of the previous year. Check the entries in the bill payable book with the correspondence and any other
documentary evidence available.
Check the addition of the bill payable book and verify the bills in hand.
Check the Posting to the account Concerned.
Check the opening balance with the balance sheet of the previous year.
Vouch the entries in the individual accounts with the correspondence, cashbook, purchase book, journal, returns outward book, bill payable book and other books of original entry.
Compare the individual balances with the schedule of debtors supplied by management. Test a few balances by getting statement of account from a few debtors with the
permission of client.
Check the balances in the ledger and see whether the total of all these balances agree with the total of schedule of debtors.
See that sufficient provision is made for bad and doubtful debts
If the debtors include directors, managing agents, etc, see that such debtors are shown in the balance sheet according to the company act.
Vouching Of Nominal Ledger:
Check the different accounts from the cashbook, journal, etc. Check the balance of the accounts in the ledgers.
Ascertain that necessary adjustments have been made for the following: Experiences incurred but both yet paid.
Expenses paid in advance.
Income receivable but not yet received.
Income received in advance.
Verify the entries with the subsidiary books.
See that balances are correctly carried to the concerned accounts.
AUDIT PROGRAM FOR THE STATUTORY REPORT:
Examine the memorandum and article s of association, prospectus, or a statement in lieu of prospectus in regard to authorize capital, its division into different classes of shares, etc.
Check the application and allotment letters with the application and allotment books and share ledgers. See whether the allotment is in ordered by referring to the minute book of the boards of directors.
See that the minimum subscription had been subscribed before the allotment was made.
Check the share application to find out the brokerage payable on the sales of share. Vouch the cash received on applications with the letters of allotment and see that the entries have been made in the share ledger.
If the share has been issued to the promoters or vendors of the business taken over by the company for consideration other than cash, examine the contract and see the letters of authority nominating the allotted. See the entries have been made in the share ledger in regard to such share.
After the shares have been allotted to vendors for consideration other than cash whether the contract with the vendors has been filed with the registrar of the joint stock companies.
See that the directors have taken up and paid for qualification shares.
If the debentures have been issued, see that there issue according to the prospectus and Articles of Association.
Vouch the receipts of cash pertaining to the debentures in the cashbook of bank passbook.
See that the money received in respect of shares and debentures, etc, have been banked in a schedule bank and that it has not been utilized till the grant of certificate of commencement of business.
Check the cashbook with the passbook and prepare a bank reconciliation statement. Get a certificate of bank balance at bank, if there is any suspicion.
If any share has been forfeited, see that it has been done according to the articles and directors to that effect had passed a resolution. Whether the necessary return have been sent to the registrar according to the companies act.
If redeemable preference share have been issued, see that the article permit such an issue.
Vouch the underwriting commission with the agreement with the vendors and see that it does not exceed the amount permitted by the companies act. Vouch the preliminary expenses and see if any of them had to be paid by the vendors, if so, see the vendor‟s account is debited with such amounts, see that the revenue expenditure is not debited to preliminary expenses account scrutinize the capital expenditure.
Examine the register of mortgages and charges and vouch the receipt of loans against mortgages and debentures, if any, see that the mortgages have been registered with the registrar of companies and examine the certificate of registration issued by the registrar.
Ascertain the borrowing powers of the company for the article and see that such power is not exceeded.
Vouch all the receipt up to and with seven days of the report. The receipt should be shown under distinctive heading such as receipt from shares, debenture and other source and payment there out and the balance in hand. The certificate should be worked: I here by certify that the annexed statutory report of the _______Co. Ltd. So for it relates to the shares allotted by the company and to the cash received in respect of shares and to the receipt and payment of the company is correct.
Special features of the audit For Non-Trading concerns.
CHARITABLE INSTITUTIONS:
An order to conduct the audit of the charitable institution the following points should be take in to consideration.
Examine the constitution, rules and regulations of the charitable institution of the trust deed, if any,
Check that the funds for specific purposes have been dealt with according rules. Vouch the receipts of donations and subscription as shown on the debit side of the cash book with the counterfoil of the receipt book, register of the subscription list of the
donors notified in the newspaper from the time to time, correspondence of any other evidence available.
Vouch the income from investments register and see that the income tax deducted from dividends received recovered from income tax authorities, if a charitable institution is not liable to tax.
Vouch receipt of rents from the properties belonging to the charitable institution, with rent roll, agreements with the tents, etc.
Vouch the payment book with the minute book of the trustees or the managing committee regarding importing payments.
Verify the purchase of investments by referring to the bought notes and physically examine such investment in case such investments are lodged with the band, get a certificate from the bank.
Verify the Cash and Bank Balance.
Check that accounts are drawn up in accordance with the regulations.
CLUBS:
Study the constitution by laws of the club particularly in regards to the powers of the officials operation of the bank accounts, etc.
Examine the minute book of the club.
Vouch the receipt of cash on account of admission fee and subscriptions with the counterfoils in the receipt books in list of the members.
See that life membership fee is carried to income according to the rate of the club. Enquire into the system of supplying meals, refreshments etc. to the members and vouch the receipt of cash, vouch the payment of account of purchase of crockery, furniture, provision etc.
See the expenditure properly allocated between capital and revenue. Verify the assets, particularly allocated between capital and revenue.
Educational institutions (School, Colleges or Universities)
Examine the university Act, the rules and regulations, trusts deeds, charters, etc., ascertain the management of the institution and especially the rules, etc., which affect the accounts.
Study the minute book of management, governing body or managing committee of the educational institution or the senate of the university as the case may be check the cash receipt on account of fees, etc., by referring the counterfoils of the fee receipt books and the register of the students.
Ascertain the system of recover of fines and the extra such as examination fee, fees for the duplicate copy of diplomas, hostel rent, electricity charges, building fund, etc., and their recovery and treatment in accounts.
See that a responsible officer has granted the free studentship.
Vouch the payment of salaries to the members of the staff by reference to salary register, the cashbook, the receipt, the counterfoils of the chequebook and the passbook.
Particular attention should be paid to any increment earned by the members of the staff and see whether the management committee has sectioned them.
Reference may also be made to the copies of the letter of appointment or agreements.
Capital expenditure should be vouched as usual but see that the necessary sanction is there.
See that the internal check system regarding the purchase of provision, linen, etc/. For the boarders is efficient.
See that the outstanding assets liabilities are taken into account.
See that investment representing prize endowment fund are kept apart and that they are not mixed up with an ordinary investment.
Money relating to provident fund should be invested in securities and should be shown as separated as liabilities, Investment representing the provident fund should be shown separately on the asset side.
See that the refund of income of income tax deducted from dividends or interest on securities has been claim as educational institution are usually accepted from the payment of income tax on such income.
AUDITORS REPORT
The auditor after checking the books and record of the company or any type organization write an audit report. The auditor report is very essential for man people for example. The credit institution, which gives credit to the company dependent upon the auditor reports similarly the government institution, which gives donation to the NGO‟s, depends similarly the auditor‟s reports.
Auditor’s report to the board of Directors:
We have examined the annexed consolidated financial statements comprising consolidated Balance Sheet of ________ Limited and its subsidiary companies as at ___________ and the related consolidated profit and loss account and consolidated cash flow statement to gather with the notes forming part therefore for the year ended __________ we have also expressed separate opinions on the financial statements of __________ Limited and its subsidiary companies except for _________ Limited and __________ Limited, which were audited by other firms of Chartered Accountants; whose report has / have been furnished to us and our opinion in _______ so far as it relates to the amounts included for such company, is based solely on the report of such other auditors.
These financial statements are the responsibility of the Holding company‟s management. Our responsibility is to express an opinion on these financial statements based on our examination.
Our examination was made in accordance with the generally accepted auditing guidelines an accordingly included such tests of accounting record such other auditing procedure as we considered necessary in the circumstances. In our opinion the consolidated financial statements examined by us represent fairly the financial position of ________ Limited and its subsidiary companies as at ________ and the results of their operation for the year then ended.
Place ______________ Chartered Accountants.
AUDITOR’S REPORT TO THE MEMBER
We have audited the annex balance sheet of _________ Limited as at _______ and the related profit and loss account, when cash flow together with the notes forming part therefore for the year then ended and we state that we have obtained all the information and the explanation which to the best of our knowledge and our believe were necessary for the purpose of our audit and we after the verification therefore we report that: in our opinion, proper books of accounts have been kept by the company as required by the companies ordinance 1984.
In our opinion:
The balance sheet and profit and loss account together with the notes there on have been drawn up in conformity with the books of account and are further in accordance, 1984 and are in agreement with the books of account and are further in accordance with the accounting policies consistently applied. The business conducted investment made and the expenditure incurred during the year were in accordance with the objects of the company. In our opinion and to the best of our information and accounting to the explanation give to us, the balance sheet, profit and loss account and cash flow statement together with the notes forming part thereof, given the information required ____ and of the profit and cash flows for the year then ended: an in our opinion no Zakat was deductible at source under the Zakat and Ushr ordinance, 1980.
RECEIPT AND PAYMENT AUDITOR’S REPORT
WE HAVE AUDITED THE ANNEXED RECEIPT AND PAYMENT ACCOUNT OF for the year ended June 30, 2002, we report that the annexed receipt and a payment account are in agreement with the books and record of ___________________.
CHAPTER # 5 TAXATION
INTODUCION
The rang of CA firm in the area of taxation covers personal and corporate tax planning supplemented by representation on behalf to client before the central board of revenue obtaining clarification etc, and before Assessing and Appellate Authorities.
These services are in follows Tax planning.
Personal taxation.
Corporate taxation
At the time of separation the highest and the administrative executive authority for revenue collection in Pakistan is the central Board of Revenue (C.B.R), which was
constituted under CBR Act 1924. It is a statutory body appointed by the central government for the purpose of tax collection in the country. The Board consists of few members and all the revenue authorities are subordinate to it. Central board of Revenue is responsible for collection of revenue income come from income tax\, sales tax, wealth tax and excise duty and there are various departments like income tax and sales tax departments for the collection of such taxes.
A Chartered Accountant firm deals in the area of income tax, sales tax and wealth tax on behalf of its clients including individuals, firm and corporation etc, we will discuss tax, income tax, wealth tax and sales tax In separate sections.
Income Tax Sales Tax
These areas are discussed below.
Section_ 1 INCOME TAX
Income tax is the major source of revenue collection by C.B.R income tax departments is responsible in the country for the collection of income tax law provides guideline for the proper administration of the whole system.
SOURCES OF income tax law:
1- The income tax ordinance 2001. 2- The income tax rules 2005.
3- The income tax Appellate tribunal1981.
4- Notification issued by Central Board of revenue. 5- Notification issued by federal Government.
6- Circulars, instructions and orders issued by C.B.R
7- Case law i.e. orders of Supreme Court, High court, Income Tax Appellate tribunal, Appellate Audit and Additional Commissioners of Income Tax.
ADMINISTRATION of Income tax Department
Income Tax Authorities (Under Section 207)
(1) There shall be the following income tax authorities for the purposes of this
(a) Central Board of Revenue;
(b) Regional Commissioners of Income Tax;
(c) Commissioners of Income Tax;
(d) Commissioners of Income Tax (Appeals); and
(e) Taxation officers.
(2) The Central Board of Revenue shall exercise the general administration of this Ordinance.
(3) The Regional Commissioners of Income Tax and the Commissioners of Income Tax
(Appeals) shall be subordinate to the Central Board of Revenue and the Commissioners of Income Tax shall be subordinate to the Regional Commissioners.
(4) Subject to sub-section (5), the taxation officers shall be subordinate to the Commissioners of Income Tax.
(5) A taxation officer invested with the powers and functions of the Commissioner, under sub-section (2) of section 209, shall be subordinate to the Regional Commissioner of Income Tax.]
Appointment
of
Income
Tax
Authorities (Under section 208)
(1) The Central Board of Revenue may appoint as many Regional Commissioners of Income Tax, Commissioners of Income Tax, Commissioners of Income Tax (Appeals), taxation officers and such other executive or ministerial officers and staff as may be necessary.
(2) Subject to such orders or directions as may be issued by the Central Board of Revenue, any income tax authority may appoint any income tax authority subordinate to it and such other executive or ministerial officers and staff as may be necessary.
(3) All appointments, other than of valuers, chartered accountants or experts, made under this Ordinance, shall be subject to rules and orders of the Federal Government regulating the terms and conditions of persons in public services and posts.]
Jurisdiction of Income Tax Authorities (Under Section 209)
(1) Subject to this Ordinance, the Regional Commissioners, the Commissioners and the Commissioners (Appeals) shall perform all or such functions and exercise all or such powers under this Ordinance as may be assigned to them in respect of such persons or classes of persons or such areas as the Central Board of Revenue may direct.]
(2) The Central Board of Revenue or the Regional Commissioner may, by an order, confer upon or assign to any taxation officer all or any of the powers and functions conferred upon or assigned to the Commissioner, under this Ordinance, in respect of any person or persons or classes of persons or areas [1][as may be specified in the order].
(3) An order under sub-section (2) by the Regional Commissioner shall be made only with the approval of the Central Board of Revenue.
(4) The taxation officer referred to in sub-section (2) shall, for the purposes of this Ordinance, be treated to be the Commissioner.
(5) Within the area assigned to him, the Commissioner shall have jurisdiction, -
(a) In respect of any person carrying on business, if the person‟s place of business is within such area, or where the business is carried on in more than one place, the person‟s principal place of business is within such area; or
(b) In respect of any other person, if the person resides in such area.
(6) Where a question arises as to whether a Commissioner has jurisdiction over a person, the question shall be decided by the Regional Commissioner or Regional Commissioners concerned and, if they are not in agreement, by the Central Board of Revenue.
(7) No person shall call into question the jurisdiction of a Commissioner after that person has furnished a return of income to the Commissioner or, where the person has not furnished a return of income, after the time allowed by any notice served on the person for furnishing such return has expired.
(8) Notwithstanding anything contained in this section, every commissioner shall have all the powers conferred by, or under, this Ordinance on him in respect of any income arising within the area assigned to him.
(8A) The power to confer jurisdiction under this section shall include the power to transfer jurisdiction from one income tax authority to another.]
(9) Where, in respect of any proceedings under this Ordinance, an income tax authority is succeeded by another, the succeeding authority may continue the proceedings from the stage it was left by that authority‟s predecessor.]
Heads of income (Under section 11)
(1) For the purposes of the imposition of tax and the computation of total income, all income shall be classified under the following heads, namely:–
(a) Salary; Section 12
(b) Income from Property; Section 15
(c) Income from Business; Section 19
(d) Capital Gains; and Section 37
(e) Income from Other Sources. Section 39
(2) Subject to this Ordinance, the income of a person under a head of income for a tax year shall be the total of the amounts derived by the person in that year that are chargeable to tax under the head as reduced by the total deductions, if any, allowed under this Ordinance to the person for the year under that head.
(3) Subject to this Ordinance, where the total deductions allowed under this Ordinance to a person for a tax year under a head of income exceed the total of the amounts derived by the person in that year that are chargeable to tax under that head, the person shall be treated as sustaining a loss for that head for that year of an amount equal to the excess.
(4) A loss for a head of income for a tax year shall be dealt with in accordance with Part VIII of this Chapter.
(5) The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income.
(6) The income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income.
Definition of Tax under section 2(63)
The word tax has been used in the ordinance to mean income tax, super tax, surcharge and additional tax, penalty, fee or other charges liable or payable under the income tax ordinance.
Assessee under section 2(6)
Assesses means a person by whom any tax or any other sum of money is payable under the ordinance.
Types of Assessee
For the computation of tax payable assesses may be divided into the following categories.
(a) Individual, Artificial Judicial Person (b) Registered firm
Company
Local Authority
Cooperative Society
For the purpose of rates of tax a company may either be a 1. Public Company 2. Private Company 3. Banking Business 4. Moddarba Company
Assessment year section 2(8)
Assessment year means the period of 12 months beginning on the 1stJuly of the next year mean the financial year next preceding the assessment year i.e. 12 month commencing from 1st July and ending on 30th June next preceding the assessment year or such period specified by notification be Central board of Revenue as income year for any person or any source of income or any period which, under the provisions of income tax ordinance, is deemed to be an income year.
There are some industries for which Central Board of Revenue describes special income years. All other assesses are require to close their income year on 30th June.
