Business law question bank ICAP

ICAP Question Bank P Business Law First edition published by Emile Woolf Limited Bracknell Enterprise & Innovation Hub Ocean House, 12th Floor, The Ring Bracknell, Berkshire, RG12 1AX United Kingdom Email: info@ewiglobal.com www.emilewoolf.com © Emile Woolf International, November 2013 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior permission in writing of Emile Woolf Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer Notice Emile Woolf International has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf International nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain © Emile Woolf International ii The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Business Law C Contents Page Question and Answers Index v Questions Section A Multiple choice questions Section B Part A Mercantile Law - Objective test and long-form questions 11 Part B Company Law - Objective test and long-form questions 21 Answers Section C Multiple choice answers 33 Section D Part A Mercantile Law - Objective test and long-form answers 37 Part B Company Law - Objective test and long-form answers 67 © Emile Woolf International iii The Institute of Chartered Accountants of Pakistan Business Law © Emile Woolf International iv The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Business Law I Index to Objective test and long-form questions and answers Question page Answer page Mercantile Law Chapter - Introduction to the legal system Federal Shariat Court 11 37 Courts 11 37 Binding precedent 11 38 High courts 11 38 Civil law and criminal law 11 38 Process of legislation 11 39 11 39 Chapter - Introduction to law of contract Essential elements of a contract Chapter - Offer and acceptance Acceptance 12 41 Lapse of an offer 12 41 10 Revocation of proposal 12 42 © Emile Woolf International v The Institute of Chartered Accountants of Pakistan Business Law Question page Answer page 12 42 Chapter - Capacity of parties 11 Minor Chapter - Consideration 12 Consideration 12 43 13 Consideration 12 43 Chapter – Free consent 14 Coercion 12 43 15 Fraud 12 44 16 Misrepresentation 12 44 17 Mistake 13 45 Chapter - Legality of Object etc 18 Legality of object 13 45 19 Opposed to public policy 13 45 Chapter – Void agreement 20 Legality of consideration 13 46 21 Exceptions of void agreements 13 46 Chapter – Contingent contracts 22 Contingent contracts 13 47 23 Rules of contingent contracts 13 47 Chapter 10 – Quasi contracts 24 Quasi contracts 13 48 25 Quasi contracts 14 48 Chapter 11 – Performance of a contract 26 Tender and essentials of tender 14 49 27 Time and place of performance 14 50 28 Devolution of liabilities 14 50 © Emile Woolf International vi The Institute of Chartered Accountants of Pakistan Index to questions and answers Question page Answer page 29 Joint promisor and promisee 14 50 30 Reciprocal promises 14 51 31 Appropriation 15 51 Chapter 12 – Discharge of a contract 32 Discharge by mutual agreement 15 51 33 Supervening impossibility 15 51 Chapter 13 – Remedies for breach of contract 34 Remedies for breach of contract 15 52 35 Damages 16 52 Chapter 14 – Indemnity and guarantee 36 Indemnity 16 52 37 Guarantee 16 52 38 Guarantee 16 52 39 Guarantee 16 53 40 Guarantee 16 53 Chapter 15 – Bailment and pledge 41 Duties of bailor 16 54 42 Particular lien 17 54 43 Termination of bailment 17 54 44 Finder of goods 17 54 45 Pledge 17 55 46 Pledge 17 55 47 Rights of pawner 17 56 Chapter 16 - Agency 48 Ratification 17 56 49 Duties of an agent 17 57 © Emile Woolf International vii The Institute of Chartered Accountants of Pakistan Business Law Question page Answer page 50 Duties of agent toward principal 18 57 51 Rights 18 58 52 Misconduct by agent 18 58 53 Substituted agent 18 58 54 Irrevocable agency 18 58 Chapter 17 – Partnership Act 55 Duties of partner 18 59 56 Rights of outgoing partner 18 59 57 Mutual rights and liabilities 18 59 58 Liabilities 19 60 59 Implied authority 19 60 60 Holding out 19 61 61 Transfer of interest 19 61 62 Partnership property 19 62 63 Minor 19 62 Chapter 18 – Negotiable instruments Act 64 Promissory notes 19 62 65 Presumptions of negotiable instrument 20 62 66 Inchoate stamped instrument 20 63 67 Ambiguous Instruments 20 63 68 Payment in due course 20 64 69 Cheque 20 64 70 Bill of Exchange 20 65 71 Holder / Holder in due course / Payment in due course 20 65 72 Material alteration 20 65 © Emile Woolf International viii The Institute of Chartered Accountants of Pakistan Index to questions and answers Question page Answer page Company Law Chapter 19 - Company 73 Subsidiary and holding co 21 67 74 Association NFP 21 67 75 Private company 21 68 76 KRL 21 68 Chapter 20 – Incorporation of company 77 Fajita 22 68 78 Zouk 22 69 79 Company registration exceptions 22 69 80 Commencement of business 22 69 81 MOA – object and registered office 22 70 82 MOA – alteration 22 70 83 Articles of association 23 71 84 MOA – Nil capital 23 71 85 MOA – Alteration (office and objects) 23 72 86 Incorporation 23 72 87 Name 23 73 88 Disallowed name 23 73 Chapter 21 – Share capital – types and variations 89 Increase in authorized capital 23 73 90 Variation of shareholders’ rights 23 73 91 Purchase of own shares 24 74 92 Objections 24 74 24 74 Chapter 22 – Share capital – prospectus 93 © Emile Woolf International Prospectus - consent of expert ix The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers company is listed is situated (iii) Copies of draft resolutions, which are proposed for consideration in the meeting (iv) Every company shall also send:  copy of audited balance sheet and Profit and loss account  copy of auditors report  Directors report The above should be sent to the following:  the registered address of every member of the company  Securities & Exchange Commission  Stock exchange  Registrar Section 158, 160, 161 and 164 110 Representation and proxy (a) A company which is a member of another company may by resolution of the directors, authorize any of its officials or any other person to act as its representative at the meeting of that other company Representation of corporation at meetings of companies (Section 162) (b) The instrument appointing a proxy shall:  be in writing and  be under company seal or be signed by an officer or an attorney duly authorized The proxy shall be lodged with the company not later than forty-eight hours before the time of the meeting Proxies Section 161 (3b & 5) 111 EOGM and special business (a) (i) All general meetings of a company other than Annual General Meeting and Statutory Meeting shall be called EOGM (ii) The minimum notice period for calling an EOGM is 21 days In case of emergency affecting the business of the company, the registrar may on the application of the directors, authorize such meeting to be held at such shorter notice as he may specify Calling of extra ordinary general meeting, (Section 159-7) (b) All businesses transacted at an extraordinary general meeting or annual general meeting, shall be treated as “special business” except the following:  declaration of dividend,  consideration of the accounts, balance sheet and the reports of the directors and auditors, © Emile Woolf International 81 The Institute of Chartered Accountants of Pakistan Business Law  election of directors,  appointment and fixing of the remuneration of auditors Examples: (i) Disposal of a significant business segment of company (ii) Investment in associated undertaking Provisions as to the meetings and votes, (Section 160 - b) 112 Special resolutions Section Special resolution means a resolution which has been passed by a majority of not less than three-fourths of such members at a general meeting of which not less than twenty-one days’ notice specifying the intention to propose the resolution as a special resolution has been duly given If all the members entitled to attend and vote at any such meeting so agree, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one days’ notice has been given 113 Auditor’s certificate Auditors’ certificates on statutory report The statutory report should be accompanied by an auditor’s certificate in respect of correctness or otherwise of:  allotment of shares  cash received against share allotted and  receipts and payments account of the company 114 Commission GM Commission has got the powers to call general meetings of the company if the company fails to a) Call a general meeting b) Call a statutory meeting or c) Call an extraordinary general meeting on the requisition of the members 115 Subsequent CEO The statement is incorrect Any chief executive (first or subsequent) is appointed by the directors within fourteen days from the date of their election or within fourteen days of the office of the chief executive falling vacant The chief executive, other than the first chief executive of the company, is appointed for a period not exceeding three years © Emile Woolf International 82 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers 116 CEO – removal and competitors (a) Mr Zameer being appointed as the first chief executive of Ryan Industries Limited, will hold office up to the first annual general meeting of the company or if a shorter period is fixed by the directors at the time of his appointment, on expiry of such period unless he earlier resigns or ceases to hold office Since the directors are not satisfied with the performance of Mr Zameer they can remove him by a resolution passed by not less than three-fourths of the total number of directors for the time being, or by passing a special resolution in the general meeting of the company, notwithstanding anything contained in the articles or in any agreement between the company and Mr Zameer (b) Chief executive of a public company shall not directly or indirectly engage in any business which is of the same nature as and directly competes with the business carried on by the company of which he is the chief executive or by a subsidiary of such company A business shall be deemed to be carried on indirectly by the chief executive if the same is carried on by his spouse or any of his minor children Every person who is appointed as chief executive of a public company shall forthwith on such appointment disclose to the company in writing the nature of such business and interest therein 117 Casual vacancy Alpha Securities Limited (ASL) is a public company and is required to have at least three members as well as three directors On the death of Qasim, the number of members and directors of ASL has been reduced to two which is in contravention of the provisions of the Companies Ordinance 1984 The casual vacancy arising due to the death of Qasim may be filled up by Abid and Tariq and the person so appointed would hold office for the remainder of the term of Qasim in whose place he is appointed 118 Election (a) The number and names of the first directors of the company shall be determined in writing by the majority of subscribers of the memorandum of the company and until so determined, all the subscribers of the memorandum, who are natural persons, shall be deemed to be the directors of the company The first directors shall hold office until the election of directors in the first annual general meeting of the company (b) The following procedure should be followed by a private company while holding its election of directors: (i) The existing directors of a company must fix the number of elected directors of the company at least thirty-five days before the convening of the general meeting at which directors are to be elected The number of directors so fixed cannot be changed except, with the prior approval of a general meeting of the company (ii) The notice of the general meeting at which election of directors is to be held must state:  the number of elected directors fixed for election  the names of the retiring directors © Emile Woolf International 83 The Institute of Chartered Accountants of Pakistan Business Law (iii) The company must receive a notice of intention to offer themselves for election as a director, from the persons who seek to contest an election, whether they are a retiring director or otherwise, at least 14 days before the date of the general meeting at which elections are to be held Any such person may at any time before the holding of election withdraw such notice (iv) All notices received by the company must be circulated among the members, not later than seven days before the date of the general meeting in the manner provided by the company for sending of a notice of general meeting (v) The directors of the company having a share capital shall, unless the number of persons who offer themselves to be elected is not more than the number of directors fixed, be elected by the members of the company in general meeting in the following manner,  A member shall have such number of votes as is equal to the product of the number of voting shares or securities held by him and the number of directors to be elected  A member may give all his votes to a single candidate or divide them between more than one of the candidates in such manner as he may choose; and  The candidate who gets the highest number of votes shall be declared elected as director and then the candidate who gets the next highest number of votes shall be so declared and so on until the total number of directors to be elected has been so elected 119 Presence This rule is not applicable to: (i) a private company which is neither a subsidiary nor a holding company of a public company; (ii) any contract of indemnity against any loss which the directors, or any one or more of them, may suffer by reason of becoming or being sureties or a surety for the company; (iii) any contract or arrangement entered into or to be entered into with a public company, in which the interest of the director aforesaid consists solely in his being a director of such company and the holder of no more than such shares therein as are requisite to qualify him for appointment as a director thereof, he on being nominated as such director by the sending company 120 Number, remuneration and assignment (a) The statement is not in accordance with the provisions of the Companies Ordinance 1984 because the directors shall fix the number of directors to be elected not later than thirty-five days before the convening of the general meeting at which directors are to be elected, and the number so fixed shall not be changed except with the prior approval of a general meeting of the company © Emile Woolf International 84 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers (b) The statement is not in accordance with the provisions of the Companies Ordinance 1984 The directors’ remuneration for performing extra services, including the holding of the office of chairman, is determined by the directors or the company in general meeting in accordance with the provisions in the articles of association of the company (c) The statement is not in accordance with the provisions of the Companies Ordinance 1984 The assignment of office is possible provided it is allowed under the articles of association of the company and assignment is approved by a special resolution passed by the shareholders at the general meeting of the company 121 Fresh elections Any person own name, election of Companies company who is holding not less than 12.5% voting shares of the company, in his may apply to the Commission for requiring the company to hold fresh directors in accordance with the procedure laid down under the Ordinance, 1984 in the forthcoming annual general meeting of the The Commission may, if it deems appropriate in the interest of the company, its minority shareholders or the capital markets generally, direct the company to hold the election of directors in the manner provided under section 178, and the company shall comply with such direction The person on whose request such elections are held shall not sell or otherwise dispose of the shares acquired by him for at least one year from the date of election of directors 122 Loans The company may grant loan to a director if he is in the whole time employment of the company Such loan may be granted after getting prior approval from the Commission The purpose for which a company may grant the loan are as follows: (a) For acquisition or construction of a dwelling house or land therefore (b) For defraying the cost of any conveyance for personal use or household effects (c) For defraying any expense on his medical treatment or the medical treatment of any relative as are ordinarily made or provided by the company to its employees 123 Power Powers of Directors The shareholders seem to be referring to the following powers of the directors of RRL: (i) Make calls on shareholders in respect of moneys unpaid on their shares (ii) Borrow moneys otherwise than on debentures (iii) Invest the funds of the company (iv) Make loans © Emile Woolf International 85 The Institute of Chartered Accountants of Pakistan Business Law (v) Incur capital expenditure on any single item or dispose of a fixed asset, in accordance with the limits prescribed (vi) Undertake obligations under leasing contracts exceeding one million rupees (vii) Issue shares (viii) Issue debentures or any other instrument in the nature of redeemable capital (ix) Declare interim dividend (x) Write off bad debts, advances and receivables (xi) Write off inventories and other assets of the company (xii) To authorize sale, purchase or supply contracts with interested companies and firms (xiii) To approve annual, half yearly or other periodical accounts to be circulated to members (xiv) To approve bonus to employees 124 Number and casual vacancy (a) Section 174 & 178(1),Companies Ordinance,1984 Every public company other than a listed company shall not have less than three directors As Lalazar Limited has eight directors on their board, therefore they are in compliance with the requirements of law The directors of a company shall fix the number of elected directors of the company not later than 35 days before the convening of the general meeting at which directors are to be elected The number of directors so fixed shall not be changed except with the prior approval of a general meeting of the company (b) Section 180(2),Companies Ordinance,1984 Any casual vacancy occurring among the directors may be filled up by the directors Mr Aslam shall hold office for the remainder of the term of the director Mr Javed in whose place he has been appointed 125 First and subsequent First Directors The names of the first directors shall be determined in writing by a majority of the subscribers of the memorandum until so determined; all the subscribers of the memorandum shall be deemed to be the directors of the company The first directors shall hold office until the election of directors in the first annual general meeting Subsequent directors are elected in the first general meeting of the company The directors so elected, hold office for a period of three years First Chief executive The directors shall appoint any individual to be the chief executive of the Company who shall hold office up to the first annual general meeting of the company or, if a shorter period is fixed by the directors as the time of his appointment, for such period © Emile Woolf International 86 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers Subsequent Chief Executive Subsequent CEO is also appointed by the Directors, but such appointment shall not be for a period exceeding three years from the date of appointment 126 Removal Removal of Directors-Section 181,Companies Ordinance,1984 A company may by resolution in a general meeting remove a director appointed to fill in the casual vacancy or a director appointed by members in a general meeting of the company (i) The situation relates to the removal of director appointed to fill in the casual vacancy Therefore, the number of votes cast against the resolution should not be equal to or exceed the total number of votes for the time being computed in a manner similar to the method used for directors’ election divided by the number of directors, which in this case would be 10,000,000 x ÷ = 10,000,000 (ii) Mr Badar can be removed from his office only when the votes cast against the resolution are less than 220,000 i.e the minimum number of votes through which the director was elected in the immediately preceding election of directors 127 Loan repayment Section 184(1) and Section 195(4) If the loan is obtained for the purpose of:  acquisition or construction of dwelling house;  defraying the cost of any conveyance;  defraying the cost of any household;  defraying any expense on his medical treatment;  defraying any expense on his relative’s medical treatment Then Mr Shams shall within fourteen days of his appointment as chief executive of the company file with the registrar the particular of the loan taken, prior to his becoming chief executive which could not have been taken without the prior approval of the Commission If the loan is not obtained for the above purposes, then he will be required to repay the loan before the acceptance of the position of CEO 128 General notice of interest General notice of ownerships and directorships Instead of making a disclosure at separate intervals on transaction by transaction basis, the director may give a general notice regarding his directorships in other body corporate or partnership in firms so that he may be considered as interested in any transaction, contract or arrangement entered into with these businesses Such notice should be given at the directors' meeting or the concerned director may take reasonable steps to ensure that the notice is read by the other directors This general notice shall expire at the end of the financial year in which it is given and may be replaced by fresh notice to be given in last month of financial year © Emile Woolf International 87 The Institute of Chartered Accountants of Pakistan Business Law 129 Associated company “Associated companies” mean any two or more companies or a company and an undertaking, interconnected with each other in the following manner, namely: (a) If a person who is the owner or a partner or director of a company or undertakings, or who, directly or indirectly, holds or controls shares carrying not less than twenty percent of the voting power in such company or undertaking, is also the owner or partner or director of another company or undertaking, or directly or indirectly, holds or controls shares carrying not less than twenty percent of the voting power in that company or undertaking; or (b) If the companies or undertakings are under common management or control or one is the subsidiary of another; or (c) If the undertaking is a modaraba managed by the company; and a person who is the owner of or a partner or director in a company or undertaking or, who also holds or controls shares carrying not less than ten percent of the voting power in a company or undertakings, shall be deemed to be an “associated person” of every such other person and of the person who is the owner of or a partner or director in such other company or undertaking, or who so holds or controls such shares in such other company or undertaking Provided that shares shall be deemed to be owned, held or controlled by a person if they are owned, held or controlled by that person or by the spouse or minor children of the person Provided further that (i) Directorship of a person or persons by virtue of nomination by the Federal Government or a Provincial Government or a financial institution directly or indirectly owned or controlled by such Government; or (ii) Shares owned by the National Investment Trust or the Investment Corporation of Pakistan or a financial institution directly or indirectly owned or controlled by the Federal Government or a Provincial Government or shares registered in the name of a central depository, where such shares are beneficially owned by the central depository; Shall not be taken into account for determining the status of a company, undertaking or person as an associated company, associated undertaking or associated person 130 Dividend restriction The statement is incorrect and contains the following errors The chief executive of the company does not declare the dividend He informs the shareholders about the percentage/amount of the dividend as recommended by the directors The dividend is approved by the members but the dividend so approved shall not exceed the amount as recommended by the directors No dividend shall be declared or paid by a company out of the profits of the company made from the sale or disposal of any immovable property or assets of a capital nature comprised in the undertaking(s), unless the business of the company consists, whether wholly or partly, of selling and purchasing any such property or assets, except after such profits are set off or adjusted against losses arising from the sale of any such immovable property or assets of a capital nature © Emile Woolf International 88 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers 131 Investment restriction A company shall not make any investment in any of its associated companies or associated undertakings except under the authority of a special resolution which shall indicate the nature, period and amount of investment and terms and conditions attached thereto Provided that the return on investment in the form of loan shall not be less than the borrowing cost of investing company No change in the nature of an investment or the terms and conditions attached thereto shall be made except under the authority of a special resolution 132 Payment of dividend The Chief Executive will not be punishable in the following cases: (i) where the dividend could not be paid by reason of the operation of any law (ii) where a shareholder has given directions to the company regarding the payment of the dividend and those directions could not be complied with (iii) where there is a dispute regarding the right to receive the dividend (iv) where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder (v) where for any other reason the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company And the commission has allowed the company to withhold or defer the payment of dividend against an application made by the company within 45 days from the date of declaration of dividend 133 Dividend amendment (i) (ii) Once the dividend is recommended by the Board of Directors, it may be reduced by approval of members, in the AGM Certain restrictions on declaration of dividend Section 248(1) When a dividend has been declared, it shall not be lawful for the directors to defer its payment for more than 30 days Hence the company cannot defer it for six months 134 Qualification The statement is correct however, if a person holds shares prior to his appointment as auditor, he can still be appointed as auditor provided he disinvests such shares within ninety days of his appointment 135 Removal - representation It shall not be necessary to read out the representation received from the retiring auditor, at the meeting if on the application either of the company or of any other aggrieved person the registrar is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter; 136 Removal – change of auditor The Company shall forthwith send a copy of such notice to the retiring auditor and shall also give thereof to its members not less than seven days before the date fixed © Emile Woolf International 89 The Institute of Chartered Accountants of Pakistan Business Law for the annual general meeting and 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 situated 137 Books of accounts (a) SQL Plastic Limited must keep proper books of account with respect to: (i) all sums of money received and expended by the company; (ii) all sales and purchases of goods by the company; (iii) all assets of the company; (iv) all liabilities of the company; and (v) in the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labour or other inputs or items of cost, or any other particulars as required by the Commission through a general or special order to be included in the books of accounts (b) As the directors of SQL Plastic Limited intend to keep the books of account at a place other than the registered office, SQL Plastic Limited must file with the registrar a notice in writing within seven days of the decision, giving the full address of the other place 138 Registrar and the directors’ report (a) An unlisted company not being a private company having a paid up capital of less than Rs 7.5 million, must complete the following necessary formalities before and after the AGM: (i) Before the AGM: Notice of an annual general meeting must be sent to every shareholder at least 21 days before the date of AGM along with a copy of such balancesheet and profit and loss account so audited together with a copy of the auditor’s report and the director’s report and shall keep a copy at the registered office of the company for the inspection of the members of the company during a period of at least twenty-one days before that meeting (ii) After the AGM: The company must file with the registrar two copies of the balance-sheet and profit and loss account that have been laid before the company at the annual general meeting and signed by the chief executive, directors, chairman of directors or the auditors of the company in the prescribed manner, within thirty days from the date of AGM (b) The contents of the directors’ report of a public company, as specified in the Companies Ordinance, 1984 are as follows: (i) report on the company’s affairs; (ii) the amount of recommended dividend; (iii) amount proposed to be carried to the Reserve Fund, General Reserve or Reserve Account; (iv) disclosure of material changes and commitments affecting the financial position of the company since the end of the financial year to which the © Emile Woolf International 90 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers balance-sheet relates and the date of the report; (v) any changes concerning the nature of the business of the company or of its subsidiaries, or in the classes of business in which the company has interest; (vi) fullest information and explanation regarding any reservation, observation, qualification or adverse remarks contained in the auditor’s report; (vii) the pattern of shareholding; (viii) name and country of incorporation of its holding company, if any, where such holding company is established outside Pakistan; (ix) earnings per share; (x) reasons for incurring loss and a reasonable indication of future prospects of profit, if any; (xi) information about defaults in payment of debts, if any, and reasons thereof 139 Signing the accounts When the chief executive is for the time being not in Pakistan, then the balancesheet and profit and loss account or income and expenditure account of the company shall be signed by not less than two directors for the time being in Pakistan, but in such a case there shall be subjoined to the balance-sheet and profit and loss account or income and expenditure account a statement signed by such directors explaining the reasons on account of which the accounts could not be signed by the Chief Executive 140 The auditors’ report (a) The auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company (b) The auditor’s report shall only be signed, by the person appointed as auditor of the company, or where a firm is so appointed, by the partner in the firm practicing in Pakistan The auditor’s report shall be dated and indicate the place, at which it is signed 141 Appointment of auditor Procedure for change of auditor and company’s responsibilities (i) Mr Brown (the proposer of the change) shall give a notice to SPL not less than fourteen days before the annual general meeting for passing a resolution at the company’s annual general meeting for appointment of ABC & Co Chartered Accountants as the auditor in place of the retiring auditor (ii) The company shall forthwith send a copy of notice not less than seven days before the date fixed for the annual general meeting to the following: (iii)  retiring auditor  its members and being a listed company, SPL shall also publish notice at least in one issue each of a daily newspaper in English language and a daily newspaper in Urdu language having circulation in the Provinces (Sind & Punjab) in which the © Emile Woolf International 91 The Institute of Chartered Accountants of Pakistan Business Law stock exchanges on which the company is listed are situated (iv) (v) (vi) Where retiring auditor makes with respect thereto a representation in writing to the company and requests its communication to the members of the company, the company shall,  in any notice of the resolution given to members of the company, state the fact of the representation having been made; and  send a copy of the representation to every member of the company to whom notice of the meeting is sent by the company and if copy is not sent as aforesaid because it was received too late or because of a company’s default, the auditor may require that the representation shall be read out at the meeting The company shall, within fourteen days from the date of appointment of the auditor, send to the registrar the following:  intimation of such appointment,  consent in writing of the auditor concerned The company shall, within fourteen days from the date of retirement of the previous auditor send intimation thereof to the registrar 142 Auditor and the AGM The auditor of a company shall be entitled to attend any general meeting of the company However, in the case of a listed company, it is mandatory for an auditor or a person authorized by him in writing, to be present in the general meeting in which the balance-sheet and profit and loss account and the auditor’s report are to be considered 143 Auditor disqualification Following persons shall not be appointed as auditor of a company  A person who is or at any time during the preceding years was a director, other officer or employee of the company  Partner or employee of a director, officer or employee of the company  The spouse of a director of the company  A person who is indebted to the company  A body corporate  A person or his spouse or minor children or in case of audit firm, all partners of such firm who hold shares of the company or any of its associated companies Powers and duties of auditors Section 254(3) © Emile Woolf International 92 The Institute of Chartered Accountants of Pakistan Section D: Part B - Company Law Answer bank: Objective test and long-form answers 144 Appointment by SECP Section 252(6) In the following circumstances SECP becomes authorized to appoint the auditors of a company: (i) The first auditors are not appointed within one hundred and twenty days of the date of incorporation of the company, or (ii) No auditors are appointed at an annual general meeting, or (iii) Auditors appointed at an annual general meeting are unwilling to act as auditors of the company or (iv) A casual vacancy in the office of an auditor is not filled within thirty days after the occurrence of the vacancy, or (v) Auditors are removed by the company before the expiry of their term © Emile Woolf International 93 The Institute of Chartered Accountants of Pakistan Business Law © Emile Woolf International 94 The Institute of Chartered Accountants of Pakistan ... and Finance Business Law C Contents Page Question and Answers Index v Questions Section A Multiple choice questions Section B Part A Mercantile Law - Objective test and long-form questions 11.. .ICAP Question Bank P Business Law First edition published by Emile Woolf Limited Bracknell Enterprise & Innovation... Pakistan Business Law © Emile Woolf International iv The Institute of Chartered Accountants of Pakistan Certificate in Accounting and Finance Business Law I Index to Objective test and long-form questions