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
I
Introduction
Taxation
II
Income tax
Sources of income tax law
Definition Definition Definition Definition
of of of of
income Tax Assesses 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
Post Incorporation services
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 23 rd 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 At present the Organizational Structure of GHAFOOR & CO is as under.
nt:
Head of the Office(Principal) : Syed Asif Aziz ud Din I.T.P Syed Ul Asim M.Com , I.T.P
Bukhari
Abdul Ghafoor F.C.A
Organization Structure At present the Organizational Structure of GHAFOOR & CO is as under. GEOGRAPHICAL LIST OF CA FIRMS INPAKISTAN S.NO 01 02 03 04 05 06 07 08 09 10 11 12 13 14
CITY
CA FIRMS
Abottabad Faisalabad Gujranwala Hyderabad Islamabad Karachi Lahore Mirpur (A.J.K) Multan Peshawar Queta Raheem Yar Khan Rawalpindi Sialkot Total
01 25 09 06 40 198 186 01 12 21 02 02 12 03 518
PAKISTANI CA FIRMS IN ABROAD S.No 01 02 03 04 05
Country
CA FIRMS
Canada Kuwait U.A.E U.K USA
08 20 202 142 103 Total
475
CHAPTER # 2 INSTITUTE OF CHARTERED ACCOUNTANTS
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. Head Office:
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 Syed Mohammad Shabbar Zaidi, 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 coordinates 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; cocoordinating 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; coordination 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:
[email protected] 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:
[email protected] Islamabad Office G-10/4, Mauve Area, Islamabad, Pakistan Phone: (92-51) 9266281 (92-51) Fax: 9266052 Email:
[email protected] Institute’s website www.icap.org.pk
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 follow.
1-
are
two
types
of
audit,
which
are
as
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
Submission of auditor reports
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 Memorandum and Articles of Association etc, affecting the duties of an auditor General nature and routine of the business
Deed,
Duties and obligations of students and principals in CA firm The duties and obligations of a student in a CA firm are 12-
34-
He will throughout his term of training serve in his principal‟s office on his principal‟s business of public accountant or occupation. 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. He will at all times keep the secrets of the principal or his partner or of their clients. 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, carryforward, 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:
Enquires in to the internal check system regarding sales.
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.
Vouching Of Bills Receivable Book:
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. Fee outstanding or paid in advance must be adjusted and accounted for.
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. 34567-
The income tax Appellate tribunal1981. Notification issued by Central Board of revenue. Notification issued by federal Government. Circulars, instructions and orders issued by C.B.R 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 Ordinance, namely: -
(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) (b)
Individual, Artificial Judicial Person 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 1 stJuly 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.
TAX YEAR Under Section (74) (1) For the purpose of this Ordinance and subject to this section, the tax year shall be a period of twelve months ending on the 30th day of June (hereinafter referred to as „normal tax year‟) and shall, subject to sub-section (3), be denoted by the calendar year in which the said date falls. (2) Where a person‟s income year, under the repealed Ordinance, is different from the normal tax year, or where a person is allowed, by an order under sub-section (3), to use a twelve months‟ period different from normal tax year, such income year or such period shall be that person‟s tax year (hereinafter referred to as „special tax year‟) and shall, subject to sub-section (3), be denoted by the calendar year relevant to normal tax year in which the closing date of the special tax year falls. (2A)
The Central Board of Revenue,-
(i) in the case of a class of persons having a special tax year different from a normal tax year may permit, by a notification in the official Gazette, to use a normal tax year; and (ii) in the case of a class of persons having a normal tax year may permit, by a notification in the official Gazette, to use a special tax year.] (3) A person may apply, in writing, to the Commissioner to allow him to use a twelve months‟ period, other than normal tax year, as special tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use such special tax year. (4) A person using a special tax year, under sub-section (2), may apply in writing, to the Commissioner to allow him to use normal tax year and the Commissioner may, subject to sub-section (5), by an order, allow him to use normal tax year. (5) The Commissioner shall grant permission under sub-section (3) or (4) only if the person has shown a compelling need to use special tax year or normal tax year, as the case may be, and the permission shall be subject to such conditions, if any, as the Commissioner may impose. (6) An order under sub-section (3) or (4) shall be made after providing to the applicant an opportunity of being heard and where his application is rejected the Commissioner shall record in the order the reasons for rejection.
(7) The Commissioner may, after providing to the person concerned an opportunity of being heard, by an order, withdraw the permission granted under sub-section (3) or (4). (8) An order under sub-section (3) or (4) shall take effect from such date, being the first day of the special tax year or the normal tax year, as the case may be, as may be specified in the order. (9) Where the tax year of a person changes as a result of an order under subsection (3) or sub-section (4), the period between the end of the last tax year prior to change and the date on which the changed tax year commences shall be treated as a separate tax year, to be known as the “transitional tax year”. (10) In this Ordinance, a reference to a particular financial year shall, unless the context otherwise requires, include a special tax year or a transitional tax year commencing during the financial year. (11) A person dissatisfied with an order under sub-section (3), (4) or (7) may file a review application to the Central Board of Revenue, and the decision by the Central Board of Revenue on such application shall be final.]
Assessment under section 20 Assessment means determination of total income and tax payable by a Tax refundable to the assessee. It includes re-assessment and Additional assessment. (1) Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002, (a) The Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and (b) The return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.
(2) A return of income shall be taken to be complete if it is in accordance with the provisions of sub-section (2) of section 114. (3) Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice. (4)
Where a taxpayer fails to fully comply, by the due date, with the requirements of
the notice under sub-section (3), the return furnished shall be treated as an invalid return as if it had not been furnished. (5)
Where, in response to a notice under sub-section (3), the taxpayer has, by the
due date, fully complied with the requirements of the notice, the return furnished shall be treated to be complete on the day it was furnished and the provisions of sub-section (1) shall apply accordingly. (6) No notice under sub-section (3) shall be issued after the end of the financial year in which return was furnished, and the provisions of sub-section (1) shall apply accordingly.]
Return of total income Return of total income mean the return of total income in the prescribed form, setting for such particulars and accompanied by such statements, certificates and other documents and verified in prescribed manner. Return of income Under Section (114)
(1) Subject to this Ordinance, the following persons are required to furnish a return of income for a tax year, namely:– (a) Every company; (ab) every person (other than a company) whose taxable income for the year exceeds the maximum amount that is not chargeable to tax under this Ordinance for the year;]
(b) Any person not covered by clause (a) or (ab) who, (i) Has been charged to tax in respect of any of the two preceding tax years; (ii) Claims a loss carried forward under this Ordinance for a tax year; (iii) Owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory.] (2)
A return of income -
(a) Shall be in the prescribed form and shall be accompanied by such annexures, statements or documents as may be prescribed; (b) Shall fully state all the relevant particulars or information as specified in the form of return, including a declaration of the records kept by the taxpayer; [2][and] (c) Shall be signed by the person, being an individual, or the person‟s representative where section 172 applies.] (2A) A return of income filed electronically on the web or any magnetic media or any other computer readable media as may be specified by the Board shall also be deemed to be a return for the purpose of sub-section (1); and the Board may, by notification in the official Gazette, make rules for determining eligibility of the data of such returns and e-intermediaries who will digitise the data of such returns and transmit the same electronically to the Income Tax Department under their digital signatures.]
(3) The Commissioner may, by notice in writing, require a person, or a person‟s representative, as the case may be, to furnish a return of income by the date specified in the notice for a period of less than twelve months, where (a) The person has died; (b) The person has become bankrupt or gone into liquidation; (c) The person is about to leave Pakistan permanently;
(d) The Commissioner otherwise considers it appropriate to require such a return to be furnished. (4)
Subject to sub-section (5), the Commissioner may, by notice in writing, require
any person who, in the Commissioner‟s opinion, is required to file a return of income under this section for a tax year[3][or assessment year] but who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer period as may be specified in such notice or as the Commissioner may allow. (5) A notice under sub-section (4) may be issued [in respect of one or more] [of the] last five completed tax years [or assessment years]. (6) Any person who, having furnished a return, discovers any omission or wrong statement therein, may furnish a revised return within five years of the date that the original return was furnished. (7) Every return purporting to be made or signed by, or on behalf of a person shall be treated as having been duly made by the person or with the person‟s authority until the person proves the contrary.
Persons not required to furnish a return of income Under Section (115) (1) Where the entire income of a taxpayer in a tax year consists of income chargeable under the head "Salary", the taxpayer may, instead of furnishing a return as required under section 114 furnish –
(a) A certificate from the person’s employer in the prescribed form stating such particulars, and accompanied by such statements, and verified in such manner, as may be prescribed, and such certificate shall be, for the purposes of this Ordinance, treated as a return of income furnished under section 114.
Provided that a taxpayer shall not be required to furnish a certificate, if his employer has furnished for the same tax year, Annual Statement of Deduction of Income Tax From Salary as prescribed under the Income Tax Rules, 2002.] (b) A wealth statement referred to [in] section 116.
(2) The following persons shall not be required to furnish a return of income for a tax year solely by reason of sub-clauses (iii) through (vii) of clause (b) of sub-section (1) of section 114 – (a) A widow; (b) An orphan below the age of twenty-five years; (c) A disabled person; or (d) In the case of ownership of immovable property, a non-resident person. (3) Any person who is not obliged to furnish a return for a tax year because all the person‟s income is subject to final taxation under sections 5, 6, 7, [113A,] [113B,] 148, 153, 154, 156 [, 156A, sub-section (3) of section 233, clause (a) and (b) of sub-section (1) of section 233A] or sub-section (5) of section 234] shall furnish to the Commissioner a statement showing such particulars relating to the person‟s income for the tax year in such form and verified in such manner as may be prescribed. Filling of Return of income Tax The total income of any person in respect of which such person is assessable, for an income year exceeds the maximum amount which is not chargeable to tax under the tax ordinance or who has been charged to tax in any of the four preceding income years or who owns a motor vehicle or who subscribes a telephone, or who owns immovable property with land area 250 sq yards located un the limits of Metropolitan corporation, municipal corporation, a cantonment board or Islamabad Capital territory, who has undertaken foreign travel except for the purposes of Haj, Umrah or Zuarat during the year.
Dates for Filling Returns Status Company
Income year ended st
1 January 31st December
Due Date to 30th June
Company Other assesses (Individuals / AOP‟s)
1st July to 30th June 1st July to 30th June
31st December 30th September
Abbreviations Used Abbreviation IND R.F A.O.P H.U.F U.R.F A.L.V Section-2
Description Individual Registered Firm Association of Persons Hindu Undivided Family Unregistered Firm Annual Letting Value
SALES TAX
A Sales tax is imposed on the sales of goods and services, it is collected by the retailer at the point of sales and is computed on a fixed percentage of the retail price. Sales tax department, which comes under the central Board of Revenue, is responsible for the collection of sales tax under the sales tax Act 1990 Tax Period Tax period means a period of one month or such other period as the Federal Government may specify in the official gazatted by a notification. Registration: Every person or entity ho makes a taxable supply in Pakistan in the course of any taxable activity carried out by him and whose total turnover from taxable supplies made in any period exceeds Rs. 2.5 million in case of manufactures and Rs. 5 million in case of retailers. Records to be kept under section (22): A registered from or person making taxable supplies shall maintain and keep some records pertaining to sale tax, required by sales tax department at his business premises or registered office in English or Urdu language. These registers are as follows: Sales Register under section 22(1) a Purchase Register under section 22(1) b
OP sales tax invoices under section 23 Monthly Returns under section 26 Return of Sales Tax: Every registered person making taxable supplies shall furnish not later then the due date a true and correct return in the prescribed form to a designated bank specified by the Board, the tax due and paid and such other information are may be prescribed. Responsibility of Sales Tax: Sub section 3(A) of section 3 shifts the responsibility of payment of sales tax in case of any of the goods as may be specified by the Federal Government to a person receiving the goods instead of the person supplying such goods. Turnover Tax Rules 1999: These should apply to the manufacturers or producers making taxable supplies whose total turnover does not exceed 2.5 million rupees in any period during the last twelve months. A person required to pay turnover tax shall furnish the return in the prescribed manner with in the prescribed date to the office of collector of sales tax. Rates of sales tax: Registered Entities
16%
Services of CA firm related to Sales Tax: 1- Chartered Accountants firms provides services to its clients for the registration under sales tax act 1990. 2- The Central Board of Revenue has also appointed Ghaffor & Co under section 32(A) of the sales tax act 1990 for the audit of business concerns. 3- Chartered Accountants firm provides all types of consultancy services in the area of sales tax. 4- They help their clients in compilation of Sales Tax Return . In a CA firm sales tax consultants also go for hearing of appeals for refund before collectorate of sales tax on behalf of its clients. It also appeals for claims against additional taxes. CHAPTER # 6
CONSULTANCY SERVICES
Chartered Accounts firm provides number of services to its clients i.e. individuals, firm, corporation, Association of persons etc. There are some major consultancy services, which is provided by the Chartered Accounts firm. I.
Feasibility report.
II. III.
Pre-investment proposals. Disinvestments report. Feasibility report is the Pre-investment of forecasting for investments prepared by a Chartered Accounts firm. Feasibility report is the Pre-investment planning before the starting of a project. Feasibility report are prepared to show future investment, costs and applicability of the plan of a project, and forecasting of profits for coming five years, and give report of disinvestments about any firm or the Chartered Accounts firm. Assistance in Budgetary Control System and profit Forecasting: C.A firm assists it clients firms in preparing budgets, keeping the budget in control and management and reporting on the financial projections
Assistance of clients in compliance with corporate legislation: C.A firm guides the corporation and firm in the corporate affairs including share valuation report, assistance in public floatation or companies, rights issue, business acquisitions, mergers and valuations of assets and liabilities. Human Resource Development: Services provided in the field of Human Resource Development include the following: 1- Executive selection i.e. search and recruitment on behalf of the client. 2- Installation of the personal function, appraisal system and salary system. 3- Management training and development. 4- Levels and organization structure. 5- Job evaluation to determine job classes. 6- Graduation and job classes for manager to determine remuneration.
7in
Salary
survey
to determine the remuneration.
and
recommend
changes
Other Services: Subscribed public issues of companies as well as acting as registrar, to number of quoted companies. Ghafoor & Co also provides the services of book keeping and maintenance of account on behalf of its clients firms. It also prepares review reports and accounting manuals for them.
Chapter # 7 CORPOTATE SECTOR SERVICES
SOME ABOUT SECURITY OF PAKISTAN(SECP)
EXCHANGE
COMMISSION
Establishment of Securities and Exchange Commission of Pakistan The Securities and Exchange Commission of Pakistan has succeeded the erstwhile Corporate Law Authority, which was an attached Department of Ministry of Finance. The process of restructuring the Authority was initiated in 1997 under the Capital Market Development Plan of the Asian Development Bank (ADB). A Securities and Exchange Commission of Pakistan Act was passed by the parliament and promulgated in December 1997. In pursuance of this Act, the Securities and Exchange Commission of Pakistan, having autonomous status, became operational from January 1st 1999. The Act of Securities and Exchange Commission of Pakistan institutionalized certain Policy decisions relating to the Constitution and Structure of Commission, its powers and functions giving administrative authority and financial independence to carry out the reform program ofPakistan‟s capital Market with assistance of Asian Development Bank (ADB). Powers of the Commission have been delegated to the individual Commissioners and Appellate Benches, as envisaged in the Act. The Commission became operational in January 1999, and it has come a long way since than. The scope of the authority of the commission has been extensively widened. The Insurance Sector, Non Banking Financial companies, Pension Funds have since been added to the purview of the Commission.
Now the Commission Mandates includes the entire Non Banking Financial Sector i.e. Investment Financial services, Leasing Companies, Housing Finance Services, Venture Capital Investment, Discounting Services, Investment Advisory Services and Asset Management Services etc. The Commission has also been delegated powers, which the federal Government had, in regulating various External Service providers that are linked to the corporate sector, like chartered Accountants; rating agencies, cooperate Secretaries and others. So the challenge of the SEC has amplified manifold with the increased mandate it now has.
Mission Statement "To develop a fair, efficient and transparent regulatory framework, based on international legal standards and best practices, for the protection of investors and mitigation of systemic risk aimed at fostering growth of a robust corporate sector and broad based capital market in Pakistan" Vision "The development of modern and efficient corporate sector and capital market, based on sound regulatory principles, that provides impetus for high economic growth and foster social harmony in the country." Strategy Statement "To develop an efficient and dynamic regulatory body that fosters principles of good governance in the corporate sector, ensures proper risk management procedures in the capital market, and protects investors through responsive policy measures and effective enforcement practices. " SOME CORPOARATE SERVICES
Some of the services being offered by the Chartered Accounts firm in the corporate sector with description of procedures involved are discussed in brief as under. 1-
Incorporate of companies: In accordance with the recommendation of corporate law commission, section 4 (a) of the monopolies and restrictive trade Practices (control & prevention) ordinance retaining 100% ownership by the investors. Methods of conducting business There are three main form of business.
1- Sole proprietorship 2- Partnership 3- Company 1-
Sole proprietorship In the sole proprietorship, an individual on his own account carries out a business or a profession. No formal procedure of formality is required to be followed for setting up a sole proprietorship concern.
2-
Partnership Partnership is a business relationship entered in to a formal agreement between two or more persons or corporations carrying on a business in common, the capital for a partnership is provided by the partners who are liable for the total debs of the firms and share profit and loss of a business concern according to the terms of the partnership agreement. Partnership (other than banking companies) is generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of other partners. However, a partner, s to a share of the partnership income may be received on trust for another person. For taxation purpose, partnerships are classified into the following:
o o
Registered firms Unregistered firms. Registered firms The income of the registered firm is subject to super tax, before distribution to the partners. Also the individual income of the partnership is subject to income tax at the usual rates. Un- registered firms Un-registered firms faces of the income tax on there income of the partners are not liable to pay tax on the share of profit received from these firms.
iii-
Company
A company has a legal entity formed under the companies ordinance 1984, it have from with the share capital or without of the share capital. A company having share capital may be formed as:
a- Company limited by shares b- Company limited by guarantee c- Un-limited company A-
Company limited by shares: Liability of its members is limited to the extent of their shares in the paid up capital of the company with further classification as to the public limited companies and private limited companies. Public limited companies can be formed by at least seven members by subscribing their name to the Memorandum & Article of Association of the company while the word “Limited” or “Ltd” is used as the last word of its name. Private limited companies can be formed by at least two persons by subscribing their names to the Memorandum & Article of Association of the company while the word “private limited” is used as the last word of its name.
B-
Company limited by guarantee Company limited by guarantee means a company having the liability of its members limited by memorandum & Article of Association to such on amount as the even of its winding up. The company limited by guarantee is usually formed on the “No profit basis”. Company limited by guarantee uses the word “(Guarantee) limited” as the last word of its name.
C-
Un-Limited Company
Un-limited companies are those companies which having the liabilities of its members are unlimited. 2 - Registration of a Company; In case of the public limited company, there are seven or more persons associated for any lawful purpose many, or by subscribing their names to the memorandum & Article of Association and complying with the requirements of the company‟s ordinance 1984 in respect of the registration. And in case of the private limited company there are two or more persons associated in this regard. 3- Availability of Name of the Company:
The first step with regard to incorporation of a company is to seek availability of the name of the proposed company form the concerned registrar on payment of prescribed fee. The name should not be inappropriate, deceptive or designed to offend the religious susceptibilities of the people and it should nether neither be identical nor have close resemblance with the name of any existing company. 4- Documents for Registration of Company:
I case of private limited company, the following documents are to be supported for registration , Four copies of memorandum and article of association duly signed by promoters while one copy duly stamped. Declaration on prescribed form 1 regarding compliance with the requirement of the company‟s ordinance 1984 signed by one of the proposed director or an advocate or
Chartered Accountant or Cost Management Accountant. Address of registered office of the company on form 2. Particulars of Chief Executive, Directors and other officers on form 29.
In case of public limited company, the following additional documents are required to be field with the concerned registrar. List of persons to act a chief Executive and Directors on form 27. Consent of the Chief Executive and Directors on form 28.
5. Documents for Registration in Case of Non Profit concern: All documents meant for registration of a public limited company along with a license from the Securities and Exchange Commission of Pakistan, which is in Islamabad. The application for obtaining the requisite license from the Securities and Exchange Commission of Pakistan should be accompanied by draft of Memorandum and Articles of Association, list of promoters, declaration, names of associated companies and estimates of annual income and expenditure under section (42). 6. Foreign Company A foreign company i.e. a company incorporated from out side Pakistan is required to deliver the following document to the concern register with in 30 days of the establishment of its place of business in Pakistan. A certified copy of the Charter, statute or Memorandum and Articles of Association in English or Urdu language accompanied by prescribed form 38. Address o the registered or principal office of the company on form 39
A list of director, chief executive and secretaries on form 40. Particulars of persons resident in Pakistan authorized to accept service on behalf of the foreign company on form 42. Address of principal office of business in Pakistan on form 43 sections 45 (1) 7. Post Incorporation services:
The services being performed by a firm of charted accountants in the corporate sector of matters of post incorporation of various companies, as described above is a long list. The major areas in which the services are performed by Chartered Accountant firms are mentioned below:
Rectification and change of company‟ s names and company‟ management. Alteration in Memorandum or Articles of Association.
up.
Issue of shares or filling return of allotment and increase in paid up capital
Formation of trusts, preparation of trusts deed and related documentation. Preparation of prospectus for public issue. Appointment of subsequent chief executives and matters related to chief
Transfer of share from one to other shareholders and management. Issue of debentures, which are transfer from thereof.
executives and other directors. Secretarial matters in place of company secretary. Professional assistance in holding and completion of legal formalities in case of extraordinary general, meetings and other board‟s proceedings. Settlement of disputes as arbitrators or through arbitrators and Winding up of companies, companies and complete professional assistance until complete liquidation process.
