Introduction
Whether conducted by an external auditor, a regulatory body like SECP or FBR, or initiated internally, an audit is a critical review process that verifies a business’s financial and operational integrity. In Pakistan, audits are not only a matter of financial scrutiny—they are legally required for most registered companies under the Companies Act, 2017, Income Tax Ordinance, 2001, and other applicable laws.
Audit preparation, if handled correctly, can improve your company’s credibility, compliance standing, and investor confidence, while minimizing the risk of penalties and reputational damage.
This comprehensive guide walks you through everything you need to know about how to prepare for an audit in Pakistan—from understanding audit types to organizing documentation, internal controls, timelines, and audit readiness best practices.
1. What is an Audit?
An audit is an independent examination of a company’s financial statements, records, internal processes, or legal compliance to ensure that:
✅ Financial reports are accurate
✅ Internal controls are working effectively
✅ Tax and regulatory compliance is being met
✅ No fraud, misstatement, or procedural violations exist
2. Types of Audits in Pakistan
| Type of Audit | Conducted By | Objective |
|---|---|---|
| Statutory Audit | External auditor (CA firm) | Required under Companies Act, 2017 |
| Tax Audit | FBR or authorized tax officer | Verifies income and tax compliance |
| Sales Tax Audit | FBR’s Sales Tax Wing | Assesses GST compliance |
| Internal Audit | Internal department or consultant | Evaluates internal controls |
| SECP Inspection | SECP’s Compliance Division | Corporate filings and governance |
| Special Audit | Ordered by SECP/FBR/Board | Targeted audit of a specific area |
3. Who Is Required to Undergo Audit in Pakistan?
Under the Companies Act, 2017:
| Company Type | Audit Required? | Audit by QCR-Rated Firm? |
|---|---|---|
| Private Company (Turnover > Rs. 3 million) | ✅ Yes | ❌ No |
| Public Company | ✅ Yes | ✅ Yes (Listed) |
| Single Member Company | ✅ Yes | ❌ No |
| Section 42 Non-Profit | ✅ Yes | ✅ Often Required |
| Listed Company | ✅ Yes | ✅ Yes (Mandatory) |
Under the Income Tax Ordinance, 2001:
-
FBR may select businesses randomly or based on risk profile for tax audit under Section 177 or 214C.
4. Benefits of Being Audit-Ready
✅ Avoid penalties and legal action
✅ Faster audit process with minimal disruption
✅ Improved investor and lender confidence
✅ Enhanced internal financial discipline
✅ Stronger corporate governance image
5. Key Areas Reviewed During an Audit
| Audit Focus Area | What Is Checked |
|---|---|
| Financial Statements | Balance sheet, P&L, cash flow, notes |
| Tax Compliance | Income tax, sales tax, withholding tax returns |
| Supporting Documentation | Vouchers, receipts, invoices, bank statements |
| Corporate Governance | Board resolutions, Form A/B/29, MoA/AoA |
| Internal Controls | Authorization policies, segregation of duties |
| Statutory Registers | Shareholder, director, UBO registers |
| Inventory and Fixed Assets | Stock counts, depreciation schedules, asset registers |
| Payroll & HR Records | EOBI, gratuity, WHT, employment contracts |
6. Step-by-Step Guide to Preparing for an Audit
Step 1: Review Applicable Laws and Requirements
✅ Determine whether your audit is under:
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Companies Act (statutory)
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FBR (tax audit)
-
SECP (corporate inspection)
Each audit type has different documentation and scope.
Step 2: Appoint a Qualified Auditor
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Must be a CA or firm registered with ICAP
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For public/listed companies, select a QCR-rated audit firm
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Sign an engagement letter defining scope, deliverables, and timeline
Step 3: Organize and Update Financial Records
Ensure all records are:
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Complete, updated, and error-free
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Reconciled with bank statements and ledgers
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Labeled and filed properly (digitally or physically)
Key documents to prepare:
| Financial Documents |
|---|
| General Ledger (GL) |
| Trial Balance |
| Bank Reconciliation |
| Journal Vouchers |
| Cash Book |
| Chart of Accounts |
| Adjusting Journal Entries |
Step 4: Reconcile Tax Compliance
Prepare and organize:
| Tax Document | Frequency |
|---|---|
| Income Tax Returns (IRIS) | Annually |
| Sales Tax Returns (STR) | Monthly |
| Withholding Tax Statements | Quarterly/Monthly |
| Challans and Tax Payment Receipts | All periods |
| FBR Notices and Replies | As received |
Check for tax understatements, delays, or discrepancies before the audit team does.
Step 5: Update Statutory Registers and SECP Records
Ensure your:
✅ Form A, Form B, Form 29 are up to date
✅ Board resolutions are documented
✅ Shareholder and director registers are updated
✅ UBO declarations (Form 45) are filed and documented
Step 6: Prepare Inventory and Fixed Assets Records
✅ Perform a stock count if required
✅ Update your fixed asset register
✅ Reconcile with accounting system and invoices
✅ Ensure assets are tagged and depreciated as per IAS standards
Step 7: Review Payroll, HR, and Contribution Compliance
| HR Record | Requirement |
|---|---|
| Salary Sheets | Monthly |
| EOBI and Social Security | Compliance with SESSI/EOBI |
| Income Tax Deduction (Form 16) | Monthly WHT compliance |
| Contracts and Attendance | Supporting documentation |
Step 8: Conduct Internal Pre-Audit Review
Assign your internal or external accountant to:
✅ Perform mock audit checks
✅ Identify any gaps or red flags
✅ Prepare management responses in advance
✅ Ensure consistency across financials and disclosures
7. How to Handle the Audit Process Professionally
| Tip | Benefit |
|---|---|
| Designate a single point of contact | Smooth communication with auditors |
| Provide structured access to documents | Saves time and builds confidence |
| Be honest and transparent | Builds trust, reduces suspicion |
| Don’t delay responses or deny access | Can trigger detailed investigation |
| Document everything you provide | Ensures a record in case of dispute |
8. Special Considerations for Different Audit Types
A. Tax Audit by FBR
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Triggered under Section 177 or 214C
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FBR issues notice via IRIS portal
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Provide record within 15 days, including:
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Ledger
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Invoices
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Vouchers
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Salary sheets
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Bank statements
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Explanations for major expenses or loss
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B. SECP Inspection or Compliance Audit
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SECP may inspect:
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Filings (Form A, Form 29, Form C)
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Board minutes and governance procedures
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UBO records and AML compliance
-
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Provide access to the registered office and officers
C. External Statutory Audit
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Conducted annually by auditor
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Must issue auditor’s report within:
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120 days (for public companies)
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180 days (for private/SMCs)
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9. Digital Audit Readiness
✅ Use cloud-based accounting systems
✅ Organize digital folders by fiscal year
✅ Maintain version control of financial statements
✅ Keep backups of:
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Tax returns (PDF from IRIS)
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EOBI/SESSI returns
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SECP filings
10. Common Mistakes to Avoid
| Mistake | Consequence |
|---|---|
| Disorganized documentation | Delays, penalties, auditor frustration |
| Inconsistent records | Doubts over accuracy and reliability |
| Not filing required SECP forms | Fines and possible legal action |
| Underreported tax liabilities | Heavy penalties and interest from FBR |
| No evidence of board meetings | Corporate governance failure |
| Unprepared audit staff | Miscommunication and non-compliance |
11. Frequently Asked Questions (FAQs)
Q1: How often should companies in Pakistan be audited?
All companies with turnover over Rs. 3 million must be audited annually.
Q2: Can SECP audit a private company?
Yes. SECP can inspect records of any registered company at its discretion.
Q3: What happens if I ignore an FBR audit notice?
It may result in:
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Best judgment assessment
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Heavy fines
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Possible legal action
Q4: Is audit mandatory for startups and SMCs?
Yes, if their turnover exceeds Rs. 3 million or if they are registered under the Companies Act.
Q5: Do nonprofits (Section 42) require audit?
Yes. They are required to maintain audited accounts and submit them to SECP annually.
12. How Sterling.pk Can Help
At Sterling.pk, we provide:
✅ Pre-audit review and mock audit testing
✅ Preparation of financial statements and schedules
✅ Tax and SECP compliance audit readiness
✅ Liaison with auditors and regulators
✅ Training your staff on audit support best practices
✅ Audit support for statutory, tax, or SECP inspections
We ensure that your business is fully prepared, legally compliant, and audit-confident.
Conclusion
Audits in Pakistan—whether regulatory, statutory, or tax-related—are a critical part of the compliance lifecycle for any company. Proactive preparation, good record-keeping, and clear internal communication can make the audit process smooth, fast, and beneficial.
By understanding the scope, requirements, and timelines involved in audits—and with expert support from Sterling.pk—your business can convert audits into an opportunity for improvement and credibility, rather than a source of stress or penalties.
