The basics of auditing in Pakistan.
Auditing is the process of examining and verifying the financial statements of an entity to ensure that they are accurate, complete and comply with the applicable standards and regulations. Auditing is essential for enhancing the credibility and reliability of financial information, as well as for safeguarding the interests of various stakeholders such as shareholders, creditors, regulators and the public.
In Pakistan, auditing is governed by various laws and regulations, such as the Companies Act 2017, the Securities and Exchange Commission of Pakistan (SECP) Act 1997, the Chartered Accountants Ordinance 1961, the Cost and Management Accountants Act 1966, the Income Tax Ordinance 2001 and the Sales Tax Act 1990. These laws and regulations specify the requirements and responsibilities of auditors, as well as the scope and objectives of different types of audits.
The main types of audits in Pakistan are:
– Statutory audit: This is a mandatory audit that is required by law for certain entities, such as public listed companies, banks, insurance companies, non-banking financial institutions, modarabas and mutual funds. The purpose of a statutory audit is to express an opinion on whether the financial statements of the entity give a true and fair view of its financial position, performance and cash flows in accordance with the applicable financial reporting framework and comply with the relevant legal and regulatory requirements. A statutory audit is conducted by an external auditor who is a chartered accountant, or a cost and management accountant registered with their respective professional bodies and approved by the SECP.
– Internal audit: This is a voluntary audit that is conducted by an internal auditor who is an employee or a consultant of the entity. The purpose of an internal audit is to provide assurance and advice to the management and the board of directors on the effectiveness and efficiency of the entity’s internal control system, risk management process and governance structure. An internal audit also helps in identifying and mitigating any potential frauds or errors that may affect the entity’s operations and financial reporting. An internal audit is conducted in accordance with the International Standards for the Professional Practice of Internal Auditing (ISPPIA) issued by the Institute of Internal Auditors (IIA).
– Tax audit: This is an audit that is conducted by the Federal Board of Revenue (FBR) or its authorized officers to verify the accuracy and completeness of the tax returns filed by a taxpayer. The purpose of a tax audit is to ensure that the taxpayer has paid the correct amount of tax in accordance with the tax laws and regulations. A tax audit may be initiated by the FBR on a random basis or based on certain criteria or risk factors. A tax audit may cover one or more tax years or periods depending on the scope and nature of the audit.
– Special audit: This is an audit that is conducted by a special auditor who is appointed by a competent authority such as a court, a regulator or a government agency to investigate a specific matter or issue related to an entity. The purpose of a special audit is to provide factual findings and recommendations on the matter or issue under investigation. A special audit may be conducted for various reasons such as resolving disputes, detecting frauds, recovering dues, enforcing compliance or protecting public interest.
The process of auditing in Pakistan generally involves the following steps:
– Planning: This is the initial stage where the auditor determines the scope, objectives, approach and methodology of the audit. The auditor also identifies and assesses the risks associated with the entity and its environment, as well as designs and performs appropriate audit procedures to address those risks.
– Execution: This is the stage where the auditor collects sufficient and appropriate audit evidence to support his or her opinion on the financial statements. The auditor also evaluates the adequacy and effectiveness of the entity’s internal controls and tests their compliance with relevant laws and regulations.
– Reporting: This is the final stage where the auditor prepares and issues his or her audit report that contains his or her opinion on whether
the financial statements are free from material misstatement. The auditor also communicates any significant findings or issues that arose during
the audit to the management, board of directors or other relevant parties.
Auditing in Pakistan is a dynamic and challenging profession that requires high standards of professionalism, ethics, competence and independence from auditors. Auditing also plays a vital role in enhancing transparency, accountability and confidence in the financial sector and economy of Pakistan.