Every company is required to keep books of account – be it private, public, listed, not for profit or even single member.
Books of account means record of every single financial transaction that a company makes. For example, books of account includes vouchers (supported by bills & invoices), cash book, journal and ledgers. End product of these books of account is financial statements or accounts, which are normally prepared annually.
Companies Act, 2017 requires every company to prepare financial statements. This requirement gives rise to three basic questions, which I have answered in this post.
- Is every company required to appoint auditor?
- Who can be appointed as auditor?
- Which companies are required to submit their annual accounts to SECP?
I have answered all these questions, one by one.
Requirement to appoint auditor: If paid up or issued share capital of a private company is equal to or less than Rs. 1 million, the private company is not required to appoint auditor. All other companies including not for profits are required to appoint auditor. Please note that this option is only available to private companies with certain amount of paid up share capital. (Source: Section 223)
Who can be auditor? For some companies it is mandatory to appoint a chartered accountant (having valid practice certificate) as auditor. These companies include listed companies, public companies, not for profit companies and two types of private companies. First type is a private company which is subsidiary of a public company. The other type is a private company having paid up share capital of Rs. 3 million or more. (Source: Section 247)
For other companies – private companies having paid up share capital of less than Rs. 3 million, the auditor can be a chartered accountant or a cost and management accountant (having valid certificate of practice). Please note that, again, this option is only available to private companies with certain amount of paid up share capital. (Source: Section 247)
Requirement to submit annual accounts to SECP: All companies – be it listed company, public company, private company, not for profit company or a single member company, are required to submit their audited or un-audited accounts to SECP, with one exception. There is one category of companies which is not required to submit their annual accounts to SECP. This exception is only available to a private company, which is not subsidiary of a public company, whose paid up share capital is more than Rs. 1 million and equal to or less than Rs. 10 million. (Source: Sections 233 and 234)