Corporate Lau's and Practices

Poge No.
Questions for discussion

REGULATIONS FOR MANAGEMENT OF A COMPANY LIMITED BY SHARES

I. SCHEDUI-E - I 38

Questions fon discr^rssion

DIREC-!'OR5

t.
v"

3.

4" Qualification shares

5. Disqualifications of Directors.... ........................ 54
6" Vacation of the office of Director ...................54
v. Loan of directors
8. Director no to hold office of profit........... ......55
9. Removal of directors ............ 56
10. Restriction on power of directors ...................56
I l. Appointment of Managing Director.. ............... 56

Questions fon discussion

ACCOUNTS, AUDIT AND Ih{SFECTION
t. Books of accounts e S ?
2. Responsibility for rnanaging accounts.{+
3. Balance Sheet and Frofit and Loss Account. s fg
4. Contents of Ba|ance Sheet and Profit and Loss Account s _f S
5" lnstructions fon preparation of balance sheet. s1
6. Accounts of holding and sr"rbsidiary companies. + 4s
7" Ar-rthentication of accounts" !E & t
8. Audit ,F' 6l
9" Statutoryaudlting € b 1

r0. Appointment of * 62*

auditors
il. aPPointrnenr of new auditors € 63
12" Remunenarion of aurdirors
- L3
r3. Qualificacion of auditons ,F- (- 3
44" Power CIf aLiditors -e fr V

t5. Report 0f the auditor e- 6 V

Institute of Chartered Accountants of Bangladesh

 ACCOT)NTS, AUDIT AND INSPECTION

Section Overryiew
Books of accounts to be maintained by a company and Person responsible for
maintaining such accounts.
Contents of Balance sheet and profit and loss accounts of a company.
Appointment, remuneration of auditors and contents of audit rePort'

l: BOOKS OF ACCOUNTS
The Companies Act requires eveq/ company to ensure that adequate accounting records
are
kept, sufficient to show and explain its transactions. Moreover, they must be such as to
disclose
with reasonable accuracy at any time, the financial position of the comPany and also enable a

balance sheet and profit and loss account to be prepared so as to give a true and fair
view of
the company's financial position and the profit and loss'

According to section l8l, the books of accounts must in particular contain:

(a) all sums of money received and expended by the company and the matters in respect
of which the receipt and expenditure takes place,
(b) all sales and purchases of goods by the comPan)';
(c) the assets and liabilities of the company; and;
(d) in the case of a company engaged in production, distribution, marketing,
transportation, processing, manufacturing, milling, extraction and mining activities,
such particulars relating t- utilization of material, labor and other items of overhead
cost.
The books of account shall be kept at the registered office of the company and shall at all times
be open to inspection by directors during business hours. Where a comPan)' has a branch
office, whether in or outside Bangladesh, the company shall be deemed to have complied with
the provisions of this section if proper books of account relating to the transactions effected at
the tranch office are kept at that office and proper summarized returns, made uP to date, at
intervals of not more than three months, are sent by the branch office to the comPany at its
registered office.

2: RESPONSIBILITY FOR MAINTAINING ACCOUNTS

The Companies Act has specifically fixed responsibility at section l8l (6&7)' 183(5) and 185(7)
for maintaining proper books of accounts and other provisions of the connected statutes on
the following: la) managing agent, (b) managing director, (c) directors, (d) executive directors,
(e) general r"n"g"r orh"n"g"r and (f) every/ connected officers of the comPany. However, in
ihe-today's perspectiv; such responsibilities .ultimately rest.on the officials mentioned
below:
".tr"l
 l. Where the company has a managing director or manater, such managing director or the
manaser.
2. Where there is no managing director or manager ever), director of the company.
3. Every officer and employees of the company having been assigned by the manager,
managing director or by the Board of Directors for managing proper books of accounts.

3: BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

It is prescribed in section 183 that the directors shall present before every annual general
meeting of the company:
a) A balance sheet drawn on a date at the end of a period as specified below; and
b) A profit and loss account for that period; or
c) ln case of a company not trading for profit, an income and expenditure account.
The period of account shall relate:

a) In the case of first annual general meeting, to the period beginning with the
incorporation of the company and ending with the day which shall not precede
the day of the meeting by more than nine months. The first general meeting
being required to be held within eighteen months of the incorporation of the
comPany.

b) ln the case of any subsequent annual general meeting, to the period immediately
following last account and up to a day which shall not precede the day of the
meeting by more than nine months. Such a time limit may however, be extended
by the registrar by another three months for special reasons only.

4z CONTENTS OF BALANCE SHEET AND PROFIT, AND LOSS

ACCOUNTS
According to section 185, the following provisions will apply relating to the contents of the
balance sheet and profit and loss account:

l. The balance sheet of a company shall contain a summaD/ of the property and assets and
of the capital and liabilities of the company giving a true and fair view of affairs as at the
end of the financial year, and it shall, subject to the provisions of this section be in the
form set out in Paft - I of Schedule Xl or as near thereto as circumstance admit or in
such other form as may be approved by the Government either generally or in any
particular case; and in preparing the balance sheet due regard shall be had to the general
instructions for preparation of balance sheet. This requirement shall not apply to any
insurance, or banking company or any company engaged in the generation or supply of
electricity or to any other class of company for which a form of balance sheet has been
specified in or under the law governing such class of company.

2. (2) Every profit and loss account of a company, shall give a true and fair view of the
profit and loss of the company for the financial year.

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The Institute of Chartered Accountants of Bangladesh
 3. The Government may, by notification in the official Gazette, exempt any class of
companies from the requirements of Schedule Xl if, in its opinion, it is necessary to
grant the exemption in the public interest; and any such exemption may be granted
either unconditionally or with conditions.
4. The balance sheet and the profit and loss account of a company shall not be, treated as
not disclosing a true and fair view of the state of affairs of the company merely be
reason of the fact that they do not disclose -

i. in the case of an insurance company, any matters which are not required to be
' disclosed by the lnsurance Act, 1938 (lV of 1938 );

ii. in the case of a banking company, any matters which are not required to be
disclosed by the Bank Company Act 199l;
iii. in the case of a company engaged in the generation or supply of electriff, any
matrers which are not required to be disclosed by the Electricity Act, l9l0 (lX
of l9l0);
iv. in the case of a company governed by any other law for the time being in force,
any matters which are not require to be disclosed by such law;
v. in the case of any company, any matters which are not required to be disclosed
. by virtue of the provisions contained in Schedule Xl or by virtue of the
notification issued under sub-section (3) or an order issued under sub-section
(4).

5: GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE

SHEET
l. All materials facts should be disclosed in order to make the balance sheet clear and
understandable.
2. Liens on ownership of assets should be clearly disclosed.
3. Balance sheet should contain a brief description of business of the organization.
4. ln case of going concern consistency and accrual principles should be followed as
fundamental accounting assumptions, any deviation should be stated with reason.
5. lmportant accounting policies followed in the preparation of balance sheet should be
stated clearly but briefly.
6. lf due to any change in accounting policy, is has or is likely to have a material effect in
current or future period, such change in policy should be stated with reason and
expressed in amount.
7. Statement of changes in financial position shall be an integral part of financial
statement and be prepared for every period for which an income statement is drawn
uP.

8. Events occurring after the balance sheet date that may affect the opinion with regard
to the state of the company's assets and liabilities should be stated.
9. Dividend declared by a subsidiary company should not be included as income unless
the period to which it relates is prior to the balance sheet date of the company.

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The Institute of Chartered Accountants of Bangladesh
 10. Expected gains from any incomplete job under contract should not be taken into balance
sheet, but may be stated in the directors' report.
I l. Current account balance with directors, managing agent and manager, whether positive or
negative, should be disclosed separately.
12. lf any materials to be disclosed according to this table under any head or sub-head can not be
conveniently shown in the balance sheet, the same may be shown under one or more
separate schedules which shall from an integral part of the balance sheet.

6: ACCOUNTS OF HOLDING AND SUBSIDIARY COMPANIES

The provisions of section 186 require that the balance sheet of a holding company should annex
to it the following information / documents relating to its subsidiaries:
a) a copy of the balance sheet of the subsidiary;
b) a copy of its profit and loss account;
c) the auditors report on such accounts;
d) a copy of the report of its Board of Directors;
e) a statement containing the following particulars:
i. the extent of holding company's interest in the subsidiary at the end of
the financial year;
ii. the net aggregate amount of profits or loss of the subsidiary whether
dealt with or not in the holding company's account;
iii. if the directors of holding company are unable to obtain necessary
information for the aforesaid purpose , a statement to that effect.
A holding company may by a resolution authorize its representatives named in the resolution,
to inspect the book of accounts of the subsidiary company (sec. 188).
According to subsection (8) of section 186 Where the financial year or years of a subsidiary
referred to in sub-section (5) do not coincide with the financial year of the holding company, a
statement containing information on the following maters has also to be attached to the balance
sheet, of the holding company:
(a) whether there has been any changes and, if so what change took place in the holding
company's interest in the subsidiary between the end of the financial year or of the
last of the financial years of the subsidiary and the end of the holding company's
financial year;
(b) details of any material change, which have occurred between the end of the financial
)rear or of the last of the financial years of the subsidiary and the end of the holding
company's financial year in respect of-
(i) the subsidiary's fixed assets;
(ii) its investments;
(iii) the moneys borrowed by it for any purpose other than that of meeting
cured liabilities.

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The Institute of Chartered Accountants of Bangladesh
As per sub - section (9) of this section if, for any reason, the Board of Directors of the holding
company is unable to obtain information of any of the matters required to be specified by sub-
section (7), a repoft in writing to that effect shall be attached to the balance sheet of the
holding company.
The document referred to in clause (e),(0 and (g) of sub-section (l) shall be signed by the
persons by whom the balance sheet of the holding company is requited to be signed.

7: AUTHENTICATION OF ACCOUNT
The directors of the company are responsible for the preparation of and factual disclosure in
the accounts of the company. They are, as such required to undeftake that responsibility by
approving and signing the prepared accounts of the company. As provided in section 189, the
balance sheet and profit and loss account or an income and expenditure account need to be
authenticated under joint signatures of:
a) The company Secretary or managing agent.
b) Two directors, one of whom to be the managing director.
c) lf the number of directors signing falls short, being out of the country, a note to
that effect should be subjoined to the balance sheet and profit and loss account.
d) ln the case of banking company, by the managing agent and three directors.
The whole idea of such signature by directors, apart from responsibility, is that the accounts
when prepared will be placed before them in the Board meeting, and explained to them. They
will consider it and when satisfied - approve it and sign as a mark of acceptance of their part.
One striking feature in sub-section (3) of section 189 is that the Board of directors shall
approve and sign the draft accounts before they are submitted to the auditors for their scrutiny
and report thereon. There are punitive provisions for non-compliance of the stipulations.

8: AUDIT
As the compilation of the statements of accounts is completed, auditing of same stands incumbent.
The company is obliged to arrange its books of accounts to be audited under sec. 183 (3) of the
Companies Act, 1994. A company starts and functions with investment in the form of capital
provided by persons who are not in control of the application of funds so supplied by them. They
would, therefore, like to see that their investments are safe. Fort this purpose they will be
interested in that the accounts are checked and audited by duly qualified persons who are not
connected with: (a) the company; (b) the directors of the company; and (c) the employees of the
company. The auditors, who are appointed by the investors to scrutinize the accounts, however,
are not expected to give advice at what ought to be done or on the prudence or imprudence of the
business activities of the company. The auditors will ascertain and state about the true financial
position of the business by examining the book of accounts.

9: STATUTORY AUDITING
The Companies Act 1994 makes it compulsory for eveq/ company to appoint qualified auditors to
carry out systematic examination of books and records of the company. ln this exercise, auditors,
however, have to depend to a great extent on the internal control and check system prevailing in
the organization to express their opinion on the financial statements prepared by the management.
They will ascertain, verifr and report upon the facts regarding its financial operations and the results
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The Institute of Chartered Accountants of Bangladesh
thereof. There is a two -fold effect for such audit of accounts, that is, l) to find out and correct
errors and 2) to detect and prevent frauds. lt is therefore necessary that the management of the
company is aware of this and makes arrangement for such audit to satisfy itself and the owners and
those who may be interested in the activities if the organization as also the statutory requirements.

l0: APPOINTMENT OF AUDITORS

The appointment of auditors of the company is made according to the provisions of section
210. The first auditors of the company shall be appointed by directors before the statutory
meeting and within one month of the date of registration of the company [(sec.2l0 (6)]. When
they are so appointed, they shall hold office until the annual general meeting, unless previously
removed by a special resolution of the members of the company in a general meeting, in which
case such members at that meeting may appoint auditors. Since audit of a part of the statutory
report has been made compulsory under section 83(5) of the Act, it follows that the directors
must always appoint first auditors before the statutory meeting, because, if this is not done, the
statutory report to be sent to members before the statutory meeting will not be audited and
the directors will therefore be liable to a fine which may extend up to Taka five thousand.
Consequently, in practice, the first auditors and are invariably appointed by the directors
immediately after the incorporation of the public company. The procedure for appointment of
subsequent auditors and for filling up a causal vacancy etc. is fully explained in section 2l0 which
includes the following:

a) lf appointment of an auditor is not made at an annual general meeting, the

Government may appoint a person to fill the vacancy.
b) The company shall give notice to the Government within seven days of the
Governments power becoming exercisable. lf a company fails to give such notice,
the company, and also every officer of the company who is in default, shall be
punishable with fine which may extend to one thousand taka.

c) The first auditor or auditors of a company shall be appointed by the Board of

Directors within one month of the date of Registration of the company, and the
auditor or auditors so appointed shall hold office until the conclusion of the first
annual general meeting. However, the company may remove any such auditor or
all or any of such auditors at a general meeting and appoint in his or their place
any other person or persons who have been nominated for appointment by any
member of the company and or whose nomination notice has been given to the
members of the company at least fourteen days before the date of the meeting.
d) The Board may fill any casual vacancy in the office of any auditor, but while any
such vacancy continues, the remaining auditor or auditors will continue to act.
Where a vacancy is caused by the resignation of an auditor, the vacancy shall
only be filled by the company in general meeting.
e) Any auditor appointed in a casual vacanq/ shall hold office until the conclusion of
the next annual general meeting.
D Any auditor appointed under this section may be removed from oftice before the
expiry of his term only by a special resolution of the company in the general
meeting.

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Il: APPOINTMENT OF NEW AUDITORS
Section 2l I requires a number of steps to be taken where a new auditor is proposed to be
appointed. These are:
l. Such an intention is to be communicated to the company by a member (with name of
the person or firm so nominated for appointment).
2. lt is to be communicated by a special notice to the compan), well before the annual
general meeting.
3. The company will immediately send a copy of that notice to the retirint auditor.
4. The company will thereafter inform its members about such notice.
5. lf the existing auditor makes any representation on the notice as communicated to
him, this fact has also to be mentioned in the information given by the company to
its members.
6. Though not in the Act, for a listed company press publication has to be made about
such notice in English and Bangla news PaPers.
7. Such an advertisement should be made at least once in the national dailies.

l2: REMUNERATION OF AUDITORS

As regards remuneration of auditors, the provisions of the Act is very clear which states in
ec.2l0 (l0Xb) that remuneration of the auditors shall be fixed by the company in the general
meeting or in such manner as decided by the company in the general meeting. The directors
who may appoint auditors before the statutory meeting may, however, fix their remuneration
for the time being which will come up for review by the shareholders in their immediate next
annual meeting. The remuneration of auditors appointed by the government will also be fixed
by the government.

l3: QUALIFICATION OF AUDITOR

No person other than a "chartered accountant" shall be appointed as an auditor of any
company. Section 212(2) further states that none of the following persons shall be qualified for
appointment as auditor of a company:
a) an officer or employee of the compan)r;
b) a person who is partner, or who is in the employment of an officer or employee
of the company;
c) a person indebted to the company for an amount exceeding one thousand taka,
or who has given any guarantee or provided any security in connection with the
indebtedness of any third person to the company for an amount exceeding one
thousand taka;
d) a person who is a director or member of a private company, or a partner of a
firm, which is the managing agent of the comPany;
e) any director with more than 5% of shares of the company engaged as managing
agent of the company.

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l4: POWERS OF AUDITORS
According to section 213, every auditor of a company shall have right of access at all times to
the books and accounts and vouchers of the company, and shall be entitled to require from the
officers of. the company such information and explanation as the auditor may think necessaD/
for the performance of his duties as auditor. The auditor can also inquire into following:-

(a) Whether loans and advances made by the company on the basis of security have been
properly secured and whether the terms on which they have been made are not prejudicial
to the interests of the company or its members.

(b) Whether transactions of the company which are represented merely as book-entries are
prejudicial to the interests of the company.

(c) Where the company is not an investment company or a banking company, whether so much
of the assets of the company as consist of shares, debentures and other securities, have
been sold at a price less than at which they were purchased by the company.

(d) Whether loans and advances made by the compan), have been shown as deposits.

(e) Whether personal expenses have been charged to revenue account.

(f) Where it is stated in the books and paper of the company that any shares have been allotted
for cash, whether cash has actually been received in respect of such allotment, and if no cash
has actually been so received, whether the position as stated in the account books and the
balance sheet is correct, regular and not misleading.

l5: REPORT OF THE AUDITOR

On completion of scrutiny of the books of accounts and other documents of the company, the
auditors are required to make a report to the shareholders of the company. According to
section 213 (3) of the Companies Act 1994:
The auditor shall make a report to be presented in the annual general meeting of the company
on the accounts examined by him, and on every balance sheet and profit and loss account and
on every/ other document declared by this Act to be part of or annexed to the balance sheet or
profit and loss accounts which are laid before the company in general meeting during his tenure
of office and the repoft shall state whether, in his opinion and to the best of his information and
according to the explanation given to him, the said accounts give the information required by
this Act in the manner so required and give a true and fair view:
(a) in the case of the balance sheet, of the state of the company's affairs as at the end of
its financial year;
(b) in the ease of the profit and loss account, of the profit or loss for its financial year.
Sub-section (a) of the section 2l3 requires that the auditor's report shall also state the
following:
(a) Whether he has obtained all the information and explanation which to the best of
his knowledge and belief were necessary for the purposes of his audit;

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The Institute of Chartered Accountants of Bangladesh
 (b) Whether, in his opinion, proper books of account as required by law have been
kept by the company so far as appears from his examination of those books and
proper returns adequate for the purposes of his audit have been received from
branches not visited by him.
(c) Whether the company's balance sheet and profit and loss account dealt with, by the
report are in agreement with the books of account and returns.

QUESTTONS FOR DISCUSSION

l. What books of account are to be kept by a company? Who are resPonsible for
maintaining the required books of account?
2. What contents are to be contained in the balance-sheet and profit and loss account of a
company?
3. Can you show a pictorial presentation of a balance-sheet of a company?
4. ls there any variation in the application of provisions relating to the books of account,
their contents and form for different classes of companies? Detail your answer by
highlighting the provisions of sections 185 and 186 of the Act.
5. lf the financial year of a subsidiary does not coincide with the financial year of the
holding company, what additional information is to be attached to the balance sheet of
the holding company?
6. Discuss the procedure for appointment of auditor.
7. What are the provisions of Company Act relating to the appointment and remuneration
of auditor?
8. Under what grounds a retiring auditor can not be reappointed?
9. What makes a person disqualified to become an auditor of a company?

Or who is not qualified to become an auditor of a company?

10. What powers can be exercised by an auditori

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The Institute of Chartered Accounta