Chartered Accountant for Company Audit in Pakistan: Requirements and Process

Company directors are often told to "get the audit done" without a clear explanation of whether the requirement even applies to their company, and if it does, what the process actually involves. The confusion is understandable. Pakistan's Companies Act 2017 does not treat every registered company identically, and a lot of the uncertainty around audit requirements comes from applying a rule meant for one type of company to another.

Does every company in Pakistan need an audit?

Not automatically. Most companies registered under the Companies Act 2017 are required to have their annual financial statements audited by a Chartered Accountant in practice. SECP also recognises a category of small companies that, subject to meeting defined criteria relating to paid up capital, turnover and borrowing, may be permitted to forgo a formal audit and instead rely on board approved financial statements supported by a directors' affidavit.

The specific thresholds for this exemption vary across published sources, and appear to have been revised over time through SECP notification. Any company relying on this exemption should confirm the current threshold directly with SECP or a Chartered Accountant rather than a fixed figure quoted in general commentary.

Who is authorised to audit a company?

A statutory audit must be carried out by a Chartered Accountant in practice, meaning an individual registered with the Institute of Chartered Accountants of Pakistan (ICAP) and holding a valid certificate of practice. The auditor must also be independent of the company, with no employment relationship or financial interest in the business.

This requirement often surprises smaller companies that rely on an internal bookkeeper or a trusted family contact for day to day accounting. That arrangement is common and generally unproblematic for routine bookkeeping, but such a person is not permitted to sign a statutory audit report. The independence requirement exists specifically so that the financial statements are reviewed by someone with no stake in the outcome.

The audit process

A statutory audit is not a single event but a sequence of stages, typically unfolding as follows:

The process begins with the formal appointment of the auditor, usually through a shareholder or board resolution, accompanied by an engagement letter setting out the scope of work, timeline and fees. Once appointed, the auditor generally reviews the company's structure and history to identify areas of higher risk, such as related party transactions, foreign currency dealings or multiple banking relationships.

The bulk of the work then takes place during fieldwork, where the auditor examines bank reconciliations, sales and purchase records, payroll, fixed assets, and receivables and payables. This may include physical verification of assets and confirmation letters sent to banks or major debtors. Queries are a normal part of this stage, such as missing invoices or undocumented director loans, and do not by themselves indicate wrongdoing.

Once queries are resolved, the auditor issues draft financial statements along with a management letter. This letter falls outside the formal audit opinion but often highlights control weaknesses or bookkeeping practices worth improving.

After finalisation, the auditor signs the audit report, and the financial statements proceed to board approval. Under the Companies Act 2017, the statements must be signed on behalf of the board by the chief executive and at least one director, with an additional signature required from the chief financial officer in the case of listed companies.

Filing requirements follow. Listed companies are required to file audited financial statements with the registrar through SECP's e-service. For private companies, the filing obligation depends on the company's size classification.

A practical example

Consider a private limited manufacturing company incorporated three years ago, with turnover that has grown steadily and a recently acquired bank loan. In such a case, the first step is not to engage a Chartered Accountant immediately, but to determine the company's classification against the current small company criteria. That determination decides whether the company proceeds with a full statutory audit or a lighter compliance route involving board approved statements.

This is also the point at which the distinction between an audit and broader compliance becomes clear. The audit itself is a financial exercise carried out by a Chartered Accountant. Around it sits a legal layer involving appointment resolutions, filing deadlines and board procedure, matters that fall outside the scope of the audit itself.

For related matters, you may also want to read our guides on corporate law in Pakistan, company registration, and taxation for businesses.