BOOKS OF ACCOUNT and FINANCIAL STATEMENTS

BOOKS OF ACCOUNT & FINANCIAL STATEMENTS
Books of Account to be Kept by Company [SECTION-230]

A company should keep proper books of account in respect of:
a) Cash received and expended by the company;
b) Sales and purchases of goods by the company
c) All Assets and liabilities of the company; and
d) In case of a company engaged in production, processing, manufacturing, or mining
activities, a production record as may be required by the Commission through a general or
special order;
Books of account should be preserved for ten years;
Books of account are to be kept at the registered office of the company. If kept at any other place, the
registrar should be informed;
Books of account should give a true and fair view of the state of affairs of the company and should contain
explanation of transactions.
Directors can inspect the books of account during the business hours.
If company fails to comply with the above provisions a director, including chief executive and chief
accountant:
(a) of listed company is liable to imprisonment for one year and a fine of not less than Rs.
20,000 not more than Rs. 50,000, and a further fine of Rs. 5000 per day during which the
default continues; or
(b) of other companies is liable to imprisonment for six months and with a fine, which may
extend to Rs. 10,000

Accounting Cycle

• Transaction
• Document
• Voucher
• Books of original entry/journal/day book
• Books of secondary entry/ledger
• Financial statement

Transaction Source Document

Sale Invoice Issue
Purchase Invoice Receive
Sales return Credit Note Issued
Purchases return Credit Note Received
Cash received Receipt/Cash Memo Issue
Cash paid Receipt/Cash Memo Received
Lease/Hire Purchase Agreement

Voucher

• Receipt voucher
• Payment voucher
• Journal voucher
• Petty cash voucher

Books of Original Entry

• Purchase journal
• Sale journal
• Purchase return journal
• Sales return journal
• Cash book (two/three column)
• Petty cash book

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• General journal/ transfer journal

Books of Secondary Entry

• Main ledger
• Subsidiary ledger

Financial Statement

• Balance sheet
• Income statement
• Statement of changes in equity
• Cash flow statement
• Notes to the accounts

Recording of Transactions from Source Documents

To enter into a transaction we need approval from our responsible managers. When, after having approval of
a manager, transaction takes place, such transaction should be evidenced by a document. Because, to record a
transaction into the books of account, a bookkeeper needs an evidence of proper approval of transaction
and authorization of documents, therefore, a voucher is prepared on which all of the descriptions of the
transaction are written up and with which all of the evidences of approvals and authorized document are
attached. Such voucher is finally authorized by accounts manager which is then recorded in the books of
accounts by a bookkeeper.
To have a more clear understanding of the above paragraph, lets have a step by step example of purchasing
an air conditioning plant for workshop.
1. Production manager will send a requisition to the general manager for air conditioning the workshop
to improve the working environment.
2. The general manager will approve the requisition (if he gets convinced that workshop is in real need of
air conditioning plant) and will send this approval to the purchase department.
3. The purchase department will call a tender and after having received several quotations the purchase
department will place a purchase order to the vendor quoting lowest rate. (All of the above procedure
is properly documented).
4. The vendor company (supplier) will send an invoice (purchase invoice) to the business along with the
air conditioning plant. Such air conditioning plant will be inspected by the expert and finally the invoice
will be approved for payment.
5. Now all of the documents along with the purchase invoice shall be send to the bookkeeping office
where a voucher will be prepared and will also be approved by the concerned manager for recording
this transaction in the books of accounts.

Source Documents:

Following are the few examples of source documents which are required to support different types of
transactions.

Sr. No. Transaction Source Documents

1 Sales Sales Invoice issued
2 Purchase Purchase Invoice received
3 Sales Return Credit Note issued
4 Purchase Return Credit Note received
5 Cash received Cash Memo/receipt issued
6 Cash paid Cash Memo/receipt received
7 Leases/Hire purchase Agreements
8 Staff Salaries Approved Payrolls
9 Electricity, Gas, Water, Tele. Phone Metered Bills/Invoices.

Recording in the Books

Approved voucher are recorded in the books of accounts, many businesses now a days use computers for
recording of transactions. However, an understanding of book of accounts is necessary whether
transactions are recorded manually or electronically.
Basically, there are two types of books of accounts which are used to record the business transactions

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Purchases
Journal
Sales Journal Returns
Inward
Journal
Returns
Outward
Journal
General
Journal
For credit
purchases
For credit
sales
For sales
return
For
purchases
return
For all other
transactions
Source Documents
Invoices
Issued
Credit
Note
Issued
Credit Note
Received
Depends upon
the nature of
Transaction
Invoices
Received

Figure 3.1

To record credit transaction

BOOKS OF ACCOUNT

Books of Original
Entries

(Journal)

Cash
Book
For cash
receipts &
payments
Main Ledger Subsidiary Ledger
Other
Ledger
Debtors
Ledge
Creditors
Ledger
Materials
Ledger
To extract trial balance and to
prepare financial statements
To keep memorandum
Books of Secondary
Entries

(Ledger)

To record cash transaction
Cash
Memos
1. Books of original entries.
2. Books of secondary entries.
These are further subdivided according to the needs of the business and/or complexity of the transaction.
Following diagram best describes the different books of accounts which are used in the business for
recording transactions.
Just after analyzing a transaction or event for its debit and credit effects it is required to record them in a
systematic way. So the books of accounts in which Debit and Credit are initially recorded in a systematic
way are known as books of original entry (BOE). In accounting system of business concern books of
original entries possess a very important position.

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JOURNAL:

It depends upon the complexity of transactions and size of the business that what books of original entries
are required to record the transactions. For a very little business, having very few cash and credit
transactions, a general purpose journal is sufficient to record each type of transactions.
Journal is the very first book of account in which all of the business transactions and events are recorded. In
this book transactions and events are recorded in a chronological (date) sequence. Both of the accounting
effects (Debit & Credit) are recorded in it in a systematic way. Information recorded in the journal for a
transaction or an event is known as journal entry.

Sketch of a Journal & Journal Entry

Date
2003
Particulars Post
Ref.
Debit
(Rs)
Credit
(Rs)
Jan. 10 Salaries Account (Debit)
Cash Account (Credit)
(Staff salaries paid in cash).
39
10
50,000
50,000

Figure 3.2

From the above illustration we can understand that on 10th January 2003, business paid cash Rs.50,000 as staff
salaries. It is customary that the accounting head analyzed as debit is written firstly in the particulars’ column
and its amount is written in the debit column whereas the accounting head analyzed as credit is written under
the debit accounting head but after indenting a little space from the left side, its amount is written in the
credit column. The column of post reference cannot be very well understood without having knowledge of
Ledger, any how, the column post reference shows
page numbers of the Ledger in which salaries and cash
accounts are posted. Words written within the parenthesis in the particulars column are known as
“Narration of a transaction or event”; it is an integral part of a journal entry. Narration explains the
accounting treatments to a layman.

Subdivision of Journal:

As discussed earlier in 1.2 that the journal is sub-divided based on complexity of the transactions or size of
business. This happens only when there are a number of cash transactions in a day and also there are so
many transactions for credit purchases and credit sales. This large numbers of transactions create a mess in
bookkeeping office; therefore, separate bookkeeping clerks are given responsibilities for separate types of
transactions along with separate journals. For example,
For cash transactions there is a separate cash office in which only cash transactions are analyzed and
recorded in a book named as cash book.
For purchases there is a purchase journal in which only and only credit transactions for purchases are
recorded. In the same way sales journal for credit transaction of sales is maintained. And if there are a large
number of returns then separate journals for sales return and purchase return are also maintained.
Now that, after having separate journals for credit sales, credit purchases, sales & purchases return and cash
transactions, all of the remaining transactions and events like sale and purchase of assets on credit, loss by
fire etc. shall be recorded in general journal.
To learn more about subdivision of journal, firstly have a re-look on figure 3.1.

SALES JOURNAL:
Need for Sales Journal

In case of a small business, there is very little number of transactions of credit sales. As we can have an
example of a barber’s shop, a tailor, a retailer etc. they mostly sell their services or goods on cash terms. But
as business expands, the sales of it also grow in terms of cash as well as in terms of credit. The cash sales are
now recorded in the cash book as a receipt, and the credit sales are recorded in a separate journal named as
sales journal (sales day book). In sales journal, no other transactions are recorded except the transaction for
sales on credit terms.

Supporting Document:

As shown in the figure 3.1 the source document supporting credit sales is sale invoice. It is made up in
duplicate or triplicate (depending upon the accounting systems developed for the recording of credit sales)
Cash
Memos

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one of these copies is sent to the debtor (credit customer) along with the goods/services sold. A standard
format of sales invoice looks like below;
Name of Vendor Co.
Address of Vendor Co.
Sale Invoice No. Date:
Name & Address of Customer
Purchase Order Ref. No.

Sr. No. Particulars/Description Quantity Rate Amount

Trade discount

Total

***
(***)

***
Settlement terms.

2/10, n/30

Figure 3.3
Purchase Order Reference No:

When a customer asks a vendor for supply of some goods, such order is evidenced through a purchase
order form. Purchase order form discloses the quantity and quality of goods ordered along with its rates and
discounts both trade and settlement. Each purchase order has its unique number which is put on the sales
invoice for reference.

Trade Discount:

Amount of trade discount is not required to be recorded in the books of accounts. Actually it is the
discount which is agreed before entering into the transaction of sales or purchase, therefore, it is just
formally show on the face of the invoice, otherwise it has no other financial effects.

Settlement Terms:

It is also known as prompt payment terms. These terms are in fact offered to lure the customer for having
more discounts by making payment for the invoice earlier. In this term, for example

2/10, n/30,

the first
part

2/10

contemplates that if customer pays cash within 10 days of the invoice, he will be offered a
discount of 2%, the second part of it

n/30

contemplates that after 10 days there will be no discount offer
but the customer has to pay the amount of invoice net of trade discount within the thirty days of the date of
invoice.
This term sounds as

two ten net thirty (2/10, n/30).

How this will sound 5/20, n/60 and what do you understand by this term?

Entering the Transaction of Credit Sales in Sale Journal:

In case of credit sales the business is very much interested in the name and addresses of the credit customer
(Debtor), therefore, sales journal is so designed to cover following information;
Date--------------------- Date of invoice
Name of Debtor -------Mentioned in the invoice
Invoice number ------- It helps to trace the other details of invoice.
Post reference ---------
page number of subsidiary ledger (will be discussed later on)
Amount of invoice ---- Net of Trade Discount
Brain Storming

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Sketch of Sales Journal
Date Name of Debtor Invoice
No.
Post.
Ref.
Amount
Rs.

You would have noticed in the sales journal, there is only one column for amount. It might have created
confusion in your mind that why we are not having two columns for amount, one for debit and other for
credit, like in journal. Remember, here in sales journal all of the transactions are of same nature (credit sales)
and the purpose of sales journal is just to avoid over working for recording the debits and credits of each
transaction again & again. So, the role of sales journal in an accounting system is to precise all of the credit
transactions of sales for a month or so and give effect of debit to debtors and credit to sales with total
amount of such period.

Purchase Journal:
Need for a Purchase Journal

After knowing the need of sales journal (as discussed in previous section) it will be very easy to understand
that for a large business having frequent transactions of credit purchases it is necessary to maintain a
separate book for recording the transactions of purchases on credit terms. This book is named as purchase
day book. Obviously like a sales journal no cash transactions relating to purchase shall be recorded in this
book.

Supporting Document:

As shown in the diagram the supporting document for transactions of credit purchases is purchase invoice.
It is exactly the same document as we looked into the diagram of previous section. Purchase invoice is in
fact the copy of sales invoice in the hands of customer. It is issued to the purchaser by the
seller/vendor/supplier. So from the stand point of a purchasing business, the business after having received
the invoice will put an internal number on it and will file it as evidence of the transaction and also for the
purpose to remember that amount of this invoice is still outstanding for payment according to the
settlement terms as discussed in section.

Entering the Transaction of Credit Purchases in Purchase Journal:

The basic contents of a purchase journal are exactly the same as discussed in the case of a sales journal with
the exception of one thing that now in the second column there is the name of Creditors instead of
Debtors. Obviously, we remember the person from whom goods are purchased on credit is creditor of the
business.

Sketch of Purchase Journal
Date Name of creditor Inv.
No.
Post.
Ref.
Amount
Rs

A purchase journal is a list of all credit purchases in a stipulated time period. All of the credit purchases
recorded in a purchased journal during a period is totaled and then for such total amount debit effect is
given to the purchases account and credit effect is given to the creditors account. You noticed here that the
rules of debit and credit remain same all the time.

Sales Return Journal: (Returns Inward Journal)
Need for Sales Return Journal

As the business expands the number of complaints and returns inwards also increases. Such return inwards
can be recorded in the sales journal as a negative entry if these are very little in number. But because of its
reverse nature it is recommended to maintain a separate journal to record sales return. Here one very

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important concept should be remembered that in sales return journal only the returns against credit sales
(from Debtors) are recorded. Normally, it doesn’t happen that return of goods sold against cash are
accepted by a business because certainly against such return the business would have to make refund of
money already received. That’s why in coming practice you will not find any such transaction. But obviously if
you have any example of such transaction in your business, it will be recorded in cash book as a payment.

Supporting document:

When a business receives back its sold goods it issues a “credit note” to the debtor returning goods, which
evidences that we have received the returned goods and accept that money for such sales will not be
received in future. A “credit note” issued is an evidence of reduction in sales income and also in the amount
of debtors. It is also said that a “credit note” is a reversal document of an “invoice” which cancels the effect
of it. Like an “invoice”, a credit note is also given a number and also possesses a reference of sales invoice against
which such return were made. Rest of the contents of credit note are commonly understood, such as:
�� Name & Address of the business (Seller)
�� Name & Address of the customer
�� Date
�� Particulars
�� Quantity
�� Rate
�� Amount

Sketch of Credit Note
Name of Vendor Co.
Address of Vendor Co.
Credit Note No: Date:
Customer’s Name
Customer’s Address
Ref. Invoice No Account No:
Item No. Description Quantity Rate Trade
Discount
Net Amount
Total
Figure 3.6
Purchase return journal: (Returns outward journal)
Need for a Purchase Return Journal?

Purchase return journal has the same story as we just have discussed in previous unit. The only thing to
remember is that it is also known as return outward journal/daybook. Obviously these transactions (for
purchase returns) could also be recorded in the purchase journal as negative entry but same as for sales
return journal it is required to have a separate journal for purchase returns because of its reverse nature to
the purchases. The total of purchase return journal will cause a reduction in the purchases expenses and also
a reduction in the amount of creditors.

Supporting document:

Although purchase returns are evidenced by a copy of credit note received from the seller, which is treated as
a reversal document against purchase invoice. But here we shall also discuss the need of a “Debit Note”. A
“debit note” is in fact a request, put to the seller by the purchaser business, for issuance of a credit note. A copy
of debit note is sent to the seller along with the rejected goods, in which all of the particulars of goods
rejected and returned along with the reference of relevant invoice number are entered. Remember, a
business cannot record purchases returns considering a debit note as a supporting document because the

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effects of purchase invoice are not considered cancelled unless acceptance of rejected goods is received
from the seller in shape of a copy of credit note.

Entering Transactions in Purchases Return Journal:

you will find nothing new in this section except the treatment of total of purchase return journal which is
debited to the creditors account and credited to the purchases return account.

Sketch of a Purchase Return Journal
Date Creditor Name Credit
Note No.
Post.
Ref.
Amount
Figure 3.7
Cash Book:

Cash book is a book of original entries in which all of the cash transactions are recorded very firstly. If we
refer to the figure 3.1, we can notice that the (books of original entry) journal is subdivided for two types of
transactions i.e. credit transactions and cash transactions. As discussed in previous units, all credit
transactions are recorded in different journals. The cash transaction of a concern needs a separate book
named as cash book.
A cash book is divided into two sections, one for cash receipts and the other for cash payments. Each of
the section is formatted for date, particulars, post reference and amount. See below for its proper sketch;

Cash book

Date Particulars Post
Ref.
Amount Date Particulars Post
Ref.
Amount

Figure 3.8

Left hand side of a cash book is known as receipt side and right hand side is known as payment side. In a way, we can say that within a cash book, we prepare two cash journals, one, cash receipt journal and second,
cash payment journal.

Supporting Documents:
For Cash Receipts

All cash receipts are evidenced by a copy of cash memo/receipts retained by the business. These cash
memos/receipt are already serially pre-numbered and for each receipt of cash, the cash office issues an
original copy of the cash memo/receipt to the person making payment and retains a carbon copy or
counterfoil of it within the office which are used to record receipts of cash in the cash book.

For Cash Payments

All cash payments are evidenced by an original copy of cash memo/receipts issued by the recipient
business. These are attached with a cash voucher as evidence that cash was paid to recipient who issued this
cash memo/receipt.

BOOKS OF ACCOUNT & FINANCIAL STATEMENTS
1. Books of Account to be kept by Company [Section-230]
1.1

A company should keep proper books of account in respect of:
e) Cash received and expended by the company;
f) Sales and purchases of goods by the company;
g) All Assets and liabilities of the company; and
h) In case of a company engaged in production, processing, manufacturing, or mining activities, a
production record as may be required by the Commission through a general or special order;

1.2

Books of account should be preserved for ten years;

1.3

Books of account are to be kept at the registered office of the company. If kept at any other place,
the registrar should be informed;

1.4

Books of account should give a true and fair view of the state of affairs of the company and should
contain explanation of transactions.

1.5

Directors can inspect the books of account during the business hours.

1.6

If company fails to comply with the above provisions a director, including chief executive and chief
accountant:
(a) of listed company is liable to imprisonment for one year and a fine of not less than Rs. 20,000
not more than Rs. 50,000, and a further fine of Rs. 5000 per day during which the default
continues; or
(b) of other companies is liable to imprisonment for six months and with a fine, which may extend
to Rs. 10,000

2. Annual Accounts and Balance Sheet [Section 233]
2.1

First annual accounts of a company must be presented before the AGM within eighteen months
from the date of incorporation.

2.2

A subsequent annual accounts should be presented once at least in every calendar year before an
AGM. In other words, the accounts should be presented in the AGM within three months of the
date of balance sheet. However, in the case of a listed company the Commission and in other cases
the registrar can extend this period for a term not exceeding two months.

2.3

The accounts should be made up, in the case of first accounts, from the date of incorporation, and
in the case of subsequent accounts, from the date of the preceding accounts to a date not earlier
than the date of the meeting by more than four months.

2.4

The accounts shall be prepared for a period not exceeding 12 months, except in case where
permission is granted by the registrar for preparation of accounts for a longer period.

2.5

Profit and Loss account and Balance Sheet shall be audited by the auditor and auditor’s report
should be attached thereto.

2.6

Copy of accounts, auditor’s report and directors’ report should be sent to every member at least
twenty-one days before the Annual General Meeting (AGM).

2.7

Listed companies are required to send five copies of their audited accounts to the registrar, the
Commission and the stock exchange within 30 days.

3. Contents of Balance Sheet [Section 234]
3.1 General:

a) Balance Sheet and Profit & Loss Account should give a true and fair view of the state of the
company’s affairs and of the profit or loss of the company.
b) An item of expenditure fairly chargeable to income shall be brought into account.
c) Any expenditure which in fairness can be distributed over several years but is incurred in one
year should be so distributed and reasons for doing so should be given.

3.2 For Listed Companies and Private or Non Listed Public Companies Which is a Subsidiary
of a Listed Company:

a) Balance Sheet and profit and loss account should be prepared in accordance with Fourth
Schedule;

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b) A statement of changes in equity and cash flow statement.
c) Accounting policies should be stated and, where there is any change in accounting polices
the auditor shall report whether he agrees with the change.
d) International Financial Reporting Standards as adopted by SECP should be followed in
preparation of accounts.

3.3 For Other Companies:

a) Balance Sheet and profit and loss account shall be prepared in accordance with the
Fifth Schedule;
b) A statement of changes in equity and cash flow statement.
c) Accounting policies should be stated and, where there is any change in accounting
polices the auditor shall report whether he agrees with the change.
d) International Financial Reporting Standards as adopted by SECP should be
followed in preparation of accounts.

Limited Liability Company
Balance Sheet
As on December 31, 2006
Rs. Rs.
Assets

Non Current Assets
Fixed Assets
Tangible Assets ***
Intangible Assets *** ***
Long Term Investments ***
Long Term Advances, Deposits & Prepayments ***
Deferred Cost ***
Current Assets ***
Current Liabilities (***) ***
Capital Employed

***
Financed By

Owners’ Equity
Ordinary Share Capital ***
Reserves
Capital Reserves ***
Revenue Reserves *** *** ***
Non Current Liabilities
Loan Stocks/Term Finance Certificates ***
Loan from financial institutions ***
Finance lease liability *** ***

***

Chief Executive Director

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Limited Liability Company
Income Statement
For the Year ended December 31, 2006
Rs. Rs.

Sales ***
Cost of goods sold (***)
Gross profit ***
Operating expenses
Administrative expense ***
Selling & Marketing expenses *** ***
Profit from operations ***
Other income ***
Financial expenses ***
Profit before tax ***
Income tax expense ***
Profit after tax

***
Limited Liability Company
Statement of changes in equity
For the year ended December 31, 2006
Rs. Rs.

Retained profits b/f ***
Profit after tax ***
Dividend paid ***
Transfer to reserves *** (***)
Retained profits c/f

***

Chief Executive Director

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4. Treatment of Surplus Arising on Revaluation of Fixed Assets [Section 235]
4.1

Any surplus on revaluation of fixed assets should be transferred to an account named “Surplus on
revaluation of fixed assets account”.

4.2

This account should be shown in the balance sheet after capital and reserves;

4.3

Surplus on revaluation shall not be set off or reduced except:
a) For setting of any decrease in revaluation of asset; or
b) When revalued asset is disposed of, surplus relating to it can be adjusted or set off.

4.4

Depreciation on assets which are revalued shall be determined with reference to the value assigned
to such assets on revaluation and depreciation charge for the period shall be taken to the Profit and
Loss Account;

4.5

An amount equal to incremental depreciation for the period shall be transferred from “Surplus on
Revaluation of Fixed Assets Account” to un-appropriated profit / accumulated loss through
Statement of Changes in Equity to record realization of surplus to the extent of the incremental
depreciation charge for the period;

4.6

An amount equal to incremental depreciation charged in previous years may be transferred from
“Surplus on Revaluation of Fixed Assets Account” to un-appropriated profit / accumulated loss
through Statement of Changes Equity.

5. Director’s Report [Section 236]
5.1

Director’s report shall be attached to the Balance Sheet.

5.2

It shall state business affairs, proposed dividend, if any, amounts set aside to reserve, if any.

5.3

In the case of a public company or a private company which is a subsidiary of a public company
director’s report shall also include:-
a) Disclosure of any material changes and commitments affecting the financial position which
have occurred between the year end and the date of report;
b) Disclosure of any material changes in the nature of business etc., which have occurred
during the year, if the disclosure is necessary for understanding the state of the company’s
affairs.
c) Explanation to any qualification in auditor’s report.
d) Pattern of holding of shares (percentage of shares held by the parties).
e) Name and country of incorporation of holding company if any, where such holding
company is established outside Pakistan.
f) The earning per share.
g) Reasons for incurring loss and reasonable indication of future prospects of profit, if any.
h) Information about defaults in payment of debts, if any, and reasons thereof.

5.4

The directors of a holding company required to prepare consolidated financial statements under
section 237 shall make out and attach to consolidated financial statements, a report with respect to
the state of group’s affairs and all provisions of subsection (2), (3) and (4) shall apply to such
report.

5.5

Director’s Report shall be signed by the chairman or the chief executive, if so authorized by the
directors; otherwise by the chief executive and a director.

6. Balance Sheet of Holding Companies [Section 237]
6.1 Consolidated Financial Statements

(1) There shall be attached to the financial statements of a holding company having a
subsidiary or subsidiaries, at the end of the financial year at which the holding company's
financial statements are made out, consolidated financial statements of the group presented
as those of a single enterprise and such consolidated financial statements shall comply with
the disclosure requirement of the Fourth Schedule and International Accounting Standards
notified under sub-section (3) of section 234.
(2) Where the financial year of a subsidiary precedes the day on which the holding company's
financial year ends by more than three months, such subsidiary shall make an interim
closing on the day on which the holding company's financial year ends, and prepare
financial statements for consolidation purposes.

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(3) Every auditor of a holding company appointed under section 252 shall also report on
consolidated financial statements and exercise all such powers and duties as are vested in
him under section 255.
(4) All interim financial statements of a subsidiary as required under sub-section (3) shall be
reviewed by the auditors of that subsidiary appointed under section 252 who shall report
on such financial statements in the prescribed form.
(5) There shall be disclosed in the consolidated financial statements,-
(a) any qualifications contained in the auditors' reports on the accounts of subsidiary or
subsidiaries for the financial year ending with or during the financial year of the
holding company; and
(b) any material note or explanation on a qualification, regarding to but not covered in the
financials statements of a parent company.
(6) Every consolidated financial statement shall be signed by the same persons by whom the
individual balance sheet and the profit and loss account or income and expenditure
account of the holding company are required to be signed under section 241.
(7) All provisions of sections 233, 242, 243, 244 and 245 shall apply to a holding company
required to prepare consolidated financial statements under this section as if for the word
"company" appearing in these section, the words "holding company" were substituted.
(8) The Commission may, on an application or with the consent of the directors of a holding
company, direct that in relation to any subsidiary, the provisions of this section shall not
apply to such extent only as may be specified in the direction.
(9) If a holding company fails to comply with any requirement of this section, every officer of
the holding company shall be punishable with fine which may extend to fifty thousand
rupees in respect of each offense unless he shows that he took all reasonable steps for
securing compliance by the holding company of such requirements and that the noncompliance
or default on his part was not willful and intentional".

6.2

The directors shall ensure that year-end of the holding and its subsidiary companies shall coincide
except where there are good reasons against it. The SECP shall facilitate the companies in this
regard by allowing them to prepare accounts of extended period, hold AGM accordingly and file
annual return after the holding of extended AGM. [Section 238]

7. Balance Sheet of Modaraba Company [Section 240]

Modaraba companies are required to attach financial statements and other reports circulated to
Modaraba certificate holders with their financial statements.

8. Authentication of Balance Sheet [Section- 241]
8.1

Accounts should be approved by the Board of Directors.

8.2

Balance Sheet shall be signed by the chief executive and one director. If chief executive is out of
Pakistan for the time being then it shall be signed by two directors and a statement shall be given by
the directors explaining reasons thereof.

9. Copy of Balance Sheet to be forwarded to the Registrar (Section 242)
9.1

Three copies of listed company’s audited accounts and the auditor’s report duly signed by the
management and auditors should be filed with the registrar within thirty days from the AGM.

9.2

In other cases two copies are required.

9.3

Private Companies are not required to file their accounts with the registrar.

10. Right of Members/Debenture-Holders of Company to Copy of the Accounts and the
Auditor’s Report [Section-243 & 247]

Members have the right to get copy of annual accounts etc. of company on payment. The same
rights are available to debenture-holders or trustees for debenture-holders.

11. Quarterly Accounts of Listed Companies [Section (245)]

All listed companies shall within one month of the close of every quarter of their year of account,
prepare and transmit to the members and the stock exchange(s) on which their shares are listed, a

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profit and loss account for, and balance sheet as at the end of that quarter, whether audited or
otherwise. They shall file with the registrar and the Commission three copies thereof.
Quarterly accounts shall be circulated for the 1st, 2nd and 3rd quarter within one month of the close
of that quarter.
Approval of the board of directors will be mandatory for circulation of the quarterly accounts.
If a company fails to comply with any of the requirements of this section, every director including
chief executive and chief accountant of the company who has knowingly by his act or omission
been the cause of such default shall be liable to a fine of not exceeding one hundred thousand
rupees and to a further fine of not exceeding one thousand rupees per day during which default
continues.

12. Additional Statement of Accounts and Reports [Section 246]
12.1

The SECP may by general or special order, require companies, or a class of companies or any
particular company, to prepare and send to the members, the registrar, the SECP, a stock exchange
and any other person such periodical statements of accounts, information or other reports in such
form and manner and within such time, as may be specified in the order.

12.2

The Securities and Exchange Commission of Pakistan vide circular No. 23/2005, has directed to all
listed companies and their subsidiaries to provide: -
a) Other Information contained in their annual report, as such term is defined in International
Standard on Auditing 720 (Other Information in the Documents Containing Audited Financial
Statements), to their external auditor (s); and
b) Sufficient time to their external auditor (s) to review and comment upon any “material
inconsistencies” found in such Other Information where the other information may contradict the
information contained in the audited financial statements. Listed companies and their subsidiaries
are required to comply with this directive from the period commencing 1st January 2006.

Auditor’s interest in the statutory books

The auditor is interested in the statutory books because:
– They are directly concerned with the Accounts
– They are audit evidence to be used in verifying detailed items in the accounts; for example the
total share capital shown by the sum of the individual share holdings in the register of members
must agree with the share capital recorded in the books of accounts
– Failure to maintain proper records of any sort casts doubt upon the accuracy and reliability of
the records generally.

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By Muhammad Atif Saeed on 09:59. Filed under Auditing . Follow any responses to the RSS 2.0. Leave a response