Law: Companies Ordinance, 1984

Section: 255,260,476

Law: Insurance Ordinance, 2000

Section: 11, 12, 36, 46, 48, 51 & 158

Companies Ordinance (XLVII of 1984)--- ----Ss. 255, 260 & 476---Insurance Ordinance (XXXIX of 2000), Ss.11, 12, 36, 46, 48, 51 & 158---Breach of fiduciary duty by auditors---Auditing company, was alleged to have committed breach of fiduciary duty cast upon it by policy holders of the company as well as shareholders and its Engagement Partner---Engagement Partner of auditing company, was allegedly found to have signed audit reports, otherwise than in conformity with the requirements of provisions of law---Aggregate fine of Rs.100,000 was imposed on the Auditing Company which was challenged contending that impugned order failed to establish or even refer to the intention of the appellants and that audit was planned and performed in accordance with the International Standards on Auditing (ISA)---Contention of Auditing Company was that findings of breach of fiduciary duty as well as imposition of penalty on them was wrong and mistaken as information provided to them was deliberately distorted by the Management itself and was not shared with them; and that as the Management had been found guilty in the Commissioner's order for misrepresenting facts and figures, Auditing Company should be relieved of any liabilities; that with respect to the policy holders of the Insurance Company, no loss had been suffered by them at all as all the claims were acknowledged by the company and only recording of claims had been delayed---Validity---Primary responsibility for the prevention of fraud rested with those charged with governance and it was very difficult for an Auditor to detail fraud when Management of the company itself was involved---Recommendations given by the Auditing Company in the Management letters were in line with the observation made during audit---No reason existed to believe that the audit conducted by the Audit Company was not properly planned or performed in accordance with the requirements of International Standards on Auditing (ISA) merely on the ground that they failed to detect Management's material misstatements due to fraud---In the present case, the Management had defrauded not only the Board of Directors of the company, but also the Audit…

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