TAHIR MAHMOOD, EXECTIVE DIRECTOR (ENFORCEMENT).---This order shall dispose of the proceedings initiated against Messrs Gardezi & Co. Chartered Accountants (hereinafter referred to as the "Auditors") through show-cause notice dated March 3,2008 under subsection (1) of section 260 read with sections 255 and 476 of the Companies Ordinance, 1984 (the "Ordinance") for making reports to the members o Messrs United Sugar Mills Limited (hereinafter referred to as A the "Company") for the years 2003, 2004, 2005 and 2006, on the accounts and books of accounts, otherwise than in conformity with the requirements of section 255 of the Ordinance. Messrs Gardezi & Co. Chartered Accountants is a firm consisting of following partners and were appointed Auditors of the Company on March 20, 2003, January 30, 2004, January 29, 2005 and April 1, 2006 respectively for audit of the aforesaid periods.
(1) Hyder Ali Bhimji, FCA
(2) Shaikh Mohammad Tanvir, FCA
(3) Syed Aftab Hameed, FCA
(4) Shabir Ahmad, ACA
2. The Auditors have been auditing the accounts and books of accounts of the Company and have made audit reports on the financial statements of the Company for the years ended September 30, 2003 September 30, 2004 September 30, 2005 and September 30, 2006, certifying that the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with notes forming part thereof conform with approved accounting standards as applicable in Pakistan and give the information required by the Companies Ordinance, 1984 in the manner so required and give true and fair view of state of affairs of the company as at the respective year ends.
3. The Auditors have given the following opinion on the financial statements for the period ended September 30,2006; Quote "The attention of the members was drawn in the audit report towards note 25.2 of the financial statements (for the year ended September 30, 2006), which explains the rationale of the charging an amount of Rs,166.874 million in the profit and loss statement for the year, payable to the former Chief Executive of the company in accordance with the directions of SHC vide its order June 21, 2006".
Unquote
4. Note 25.2 of the financial statements for the year ended September 30, 2006 gives following disclosure:- ' An agreement was made by the previous sponsors with Mr. Bashir Ahmed on January 17, 2001 for revival of the management and operations of the mills till September 30, 2005. Mr. Bashir Ahmed was appointed as Chief Executive on January 17, 2001 and remained in that office till October 11, 2005.
' Following a dispute in this regard to the agreement, Mr. Bashir Ahmed filed a case against the Company. The matter was finally decided by the Honourable Sindh High Court at Karachi, vide order dated June 21, 2006. The compensation decreed by the Court has therefore been incorporated in the financial statements as "Other Charges ".
5. Mr. Bashir Ahmed, the unlawiully appointed Managing Agent and Ex-Chief Executive of United Sugar Mills Limited ('USML') entered into a so-called agreement dated January 17, 2001 with USML purporting to act through its directors Shaikh Abdul Waheed and Shaikh Muhammad Saeed to run/operate and manage the project of USML. The significant provisions/ clauses are summarized in the Exhibit-A.
6. Mr. Bashir Ahmed filed aforesaid suit in the Sindh High Court for settlement of his claim amounting to Rs,446.074 million. The Sindh High Court, after giving an opportunity of being heard to the respective parties through its order dated October 7, 2005 made the following directions; ' The plaintiff shall submit his claim, along with the relevant record, including books of accounts, ledgers and vouchers etc. To Messrs A. F. Ferguson & Co. Who are appointed Commissioner for determining the amount due and payable by the defendant-Company to the plaintiff under and in terms of the agreements dated 17-1-2001....
' Messrs A. F. Ferguson & Co. Shall, after examining and scrutinizing the respective accounts and records, submit their report before the court within five weeks from today and shall supply copies of the report to the parties."
7. Messrs A. F. Ferguson (hereinafter referred as the "AFF") determined an amount of Rs,236.885 millions payable to Mr. Bashir Ahmed after compilation of data and verification of figures referred by the claimant in the claim, in the following manner.
Rupees in Million Components of claim Claim lodged by Mr. Bashir AhmedClaim determined by AFF Share of "balance profit" payable to Mr. Bashtr Ahmed.202.644 166.873 Amount of loan recoverable from USML74.712 70.012 Amounts payable to sundry creditors65.447 - Expenses incurred during the period April 1,2005 to September 30,2005103.274 - Total 446.074 239.885 Paid by USML on direction of the Court 200.000 Net amount payable to Mr. Bashir Ahmed 36.885
8. The review of the accounts and underlying records shows that the audited accounts were materially misstated B mainly on account of the following reasons and the effect of the above items resulted in understatement of the profit for these years.
Rupees in Million Misstatements 2003 2003 2005 3006 Concealment of revenue-out of books sales49.532 63.876 82.624 0 Fixed assets overstated and repair & maintenance expenses understated57.672 3.452 0 0 "Other operating expenses - other charges" wrongly charged0 0 0 166.873 Payments to USML sponsors against profit.13.200 12.000 10.400 0 In view of the above, it appeared that the Auditors have failed to discharge their duties and responsibilities laid down in c the Ordinance by not modifying their report in respect of the following matters:
(a) Contravention of section 206 of the Ordinance, in consequence of the so-called agreement dated January 17, 2001 between USML and Mr. Bashir Ahmed, the unlawfully appointed Managing Agent and Ex-Chief Executive of USML.
(b) Monthly payment to Shaikh Abdul Waheed and Shaikh Muhammad Saeed towards the fixed profits of the Project.
(c) Concealment of the sales and other income.
(d) Concealment of receivable/receipts.
(e) Misstatements of stocks.
(f) Fixed Assets understated.
(g) Repair & Maintenance expenses overstated
(h) Non-compliance with the IAS-8 in respect of Rs,166.873 millions charged as "Other operating charges-other charges". The expenditure is not the operating expense for the current year and by doing so the net profit for the year 2006 is understated by Rs,166.873 millions.
10. After examination of audit reports in the context of aforesaid facts it was apprehended that the Auditors had failed to design audit procedures in a manner so as to have enabled D the discovery of aforesaid violations and have therefore failed to appropriately modify all the relevant reports.
11.
11. In view of above, a show-cause notice (SCN) was issued to the Auditors on March 3,2008 pointing out their responsibilities under the Ordinance, International Accounting and Auditing Standards and non-compliances observed in the. Accounts. A period of 14 days was given to respond to the aforesaid notice. Mr. Khawaja Abrar Majal, Advocate (the "Counsel") has been appointed as counsel by the directors of the USML to present their case before the Executive Director of the Commission.
12. In response to the SCN, written representations were submitted by the counsel on April 03, 2008 wherein, it was stated at the very outset that the Auditors had carried out the audits of the books of accounts and accompanying records being perpetually kept by the Company year after year and produced before them by the management and staff of the company for their examination and audit. The annual audited financial statements for these years were unanimously and duly approved by the members of the Audit Committee as well as the Board of Directors of the Company in their respective meetings. The financial statements were duly signed by Mr. Bashir Ahmad as Chief Executive and Mr. Abdul Wahid as Director/Chairman of the Company, particularly for the years ended September 30, 2001 to September 30, 2004, thereby eliminating all sort of doubts for any such out of book operations/concealments etc. The Auditors were absolutely unaware about the existence of the so-called unlawful agreement, until during the course of audit of the books of accounts of the Company for the year ended September 30, 2006, in which year the order of SHC dated 21-6-2006 was announced and brought to their knowledge and the amount so determined by the Court's appointee/consultant was required to be paid and accounted for by the Company pursuant to the decree of the Sindh High Court. Accordingly the so-called unlawful agreement was well kept secret and was calculatedly maintained to be so from all the concerned parties i,e, shareholders, external auditors, regulators, directly related third parties i,e, user of the financial statements, etc. During the period since its inception till it was disclosed in the financial statements for the year ended September 30,2006. The reference of such an agreement was also never ever found or made in the corporate records of the Company including the minutes of the meetings of the board of directors and members (AGMs) of the Company.
13. A point-wise reply of the Company is as follows:--
(a) The Auditors are also neither in a position nor it is their function to controvert the existence or implication of the so called unlawful agreement about which they were calculatedly kept in dark by the respective managements for all the concerned years 2003 to 2005, until as a result of the litigation and order of the court dated 21-6-2006 the same came to the knowledge of the Auditors and that too during the course of audit for the year ended September 30, 2006. The Auditors with all the respect for the honourable Sindh High Court (SHC) refrain from making any reply or comments about the litigation and the order of the said court, which is a matter of record. The Auditors are neither in a position to make any comments about the functions performed by AFF, as appointee of the SHC nor are they in a position to dispute or vouch for the verification of the figures tabulated by the said organization acting under the directions of the SHC. However it is noteworthy that the AFF clarified on each and every page of their report that it is "for use of honourable Sindh High Court only".
"1.3 Caveats: this report is produced solely on the instructions of and use by the SHC for the purposes of determination of amount payable to Mr. Bashir Ahmad in and under the terms of the agreement dated January 17, 2001. This report is not intended for general circulation or publication nor may it be reproduced or used for any purpose other than that outlined above. AFF accepts no responsibility or liability to any other party to whom it may be shown or into whose hand they may come.
' The procedures undertaken in carrying out this assignment are in no way to be construed as an audit, and accordingly no opinion is expressed on the financial position of USML at any date........... .... . . ....... ."
' What emerges from the contents of above report that the said report has nowhere observed that the audited accounts of the Company were suffering from any defect which could be the basis for calling upon the Auditors to SCN for any lapse on their part.
(b) Complete secrecy was maintained by the successive managements about the agreement which was remained as a well kept secret from the respondents as Auditors with complete absence of any revelation of the said facts through any direct or indirect means which came to light only and only during the course of audit of 2006 as a result of the judgment of the SHC through its order dated 21-6-2006. The very narration of the misstatements alleged to be discovered by this learned Commission show that the Auditors neither have any direct knowledge nor had any other means or incident to discover that there was a concealment of any revenue/sales, out of the books transactions or there was an understatement of fixed assets, overstatements of repairs and maintenance expenses or any other element of wrong charging under any head nor they had any knowledge of any payments whatsoever made to the sponsoring directors of the USML against profits. In brief, the Auditors reaffirm and reiterate that during the course of audit for all the years they had no knowledge of any extraneous facts with respect to financial statements except what was brought to their knowledge and information by the successive managements.
(c) No failure in discharge of duties and responsibilities as laid down in the Ordinance or under any rules of law relating to the function of Auditors had taken place with the results that no modification was called for in the matters narrated as under:--
(i) Contravention of section 206 of the Ordinance in terms of the so-called agreement dated January 17. 2001 between USML and Mr. Bashir Ahmed. The unlawfully appointed Managing Agent and Ex-Chief Executive of USML.
' The Auditors were appointed for the first time on March 20, 2003 and had no knowledge of the said agreement as well as the secret arrangements between the said parties. Neither the Auditors had any role in the appointment of Mr. Bashir Ahmed nor did they have any knowledge whatsoever about the nature and the surrounding circumstances of his appointment as Chief Executive was demonstrated to us having been made in a legal manner, for which necessary forms were duly filed with the Registrar of companies, Karachi.
(ii) Monthlyzgyment to Shaikh Abdul Waheed and Shaikh Muhammad Saeed towards the fixed profits of the Project. - The Auditors have no knowledge of these payments which were a well kept secret.
(iii) Concealment of the sales other income receivable receipts, misstatements of stocks.
' The Auditors have not any knowledge of any such concealment nor did they have any direct or indirect means of discovering the said concealments while performing their duties as statutory auditors. The Auditors duly witnessed the physical verification of stocks at the terminal dates and did scrutinize the daily stock reports and RT-4 as well as the quantitative reconciliations, etc. Where no element of misstatement of stock was discovered.
(iv) Fixed Assets understated and Repair and Maintenance expenses overstated.--The expenditures were properly classified into revenue and capital expenditure in the respective years and the Auditors did not find any material understatement of capital expenditure or overstatement of repairs and maintenance expense.
(v) Non-compliance with the IAS-8 in respect of Rs, 166.873 millions charged as "other operating charges-other charges". The expenditure is not the operating expense for the current year and by doing so the net profit for the year 2006 is understated by Rs,166.873 ' The payment was made under the order of the court resolving the dispute between the parties at odds. There was no option left for anybody concerned with the accounting system to tread upon the dangerous territory or subjecting the decision of the court to any opinion; doing of which could possibly make the concerned person delinquent being in contempt of court in terms of its actions or remarks. So the only option to remain on the safe side of law was to pay and account for this amount as an expense of the year in which the order finally passed and payment was made in obedience.
' Notwithstanding the background and factual position of this payment, IAS-8 only comes into operation when the aim is the applying of accounting policies and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. None of the ingredients were present in the bona fide opinion of the Auditors in the instant case particularly when no proper documentation, evidences, record, etc. Were placed before the answering respondents except the clear order of the honourable court under which the payment was made. Therefore IAS-8 has no relevance in the matter which is framed for a wholly different purpose as described above.
(d) The decision of the SHC was accepted as a binding verdict by the new management of the Company and accounted for accordingly in the books of accounts that was taken as equally binding duty under the law by the Auditors; but they till highlighted the matter through emphasis paragraph in the Auditors report as in their considered view it was the only option left with them after the order of the SHC, which was in field at the material time and even today.
(e) It is evident from the above that neither any violation of any ingredient of sections 260 and 476 of the Ordinance has occurred on the part of the Auditors nor are they liable for any penal provisions in view of the detailed reply submitted above as it is established beyond doubt that they had no knowledge of the malpractices undertaken by the ex-management who were the only responsible persons for maintenance of sound internal controls and checks over the affairs of the Company to safeguard its assets and receipts from the frauds, misappropriations/embezzlements, etc. As well as maintenance of correct books in line with the Ordinance so as to draw and present the financial statements of the Company in line with the requirements of the applicable International Accounting Standards and fourth schedule of the Ordinance.
' In the light of foregoing, it is abundantly evident that neither the provisions of section 260 nor those of 474 and 476 of the Ordinance are attracted against the Auditors, in the matter; therefore prayer is made to very kindly withdraw, the SCN against the Auditors.
14. Hearing in the matter was fixed on April 3, 2008. Khawaja Abrar Majal, Barrister-at-Law, the Company's counsel; and Mr. Shakih Muhammad Tanvir, FCA, Syed Aftab Hameed, FCA Shabir Ahmad, ACA, partners of Gardezi & Co., Chartered Accountants, represented the Company before the undersigned. Written submissions were reiterated by the representative of the company.
15. An analysis of the written reply, representations made in personal hearing and additional documents was then made. The arguments submitted by the counsel on behalf of the Auditors have been considered and in view of the above, the following are the major issues which require determination. All of the above issues are discussed one by one hereunder:--
(i) What are the scope and the objective of audit of financial statements?
' As per International Standards on Auditing-200 ("ISA") and the ISA -200 (amended); "The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework"
(ii) What was applicable financial reporting framework?
' USML is a listed Company and under section 234 (2)(i) of the Companies Ordinance 1984, the balance-sheet and profit and loss account or the income and expenditure account shall comply with the requirements of the Fourth Schedule so far as applicable thereto; and such International Accounting Standards and other standards shall be followed in regard to the accounts and preparation of the balance-sheet and profit and loss account as are notified for the purpose in the official Gazette, by the Commission.
(iii) Whether the said accounts give the information required by the Ordinance in the manrfer so required and give a true and fair view?
' The financial statements for the years 2003, 2004, 2005 and 2006 did not give the information required by the Ordinance and the reported results to the shareholders did not give true and fair view. The Company was in fact in profit for all these years, however loss was reported in the accounts presented before the shareholders and the accounts were fudged mainly concealment of revenues and charging of capital expenditure.
(iv) Whether in 2003, 2004, 2005 and 2006 audit, Auditors duly discharged duties and responsibilities.
' Auditors failed to provide documentation / information that were important in providing audit evidence to support the audit opinion that the audit was carried out in accordance with IAS.
Fudged accounts for the years 2003, 2004 and 2005 ' The accounts for the years 2003, 2004 and 2005 were materially misstated mainly due to the concealment of sales and capital expenditure expensed during the year. Auditors were required to plan and execute the audit to ensure:- * Completeness and accuracy of sales, * Existence and valuation of stocks, * Classification, valuation and allocation of capital expenditure, * Monthly payments to directors.
' The embezzlements, frauds and misstatements in the financial statements do not support the Auditors' contention that they have adequately designed and applied audit procedures to obtain sufficient and appropriate evidence. Had the audit been conducted with the required diligence, these material misstatements, at the assertion level for the class of transactions and account balances at the period end, would have been unearthed. This was further substantiated by the inability of the Auditors to demonstrate that the audit was diligently planned and conducted and to provide that elaborate procedures were applied and audit evidence obtained resultantly.
In addition, to the above deficiencies found in the relevant period i,e, 2003-2005, the following important issues were observed in the subsequent years that had their effect on the auditor's report.
Litigation initiated by Mr. Bashir Ahmed in 2005 In August, 2005, major litigation was initiated against USML by Mr. Bashir Ahmed in the SHC for his claim of Rs,446 million and SHC through its order dated October 7, 2005 directed the USML to pay Rs,200 million to Chaudhary Bashir Ahmed and remaining Rs,246.047 million to be deposited with the Nazir of SHC. SHC further appointed Commissioner for determining the amount due and payable by USML to Mr. Bashir Ahmed.
' However, the Auditors failed to provide documentation/representation that audit procedures were designed and applied to become aware of any litigation and claims involving the entity which may result in a material misstatement of the financial statements, including direct communication with the entity's legal counsel.
Payment of Claim of Mr. Bashir Ahmed and audit opinion in 2006 Audit opinion for the year ended September 30, 2006 Quote "The attention of the members was drawn in the audit report towards note 25.2 of the financial statements (for the year ended September 30, 2006), which explains the-rationale of the charging an amount of Rs, 166.874 million in the profit and loss statement for the year, payable to the former Chief Executive of the Company in accordance with the directions of SHC vide its order June 21, 2006".
Unquote ' The aforesaid statement affirms that the Auditors were cognizant of the material nature of the payment of Rs,166 million to Mr. Bashir Ahmed however he failed to take appropriate steps to verify the relevant assertions. He, however, admitted that except the clear order of the honorable court, no proper documentation, evidence, records etc. Were placed before him and to remain on the safe side of the law was to account for as an expense of the year. Moreover, the payment of Rs,166.874 million was not a stand-alone transaction. In fact this was the part of a series of transactions involving material amounts (as per the following table) that includes advance against claim extended to Mr. Bashir Ahmed and deposit with Nazir of SHC beside receipt in the bank account and other settlement payments as per details below, all of which were required to be reviewed by the Auditors, being material in nature. In view of the material nature of the aforesaid transactions, it is evident that the Auditors were required to obtain sufficient appropriate audit evidence to verify the occurrence, existence and valuation of the above material payments and balances, to express appropriate audit opinion.
S No. Dates Account Amount Nature 1 October 10, 2005Advances Mr. Bashir AhmedRs.200 million Advance paid to Mr. Bashir Ahmed on the interim order of the Court against his claim of Rs.446 million.
2 October 10, 2005 Deposit-Nazir of SHC Rs.246 millionDeposited with Nazir on the interim order of the SHC against the claim of Rs.446 million of Mr. Bashir Ahmed.
3 July 3, 2006 Bank account KASB BankRs.210 million Refunded to USML by the SHC after settlements of following amounts /claims. * Rs.236.885 million in respect of Mr. Bashir Ahmed. * Rs.29.970 million in respect of another creditor.
' The interim order and the final order of the court announced on October 7, 2005 and June 21, 2006 respectively shows the availability of the primary evidence and insight on what was going on:-- Court Order dated October 7, 2005 Quote Messrs A. F. Ferguson shall, after examining and scrutinizing the respective accounts and records, submit their report before the court within five weeks from today and shall supply copies of the report to the parties."
Unquote Court Order dated June 21, 2006 Quote This is an application filed by the plaintiff in which the plaintiff has prayed that parties may be allowed to receive their respective amount with profits as per report of Messrs A. F. Fergusons & Company. Copy of the report dated 30-5-2006 is attached with the application. It is stated that the amount is lying deposited with the Nazir of this court. Mr. Rana Ikramullah, learned counsel for the defendant No, 1 and Mr. Muhammad Shahid, learned counsel for the defendant Nos. 2 & 3 have given no objection on the application. The application is allowed by consent in terms of the prayer for disbursement of the respective amount with profits as. Per the report of A. F. Ferguson & Company. The application in the above terms stands disposed of'.
Unquote ' The plaint of Mr. Bashir Ahmed along with annexure, the respective court orders and AFF report , was available as part of the litigation record to verify and ascertain the nature and components of the payment of compensation to Mr. Bashir Ahmed. These documents form primary audit evidence being the basis for verifying the assertions regarding disclosure in correct accounting period and in proper accounts, after determining the background and nature of its components. However, the Auditors failed to discharge their responsibilities by proceeding further to obtain the above critically important evidence to form their opinion.
' Having discussed the availability of primary evidence and the auditor's access to the evidence, I feel it appropriate to reproduce briefly the background and the effects / impact of payment transaction of Rs,166.874 million that highlight the critical need to examining this transaction; * Mr. Bashir Ahmed was appointed as Chief Executive to run/operate through a agreement dated 17-01-2001 and was to be given 53 % profits of the Company as per the profit sharing formula provided in the agreement. In August 2007, close to the expiry of the term of agreement, Mr. Bashir filed a suit for his claim of Rs, 446,047,247 in SHC including his remaining profits out of total profit of Rs,777,765,944 for 2001-2005, that were not reported in the audited accounts of the Company and were based on the parallel accounts. * The SHC, by consent of the parties, disposed off the matter on the basis of AFF report, who determined Rs, 236.885 million payable to Mr. Bashir Ahmed (Rs,166.874 million plus Rs, 70.011 million). * The sponsors and Mr. Bashir Ahmed being the Chief Executive for the years 2001-2005, distributed the profits of USML between themselves in accordance with the so-called agreement and deprived the shareholdei s from their rightful share in the above profits of their Company by not disclosing them in the audited accounts.
' Rs,166.874 million was definite a window, through which Auditors should have got insight into the events and transactions summarized above and thereafter he should expressed appropriate audit opinion. ' Even otherwise, accepting the Auditors' representation for a while, that they were not available with required evidence except the clear order of the SHC to verify the above material payments reflect scope limitations on their part however they did not modify audit report and instead only drawn attention to the issue of payment of Rs,166.874 million.
16. Before deciding this case, I deem it necessary to make some observations on the role of Auditors of a Company. The duties and responsibilities of an auditor appointed by the shareholders under section 252 of the Ordinance can best be understood if we look at the place, of an auditor in the scheme of the Company law. The capital required for the business of a Company is contributed by its shareholders who may not necessarily be the persons managing the Company.
In the case of a listed Company, the general public also contributes towards the equity of the Company. Such persons do not have any direct control over the Company except that they elect directors for a period of three years and entrust the affairs o the Company to them in the hope that they will manage the Company to their benefits. The shareholders are, therefore, the stakeholders and the ultimate beneficiaries. Practically, however, the shareholders have no control over the way their Company is managed by the directors appointed by them. It was, therefore, necessary that there must be some arrangement in place whereby the shareholders who are the real beneficiaries must get some independent view as to how the directors have managed the affairs of the Company. The law, therefore, recognizing this situation, has provided that the shareholders should appoint an auditor who shall be responsible to audit the accounts and books of account and make out a report to them at the end of each year. This is the only safeguard provided by law to the shareholders to ensure that the business is carried on by the directors in accordance with sound business principles and prudent commercial practices and no money o the Company is wasted or misappropriated. The law, therefore, E makes the Auditors responsible in case they failed to make out a report in accordance with the legal requirements. It is, therefore, extremely important for the Auditors to be vigilant and perform their duties and obligation with due care while auditing the accounts and books of accounts.
17. The USML was stripped off from its assets and revenues in a blatant manner. Mr. Bashir Ahmed, inducted as Chief Executive under a so-called agreement to operate and manage the USML along with the directors of USML, made huge gains from the project while depriving the shareholders of their rightful shares in the profits made out of the project. Parallel/hidden accounts were maintained in accordance with the agreement to record the actual profits to be embezzled later on. The shareholders were deprived from their rightful share in the profits rather they were made liable for the liabilities arising out of the embezzlements.
' The Auditors were the only persons to develop an insight into this whole plethora of frauds and embezzlement on behal F of the shareholders. However, it is clear from the preceding paragraphs that the Auditors placed excessive reliance on the management representation and thus failed to perform their professional duties with reasonable degree of care and skill. It is therefore viewed that the Auditors have committed a breach o fiduciary duty cast upon them by the shareholders.
The audit opinion affirms that the Auditors were cognizant of the material payment of Rs,166.874 million to Mr. Bashir Ahmed and they admitted that except the clear order of the honourable court, no proper documentation, evidence, records etc. Were placed before them and to remain on the safe side of the law was to account for as an expense of the year. The alert generated by payment of Rs,166.874 million was not duly taken care off and Auditors did not bother to take notice of the gravity of the situation. They complacently opted for an easy exit by giving an opinion that does correlate with the statement that they did not know the nature of Rs,166.874 million and they failed to take appropriate steps to verify the relevant assertions.
18. After consideration of the facts and circumstances of this case, I am of the view that the Auditors have signed the G audit reports otherwise than in conformity with the requirements of section 255 of the Ordinance and have committed a default in terms of section 260 of the Ordinance. However since the Auditors have offered to cooperate with the Commission in the legal recourse against the delinquent G management, the partners of Messrs Gardezi & Co. Chartered Accountants are only reprimanded. Moreover, the Auditors are further directed to take the action appropriate in the circumstances in terms of the effects on the auditor's opinion, including modification of the audit reports.