CAF-4 · Chapter 25

Accounts and annual return MCQs with Answers

19 multiple-choice questions on Accounts and annual return for CAF-4 Business Law Dynamics. Try each one before revealing the answer and explanation.

1. Question 1

   For how long is a company legally required to preserve its books of accounts in good order?

   • A) For a period of at least 5 years immediately preceding a financial year.
   • B) For a period of at least 10 years immediately preceding a financial year.
   • C) For a period of at least 15 years immediately preceding a financial year.
   • D) Permanently, for the entire life of the company.
   Show answer & explanation

   Answer: B) For a period of at least 10 years immediately preceding a financial year.

   The Companies Act mandates that books of accounts must be preserved in good order for a period of at least 10 years immediately preceding a financial year.

2. Question 2

   While books of accounts must generally be kept at the registered office of the company, who has the authority to decide to keep these books at some other place in Pakistan?

   • A) The members of the company via a special resolution.
   • B) The Securities and Exchange Commission of Pakistan (SECP).
   • C) The directors of the company.
   • D) The statutory auditors of the company.
   Show answer & explanation

   Answer: C) The directors of the company.

   The directors of the company have the authority to decide to keep the books of accounts at some place other than the registered office of the company.

3. Question 3

   Under Section 2(33) of the Companies Act, 2017, which of the following documents is explicitly included in the definition of 'financial statements'?

   • A) The Directors' Report
   • B) A statement of financial position and a statement of profit or loss and other comprehensive income.
   • C) The Chairman's Review Report
   • D) The Prospectus
   Show answer & explanation

   Answer: B) A statement of financial position and a statement of profit or loss and other comprehensive income.

   The legal definition of 'financial statements' specifically includes a statement of financial position as at the end of the period, and a statement of profit or loss and other comprehensive income.

4. Question 4

   Financial statements generally must be audited. However, this requirement is NOT applicable to a private company if its paid-up capital does not exceed:

   • A) Rs. 1 million
   • B) Rs. 5 million
   • C) Rs. 10 million (or such higher amount as notified by the Commission)
   • D) Rs. 50 million
   Show answer & explanation

   Answer: C) Rs. 10 million (or such higher amount as notified by the Commission)

   A private company is exempt from the audit requirement if its paid-up capital does not exceed Rs. 10 million, or a higher amount if notified by the Commission.

5. Question 5

   What is the statutory deadline for a listed company to prepare its half-yearly (second quarter) financial statements?

   • A) Within 30 days of the close of the second quarter.
   • B) Within 45 days of the close of the second quarter.
   • C) Within 60 days of the close of the second quarter.
   • D) Within 120 days of the close of the second quarter.
   Show answer & explanation

   Answer: C) Within 60 days of the close of the second quarter.

   A listed company is required to prepare its half-yearly financial statements within sixty days of the close of the second quarter of its year of accounts.

6. Question 6

   What is the maximum time allowed for a newly formed company to prepare its very first annual financial statements?

   • A) Within 12 months of incorporation.
   • B) Within 16 months of incorporation.
   • C) Within 18 months of incorporation.
   • D) Within 120 days of its first commercial transaction.
   Show answer & explanation

   Answer: B) Within 16 months of incorporation.

   For the first financial statements, a company is required to prepare them within sixteen months of its incorporation.

7. Question 7

   After a company has prepared its first financial statements, what is the deadline for preparing subsequent annual financial statements?

   • A) Within 60 days following the close of its financial year.
   • B) Within 90 days following the close of its financial year.
   • C) Within 120 days following the close of its financial year.
   • D) Within 160 days following the close of its financial year.
   Show answer & explanation

   Answer: C) Within 120 days following the close of its financial year.

   For subsequent annual financial statements, they must be prepared within one hundred and twenty days following the close of the company's financial year.

8. Question 8

   For a listed company, which specific quarterly financial statements are legally required to be subjected to a 'limited scope review' by the statutory auditors?

   • A) First quarter financial statements only.
   • B) Second quarter (half-yearly) financial statements.
   • C) Third quarter financial statements only.
   • D) All three quarterly financial statements must be reviewed.
   Show answer & explanation

   Answer: B) Second quarter (half-yearly) financial statements.

   It is not mandatory to get the first and third quarters reviewed. Only the cumulative figures for the half year, presented in the second quarter financial statements, must be subjected to a limited scope review by the statutory auditors.

9. Question 9

   Prior to an Annual General Meeting (AGM), what is the minimum notice period for sending the audited financial statements, auditors' report, and directors' report to every member?

   • A) At least 7 days before the meeting.
   • B) At least 14 days before the meeting.
   • C) At least 21 days before the meeting.
   • D) At least 30 days before the meeting.
   Show answer & explanation

   Answer: C) At least 21 days before the meeting.

   These documents must be sent via post or electronic means to every member and person entitled to receive notice at least 21 days before the general meeting.

10. Question 10

    If a company operates a branch office outside Pakistan, how does it fulfill the requirement of keeping its books of accounts at the registered office?

    • A) All original physical receipts must be couriered to Pakistan weekly.
    • B) Proper books are maintained at the branch, and summarized returns are periodically sent to the registered office.
    • C) The branch is exempt from maintaining books of accounts.
    • D) The SECP must send an inspector to the branch office annually.
    Show answer & explanation

    Answer: B) Proper books are maintained at the branch, and summarized returns are periodically sent to the registered office.

    A company with a branch office is considered compliant if proper books are maintained at the branch and summarized returns are periodically sent from the branch to the registered office.

11. Question 11

    Which of the following individuals has the legal right to inspect the books of accounts of a company during business hours?

    • A) Any shareholder of the company.
    • B) Only shareholders holding more than 10% of shares.
    • C) The directors of the company.
    • D) Any creditor of the company.
    Show answer & explanation

    Answer: C) The directors of the company.

    The books of accounts are open for inspection by the directors of the company during business hours. General shareholders do not have a statutory right to inspect the detailed books of accounts.

12. Question 12

    In the case of a listed company, the 'Statement of Compliance' is a mandatory document. Who is legally required to sign it?

    • A) The Chairman of the Board only.
    • B) Any two directors.
    • C) The Chief Financial Officer (CFO) and the Company Secretary.
    • D) The Chief Executive and a director.
    Show answer & explanation

    Answer: D) The Chief Executive and a director.

    The statement of compliance for a listed company is required to be signed by the chief executive and a director of the company.

13. Question 13

    When a public company (the holding company) acquires a controlling stake in another company (the subsidiary), what obligation does the subsidiary's board have regarding its financial year?

    • A) It must permanently retain its original financial year to maintain historical consistency.
    • B) It must ensure its financial year coincides with that of the holding company, unless there are valid reasons against it.
    • C) It must adopt the calendar year (Jan-Dec) regardless of the holding company's year.
    • D) It must let the SECP decide its new financial year.
    Show answer & explanation

    Answer: B) It must ensure its financial year coincides with that of the holding company, unless there are valid reasons against it.

    For the purposes of consolidated financial statements, the board of the subsidiary shall ensure that the financial year of the subsidiary coincides with that of the holding company, except where valid reasons exist against it.

14. Question 14

    A listed company's financial year ended on 30 June. What is the statutory deadline for preparing and laying its annual audited financial statements before the members in the AGM?

    • A) Within 60 days of the year-end.
    • B) Within 90 days of the year-end.
    • C) Within 120 days of the year-end.
    • D) Within 160 days of the year-end.
    Show answer & explanation

    Answer: C) Within 120 days of the year-end.

    Subsequent to the first financial statements, a company must prepare its annual financial statements within 120 days following the close of its financial year.

15. Question 15

    What specific requirement applies to the second quarter (half-yearly) financial statements of a listed company that does not apply to the first and third quarters?

    • A) They must be sent to the Prime Minister.
    • B) They must be subjected to a 'limited scope review' by the statutory auditors.
    • C) They must be printed in three different languages.
    • D) They must include a full 10-year financial forecast.
    Show answer & explanation

    Answer: B) They must be subjected to a 'limited scope review' by the statutory auditors.

    For listed companies, the cumulative figures for the half year (second quarter) must be subjected to a limited scope review by the statutory auditors. This is not required for Q1 and Q3.

16. Question 16

    Holding Company (HC) acquired Subsidiary Company (SC). HC's financial year ends on 31 December, while SC's ends on 30 June. What must SC do regarding its financial year?

    • A) Nothing, it can maintain its original year-end.
    • B) It must apply to the SECP for a permanent exemption.
    • C) It must ensure its financial year coincides with HC (i.e., change to 31 December), unless valid reasons exist against it.
    • D) HC must change its year-end to match SC.
    Show answer & explanation

    Answer: C) It must ensure its financial year coincides with HC (i.e., change to 31 December), unless valid reasons exist against it.

    To facilitate consolidated financial statements, the board of a subsidiary company must ensure its financial year coincides with that of the holding company, barring valid contrary reasons.

17. Question 17

    For how long is a company legally obligated to preserve its books of accounts and payment vouchers?

    • A) 5 years immediately preceding the financial year.
    • B) 7 years immediately preceding the financial year.
    • C) 10 years immediately preceding the financial year.
    • D) Perpetually.
    Show answer & explanation

    Answer: C) 10 years immediately preceding the financial year.

    The Companies Act mandates that books of accounts and all payment vouchers must be preserved in good order for a period of at least 10 years immediately preceding a financial year.

18. Question 18

    In a listed company, who is legally required to sign the 'Statement of Compliance'?

    • A) The external auditor only.
    • B) The Chief Financial Officer and Company Secretary.
    • C) The Chief Executive and a director.
    • D) The Chairman of the Board only.
    Show answer & explanation

    Answer: C) The Chief Executive and a director.

    The statement of compliance, which is required for listed companies, must be signed by the chief executive and a director of the company.

19. Question 19

    If a private limited company has a paid-up capital of Rs. 2 million, what exemption does it enjoy regarding its annual return if there are no changes from the previous year?

    • A) It is exempt from holding an AGM.
    • B) It need not file an annual return but must simply inform the registrar that there is no change in particulars (Form C).
    • C) It does not have to file anything at all.
    • D) It is exempt from keeping books of accounts.
    Show answer & explanation

    Answer: B) It need not file an annual return but must simply inform the registrar that there is no change in particulars (Form C).

    A private company with paid-up capital not exceeding Rs. 3 million is not required to file an annual return if there's no change in particulars; it just needs to intimate the registrar using the specified form.