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Ghulam Abbas

03009001533

GAsad@facebook.com

Statutory Report
(a) Need and requirements i. In case of public limited company only. ii. For holding statutory meeting 3 to 6 months after commencement of business iii. Meeting notice of 21 days along with auditor report on financial statements to be sent to members of company. (b) Contents and working areas of audit i. Shares detail regarding paid off capital and their allotment for cash consideration ii. Shares allotted for consideration other than cash such as in exchange for some assets of services rendered. iii. Receipt and payment statements of company iv. No income statement and balance sheet is to examine. (Because of loss not shown to share holders. Confidence of public not discloses weak position of company.) v. Confirmation of minimum of subscription. (sale of shares limit) vi. Normally business record related to such statements up to 3-4 months after commencement will be examine. (c) Audit Work i. Shares allotment Examination of MOA regarding authorized capital details of shares. Examination of prospectus issued capital and its terms and conditions Examination of subscription received through different banks. Examination of allotment record. Confirmation with register of members Examination for other than cash ii. Receipts and payments Vouching of cash book transactions relating to the period selected. Conformation of balance from bank statement Audit work to be completed within three weeks of the starts (d) Form of report Directors: We have examined the following statements annexed to our report as required under section 157(5) of companys ordinance 1984. We report that these statements have been found corrected by us. i. Share allotment statements for cash consideration ii. Share allotment statements for other than cash consideration iii. Receipts and payments statements for period ending on 31 October 2012.
We further report that: i. One of the directors has not purchased his qualification share. ii. There is under invoicing machinery, reporting Rs. 5 millions. iii. Under writing commission @2% has been given to HBL for underwriting services (Normal rate 1%) Date should be 20th Nov. not more than. Yours truly Abbes Asad Chartered Accountant

Ghulam Abbas

03009001533

GAsad@facebook.com

Prospectus Report 53(1)

(a) Need ad Requirement i. By a public limited only ii. At the time of issue of prospectus iii. Included and published as a part of prospectus iv. Related with financial results of business for guidance of general public and prospective/aspect shareholders (b) Requirement and contents and Detail i. Summary of latest profit and loss account for the 5 years working. ( so that the general public could know the trend of business) ii. Summary of latest 5 years balance sheet iii. Detail of dividend declared o different shares, its rates of declaration and source of payment. (c) Detail of Audit Work i. Receiving latest 5 years annual reports ii. Examining the summary prepared on the bases of 5 years P&L account and B.S. as described in the annual report. iii. Excluding any abnormal capital profit or loss iv. Carefully examining the audit making a part of the annual reports v. Receiving mints of the latest 5 years AGM and confirming the types of shares on which dividend was declared, its rates and source of payments. vi. Work to be completed within maximum 1 weak (d) Form of Report We have examine the following statements annexed to our report as required under section 53 subsection 1 of companies ordinance 2002. To be published as a part of prospectus of the company and these statements have been found correct by us. We further report that: Capital profit amounting to Rs. 50 million due to sale of business land has been included in the last year profit summary. The company has declared last year dividend in the form of bonus share as compare to cash dividend in the past 4 years. Company has been declared bonus shares for dividend purpose in the past 5 years. There is a capital profit on revaluation of assets amounting to Rs. 50 millions.

Ghulam Abbas

03009001533

GAsad@facebook.com

Audit Report
(a) Needs and requirements:
i. ii. iii. iv. v. For the purpose of AGM Every public limited company and its subsidiary company 14 days notice of meeting plus audit report to be send to every member Meeting to be held within 4 months of the end of the financial year with an extension from SECP for 2 months Meeting to be held once in every calendar year but maximum gap should not be more than 15 months. Whether or not proper books of accounts maintained by the company as required under section 130. Whether are not final accounts prepared according to legal requirements Whether are not the financial statements are reflecting a true and fair view of business affairs Whether are not expenditures incurred for business purpose Whether are not Zakat has been deducted according to legal requirements.

(b) Contents and Scope

i. ii. iii. iv. v. i. ii. iii. iv. v. vi. vii. viii. ix. x.

(c) Audit work

Deciding the type of audit that it is continuous or final in consultation of management Preparation of audit program and allocation of duties to the team members Collecting of books of accounts and their related vouchers and evidence for audit purpose Vouching of different transactions according to the audit program Verification of all assets and liabilities Horizontal (previous year) and vertical ( current year) analysis carried out Knowing the major differences and its reasons of abnormality Discussing the major differences with the management to resolve the issue Finalizing the possible qualifications (objections) Examining the record of distribution of dividend on the bases of previous of AGM and deduction of Zakat on the nominal value of share holding from the dividend amount (d) Submission of report to the share holders through company management

Ghulam Abbas

03009001533

GAsad@facebook.com

Solvency Report 362(2)

i. ii. iii. iv. v. vi. vii. Required at the time of liquidation of the company Voluntary liquidation by the members of the company Directors claim and report regarding payment to all creditors (outsiders) Auditors report in support of directors claim of solvency Auditors to examine profit and loss account prepared closed to the proposed meeting of liquidation after the previous year end Auditor to review the current market position for sale of all assets and their possible payments within a specified period The auditors opinion should not be considered as a guarantee for payment rather than it will be directors responsibility.

Auditors Opinion relating to different Reports

(a) Un-Qualified opinion:
Un-qualified opinion used in un-qualified report where financial statements as already accurate and all have been amended as per auditors advised.

(b) Qualified Opinion:

Qualified opinion used in a qualified report where the auditors dissatisfaction and objection raised have not been properly resolved. i. The auditor used the words except for above after mentioning the objection where the disagreement is reasonably estimated such as amounts of sales or any other account and provision for depreciation. ii. The auditor used the word subject to above when the difference cannot be reasonably estimated but it exists there such as reserve for bad debts and existence of contingent liability etc.

(c) Adverse Opinion:

Adverse opinion is that where the difference is so much. Material and financial statements have not been prepared according to GAAP. The auditor used the phrase that the financial statements do not give true and fair view.

(d) Dis-Claimer:
This opinion is given when due to lack of evidence provided for reaching uncertainty is not resolved and auditors are not in a position to get full information. The auditor will use the word not in a position to express an opinion their upon. (Normally this type of opinion is carried out in private limited companies and small companies.

Ghulam Abbas

03009001533

GAsad@facebook.com

Letters relating to auditors

i. ii. iii. Offer Letter Issued by the company to the auditors after obtaining informal/verbal consent Consent Letter Issued by the auditors to the company after analyzing the offer letter Appointment Letter Issued by the company to the auditor after fulfilling legal requirements of necessary resolution by the share holders or directors. Audit Engagement Letter Issued by the auditor to the company explaining the scope of audit and management responsibility regarding internal control and maintaining proper books of accounts. Weaknesses Letter Written by the auditor to the companys management during continuous audit or after submission of the audit report pointing out the weaknesses of internal control and areas of further improvement. It also serves for developing better working relationships in future. It is also called post audit or management letter or comments letter. Third Party Letter Written by the auditors to outside parties connected with companys business. For example confirmation from banks, creditors etc. some time it is also called circulation account. Communication Letter Written by the new auditor to the old auditor for knowing any professional reason of removal of old auditor or getting knows objections. Enquiry Letter Sent through the management of the company to the legal advisor for obtaining the details of legal cases of against the company and their chances of decisions in near future (with in one year). For example contingent items, taxation exemption etc.

iv.

v.

vi.

vii.

viii.

Ghulam Abbas

03009001533

GAsad@facebook.com

Reasons for increase/decrease in Gross Profit and Net Profit

Gross profit of a company has been decreased by 10% but net profit increased by 20%. You are required to know the reasons of its genuine or manipulation.

(a) Genuine Possibility

These circumstances can be genuine reasons for this decreased in GP and increase in NP. i. Carrying out horizontal analysis and knowing the major variation ii. Avoiding interest payment by paying a bank loan (May they have paid bank loans that is why that the interest will be low because of decrease in bank loans.) iii. Receiving profit on investment iv. Less bad debts due to cash sales policy v. Capital profit arising from sale of fixed assets or premium on issue of shares. vi. Less selling expenses by avoiding commissions and rebates.

(b) Manipulation
i. ii. iii. iv. v. vi. vii. Less provision for depreciation by changing the methods or rates Less reserve for bad debts In-correct allocation of expenses from revenue to capital such as repair charged to asset account Avoiding record of accrued expenses for example last months salary etc. Revaluation of fixed assets changing the method of stock from FIFO to LIFO

Ghulam Abbas

03009001533

GAsad@facebook.com

Code of Professional Ethics of Auditors

Meaning: Rules and regulations which are self imposed and morally excepted by the auditors and in-accordance with the direction of ICAP i. Integrity and Honesty Fairness in working and finding the results and reporting properly ii. Professional Competency Knowing the ever increasing audit practices and accepting the job of their related field. iii. Secrecy and Confidential Working Not telling secretes of the business to third party unless authorized by the client or it is a requirement of law. iv. Obeying professional guidelines of ICAP issued from time to time v. Avoiding un-due publicity for their business with exception of establishment of new firm, change in addresses, and information for membership book of ICAP and receiving any distinction award. vi. Avoiding personal interest in the business of client, for example taking loans, accepting gifts, and other trade relationships. vii. Receiving fair audit fee and no other commission etc. viii. Due honor/respect for other audit firms both in public and private ix. Providing professional resources to the new auditor in response to the communication letter. x. Crop-border activities: Appointed in other country independently or jointly the auditor will be required to follow the requirements of the international federation of accountancy if there are stricter from the local requirements of law. xi. Joint appointment responsibilities: Where a joint job is for the joint audit firm, the duties will be different but the responsibilities will be joint. For example ones duty is to examine to the expenses and other is responsible for liabilities, but negligence of one will be required from both.

Ghulam Abbas

03009001533

GAsad@facebook.com

Terminologies
1. Audit 2. External Audit: Independent auditor outside the business 3. Interim Audit: Audit of part of year accounts, not full year. 4. Offer Letter: 5. Audit engagement letter 6. Horizontal Analysis Comparison with previous year 7. Vertical Analysis 8. Management representation letter It is letter representation the management letter in response of the engagement letter answering various points raised by the auditor such as ICQ etc. 9. Correct Allocation Proper treatment of revenue and capital accounts 10. Double entry system 11. Teeming and leading Adjustment and re-adjustment of deficiency in an account for a certain period 12. Divisible Profit Profit legally available for dividend purpose 13. Capital Profit Profit realized on sale of fixed asset and other un-usual items such as premium on issuance of shares. 14. Investigation A detailed enquiry from within and outside the business and beyond the accounting record also for particular purpose such as advances or loan from bank, knowing the reason of declining business, proposed purchase and sale etc. 15. Negligence liability No proper care on examine the account resulting loss to the business as was held in Arbitage V/S Brewer and knit 16. Misfeasance liability Where auditor has not completely fulfilled his duty resulting loss to business. Loss not reported or not proper reported as held in London and General Bank Ltd Case. Where loan advances by the bank was not recoverable but where shown as good loan as auditor report was. (Value of the assets as shown in the B/S depends on realization.) 17. Libel Liability Injuring the good will of a person by personal remarks instead of qualification about account. As was held in Weld Blundell case V/S Stephen Case. (only accounts verification, not person name)

Ghulam Abbas

03009001533

GAsad@facebook.com

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18. Stock taking Physical inspect of closing stock. 19. ICQ List of questions 20. Audit Sampling The techniques of test checking used for selecting sample for audit purpose. 21. Errors and frauds Un-intentional mistake without any material benefit 22. Material Difference A major difference of actual and disclosed position 23. Qualified report 24. Unqualified report 25. Proper authorization Approval of a voucher by relevant authority 26. Correct casting Proper confirmation of calculations 27. Vouching Examination of voucher to confirm its fairness with the related transaction 28. Verification Examination of assets and liabilities shown in balance sheet in respect of their existence, valuation, ownership and proper disclosure 29. Proper disclosure Placement of different assets and liabilities in balance sheet according to their relevant group with required detail 30. Code of ethics 31. Principle errors 32. Clerical errors 33. Moral Check A check as employees mind not involve in ir-regulaties due to internal check, audit and external audit. 34. Letter of communication 35. True and correct view 36. True and fair view 37. Working Papers Detailed worked out for each item at financial statements and given in the notes attached. 38. Risk management 39. Deferred taxation 40. Underwriting commission Commission paid to financial institution for guarantee of issued capital. 41. Auditor is a watch dog and not blood hound. On test checking principle said like that. 42. International Accounting Standard 43. ISA

Ghulam Abbas

03009001533

GAsad@facebook.com

11 44. Quality Control Review Checking the quality of audit procedure adopted by the delegation, allocation and supervision of audit team. 45. Peers review Review of one audit firm by another. 46. Adverse report 47. No opinion report 48. Walk through test Overall observation of accounting system followed in business. What kind of principle followed? 49. Compliance Test Selection of same sample transaction to confirm the follow up of accounting procedure. 50. Substantive test Detailed and analytical review of horizontal and vertical data nature 51. Planning memorandum System and procedure followed for preparation of audit program and its further detail. 52. Scanning Detailed examination of some important transaction by senior auditors. 53. Flow chart General chart prepared to reflect the flow of transaction from beginning to end. 54. Cut off point A fixed data set out to confirm the final stage of accuracy such as physical inspection of closing stock on business closing year.

Ghulam Abbas

03009001533

GAsad@facebook.com