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Proposal for audit services for the accounting period ending 31 August 2008

Czech British School, s.r.o.

KPMG ČESKÁ REPUBLIKA

Introduction

The management of Czech British School, s.r.o. (further Czech British School) has requested a proposal for the provision of audit services for the accounting period ending 31 August 2008 as follows :

an audit of your statutory financial statements for the 19 month period ending 31 August 2008 in accordance with the Act on Auditors and International Standards on Auditing and the relevant guidance of the Chamber of Auditors of the Czech Republic

a limited review of your financial statements for the 7 month period ending 31 August 2007 in accordance with the Act on Auditors and International Standards for Review Engagement and the relevant guidance of the Chamber of Auditors of the Czech Republic

Introduction • The management of Czech British School, s.r.o. (further Czech British School) has requested a

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Why KPMG Czech Republic?

Knowledge of the Czech British School, s.r.o. line of business

 

KPMG provides audit and advisory services to companies in the same or similar line of business as International School of Prague or OPEN GATE - Boarding school, osmileté gymnázium v Babicích, s.r.o. – see an overview of KPMG clients.

The knowledge and deep understanding of our client‘s business is fundamental to the KPMG audit approach.

Experienced and stable multi-disciplinary team

 

KPMG has a team of top professionals who have extensive experience in auditing major companies in various industrial and commercial sectors. Our team includes professionals from various areas – auditors, tax advisors, financial risk management and information risk management professionals, etc.

The results of our audit work bring a consistent approach to dealing with issues in individual companies.

Comprehensive services

KPMG has extensive experience in reviewing financial statements, prepared under Czech and other accounting standards (IFRS, US GAAP, EU Directives, national legislation of parent companies, etc.).

If you choose KPMG, the information obtained during our audit of the financial statements can be used for other related services, e.g. tax advisory services, due diligence, review of the internal management system, implementation of new information technologies, assessing information system risks, preparing marketing and comparative studies etc.

Why KPMG Czech Republic? • Knowledge of the Czech British School, s.r.o. line of business •

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG worldwide

KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than 104,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.

KPMG member firms are committed to being the business adviser of choice to the world’s most admired global organizations. We recognize that major global companies with operations in diverse countries have complex needs – whether they are addressing strategic and risk management issues, organizational and infrastructure change, cross-border mergers or acquisitions, foreign investments and other issues. Thanks to a thorough knowledge of the risks and limits of individual lines of business, KPMG assists its clients in focusing on the identification of opportunities to improve performance and shareholders‘ or member’s value.

Fundamental to KPMG’s approach is the thorough knowledge and deep understanding of our clients’ industries. We believe that this knowledge enables us to help our clients to achieve the best results in their respective industries. This is why we invest in continuously improving our knowledge of the industries we serve.

KPMG member firms serve many of these global companies, using our global network, professional skills and the very latest in knowledge-sharing tools and communications. Through our global network of linked practices, we keep up-to-date with the developments in International Accounting Standards, accounting and tax legislation of EU member states and have access to information that can be used for effective economic management.

KPMG worldwide • KPMG is a global network of professional firms providing Audit, Tax, and Advisory

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG in the Czech Republic

KPMG has been active in the Czech Republic since 1990, when the first office in Prague was opened. Currently, KPMG Czech Republic employs 650 people, with offices in Prague, Brno, České Budějovice, Jablonec nad Nisou and Ostrava.

Of our 528 professionals, 23 are partners, 24 certified auditors, 68 certified accountants and 42 tax advisors. At KPMG Czech Republic, a total of 28 qualified foreign practitioners are employed.

KPMG Czech Republic offers a wide range of advisory services aimed at improving your business. In addition to audit we provide tax services, risk advisory services and financial advisory services.

Our services are tailored to the needs of both local and foreign clients.

KPMG Czech Republic was awarded 1st place in the category named “Services For Companies” in the announcement of the 100 most admired companies in the Czech Republic in 2006 and 2007 (the CZECH TOP 100).

KPMG in the Czech Republic • KPMG has been active in the Czec h Republic since

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Our clients I

Our teams’ knowledge in various lines of business enables us to provide the best services to a large number of clients. Our experience includes cooperation with the following clients whose business activities are similar to those of Czech British School, s.r.o. (in alphabetical order):

EuroManagers

Institut environmentálních služeb

International School of Prague

New York University

OPEN GATE – boarding school, osmileté gymnázium v Babicích

Our clients I • Our teams’ knowledge in various lines of business enables us to provide

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Our clients II

Our major clients in other lines of business (in alphabetical order):

• Allianz pojišťovna Barum Continental BAWAG Bank CZ Celestica Ráječko Citibank Česká pojišťovna (group) • ČEZ
Allianz pojišťovna
Barum Continental
BAWAG Bank CZ
Celestica Ráječko
Citibank
Česká pojišťovna (group)
• ČEZ
ČSOB Pojišťovna
DHL Information Services (Europe)
ECM Real Estate Investments
EUROPHARM
GE Money Bank
HVB Bank Czech Republic

IMMOEAST Corporate Finance Consulting

J & T BANKA

K & K Capital Group

Kooperativa, pojišťovna

Nationale-Nederlanden životní pojišťovna

OKD (group)

Plus Discount

PPF (group)

První novinová společnost

Siemens (group)

Skanska (group)

Telenor Česká republika

Toyota Peugeot Citroën Automobile Czech

Živnostenská banka

Our clients II Our major clients in other lines of business (in alphabetical order): • Allianz

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Independence, Conflict Checks and Confidentiality

Independence – KPMG has a web-based tracking application (KPMG’s Independence Compliance System (KICS)) which monitors KPMG’s investments and other financial interests, as well as partners’ and managers’ personal investments that could compromise independence.

Conflicts. Our Conflicts Check System is based on a database that contains up-to-date information on current and prohibited relationships. At the request of the engagement team, our Ethics and Compliance Group generates a conflict report from this database, and the engagement partner reviews the report and acts on its findings.

Permitted Services. A KPMG internal application (called Sentinel) enables an engagement team and the lead audit engagement partner to review and approve KPMG’s service relationships with business entities worldwide, helping to ensure that no KPMG engagement team anywhere in the world unknowingly performs a prohibited service for an audit client or its affiliates in another country.

Confidentiality. KPMG has clear internal directives with respect to the confidentiality of client-related issues. All information received during engagements is treated as confidential. All KPMG personnel, including administrative, support, and technical staff involved in the engagement, sign an agreement not to discuss matters relating to the engagement with anyone, including other KPMG personnel, (except for members of their relevant client service team and authorized personnel of the applicable client or that client's representatives).

Independence, Conflict Checks and Confidentiality • Independence – KPMG has a web-based tracking application (KPMG’s Independence

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG Audit Methodology (KAM) I

KPMG is always looking to strengthen audit quality in line with the changing expectations of our clients, their investors and the regulatory authorities. We have long pursued this objective through the continuous assessment of our audit procedures, making sure that they remain as robust as possible and that they keep pace with the latest requirements.

The most recent evolution of our audit process is KAM – the KPMG Audit Methodology. Reflecting our traditional commitment to leadership in audit quality, our new approach goes beyond the rules developed to rebuild confidence in financial reporting. KAM is an acknowledgement of and response to the need for listed companies in particular to demonstrate maximum credibility and transparency in their reporting. At the same time, it meets KPMG’s goal of continuing to provide independent, rigorous and high quality audits.

KPMG Audit Methodology (KAM) I • KPMG is always looking to strengthen audit quality in line

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG Audit Methodology (KAM) II

There are four key principles that underpin KAM:

Full adherence to national and international accounting standards

Our audits are planned and designed to be performed in accordance with International Standards on Auditing, International Financial Reporting Standards and relevant national standards. These include, for example, those adopted by the Institute of Chartered Accountants in England & Wales, the American Institute of Certified Public Accountants and the Public Company Accounting Oversight Board.

A critical emphasis on the key procedures, risks and controls

Every aspect of KAM involves the clearest possible focus on the client’s financial statements. By emphasizing the critical nature of substantive procedures, effective risk assessment and control testing activities, KAM is designed to identify the risks that affect key captions, the audit procedures to address those risks, where the risks of potential misstatement are greatest and the effectiveness of internal controls in mitigating these risks.

Understanding the business by using industry-experienced professionals

The quality of our audit work depends on deploying professionals with precisely the right combination of technical skills and relevant industry experience. Using multi-disciplinary teams, we develop a strong understanding of our clients’ business processes, accounting policies and controls, together with the financial reporting issues specific to each organization’s industry and operations.

Global consistency, reinforced through rigorous co-ordination and continuity

KAM is used by KPMG’s auditors across all the countries in which KPMG firms operate worldwide. This means that, in any location where audit work needs to be carried out, our firms’ clients can be sure it will be performed by professionals working to the same methodology, processes and documentation. Global audit consistency is further reinforced through sophisticated technology and rigorous oversight.

KPMG Audit Methodology (KAM) II There are four key principles that underpin KAM: • Full adherence

This proposal is made by KPMG Česká republika, s.r.o. and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG Audit Methodology (KAM) III

A clear focus on your financial statements

These are the key phases that KAM defines for delivering the sharpest focus on the integrity and accuracy of our firms’

clients’ financial statements:

KPMG Audit Methodology

KPMG Audit Methodology

KPMG Audit Methodology (KAM) III A clear focus on your financial statements • These are the
Perform risk assessment procedures and identify risks Perform risk assessment procedures and identify risks Determine audit
Perform risk assessment procedures and identify risks
Perform risk assessment procedures and identify risks
Determine audit strategy and identify critical accounting matter
Determine audit strategy and identify critical accounting matter
s
1
1
Planning
Planning
1
1
Determine planned audit approach
Determine planned audit approach
Understand accounting and reporting activities
Understand accounting and reporting activities
Evaluated design and implementation of selected controls
Evaluated design and implementation of selected controls
Control
Control
2
2
2
2
Test operating effectiveness of selected controls
Test operating effectiveness of selected controls
Evaluation
Evaluation
Assess control risk and risk of significant misstatement
Assess control risk and risk of significant misstatement
Plan substantive procedures
Plan substantive procedures
Perform substantive procedures
Perform substantive procedures
Substantive
Substantive
3
3
Consider if audit evidence is sufficient and appropriate
Consider if audit evidence is sufficient and appropriate
Testing
Testing
Conclude on critical accounting matters
Conclude on critical accounting matters
Perform completion procedures
Perform completion procedures
perform overall evaluation of the financial statement and
perform overall evaluation of the financial statement and
4
4
Completion
Completion
disclosures
disclosures
Form an audit option
Form an audit opinion
Preliminary
Preliminary
decision on controls
decision on controls
Confirm
Confirm
decision on controls or
decision on controls or
1 1
or substantive approach for each
or substantive approach for each
2
2
substantive approach for each
substantive approach for each
audit objective
audit objective
audit objective
audit objective

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Planning

We will use a risk-based approach to understand Czech British School’s business, industry and environment. Our starting point will be to identify the areas where the risk of material misstatement in your financial statements is greatest through structured interviews with your management, analytical procedures, observation and inspection. This will involve considering Czech British School’s:

Financial reporting framework

Business and industry

Accounting policies and practices

Financial performance

Internal controls.

Timelines: Interim audit

Planning • We will use a risk-based approach to understand Czech British School’s business, industry and

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Control evaluation

Using a structured approach, we can evaluate Czech British School’s controls to assess the risk of significant misstatement for each audit objective. For audit objectives where we plan to rely on controls to modify the nature, timing and extent of our substantive procedures, our control evaluation may include:

The design and implementation of company-wide controls

Understanding the relevant accounting and reporting activities

‘Walk-through’ tests of selected transactions to confirm our understanding of how your accounting and controls work

Testing the operating effectiveness of selected controls.

Timelines: Interim audit

Control evaluation • Using a structured approach, we can evaluate Czech British School’s controls to assess

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Substantive testing

We will test selected audit objectives using substantive analytical procedures, tests of details or a combination of the two, as well as substantive procedures directed towards any fraud risk we have identified. In designing our substantive procedures, we will consider:

The characteristics of the class of transaction, account balance or disclosure

Our assessment of the risks of material misstatement identified during planning

The effectiveness of controls over these risks.

Timelines: Interim and final audit

Substantive testing • We will test selected audit objectives using substantive analytical procedures, tests of details

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Completion

We will review Czech British School’s financial statements and determine whether the audit evidence obtained for each audit objective reduces the risk of material misstatements to an acceptably low level. We will form conclusions on specific topics, such as litigation and claims, and prepare a final evaluation of any fraud-related matters.

Our audit opinion will be based on a review of the final financial statements and an evaluation of all audit evidence in accordance with applicable auditing standards.

Timelines: final audit

Completion • We will review Czech British School’s financial statements and determine whether the audit evidence

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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KPMG audit approach

Our audit of Czech British School will be designed to give you:

 

Fresh perspectives on opportunities to help secure continuous improvement in your financial processes, controls,

 

risk management and corporate governance framework

 

A clear and consistent focus on key issues across all your worldwide operations

No-surprises reporting which meets your deadlines

A year-round, hands-on approach that aims to anticipate issues and provides practical support in resolving them

A robust audit opinion.

Our audit includes in particular:

 

Identification of the company’s strategic and business risks in order to focus our work on the most significant areas

 

of the financial statements

 

Cooperation with other professional KPMG Czech Republic departments – including tax and information risk

 

management, etc.

 

Cooperation with employees in the accounting department in order to achieve a joint approach to the audit and

 

therefore reduce the time between closing the accounting books and issuing the audit report

 

Effective communication of results to the management of the Czech British School.

The scope of an audit

The scope of the audit work performed is designed to ensure that the financial statements of Czech British School

present, in all material respects, a true and fair record of the Company‘s assets and liabilities, equity, financial

position and results of operations for the given period in accordance with the Act on Accounting and relevant

legislation in the Czech Republic.

Timelines

According to the audit plan, we expect to map the internal control systems during the autumn and complete the

audit in the spring of next year. Exact dates of deadlines will be discussed with the management of the Czech

KPMG audit approach • Our audit of Czech British School will be designed to give you:

British School later on.

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Our team I

A team of professionals possessing the necessary knowledge, skills and experience is assigned to every KPMG engagement. The team’s ability to carry out a quality audit depends on a thorough understanding of the business processes, accounting procedures, internal controls and financial reporting issues specific to your industry and your company.

Our team therefore consists of individuals experienced in carrying out audits within the relevant industry and professionals with detailed knowledge of specific issues who would be pleased to provide assistance in those areas requiring specific knowledge, skills or tools.

The audit team may also include:

Tax professionals, including investment incentive specialists

Information risk management professionals

Forensic specialists

Valuation specialists

Financial instrument valuation specialists.

Our team I • A team of professionals possessing the necessary knowledge, skills and experience is

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Our team II

A table summarizing the names of key team leaders is presented below. Short curriculum vitae of the team leaders is also included as part of this proposal.

Name

Contact information

Position

Petr Škoda

tel. 222 123 548

Partner in charge of the engagement - audit

pskoda@kpmg.cz

Lenka Sedláčková

tel. 222 123 635

Manager - audit

lsedlackova@kpmg.cz

Partner in charge of the engagement

Your lead audit engagement partner, Petr Škoda, will serve as the primary contact for your management. He has the overall authority and responsibility for the audit engagement and key conclusions reached by the engagement team on all accounting and auditing matters.

Engagement Manager

Lenka Sedláčková will serve as the day-to-day audit liaison between Czech British School and KPMG Czech Republic. She will identify, schedule, and supervise the professionals who perform the day-to-day audit work for your organization, reporting directly to the lead partner.

Our team II A table summarizing the names of key team leaders is presented below. Short

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Client communication

Once appointed the auditor of your company, we will promptly agree on the dates of regular meetings or conference calls with the representatives of your company, during which we will review our independence, discuss the progress of our audit work and answer any questions you may have concerning your industry, your company’s business activities, operations and accounting, or the preparation of the financial statements. Irrespective of the subject, you will be granted free access to key members of our audit team and meetings will be planned in advance.

We trust that you will be satisfied with the level and method of communication. Our goal is to provide sufficient, but not overburdening information. Of course, the audit team will also present you with any issues discovered during the audit at the earliest opportunity.

Our team will be in regular contact with your Company throughout the year. We will be continuously sharing our experience of accounting, internal control systems, tax and information technology related issues with your employees. Knowledge sharing is one of the major additional benefits of our services.

Client communication • Once appointed the auditor of your company, we will promptly agree on the

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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Schedule

Provided service

Proposed scheduling

Deliverable

Deadline

A limited review in accordance

September 2007 – 1

Report on findings

  • 31 October 2007

with the Act on Auditors

week

Interim audit

- review of the

August 2008 – 1 week

Management letter in

  • 31 August 2008

functionality of the internal control

English

system for audit purposes

Audit of statutory financial

September 2008 – 1

An audit report on the

  • 31 October 2008

statements in accordance with the

week

statutory financial

Act on Auditors

statements in Czech and

English

A management letter setting out

n/a

Management letter in

  • 31 November 2008

our recommendations

English

Three weeks before we start our work, we will provide the companies with a detailed list of the supporting documentation required for the audit. We expect to discuss any significant audit findings at the end of the individual audit phases.

Schedule Provided service Proposed scheduling Deliverable Deadline A limited review in accordance September 2007 – 1

This proposal is made by KPMG Česká republika, s.r.o.

and is in all respects subject to the negotiation, agreement and signing of specific contracts.

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