Sayma Sultana Lina

ID: 114 171 017

Course Title: Auditing/Principles of Auditing

Final Assessment, Spring 2020

Discussion on Assignment No 01:

The report which is issued by independent auditors after their professional examination of the
entity’s financial statements as well as other related reports and contains the audit’s opinion, is

called audit report. Usually, the report covers the financial statement of a company’s a whole fiscal

year. The company shareholders as well as stakeholders, the board of directors, investors, banks
and many more uses the report to understand the financial health, transparency of financial
statement, management integrity of the company.
There are four types of audit report and each report represent different level of assurance.
Unqualified Audit Report
The standard unqualified audit report is issued when the following conditions have been met:
All statements must be included in the financial statements
The auditors must find enough appropriate evidence so that it can conduct and perform the
audit in accordance with International Standard of Auditing.
The financial statements have met the three standards of fieldwork and required have been
included
There is no need for any additional explanatory paragraph or modified wording in the
report.
Unqualified Audit Report with Explanatory Paragraph or Modified Wording
When an audit report meets the criteria of complete audit with satisfactory results as well as fair
presentation of financial statements, but the auditors believes that some additional information is
required, is call unqualified audit report with explanatory paragraph or modified wording.

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Qualified Audit Report

When the overall financial statement is fairly stated except a specific aspect of the report has some
limitation or failed to follow GAAP, is called qualified audit report.
correctly stated “except for” a specific aspect of them. Examples of this qualification are given
later in this chapter. It is unacceptable to use the phrase except for with any other type of audit
opinion.

Adverse Audit Report:

An adverse opinion is used only when the auditor believes that the overall financial statements are
highly materially misstated or misleading that they do not fairly presented the financial position
or results of operations and cash flows in conformity with GAAP. The auditor has to have enough
knowledge and adequate evidence to give this opinion.

Disclaimer Audit Report:

If the auditor fails to satisfy himself the whole financial statements is fairly stated, disclaimer
opinion is issued. It can happen due to several limitation on the scope of the audit or non-
independent relationship between auditor and client or there is a possibility of going concern
problem in the future.

Type of Audit Report is Issued by ACI Limited External Auditor

The type of audit report is issued for 2018-19 annual report of ACI limited by external auditor is
unqualified report with modified wording (Make Reference in the Report).

Unqualified report with modified wording (Make Reference in the Report) is also called shared
opinion or report. It is appropriate when the portion of the financial statements audited by the other
CPA is material in relation to the whole. The report does not include a separate paragraph that
discusses the shared responsibility, but does so in the auditor’s responsibility and opinion
paragraphs. The portions of the financial statements audited by the other auditor can be stated as
percentages or absolute amounts.

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Evaluation of the Auditor's Report to Shareholders

Firstly, we can see from the independent auditors report to the shareholder of ACI Limited on the
Audit of the consolidated and separate financial statements that according to the external auditor
,consolidated and separate financial statements give true and fair view of the consolidated financial
position of the group and the separate financial position of the company at 30 th June,2019.

Secondly, independent auditor work is to get sufficient and appropriate audit evidence about the
financial information of the business activities in the group. They are solely responsible for the
direction, supervision, performance and audit opinion of the group and the company audit.

Thirdly, name of auditors of the group companies has been mentioned in the note and independent
auditor of the consolidated financial position of the group and the separate financial position of
the company at 30th June2019, is not responsible for the work, performance and audit opinion.

Fourthly, independent auditor of the consolidated financial position of the group and the separate
financial position of the company at 30th June2019, has mentioned of material misstatement in
other information (other information comprises all of the information in the Annual Report but
does not include the financial statements and independent auditors’ report ) and they have nothing
to report in this regard as it is the responsibility of the management.

Based on the above information, we can say that it is unqualified report with modified wording.

Discussion on Assignment No 02:

Financial performance evaluates how well a firm is using its asset from its primary stage of
business and generating revenue so that they can understand the organization’s overall financial
condition about a certain period. Stakeholders, investors, shareholders, banks, creditors, suppliers,
management of the company uses financial performance information of the company according to
their own interest.

Evaluation of Financial Performance of ACI Limited

From the financial information of year 2018-19 along with last five years, we can see that the net
income after tax is 549 million which is lower than last five years. After evaluating the report, I
have found some reasons which may cause for lower net income in the fiscal year of 2018-19.

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Investment in subsidiaries, associates and joint ventures by ACI Limited as well as the operating
cost of new Pharmaceutical unit which has been waiting for FDA approval can be counted as one
of the reasons for lower net income. Another reason can be the adverse interest rate which might
have increased the expense interest on loan. Moreover, there was a massive decline in the rice
import in Bangladesh due to good harvest of boro in 2018-19. As a result, the local price of rice
has fallen compared to global price index. In 2018-19 fiscal year, the company has also faced
domestic currency devaluation compare to foreign currency.

Though ACI Limited total revenue was Taka 21,796 million at the fiscal year end of 2018-19 far
better than last five year, the overall profitability has been affected specifically due to adverse
interest, devaluation of local currency and the FDI approval from new Pharmaceutical unit.
Therefore, after the evaluation we can stated that in spite of some massive challenges, ACI Limited
was able to increase their business and their business performance is well balanced.

Financial position of the company shows the current balance of the assets, liabilities and equity in
the statement of financial position which is the one of the financial statements. Financial position
allows the users to calculate couple of financial ratios on the basis of liquidity risk, credit risk,
business risk and financial risk from the given statement of financial position information and
critically evaluate the entity’s financial health.

Evaluation of Financial Position of ACI Limited

For evaluating the financial position of ACI Limited, focused on the liquidity activity ratios
through identifying the areas of activity ratio. In 2018-19 statement of financial position, the
current assets were 1.13 times the value of current liabilities. That ratio was less than the 1.18
times at the financial year of 2017-18, an indication of decrease in the current ratio. It is an
indication that the company’s obligation to meet current debt has been decreased. The quick ratio
of previous year and this year is same (0.92 times) which means the company’s obligations to meet
current short-term debt have not changed at all. Utilization of unused resources though investment
could a reason for decreased liquidity ratio. In 2018-19 financial statement, the return on equity
were 3.82 percent which means the company’s return on investment has also decreased. The
inventory turnover of the company has decreased from 2.45 times to 2.25 times and the debtor’s
turnover has also decreased from 5.16 times to 4.35 times which means collectivity of inventory

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and debtors obsolesce are likely to be assessed as high inherent risk and therefore warrant
additional attention in the current years audit.

The decline of local rice price against global price, new investment, adverse interest rate, as well
as deferred tax payment are the reasons for lower ratios for fiscal year 2018-19 annual report of
ACI Limited.

Discussion on Assignment No 03:

Internal control system is a set of policies and procedures to give management assurance that the
company is achieving its objectives and goals. Management is responsible to establish and
maintain an effective system of internal control. The audit committee is to monitor these controls
and to review the effectiveness of the system as a whole. An effective internal control system
provides reasonable assurance about policies, processes, tasks, behaviors and other aspects of an
organization, facilitate its effective and efficient operation, make sure the quality of internal and
external reporting and help to ensure compliance with applicable laws and regulations.

Strength

1. Internal controls ensure that employees have been working in accordance with the
organizations policies and procedures.
2. ICS makes sure that the company has achieved its objective with its simplicity, wide
acceptance and effectiveness.
3. After receiving report of different activities, if management can compare them with key
variables, it is an indication of strong internal control.
4. Constant structure of authorization in every stage of the employee procedures is an
indication of strong internal control as it helps to track problem easily and prevent
fraud.
5. A strong internal control of a company controls both physical and digital access and
record information reliably along with producing accurate reporting.
6. Saves companies resources like tangible and intangible assets from waste and theft.

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Weakness

Internal control can never be completely effective, regardless of the core followed in their design
and implication. Even if management can design an ideal system, its effectiveness depends on
the competency and dependability of the people using it. Weaknesses might grow through
inconsistent application, frequent discrepancies and lack of acceptance of company policies and
procedures by employees.

Therefore, Procedures for monitoring the appropriateness and effectiveness of the identified
controls should be embedded within the normal operations of the organization. The reports from
management should provide a balanced assessment of the effectiveness of the system of internal
control in the areas covered.

The Role of Internal Audit Committee in ACI Limited

Audit committee is a sub-committee of the board of directors which assists the board in fulfilling
its oversight responsibilities. The audit committee assists the board of directors to ensure financial
statements presents true and fair view of the state of affairs and good monitoring system within
the business.

In ACI Limited, the audit committee is consisting of four members where the chairperson is an
independent director and all members are financially literate as per the CG Code conditions. The
ACI audit committee held four meetings in a fiscal year according to the standard. It reviews the
quarterly and annual financial statement before submitting to the board for approval, monitor
internal control efficiency as well as management’s discussion. It also analysis statement of all
related party transactions and management letter about the weakness of internal control which is
issued by the statutory auditors. Financial reporting procedure, hiring and works of the independent
auditors has also been monitored by the audit committee. Observe the application of accounting
policies, principles as well as the internal auditing and compliance process. Audit committee
ensures that the company is aware of the different risks associated while doing business and is
prepared to counter those risks through systematic approach.

Moreover, the report has presented the possible credit, liquidity and market risk related to
operations in the financial statements and notes. It also mentioned that proper steps have been
taken throughout the year to reduce it along with feasible strategy not to jeopardize the company

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operation for the near future. Plus, company tried to maintain periodic actions plans as well as mid
and short term strategies to keep the sustainability of its financial performance and positions. To
further strengthen the controls, the Company has introduced Quality Management System and
Environmental Management System which for now can be treated as the weakness of the internal
control.

Therefore, from the above discussion we can state that the standard of ICS in ACI Limited and the
activities of the audit committee are satisfactory according to the standard.

Discussion on Assignment No 04:

Corporate governance is a set of rules, practices and process which has been used to direct and
control an organization. It provides recommendation about the behavior and structure of a firm’s
board of directors issued to compensate for deficiencies in a country’s corporate governance
system regarding the protection of shareholders’ rights. According to each country’s norms,
culture, industrial structure, corporate governance content varies. However, the aim of every
country corporate governance code is to improve the quality of company’s board governance and
to increase the accountability of minority shareholders while increasing the shareholders’ value.

There are two types of corporate governance. One is mandatory (rule based) and the second one is
voluntary (soft law). Companies have to follow all the legal rules in mandatory approach whereas
in voluntary approach following all the legal rules is not mandatory.

In Bangladesh, the corporate governance is not mandatory for companies. It is a comply or explain
approach. The first aim is to developing corporate governance practices so that all the listed
companies could get the benefits from it. However, complying with guidelines can be costly
specially for small companies. Therefore, the guidelines require the companies to obtain a
‘certificate of compliance of conditions of Corporate Governance Guidelines of the Commission’
from a Chartered Accountant or a Cost & Management Accountant or a Chartered Secretary and
send it to the shareholders along with their annual reports. It helps to easily regulate the market as
it makes sure systematic verification while reducing the cost of complying with the corporate
governance guidelines.

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Evaluation of ACI Compliance with the Corporate Governance Code

Compliance with Corporate Governance code is the responsibility of the Company as it is an

essential element for any successful organization .Compliance of Corporate Governance of the
ACI Limited for the year ended on 30th June 2019 have been examined under the Corporate
Governance Code which relates to the gazette Notification No. BSEC/CMRRCD/2006-
158/207/Admin/80 dated 3rd June 2018 of Bangladesh Securities and Exchange Commission
(BSEC).

From the report, it is clear that after obtaining required information and explanations that ACI
Limited followed all the Corporate Governance Conditions issued by the commission along with
related Bangladesh Secretarial Standards (BSS) as adopted by the Institute of Chartered Secretaries
of Bangladesh (ICSB) as they are not inconsistent with CG Code. In addition, the company
complied with proper books and records have been kept by the Company as required under the
Companies Act 1994, the securities laws and other relevant laws.

Though, the inspection of the report was limited by assurance of the management application of
CG Code and couple of conditions are still in progress to comply such as a listed company MD
or CEO, CS, CFO and HIAC, shall not hold any executive position in any other company at the
same time, it can be stated to the shareholder that the governance standard in the ACI Limited is
satisfactory.