The entity and its environment

Company VF Services (Mauritius) Pte. Limited

Year ended 31 December 2017
Completed by Baba Karki Date 15 February 2018
Reviewed by Surendra Pathak Date

The auditor shall obtain an understanding of the following:

(a) Relevant industry, regulatory, and other external factors including the applicable financial reporting framework. (Ref: A24-29)
(b) The nature of the entity, including:
(i) its operations;
(ii) its ownership and governance structures;
(iii) the types of investments that the entity is making and plans to make, including investments in special-purpose entities; and
(iv) the way that the entity is structured and how it is financed to enable the auditor to understand the classes of transactions and events,
account balances, and related disclosures to be expected in the financial statements. (Ref: A30-34)
(c) The entity’s selection and application of accounting policies, including the reasons for changes thereto. The auditor shall evaluate whether
the entity’s accounting policies are appropriate for its business and consistent with the applicable financial reporting framework and
accounting policies used in the relevant industry. (Ref: A35)
(d) The entity’s objectives and strategies, and those related business risks that may result in risks of material misstatement. (Ref: A36-42)
(e) The measurement and review of the entity’s financial performance. (Ref: A43-48) <ISA 315.11>

As part of obtaining an understanding of the entity and its environment in accordance with ISA 315, the auditor shall obtain a general
understanding of:
(a) The legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates; and
(b) How the entity is complying with that framework. (Ref: Para.A7) <ISA 250.12>
The engagement team document the understanding in Part 2 of questionnaire attached below: Yes

If “NO”, the documentation is included in a separate form /schedule in: NA

Client’s use of service organisation

Does the entity use a third-party organization’s services that forms part of the entity’s information systems relevant to financial Yes
reporting?

If “YES”, does the engagement team document the understanding in accordance with ISA 402 “Audit Considerations Relating to Yes
an Entity Using a Service Organization”?

Prepared by an Audit Staff Reviewed by Senior

Sign Date Sign Date

THE ENTITY AND ITS ENVIRONMENT 1

Part 1 Compliance with accounting laws and regulations and selection of accounting policies

Non-compliance of law directly effecting the determination of material amounts and disclosures in the
financial statements <ISA 250.13-14, A8-A10>
Did inquiry on the management, and where appropriate directors of the entity, indicate that there was non-compliance with No
laws and regulations that may have a material effect on the financial statements?

If YES, what was the non-compliance? N/A

Did the entity have correspondences, if any, with the relevant licensing or regulatory authorities? No

If YES, did the inspection of these correspondences indicate any such non-compliance? NA

If YES, what was the non-compliance? No, Such Non-compliance is observed.

Selection and application of accounting policies <ISA 315.11(c), A35>

Is the client required to apply NFRS? No

If NO, what is the financial reporting framework Nepal Accounting Standard

applicable?
Did the client enter into significant and unusual transactions during the year? No

If YES, how did the client account for these N/A

transactions?
Is the client exposed to controversial or emerging areas for which there is a lack of authoritative guidance or consensus? No

If YES, what are the significant accounting policies N/A

applied to these areas?
Are there any changes in the client’s accounting policies during the year? No

If YES, what are the changes? N/A

What are the reasons for the changes? N/A

Are the changes appropriate and consistent with the requirements of the applicable financial reporting framework? N/A

Are there any newly issued financial reporting standards and/or regulations that the client is required to comply with when they No
become effective?
If YES, when and how the client should adopt such N/A
new requirements?
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatement?
No
1. Weaknesses in internal control, especially those not addressed by management.
No
2. Past misstatements, history of errors or a significant amount of adjustments at period end.
No
3. Significant amount of non-routine or non-systematic transactions including intercompany transactions and large
revenue transactions at period end.
No
4. Transactions that are recorded based on management’s intent, for example, debt refinancing, assets to be sold and
classification of marketable securities.
No
5. Application of new accounting pronouncements.
No
6. Accounting measurements that involve complex processes.
No
7. Events or transactions that involve significant measurement uncertainty, including accounting estimates.
No
8. Changes in the IT environment.
No
9. Installation of significant new IT systems related to financial reporting.
10. Other conditions and events:

THE ENTITY AND ITS ENVIRONMENT 2

Part 2 Understanding of client and its environment
The engagement team need not complete the questionnaire below if their understanding of the entity and its environment is
documented elsewhere in a free format.

Client History

Date of Incorporation: 2007 Place of Incorporation: Nepal

Industry factors <ISA 315.11(a), A24-29, Appendix 2>

In what industry/industries does the client operates Ref: Planning memorandum
(including the description of key features of the
business):
Does the client operate in a specialised industry, e.g. bank, insurance? NA

If yes, what are the special characteristics of the N/A

industry?
Does the client operate in a highly competitive market? No

If KNOWN, who are the client’s principal VFS Mauritius Nepal branch is the sole Visa processing application centre.
competitors?
Does the client rely on less than ten customers? No

Who are the client’s five principal customers and

what are their respective significance?
Does the client rely on less than ten suppliers? Yes

Who are the client’s principal suppliers and what are

their respective significance?
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?
No
1. The entity changed to operate in another industry
No
2. The entity changed to operate in a new sector in the supply chain of the industry
3. Other conditions and events:

Regulatory factors – over client’s operation <ISA 315.11(a), A24-29, Appendix 2> <ISA 250.12>
Is the client subject to specific Laws? No

Is the client subject to a legal jurisdiction(s)? Yes

If YES, what is (are) the legal framework(s) Income tax act 2002, VAT ACT 2052, Company Act 2006
applicable?
Is the client subject to particular environmental requirements? No

If YES, what are the environment requirements

applicable?
Are there any laws or regulations that may have a fundamental effect on the client’s operations? No

If YES, what are these laws and regulations? Income tax act 2002, VAT ACT 2052, Company Act 2006
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?

1. High degree of complex regulation. No

2. Inquiries into the entity’s operations or financial results by regulatory or government bodies No

3. Pending litigation and contingent liabilities, for example, sales warranties, financial guarantees and environmental No
remediation.
4. Other conditions and events:

THE ENTITY AND ITS ENVIRONMENT 3

 Other factors – over client’s operation <ISA 315.11(a), A24-29, Appendix 2>
Does the client operate in extremely poor economic conditions during the period? No

Is that any other external factors that need to be considered? No

If YES, what are these external factors?

Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?

1. Operations in regions that are economically unstable, for example, countries with significant currency devaluation or No
highly inflationary economies.
2. Operations exposed to volatile markets, for example, futures trading. No

3. Other conditions and events: No

Nature of the client - its operation <ISA 315.11(b)(i), A30-34, Appendix 2>

Approximately how many different product or product lines does the client have? 3 types

What are the principal ones? Logistic Income (Visa processing service fees)

Approximately how many outlets does the client have for distributing its products?
What are the principal ones?
Approximately how many different types of raw materials does the client use? N/A

What are the principal ones? N/A

Approximately how many locations does the client have for producing its product? 2

What are the principal ones? Lagankhel branch

day
Approximately how long is the client’s production cycle in days?
[That is, days lapse from purchase to finished goods]
day
Approximately how long is the client’s distribution cycle in days?
[That is, days lapse from finished goods to day of sale]
6%
Approximately how much is the % of client’s PPE to its total assets?
[That is, how capital intensive the client is.]
33%
Approximately how much is the % of client’s employee benefit costs to its total expenses?
[That is, how labour intensive the client is.]
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?
No
1. Developing or offering new products or services, or moving into new lines of business.
No
2. Expanding into new locations.
3. Other conditions and events:

Nature of the client – ownership and governance structure <ISA 315.11(b)(ii), A30-34, Appendix 2>

Are there any changes in controlling and/or significant shareholders during the year or subsequent to the year end? No

If YES, what are the changes N/A

At the balance sheet date, did the client have a controlling shareholder? No

If YES, who is the controlling shareholder and how much is the % N/A
interest in the client?
Is the immediate controlling shareholder the ultimate one? No

If NO, who is the ultimate controlling shareholder? N/A (VFS Mauritius is the branch office)

Are there any significant shareholders? No

THE ENTITY AND ITS ENVIRONMENT 4

 If YES, who are the significant shareholders and how N/A
much are their respective % interest in the client?
No
Are there any changes in directors during the year or subsequently?
If YES, what are the changes? Why are there
changes?
No
Are there any changes in key management personnel during the year or subsequently?
If YES, what are the changes? Why are there changes?
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?
Yes
1. Significant transactions with related parties.
No
2. Lack of personnel with appropriate accounting and financial reporting skills
No
3. Changes in key personnel including departure of key executives.
4. Other conditions and events:

Nature of the client – Client’s investments and group structure <ISA 315.11(b)(iii), A30-A34, Appendix 2>

Did the client have subsidiaries at the balance sheet date? No

If YES, which are the principal subsidiaries?

Did the client have special purpose entities at the balance sheet date? No

If YES, which are the special purpose entities?

No
Did the client have joint ventures at the balance sheet date?
If YES, which are the principal joint ventures?
No
Did the client have associates at the balance sheet date?
If YES, which are the principal associates?
No
Are there any material change in the client’s group structure during the year or subsequently?
If YES, which are the changes?
No
Did the terms of investment necessitate significant judgement to classify them as subsidiaries, joint ventures or associates?
If YES, what are such terms of agreements?
No
Does the client group have material goodwill on consolidation?
No
Does the client group have extensive intragroup transactions?
No
Does the client group put through complex consolidation adjustments?
Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?
No
1. Changes in the entity such as large acquisitions or reorganizations or other unusual events.
No
2. Entities or business segments likely to be sold.
No
3. Complex alliances and joint ventures.
No
4. Use of off-balance-sheet finance, special-purpose entities, and other complex financing arrangements.
5. Other conditions and events:

Insert or refer to client’s organizational structure below:

Finance <IAS 315.11(b)(iv), A30-34 & Appendix 2>

Did the client have non-current borrowing? No

What is the ratio of non-current borrowing to

equity?

THE ENTITY AND ITS ENVIRONMENT 5

 Is the client exposed to the following conditions/events indicating the existence of risks of material misstatements?
No
1. Going concern and liquidity issues, including loss of significant customers.
No
2. Constraints on the availability of capital and credit.
3. Other conditions and events:

Client’s Objectives and Strategies <IAS 315.11(d), A36-42 & Appendix 2>
What are the client’s objectives and strategies for managing capital?
Is the client exposed to the following conditions and events which may indicate the existence of risks of material misstatements?
No
1. Inconsistencies between the entity’s IT strategy and its business strategies
2. Other conditions and events:

Internal Measurement and Review <ISA 315.11(e), A43-A48>

Did the client internal financial performance measurement directly affect the remunerations of key management No
personnel?
If YES, how?
Did the client have the following internal performance measurement and review:

1. Key financial performance indicators for the company? Yes

Profit for each Monthly reporting
If YES, what are they?
2. Key non-financial performance indicators for the company? Yes
Company reputation,Innovation,Customer influence & value
If YES, what are they?
3. Budgets and variance analysis? No

4. Segment information? No
Yes
5. Divisional, departmental or other level performance reports?
6. Comparisons of an entity’s performance with that of competitors. No

External Measurement and Review <ISA 315.11(e), A43-A48>

Is the client an issuer of securities listed on a recognised stock exchange? No
Did the client subject to the following external performance measurement and review?
NA
1. Analysts’ reports? If YES, obtain a copy from client.
NA
2. Credit rating agency reports? If YES, obtain a copy from client.

THE ENTITY AND ITS ENVIRONMENT