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1.1 Introduction Human being cannot gain all knowledge by reading books, journals, newspaper and his/her academic text book. Each and every people in our society face new challenges every day while they work. Only academic education is not enough for the students to learn things and confidence among student to reach his/her own desired destination in days to come and stand on his own feet. The students of Daffodil International University who are enrolled in the BBA Program have to take a mandatory 3 months internship program at any organization. Students have the opportunity to gain practical knowledge through the Internship Program. In this program I was assigned to work with ACNABIN Chartered Accountants. One of the renowned Chartered Accountants firms in Bangladesh. The Internship Program is to gain a practical experience how the audit work is planned, performed and administrated in different organizations and institution in Bangladesh. 1.2 Origin of the Study Theoretical and practical knowledge each are important phases of learning. Perfect combination of each practical and theoretical methods is important for holistic learning. Theoretical knowledge has its own significance in the learning. it is the base of doing something practically. Practical knowledge assists us to attain the exact techniques that come to be the tools of our job. Learning during internship is the best manner of acquiring knowledge by using each practical and theoretical aspects of a thing or situation (Scholarship Positions, 2013.,). Since practical orientation is an integral a part of the BBA degree requirement, I was deputed by the department of business administration, Daffodil university to ACNABIN Chartered Accountants(Internship Report, 2016.,). I have started my internship at ACNABIN Chartered Accountants at BDBL Bhaban (level-13), 12 kawran Bazar Commercial Area, Dhaka-1215, on 25th February, 2018. After completion of my internship program I am submitting my internship report focusing on Audit Procedures of ACNABIN Chartered Accountants under supervision of SHAHANA KABIR, Assistant Professor, Department of Business Administration, Faculty of Business Economics, Daffodil International University. 1.3 Objectives of the Study The objectives regarding the study are as follows To evaluate audit procedures of ACNABIN Chartered Accountants whether it Complies with Bangladesh Standards on Auditing and International Standards on Auditing which will ensure the quality of audit report for corporations, companies and non-profit making organizations. To evaluate whether an audit report gives assurance regarding true and fair view of presentation about financial statements. Department of Business Administration, Daffodil International University Page 1 Audit Procedures of ACNABIN Chartered Accountants To identify the overall audit administration followed by ACNABIN Chartered Accountants in conducting audit of the financial statements for new and existing client. To understand how ACNABIN Chartered Accountants establishes true and fair view of presentation through its audit report. 1.4 Rational of the Study Audit is a device, a device of financial control, which is hired via the general public or personal area or a person to protect itself in opposition to fraud, extravagance and more importantly to convey credibility to the auditor. Having an independent and independent auditors confirming that an employers claims approximately its economic position, and the process in the back of these claims, are true and truthful is beneficial for a huge range of reasons, thats why my take a look at specializes in the overall audit procedure of CA company specially ACNABIN Chartered Accountants and to recognize how they establishes authentic and fair view of presentation via their audit file. 1.5. Methodology of the Study Methodology is the way to systematically solve the research problem. This study has been Comp The study has been initiated only to find or explore the insight of the issues of the Audit Procedures of ACNABIN Chartered Accountants. So, the study is an exploratory research. In order to make the report more suitable and meaningful two sources of data has been widely used. a. Primary source of information Face to face conversation with the partners, audit managers and audit staff. Discussing with articled students regarding different areas of audit procedures while working with them. Practical work exposures. b. Secondary source of information Annual audit report, management audit report, accounting system and audit working paper. Studied Bangladesh Standard on Auditing various accounting books and journal. Internet. Department of Business Administration, Daffodil International University Page 2 Audit Procedures of ACNABIN Chartered Accountants 1.6 Scope of the Study After completing 126 credits in Daffodil International University, I got appointed in one of the largest and renowned firm named ACNABIN Chartered Accountants which explored a vast scope for the study as follows Audit procedure and independent policy which is followed by the firm for performing any audit. Background and prospective of the firm. Audit clients status which is being audited by ACNABIN Chartered Accountants. Audit administration of the firm, which is followed by the organization for performing any audit. The report describes the audit procedures of ACNABIN Chartered Accountants. It also describes the present condition, future prospect, strength, weakness of the company. This report provides clear concept about the auditing activities. 1.7 Limitations of the Study Like any other study the limitations of this study is not out of questions. But the following factors seem to me the main points of weakness of this study. This weakness may be termed as limitation of the study. These limitations are as follows As an independent audit firm, the information that has collected within three months is not adequate for this study. Annual audit procedures are a confidential documents or objects to the firm, so it is very difficult to present the exact format of annual audit procedures of the firm. As the engagement time was not for so long, thats why it was not possible for me to know all about the annual audit procedures of the firm. The depth analysis has been limited to the extent of information. The study has conducted within a very limited time. As it is my first practical experience I may not be able to cover all the aspect of the audit procedures. Department of Business Administration, Daffodil International University Page 3 Audit Procedures of ACNABIN Chartered Accountants 2.1 Introduction The global affiliations of ACNABIN Chartered Accountants have enabled the firm and its people to obtain training overseas and up-to-date information and knowledge in the profession. Currently, ACNABIN Chartered Accountants is an independent member of Baker Tilly International, an international accounting network of 149 firms in 125 countries. ACNABIN was associated with Arthur Andersen, LLP the then global leader in the profession till the closure of the accounting conglomerate in 2002. Since the firms inception, ACNABIN has been providing market survey, management review and consultancy services to clients actively involved in industry, trade, finance, microfinance, education, health, social services, and agriculture in the private, public and NGO sectors throughout Bangladesh, as well as to various UN agencies and other development partners. ACNABIN has been appointed by various governmental and non-governmental organizations to carry out consultancy services for donor aided development projects. Many of those engagements involved projects funded by international agencies such as the World Bank, ADB, UNDP, UNICEF, CIDA, FAO, ILO, IFAD, SIDA, USAID, ODA, European Commission (EC), CARE International, DANIDA and Save the Children. ACNABIN has sufficient depth in conducting market survey with expert resources as well as it has adequate logistics facilities backhand and personnel to be able to carrying out research and its plan implementation. It is undoubted that the organization possesses demonstrable knowledge of commodities and services procured by UN Agencies. ACNABIN is also an enlisted auditor of USAID and European Commission Audit (Assignment Point, 2018.,). 2.1 Historical Background of ACNABIN ACNABIN Chartered Accountants was formed in February 1985, with a mission to continually add value by helping clients succeed. The firm is in public practice for more than 32 years. The then largest partnership firm was founded with a vision to build an institution which would foster an environment for leadership, continuous growth, learning, and collaborations. Over the past twenty-seven years, the firm has become one of the leading and most reputable chartered accountancy firms in Bangladesh with global affiliations. At present, ACNABIN has ten partners whose expertise in audit, accounting, review, business consulting, business process outsourcing, technology solutions and taxation has established the firm as a multidisciplinary organization. All the partners have many years of experience of working both at home and abroad and with international consultants and organizations operating locally and globally. ACNABIN is regarded as one of the top firms of chartered accountants in the country context and has significant exposure in the relative market (Assignment Point, 2018.,). Department of Business Administration, Daffodil International University Page 4 Audit Procedures of ACNABIN Chartered Accountants The name ACNABIN comes from the acronyms of the founder partners AABM AzizuddinCAnwaruddin ChowdhuryNAbu Syed Mohammad NayeemAMohammad AkhtaruzzamanBATMA BariIIftekhar HossainNMohammad Nurun Nabi 2.1.2 Profile of the Firm Name of the Audit Firm ACNABIN Chartered Accountants Date of Establishment 15th February, 1985 Address of the firm BDBL Bhaban (13th Floor) 12, Kawran Bazar Commercial Area Dhaka-1215, Bangladesh Phone 880-2-8144347-52 Fax 880-2-8144353-54 E-Mail [email protected] Web site www.acnabin-bd.com. 2.1.3 Registration of Firm ACNABIN Chartered Accountants firm is registered under the Institute of Chartered Accountants of Bangladesh in the year 1985. 2.1.4 Associations Associated with ASNAF-ASEAN Accounting Firms, Singapore since 18February 2003. Department of Business Administration, Daffodil International University Page 5 Audit Procedures of ACNABIN Chartered Accountants USAID and EC Enlisted. In 1993 ACNABIN has been enlisted by the United States Office of Regional Inspector General/Audit, Singapore to perform financial audits of USAID fund recipients in Bangladesh. ACNABIN has been also enlisted by the European Commission to conduct financial audit of the recipient of their fund. In July 2005 ACNABIN achieved Representative Firm status of Baker Tilly International. Baker Tilly is an independent member of Baker Tilly International. Baker Tilly International is a network of high quality, independent accountancy and business service firms, all of whom are committed to providing the best possible services to their clients, in their own marketplaces, and across the world, wherever the client needs help. Baker Tilly International is the 8th largest network in the world by fee income and is represented by 122 firms in 75 countries, with a global aggregate fee income of US 1.82 billion and 18,600 staff worldwide. The main purpose of all audit engagement is more or less same to provide the audit report to the interested parties on the result of the audit investigation. To achieve this objective, the auditor, collects necessary and relevant information regarding the clients business to understand the overall business. Examines clients financial statements to determine whether they are prepared in accordance with GAAP and whether they give a true and fair view of the clients business. Provides audit report through which he expresses his opinion. The audit procedures followed by the auditor to conduct an audit largely dependent on the size, nature, type, complexity and circumstances of the clients business. Emile Woolf in his book Auditing Today describes an extensive audit procedure which covers more or less all the steps followed by the auditor. 2.1.5 Membership ACNABIN is the member of Metropolitan Chamber of Commerce and Industries The Dhaka Chamber of Commerce and Industries American Chamber of Commerce in Bangladesh. 2.2 Mission of ACNABIN We adhere to the strictest principles of client confidentiality. The sensitive and competitive nature of proprietary information and the maintenance of trust demand it. We have built our success on such principles. We do our utmost to earn and keep client trust. Department of Business Administration, Daffodil International University Page 6 Audit Procedures of ACNABIN Chartered Accountants 2.3 Vision of ACNABIN ACNABIN go beyond the traditional auditor and client relationship by becoming trusted business advisor. Also ACNABIN Chartered Accountants to become trusted leader in the market ensuring highest level of professional ethics and competencies while securing safe and trusted position in the market for financial institutions, telecommunications, foreign branch liaison offices and NGOs, still see wider space to get involved in other sectors in the country and in the region. 2.4 Partners Profile and Their Area of Specialization NameOfficeArea of ProfessionalPrimarySecondaryABM AzizuddinDhaka OfficeAuditConsultancyMohammad Nurun NabiDhaka OfficeAuditConsultancyIftekhar HossainDhaka OfficeConsultancyAuditATMA BariDhaka OfficeTaxAuditA.S.M NayeemDhaka OfficeAuditTaxMd. MoniruzzamanDhaka OfficeAudit/TaxConsultancyMd. Mominul KarimDhaka OfficeAuditConsultancyMd. RokonuzzamanDhaka OfficeAuditConsultancyMd. Reajul IslamDhaka OfficeTaxConsultancyMuhammad Aminul HaqueDhaka OfficeAuditConsultancyAssurance Sources Partners Profile and Their Area of Specialization Department of Business Administration, Daffodil International University Page 7 Audit Procedures of ACNABIN Chartered Accountants 2.5. Relationship with International Accounting Firm Affiliation with global auditing/accounting company ACNABIN is an impartial member of Baker Tilly international, 8th biggest network inside the world with 145 impartial member firms in 110 countries. Formerly associated with ASNAF-ASEAN accounting firms, Singapore since 18 February 2003 to 2010. Was an authorized representative firm of former Andersen SC until July 2002 USAID, EC and CIDA enlisted in 1993, we have been enlisted by the United States Office of Regional Inspector General/Audit, Singapore to perform financial audits of USAID fund recipients in Bangladesh. We have been also enlisted by the European Commission and Canadian International Development Agency to conduct financial audit of the recipients of their fund. Collaboration with other consulting firms ACNABIN has been able to establish close working relationship with many national and international consulting firms in Bangladesh through its efficient and dedicated services. ACNABIN has enriched its professional base for serving the clients interest in the best possible manner. 2.6 External Activities of Partners Mr. ABM Azizuddin, FCA, one of the founder partners was the President of The Institute of Chartered Accountants of Bangladesh (1990) and presently a council member and the Chairman of Board of Studies. Three other partners are involved in different committees of the Institutes. Iftekhar Hossain is now working as administrative partner of ACNABIN Chartered Accountants. 2.7 Achievements of Firms A brief Statement on the Outstanding Activities and Innovation by ACNABIN Chartered Accountants ACNABIN introduced stipend to attract brilliant students to the profession of accounting in Bangladesh. It has introduced and implemented several forms for an effective audit field work. It is considered to be the market leader in audit and evaluation of microfinance organization. Services Rendered Abroad Since its incorporation, ACNABIN has successfully performed the following overseas assignments Consultancy assignment on Accounting in DPR of Korea. Department of Business Administration, Daffodil International University Page 8 Audit Procedures of ACNABIN Chartered Accountants Financial Analyst for Operational Performance of Nirdhan, Nepal, Funded by World Bank. Study of Micro-Finance Institution Capacity Assignment, Kuala Lumpur, Malaysia. Verification of Financial and Accounting System of Rural Credit Operations of Bhutan BDFC, Thimpu, Bhutan. Vivekananda Sava Kendra O Sishu Uddayan, West Bengal, India. Hosting of International Internship During October-November, 2001, ACNABIN has hosted an International Internship program for two (2) employees of Bank of Indonesia, Indonesia on External Audit of Micro finance Institution in Bangladesh. (iv)Firm Ranking by Fee Size for City and/or Country Bangladesh Bank, the Central Bank of Bangladesh Government has placed ACNABIN in the 1st position out of 82 enlisted firms in last three years, now its position is 10th.There are total 174 audit firms in Bangladesh, of which five (5) firms have 6 or more partners and ACNABIN is one of those 5 firms. 2.8 Services Provided by ACNABIN Department of Business Administration, Daffodil International University Page 9 Audit Procedures of ACNABIN Chartered Accountants ACNABIN Chartered Accountant provides various type of service to different types of clients which include government bodies, donor agencies operating in Bangladesh, MNCs, private business enterprise. The services provided by the ACNABIN are as follows Audit Tax LegalAdviceAssurance OthersAdvisoryServices Outsourcing Consultancy Figure Service provided by ACNABIN 2.8.1 Audit Assurance Services ACNABIN Chartered Accountants has professionals expert provide a variety of audit services based on a strong understanding of accounting standards which is related with the Bangladesh standards on Auditing and global standards on Auditing. These are complemented by an appropriate knowledge of business systems, processes and controls. ACNABIN is committed to delivering a personalized and focused service and presenting solution based advice to give its clients and their stakeholders the assurance required. Risk based audit approach of ACNABIN ensures that it focus on significant business issues affecting our clients financial statements. Audit services are Statutory audit Internal audit Department of Business Administration, Daffodil International University Page 10 Audit Procedures of ACNABIN Chartered Accountants Special audit Cost audit Compliance audit Management audit Performance audit Interim audit. 2.8.2 Tax and Legal Advices ACNABIN Chartered Accountants provide services of tax legal advices which are designed to help its clients to apply the most effective business strategies. With our wide-ranging industry knowledge and experience, ACNABIN is committed to deliver this and meet clients highest expectations. ACNABIN works closely with clients to deliver timely, high quality tax services to maximize tax planning opportunities and find the right answers to the tax challenges in their respective industries. ACNABIN offer advice tailored to clients needs and circumstances and proposes solutions that will enable clients to move forward Corporate individual tax planning Personal income tax Deferred tax computation and application Indirect tax Tax investigations Tax compliance and preparation of various tax returns Formation, incorporation, liquidation and winding up of companies Preparation and filing of annual return Formation and registration of companies and close corporations Maintenance of statutory records Amendments to and registration of statutory details Increase of share capital Change of Articles Memorandum Preparation of special resolutions Department of Business Administration, Daffodil International University Page 11 Audit Procedures of ACNABIN Chartered Accountants Advice on secretarial matters relating to the companies act. Management of litigation Management of legal disputes License issues, Compliance with relevant laws regulations Correspondence with Corporate Regulatory Bodies Drafting, reviewing providing opinion. Agreement undertaking etc. Legal notice etc. 2.8.4 Consultancy Services Management accounting services Management consultancy Structured financing advisory Business planning and project feasibility studies Standard operating procedures Fixed assets management Accounts receivables management Inventory management Performance measurement Business valuation Process improvement services Cost management services. 2.8.5 Outsourcing Services ACNABIN offers business outsourcing solution that delivers a high level of confidence and professional results by focusing your business. Main outsourcing services are included Accounts payable processing Payroll and payroll tax processing General ledger and financial statement processing Human resource support Preparation of management accounts and management information systems Preparation maintenance of books of accounts Book keeping and preparation of final accounts. P Department of Business Administration, Daffodil International University Page 12 Audit Procedures of ACNABIN Chartered Accountants 2.8.6 Others Services Accountancy and management training Data processing with computers Privatization consultancy (includes pre-privatization review, restructuring, valuation in particular and privatization assistance in general) Other accounting ancillary services including investigation, internal management audit. Micro-finance consulting Human resource development. 2.9 Human Resources SL. No.Personnel NumberNumber01.Partners1002.Professional Staffs114-Senior Director-Taxation5-Director-Audit Consultancy (Chartered Accountant)4-Manager-Audit Consultancy (Chartered Accountant)8-Manager-Taxation Corporate Affairs (Chartered6Accountant)-Deputy Manager-Taxation Corporate Affairs5-Deputy Manager-Audit Consultancy12-Senior Assistant Manager-Audit Consultancy18-Senior Assistant Manager-Taxation Corporate Affairs9-Assistant Manager-Audit Consultancy15-Assistant Manager-Taxation Corporate Affairs8-Executive and Junior Executive-Audit, Consultancy 24Taxation03.Articled Students26804.ACCA Trainee6205.Intern Students1306.Supporting Staff22Total489 Source Official Records of ACNABIN. Department of Business Administration, Daffodil International University Page 13 Audit Procedures of ACNABIN Chartered Accountants 2.10 Analysis of Total Practice Turnover WorkPercentageAudit45Accounts preparation (including data processing and book keeping)5Tax30Financial advisory services10Management advisory services10Total100 Source Analysis of Total Practice Turnover 2.11 Insight of ACNABIN Learning ACNABIN Chartered Accountants never stop learning. ACNABIN is committed to maintaining expertise in its field of practice, passing along that learning to their clients through impeccable Department of Business Administration, Daffodil International University Page 14 Audit Procedures of ACNABIN Chartered Accountants service and high quality service delivery. It is recognized thought leaders frequently sought out for publishing opportunities and speaking engagements. Allow them to share their learning, expertise and experience in concise, easy to understand articles. Update ACNABIN updates section houses all technical update newsletters from the accounting profession in order by most recent date. Articles The articles section of ACNABIN is home of all its professional staff and student written articles pertaining to a myriad of accountancy profession related topics. Career ACNABIN hasits mission and vision thinking for the future demand and a consequence considering its glorious past. For that ACNABIN always make sure that its staffs getting proper training, support, guidance and latest updates that are needed for doing good work with dynamic clients. Its benign administration always make sure that all the staffs getting proper environment for doing their duties in an efficient manner so that their experiences add a great value to services that it render towards its clients. Throughout journey with ACNABIN anyone will be able to meet and gain knowledge and insight that will stay with them for the lifetime. Whenever anyone join on ACNABIN and how long he or she choose to stay ACNABIN assure them that they will have valuable experiences with versatile types of clients which will lead their career towards being an efficient and true profession. Department of Business Administration, Daffodil International University Page 15 Audit Procedures of ACNABIN Chartered Accountants 3.1 Introduction Audit is an evaluation of a person, organization, system, process, enterprise, project or product. Audits are performed To ascertain the validity and reliability of information. To provide an assessment of a systems internal control. The goal of an audit is to express an opinion on the person/organization/system in question, under evaluation based on work done on a test basis. Due to practical constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when it is free of material misstatements. 3.2 Literature Review Earlier many internship report shave been written in context of audit procedures of a Chartered Accountants firm. The literature have exist that what are the audit procedures of ACNABIN Chartered Accountants. Earlier, only a few internship report shave been written in context of audit procedures of a Chartered Accountant firms. Auditing practice has a much longer history than many of the other developments that can be considered and the large Chartered Accountant firms, in which many financial auditors work have become influential advisory institutions throughout the world. Thus, auditing has provided the model which has influenced the design of auditing practice in many other fields. Computer Assisted Auditing Tools and Techniques (CAATTs) are the tools which were previously and now still in greater use by auditors in performing audits. One of the most commonly used CAATTs. GAS is a software package which is used by auditors to analysis and audit either live or extracted data from a wide range of applications. GAS also includes several tools, including software that enables extraction of data from a clients system and analysis of that data, statistical software and audit expert system. GAS also includes several tools, including software that enables extraction of data from a clients system and analysis of that data, statistical software and audit expert system. There are several research concentrate on GAS which particularly look into the adoption of its usage. For example, Wehner and Jessup (2005), Debreceny et al. (2005) and Braun and Davis (2003), While most of the researchers look into the adoption of GAS, only few papers discussed about its usage by external auditors and only one of them specify the usage for financial statement auditing. Most of the research paper shows that extensive research has been done with internal audit software rather than external audit software. For example, Debreceny et al. (2005) found that there is no evidence that GAS is use by external auditor in audit procedure. Havelka and Merlot (2007) have developed a model of IT audit quality which comprise of five factors that affect the IT audit quality. These factors include client, IT audit personnel, IT audit organization, target process or system and audit process/methodology factors. Maletta (1993) examined the decisions of Department of Business Administration, Daffodil International University Page 16 Audit Procedures of ACNABIN Chartered Accountants external auditors to use internal auditors as assistants throughout the audit process. This study found that external auditors use a complex process. When deciding whether or not to use the internal auditors as assistants, and also that there is a relationship among the three factors affecting the strength of the IA function (competence, work performance and objectivity). The results of the analysis indicated that when inherent risk is high, auditors consider the work performance of the internal auditors only when objectivity is high. However, no interaction effects between work performance and objectivity were observed when inherent risk was low. Further, across all inherent risk conditions, competence was the most important factor, followed by objectivity and work performance. CAATTs are computer tools and techniques that an auditor (external or internal) uses as part of their audit procedures to process data of audit significance contained in an entitys information systems. The usage of CAATTs by internal auditors is not new, but has evolved over time as the proliferation of information technology usage has developed in businesses. There have been only a limited number of academic studies conducted on CAATTs and none that focuses on adoption in detail employing the otherwise well known, and widely tested. IT adoption theories to explore motivations for adopting CAATTs. This research has, however, drawn on examples from previous studies related to auditing and technology adoption in the process of choosing suitable constructs for investigating these motivations (for example Bedard et al, 2003) have explored the current impact of technology on audit process and discussed the future implications of technological trends to audit. 3.3 Basic Terms 3.3.1 Audit Auditing is a systematic examination of books, accounts, documents and vouchers of a business to ascertain how far the financial statements present a true and fair view of the concern. It also ensures that the books of accounts are properly maintained by the concern as required by law. 3.3.2 Auditing Arens and Loebbecke, 1998 defines Auditing as Auditing is the process by which a competent, independent person accumulates and evaluates evidence about quantifiable information related to a specific economic entity for the purpose of determining and reporting on the degree of correspondence between the quantifiable information and established criteria. This definition includes several key words and phrases. To understand the definition, different terms are discussed below Competent, Independent Person The auditor must be qualified to understand the criteria used and competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined.The auditor must also have an independent mental attitude. Department of Business Administration, Daffodil International University Page 17 Audit Procedures of ACNABIN Chartered Accountants It does little good to have a competent person who is biased performing the evidence accumulation when unbiased information and objective thinking are needed for the judgments and decisions to be made. Accumulating and Evaluating Evidence Evidence is defined as any information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria. Evidence takes many different forms, including oral testimony of the audited (client), written communication with outsiders, and observation by the auditor. Quantifiable Information and Established Criteria To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. Quantifiable information can and does take many forms. It is possible to audit such thing as a companys financial statements, the amount of time it takes an employee to complete an assigned task, the total cost of a government construction contract, and an individuals tax return. 3.3.3 Economic Entity Whenever an audit is conducted, the scope of the auditors responsibility must be made clear. The primary method involves defining the economic entity and the time period. In most instances the economic entity is also a legal entity, such as a corporation, unit of government, partnership, or proprietorship. 3.3.4 Reporting The final stage in the audit process is the audit report the communication of the findings to users. Reports differ in nature, but in all cases they must inform readers of the degree of correspondence between quantifiable information and established criteria. 3.3.5 Operational Audit Operational audit refers to the study of business operations for the purpose of making recommendations about the economic and efficient use of resources, effective achievement of business objectives and compliance with company policies. 3.3.6 Compliance Audit Management often wants to know whether its organizational policies are being complied with or whether external mandates are being met. The purpose of a compliance audit is to determine whether the audit is following specific procedures or rules set down by some higher authority. Compliance audit involves Examining transactions and detailed records, and Identifying weaknesses. Department of Business Administration, Daffodil International University Page 18 Audit Procedures of ACNABIN Chartered Accountants 3.3.7 Audit of Financial Statements Financial statements audits are conducted to determine whether financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP).However, public sector financial audits also determine whether financial statements are presented in accordance with applicable laws and regulations. 3.3.8 Internal Audit Internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. 3.3.9 Interim Audit Interim audit is an audit conducted during the fiscal year usually as a means of minimizing the work and time involved in concluding the audit after the fiscal year.An audit which is conducted in between the two annual audits with a view to find out interim profit to enable to company to declare a interim dividend, is called interim audit 3.3.10 Performance Audit Performance audits address the economy, efficiency, and program results of a reporting unit. Economy and efficiency audits are performed to determine whether managements objectives are being achieved and to identify opportunities and develop recommendations for improvements. 3.3.11 Governmental Audit Governmental audit refers to the independent auditors responsibility for determining compliance with laws and regulations when engaged in audits of state and local governmental units, as well as other not-for-profit entities, that are the recipients of federal finance assistance. 3.3.12 AICPA Generally Accepted Auditing Standards Auditing standards are general guidelines to aid auditors in fulfilling their professional responsibilities in the audit of historical financial statements. They include consideration of professional qualities such as competence and independence, reporting requirements, and evidence. The Generally Accepted Auditing Standards are as follows General Standards The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. In all matters relating to the assignment, independence in mental attitude is to be maintained by the auditor or auditors. Department of Business Administration, Daffodil International University Page 19 Audit Procedures of ACNABIN Chartered Accountants Due professional care is to be exercised in the performance of the audit and the preparation of the report. Field Work Standard The work is to be adequately planned, and assistants, if any, are to be properly supervised. A sufficient understanding of the internal control structure is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed. Sufficient competent evidential matter is to be obtained through inspection, observations, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. Reporting Standards The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP). The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 3.3.13 Audit Risk Audit risk (also referred to as residual risk) refers to the risk that an auditor may issue an unqualified report due to the auditors failure to detect material misstatement either due to error or fraud. Audit risk is defined as the risk that the auditor may unknowingly fail to appropriately modify his/her opinion on financial statements that are materially misstated. 3.3.14 Audit Evidence Audit evidence consists of those facts and inferences that influence the auditors mind with respect to financial presentation. 3.3.15 Means of Gathering Audit Evidence Generally evidence gathering techniques can be put into the following categories Observation Confirmation Calculation Analysis Inquiry. Department of Business Administration, Daffodil International University Page 20 Audit Procedures of ACNABIN Chartered Accountants 4.1 Engagement Procedure Before discussing the audit procedures followed by ACNABIN, I try to focus on the engagement procedures through which ACNABIN is engaged/ recruited by the client to perform the audit. ACNABIN faces three kinds of situations in engagement process Engagement with new client. Engagement with existing client. Directly appointed by the client. Before starting the audit work, some letters are exchanged between ACNABIN and clients. In case of new client 4 (four) letters are exchanged between ACNABIN and client including acceptance letter of appointment at the time of involving with the new client. Following stages are followed by both ACNABIN and clients Stage1 Client Requires for Technical and Financial Proposal from the ACNABIN Client generally gives circular with the newspaper or directly wants proposal for audit from the audit firm. In case of direct offer they request to the audit firm to submit a quotation for the cost of conducting audit of the client. They also mention the specific date to confirm the decision taken by the audit firm and completion date for audits. The client firm mentions here the key areas of the audit in the form of attachment. It assures that if ACNABIN audits clients firm, they will supply the formal terms of reference/audit mandates to govern the conduct of audit. Stage2 The Technical and Financial Proposal is Sent by ACNABIN to the Client After reviewing the client letter or papers circular, audit firm drafts a proposal letter to the client. The proposal letter contains technical and financial proposal for carrying out the subject of audit. ACNABIN estimates its personnel costs after considering the mandates to be utilized and using the minimum hourly rate of fees as prescribed by The Instituted of Chartered Accountants of Bangladesh (ICAB). The firm also mentions that as it is an estimate, the cost may vary with variation in number of mandates estimated to be utilized for the job. Stage-3 Acceptance by the Client on the Basis of Proposal of ACNABIN A letter of contract after receiving proposal letters from various audit firms, client then selects the one which is favorable to them, and it appoints the audit firm for audit purpose. From the technical and financial proposal of the ACNABIN the client company understands the nature of the audit (such as independent, external) to assess the organizations internal control system in administering the audited matter. Stage4 A letter is sent by ACNABIN to the Client Confirming to Work with the Client Confirmation Letter After receiving the acceptance letter from the client, ACNABIN provides confirmation letter describing the firms willingness to work with the client. Department of Business Administration, Daffodil International University Page 21 Audit Procedures of ACNABIN Chartered Accountants In case of last years client three letters are exchanged between the ACNABIN and client Willingness letter for reappointment In this letter ACNABIN wants to audit this year. It can request to increase audit fee or change some other conditions. Client sends appointment letter. ACNABIN accepts this appointment. In case of directly appointed by the client if the client is interested to work with ACNABIN, then it directly sends an appointment letter to the firm which includes all terms and conditions. If all terms and conditions are favorable to the ACNABIN then it accepts the appointment and sends a letter to the client as an auditor. 4.2 Audit Procedures Followed by ACNABIN Chartered Accountants ACNABIN Chartered Accountants follows Baker Tilly International Audit procedure. The primary goal of ACNABIN at the time of involving in any audit engagement is to provide the opinion on financial statements in accordance with Bangladesh Standards on Auditing (BSA) as well as International Standards on Auditing (ISA). ACNABIN also seeks to provide auditing and business consultancy services that are innovative, efficient and most importantly responsive to their clients business needs. There are seven steps involved in the procedures that come one after another. Steps are as follows Identity overall goals Gather evaluate initial information Assess general risks Assess account specific risks Develop effective and efficient audit plan Conduct audit testing Evaluate and communicate audit results. Baker Tilly International Audit Process (This is followed by ACNABIN) Identity Overall Goals Efficiency Opinion on financial statements Client value Errors Irregularities Going concern. Department of Business Administration, Daffodil International University Page 22 Audit Procedures of ACNABIN Chartered Accountants Gather Evaluate Initial Information Understand the business. Identify client expectation. Consider internal control structure. Consider materiality. Assess General Risks Consider impact of pervasive factor. Decide co-ordination and timing. Establish overall audit approach. Assess Account-Specific Risks Identify accounts and transactions to be addressed. Identify types of financial statement misstatements. Identify risk indicators. Select mitigating controls upon which reliance will be placed. Develop procedures to test mitigating controls. Assess remaining risk to be addressed by substantive tests. Develop Effective And Efficient Audit Plan/Work Program Test of controls. Substantive test. Conduct Audit Testing Test of controls. Substantive test. Differences between ACNABIN Chartered Accountants and International firms Engagement Procedure Emile Woolfs audit procedure describes thoroughly how to involve with a new client. Auditor needs to achieve ethical clearance from the previous auditor before involving in any audit engagement. Baker Tilly Internationals audit procedure does not provide Department of Business Administration, Daffodil International University Page 23 Audit Procedures of ACNABIN Chartered Accountants any instruction/ suggestion on how to engage with a client (new or existing client). ACNABIN follows some engagement procedure to engage with a new or existing client but its audit procedure does not include anything about such engagement. Management Letter In case of chronological sequence of audit procedure by Emile Woolf, the auditor provides only audit report to the interested parties who make their economic decision on the basis of such report. In Baker Tilly Internationals audit procedure, auditor provides not only audit report to the interested parties but also management letter to the management of the organization. The principal purpose of a report to management is to enable the auditor to give his comments on the accounting records, systems and controls that he has examined during the course of his audit. Management letter helps the management to focus on Significant areas of weakness in systems and controls that might lead to material errors. 4.2.1 Identify Firms Overall Goals The goal of ACNABIN in conducting an audit is to express an opinion as to whether the financial statements are prepared and presented fairly in accordance with Generally Accepted Accounting Principles (GAAP). The Firms policies on Generally Accepted Accounting Principles are contained in accounting standards. The audit team considers these standards in formulating an opinion. In forming an opinion, the audit team also addresses responsibilities for Errors Irregularities and other matters Efficiency Client value. Errors Errors are unintentional misstatements or omissions of accounts of disclosures in financial statements and may involve Mistakes in gathering or processing accounting data from which financial statements are prepared. incorrect accounting estimates arising from oversight or misinterpretation of facts and Mistakes in the application of accounting principles relating to amount, classification, manner of presentation or disclosure. The audit team is required to design the audit to provide reasonable assurance of detection of material errors. The In-charge of an audit team is responsible to ensure that the following matters are considered at the time of audit Department of Business Administration, Daffodil International University Page 24 Audit Procedures of ACNABIN Chartered Accountants Existence or occurrence Assets or liabilities of the entity exist at a given date and recorded transactions have occurred during a given period. Completeness All transactions and accounts that should be presented in the financial statements are so included. Accuracy Transactions and account balances are accurately recorded. Valuation Assets are stated at realizable value, and liabilities are stated at expected settlement amounts. Rights and obligation Assets are the rights of the entity and liabilities are the obligations of the entity at a given date. Presentations and disclosure Particular components of the financial statements are properly classified, described and disclosed. Irregularities and other matters Irregularities are intentional misstatements or omission of amounts or disclosures in financial statements, including fraudulent financial reporting and misappropriation of assets. So there is always a risk that material irregularities may occur and not be detected. This risk is increased by the possibility of managements override of internal controls, collusion, forgery, or unrecorded transactions. Thus, while the audit team is required to design the audit to provide reasonable assurance of detection of material misstatements regarding irregularities, the following matters must be considered by the In-charge of the audit team Detection of material irregularities Detection of material misstatements resulting from illegal acts Alertness for the unsupported transactions. Efficiency The audit team should design audit procedures that accomplish the overall goals discussed above in the most efficient manner. Performing an efficient audit involves Performing front-end risk assessment and planning with adequate partner and manager involvement. Designing the combination of audit procedures based on the risk assessment that will efficiently reduce the risk of undetected material misstatements to an appropriately low level. Department of Business Administration, Daffodil International University Page 25 Audit Procedures of ACNABIN Chartered Accountants Assigning work to adequately trained and supervised persons with appropriate experience and skill levels. Client Value It has long been a tradition of our firm to provide enhanced value to clients as an integral part of our audits. This strategy has allowed us to differentiate our approach from that of other firms. Delivering added value as an integral part of an audit and effectively communicating the added value information to top management, directors etc. is a key factor in building and maintaining a sound client relationship. Most clients and most of our personnel would agree that we achieve differentiation from other firms and communicate the value of HVC audit by consistently stressing the following Sound working relationship Understanding our clients business. 4.2.2 Gather Evaluate Initial Information After involving with the client, our first task is to collect and evaluate the relevant and necessary information related to the clients business for the purpose of Understanding the clients business Considering the internal control structure Identifying client expectation Considering materiality. Understand the clients business before involving in an audit the auditor should understand the client business properly. Proper planning and designing of an audit is dependent on proper understanding of clients business. So after appointing by a client, we, the members of an audit team use various sources to gain an understanding of client business. Differences sources which provide us clients business information are as follows Annual report Minutes Internal reports Previous years audit work papers Discussion with client. Department of Business Administration, Daffodil International University Page 26 Audit Procedures of ACNABIN Chartered Accountants Consider Internal Control Structure Every business has some kind of accounting system by which transactions are processed, and records of those transactions maintained. That system should incorporate control features and is normally referred to as the system of internal control. The existence of a reliable system of internal control can be a great help to the auditor, because the objectives of the system should be Ensuring that the records are complete, accurate and properly authorized. Detecting errors and fraud. After involving with a client, we try to understand the internal control structure of the client business as much as possible because understanding of clients internal control structure helps us to determine the extent of our audit tasks. So our first task in relation to the clients system of internal control is to ascertain record and evaluate it. Then we can use this knowledge of the clients system to plan his audit tests. We consider the activities of internal auditing and their effect, if any, on external audit procedures. So we try to Understand and Assess Internal Auditing as External Auditors We should obtain a sufficient understanding of internal audit activities of the client that assists us in planning the audit and developing an effective audit approach. During the course of planning the audit, we should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas. Evaluate and Test the Work of Internal Auditing To use specific work of internal auditing, we evaluate and test the work of internal auditing to confirm its adequacy for the external auditing purposes. The evaluation of specific work of internal auditing involves consideration of the adequacy of the scope of work and related programs and whether the preliminary assessment of the internal auditing remains appropriate. This evaluation may include consideration of whether. The work is performed by persons having adequate technical training and proficiency as internal auditors and the work of assistants is properly supervised, reviewed and documented. Sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached. Conclusions reached are appropriate in the circumstances and any reports prepared are consistent with the results of the work performed and any exceptions or unusual matters disclosed by internal auditing are properly resolved. Identify client expectation as external auditor ACNABIN should identify the clients expectation and design and perform the audit to meet the client expectation. Consider materiality Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality Department of Business Administration, Daffodil International University Page 27 Audit Procedures of ACNABIN Chartered Accountants depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. In designing the audit plan, we establish an acceptable materiality level so as to detect quantitatively material misstatements. However, both the amount (quantity) and nature (quality) of misstatements need to be considered. Quantifying materiality A common rule of thumb for materiality is 5 to 10 percent of pretax income. Items less than 5 percent are considered immaterial, whereas items that are more than 10 percent are material. For items between 5 and 10 percent judgment is applied the blank materiality calculation worksheet attached in different audit work of ACNABIN. 4.2.3 Assess General Risks During audit planning and risk assessment, we obtain initial audit evidence in order to 1. Effectively assess the inherent risk of potential financial statement misstatements, Identify indicators of possible going concern problems, and 3. Identify account specific risk and design an overall audit approach to provide reasonable Assurance of detecting material misstatements. Key Factors Significant background information and business, economic and industry conditions that provide an indication of the level of risk for an engagement are mentioned Understanding client business Can be obtained from various sources, e.g. annual report, minutes, internal reports, previous year audit work papers, discussion with client. Managements style, outlook. Significant current events and reporting issues. Results of financial performance review. Industry conditions and issues Management control environment. Accounting system policy, procedure manual. Materiality consideration. Limitations of the engagement. Processing methods. Reports The kinds of reports to be issued. Department of Business Administration, Daffodil International University Page 28 Audit Procedures of ACNABIN Chartered Accountants 4.2.4 Account Specific Risk Analysis (SRA) Builds on information obtained during General Risk Assessment (GRA) and is completed after consideration of the evaluation of the internal control system. SRA is done to design the nature, and extent of substantive tests on account level. SRA includes three functions- Assess Account Specific Risks. Assess the risk of potential fraud. Develop Audit Plan. i. Select substantive audit procedures Develop work programs Perform engagement administration. We generally assess the risks at account balance level in view of the following items. Financial statement accounts likely to the susceptible to misstatement. The complexity of underlying transactions and other events which might require using the work of an expert. The degree of judgment involved in determining account balances. Susceptibility of assets to loss or misappropriation. The completion of unusual and complex transactions, particularly at or near period end. 4.2.4.2 Audit Risks In determining the nature, timing and extent of substantive procedures required to reduce audit risk to an acceptably how level, we, the auditor consider the assessed levels of inherent and control risks. In this regard we consider The nature of substantive procedures The timing of substantive procedures The extent of substantive procedure. 4.2.4.3 Consideration of Fraud and Error We have a professional responsibility for materially misstated financial statements resulting from errors and irregularities. As auditors, we must provide reasonable assurance that such materials errors and irregularities are detected. In planning the audit, the in charge of an audit team discusses with other members of the audit team the susceptibility of the entity to material misstatements in the financial statements resulting from fraud or error. The potential for financial statement fraud exists on every engagement. To address the risk of potential fraud we must Assess the risk of potential fraud Design our audit procedures to respond to identified risks Department of Business Administration, Daffodil International University Page 29 Audit Procedures of ACNABIN Chartered Accountants We must consider varying the nature, timing and extent of our work in areas with the most potential for manipulation. We need to perform our audit with appropriate professional skepticisms and due processional care. There are many different ways in which financial statements can be intentionally misstated. We generally consider the following three types Inappropriate acceleration of revenue recognition Transactions with related parties valued. Understatement of and shifting of costs and expenses. 4.2.4.4 Inquiries of Management When planning the audit, we make inquiries of management To obtain an understanding of i. Managements assessment of the risk that the financial statements may be materially misstated as a result of fraud and ii. Management has put the accounting and internal control systems in place to address such risk. To obtain knowledge of management understands regarding the accounting and internal control system in place to prevent and detect error. To determine whether management is aware of any known fraud that has affected the entity or suspected fraud that the entity is investigating. To determine whether management has discovered any material errors. 4.2.4.5 Assessment of Inherent Risk and Control Risk When assessing inherent risk and control risk, we generally consider how the financial statements might be materially misstated as a result of fraud or error. In considering the risk of material misstatement resulting from fraud, the auditor should consider whether fraud risk factors indicate the possibility of either fraudulent financial reporting or misappropriation of assets. 4.2.4.6 Assessment of Detection Risk Based on the assessment of inherent and control risks, we design substantive procedures to reduce the detection risk to an acceptably low level. In designing the substantive procedures, we address the fraud risk factors that have been identified as being present. Department of Business Administration, Daffodil International University Page 30 Audit Procedures of ACNABIN Chartered Accountants 4.2.4.7 Documentation If during the performance of the audit, fraud risk factors are identified that cause the auditor to believe that additional audit procedures are necessary, the auditor should document the presence of such risk factors and the auditors response to them. 4.2.4.8 Management Representations The auditor should obtain written representations from management that a. It acknowledges its responsibility for the implementation and operations of accounting and internal control systems that are designed to prevent and detect fraud and error. b. It has disclosed to the auditor the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud. 4.2.4.9 Communication When the auditor identifies a misstatement resulting from fraud, or a suspected fraud, or error, then auditors responsibility is to communicate that to management, those charged with governance and, in some circumstances, to regulatory and enforcement authorities. 4.2.5 Development of Effective and Efficient Audit Plan/ Work Program Work program is a list of procedures that are needed to be performed to conduct the audit. The program may also contain the audit objectives for each area and should have sufficient detail to serve as a set of instructions to the assistants involved in the audit, and as a means to control the proper execution of the work. In ACNABIN, we use work programs for different types of account head. Work programs were developed for different types of business and for different types of account heads. Usually an audit program contains. Clients procedure and background information. Audit objectives. Audit procedures. Performance and results of work. Conclusions. Work programs help the auditors to ensure the quality of the audit tasks as it provides necessary guidelines about how to carry out their audit tasks and how to analyze all the account heads in a proper way. So when a new student is registered as articled student in ACNABIN, it is the responsibility of managers/supervisors to introduce him/her with different types of work programs. As the audit proceeds, the in-charge may change, modify or develop a new work program. All procedures included in the work program must be completed and any revisions in Department of Business Administration, Daffodil International University Page 31 Audit Procedures of ACNABIN Chartered Accountants The program, made during testing, must be adequately explained and approved by the senior or manager. At the completion of the work program the auditor. 4.2.6 Conduct Audit Testing After completing work program, the audit team conducts two types of tests which we mentioned in our earlier discussion. Two tests are Test of Controls Substantive Test. 4.2.6.1Test of Controls Based on the GRA, SRA and evaluation of internal control system, we decide whether to perform test of control. The audit team should test any internal controls upon which reliance is placed to reduce the likelihood of misstatements in the financial statements and the reduced substantive test has been decided. For the effectiveness and efficiency of audit work, we conduct test of control at least in the following three major accounting areas, which in turn will cover most of the account level tests in any client. Type of TestAccount level test covered1)Cash receipts testCash, bank, sales, revenue, receivables2)Cash disbursement testCash, bank, inventory, purchase, fixed assets,payables, expenses3)Payroll testPayroll expenses, cash, bank 4.2.6.2Substantive tests Substantive tests are procedures performed to detect misstatements in financial statement balances. We perform the following two types of Substantive Tests Analytical procedures Detail Tests. Analytical Procedures Analytical procedures means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts. Analytical Procedures are the testing of financial information by evaluating actual vs. expected relationships among financial and non-financial data, e.g. utilities, rent, payroll. Analytical procedures may be used as a substantive test of balances and for a final review of year-end financial statements. The auditor should apply analytical procedures at the planning and overall review stages of the audit. Analytical procedures may also be applied at other stages. Analytical procedures include the consideration of comparisons of the entitys financial information. Department of Business Administration, Daffodil International University Page 32 Audit Procedures of ACNABIN Chartered Accountants Confirmations The audit team should determine whether the use of external confirmations is necessary to obtain sufficient appropriate audit evidence to support certain financial statement assertions. In making this determination, we consider materiality, the assessed level of inherent and control risk, and how the evidence from other planned audit procedures will reduce audit risk to an acceptably low level for the applicable financial statement assertions. In some situations, audit evidence from external sources is more reliable than audit evidence generated internally, and that written audit evidence is more reliable than audit evidence in oral form. Accordingly, audit evidence in the form of written responses to confirmation requests received directly by the auditor from third parties who are not related to the entity being audited, when considered individually or cumulatively with audit evidence from other procedures, may assist in reducing audit risk for the related assertions to an acceptably low level. Examples of accounts receivables, accounts payables and bank balance confirmation forms that are used by ACNABIN to confirm the clients balance of various accounts. 4.2.7 Evaluate and Communicate Audit Results At the last stage of audit, the audit team communicates the result of the audit to the management and the stakeholders of the company. The audit team issues two types of reports External report which is commonly known as the auditors report Internal report which is known as management letter. We therefore have three areas to deal with The unqualified audit report. Qualifications in audit reports. The management letter (also known as letter of weakness or letter of comment). 4.2.7.1 External Report/ Auditors report Basic Elements The auditors report includes the following basic elements, ordinarily in the following layout a. Title. b. Addressee. c. Opening or introductory paragraph i. Identification of the financial statements audited ii. A statement of the responsibility of the entitys management and the responsibility of the auditor. Department of Business Administration, Daffodil International University Page 33 Audit Procedures of ACNABIN Chartered Accountants d. Scope paragraph (describing the nature of an audit).i. A reference to the BSA, ii. A description of the work the auditor performed. e. Opinion paragraph containing i. A reference to the financial reporting framework used to prepare the financial statements and ii. An expression of opinion on the financial statements. f. Date of the report. g. Auditors address. h. Auditors signature Modified reports, in addition to unqualified or qualified, we sometimes provide modified audit report. An auditors report is considered to be modified in the following situations. i. Matters that do not affect the auditors opinion, Qualified opinion, Disclaimer of opinion, or Adverse opinion. Department of Business Administration, Daffodil International University Page 34 Audit Procedures of ACNABIN Chartered Accountants List of Examples Forms of Qualified Audit Report Form Circumstances, Examples (i) Uncertainty material but not fundamental 1.Except for scopeNo stock count at a branch2.Except for scopeAcceptance of managementAssurances (small business)3.Except for inherent uncertaintyGoing concern4.Except for inherent uncertaintyMajor litigation.(ii) Fundamental5.Disclaimer scopeAccounting breakdown6.Disclaimer scopeInability to substantiate cashtransactions7.Disclaimer inherent uncertaintyValuation of long-term(iii) Disagreement material but not fundamental8.Except departure fromBAS Failure to apply BAS9.Except disagreement as to factsNo provision for doubtful debt10. Except non-compliance with legislationCompany omitted information(iv) Disagreement fundamental11. Adverse departure fromBangladesh Accounting Standards (BAS).Long-term contracts12. Adverse disagreement as to factsGoodwill no longer justified.balance sheet amount. Department of Business Administration, Daffodil International University Page 35 Audit Procedures of ACNABIN Chartered Accountants 4.2.7.2 Internal Report/Management Letter As a value added service to the client ACNABIN Chartered Accountants gives a management letter to its audit clients. The main purpose of the letter of management is to draw the attention of management to areas of weakness requiring rectification. It is also possible for the auditor to suggest areas where economies or improved efficiency are possible. Such a letter is, of course, no substitute for a qualification in the audit report. It will usually deal with matters not serious enough to justify an audit qualification. Purposes of Management Letter The principal purpose of a report to management is to enable the auditor to give his comments on the accounting records, systems and controls that he has examined during the course of his audit. Significant areas of weakness in systems and controls that might lead to material errors should be highlighted and brought to managements attention. As a secondary purpose, a letter to management may also be used to provide management with other constructive advice. The auditor might, for example, be able to suggest areas where economies could be made or where resources could be used more efficiently. A letter to management is also a useful means of communicating matters that have come to the auditors attention during the audit that might have an impact on future audits. Contents of Management Letter Generally the following matters, arising out of the audit, will be included in a letter to management Weaknesses in the structure of accounting systems and internal controls. Deficiencies in the operation of accounting systems and internal controls. Unsuitable accounting policies and practices. Non-compliance with accounting standards or legislation. Management response The auditor should request a reply to all the points raised, indicating what action management intends to take as a result of the comments made in the management letter. It should be made clear in the report that the auditor expects at least an acknowledgement Department of Business Administration, Daffodil International University Page 36 Audit Procedures of ACNABIN Chartered Accountants of the letter or, where he considers it appropriate, the directors discussion of the letter to be recorded in the board minutes. Basic Elements of the Management Letter The management letter includes the following basic elements, ordinarily in the following layout Addressee. Transmittal Letter. Title. Background Information. Scope of Work Compliance Authorization Accuracy Monitoring Safeguarding. Findings Each finding consists of three different sections, as under vi. Fact vii. Effect viii. Recommendation. g. Date of the report. h. Auditors address and Auditors signature. A form of Audit Findings Conclusion Summary. Department of Business Administration, Daffodil International University Page 37 Audit Procedures of ACNABIN Chartered Accountants 5.1 Findings Audit procedures are designed to detect material misstatements in the financial statements and focus on the financial aspects of transactions and events. Despite of this there are numerous loopholes in the system that undermines the prospects of this glorious profession. In this report, on my behalf, I would like to share some of the complications that I observed during my working as an audit staff and would like to recommend some solutions according to my point of view. The findings are discussed below. An auditor may at times misjudge a situation which may cause the auditor to overlook a misstatement in the financial statement and provide their opinion based on that. Auditors apply sampling techniques to limit the number of transactions and balances selected for audit testing in order to perform the audit efficiently and cost effectively. The results may not however be representative of the entire population and may fail to detect a material misstatement in the financial statements due to the inability of auditors. Although auditors collect audit evidence from a range of sources, they focus more on external evidence. Too often they have to rely on the representations of management in order to assess the reasonableness of the matters concerning financial statements. This is usually difficult to corroborate management representation of appropriateness By their very nature, frauds are intended to be concealed by the guilty party and therefore pose a very high risk of remaining undetected by the auditors. Auditors face strict time constraints, above that firms involve audit staffs in an audit engagement without having prior knowledge of clients business. Members lacking in knowledge about the clients business, take much of their time to understand and start dealing with the client. Work programs contain step by step instructions to carry out the audit work. But in most of the cases, work programs are not followed properly, just touch each account head to save time. Department of Business Administration, Daffodil International University Page 38 Audit Procedures of ACNABIN Chartered Accountants As the members do not know anything about the client, clients business, they have to give much time to understand clients business and then they can start their audit tasks. So the audit tasks take much time Juniors may do something wrong or may collect some unnecessary documents, may fail to collect necessary/ required documents and that cannot be checked and corrected because of lack of supervision Because of time limitation, we complete the audit engagement and provide the audit report very quickly. So, it is not possible to ensure the quality of the audit work. If the client fails to provide the required and necessary documents, it is difficult for us to give or issue an appropriate audit opinion and provide the appropriate audit report. 5.2 Recommendations As an articled student of ACNABIN, Chartered Accountants, I was involve with audit engagements. I have communicated with some of the students of the firm and also supervisor and in charges of my engagements. On the basis of my own experience and the discussion with others, I have identified some problems that the students of the firm had to face in many cases. Some recommendations to minimize those problems are discussed below Before going to the client, supervisor or in charge should give some brief idea about the clients business to all the members of the audit team. Work programs must be properly introduced to the juniors/ new students and must be followed as much as possible in each audit engagement. In charge of an audit team must be ordered and properly instructed to supervise the work of his juniors. An audit team should be given appropriate time (neither much nor less) to carry out the entire audit work properly. Higher authority of the client must order or instruct the management to provide auditors the required documents. Department of Business Administration, Daffodil International University Page 39 Audit Procedures of ACNABIN Chartered Accountants Proper orientation of the new students should be arranged and this should emphasis on giving a fair picture of the profession and ethical practices. The audit team member should not alter until an assignment is completed. Because when this happens, the smooth operation of audit work is hampered and quality of work also declines as a result of information gap. This also affects the client impression on the firm. The firm should ensure that the audit programs are followed properly at the field level. The audit programs should be altered by the manager, considering the nature of the client. There should not be any programs which are not possible to implement. The time budget should be prepared by considering both the depth of the work and the audit fees. Because some of the cases, the team member faces the problem of time limitation and they cannot follow the audit program. At the initial level a student should allowed working on an assignment under the supervision of experience senior from the beginning to the end. It will help the student to have a complete picture of audit work and will enhance the efficiency as well The firm should ensure that the client personnel are co-operative enough to avail the necessary audit evidence. Sometimes the client is very reluctant to provide papers which are very important for the work These are the problem areas, which are faced by the students of ACNABIN. And I have just tried to give some solutions which I believe will help the firm to perform quality work. Finally I would like to make a recommendation for ICAB, as the institute is concern enough about the quality of the practitioner it should revise the minimum hourly rates for different categories of personnel. Because, there is a positive relation between the fees and quality of works. The procedure prescribed by APM requires investigative and detail work, the minimum rate should be increased with the increase of audit activities. Department of Business Administration, Daffodil International University Page 40 Audit Procedures of ACNABIN Chartered Accountants 5.3 Conclusion The chartered accountancy firms are playing a vital role in the economy of any country. As they are stand for by providing an assurance that the financial statements of the client organization is true and fair to the various interest group, they must be very careful about the quality of their work. The interest group takes various decisions based on the opinion of the audit firm. If the interests of these groups are hampered, it will affect the reliability on the profession. So it is a very risky job to carry on. The ACNABIN Chartered Accountants is a firm which is very dedicated to provide quality work and protect the public interest. The firm has started to implement the Audit Practice Manual to increase the efficiency and quality of its audit work. If all steps of APM are followed properly, it is possible to ensure a proper conduct of financial statement audit. But as I stated in my recommendation the audit fee determined by the institute is very poor, as a result it is not possible to follow properly the audit procedure as required by APM. There must be a change in the professional culture also. The audit firms in our country are involved in an unhealthy competition. As a result, the client organizations have the opportunity to influence the audit opinion. So the ethical values should be increased in both the practitioner level and the client level. If we can ensure these points, the institute will defiantly be able to have the merits of the Audit Practice Manual and will be able to assure the quality of the professional work. The auditing profession has contributed and will be contributing a greater extent, ensuring transparency and efficiency of internal control system of various sectors of Bangladesh. The achievement of the auditors will be after having the maximum people of the country be aware of their rights and then proper transparency will be set conquering all obstacles. Department of Business Administration, Daffodil International University Page 41 Audit Procedures of ACNABIN Chartered Accountants References Books, Auditing Standards Bodies Assurance, ICAB Study Manual (Knowledge level) Audit Assurance, ICAB Study Manual (Application Level) International Auditing Assurance Standards Boards(IAASB) Bangladesh Standards on Auditing (BSA) Bangladesh Accounting Standards (BAS) Paper F8 (INT/UK) Audit and Assurance International Financial Reporting Standards (IFRS) International Standards on Auditing (IAS). Publications Audit Guideline of ACNABIN Chartered Accountants, According to Finance Act-2017 Annual report of ACNABIN Chartered Accountants Debreceny et al. (2005). Firm-specific determinants of continuous corporate disclosures The International Journal of Accounting, 2005, Volume 40. Mahzan, N. Lymer, A. (2008). Adoption of Computer Assisted Audit Tools and Techniques (CAATTs) by Internal Auditors Current issues in the UK. In BAA Annual Conference. Blackpool, 146. Wehner, D. Jessup, C.M. (2005). Factors Affecting Generalized Audit Software Usage. In AAA Midwest Accounting Meeting. St. Louis Missouri Mario J. Maletta, The Effect of Risk Factors on Auditors Configural Information Processing The Accounting Review, Vol. 68, No. 3 (Jul., 1993), pp. 681-691 Bdard, J., Chtourou, (2004), The effect of audit committee expertise, independence, and activity on aggressive earnings management, Auditing A Journal of Practice Theory. Department of Business Administration, Daffodil International University Page 42 Audit Procedures of ACNABIN Chartered Accountants Web Addresses HYPERLINK http//www.acnabin.com/ www.acnabin.com www.bakertillyinternational.com www.auditreport.com HYPERLINK http//www.icab.org.bd/ www.icab.org.bd HYPERLINK http//www.iasb.com/ www.iasb.com HYPERLINK http//www.isa.com/ www.isa.com. HYPERLINK http//www.bas.com/ www.bas.com www.icabstudymanual.com Department of Business Administration, Daffodil International University Page 43 Audit Procedures of ACNABIN Chartered Accountants Appendix 1 ACNABIN Chartered Accountants Client Audit Year End Internal Control Evaluation 1. Organization Management has established and used clearly Comments/ Descriptions specified delegation of authority and responsibility. Segregation of Duties The custodian function, recording function and authorization function has been done by three different individuals Physical Safeguard of assets with a policy, procedure and its practice has been ensured. Authorization and Approval Transaction authorization approval by a specified authority. . Arithmetical and Accounting Whether the checking of arithmetical accuracy, reconciliation, correct recording has been ensured. Personnel Qualification, training, skill competency of personnel are adequate Supervision Day to day supervision, review, approval of records, reconciliation, transactions by responsible officials. Management Budgetary control and internal audit were properly implemented and practiced. Overall conclusionSignature Date Department of Business Administration, Daffodil International University Page 44 Audit Procedures of ACNABIN Chartered Accountants Appendix-2 ACNABIN Chartered Accountants Materiality Worksheet Job No ____________ ____ Initials Date Prepared by ________ ____ Reviewed by________ ____ Client Name Accounting Period.. Subject. Unaudited total assets at balance sheet date _____ Unaudited total revenues at balance sheet date _____ Select the larger of line 1 or line 2 _____ Select a multiplier if audit risk is normal, or, if better than normal, select .01 _____ Multiply line 3 by line 4_____ Unaudited pretax income (or equivalent if not a for-profit entity)_____ Select a multiplier if audit risk is normal, or, if better than normal, select.1 _____ Multiply line 6 by line 7 ____ Department of Business Administration, Daffodil International University Page 45 Audit Procedures of ACNABIN Chartered Accountants Appendix-3 ACNABIN Chartered Accountants Client.. Audit Year End Client Profile General Risk Assessment Memo Planning/ GRA ItemPlanning/ GRAPlanning/ GRAPlanning/ GRAEffectivenessItemItemItemEffectivenessEffectivenessEffectivenessUnderstanding Client BusinessManagements Style, OutlookSignificant Current Events andReporting IssuesResults of Financial PerformanceReview, Significant or unusualvariation, changes from prior yearsor from industry standardsIndustry Conditions and IssuesManagement Control EnvironmentAccounting System- -Policy -Procedures -Manual Whethermaintained, updated and followedMateriality ConsiderationConclusion as per worksheetattachedLimitations of the Engagement, ifany Signature .. Date .. Department of Business Administration, Daffodil International University Page 46 Audit Procedures of ACNABIN Chartered Accountants Appendix-4 Client Letter Head Clients Name………………………… Address…………………………………. Sub Accounts Receivable Confirmation Dear Sir/ Madam, In connection with the audit of our financial statements, please confirm directly to our auditors ACNABIN Chartered Accountants, BDBL Bhaban (13th Floor), 12, Kawran Bazar Commercial Area, Dhaka-1215, Bangladesh the amount of your indebtedness to us which according to our records as of (date) amounted to Tk. ———–. If the amountshown is in agreement with your records. Please check A below. If the amount is not in agreement with your records, please check and complete B below. After checking the appropriate response, please sign and date your reply and mail it directly to our auditors in the enclosed envelope. Do not send any payments to our auditors. Very truly yours, ————————————- Clients Authorized Signature A————– The balance above agrees with my records. B————— My records show a balance of Tk. ————– The difference may be due to the following ——————————————————————————————— ——————— Signed by ——————— Date Department of Business Administration, Daffodil International University Page 47 Audit Procedures of ACNABIN Chartered Accountants Appendix-5 Payment procedure Payments Bank Payments (Tk. 10,000 or above) Cash Payment (Up to Tk. 10,000) Bill, Invoice received by the Accounts Department Verified by the Accounts Department Verified by the FO, PM and Approved by the Director Entry posting, checked Prepared by Accountant Department of Business Administration, Daffodil International University Page 48 Reference Internship Report. (2016.). Learning Combination of Practical Theoretical Knowledge. Retrieved from HYPERLINK http//internreport2016.blogspot.com http//internreport2016.blogspot.com Assignment Point. (2018.). Job Experience in Audit Process at ACNABIN Chartered Accountants. Retrieved from HYPERLINK http//internreport2016.blogspot.com http//internreport2016.blogspot.com [email protected] LbXH c pIyUaWy3,rjoVFOy_SQ8b3

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