Audit of Provident Funds Last Session: The Final Touch

1. Auditof Provident FundsLast Session: The Final Touch Presenter: Altaf Noor Ali Chartered Accountant

2. Final Session: 4 - 5.30 pm = 90 min • Audit documentation: What’s on working paper file? • Final audit review and discussion with client • Resolving matters arising out of audit • Audit Report Format • Financial statements / disclosures [accounting policies] • End Process: Closing Accounts, Post-closing trial balance, Initialling accounts, approval by trustees, signing of audit report, disclosure in employer account • Management letter and discussion • Updating Working Paper File [index, timesheets, revised schedules, etc]. Memo note on matters for next year • Billing for audit fee and re-appointment • Final Word

3. Audit Documentation

4. Provident Fund Audit: Audit Working Paper File Documentation • It is the most problematic area for auditors. Think of it like writing a book • Curb the tendency of having a photocopy of each document • Once audit is finalised, prepare an index. • Assign a section to each of the following: [A=Accounts Final B=Audit Programs, Management Letter, Trustee Resolutions, C=Trial Balance, D=Investments & Return, E=Salary Reconciliation, F=Current Account, G=Bank, H=Profit Allocation, I= Expenses, J= Outdated • Referencing is the weakest part. • Time Sheets & Diary should be meticulously kept.

5. Audit ReviewProblem Areas:1. Documents missing e.g nobody followed up for bank confirmation, cdc balance statement of holdings at reporting date is not attached.2. Client document not signed such as trustee resolutions, representation letter, etc 3. Document not referenced and cross referenced properly with the trial balance.4. Something discussed and not documented or followed-up.5. When an employee who’s left files a case.6. Disclosure in financial statements.

6. Provident Fund Audit: Review • Audit is a tough job, and review is perhaps the most vigorous if done properly. Review is the best way of improving quality of audit, but it is almost never performed. • Think of it as a double check, as important as checking back that everything is lock and safe before leaving home or parking your car. • Start the review from Bank A/c, move to Current Account, then to Investments [and returns] and Member Transactions. • Perform analytical review. Try to understand the reasons behind the change in figures.

7. Resolving Matters arising out of Audit

8. Provident Fund Audit: Matters arising out of audit • Analytical review may require probing some areas in further details. • A member may have been permitted to permanently withdraw more than his contribution. • Lax policy on permanent withdrawals. Loose supporting evidence.

9. Format of Audit Report

10. Audit Report>> Auditor’s Report to the Trustees We have audited the attached financial statements of ABC (Private) Limited Employees Provident Fund [the ‘Fund’ ] comprising Statement of Financial Position as at 30 June 2006, Statement of Financial Performance for the year then ended, and the explanatory notes, which are an integral part of these statements. The preparation and presentation of financial statements, based on underlying records, is the responsibility of the Trustees of the Fund. Our responsibility is to express an opinion on these financial statements based on our audit. We have conducted our audit in accordance with established auditing practices. These practices require that we plan and perform audit to obtain reasonable assurance that the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Trustees of the Fund, as well as evaluating the overall presentation of financial statements. We believe that our audit provides a reasonable basis for our opinion.

11. >>Audit Report In our opinion, the identified and attached financial statements provide a true and fair view of the financial position of Fund at 30 June 2006 and of the results of its activities for the year then ended. We note that at 30 June 2006, investment in shares of listed companies of Rs. 12.60 m was in excess of prescribed limit of Rs. 6.34 m. According to the Employees’ Provident Fund [Investment in Listed Securities] Rules, 1996 total investment in shares of listed companies shall not exceed thirty percent of the net asset value of Rs. 21.13 m. Also, that investments in two companies, viz, NBJ Ltd. (Rs. 252,500] and WCC Ltd [Rs. 250,000] do not have consecutive three years dividend record. With these exceptions, in our opinion, the identified and attached accounts provide a true and fair view of the financial position of ABC [Private] Limited Employees Provident Fund as at 30 June 2006 and of the results of its activities for the year then ended. ANV Chartered Accountants. Karachi- 15 September 2006.

12. Improving Quality of Disclosures

15. Notes to the Accounts THE FUND AND ITS ACTIVITIES: The Fund is an ‘approved provident fund’ under Part I of the Sixth Schedule to the Income Tax Ordinance, 2001. The employees of ABC (Private) Limited, on confirmation of appointment with the Company, are eligible to be Members of the Fund. The Members and the Company as employer make matching contribution to the Fund on monthly basis. The funds so available are invested in securities or held in a separate bank account. The net income for the period so generated is distributed to the Members in proportion to their respective balances. The Fund is governed by the ABC (Private) Limited Employees Provident Fund Rules and the Income Tax Ordinance, 2001.

18. End ProcessClosing Accounts, Post-closing trial balance, Initialling accounts, Approval by trustees, Signing of audit report, Disclosure in employer account

19. Management Letter & DiscussionCritical for improving the quality of accountingShould be ideally done within a month of signing of report

20. Updating Working Paper File index, timesheets, revised schedules, etcmemo note on matters for next yearWhatever you do, there is unlikely to be a perfect working paper file, but it is possible to have one near it!

21. Billing for audit fee and appointment for next yearProblem Area:Why auditors are paid last?EnhancementOut of PocketDon’t expect any favours.

22. Before I finish….Thank Uto the Institute.

23. Final Word….This may be the end of Presentation, But it should not be the end of Learning.

24. Thank YouEnd of Final Session