BSA Summary by M Z Sharif Sajol

8/9/2019 BSA Summary by M Z Sharif Sajol

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10th October 2013 Summary of BS s

(Only important BSAs)

Md. Zahed Sharif Sajol Hoda Vasi Chowdhury & Co.

E-mail: [email protected]


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Property of M Z Sharif Sajol

Hoda Vasi Chowdhury & Co.

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BSA 120 FRAMEWORKS OF BANGLADESH STANDARDS ON AUDITING

Financial Reporting Framework

3. Financial Statements need to be prepared in accordance with one, or combination of:

a) BAS, and

b) Another authoritative and comprehensive financial reporting framework which has been designed for use infinancial reporting and is identified in the financial statements.

Audit

11. The objective of an audit of financial statements is to enable the auditor to express an opinion whether the

financial statements are prepared, in all material respects, in accordance with Framework to BAS.

BSA 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS

Objective of an Audit

2. The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial

statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

General Principles of an Audit

4. The auditor should comply with the Code of Ethics for Professional Accountants issued by the Council of the Institute

of Chartered Accountants of Bangladesh. Ethical principles governing the auditor’s professional responsibilities are:

(a)Independence;

(b)Integrity;

(c) Objectivity;

(d) Professional competence and due care;

(e) Confidentiality;

(f) Professional behavior; and

(g) Technical Standards.

5. The auditor should conduct an audit in accordance with BSAs . These contain basic principles and essential

procedures together with related guidance.

6. The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that

circumstances may exist that cause the financial statements to be materially misstated . An attitude of professional

skepticism means the auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence

obtained and is alert to audit evidence that contradicts or brings into question the reliability of documents or

management representations. For example, an attitude of professional skepticism is necessary throughout the audit

process for the auditor to reduce the risk of overlooking suspicious circumstances, of over generalizing when drawing

conclusions from audit observations, and of using faulty assumptions in determining the nature, timing and extent of

the audit procedures and evaluating the results thereof. In planning and performing an audit, the auditor neither

assumes that management is dishonest nor assumes unquestioned honesty. Accordingly, representations from

management are not a substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonableconclusions on which to base the audit opinion.

Scope of an Audit

7. Scope of an audit refers to the audit procedures deemed necessary in the circumstances to achieve the objective of

the audit. The procedures required to conduct an audit in accordance with BSAs should be determined by the auditor

having regard to the requirements of BSAs, relevant professional bodies, legislation, regulations and, where

appropriate, the terms of the audit engagement and reporting requirements.

Reasonable Assurance

8. Reasonable assurance is a concept relating to the accumulation of the audit evidence necessary for the auditor to

conclude that there are no material misstatements in the financial statements taken as a whole. Reasonable assurance

relates to the whole audit process.


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9. An auditor cannot obtain absolute assurance because there are inherent limitations in an audit that affect the

auditor’s ability to detect material misstatements. These limitations result from factors such as:

* The use of testing.

* The inherent limitations of any accounting and internal control system.

* The fact that most audit evidence is persuasive rather than conclusive.

Audit Risk and Materiality

15. The auditor should plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with

the objective of an audit.

16. Audit risk is a function of the risk of material misstatement of the financial statements and the risk that the auditor

will not detect such misstatement.

BSA 210 TERMS OF AUDIT ENGAGEMENTS

Recurring Audits

10. On recurring audits, the auditor should consider whether circumstances require the terms of the engagement tobe revised and whether there is a need to remind the client of the existing terms of the engagement.

11. The auditor may decide not to send a new engagement letter each period. However, the following factors may

make it appropriate to send a new letter:

* Any indication that the client misunderstands the objectives and scope of the audit.

* Any revised or special terms of the engagement.

* A recent change of senior management, board of directors or ownership.

* A significant change in nature or size of the client’s business.

* Legal requirements.

Acceptance of a Change in Engagement

12. An auditor who, before the completion of the engagement, is requested to change the engagement to one which

provides a lower level of assurance, should consider the appropriateness of doing so.

17. Where the terms of the engagement are changed, the auditor and the client should agree on the new terms.

18. The auditor should not agree to a change of engagement where there is no reasonable justification for doing so.

19. If the auditor is unable to agree to a change of the engagement and is not permitted to continue the original

engagement, the auditor should withdraw and consider whether there is any obligation, either contractual or

otherwise, to report to other parties, such as the board of directors or shareholders, the circumstances necessitating

the withdrawal.

Question: You have been appointed a new auditor by Dolci Food Ltd. In view of this appointment, what are the

stages you should follow, when invited to become the auditor of the said company? Write a letter of engagement to

be sent to the client.

Answer: When invited to become the auditor of Dolci Food Ltd. I shall follow the following stages before starting the

audit of the said company.

Stage – 1 : I shall obtain client’s permission to write to the retiring auditor inquiring if there is any professional

reason why the appointment should not be accepted .

Stage – 2 : I shall meet with the client to agree with the scope of the audit , so far as not prescribed by statute .

Stage – 3 : I have to send a letter of engagement to the client defining the scope of audit .

Stage – 4 : The client should be asked to acknowledge acceptance of this letter , and state if it is in accordance

with his understanding of the agreement .


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ENGANGEMENT LETTER

Date July 10 , 2003

The Managing Director

Dolci Food Ltd.

Gulshan , Dhaka

Subject: Letter of Engagement.

Dear Sir,

You have requested through the letter ref. ------ dated ------- that to audit the Balance Sheet of Dolci Food Ltd. as at

December 31, 2002 and the related statements of income and cash flows for the year ended. We are pleased to

confirm our acceptance and set out below our responsibilities as auditors and understanding of the further services you

require us to perform:

Audit:

(a) Our function as auditors as governed by the Companies Act, 1994 is to examine the accounts

presented to us by the directors. As auditors we are not responsible for the preparation of the

accounts, nor for the maintenance of the accounting records of the company, duties which are

imposed on the directors by the Companies Act. Any accounting services we provide are distinct fromour functions as auditors.

(b)

We shall, as required by law, report to the shareholders whether in our opinion the accounts of the

company affairs at the date of the balance sheet and of the profit or loss for the year ended on that

date and whether these accounts comply with the Companies Act, 1994.

(c) In arriving at our opinion we are required by law to consider some matters but only to report on any

in respect of which we are not satisfied.

(d) In accordance with normal practice, our audit will be planned primarily to enable us to express our

professional opinion. It should not be relied on to disclose defalcations of other irregularities but their

disclosure, if they exist, may well result from the audit tests we undertake.

(e)

The work we shall do to enable us to from our opinion referred to in above will include:

i)

keeping under review the company’s system of book-keeping , accounting and internal control ;

ii) Marking such tests and inquiries as we consider necessary for the purpose of our audit. Those

tests will inter alia apply :

- day to day operations of the business

- the verification of assets and liabilities .

But their nature and extent will vary according to our assessment of the company’s internal control and may cover all

aspects of the business, including attendance to observe your stocktaking procedures.

In addition to our report on the financial statements, we expect to provide you with a separate letter concerning any

material weakness in internal control, which come to our notice.

Other services:

We shall be pleased to provide, if requested, other services such as;

a)

assistance with secretarial services in completing statutory documents e.g. annual returns or in acting as

company secretary ;

b) advice on financial matters;

c)

management accounting services etc.

d)

advice on taxation matters.

Fees:

Our fees will be based on the degree of responsibility and skill involved and time required for the completion of work.

Further services, if provided, will be billed separately from the audit fees.

This letter will be effective for future years unless it is terminated amended or superseded.

Pleas sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the

arrangements for our audit of the financial statements.


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We shall be pleased to receive your further observations and to give you any further information which you may

require.

Thanking you

Yours truly,

Hoda Vasi Chowdhury & Co.Chartered Accountants

BSA 220 Quali ty Control for Audi t Work

2. Quality control policies and procedures should be implemented at both the level of the audit firm and on individual

audits.

Audit Firm

4. The audit firm should implement quality control policies and procedures designed to ensure that all audits are

conducted in accordance with BSAs or relevant national standards or practices.

5. The nature, timing and extent of an audit firm’s quality control policies and procedures depend on a number of

factors such as the size and nature of its practice, its geographical dispersion, its organization and appropriate

cost/benefit considerations. Accordingly, the policies and procedures adopted by individual audit firms will vary, as will

the extent of their documentation.

6. The objectives of the quality control policies to be adopted by an audit firm will ordinarily incorporate the following:

a. Professional Requirements

Personnel in the firm are to adhere to the principles of independence, integrity, objectivity,

confidentiality and professional behavior.

b.

Skills and Competence

The firm is to be staffed by personnel who have attained and maintain the technical standards and

professional competence required to enable them to fulfill their responsibilities with due care.

c.

AssignmentAudit work is to be assigned to personnel who have the degree of technical training and proficiency

required in the circumstances.

d. Delegation

There is to be sufficient direction, supervision and review of work at all levels to provide reasonable

assurance that the work performed meets appropriate standards of quality.

e. Consultation

Whenever necessary, consultation within or outside the firm is to occur with those who have appropriate

expertise.

f.

Acceptance and Retention of Clients

An evaluation of prospective clients and a review, on an ongoing basis, of existing clients is to be

conducted. In making a decision to accept or retain a client, the firm’s independence and abilit y to serve

the client properly and the integrity of the client’s management are to be considered.

g.

Monitoring

The continued adequacy and operational effectiveness of quality control policies and procedures is to

be monitored.

7. The firm’ general quality c ontrol policies and procedures should be communicated to its personnel in a manner that

provides reasonable assurance that the policies and procedures are understood and implemented.

Individual Audit

8. The auditor should implement those quality control procedures which are, in the context of the policies and

procedures of the firm, appropriate to the individual audit.


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BSA 230 DOCUMENTATION

2. The auditor should document mattes which are important in providing evidence to support the audit opinion and

evidence that the audit was carried out in accordance with BSAs.

3. Documentation means the material (working papers) prepared by and for or obtained and retained by the auditor in

connection with the performance of the audit. Working may be in the form of data stored on paper, film, electronic

media or other media.

4. Working papers

a) assist in the planning and performance of the audit;

b) assist in the supervision and review of the audit work; and

c) record the audit evidence resulting from the au dit work performed to support the auditor’s opinion.

Forms and Contents of Working Papers

5. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall

understanding of the audit.

6. The auditor should record in the working papers information on planning the audit work, the nature, timing and

extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence

obtained.

8. The forms and contents of working papers are affected by matters such as the following:

* Nature of the engagement

* Form of the auditor’s report

* Nature and complexity of the business

* Nature and condition of the entity’s accounting and internal control systems

* Needs in the particular circumstances for direction, supervision and review of work performed by assistants.

* Specific audit methodology and technology used in the course of the audit.

BS 240: THE UDITOR’S RESPONSIBILITY TO CONSIDER FR UD ND ERROR IN N UDIT OF

FINANCIAL

STATEMENTS

Fraud and Error and Their Characteristics

3. Misstatements in the financial statements can arise from fraud or error. The term “error” refers to an unintentional

misstatement in the financial statements, including the omission of an amount or a disclosure, such as the following:

- A mistake in gathering or processing data from which financial statements are prepared.

- An incorrect accounting estimate arising from oversight or misinterpretation of facts.

- A mistake in the application of accounting principles relating to measurement, recognition, classification,

presentation, or disclosure.

4. The term “fraud” refers to an intentional act by one or more individuals among management, those charged with

governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Fraud

involving one or more members of management or those charged with governance is referred to as “management

fraud”, fraud involving only employees of the entity is referred to as “employee fraud”. In either case, there may be

collusion with third parties outside the entity.

5. Two types of intentional misstatements are relevant to the auditor’s consideration of fraud – misstatements

resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets.

6. Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosures in financial

statements to deceive financial statement users.

7. Misappropriation of assets involves the theft of an entity’s assets. Misappropriation of assets can be accomplished in

a variety of ways (including embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for

goods and services not received); it is often accompanied by false or misleading records or documents in order to

conceal the fact that the assets are missing.

8. Fraud involves motivation to commit fraud and a perceived opportunity to do so. Individuals might be motivated tomisappropriate assets, for example, because the individuals are living beyond their means. Fraudulent financial


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reporting may be committed because management is under pressure, from sources outside or inside the entity, to

achieve an expected earnings target.

Responsibility of Those Charged With Governance and Of Management

10. The primary responsibility for the prevention and detection of fraud and error rests with both those charged with

the governance and the management of an entity. The respective responsibilities of those charged with governanceand management may vary by entity to entity and country to country. Management needs to set the proper tone,

create and maintain a culture of honesty and high ethics, and establish appropriate controls to prevent and detect

fraud and error within the entity.

11. It is the responsibility of those charged with governance of an entity to ensure through oversight of management,

the integrity of an entity’s accounting and financial reporting systems and that appropriate con trols and compliance

with the law.

12. It is the responsibility of the management of an entity to establish a control environment and maintain policies and

procedures to assist in achieving the objective of ensuring, as far as possible, the orderly and efficient conduct of the

entity’s business.

Responsibilities of the Auditor

13. As described in BSA 200 “Objective and General Principles Governing and Audit of Financial Statements ” the

objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial

statements are prepared in all material respects, in accordance with an identified financial reporting framework. An

audit conducted in accordance with BSAs is designed to provide reasonable assurance that the financial statements

taken as a whole are free from material misstatement, whether caused by fraud or error. The fact that an audit is

carried out may act as a deterrent, but the auditor is not and cannot be held responsible for the prevention of fraud

and error.

Inherent Limitations of an Audit

15. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting a

material misstatement resulting from error because fraud may involve sophisticated and carefully organized schemes

designed to conceal it. Such attempts at concealment may be even more difficult to detect when accompanied bycollusion. Collusion may cause the auditor to believe that evidence is persuasive when it is, in fact, false. The auditor’s

ability to detect a fraud depends on factors such as the skillfulness of the perpetrator, the frequency and extent of

manipulation, the degree of collusion involve, the relative size of individual amounts manipulated, and the seniority of

those involved. Audit procedures that are effective for detecting an error may be ineffective for detecting fraud.

16. Furthermore, the risk of not detecting a material misstatement resulting from management fraud is greater than for

employee fraud, because those charged with governance and management are often in a position that assumes their

integrity and enables them override the formally established control procedures. Certain levels of management may be

in a position to override control procedures designed to prevent similar frauds by other employees, for example, by

directing subordinates to record transactions incorrectly or to conceal them. Given its position of authority within an

entity management ahs the ability to either direct employees to do something or solicit their help to assist

management in carrying out a fraud, with or without the employees’ knowledge.

17. The auditor’s opinion on the financial statements is based on the concept of obtaining reasonable assurance; hence,

in an audit. The auditor does not guarantee that material misstatements, whether from fraud or error, will be detected.

Therefore, the subsequent discovery of a material misstatement of the financial statements resulting from fraud or

error does not indicate:

- A failure to obtain reasonable assurance;

- Inadequate planning, performance or judgment;

- A failure to comply with BSAs.

Professional Skepticism

18. The auditor plans and performs an audit with attitude of professional skepticism in accordance with the BSA 200.

Such an attitude is necessary for the auditor to identify and properly evaluate, for example:

- Matters that increase the risk of a material misstatement in the financial statements resulting from fraud orerror.


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- Circumstances that make the auditor suspect that the financial statements are materially misstated.

- Evidence obtained that brings into question the reliability of management representations.

Communication

56. When the auditor identifies a misstatement resulting from fraud, or suspected fraud, or error, the auditor should

consider the auditor’s responsibility to communicate that information to management, those charged withgovernance and, in some circumstances, to regulatory and enforcement authorities.

Communication of misstatements resulting from error to management and to those charged with governance

59. If the auditor has identified a material misstatement resulting from error, the auditor should communicate the

misstatement to the appropriate level of management on a timely basis, and consider the need to report it to those

charged with governance in accordance with BSA 260.

60. The auditor should inform those charged with governance of those uncorrected misstatements aggregated by the

auditor during the audit that were determined by management to be immaterial, both individually and in the

aggregate, to the financial statements taken as a whole.

Communication of misstatements resulting from fraud to management and to those charged with governance

62. If the auditor has

a) identified a fraud, whether or not it results in a material misstatement in the financial statements; or

b) obtained evidence that indicates that fraud may exist; the auditor should communicate these matters to

the appropriate level of management on a timely basis, and consider the need to report such matters to

those charged with governance in accordance with the BSA 260

Communication of material weakness in internal control

65. The auditor should communicate to management any material weakness in internal control related to the

prevention or detection of fraud and error, which have come to the auditor’s attention as a result of the performance

of the audit. The auditor should also be satisfied that those charged with governance have been informed of any

material weakness in internal control related to the prevention and detection of fraud that either have been brought

to the auditor’s attention by management or have been identified by the auditor during the audit.

Communications to Regulator and Enforcement Authorities

68. The auditor’s professional duty to maintain the confidentiality of client information ordinarily precludes reporting

fraud and error to a party outside the client. However, the auditor’s legal responsibilities vary country and in certain

circumstances, the duty of confidentiality may be overridden by statute, the law or courts of law. For example, in some

countries, the auditor of a financial institution has a statutory duty to report the occurrence of fraud and material error

to supervisory authorities. The auditor considers seeking legal advice in such circumstances.

Auditor Unable To Completer the Engagement

69. If the auditor concludes that it is not possible to continue performing the audit as a result of a misstatement

resulting from fraud or suspected fraud, the auditor should:

a) consider the professional and legal responsibilities applicable in the circumstances,

b) including whether there is a requirement for the auditor to report to the person or persons who made the

audit appointment or in some cases, to regulatory authorities;

c) consider the possibility of withdrawing from the engagement; and

d) the auditor withdraws:

i) discuss with the appropriate level of management and those charged with the governance the

auditor’s withdrawal from the engagement and the reasons for the withdrawal; and

ii) consider whether there is a professional or legal requirement to report to the person or persons

who made the audit appointment or, in some cases, to regulatory authorities, the auditor’s

withdrawal from the engagement and the reasons for the withdrawal.


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Communication with a proposed successor auditor

73.

As stated in the Code of Ethics issued by the ICAB, on receipt of an inquiry from a proposed successor auditor, the

existing auditor should advise whether there are any professional reasons why the proposed successor auditor should

not accept the appointment. If the client denies the existing auditor permission to discuss its affairs with the

proposed successor auditor or limits what the existing auditor may say, that fact should be disclosed to the proposed

successor auditor.

BSA 260 COMMUNICATIONS OF AUDIT MATTERS WITH THOSE CHARGED WITH GOVERNANCE

2. The auditor should communicate audit matters of governance interest arising from the audit of financial

statements with those charged with governance of an entity.

Relevant Persons

5. The auditor should determine the relevant persons who are charged with governance and with whom audit

matters of governance interest are communicated.

BSA 300: PLANNING

2. The auditor should plan the audit work so that the audit will be performed in an effective manner.

3. Planning means developing a general strategy and a detailed approach for the expected nature, timing and extent of

the audit. The auditor plans to perform the audit in an efficient and timely manner.

The Overall Audit Plan

8. The auditor should develop and document an overall audit plan describing the expected scope and conduct of the

audit.

9. Matters to be considered by the auditor in developing the overall audit plan include the following:

- Knowledge of the business

-

Understanding the accounting and internal control systems

- Risk and Materiality

- Nature, Timing and Extent of Procedures

- Co-ordination, Direction, Supervision and Review

- Other Matters

BSA 310 KNOWLEDGE OF THE BUSINESS

2. In performing an audit of financial statements, the auditor should have to obtain a knowledge of the business

sufficient to enable the auditor to identify and understand the events, transactions and practices that, in the

auditor’ s knowledge, may have a significant effect on the financial statements or on the examination or audit report.

8. The auditor can obtain knowledge of the industry and the entity from a number of sources, for example:

- Previous experience with the entity and its industry;

- Discussion with the people with the entity;

- Discussion with internal audit personnel and review of internal audit reports;

- Discussion with other auditors and with legal and other advisors;

- Discussion with knowledgeable people outside the entity;

- Publication related to the industry;

- Legislation and regulations that significantly affect the entity;

- Visits to the entity’s premises and plant facilities; and

- Documents produced by the entity.


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BSA 320 AUDIT MATERIALITY

2. The auditor should consider materiality and its relationship with audit risk when conducting an audit.

3. Materiality is defined by the council of the ICAB in the following terms:

“Information is material if its omission or misstatement could influence the economic decisions of users taken on the

basis of the financial statements.” Materiality depends on the size of the item or error judge in the particularcircumstances of its omission or misstatement.

4. The objectives of an audit of financial statements is to enable auditor to express an opinion whether the financial

statements are prepared, in all material respects, in accordance with an identified financial reporting framework.

The relationship between Materiality and Audit Risk

10. There is an inverse relationship between materiality and the level of audit risk that is the higher the materiality

level, the lower the audit risk and vice-versa. The auditor takes the inverse relationship between materiality and audit

risk into account when determining the nature, timing and extent of audit procedures. For example, the auditor

determines that the acceptable materiality level is lower, audit risk is increased. The auditor would compensate for this

by either:

a)

reducing the assessed level of control risk, where this is possible, and supporting the reduced level

carrying out extended or additional tests of control: orb)

reducing detection risk by modifying the nature, timing and extent of planned substantive procedures.

BSA 330 THE A

UDITOR’S PROCEDURES IN RESPONSE TO SSESSED RISKS

3. In order to reduce audit risk to an acceptably low level, the auditor should determine overall responses to assessed

risks at the financial statement level, and should design and perform further audit procedures to respond to assessed

risks at the assertion level.

4. The auditor should determine overall responses to address the risks of material misstatement at the financial

statement level.

7. The auditor should design and perform further audit procedures whose nature, timing and extent are responsive to

the assessed risks of material misstatement at the assertion level.

23. When the auditor’s assessment of risks of material misstatement at the assertion level includes an expectation

that controls are operating effectively, the auditor should perform tests of controls to obtain sufficient appropriate

audit evidence that the controls were operating effectively at relevant times during the period under audit.

29. The auditor should perform other audit procedures in combination with inquiry to test the operating effectiveness

of controls.

37. When the auditor obtains audit evidence about the operating effectiveness of controls during an interim period,

the auditor should determine what additional audit evidence should be obtained for the remaining period.

BSA 400 RISK ASSESSMENTS AND INTERNAL CONTROL

2. The auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the

audit and develop an effective audit approach. The auditor should use professional judgment to assess audit risk and

to design audit procedures to ensure it is reduced to an acceptably low level.

3. Audit Risk means the risk that the auditor gives an inappropriate audit opinion when the financial statements are

materially misstated. Audit risk has 3 components:

4. Inherent Risk is the susceptibility of an account balance or class of transactions to misstatement that could be

material, individually or when aggregated with misstatements in other balances or classes, assuming that there were no

related internal controls.

5. Control Risk is the risk that a misstatement that could occur in an account balance or class of transactions and that

could be material, individually or when aggregated with misstatements in other balances or classes, will not be

prevented or detected and corrected on a timely basis by the accounting system and internal control system.


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6. Detection Risk: Detection Risk is the risk that an auditor’s substantive procedures will n ot detect a misstatement that

exists in an account balance or class of transactions that could be material, individually or when aggregated with

misstatements in other balances or classes.

7. Accounting System means the series of tasks and records of an entity by which transactions are processed as a

means of maintaining financial records. Such systems identify, assemble, analyze, calculate, classify, record, summarize

and report transactions and other events.

8. Internal Control System means all the policies and procedures adopted by the management of an entity to assist inachieving management ‘s objectives of ensuring , as far as practicable , the orderly and efficient conduct of its business ,

including adherence to management policies , the safeguarding of assets , the prevention and detection of fraud and

error , the accuracy and completeness of the accounting records , and the timely preparation of reliable financial

information .

The internal control system comprises:

a) The Control Environment means the overall attitude, awareness and actions of Directors and management regarding

the internal control system and its importance in the entity. The control environment has an effect on the effectiveness

of the specific control procedures. A strong control environment can significantly complement specific control

procedures.

b) Control Procedures means those policies and procedures in addition to the control environment which management

has established to achieve the entity’s specific objectives.

43. There is an inverse relationship between detection risks and the combined level of inherent and control risks. For

example, when inherent and control risks are high, acceptable detection risk needs to be low to reduce audit risk to

an acceptably low level. On the other hand, when inherent and control risks are low, an auditor can accept a higher

detection risk and still reduce audit risk to an acceptably low level.

BSA 401 AUDITING IN A COMPUTER INFORMATION SYSTEMS ENVIRONMENT

2. The auditor should consider how a CIS environment affects the audit.

4. The auditor should have sufficient knowledge of the CIS to plan, direct, supervise and review the work performed.

The auditor should consider whether specialized CIS skills are needed in an audit.

7. When the CIS are significant, the auditor should also obtain an understanding of the CIS environment and whetherit may influence the assessment of inherent and control risks. The nature of the risks and the internal control

characteristics in CIS environments include the following:

- Lack of transaction trails.

- Uniform processing of transactions.

- Lack of segregation of functions.

- Potential for errors and irregularities.

- Initiation or execution of transactions.

- Dependence of other controls over computer processing.

- Potential for increased management supervision.

-Potential for the use of Computer – Assisted – Audit – Techniques.

BSA 402 AUDIT CONSIDERATIONS RELATING TO ENTITIES USING SERVICE ORGANIZATION

2. The auditor should consider how a service organization affects the client’s accounting and internal control systems

so as to plan the audit and develop an effective audit approach.

Considerations of the Client Auditor

5. The auditor should determine the significance of service organization activities to the client and the relevance to

the audit.

Service Organization Auditor’s Report

13. The client auditor should consider the scope of work performed by the service organization auditor and should

assess the usefulness and appropriateness of reports issued by the service organization auditor.


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BSA 500 AUDIT EVIDENCE

2. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on

which to base the audit opinion.

3. “Audit Evidence” is all the information used by the auditor in arriving at the conclusions on which the audit opinion is

based, and includes the information contained in the accounting records underlying the financial statements and other

information.

Audit Evidence means the information obtained by the auditor in arriving at the conclusions on which the audit

opinion is based. Audit Evidence will comprise the source documents and accounting records underlying the financial

statements and corroborating information from other sources.

Basic principles and importance of Audit Evidence:

The auditor should obtain sufficient appropriate audit evidence through the performance of compliance procedures

and substantive procedures to enable him to draw reasonable conclusions there form on which to base his opinion on

the financial statements / information.

1) Compliance Procedures / Tests of Control: Compliance Procedures are tests designed to obtain reasonable

assurance that those internal controls on which audit reliance is to be placed are in effect.

2)

Substantive Procedures: Substantive Procedures are designed to obtain audit evidence to detect materialmisstatements in the financial statements.

Question: Methods of obtaining audit evidence?

Answer :

1)

Inspection

2)

Observation

3)

Inquiry and confirmation

4) Computation

5)

Analytical Review

Question: How to obtain adequate and appropriate audit evidence?

Answer : Through the performance of compliance procedures and substantive procedures .

Compliance procedures are tests designed to obtain reasonable assurance that those internal control systems on which

audit reliance is to be placed are in effect.

Compliance procedures seek to test:

1)

that the internal control exists

2) that the internal control is effective

3)

that the internal control has so operated throughout the period of audit with continuity .

Substantive Procedures are tests designed to obtain audit evidence to detect material misstatements in the financial

statements.

Substantive procedures seek to test:

1)

that an asset and liability exists2)

that the enterprise has right over the assets and has obligation over the liabilities

3) that a transaction happened during the period

4)

that all transactions / asset / liability find place in the financial statements without omission .

5)

the monetary values attached to asset or liability is correct or fair .

6)

that a transaction is recorded in proper amount .

7)

data is disclosed according to accounting convention , statutory requirements .

Question: Sources of audit evidence?

Answer: Sources of audit evidence includes

a)

Knowledge and evaluation of the systems and accounting records;

b)

Documentary evidence:

1.

created by third parties and sent direct to the auditor2.

created by third parties and sent to the client

3.

created internally by the client


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c) Physical evidence:

1.

stock and cash counts

2.

inspection of fixed assets and documents of title

d)

Discussions with the management and employees

e) Review of financial statements.

Question: Discuss the audit techniques and procedures?

Answer: The audit techniques and procedures are as follows:

1.

Inspection: Inspection consists of examining records, documents, or tangible assets. Inspection of records

and documents provides evidence on their nature and source and the effectiveness of internal controls

over their processing.

2. Observation: Observation consists of looking at a process being performed by others.

3.

Inquiry: Inquiry consists of seeking appropriate information of knowledgeable persons inside or outside

the entity.

4. Confirmation: Confirmation consists of the response to an inquiry to corroborate information contained in

the accounting records.

5.

Computation: Computation consists of checking the arithmetical accuracy of source documents and

accounting records or performing independent calculations.

6.

Analytical Procedures: Analytical procedure consists of 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.

BSA 501 AUDIT EVIDENCE

–

ADDITIONAL CONSIDERATIONS FOR SPECIFIC ITEMS

Attendance at Physical Inventory Counting

5. When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit

evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable.

6. Unable to attend the physical inventory count on the date planned due to unforeseen circumstances, the auditor

should take or observe some physical counts on an alternative date and, when necessary, perform tests of

intervening transactions.

7. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor

should consider whether alternative procedures provide sufficient appropriate audit evidence of existence and

condition to conclude that the auditor need not make reference to a scope limitation.

Inquiry Regarding Litigation and Claim

20. The auditor should carry out procedures in order to become aware of any litigation and claims involving the

entity which may have a material effect on the financial statements.

21. When litigation or claims have been identified or when the auditor believes they may exist, the auditor should

seek direct communication with the entity’s lawyers.

22. The letter, which should be prepared by management and sent by the auditor, should request the lawyer to

communicate directly with the auditor.

25. If management refuses to give the auditor permission to communicate with the entity’s lawyers, this would be a

scope limitation and should ordinarily lead to a qualified opinion or a disclaimer of opinion. Where a lawyer refuses to

respond in an appropriate manner and the auditor is unable to obtain sufficient appropriate audit evidence by applying

alternative procedures, the auditor would consider whether there is a scope limitation which may lead to a qualified

opinion or a disclaimer of opinion.

Segment Information

30. When segment information is material to the financial statements, the auditor should obtain sufficient

appropriate audit evidence regarding its disclosure in accordance with the identified financial reporting framework.


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BSA 510 INITIAL ENGAGEMENTS

–

OPENING BALANCES

2. For initial engagements, the auditor should obtain sufficient appropriate audit evidence that:

a) The opening balance do not contain misstatements that materially affect the current period’s financial

statements;

b) The prior period’s closing balances have been correctly brought forward to the current period or, when

appropriate, have been restated; andc) Appropriate accounting policies are consistently applied or changes in accounting policies have been

properly accounted for and adequately disclosed.

12. If the effect of the misstatement is not properly accounted for and adequately disclosed, the auditor should

express a qualified opinion or an adverse opinion, as appropriate.

13. If the current period’s accounting policies have not been consistently applied in relation to opening balances and

if the change has not been properly accounted for and adequately disclosed, the auditor should express a qualified

opinion or an adverse opinion, as appropriate.

BSA 520 ANALYTICAL PROCEDURES

2. The auditor should apply analytical procedures at the planning and overall review stages of the audit.

3. Analytical procedures mean the analysis of significant ratios and trends including the resulting investigations of

fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts.

8. The auditor should apply analytical procedures at the planning stage to assist in understanding the business and in

identifying areas of potential risk.

13. The auditor should apply analytical procedures at or near the end of the audit when forming an overall conclusion

as to whether the financial statements as a whole are consistent with the auditor’s knowledge of the business.

17. When analytical procedures identify significant fluctuations or relationships that are inconsistent with other

relevant information or that deviate from predicted amounts, the auditor should investigate and obtain adequate

explanations and appropriate corroborative evidence.

BSA 550 RELATED PARTIES

2. The auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence regarding

the identification and disclosure by management of related parties and the effect of related party transactions that

are material to the financial statements. However, an audit cannot be expected to detect all related party

transactions.

3. Where there is any indication that such circumstances exist, the auditor should perform modified, extended or

additional procedures as are appropriate in the circumstances.

Existence and Disclosure of Related Parties

7. The auditor should review information provided by the directors and management identifying the names of all

known related parties and should perform the following procedures in respect of the completeness of this

information:

a) Review prior year working papers for names of known related parties;

b) Review the entity’s procedures for identification of related parties;

c) Inquire a to the affiliation of directors and officers with other entities;

d)Review shareholder records to determine the names or principal shareholders or, if appropriate, obtain a

listing of principal shareholders from the share register;

e) Review minutes of the meetings of shareholders and the board of directors and other relevant statutory

records such as the register of directors’ interests;

f) Inquire of other auditors currently involve in the audit, or predecessor auditors, as to their knowledge of

additional related parties; and

g) Review the entity’s income tax returns and other information supplied to regulatory agencies.

8. Where the financial reporting framework requires disclosure of related party relationships, the auditor should

satisfy that the disclosure is adequate.


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Transactions with Related Parties

9. The auditor should review information provided by directors and management identifying related party

transactions and should be alert for other material related party transactions.

10. When obtaining an understanding of the accounting and internal control systems and making a preliminary

assessment of control risk, the auditor should consider the adequacy of control procedures over the authorization andrecording of related party transactions.

Examining Identified Related Party Transactions

13. In examining the identified related party transactions, the auditor should obtain sufficient appropriate audit

evidence as to whether these transactions have been properly recorded and disclosed.

Management Representations

15. The auditor should obtain a written representation from management concerning:

a) The completeness of information provided regarding the identification of related parties; and

b) The adequacy of related party disclosures in the financial statements.

Audit Conclusions and Reporting

16. If the auditor is unable to obtain sufficient appropriate audit evidence concerning related parties and transactions

with such parties or concludes that their disclosures in the financial statements is not adequate, the auditor should

modify the auditor’s report appropriately.

BSA 560 SUBSEQUENT EVENTS

2. The auditor should consider the effect of subsequent events on the financial statements and on the auditor’s

report.

3. BAS 10 deals with the treatment in financial statements of events, both favorable and unfavorable, occurring after

period end and identifies two types of events:

a) Those that provide further evidence of condition that existed at period end; and

b) Those that are indicative of conditions that arose subsequent to period end.

Events Occurring Up to the Date of the Auditor’s Report

4. The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up

to the date of the auditor’s report that may require adjustments of, or disclosure in, the financial statements have

been identified.

5. The procedures to identify events that may require adjustments of, or disclosure in, the financial statements would

be performed as near as practicable to the date of the auditor’s report and ordinarily include the following:

- Reviewing procedures management has established to ensure that subsequent events are identified.

- Reading minutes of the meetings of shareholders, the board of directors and audit and executive committees

held after period end and inquiring about matters discussed at meetings for which minutes are not yetavailable.

- Reading the entity’s latest available interim financial statements and, as considered necessary and

appropriate, budgets, cash flow forecasts and other related management reports.

- Inquiring, or extending previous oral or written inquiries, of the entity’s lawyers concerning litigation and

claims.

- Inquiring of management as to whether any subsequent events have occurred which might affect the

financial statements.

6. When a component such as a division, branch or subsidiary, is audited by another auditor, the auditor would

consider the other auditor’s procedures regarding events after period end and the need to inform the other auditor of

the planned date of the auditor’ report.

7. When the auditor becomes aware of events which materially affects the financial statements, the auditor should

consider whether such events are properly accounted for and adequately disclosed in the financial statements.


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Facts discovered after the date of the auditor’s report before the financial statements are issued

9. When, after the date o f the auditor’s report but before the financial statements are issued, the auditor becomes

aware of a fact which may materially affect the financial statements, the auditor should consider whether the

financial statements need amendment, should discuss the matter with management, and should take the action

appropriate in the circumstances.

10. When management does not amend the financial statements in circumstances where the auditor believes theyneed to be amended and the auditor’s report ahs not been rel eased to the entity, the auditor should express a

qualified opinion or an adverse opinion.

Facts Discovered After the Financial Statements Have Been Issued

14. When, after the financial statements have been issued, the auditor becomes aware of a fact which existed at the

date of the auditor’s report and which, if known at that date, may have caused the auditor to modify the auditor’s

report, the auditor should consider whether the financial statements need revision, should discuss the matter with

management, and should take the action appropriate in the circumstances.

16. The new auditor’s report should include an emphasis of a matter paragraph referring to a note to the financial

statements that more extensively discusses the reasons for the revision of the previously issued financial statements

and to the earlier report issued by the auditor.

BSA 570 GOING CONCERN

2. When planning and performing audit procedures and in evaluating the results thereof, the auditor should consider

the appropriateness of management’ use of the going concern assumption in the preparing of the financial

statements.

8. Examples of events or conditions, which individually or collectively, may cast significant doubt about the going

concern assumption are set out below:

Financial

- Net liability or net current liability position

- Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment; or

excessive reliance on short term borrowings to finance long term assets.- Indications of withdrawal of financial support by debtors and other creditors.

- Negative operating cash flows indicated by historical or prospective financial statements.

- Adverse key financial ratios.

- Substantial operating losses or significant deterioration in the value of assets used to generate cash

flows.

- Arrears or discontinuance of dividends.

- Inability to pay creditors on due dates.

- Inability to comply with the terms of loan agreements.

Operating

- Loss of key management without replacement.

-

Loss of a major market, franchise, license, or principal supplier.- Labor difficulties or shortages of important supplies.

Other

- Non-compliance with capital or other statutory requirements.

- Pending legal or regulatory proceedings against the entity that may if successful result in claims that

are unlikely to be satisfied.

- Changes in legislation or government policy expected to adversely affect the entity.

Planning Considerations

11. In planning the audit, the auditor should consider whether there are events or conditions which may cast

significant doubt on the entity’s ability to continue as a going concern.

12. The auditor should remain alert for evidence of events or conditions which may cast significant doubt on theentity’s ability to continue as a going concern throughout the audit. If such ev ents or conditions are identified, the


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auditor should, in addition to performing the procedures in paragraph 26, consider whether they affect the auditor’s

assessments of the components of audit risk.

Evaluating Management’s Assessment

17. The auditor should evaluate management’s assessment of the entity’s ability to continue as a going concern.

18. The auditor should consider the same period as that used by management in making its assessment under the financial reporting framework. If management’s assessment of the entity’s ability to continue as a going concern

covers less than 12 months from the balance sheet date, the auditor should ask management to extend its

assessment period to 12 months from the balance sheet date.

Period beyond Management’s Assessment

22. The auditor should inquire of management as to its knowledge of events or conditions beyond the period of

assessment used by management that may cast significant doubt on the entity’s ability to continue as a going

concern.

Additional Audit Procedures When Events or Conditions Are Identified

26. When events or conditions have been identified which may cast significant doubt on the entity’s ability to

continue as a going concern, the auditor should:a) Review management’s plans for future act ions based on its going concern assessments;

b) Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty

exists through carrying out procedures considered necessary, including considering the effect of any plans of

management and other mitigating factors; and

c) Seek written representations from management regarding the plans for future action.

Going Concern Assumption Appropriate but a Material Uncertainty Exists

33. If adequate disclosure is made in the financial statements, the auditor should express an unqualified opinion but

modify the auditor’s report by adding an emphasis of matter paragraph that highlights the existence of a material

uncertainty relating to the event or condition that may cast signific ant doubt on the entity’s ability to continue as a

going concern and draws attention to the note in the financial statements.

34. If adequate disclosure is not made in the financial statements, the auditor should express a qualified or adverse

opinion, as appropriate. The report should include specific reference to the fact that there is a material uncertainty

that may cast significant doubt about the entity’s ability to continue as a going concern.

Going Concern Assumption Inappropriate

35. If, in the auditor’s judgment , the entity will not be able to continue as a going concern, the auditor should express

an adverse opinion if the financial statements have been prepared on a going concern basis.

Management Unwilling to Make or Extent its Assessment

37. If management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor

should consider the need to modify the auditor’s report as a result of the limitation on the scope of the auditor’s

work.

BSA 580 MANAGEMENT REPRESENTATIONS

2. The auditor should obtain appropriate representations from management.

Acknowledgement by Management of Its Responsibility for the Financial Statements

3. The auditor should obtain evidence that management acknowledges its responsibility for the fair presentation of

the financial statements in accordance with the relevant financial reporting framework, and has approved the

financial statements.


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Representations by Management as Audit Evidence

4. The auditor should obtain written representations from management on matters material to the financial

statements when other sufficient appropriate audit evidence cannot reasonably be expected to exist.

9. If a representation by management is contradicted by other audit evidence, the auditor should investigate the

circumstances and, when necessary, considers the reliability of other representations made by management.

Actions if Management Refuses to Provide Representations

15. If management refuses to provide a representation that the auditor considers necessary, this constitutes a scope

limitation and the auditor should express a qualified opinion or a disclaimer of opinion.

Example of letter of representation

To


Chartered Accountants,

73/3 Green Road, Dhaka

Dear Sir,

This representation letter is provided in connection with your audit of the financial statements of ABC Co. Ltd for theyear ended 31December, 2007 for the purpose of expressing an opinion as to whether the financial statements give a

true and fair view of the state of affairs of the company in accordance width relevant financial reporting framework.

We acknowledge our responsibility for the fair presentation of the financial statements.

We confirm to the best of our knowledge and belief the following:

1. There have been no irregularities involving management or employees who have a significant role in the

accounting and internal control systems.

2.

We have made available to you all books of account and supporting documentation and all minutes of

meetings of shareholders and the BOD.

3. We confirm the completeness of information provided regarding the identification of related parties.

4.

The financial statements are free of material misstatements including omission.5.

We have no plans or intentions that may materially alter the carrying value of classification of assets and

liabilities reflected in the financial statements.

6. We have properly recorded or disclosed in the financial statements, the capital stock re-purchase options

and agreements, and capital stock reserved for options, warrants, conversions and other requirements.

BSA 600 USING THE WORK OF ANOTHER AUDITOR

2. When the principal auditor uses the work of another auditor, the principal auditor should determine how the work

of the other auditor will affect the audit.

3. Principal auditor means the auditor with responsibility for reporting the financial statements of an entity when those

financial statements include financial information of one or more components audited by another auditor.4. Other auditor means an auditor, other than the principal auditor, with responsibility for reporting on the financial

information of a component which is included in the financial statements audited by the principal auditor. Other

auditors include affiliated firms, whether using the same name or not, and correspondents, as well as unrelated

auditors.

5. Component means a division, branch, subsidiary, joint venture, associated company or other entity whose financial

information is included in financial statements audited by the principal auditor.

Acceptance as Principal Auditor

6. The auditor should consider whether the auditor’s own participation is sufficient to be able to act as the principal

auditor.


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The Principal Auditor’s Procedures

8. The principal auditor should perform procedures to obtain sufficient appropriate audit evidence, that the work of

the other auditor is adequate for the principal auditor’s purposes, in the context of the specific assignment.

12. The principal auditor should consider the significant findings of the other auditor.

Co-operation between Auditors15. The other auditor, knowing the context in which the principal auditor will use the other auditor’s work should co -

operate with the principal auditor.

Reporting Considerations

16. When the principal auditor concludes that the work of the other auditor cannot be used and the principal auditor

has not been able to perform sufficient additional procedures regarding the financial information of the component

audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because

there is a limitation in the scope of the audit.

BSA 610 CONSIDERING THE WORK OF INTERNAL AUDITING

2. External auditor should consider the activities if internal auditing and their effect, if any, on external audit procedures.

3. Internal auditing means an appraisal activity established within an entity as a service to the entity. Its functions

include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of the accounting

and internal control systems.

Understanding and Preliminary Assessment of Internal Auditing

9. The external auditor should obtain a sufficient understanding of internal audit activities to assist in planning the

audit and developing an effective audit approach.

11. During the course of planning the audit, the external auditor 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.

Evaluating and Testing the Work of Internal Auditing

16. When the external auditor intends to use specific work of internal auditing, the external auditor should evaluate

and test that work to confirm its adequacy for the external auditor’s purposes.

BSA 620 USING THE WORK OF AN EXPERT

2. When using the work performed by an expert, the auditor should obtain sufficient appropriate audit evidence that

such work is adequate for the purposes of the audit.

3. Expert means a person or firm possessing special skill, knowledge and experience in a particular field other than

accounting and auditing.

Competence and Objectivity of the Expert

8. When planning to use the work of an expert, the auditor should assess the professional competence of the expert.

9. The auditor should assess the objectivity of the expert.

Assessing the Work of the Expert

12. The auditor should assess the appropriateness of the expert’s work as audit evidence regarding the financial

statement assertion being considered.

15. If the results of the expert’s work do not provide sufficient appropriate audit evidence or if the results are not

consistent with other audit evidence, the auditor should resolve the matter.

Reference to an Expert in the Auditor’s Report

16. When issuing an unmodified/unqualified auditor’s report, the auditor should not refer to the work of an expert.


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BS 700 THE UDITOR’S REPORT ON FIN NCI L ST TEMENTS

Basic Elements of the Auditor’s Report

5. The auditor’s report includes the following basic elements:

a) Title;

b)

Addressee;

c)

Opening Paragraph;d) Scope Paragraph;

e) Opinion Paragraph;

f)

Date of the report;

g)

Auditor’s Address; and

h)

Auditor’s Signature.

The Auditor’s Report

27. An unqualified opinion should be expressed when the auditor concludes that the financial statements give a true

and fair view (or are presented fairly, in all material respect) in accordance with the identified financial reporting

framework.

Modified Reports

29. An auditor’s report is considered to be modified in the following situations:

Matters That Do Not Affect the Auditor’s Opinion

a)

Emphasis of matter

Matters That Do Affect the Auditor’s Opinion

b)

Qualified Opinion

c)

Disclaimer Opinion

d) Adverse Opinion

Matters That Do Not Affect the Auditor’s Opinion

31. The auditor should modify the auditor’s report by adding a paragraph to highlight a material matter regarding a

going concern problem.

32. The auditor should consider modifying the auditor’s report by adding a paragraph if there is a significant

uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which

may affect the financial statements.

Matters That Do Affect the Auditor’s Opinion

36. An auditor may not be able to express an unqualified opinion when either of the following circumstances exists and,

in the auditor’s judgment, the effect of the matter is or may be material to the financial statements:

a) There is a limitation on the scope of the auditor’s work; or

b) There is a disagreement with management regarding the acceptability of the acceptability of the accounting

policies selected, the method of their application or the adequacy of financial statement disclosures.

The circumstances described in (a) could lead to a qualified opinion or a disclaimer of opinion. The circumstances

described in (b) could lead to a qualified or an adverse opinion.

37. A qualified opinion should be expressed when the auditor concludes that an unqualified opinion can not be

expressed but that the effect of any disagreement with the management, or limitation on scope is not so material

and pervasive as to require and adverse opinion or a disclaimer of opinion.

38. A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and

pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable

to express an opinion on the financial statements.

39. An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the

financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the

misleading or incomplete nature of the financial statements.


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40. Whenever the auditor expresses an opinion that is other than unqualified, a clear description of all the

substantive reasons should be included in the report and, unless impracticable, a quantification of the possible

effect(s) on the financial statements. Ordinarily, this information would be set out in a separate paragraph preceding

the opinion or disclaimer of opinion and may include a reference to a more extensive discussion, if any, in a note to

the financial statements.

SPECIMEN OF UNQUALIFIED AUDITOR’S REPORT To the shareholders of Beximco

We have audited the accompanying Balance Sheet of Beximco Pharmaceuticals Limited as of 31 December 2007 and

related Profit and Loss Account for the year then ended. The preparation of these financial statements is the

responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements

based on our audit.

Scope

We conducted our audit in accordance with International Standards on Auditing (ISA) adopted by the ICAB. 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 management, as well

as, evaluating the overall financial statement presentation. We planned and performed the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement. We believe that our audit

provides a reasonable basis for our opinion.

Opinion

In our opinion, the financial statements prepare in accordance Bangladesh Accounting Standards give a true and fair

view of the state of affairs of the company as of 31 December 2007, and the results of its operations for the year then

ended and comply with the applicable sections of the Companies Act, 1994, the Securities and Exchange Rules 1987 and

other applicable laws and regulations.

We also report that;

a)

We have obtained all the information and explanations which to the best of our knowledge and belief

were necessary for the purposes of our audit and made due verification thereof ;

b) In our opinion , proper books of account as required by law have been kept by the company so far as it

appeared from our examination of those books and proper returns adequate for the purposes of our audit

have been received from branches not visited by us;

c)

The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books

of accounts and returns;

d) The expenditure incurred was for the purposes of the company’s business.

Date: Dhaka 15 May, 2008 Hoda Vasi Chowdhury & Co.

Chartered Accountants

Emphasis of matter

AUDITOR’S REPORT

To the shareholders of Beximco Pharmaceuticals Limited


related Profit and Loss Account for the year then ended. The preparation of these financial statements is theresponsibility of the company’s management. Our responsibility is to express an opinion on these financial statements

based on our audit.

Scope







Opinion

In our opinion, the financial statements prepare in accordance Bangladesh Accounting Standards give a true and fair

view of the state of affairs of the company as of 31 December 2007, and the results of its operations for the year then


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ended and comply with the applicable sections of the Companies Act, 1994, the Securities and Exchange Rules 1987 and

other applicable laws and regulations.

Without qualification our opinion we draw reader attention to note X to the financial statements. The company is the

defendant in a law suit alleging infringement of certain patent rights and claiming royalties and punitive damages. The

company has filed a counter action, and preliminary hearings and discovery proceedings presently be determined, and

no provision for any liability that may result has been made in the financial statements.We also report that;

e) We have obtained all the information and explanations which to the best of our knowledge and belief


f)

In our opinion , proper books of account as required by law have been kept by the company so far as it



g)



h)

The expenditure incurred was for the purposes of the company’s business.



SPECIMEN OF QUALIFIED AUDITOR’S REPORT





based on our audit.

Scope







Opinion

We did not observe the counting of the physical inventories as of 31 December, 2007, since that date was prior to the

time we were initially engaged as auditors for the company. Owing to the nature of the company’s records, we were

unable to satisfy ourselves as to inventory quantities by other audit procedures.

In our opinion, except for the effect on the financial statements of the matter referred to in the preceding paragraph,

the financial statements prepare in accordance Bangladesh Accounting Standards give a true and fair view of the state

of affairs of the company as of 31 December 2007, and the results of its operations for the year then ended and comply

with the applicable sections of the Companies Act, 1994, the Securities and Exchange Rules 1987 and other applicable

laws and regulations.

We also report that;

i)

We have obtained all the information and explanations which to the best of our knowledge and belief


j)

In our opinion , proper books of account as required by law have been kept by the company so far as it



k)



l)

The expenditure incurred was for the purposes of the company’s business.




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Disclaimer Opinion

AUDITOR’S REPORT

To the Shareholders of Beximco Pharmaceuticales Company Limited

We were engaged to audit the accompanying Balance Sheet of the Beximco Pharmaceuticales Company Limited as of

31 December, 2007, and the related statements of income and cash flows for the year then ended. These financialstatements are the responsibilities of the company’s management.

We were not able to observe all physical inventories and confirm accounts receivable due to limitations placed on the

scope of our work by the company. Because of the significance of the matters discussed in the preceding paragraph, we

don not express an opinion on the financial statements.



Adverse Opinion

AUDITOR’S REPORT





based on our audit.

Scope






provides a reasonable basis for our opinion.Opinion

As more fully explained in note ------------ no provision has been made for losses expected to arise on certain long-term

contracts currently in progress because the directors consider that such losses should be offset against future profits

expected to arise on other long-term contracts. Bangladesh Accounting Standard – 11 however requires that provision

should be made for foreseeable losses on individual contracts. If losses had been so recognized the effect would have

been to reduce the profit after tax for the year and contract work in progress at 31 December, 2007 by Taka ------

In our opinion, except for the effect on the financial statements of the matter referred to in the preceding paragraph,

the financial statements do not give a true and fair view of the state of affairs of the company as of 31 December 2007,

and the results of its operations for the year then ended in accordance with Bangladesh Accounting Standards.



BSA 710 COMPARATIVES

2. The auditor should determine whether the comparatives comply in all material respects with the financial reporting

framework relevant to the financial statements being audited.

3. The existence of differences in financial reporting frameworks between countries results in comparative financial

information being presented differently in each framework. Comparatives in financial statements, for example, may

present amounts and disclosures of an entity for more than one period, depending on the framework. The frameworks

and methods of presentations are referred to in this BSA as follows:

a) Corresponding figures where amounts and other disclosures for the preceding period are included as part of

the current period financial statements, and are intended to be read in relation to the amounts and other


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disclosures relating to the current period. These corresponding figures are not presented as complete financial

statements capable of standing alone, but are an integral part of the current period financial statements

intended to be read only in relationship to the current period figures.

b) Comparative financial statements where amounts and other disclosures for the preceding period are

included for comparison with the financial statements of the current period, but do not form part of the

current period financial statements.

4. Comparatives are presented in compliance with the relevant financial reporting framework. The essential audit

reporting differences are that:

a) For corresponding figures, the auditor’s report only refers to the financial statements of the current period;

whereas

b) For comparative financial statements, the auditor’s report refers to each period that the financial

statements are presented.

Corresponding Figures

The Auditor’s Responsibilities

6. The auditor should obtain sufficient appropriate audit evidence that the corresponding figures meet the

requirements of the relevant financial reporting framework . This involves the auditor assessing whether:

a) Accounting policies used for the corresponding figures are consistent with those of the current period orwhether appropriate adjustments and/ or disclosures have been made; and

b) Corresponding figures agree with the amou