Audit and assurance

Final term ASSIGNMENT’S

JUNE 1, 2015subbmited by AHHMAD-NUMAN ROLL NO 132-71

SUBBMITTED TO SIR MUHAMMAD YASIR

Assignment n o 1 Final Term. Audit panning and analytical procedures

Understanding the client business and assessing the business risk.

The Internet has dramatically increased global e-commerce activities. Both traditional

"brick and mortar" businesses and new dot-com businesses use the Internet to meet

business objectives. For example, eBay successfully offers online auctions as well as

goods for sale in a fixed price format.

Required.

1. Identify business strategies that explain eBay's decision to offer goods for sale at

fixed prices.

EBay’s decision to offer goods for sale at fixed prices based on these strategies.

To match the opposition. Because other retailer’s offer products at fixed prices through the

Internet, eBay’s facility to offer products at fixed prices allows eBay to invite customers who are

interested in purchasing products offered by other retailer’s. Customers less interested in

participating in online public sale may come to eBay to purchase products at fixed prices instead

of visiting other retailer’s Web sites. Thus, eBay may have decided that it is necessary to offer

products at fixed prices to match their opposition and meet consumer expectations in the

marketplace.

Enable to grow new target Markets by offering products at fixed price to its customer.

Many customers may not be passionate to contribute in online public sale due to the problem of

uplifting their bids online for the time in which auction is actuality done. By offering products at

fixed prices to customers through its Web site, eBay may be able to grow its market to customers

who do not select to contribute in the online auction.

2. Describe three business risks related to eBay's operations.

Customer’s Gratification with Product. Because eBay offered products by autonomous third

parties, eBay faces risks associated to product quality and features. If a customer purchased

products through eBay fail to meet customer expectation for quality, use of eBay auctions by

customer may devaluate over time.

Customer Secrecy. Due to buying products online customers will be providing secret personal

information, including credit card data, eBay’s system must be designed to protect customer

privacy during transmission and processing of orders. Breaches in customer privacy may affect

future demand for online sales and may increase legal exposure to the company.

Internet Accessibility. EBay’s business model is helpless without access to the Internet. During

the periods when Internet is not available, eBay is unable to conduct business. If Internet outages

are lengthy or frequent, consumers may be less interested in shopping on eBay.

3. Acquisitions by eBay in recent years include PayPal, an online payment service, and

Skype, an internet communications company. Discuss possible reasons why eBay

made these strategic acquisitions.

The basic purpose or aim of purchasing of PayPal an online payment service by eBay is to

modernize the payment process between buyers and sellers on the eBay auctions. PayPal allows

customers, both the individual and business to send and receive payments online with an email

address securely, easily and quickly. PayPal's service builds on the existing financial

infrastructure of bank accounts. Attaining PayPal allows eBay to decrease business risk by

ensuring they control this important aspect of the payment process in online business. The basic

decision to purchase the Skype an Internet communications company, is to make stronger eBay’s

access to the wildest growing Internet communications company. That helps eBay to ensure the

controls on this important aspect of its business model.

4. Four years after acquiring Skype, eBay sold most of its interest in the company.

Discuss how that impacts eBay's business risks.

EBay Inc. acquired Skype in 2005 for $2.6 billion but in 2007, eBay Inc. took a $1.4 billion

reduce in the book value of Skype, admitting that the procurement had not performed as

projected. Between 2005 and 2007, its stock price was cut in half and its market cap shrank by

$30 billion. In 2009 The Company’s board decided to divest Skype due to a lack of

collaborations with the company’s core businesses and its focus on commerce. EBay retained a

30% stake in Skype, safeguarding possible advantage to any future value formation. EBay

wanted to unload Skype after failing to integrate the company into its core operations, and was

now soliciting bids to cut its losses.

5. Identify possible risks that can lead to material misstatements in the eBay financial

statements if business risks related to its operations, including recent acquisitions

and divestitures, are not effectively managed.

Each of the possible business risks that can lead to material misstatements are:

1. Inadequate Ability to Grip Demand.

2. Customer Gratification with Product

3. Consumer Secrecy

4. Internet Accessibility

May lead to an increased risk of material misstatements in the financial statements, if not

effectively managed.

Inadequate Ability to Grip Demand. If demand for products through the eBay Web site

exceeds the company’s ability to process orders in a timely fashion, customers may cancel earlier

recorded orders or request returns when delivery take place well away from the expected

delivery date. The accounting systems must be planned to exactly reflect cancellations and

returns in a timely fashion in accordance with GAAP. Additionally, if the processing of orders is

significantly delayed, the accounting systems must be effectively planned to ensure sales are not

recorded in advance (e.g., not until delivery).

Customer’s Gratification with Product. While the autonomous sellers who offer products on

eBay auctions bear principal duty for product quality and feature, some customers may seek

financial reimbursement from eBay when products are not delivered or are in poor quality.

Thus, eBay’s financial statements may need to include reserves for product returns.

Consumer Secrecy. If consumer privacy is breached, existing sales may be lost or returns

beyond the normal period may be requested. Such activity would need to be properly reflected in

the financial statements. Additionally, legal exposures may increase, which may require

additional financial statement disclosures.

Internet Accessibility. The lack of Internet availability will may lead to penalties or fee

payments to online sellers who use eBay to sale goods and to those who wanting to place

advertisements on the eBay site. When the Internet is down, there may be fees owed to sellers

and advertisers.

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Assignment no 2 Final Term. Internal control system

Identify different control procedures and relater tests of control used in sales and payroll department of trading concern.

Assignment

Ali is an auditor having satisfactory quality control review rating issued by institute of chartered

accountant Pakistan (ICAP). He has been appointed as an auditor of Model Manufacturing

limited. He has started work under the company’s internal control environment and obtains

various assertions from the different executives and employees of the company. After going

through a preliminary assessment of the company environment, Ali feels that there is a problem

in the working of internal control system in handling the sales and debtors and payroll

departments. Now, he is planning to check the internal control procedures and tests of control.

Describe various appropriate internal control procedures and tests of control, Ali apply to

determine the strength of internal measures over the client’s

Various appropriate internal control procedures and tests of control to determine the

strength of internal measures over the client’s regarding sales and debtors and payroll

departments in accordance with my view point.

Control   Objectives for the sales and debtors. For many businesses, sales are made on credit and so objectives for the sales cycle includes control debtors as well.

These control objectives include:

Customers' orders should be authorized, controlled and recorded in order to execute them

punctually

Goods shipped and work completed should be controlled to ensure that invoices are issued and

revenue recorded for all sales.

Goods returned and claims by customers (for example, in respect of damaged goods) should be

controlled in order to determine the liability for goods returned and claims received.

Group no 2

Invoices and credits should be appropriately checked for accuracy and should be authorized

before being entered in the receivables' records.

Authorized customer transactions, should be accurately entered in the accounting records.

There should be procedures to ensure that sales invoices are subsequently paid by customers and

that doubtful amounts are identified in order to determine any provisions or write offs required.

Control Procedures over Sales and Debtors.

There are a large number of controls that may be required in the sales cycle due to the

importance of this area in any business and the possible opportunities that exist for diverting

sales and cash receipts away from the business.

Control procedures at key stages of the sales cycle are:

Orders

Dispatch

Invoicing and credit notes

Orders:

Existing customers should be allocated a credit limit and it should be determined whether this

limit is to be exceeded if the new order is accepted. If so the matter should be referred to

credit control.

Any new customer should be referred to the credit control department before the order is

accepted.

All orders received should be recorded on pre-numbered sales order documents so that a

check can be made that all orders have been allocated with -a completeness check.

All orders should be authorized before any goods are dispatched.

The sales order document should be used to produce a dispatch note for the goods outwards

department. No goods may be dispatched without a dispatch note.

Dispatch:

Dispatch notes should be pre-numbered and a register kept of them to enable them to be

matched with relate to sales invoices and customer orders.

Dispatch notes should be authorized before goods leave the company.

Returns inwards

Receivables/debtors

Bad Debts

Regular checks should be made to ensure that all dispatches have been invoiced.

Invoicing and credit notes:

Sales invoices should be authorized by a responsible official and matched with the authorized

order and dispatch note.

All invoices and credit notes should be entered in daybook records, the sales ledger, and

sales ledger control account. Batch totals should be maintained for this purpose.

Sales invoices and credit notes should be checked for prices.

All invoices and credit notes should be serially pre-numbered and regular sequence checks

should be carried out.

Credit notes should be authorized by someone independent with dispatch or sales ledger

functions.

Copies of cancelled invoices should be taken.

Any cancellation of an invoice should lead to a cancellation of the related dispatch note.

Cancelled (and free of charge) invoices should be signed by a responsible official.

Each invoice should differentiate between different types of sales and, if relevant, different

rates of VAT or sales tax. Any coding of invoices should be periodically checked

independently.

Returns:

Any goods returned by the customer should be checked for obvious damage and, when

accepted a document should be raised.

All goods returned should be used to prepare appropriate credit notes.

Receivables/Debtors:

A receivables ledger control account should be prepared regularly and checked to individual

sales ledger balances by an Independent official.

Receivables ledger personnel should be independent for dispatch and cash receipt functions.

Statements should be sent regularly to customers.

Formal procedures should exist for following up overdue debts which should be highlighted

either by the preparation of an old list of balances or by the preparation of regular customer

statements.

Letters should be sent to customers for collection of overdue debts. A policy should be in

place for the Institution of legal proceeds where appropriate.

Bad debts

The authority to write off a bad debt should be in writing. Appropriate adjustments should be

made to the sales ledger and the control account

The use of court action or the writing-off of a bad debt should be authorized by an official

independent of the cash receipt function.

Tests of Control

Tests of control should be designed to check that the control procedures are being applied and

that objectives are being achieved

Carry out sequence test checks on invoices, credit notes, dispatch notes and orders. Ensure that

all items are included and that there are no omissions or duplications.

Check the existence of evidence for authorization in respect of:

1. Acceptance of the order.

2. Dispatch of goods raising of the invoice or credit note

3. Pricing and discounts

4. Write off debtors as bad debts.

Check both that the relevant signature exists and that the control has been applied.

Seek evidence of checking of the arithmetical accuracy of:

1. Invoices, including pricing, and VAT and sales tax calculations

2. Credit notes, this is often done by means of a 'grid stamp' containing several signatures

on the face of the document. Ensure that the control has been applied by checking the

accuracy of such invoices and credit notes.

Check dispatch notes and goods returned notes to ensure that they are matched with invoices

and credit notes.

Check that control account reconciliations have been performed and reviewed.

In all cases, tests should be performed on a sample basis.

Control Objectives for the payroll department

Payment is made only to bona fide employees of the entity.

All payroll costs are recorded for work done by employees.

All benefits and deductions are calculated correctly.

Payroll transactions correctly recorded in the accounting system.

Payroll transactions are recorded in the correct accounting period.

Payroll transactions are properly classified in the financial statements.

Control Procedures over payroll system

Segregation of duties between HR and payroll function.

Personnel files held for all employees.

Authorization procedures for hiring, terminating, time worked, wage rates, overtime, benefits.

Any changes in employment status of employees informed to HR department (maternity or

special leave)

Use of time clocks to record time worked.

Clock cards approved by supervisor.

Only employees with valid employee numbers are paid.

Payroll budgets in place and reviewed by management.

Pre-number clock cards in use.

Authorization of wage cheques cashed.

Security and quick banking of unclaimed wages.

Security of pay packets.

Security of cash transit.

Verification of identity.

Recording of distributions.

Preparation and authorization of cheques and bank transfer list.

Comparison of cheques and bank transfer list with payroll.

Maintenance and reconciliation of wages and salaries bank account.

Verification of payroll amounts and benefits calculations.

Payroll budgets in place and reviewed by management.

Agreement of gross earnings and total tax deducted with taxation returns.

Changes to master payroll file verified through before and after reports.

Payroll master file reconciled to general ledger.

All starters, leavers, changes to salaries and deductions are reported punctually to payroll

department and changes are updated to the payroll master file quickly.

Independent approval and review of accounts charged to payroll.

Tests of controls for the payroll system

Observe and evaluate proper segregation of duties.

Review a sample of starters and leavers in the year to ensure correct documentation is in place.

Review and test authorization procedures in place.

Review policies and procedures in place for changing status and consider whether adequate or

not.

Review personnel files for a sample of employees whose status changed in the year.

Observe employees’ use of time clocks.

Inspect a sample of clock cards for evidence of approval by appropriate level of management.

Review and test procedures for entering and removing employee numbers from the payroll

master file.

Review budgeting procedures.

Review numerical sequence of clock cards.

Attend the cash pay-out of wages to confirm that the official procedures are being followed.

Before the cash wages are paid compare payroll with wage packets to ensure all employees have

a wage packet.

Examine receipts given by employees.

Check unclaimed wages are recorded in unclaimed wages book.

Observe whether any employee receives more than one wage packet.

Inspect the unclaimed wages book entries on the pay roll to ensure they agree check that

unclaimed wages are banked regularly by inspection of bank statements and supporting

documentation.

Inspect that unclaimed wages books to check it shows reasons why wages are unclaimed.

Review pattern of unclaimed wages in unclaimed wages book for variations.

Check the calculation of the holiday payments by recalculation.

Make comparisons on holiday pay between payment records.

Recalculate benefits and deduction for a sample of employees.

Inspect documentation for evidence of management’s review.

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Assignment no 3 Final Term.Comparison between the contents of annual reports of Gillette Pakistan limited and Gillette India limited.

Contents Gillette Pakistan limited.Title Auditor’s report.Addressee Members.Introduction Paragraph First of all in introductory paragraph auditor’s tells the name of

company whose financial statements are being audited by him is Gillette Pakistan limited. After that State that the financial statements have been audited is balance sheet and Identify the title of each statement that comprises the financial statements that are profit and loss account, statement of comprehensive income, cash flow statement, and statement of changes in equity together with notes forming part thereof. And then give explanatory information. we obtained all the information and explanations which, to the best of our knowledge and belief were necessary for the purpose of our audit.After that state that the responsibility of management is to established and maintain a system of internal control and prepare all the statements in accordance with approved accounting standards and the requirement of company’s ordinance 1984.and then tells Our responsibility is to express an opinion on these statements based on our audit.

Scope paragraph Basically scope paragraph is summarized form of audit engagement letter. In which auditors tells we conduct our audit according to the standards applicable in Pakistan and these standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall presentation of the statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion Unqualified opinion. Because auditor’s stated that financial statements and statement that comprises the financial statements are free of material misstatement and prepared in accordance with accounting standard which are applicable in Pakistan and given the information required by the companies ordinance 1984.The business conduct ,investment and expenditure incurred during the year were in accordance with objective of company No zakat was deductible at source under the zakat and ushr ordinance

(XVIII of 1980).

Auditor name and Signature

Yes name and signature is given in the audit report.place and date

Yes place and date is given in audit report.

Content Gillette India limited.Title Independent audit reportaddressee Members of Gillette India limited.Report on financial statements In report on financial statements auditor’s stated that we have

audited Associated financial statements of Gillette India limited which include the balance sheet, statement of profit and loss and the cash flow statement for the year ended. And a summary of the significant accounting policies and other explanatory information.

Management’s responsibility The Company’s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 (“the Act”) and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error

Auditor’s responsibility Our responsibility is to express an opinion on these financial Statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

Opinion Unqualified opinion. Because the auditor’s stated that financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles Generally accepted in India and we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion as unqualified.

Emphasis of matter We draw attention to Note 36 (b) to the financial statements regarding the excess commission provided but not paid to the Non-Executive Directors amounting to 24 lakhs (including service tax of 3 lakhs), which is subject to the approval of the Members at the ensuing Annual General Meeting of the Company and the Central Government. Further, as reported for the previous year ended the Company had provided excess commission amounting to 48 lakhs (including service tax of 10 lakhs) which was since ratified by the Members of the Company at the 28th Annual General Meeting of the Company and paid during the current year, the application for which is as yet pending for approval with the Central Government.They also stated that our opinion is not qualified in respect of this matter.

Report on Other legal and Regulatory Requirements

As required by the Companies (Auditor’s Report) Order, 2003 (“the Order”) issued by the Central Government in terms of Section 227(4A) of the Act, we give in the Annexure 1. A statement on the matters specified in paragraphs 4 and 5 of the Order. 2. As required by Section 227(3) of the Act, we report that: 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. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books. The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. In our opinion, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Act. On the basis of the written representations received from the directors as on June 30, 2013 taken on record by the Board of Directors, none of the directors is disqualified as on June 30, 2013 from being appointed as a director In terms of Section 274(1) (g) of the Act.

Auditor name and signature.

Auditor name and membership no is given but no signature is given in this audit report.

Place and date.

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Yes place and date is given in this audit report