Audit report

renata limited2014Audit reportFor financial statements

Submitted To

Mohammad Salahuddin ChowdhuryLecturerDepartment of FinanceUniversity of Dhaka

Submitted ByRoll No.NameRemarks

17-044Mehedi Hasan Niloy

17-026Md. Faraz Hasan

17-064Lutfun Nahar Loona

17-066Md. Rakibul Hassan

17-078Md. Tajul Islam

Transmittal letter

Date: 17th February, 2014Mohammad Salahuddin ChowdhuryLecturer Department of Finance University of Dhaka

Subject: An Audit report on the Financial Statements of Renata Company Limited

Dear TeacherWith due respect we are to inform you that we have prepared an audit report on the Financial Statements of Renata Company Limited as required by for the course requirement of Assurance course no. F-310. It is important for us to imply the theoretical knowledge with practical environment. We have tried our best to reflect the real procedures followed by the professional accountants for giving formal on financial statements of organizations.

We would like to request you to accept our report as a qualified for further assessment process as per your course requirements.

Yours obedientMd. Rakibul HasanId. 17-66On behalf of the group

Acknowledgement

Gratitude to all whose participation and co-operation has made it possible to prepare the report on the financial statements of Renata limited one of the countrys largest medicines manufactures. Our first gratitude is towards Almighty for making the report to complete.

We are very careful to Mohammad Salahuddin Chowdhury for his affective teaching style and interactive class lectures that have enabled us to understand the assurance and its procedures on practical basis. We are also grateful to him for his support, care and constructive recommendations to prepare the report. We are also very grateful to the management of Renata Company Limited for permitting us to collect data about their internal operations and business confidential information. Otherwise it would be possible for us to prepare the report.

Though the number of qualified financial statements is low in our country but the assurance providing institutions are very qualified and they follow the required rules and standards very strictly while providing the assurance service.

Executive summary

Preparing an audit statement on the financial statements of an organization requires developing an overall audit strategy that includes setting out the direction, timing and scope of the report and an audit plan shows how the overall audit plan will be implemented. In order to provide assurance it is very important for the assurance provider to ensure that the ethical requirements are continued to be met by the respective institution. While working on assurance report of Renata Company Limited we have to be very careful about the internal control system of Renata Company Limited. The company offers a wide range of products for human pharmaceuticals and Animal health medicines, nutritionals and vaccines. So Special attention was given to ensure that cut-off period is applied and physical count matches book value. It is very important to set the materiality benchmark and the audit materiality for Renata Company Limited has been set to BDT 100000000/= to provide the assurance on the financial statements of Renata Company Limited there will be 2 audit visits. One at the end of the Half year financial period on June 30, 2014 and another will be Full year financial period on December 31, 2014. And the expected error is the amount of error that is expected. The auditor expected that expected error will be 25% of the tolerable error i.e. BDT 193808071.4

Our Vision

To establish Renata permanently amongst the best of innovative branded generic companies.Our MissionTo provide maximum value to our customers, shareholders, colleagues, and communities where we live and work.Origin of the report The concept of the report originated from our course teacher Mohammad Salahuddin Chowdhury. He gave the required instruction to prepare the report. Moreover we have visited the head office of the Renata Company Ltd. to collect information about their internal policies regarding. We have also consulted with the senior executives of the company to learn about the recent trends in audit requirements.

ObjectivesWhile preparing the report our objective was to know audit rules and standards practiced and followed by the organizations in our country. We have observed practices of audit in terms of the financial statements of Renata Company Limited and prepared the report. The objectives of the study are as follows: Learn audit policies and standards followed and practiced by processional accountant in Bangladesh

Identify ways to improve the qualities of financial statements prepared by the institutions

Suggesting strategies to improve the assurance report qualities

Identify the risk assessment process of the organizations effectively

Recommend suggestions how to make the assurance engagement a better tool to make comments about the reliability and accuracy of the financial statements of the organizations.

Make the auditors opinion an effective tool for the shareholders and the general public to make decision about the organization.

Methodology

We have developed our Audit knowledge from our text. We have gone through articles related

With audit strategies and standards from various sources such as newspapers and accountants. We have also collected data from Renata Company Limited corporate office about their financial results and policies about recording procedures as well as through our visiting and through our personal observation. So the report is a combination of primary and secondary data.

Table of contents

Audit plan9Step 1 Ensuring that ethical requirements continue to be met for Renata Limited9Step 2 Ensuring the terms of the engagement are understood for Renata Limited10Understanding Renata Limited11Step 3 establishing the overall audit strategy for Renata Limited11Understanding Renatas accounting system and internal control11Specific audit risk13Analytical procedure14Budget14Timetable14Staffing15Step 4 developing an audit plan15Expected error16Audit risk16Sampling method16Test of control questionnaire17Test of Detail19Accounting estimates19Appendix21

Audit strategyThe formulation of general strategies for the audit which set out the scopes, timing and direction of the audit plan.

Audit plan

An audit plan shows how the overall audit strategy will be implemented.

Step 1 Ensuring that ethical requirements continue to be met for Renata Limited

1. No undue dependence on Renata Limited is found.2. No loans have been made or received thereon and there is no undue service fee.3. The audit firm or any of the staffs didnt received any hospitality previously from the client4. The audit firm has no previous Litigation with the client. 5. The General Manager sales of Renata Limited-Mr. X have family relationships with our supervisor Mr. Y. Therefore, we reassigned Mr. Y to another audit client.6. None of our officer was ex-partners or senior employees of Renata Limited 7. We, previously, didnt engage in any mutual business interest8. Our partners or staffs does not have any beneficial interest and trusteeships9. Renata Limited has no business relationship with any of our associated firms10. Provisions of other services, specialist valuations and advocacy11. The auditors have not been act as an of audit engagement partner for more than 10 years.12. The firm has adequate senior and junior staffs, supervisors, managers and partners to perform the audit properly.13. No circumstances have been found that can deter the proper performance of audit of financial statements of Renata LimitedHaving obtained all the information and taking appropriate steps to minimize it, it can reasonably say that ethical requirements are met to perform the audit properly by maintaining independence and ensuring the availability of resources. Step 2 Ensuring the terms of the engagement are understood for Renata Limited

For Renata Limited, the terms of the engagements are-1. Express an audit opinion whether the financial statements give a true and fair view.2. Conduct audit in accordance with Bangladesh standards on Auditing (BSAs)3. Obtain an understanding of the accounting and internal control system to assess their adequacy 4. Communicate to the management in writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit.5. Obtain written confirmation of certain oral representations on matters having a material effect on the financial statements.6. Form audit report based on the evidence of the audit.7. Consider whether there is a need to revise the existing terms and issue a new letter.

Finally, the terms of engagement will be effective for future years unless it is terminated, amended or superseded.

Understanding Renata LimitedStep 3 establishing the overall audit strategy for Renata Limited

The audit firm should fill Know your client checklist to obtain an understanding of Renata Limited. The following information has been found-Reneta Limited (previously known as Pfizer Laboratories Bangladesh) is a public limited company incorporated in Bangladesh in 1972.Shareholders: General publicDirectors: Mr. Kaiser Kabir, Mr. Md. Shafiul Alam, Mr. Manzoor HasanOperations: Manufacture, marketing and distribution of Pharmaceuticals and animal health products.Subsidiary companies: Renata Agro Industries Ltd, Purnava LtdCustomers: General public, UNICEFSuppliers: local suppliers and different exporters from abroadIT: the accounting system is fully computerizedFinancial performance: The Companys financial trend is positive for the last 5 years.Future plan: Reneta Oncology Limited, herbal divisionUnderstanding Renatas accounting system and internal control

The company prepares financial statements under historical costs assumption in accordance with BFRS, in compliance with Companies Act 1994, and other relevant local laws and standardsThe financial period of the company covers one year from January 1 to December 31. Since the firm is auditing the client for the first time, it has no cumulative knowledge about the client amounting and internal control system. Therefore the system of internal control and internal check are in effect and monitored properly. No departure from the policies is found. The companys audit committee is responsible for designing and monitoring internal control system. The committee didnt find any material deviation, discrepancy, or any adverse finding in the area of reporting. The company can obtain an understanding by using the following questions-1. Review accounting policies to determine whether comply with applicable accounting standards.2. Review accounting policies to determine whether accounting policies consistently applied to all like transactions.3. Review accounting policies Are appropriate to the nature of the clients business4. Are properly disclosed in accordance with the requirements of BASRisk assessmentA detailed risk assessment has to done because of this the client is new. The companys accounting system and internal control risk is low. Non-conventional transactions are recorded using the best practices in the industry and management judgment as seems logical. For performing risk assessment the company can obtain answer of the following questions to assess risks-1. Do we have any concerns as to the integrity of the directors / management?2. Is there any significant external interest in the companys financial deteriorating?3. Is the company in a highly competitive or volatile sector of the company? 4. Are there any individually material third party creditors?5. Is the company reliant on only a few customers or suppliers?6. Is the company heavily reliant on particular products or services?7. Are there any significant related parties to the business?8. Does the company have a complex capital structure?9. Are there any risks of material misstatement at the assertion level related to the fair value measurements and disclosures in the financial statements? 10. Are the accounting policies for significant matters appropriate to the circumstances of the entity?11. Are meaningful management accounts prepared during the year?Specific audit riskThe company offers a wide range of products for human pharmaceuticals and Animal health medicines, nutritionals and vaccines. Therefore, inventory may not be counted properly. So. Special attention must be given to ensure that cut-off period is applied and physical count matches book value. The company can use the following table-

Specific risk affecting clientManagement responseFinancial reporting areas and assertions affectedAudit approach

MaterialityMateriality depends on the size of the error in the context of its omission or misstatement. Audit materiality has been set to BDT 100000000/=Range of turnover or gross assets% of turnoverOr gross assets% ofGross Profit Materiality ranges

Tk. 0-Tk.5 Crores3.00%10%Tk.1-Tk.15 Lacs

Tk.5 Crores-Tk.10 Crores2.50%10%Tk.15 Lacs-Tk.25Lacs

Tk.10 Crores- Tk.20 Crores2.00%10%Tk.25 Lacs-Tk.40Lacs

Tk.20 Crores- Tk.56 Crores1.50%10%Tk.40 Lacs-Tk.84Lacs

Over Tk.56 Crores1.00%10%Over Tk.56 Lacs

Analytical procedure

Here are some extracts from the book of accounts of Renata Limited-Key analytical ratios are given below-Particulars20122011

Gross profit ratio0.530.52

Net profit ratio0.160.17

Cost of sales percentage0.470.48

Operating cost percentage0.280.26

Inventory turnover1.821.96

Trade receivable collection40.1235.84

Net asset turnover1.511.65

BudgetFee BDT 500000/=Timetable

Account to be ready for discussion with the client by 30 September 2014.ParticularsPlausible date

Availability of accounting record

Information requests to creditors

StaffingSenior 2 weeksJunior 4 weeksThere will be 2 audit visits. One at the end of the Half year financial period on June 30, 2014 and another will be Full year financial period on December 31, 2014.Manager review 5 daysPartner review 3 daysStep 4 developing an audit planTo perform the audit planning, the company needs to perform the risk assessment. The audit firm can start with the risk at the assertion level. The following assertions must be checked-1. Assertions about classes of transactions and events for the period under audit: Occurrence, Completeness, Accuracy, Cut-off, Classifications. 2. Assertions about account balances: Existence, rights and valuations, Completeness, valuations and allocations.3. Assertions about presentation and disclosure: Occurrence and rights and obligations, Completeness, Classification and understandability, Accuracy and valuation.The company shall obtain letter of representations made by management to any of the above representations (see Appendix II)Tolerable errorTolerable error is the amount of error that an auditor is prepared to accept in a class of transaction or balances in the financial statement. Total amount of tolerable error of Renata Limited is-ParticularsAmount%Total

Profit before tax17123758515.00%85618792.55

Gross profit40519586591.00%40519586.59

Revenue76715723031.00%76715723.03

Total assets97530779712.00%195061559.4

Net assets 50704797485.00%253523987.4

Net profit after tax123792636610.00%123792636.6

Total 775232285.6

Expected errorExpected error is the amount of error that is expected. The auditor expected that expected error will be 25% of the tolerable error i.e. BDT 193808071.4Following table can be used to adjust any error-ParticularsPotential errorsActual errorsAdjustment needed

Audit riskTo minimize audit risk of Renata Limited, the auditor should ensure that-1. The overall strategy and audit plan were updated as necessary during the course of the audit.2. All risk factors identified have been addressed on the file & the risk reduced to an acceptably low level.3. The outcome test of control has been taken into consideration and any additional work as a result of reassessing risk has been properly completed.

The assertions must be check using test of control and Substantive procedure such as test of detail, substantive analytical procedure. Auditors cant test 100% of the items. Sampling can be used. Sampling methodSampling method that can be used for Renata Limited are-1. Monetary unit samplingThis is a selection method that ensures that every monetary item in a population has an equal chance of being selected or testing. For example- this method of sampling can be used for misstatement in large transactions.2. Random samplingAll items have an equal chance of selection. For example- Sales items should be selected on this basis. 3. Sequence samplingSequence sampling may be used to check whether certain items have particular characteristics. For example- For checking company Bank balance the check that have been obtained from bank can be sampled with this method. Test of control questionnaireFor performing test of control the company can use questionnaire-Revenue1. Is revenue balances are recorded properly2. Does the receivable ledger match with receivable ledger control account3. Consider whether cut-off period is applied properly4. Consider whether revenue balances matches with revenue balance5. Is the revenue balance in agreement with dispatch notes6. Is appropriate measure to safeguard trade receivable statements7. Is invalid invoices are rejected by the accounting system? Purchase1. Is all invoices approval prior to payment?2. Are there controls to ensure that discounts are taken wherever possible?3. Are there controls to ensure that discounts are taken wherever possible?4. Are supplier statement reconciliation carried out where available?5. Are purchase ledger and VAT control account reconciliations carried out?6. Are purchase invoices checked to pre numbered goods received notes, which in turn are being paid to authorized order?7. Are supplier statement reconciliation carried out where available?8. Are purchase ledger and VAT control account reconciliations carried out?9. Are purchase invoices checked to pre numbered goods received notes, which in turn are being paid to authorized order?10. Are invoices marked when they are being paid to prevent them being entered into the system again?Employee cost1. Is the payroll independently approved for accuracy? 2. Is the payroll independently approved for accuracy? 3. Does an independent department keep proper personnel records?4. Does the payroll department maintain a formal record of notification of changes in rates of pay etc?5. Are payroll control account reconciliations carried out?Fixed assets1. Are minutes maintained of all board meetings and management meetings, authorizing capital expenditure and also disposals?2. Dose the company maintain fixed asset purchase order requisitions, which are pre-numbered, authorized and controlled?3. Is there evidence to show that the addition invoices have been checked for accuracy and that the posting code has been checked before the items are posted to the nominal ledger?4. Is there evidence to show that the addition invoices have been checked for accuracy and that the posting code has been checked before the items are posted to the nominal ledger?5. Is there evidence to show that the addition invoices have been checked for accuracy and that the posting code has been checked before the items are posted to the nominal ledger?6. Is the fixed asset register regularly reconciled to the nominal ledger account, and also to actual physical assets?7. Is there independent checking of calculations of profits and losses on disposal? Is there evidence to show that there have been regular inspections of the condition and use of assets?8. Is the fixed asset register regularly reconciled to the nominal ledger account, and also to actual physical assets?9. Is there independent checking of calculations of profits and losses on disposal?10. Is there evidence to show that there have been regular inspections of the condition and use of assets?Bank1. Are the duties of the person writing / posting the cash book separate from the per-son responsible for the nominal ledger, making payments or handling receipts and checking the bank reconciliation?2. Is there adequate security over blank cheques and procedures to ensure that under no circumstances should pre- signed cheques be maintained?3. Are cash book balances regularly reconciled to the nominal ledger control account?4. Are cheques dispatched immediately after signature and not returned to the per-son who has prepared them?5. Does a senior member of the clients staff independently check bank reconciliations?6. Are cash counts undertaken on a regular basis, without the person in charge of petty cash being aware that they are going to be undertaken?

Inventory1. Is there restricted access to inventory and physical security over the inventory?2. Is there an independent check on all dispatches, including any made by persons other than those responsible for the inventory?3. Are regular reconciliations of actual inventory-to- inventory records undertaken?4. Is there independent matching of goods in and out with purchase and sales and sales documentation5. Is there a system for the reporting of slow, obsolete or damaged inventory to relevant levels of management?6. Does the client maintain pre-numbered goods received notes and inventory?7. Is there a record of an authorization of scrapped/ damaged goods?

Once the risk of any of the internal point is identified, the audit firm should communicate it to management and suggest type of control that will mitigate that risk to an acceptable level. Test of Detail

Inventory balances are material so test of detail should be performed and ensured that cut of period is applied. In addition the audit firm should also check that inventories are valued at lower of cost and market price. Accounting estimates

The auditor can use the following questionnaire to determine accounting estimates are correct-1. Is there any pattern whereby accounting judgments and estimates made?2. Is the estimate conforms to previous year calculation, industry information and non-financial information?3. Consider adjustment in estimates is required.

AppendixI. DateToThe Managing DirectorRenata LimitedPlot # 1, Milk Vita road, Sector-7Mirpur, Dhaka -1215, Bangladesh.

Sub: Engagement Letter

Dear Sir,You have requested that we audit the financial statements of Trust Solution Private Limited. Which comprise the balance sheet as at march 31, 2012, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and summary of significant accounting policies and other explanatory information? We are pleased to confirm our understanding of this audit engagement by means of this letter. Our audit will be conducted with the objective of our expressing an opinion on the financial statements.

[The responsibilities of the auditor]We will conduct our audit in accordance with Bangladesh standards on Auditing (BSAs). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the financial statements.Because of the inherent limitation of an audit, together with the limitation of internal control, there is an unavoidable risk that some material misstatements may not be detected; even through the audit is properly planed and performed in accordance with BASs.In making our risk assessment, we consider internal control relevant to the entitys preparation of the financial statements in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. However, we will communicate to you in writing concerning any significant deficiencies in internal control relevant to the audit of the financial statements that we have identified during the audit.The responsibilities of managements:(a) For the preparation and fair presentation of the financial statements in accordance with Bangladesh Financial Reporting Standards;23(b) For such internal control as determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and (c) To provides us with:i) Access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matter;ii) Additional information that we may request from management for the purpose of audit; andiii) Unrestricted access to persons within the entity from whom we determine it necessary to obtain audit evidence.As part of our audit process, we will request from management written confirmation concerning representation made to us in connection with the audit.We look forward to full cooperation from your staff during our audit.Others relevant matters: Our fees will bill as work progresses. Arrangements concerning the involvement of other auditors and experts in some aspect of the audit. Arrangements concerning the involvement of internal auditors and others client staff. The Form of report will be based on the evidence of the audit.This letter will be effective for future years unless it is terminated, amended or superseded.Please sign and return the attached copy of this letter to indicate your acknowledgement of, and arrangements for our audit of the financial statements our respective responsibilities.Hassan & Co.Chartered Accountants

Acknowledged and agreed on behalf of Renata Limited. By (Signed)

..Name and TitleDate:

II. Date:To The AuditorHassan & Co.Chartered AccountantsSub: Management Representation LetterDear Sir,This representation letter is provided in connection with your audit of the financial statements of Renata Limited for the year ended 31 December 2014 for the purpose of expressing an opinion as to whether the financial statements are presented fairly, in all material respects, (or give a true and fair view) in accordance with Bangladesh Financial Reporting Standards.We acknowledge our responsibility for the fair presentation of the financial statements in accordance with (indicate relevant financial reporting framework).We confirm, to the best of our knowledge and belief, the following representation: There have been no irregularities involving management or employees who have a significant role in the accounting and internal control systems or that could have a material effect on the financial statements. We have made available to you all books of account and supporting documentation and all minutes of meetings of shareholders and the board of directors. We confirm the completeness of the information provided regarding the identification of related parties. The financial statements are free of material misstatements, including omissions. The company has complied with all aspects of contractual agreements that could have a material effect on the financial statements in the event of noncompliance. There has been no noncompliance with all requirements of regularity authorities that could have a material effect on the financial statements in the event of noncompliance. The following have been properly recorded and when appropriate, adequately disclosed in the financial statements: The identity of, and balances and transactions with related parties. Losses arising from sale and purchase commitments. Assets pledged as collateral. We have no plans or intentions that may materially alter the carrying value or classification of assets and liabilities reflected in the financial statements. We have no plans to abandon lines of product or others plans or intentions that will result in any excess or obsolete inventory, and no inventory is stated at an amount in excess of net realizable value. The company has satisfactory title to all assets and there are no liens or encumbrances on the companys assets, except for those that are disclosed in Note no. to the financial statements. We have recorded or disclosed, as appropriate, all liabilities, both actual and contingent and have disclosed in Note no. To the financial statements all guarantees that we have given to third partied. There have been no events subsequent to period end which require adjustment of or disclosure in the financial statements of Notes thereto. There was no claim against the company not acknowledged as debt as on 31 December 2014. There are no formal or informal compensating balance arrangements with any of our cash and investments accounts.

Thanking you,

On behalf of Renata Limited. By

(Signed)..Name and TitleDate:

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