Executive summery

The purpose of audit of a concern is to get an independent opinion about the

creditability of the Financial Statements whether it represents a true and fair view of
the company financial position or not.
I also have the chance to work in the audit firm MZJ (Muniff Ziaduien Junaidy) for the

period of 2 months. This firm is the independent member of the BKR which is
the world wide recognized audit organization. This firm was established in
1961 in Karachi and subsequent offices are open in Lahore and Islamabad.
The Mission Statement of firm is "Innovative solution through linked ideas".
MZJ provide the following services to the industry:
 Assurance
 Tax Consulting
 Financial Consulting
 Business Consulting
 Business Process Outsourcing

These services cover the all spheres of the business. By this the firm provides
all the services under one roof. The management of the firm is well reputed
and very experienced. In 2009 the firm made a joint venture with Junaidy
Alam Iqbal

The major clientage of the firm belongs to corporate, banks, manufacturing,

services and the authorities.
The definition of audit is " Auditing is a systematic process of objectively
obtaining and evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence between those
assertions and established criteria and communicating the results to
interested users."

The audit is conducted under the guidance of international standards of

auditing. In the late 1970s the Council of International Federation of
Accountants (IFAC) created the International Auditing Practices Committee
(IAPC) which would be a standing committee of the IFAC Council and
subsequently the IFAC Board (in May 2000 the IFAC Council was renamed

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the IFAC Board). Between 1980 and 1991 the IAPC issued International
Auditing Guidelines (IAG) and addendums to these. The first International
Standard on Auditing (ISA) was issued in 1991, and this has remained the
series to the present day.

The steps involved in conduct of an audit are as follows:

1.First of all the management of the audit firm check the internal control
system of the client, to check the weakness in the system and also
the extend of the test checking to be applied.
2.The next step in the audit is to prepare the audit plan. In this all the
process and the scope, the no of employees appointed, the tine
frame, strategy of audit, system notes, important points of previous
and current year are mentioned. It is the planning of all the audit work
to be conducted during the audit.
3.The next step is to check the compliance of the management with the
rules and regulations.
4.The next step is the conduct of audit according to the audit plan. In this
vouching, verification, stock take and other audit processes are
conducted according to the time frame provided for the audit.
5.The next step is the analytical procedure in which the material
differences and variance analysis is conducted for through checking
of the matters of concern.
6.The next step is to point out the errors, frauds and mistakes to the
management of the business and get their clarification on them.
7.After that the audit team makes the reports of the errors and mistakes
in the accounting record for the review of the manager and the partner
or owner of the firm.
8.The partner completely examines the points of concern and then made
them the part of his report. This report is presented to the financial
statements of the company.
9.After that the audit team makes the file of the client and also accesses
their performance at the audit and also makes recommendations for
the betterment of the process.

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I have not been provided by the financial statements of the firm that’s why I
have done the financial analysis of the client. The following ratios are being
calculated:
1. Liquidity Ratios
a) Net Working Capital
b) Current Ratio
c) Quick (Acid-Test) Ratio

2. Activity Ratios
a) Cost of Goods Sold to Net Sales
b) Administrative Expenses Ratio
c) Inventory Turnover

d) Average Age of Inventory

e) Average Collection Period
f) Average Payment Period
g) Total Assets Turnover

3. Debt Ratios
a) Debt Ratio
b) Times Interest Earned

4. Profitability Ratios
a) G.P. Margin
b) Operating Profit Margin
c) Net Profit Margin
d) Earning Per Share (EPS)
e) Return on Total Assets (ROA)
f) Return on Equity (ROE)
g) Book Value per Share

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 MZJ Muniff Ziauddin Junaidy & Co
Chartered Accountants.

An independent member firm of BKR International

THE FIRM

Muniff Ziauddin & Co. was established in the year 1961 at Karachi and
subsequently offices at Lahore and Islamabad were established. In August
2009 Partners of Muniff Ziauddin & Co. (MZ & Co.) and Junaidy Alam Iqbal
(JAI) Chartered Accountants joins hand and by virtue of a partnership
agreement, MZ & Co was restyled as Muniff Ziauddin Junaidy & Co.
Chartered Accountants (MZJ or MZJ & Co.).
MZJ & Co. is QCR cleared and is on the penal of Auditors formed by various
governmental authorities such as State Bank of Pakistan (SBP) where MZJ
enjoys category “A”.
The firm is poised to deliver value added prompt professional services to their
valued clientele with strong professional team lead by its 11 Partners and 175
professional staff with country wide reach through its offices in Karachi,
Lahore and Islamabad.
The list of our clients to whom professional services are being provided
currently or in the past includes Financial Institutions, Non Banking Financial
Institutions, Manufacturing and Servicing Companies, State owned
Corporations, Multinational and National Public and Listed Companies, Public
Interest Entities.
MZJ provides industry-focused services for public and private clients in order
to build public trust and enhance value through the application of what we call
Linked Ideas. Our service culture combined with our cumulative knowledge
culminates into innovative solutions to help promote the growth of our client’s
business. Before rendering innovative advice we minutely ensure that all the
legal and ethical obligations are respected. This is what we call Innovative
Solutions

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Member firm of BKR International
MZJ & Co. is a Member firm of BKR International, a worldwide alliance of
independent and professional accounting firms represented in all strategic
locations throughout the world. In its current composition BKR International
is a non -profit association of more than 135 leading-edge accounting and
business advisors located in over 300 cities in 70 countries, having more than
927 partners and 5,400 professional staff. The International Accounting
bulletin has ranked BKR as number 8 worldwide, after the ‘Big 4”.
Membership of BKR International is representative of untiring effort on the
part of our firm to deliver highest quality service to our clients. This worldwide
underlines our philosophy of taking our responsibilities professionally and
recognizing the need to consistently provide services which are efficient and
cost-effective.

Mission and vision Statement

"Innovative Solutions through Linked Ideas"

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Spheres of MZJ professional services are broadly categorized
as follows:

 Assurance
 Tax Consulting
 Financial Consulting
 Business Consulting
 Business Process Outsourcing

ASSURANCE
The role of assurance services in the running of a successful business has
changed beyond just fulfilling statutory requirements. We offer appropriate
and timely advice in addition to statutory reporting, which enable our clients to
effectively handle issues requiring immediate attention and further assist them
in taking informed decisions on timely basis.
Assurance services include the following:
 Corporate Reporting Improvement
 Financial Statement Audit
 Sustainability Reporting
 Independent Controls & Systems Process Assurance
 Internal Audit
 Regulatory Compliance and Reporting
The salient features of each service are described below

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Corporate Reporting Improvement

Reporting more comprehensively on important non-financial assets can often

improve the valuation of your company in the capital markets. Research
shows that investors and analysts consider financial reports by themselves to
be of limited use in determining a company's prospects MZJ can assist
organizations that need to ensure the quality and credibility of internal
management information and external disclosures and, in particular, non-
financial indicators. Our professional leadership on issues related to
nonfinancial performance reporting, has not been limited to simply advocating
reform. Instead, MZJ can help its client in the practice of non-financial
performance reporting with the development of Value Reporting — the most
comprehensive and robust approach to reporting transparency available in the
marketplace.

Financial Statements Audit

The financial statement audit has never been more important. In today's
business environment there is more scrutiny and skepticism of a company's
financial statements than ever before. For organizations that require an audit
for statutory or regulatory reasons associated with the filing of their annual
and periodic financial information, MZJ can provide high quality audit services.
MZJ's work takes into account all current and where appropriate, prospective
auditing, accounting, and reporting regulations and guidance.

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Sustainability Reporting

Shareholders expect your company to generate profits. But, they also want
your company to assume its responsibilities to contribute to society while
minimizing any negative effects on the environment. For companies looking to
improve business performance and create long-term shareholder value, MZJ
can help develop a corporate social responsibility (CSR)/sustainability
strategy that focuses on key issues for your business and enhances
relationships with key stakeholder groups.
We can assist our clients in the areas of corporate governance and business
ethics, environmental health and safety management, social responsibility,
strategy and economics, responsible supply-chain management, and
reporting and assurance of non-financial information.

Independent Controls & Systems Process Assurance

Attention to the design, documentation and operation of controls is critical to

ensuring the accuracy and timeliness of information used for financial
reporting and management decision-making.
MZJ provides services related to controls around the financial reporting
process, including financial business process and IT management controls.
Internal Audit

Internal audit function in today’s world needs to walk on a fine line between
providing assurance and consulting to management without impairing its
objectivity and independence. We can assist organisations that need help
improving the quality and effectiveness of their internal audit processes in a
number of ways. First, by advising and assisting in the development of
internal audit and risk management methodologies, including assessing
whether the internal audit function is delivering effectively to stakeholders.
Second, by providing internal audit resourcing solutions, including full
outsourcing or complementing in-house functions with specialist skills or
geographical coverage. In addition, we can develop training for internal

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auditors using our extensive market and industry knowledge to create highly
tailored solutions.
Regulatory Compliance & Reporting

Regulatory compliance and reporting needs to be viewed as a natural

extension of the governance duties entrusted on top management and
corporate boards. For all organisations engaged in activities that come under
the control of a regulator, MZJ provides support, advice, and assurance to
help you manage your regulatory risks. In an ever-changing regulatory
environment, we help ensure that you identify, manage, and control any
existing and future regulatory risks. A proactive rather than a monitoring
approach to regulation is now a full time strategic necessity.

MZJ experienced regulatory risk specialists, who not only know the rules, but
have also, implemented and assessed compliance against them. Our people
can help you at the strategic level — by maximizing any competitive
advantages from regulation through to the operational level and by minimizing
the costs and disruptions to your business, thereby freeing up management
time in the process.
Tax consultancy

MZJ is one of the market leaders for tax services. We assist businesses,
individuals and organizations with tax strategy, planning, and compliance,
whilst also delivering a wide range of business advisory services with
dedicated tax professionals.
We take a holistic view, combining industry insight with the technical skills of
financial and tax professionals and our other in-house resources as
necessary, to develop comprehensive integrated solutions. We have
experience of working with an expansive and diverse client-base comprising
all types of businesses — multinationals, local companies, privately-owned
organizations, entrepreneurs, family businesses, trusts, partnerships and
private individuals.

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Tax services include the following:
 Income Tax
 Corporate Taxation
 Non Resident Taxation
 Personal Taxation
 Specialized Services
 Indirect Taxation (Sales Tax, Customs & Federal Excise)
The salient features of each service are described below:

Income Tax

The objective of our tax services is to deliver integrated solutions that result in
most tax efficient structure. We also provide business advice tailored to meet
the specific needs of individual clients. We suggest doable options always
keeping in view the fact that such options should be within the legal
framework.
Corporate Taxation

Our range of services in the area of corporate taxation includes:

• Preparation and filing of tax returns
• Advisory services on interpretational issues in the tax laws
• Determination of income and chargeability of tax.
• Obtaining exemptions and withholding tax certificates on behalf of
clients
• Assisting the client in preparation, review and filing of various statutory
statements.
• Compliance services relating to corporate taxation including advance
payment of tax
• Assisting the client in preparation of reply of notices issued by various
taxation authorities.
• Representations before tax authorities and Central Board of Revenue

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• Representing the clients before various appellate
forums.

Non Resident Taxation

The tax services are also provided to non residents and the partners are
capable to handle intricate tax issues involving non resident taxation. The
services interlaid include the following:
• Advising non resident on transactions before these are entered into
• Obtaining Advance Ruling from CBR on tax treatment of any proposed
transaction
• Advising on tax implications of stock options plans
• Advising the tax implications under various Agreements for Avoidance
of Double Taxation (Treaties)
• Personal tax services including International Executive Tax Services.
• US Tax Returns

Specialized Services

Our specialized services encompass the following:

 Researching tax implications of proposed business transactions or of
new businesses.
 Assisting in the preparation of and in obtaining various approvals for
employee retirement schemes such as Provident Fund, Gratuity Fund
and Pension Fund
Indirect Taxation (Sales Tax, Customs & Federal Excise)
Over the past few years, the indirect tax net has spread all over the economy,
covering almost all sectors of business. Lack of knowledge on the part of tax
administrators / tax payers coupled with abrupt changes in law require the
provision of timely and effective business advice to help organizations plan
and implement the required compliance measures.
Financial consultancy

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MZJ’s Finance professionals provide comprehensive financial advice and
execution expertise, encompassing mergers, acquisitions, divestitures,
restructurings, private placements, privatizations and equity capital markets to
clients ranging from corporations and financial institutions; adding value for
our clients throughout all stages of the process.

Financial Consulting services include the following:

 Financial Performance Improvement
 Financial Accounting
 Accounting Valuation
 Advice on Fundraising
 Financial Due Diligence
 Mergers & Acquisitions Advisory
 Project Finance
 Structuring Services

Financial Performance Improvement

We support CEO’s, CFO’s, Controller and Treasurers to optimize the structure
of their Finance functions thus improving contribution to business.
We structure our support to ensure that Finance addresses the challenges of
achieving appropriate standards of control, efficient back office opportunities
and support to the business through insight and challenge. Recently, the
emphasis of Finance has been control and efficiency characterised by a
heavy focus on compliance delivered through streamlined back office models.
Financial Accounting
With the advancement in International Financial Reporting Standards (IFRS)
for many of our clients, financial accounting has become a lot more
complicated. And if the past few years are any guide, the future holds more
regulations, new requirements, and an increasing compliance burden.
Accounting Valuation
International Financial Reporting Standards (IFRS) introduce significant
changes to the way that accounts must be prepared and presented, requiring
a wider range of assets to be valued on an annual basis.

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  IFRS changes the accounting treatment for acquisitions. All assets
(tangible and intangible) from a merger or acquisition now have to be
included in the balance sheet of the acquirer at their current market
value and are depreciated over their useful economic life.
 Goodwill is now tested for impairment annually, and is marked down
according to the conclusions of that annual process.
 A range of financial assets now also need to be valued under IFRS,
including financial instruments and insurance contracts. IFRS requires
share options to be valued as they are charged against the profit and
loss account on an annual basis.
 These considerable changes call for specialist valuation services that
both understand the specific accounting implications and the wider
commercial context in which those accounting valuations will apply.
MZJ valuation services draw on considerable technical and financial
specialization, as well being able to access accounting specialists to deliver
integrated advice to our clients.
Advice on Fundraising
Raising finance to fund expansion plans means examining a wide range of
issues and answering a complex set of questions. The capital markets have a
challenging environment and selecting the right location and structure
requires considerable insight and experience.
 MZJ has experience of advising businesses on their fund-raising plans
in all markets. Whether through a public or private market, through
equity or debt instruments, our experience covers all possible
scenarios and our independence means that we focus solely on
identifying and structuring the best source of finance for our client.
 We have understanding of local markets, and can help clients to
negotiate the challenges that may otherwise derail the unprepared. Our
networks of contacts and deep relationships with countless sources of
finance place us in the best possible position to make sure that our
clients get the finance that fits their purposes and helps them meet
their goals.
Financial Due Diligence

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 All businesses involved in an acquisition, as buyers or sellers, need to ensure
that the financial information they hold is as accurate as possible, not only to
prevent paying too much (or in a seller’s case receiving too little) but also to
ensure that their governance and risk management objectives are met.

Mergers & Acquisitions Advisory

A merger or acquisition can add considerable value to a business, but making
sure that each stage of the transaction process — from valuation to
negotiation and completion — is successful demands considerable
experience and knowledge.
 Our services are designed to help our clients reach their strategic goals by
Identifying and then implementing opportunities to merge with or
acquire other businesses.
 Many drivers can affect a deal; from regulatory restrictions to tax issues.
 As the professional services organization, we can call upon our dedicated
specialists to address any specific challenges that may arise.
Project Finance
Funding for large projects (like infrastructure projects) is a complex area, and
there are specific challenges involved in creating the appropriate finance
structures to manage risks effectively.
MZJ have experienced professionals who have working experience with both
governments and private sector bidders.
 We help the public sector develop the right approach to procurement.
 We help private sector partners to get the best out of the process.
Structuring Services
A number of different considerations can influence the optimal structure for a
deal requiring a balance between the objectives behind the deal and
accounting, tax, regulatory and commercial considerations.
We help clients to identify the principal concerns that will determine the right
structure for a transaction.

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 • We can assist with marshalling the complex range of factors including
tax, legal, accounting and regulatory issues that will need to be
considered together.
• We create a feasibility plan to assess the chosen structure and once
this is confirmed as the right choice we will provide continuous support
• Through out implementation.
Business Consultancy
A more stringent regulatory regime. Shifting market demand and industry
consolidation Continuing pressure for better returns and more transparency.
New opportunities in the markets. Today's business world is fast-paced. To
succeed, you must seize the opportunities while also managing the risks.
You need to move quickly, but you also need long-term strategies to help
ensure your business can cope with the demands placed on it today and
tomorrow.
MZJ’s business consulting practices:
• Take an objective, long-term view.
• Deploy professional resources that can bring global knowledge to local
issues.
• Have an integrated approach to client service with teams of
experienced professionals with a breadth of specific technical and
industry sector skills.
MZJ provide advice and assistance to companies, corporations and other
concerns. Our services can help you respond to immediate needs as well as
put in place the strategies for the longer term.
Business consulting includes the following:
 Business Recovery Services
 Dispute Analysis & Investigations
 Commercial & Market Due Diligence
 Modeling And Business Planning
 Information Technology Consulting
 Enterprise Risk Management
 Human Capital
 Aid to Industry

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  Third Party Assurance

Business Process Outsourcing

Business Process Outsourcing (BPO) provides accounting, financial reporting
and transaction-intensive process support to clients. While your management
concentrates on enhancing the core business, our skilled professionals focus
on your financial accounting and reporting. We perform these functions
efficiently and cost-effectively, using a broad knowledge of business
processes and financial software packages.
These resources not only enhance our ability to help clients with their finance,
accounting and applications outsourcing, but also assists them in selecting
and implementing software systems; establishing company-wide networks;
writing policies and procedures; creating call centers; and, standardizing
processing after mergers and acquisitions.
Through Business Process Outsourcing (BPO) services, we take over a
client's back-office F&A and related procurement business processes and
manage them on an ongoing basis. We offer a full IFRS compliant services
and solutions, including transaction processing; financial accounting and
reporting; statutory/regulatory accounting and reporting; and, transaction
processing.
Our transaction processing services cover payables, disbursements and
expenses; receivables, receipts and revenues; general ledger; and, payroll.
Our approach to BPO is a highly collaborative blend of client and firm
strengths. We customize each engagement according to our client's
processes, internal controls and system requirements.

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 Our Major Clients
Corporations / Authorities
o Trading Corporation of Pakistan (Pvt.) Ltd.
o Federal Bank of Cooperatives
o Sindh Sugar Corporation Limited
o Oil & Gas Development Corporation of Pakistan Limited
o Printing Corporation of Pakistan (Private) Limited
o Ghee Corporation of Pakistan
o Sindh Small Industries Corporation
o Utility Stores Corporation of Pakistan (Private) Limited
o Telephone Industries of Pakistan (Private) Limited
o Karachi Export Processing Zone Authority
o Defense Housing Authority Limited
Banks/NBFC
 State Bank of Pakistan.
 Agricultural Development Bank of Pakistan.
 Security Investment Bank Limited
 Network Microfinance Bank Limited
 Industrial Development Bank of Pakistan
 Small Business Finance Corporation. (now SME Bank)
 House Building Finance Corporation of Pakistan (Private) Limited
 AKD Capital Limited
 HBL Asset Management Limited
 Pak Oman Asset Management Company Limited
 IGI Income Fund Limited
 UBL Asset Management Limited

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Insurance Companies
 Gulf Insurance Company Limited
 The Universal Insurance Company Limited
 Adamjee Insurance Company Limited
 PICIC Insurance Limited
 Pak Qatar Family Takaful Limited
 Pak Qatar General Takaful Limited

Manufacturing Sector Companies

 Hub Power Company Limited
 Sui Southern Gas Company Limited
 Unilever Pakistan Limited
 Tuwairqi Steel Mills Limited
 Chevron Pakistan Limited
 Al- Abid Silk Mills Limited
 Ghandhara Nissan Limited.
 Good Luck Industries Limited.
 Nalco Pakistan (Pvt.) Limited
 Sony Gulf FZCO
 Jubilee Spinning & Weaving Mills Limited
Service Sector Companies
• Qasim International Container Terminal Pakistan Limited
• Karachi International Container Terminal Limited
• Naimat Basal Oil & Gas Securitisation Company Limited.
• Swissport Pakistan (Pvt.) Limited
• National Institutional Facilitation Technologies (Private) Limited
• Pakistan National Shipping Corporation
• Pakistan Textile City Limited

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 Partners Profile
MZJ Muniff Ziauddin Junaidy & Co
KARACHI OFFICE
Muhammad Afzal Munif – Chairman
He has experience of over 45 years in the field of accounting, auditing and
management consultancy services and has been the senior partner and
chairman of the firm. His main area of specialization is tax, auditing and
management consultancy. He has widely travelled the world over and has
represented institute of chartered accountants of Pakistan (icap) in several
conferences and seminars including safa, international congress of
accountants, capa, international federation of accountants and also
represented as a delegate to government of Sindh and government of
Pakistan in the world bank meetings.
ACHIEVEMENTS:
Was elected -
o 1961 Honorary Secretary Regional Committee (Southern Region)
Institute of Chartered Accountants of Pakistan.
o 1963 Chairman Regional Committee ICAP (Southern Region)
o 1965 to 1993 Council Member, National Council of Institute of
Chartered Accountants of Pakistan - for five terms.
o Twice Vice President – ICAP President Institute of Chartered
Accountants of Pakistan - 1988-89 Chairman Education Committee –
ICAP
o Chairman Building Committee – ICAP Since inception till the
completion of the Building
o Vice President Karachi Cantonment Board and Clifton Cantonment
Board

19
 o Vice President and Chairman Education Committee South Asian
Federation of Accountants (SAFA)
o Served as Chairman of various committees of ICAP.
o Joined as Minister Local Bodies Housing Town Planning & Katchi
Abadis in the province of Sindh in the Caretaker Government.
o 1990 Member Sindh Provincial Assembly (MPA)
o 1990-1992 Served as Minister Planning & Development Government of
Sindh.

Farrukh V. Junaidy – Senior Partner

Mr. Junaidy is a Fellow Member of the Institute of Chartered Accountants of
Pakistan (ICAP) and currently serving as the Vice President and Council
Member of the ICAP. He possesses 15 years experience with KPMG
Pakistan, including 6 year as Partner with KPMG.
Mr. Junaidy has 28 years of top level diversified experience with strong
background in financial & business management, strategic planning, budget
administration, staff training & development, contract negotiation, audit
coordination, policy & procedural development, risk management, tax
planning & compliance, report preparation and public relations.
He also served in Financial Advisory Services Arm of KPMG Practice and has
diversified experience of handling assignments relating to share valuation,
merges and acquisitions, due diligence, financial restructuring etc. He
remained responsible for risk management for all tax client and country quality
assurance partner for tax services.
Mr. Junaidy as Partner of KPMG remained involved on diversified consulting
assignments. In particular, on project appraisals, implementation and
monitoring, business processes, reorganization of Central Board of Revenue
(Government of Pakistan), dealing with Government Authorities and Financial
Institutions, identification of business risk and recommending safeguard
against such risk. He has also worked as an associate to the Task force on
Sales Tax constituted by Government of Pakistan in 1999.
His Professional Affiliations are summarized as under:
 Member of various committees constituted by the council of ICAP
 In the past, Mr. Junaidy has held the position as Chairman, Southern
Regional Committee (SRC) of ICAP and CPE Convener (SRC), ICAP
 An Accredited Mediator, a status he achieved after successfully
completing Mediation Development Courses, a project funded by
International Finance Corporation (IFC) and organized by Center for
Effective Dispute Resolution, a non profit organization established in
UK

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  Member of Income Tax Bar Association. He has also served as a
member on the Management Committee of the Karachi Income Tax
Bar Association
 Member, Management Association of Pakistan
 Member, Marketing Association of Pakistan

Muhammad Moin Khan

M. Moin Khan is a fellow member of the Institute of Chartered Accountants Of
Pakistan (ICAP) and International Fiscal Association (IFA) Netherlands.
He is associated with Muniff Ziauddin & Company for the last 25 years. He
specializes in Auditing, accounting and management advisory services. He
has attended several national and international conferences and seminars on
various aspects of auditing, accounting and taxation. During his tenure with
Muniff Ziauddin & Co, he worked on various assignments and provided variety
of professional services in the field of audit, taxation, corporate affairs and
management consultancy. He has the honor of supervising and conducting
the statutory audit of State Bank of Pakistan for a consecutive period of four
years.
Naveed Alam
Mr. Alam is a Fellow Member of the Institute of Chartered Accountants of
Pakistan (ICAP). He is serving as a Partner in the Firm. Mr. Alam possesses
over 18 years vast experience of handling accounting, taxation and corporate
matters. He has served KPMG Pakistan for over 12 years, including 2 years
as Director in tax department. Mr. Alam was Senior Manager in Internal Audit
department of National Development Leasing Corporation (Now NIB Bank
Limited). Before that he was in Central Depository Company of Pakistan
Limited and established Investor Accounts Service department. He was also
involved in initial study of DVP (Delivery Vs Payment) department which
subsequently converted in National Clearing and Settlement Company. Mr.

21
Alam was also involved in developing online trading system for AKD
Securities Limited. AKD trade is first online trading system in Pakistan.
Imran Iqbal
Mr. Iqbal is an Associate Member of the Institute of Chartered Accountants of
Pakistan (ICAP) and in public practice since May 2006. He has around 13
years experience in audit, accounting, tax, financial and management
consulting.

Major assignments performed as Partner JAI:

 Audit & review of financial statements.
 Internal audit assignments of various companies.
 Preparation of accounting and internal control manuals for clients
 Special Accounting Assignments
 Financial and tax due diligence.
 Valuation of shares and determination of swap ratio for the purpose of
amalgamation of various companies
 Preparation of financial models for various companies.
 Incorporation of various companies.
 Corporate advisory and compliance services to various companies.
 Taxation advisory and compliance services to various companies.

Special Assignments
 Forensic accounting assignment with the team of KPMG London
 Buyer and seller side Financial due diligence of Commercial Banks
 Advisory on tax issues arising of various transaction structures
including mergers and acquisitions.
 Tax due diligence of various companies.
 Advisory on issues relating to agreement for avoidance of double tax
between Pakistan and other countries.
 Advisory on tax planning issues.

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  Representing clients at appellate forum including ITAT.
 Involved in day to day advisory and compliance of taxation
requirement of various clients.
In addition to performing internal audit function he was also responsible for
handling taxation issues of the company and he was actively involved in top
level review and finalization of annual and quarterly accounts.
Mr. Iqbal conducted workshops on the subject of taxation, financial
management and International Financial Reporting Standards at various
business schools, in house workshop at KPMG, JAI and ICAP.

Measum Baqar
Measum is a Chartered Accountant (Gold Medalist) and Public Accountant
with over 9 years experience in audit, accounting, consulting, tax and financial
management. Measum has also worked in the financial services division of
PricewaterhouseCoopers LLP, London. His core responsibilities includes
on job training of my staff, effective communication with client personnel and
resolution of Audit points and issues, efficient reporting to my
Partners/Directors as well as consulting with the PwC’s subject matter experts
and getting Partner’s clearance on those issues and getting involved in the
final discussions with the client top executives

LAHORE OFFICE
Ziauddin Babri – Vice Chairman
He is a fellow member of the Institute of Chartered Accountants of Pakistan
and Auditor/lead Auditors of BSI London. He is the founder partner of the firm
and in charge of Lahore office of the firm. He has over 40 years experience in
the field of accounting, auditing and management consultancy services, he
also served on various committees of the Institute of Chartered Accountants
of Pakistan. He enjoyed the experience of working on various assignments
from Government of Pakistan, Central Board of Revenue, Securities &
Exchange Commission of Pakistan, Government of Punjab and many other

23
institutions including public and private entities on variety of professional
assignments.
Muhammad Ilyas
Muhammad Ilyas is a fellow member of the Institute of Chartered Accountants
of Pakistan and has over 30 years experience in the field of accounting,
auditing, taxation and management consultancy services in Pakistan and
United Kingdom.

Asad Feroze
Asad is an associate member of the Institute of Chartered Accountant of
Pakistan and FCCA (UK )with over 10 years experience in audit, accounting,
consulting, tax and financial management. Asad is also enrolled as Advocate
with Punjab Bar Council and Certified Service Provider for SMEDA’s
accounting software (SMAP). He is currently the Chairman Panel of
Members ACCA Pakistan and also representative of Pakistan members at
ACCA International Assembly Before joining MZJ as Partner, he has worked
as partner with Junaidy Alam Iqbal and Shoaib Asad & Co. Chartered
Accountants. At MZJ is responsible for the overall quality of services offered
by MZJ to the clients which are part of his portfolio, as well as identifying and
targeting new clients as well as additional services to the exiting clients.
Asad was also affiliated with A. F. Ferguson & Co., Chartered Accountants
(Member firm of PriceWaterhouseCoopers) in Pakistan at their Lahore
office, where he gained diversified experience in external and internal audit,
due diligence, financial restructuring, audit coordination, policy & procedural
development, risk management and internal audit report preparation.
Mr. Asad Feroze, partner Lahore office has over four years experience of
experience of audit of listed companies like, Nestle Pakistan Limited and
Millat Tractors Limited during his employment with A. F. Ferguson & co,
Chartered Accountants (a member firm of Pricewater House Coopers). He

24
has also worked on compliance and review reporting assignments of listed
companies including, Review of best practices of Corporate Governance,
listing regulations and transfer pricing. He is law graduate as well and is well
versed with local laws and legislation as well.
He has conducted various workshops for SMEDA and ACCA. He has chaired
various meetings and seminars of ACCA in all cities of Pakistan. He has also
been a speaker in various pre and post budget seminars of ACCA and in
Government College University Lahore. He has also attended Selection Board
meetings of Government College University Lahore as subject specialist on
Finance.

He has over six years experience of working experience in representing

before taxation authorities including Income Tax Appellate Tribunal (ITAT).
Taxation experience includes taxation audits, e filing of corporate and
individual clientele of various returns on FBR portal.

ISLAMABAD OFFICE
Shahid Farid
FCA, CFC(USA), AITM, AICS having intense experience of over 15 years in
the field of auditing, corporate, finance, taxation and business consultancy.
His specialized area of expertise is share and business valuation, takeovers,
restructuring and corporate governance of companies.
Tariq Sultan
He is a fellow member of the Institute of Chartered Accountants of Pakistan
and has vast experience of over 14 years in the field of auditing, corporate,
finance, taxation, management consultancy. He has worked on variety of
professional assignments requiring very high professional skill.

25
 Hierarchy of the firm

 In the audit firm there are three layers of the staff and their
responsibilities.

 Above all are the Partners who are the owner of the business.

26
  Below the Partners there are different supervisors who deals in
different department of the business e.g. Tax, legal and Audit
supervisors who directly report to the Partners and they are
responsible of their area.

 Below the supervisors there are clerical staff and the trainees students
who perform different tasks assigned them by the supervisor. There
are senior as well as junior student trainees.

 When an audit team is formed, it consists of the senior, junior clerical

and the Supervisor as well.

SWOT Analysis

SWOT is the abbreviation of strengths weakness opportunities and threats. In

is the first two strengths and weakness are the internal factors of the
organization, to whom an organization can control. The other two factors are
external factors which are beyond the control of the organization. The SWOT
analysis of MZJ is as follows:

STRENGTHS

• MZJ has the well qualified and experienced management and

the trainees students are also experienced as most of them have
completed one or more year articles. They know their work anfd its
all technicalities.

• All the services of the business are available under roof from
business consultancy to audit and Tax affairs all are available at
one place.

• MZJ has excellent filling system.

27
 • MZJ also provide computerized accounting consultancy and
services, which are the need of the day.

• The partners have personal interaction with each member of the

firm, which increase the motivation of the employees.

• There is the learning behavior among the trainee students which

enhance their knowledge.

Weakness

 Old clerical staff is slow and inefficient.

 Lack of internet facility to the students, which effects their

learning capabilities and change themselves according to the
changing environment.

 Compensation package especially for the students is not so

good. They are not according to work performed by them, which
decrease their commitment towards work.

 Office timing is not very strictly followed.

 Old staff mostly told their stories which disturb the work.

Opportunities

• The audit firm has great opportunity as the companies financial

statements have to mandatory audit once in the fiscal year.

• It is a merger of two audit firms in Karachi and Lahore, which will

increase the exposure and clientage of the both firms under one name.

• Most of the local business man are illiterate and do not know the tax
and legal implications of the business, so the audit firm can get
business very easily.

• The firm office is at prime location at mall road which help it to get
business.

28
Threats

• There is no business due to the poor economic conditions of the

country.

• The firm has the competition with a lot of firms especially Fergusons
whose office is in front of the firm.

• There is instance competition among the market for the clients as the
firm has to compete at Lahore as Well as Karachi and Islamabad.

Recommendations for Improvement

 My recommendations for the improvement of the firms are as follows:

 Since the most work of audit is done by the internees so the selection
of probationers should be such that the competent persons should be
available.

29
  Internees should be well versed with the knowledge of audit,
International Accounting Standards, Income tax and corporate laws.
 At least two new computers with latest software and a printer should be
immediately purchased for the Office. The staff must be asked to learn
operating the computers immediately. This would result in more
efficiency is sending the inquiry letters to the client and other parties.
 As most of the staff is students so, staff should be provided with the
internet so that they can upgrade their knowledge and also know about
the latest trends. Internet is very important for their knowledge up
gradation.

 Audit staff should be according to the volume of business.

 Facilities to internees like 2-holidays in a week and other fringe benefits

should be given.
 Performance sheet should be prepared to check the performance of
the staff and internees. That sheet should be filled by the pears and the
supervisor.

 The supervisor should be given the authority to take minor decisions,

which will safe the partner precious time. The supervisor should also
give extra monitory benefits to his valuable contributions in the firm
performance.

 The firm should market itself to meet the competition in Lahore and
Karachi.

 Audit planning is the integral part of the audit so all the audit should be
well planned and the audit team should be the part of the audit
planning.

Definition of audit

The general definition of an audit is an evaluation of a person, organization,

system, process, enterprise, project or product. The term most commonly
refers to audits in accounting, but similar concepts also exist in project
management, quality management, and for energy conservation.
http://en.wikipedia.org/wiki/Audit

30
Systematic examination and verification of a firm's books of
account, transaction records, other relevant documents, and
physical inspection of inventory by qualified accountants (called auditors). See
also external audit and internal audit.
http://www.businessdictionary.com/definition/audit.html#ixzz0yTaEgqbQ

Auditing is a systematic process of objectively obtaining and evaluating

evidence regarding assertions about economic actions and events to
ascertain the degree of correspondence between those assertions and
established criteria and communicating the results to interested users.

http://www.cof.org/files/Documents/Education_Collaborations/Audit
%20Conference%20Call%20Handouts/3_Levels_of_Attestation_Services_Defined-
HANDOUT_3.pdf

History of ICAP and Audit in Pakistan

The Chartered Accountants Ordinance, 1961, received the asset of the

President of Pakistan on March 3, 1961, and was published in Part 1 of
Extraordinary Gazette of the Pakistan on March 10, 1961. The Institute of
Chartered Accountants of Pakistan came into being on July 1, 1961. A draft of
the Chartered Accountants bylaws was also prepared and published for
inviting public comments.

The Institute of Chartered Accountants of Pakistan is now a statutory

autonomous body and is administered by a council of thirteen. The Chartered
Accountants bylaws also provided for the foundation of regional committee to
look after the interests of their members. At present there are two such
committees, one each in Lahore and Karachi. The members are divided into
two classes namely. Associates and Fellows (ACA, FCA).

REQUIREMENT OF LAW:

According to the law every public limited company and every Private
Limited company having share capital of more than three million should get it

31
books of accounts audited from a Chartered Accountants as defined in
Chartered

APPOINTMENT OF AN AUDITOR:

The management of a private company appoints the auditor while the

auditor of the public company is appointed in the Annual General Meeting by
the Shareholders

International Standards of Auditing (ISA)

Early history
Groundwork for an international set of standards for auditing began in 1969
with the publication of a number of reports focusing on international auditing
by the Accountants International Study Group, comparing the situation in
Canada, the UK, and US. A few years later, the establishment of the
International Accounting Standards Committee in 1973 generated many calls
for a similar body to be set up on the auditing front.
Amongst the many calls was a well researched argument from Maurice
Moonitz, Director of Accounting Research at AICPA, in his 1978 book
'International Auditing Standards' which set out the case for a set of
standards, and went on to recommend the establishment of an International
Auditing Standards Committee (IAudSC). The title from Moonitz is useful in
comparing the situation worldwide prior to the adoption of an international set
of standards, and in identifying the various calls for international standards at
thetime.
In the late 1970s the Council of International Federation of Accountants
(IFAC) created the International Auditing Practices Committee (IAPC) which
would be a standing committee of the IFAC Council and subsequently the
IFAC Board (in May 2000 the IFAC Council was renamed the IFAC Board).
Between 1980 and 1991 the IAPC issued International Auditing Guidelines
(IAG) and addendums to these. The first International Standard on Auditing
(ISA) was issued in 1991, and this has remained the series to the present
day.

19July2001
IFAC issued a press release reporting on the recommendations from the
IAPC Review Task Force which identified a need to "More clearly establish
and communicate the authority of IAPC International Standards on Auditing
and other guidance".

32
2002

The IAPC was renamed as the International Auditing and Assurance

Standards Board (IAASB). Membership of the organization was widened to
include non-auditors.

1January2003
The IAASB made available the full text of International Standards on Auditing
for free on its website and stated that all future final pronouncements would
be published for free online. Access to IAASB publications is available to
users who register via the IFAC website.

21May2003
The European Commission issued the communication, "Reinforcing the
Statutory audit in the European Union" (COM/2003/286) on 21 May 2003
which identified the requirement to use ISAs for all EU statutory audits from
2005 onwards as a short term priority. The communication was issued with
the press release Audit of company accounts: Commission sets out ten
priorities to improve quality and protect investors .

6May2004
The Auditing Practices Board (UK) issued a press release announcing their
intention to adopt the International Standards of Auditing (‘ISAs’) issued by
the International Auditing and Assurance Standards Board (IAASB).

22December2004
The APB issued International Standards on Auditing (ISAs) (UK and Ireland).
The APB press release stated that these would 'apply to all audits of financial
statements for periods commencing on or after 15 December 2004. The
APB’s previous standards, Statements of Auditing Standards (SASs), are
applied for audits of financial statements for periods commencing before that
date.'

2009

The International Auditing and Assurance Standards Board (IAASB)

completed a project (known as the 'Clarity Project') to update and reformat the

33
International Standards on Auditing (ISAs) which sought 'to improve the
understandability of the ISAs and make them more compatible with regulatory
frameworks, including the EC’s Statutory Audit Directive.' The Clarified ISAs
and other related documentation (including FAQs) are available from
the IAASB Clarity Center.

2ndMarch2009
The APB issued a press release announcing its intention to update UK and
Irish Auditing Standards for the New International Standards on Auditing for
2010. The APB press release states that 'The new UK and Irish auditing
standards will be effective for audits of financial statements for periods ending
on or after 15 December 2010.'

PROCESS OF AUDIT IN MUNIFF ZIAUDIN AND JUNAIDY (MZJ):

The firm after getting appointed as the auditor, in the annual general
meeting by the shareholders or by the management, starts the audit. First it
asks the management for the Letter of Appointment. Then management is
asked to give a list of all books of accounts maintained by the client and a list
of all officers of the company along with their designation and authority.
Previous years-audited accounts are also demanded. These documents are
studied to gain about the clients business. If the audit of the client was also
done in the previous year then these information's can be obtained from the
working papers i.e. file maintained by the audit firm containing documents
received from the client.

INTERNAL CONTROL/MANAGEMENT CHECKING:

34
 Senior and semi-seniors examined internal control. This was done in
order to examine the weaknesses of system, to consider the proposition of
introducing test check, to be performed during the course of audit and to
determine exactly the extent of work to be performed. It enables the auditor to
express his opinion on the given books of accounts.

Audit Plan:

After getting the required information and documents the one of the
seniors makes an audit plan including audit program. The audit program
includes the detail of the work to be done by the audit team, estimated time
period required, distribution of work among the members of audit team. Then
the audit plan is discussed with the Principal of the firm and necessary
changes are made in the audit plan to carry on the work of audit most
effectively and efficiently.

After finalizing the audit plan the senior makes an audit team. The
senior gives the team member's necessary information's about the client and
the work to be done by them. He then distributes the work among the team
members and assigns different initials and different colors and marks which
they have to put against the work they have completed. The seniors and the
principal periodically supervise the work in order to check whether the work is
being performed according to audit plan or not. After analyzing the work
performed they make necessary changes to ensure that the work is done
efficiently.

In the audit planning the following things are discussed with detail:

• Business address and Details.

• Knowledge of business of the client.
• System notes and areas.
• Audit program.
• Risk assessment.
• Timeliness and staff involved.
• Materiality assessed by variance analysis.

35
 • Strategy.
• Audit procedure.
• Previous year's outstanding points.
• Current year's pinots to be carried forward.

PREPARATION OF AUDIT PROGRAM (AUDIT PLANNING):

An audit program was prepared by our seniors, with due care and skill.
It was decided to conduct the audit under the supervision of a senior.
During the conduct of audit, some notes were prepared like:

a) Audit Review Notes:

To note the points that needs further discussion with the management.

b) Audit Queries:

To not all those vouchers that remain insufficiently vouched. A

complete record as to how they were cleared and all those, which
remained unclear and reported to management, is maintained.

c) Important Balances:
Notes of important closing balances particularly in respect of cash and
bank accounts, stock etc.

Compliance testing

In this part it is checked that the business comply with all its rules and
regulations or not. For this the article and memorandum of association is
checked. The articles are checked to see the general business practices and
the commencement of the annual report and declaration of dividend and
bonus.

Checking Of Books of Accounts:

36
 When the audit work starts first the books of accounts are checked for
errors which may be due to wrong entries, omission of transaction, wrong
total, wrong carry and brought forward etc. The checking of books of accounts
may or may not include detail checking, it may involve test checking. It
depends upon the control system involved.

OPERATION OF AUDIT:

The audit was operated / conducted with the help of following

techniques.

Vouching:

In vouching every transaction is checked with it documentary evidence.

Documentary evidence includes vouchers, invoices, and goods inward and
outward notes, cash memos and receipts. It is also checked that the
transaction is authorized by a proper person having powers to do so.

Verification:

When vouching is complete then the verification of assets and liabilities

takes place. Assets of the firm are verified by checking them if the assets are
held by others then a letter is written to them to verify their presence and their
title. For confirmation of major debtors a letter is written to them to confirm the
balance due from them. T confirm bank balance account, statement is
received from the client's banker. For the confirmation of liabilities letters to
the creditors is written to confirm their balance due to them. In order to check
the stock of the client, stock taking is done, where the members of audit team
visits the storerooms of the factory and see the counting of the stock done by
the store keepers and if they find some thing wrong they themselves count the
stock. During the stock taking storerooms records are also checked to see
that they are maintained properly. If due to some reason any asset can not be
verified then a certificate is received from the management certifying the
existence of the asset.

Ticking:
During the checking of various books, the entries that were checked were
marked/ticked with red ball pen indicating that the entry has been examined
for certain purpose. Variously shaped marks were used to denote checking of
additions; postings carry forwards, balances etc.

Posting Check:

37
Then it was checked whether the transactions are correctly and accurately
posted to ledger or not. Special care in checking posting to personal ledgers
in needed as to names and titles of accounts; otherwise a wrong posting may
remain undetected.
Cross Checking:
It is the comparison of entries in two or more books or of an entry in a book
with its supporting evidence or voucher. My seniors assisted me in this step.
Accuracy of cross checking plays a vital role in the process of auditing.
Therefore, it should be made with due care.
Trial Balance Checking:

Then trail balance was checked and important balances were noted in
the working papers for reference use in further process.

If during the course of audit different queries or unexplained events are seen,
then these are noted and explanations asked from management and they are
asked to make necessary adjustments. If during the course of audit some
irregularity is witnessed that is also reported to the management and reported
in the auditors report.

Analytical Procedure:

After the end of the audit analytical procedure is adopted in order to

confirm the accuracy and correctness of the results obtained from above
procedures, Profit and Loss Account and Balance Sheet. In analytical
procedure results are compared with prior period results, ratios, expected
results and industrial information. Any major difference is looked into. At this
stage the stock valuation, Material variations, Financial Ratio, and Variance
Analysis are done.

38
OTHER MATTERS OF CONSIDERATION:

Physical Existence of Assets:

Physical existence of assets, particularly stocks, was checked. It was also

ensured that assets are the property of business and that each asset is
correctly valued and correctly stated in the balance sheet. This check was
made for the date of balance sheet.

Capital and Revenue Expenditures Checked:

Distinction of capital and revenue expenditures was made and the accuracy of
maintenance of these expenditures was examined.

Depreciation of Assets:

Provision for depreciation of assets was checked and tallied with the balance
sheet.

Identification of errors for manager:

After doing all these process and vouching and verification the report of errors
is prepared and this report is submitted to the supervisor or the manger, which
checks it and made any corrections and finalizes it to be presented to the
partner or principle.

Summarization of matters of variance for partner:

After that the report of errors are submitted to the partner by the supervisor
who again check it thoroughly and pinot out any errors and the matters of
further analysis.

Auditor's Report:

After that auditor's report is given. If the auditor is satisfied with all the
information required by him has been provided to him and books of accounts
have been properly maintained and profit and loss account. Balance Sheet
has been properly drafted and show fair view of the company's affairs, the
auditor gives an `Unqualified Report'. If the auditor is not satisfied with the
explanation of the management and finds irregularities then he gives
'Qualified Report'.

39
Review of Performance:
At the end of an audit the auditor and the seniors review the
performance of the audit team. They try to find out where mistakes were
done, was the audit completed on time, were the team members vigilant
during their work? Team members are assessed as a group as well as
individually. If something is found to be unsatisfactory then proper steps are
taken to ensure that these irregularities do not appear in future audits.
During the course of audit documents, balances and papers etc. are
collected which at the end of the audit are kept in a file for the future audits.
WORK DONE AND SKILLED ACQUIRED BY THE STUDENT

I started my internship as junior trainee. My two months training

enabled me learn a lot about accounting, taxation, auditing, management
consultancy and corporate affairs.

Although two months is very short period to learn every thing and to get
perfect in the art of accounting and auditing, Working at Muniff Ziaudin and
Junaidy (MZJ) (Chartered Accountants) gave me a golden opportunity to learn
some valuable things not only about auditing and accounting but also about
Corporate Law and Income Tax. My work at the firm made my concepts of
accounting and auditing very clear. The guidance of my colleagues and
Principal of the firm was very helpful and they provided all necessary
information to me.

My internship training at Muniff Ziaudin and Junaidy (MZJ) (Chartered

Accountants) under these staff of the firm:
In Audit, Finance, Accounts, Corporate and others sections:
• Mr. Awais Khan (CA Article ship)
• Mr. Shahbaz (CA Article ship)
• Mr. Qamar Farooq (ACCA Article ship)
• Mr. Adnan Jalees (CA Article ship)
• Mr. Qasim (ACCA Article ship)
• Mr. Tabussium (ACCA Article ship)
• Mr. Sarwar (Tax and legal Expert)

40
During my training period I got the chance to see things practical, by taking
part in the Tax Audit of the Mitsubishi Momentum Motors which was
assigned to our firm by the Federal Board of Revenue (FBR) for the tax year
of 2007-2008

INTRODUCTION:
Before going on the audit we were given a brief introduction of the
clients business, audit program and plan. Then we were told about the work to
be done at the client's office. Each one of the audit team members was given
a specific job and different signs were assigned to each of us whom we had to
put in front of the entry that were checked. We were also required to put our
initials on the audit program when we completed our assigned jobs.

TRAINING

INITIAL WORK:

For the first week I was given the duty of checking the totals, costing,
posting, carry forwards, brought forwards, journal entries for wrong entries
and their posting, in ledgers. During this period I gained valuables about
maintaining books of accounts.

While checking the accounts not all the entries were checked, only a
limited number of entries were checked, it is called Test checking. Only a
sample of entries were checked, the size of the sample depend on different
matters like materiality level, efficiency of internal control system, possibility of
occurrence of error and other condition. Apart from applying test check
method some transactions of unusual nature or amounts were also checked
to find out errors or frauds. If the errors in an account exceeded from the
expected level then that account was thoroughly checked and the method of
test checking was abandoned for that account. After checking ever entry a tick
mark was put against the entry to show that the entry has been checked.

41
VOUCHING:

After checking of accounts vouching was done. Vouching is done to

make sure that entry is original and not a fictitious one. Different organizations
maintain different types of documents and there are different documents for
different transactions. The selected transactions were checked with their
supporting documents. Not only the amount on each document was
compared with the entry but other thing like proper authorization by a
responsible person, name of the client etc. was also checked. Supporting
documents includes sale and purchase invoices, cash memos, bills, receipts,
vouchers, minutes, goods in and out notes, freight receipts, letter of credit in
case of import, goods inward register, etc.

VERIFICATION:

After vouching verification of assets of the firm and to avoid any wrong
liability, verification is done to find out, whether the asset or liability appearing
in the account really exists or not, whether they are being properly valued or
not, confirm the ownership of assets and liabilities, are these assets being
disclosed according to the requirements of the law, whether any asset is
suffering from any kind of charge if yes then it is disclosed in the accounts.

Whether the acquisition of assets and liabilities is authorized under the

Memorandum of Association and Articles of Associations.

The existence of an asset was checked by seeing, weighting,

measuring, and counting the assets. If the asset could not be checked due to
some unavoidable reasons then a certificate to the existence of the asset was
obtained from the management or a responsible person of the organization.
For this stock take is done. As we have to audit the past two years that’s why
we have to work back the stock from the stores ledgers. This was new thing
for me and I learn a lot about it.

42
Special stress was laid upon the counting of the cash in hand and it was done
on the balance sheet date in the presence of the members of audit team.
Bank balance was verified by obtaining a certificate directly from the client's
banker. My senior has work back the cash and I assist him it also increase my
knowledge.

Investments held were verified by physically examining them. Some of

the investments held by the bank on behalf of the client were verified by
obtaining a certificate directly from the client's banker.

Investments held were verified by physically examining them. Some of

the investments held by the bank on behalf of the client were verified by
obtaining a certificate from the bank and confirming that the investment was
not held as a security for a loan.

After verification of the existence of assets and liabilities, their value

was examined. Assets were valued by using different methods depending
upon the type of assets. Usually fixed assets are valued at cost less
depreciation, while current assets are valued at lower of cost or net realizable
values.
The ownership of an asset was verified by looking at the title
documents of the assets or by obtaining a certificate from the banker of the
client if the bank held the asset. The liability balances were confirmed by
obtaining confirmation letters from the creditors. To see whether the asset
was disclosed according to the requirements of the law Company's Ordinance
1984 and related IAS were consulted. The assets suffering from a charge
were also disclosed in the balance sheet.
It was also checked that the loan against the asset was obtained for
the business and not by one else for his personal use and the mortgage was
in accordance with the provisions of the Memorandum of Association and
Articles of Association. If the assets were held by third party then a certificate
from the concerned party was obtained as the ownership of the asset.

43
During the course of audit if any information was needed then management
was asked to prove the required information which they are legally bound to
provide. Errors discovered were also noted and explanation and correction
were asked.
1) In Some cases while checking the salary sheet such names of
employees appeared which had no record their named even did not
appeared on the attendance sheet. Mainly that was due to the fraud of
the management. The tax deducted by the management is of 12
months while the salary paid is only of 11 months.
2) Most of the records maintained by the client were computerized so they
had less errors and faults in them.
3) Most of the time the closing balance of the work in process was not
properly calculated and was usually based on approximation.
4) Some times debtors make the payment and entry for the same is not
written.
5) Another mistake witnessed was the wrong distinction between the
capital and revenue expense and earning. For example an
advertisement for the sale of asset was added to the value of the said
asset as cost of addition.
6) Some expenses have neither the original nor the rough sporting
especially the entertainment expenses.
7) Some fix assets are sold e.g. a BMW that has no record.

INCOME ESTIMATION

Muniff Ziaudin and Junaidy (MZJ) (Chartered Accountants) also

provides professional services in estimating incomes of various businesses,
small and medium in the organized and unorganized sectors for disbursement
of loans pertaining to car loan, house loans, business loan and other
customer finance products.

I did help my seniors and staff members in income estimation for some
different firms. In the process, last three or five years' income of the applicant
(for loans) is averaged to decide whether he can or cannot repay the loan. It is
also seen that interest coverage ratio of the applicant is 3:1 i.e. net income
should be at least thrice of interest charges.

44
Excel:

I have also learned the use of M.S Excel for the purpose of financial reporting,
for reporting errors, for making tax return forms and other purposes. I learn
the different dimensions of Excel.

Work Backing:

During my internship I also learn a new concept of work backing in which the
latest record of cash and stock is used to asses the cash and stock of the
previous periods. In this all sales are added and all purchases are minimized
to reach the opening stock of the previous periods.

FINANCIAL ANALYSIS

The financial statements of the Muniff Ziaudin and Junaidy (MZJ)

(Chartered Accountants) were not available as they are treated as secret

documents of the company. That’s why I have done the financial analysis of

Mitsubishi Momentum Motors, in whose audit I have take part.

RATIO ANALYSIS
From the information which is given in the Profit & Loss account and Balance
Sheet, I analyzed the Ratios in the following manner.
There are four aspects of Ratios.
1. Liquidity Ratios
2. Activity Ratios
3. Debt Ratios
4. Profitability Ratios

45
 Liquidity Ratios

Liquidity of a business firm is measured by its ability to satisfy its short term
obligations as they come due. Liquidity refers to the solvency of the firm's overall
financial position. The ease with it can pay its bills.
Three basic measures of liquidity are:
1. Net Working Capital
2. Current Ratio
3. Quick (Acid-Test) Ratio

Net Working Capital

This ratio show the amount of the assets which the company uses to fulfill its day to
day expenses and activities. The more the positive difference the more company will
be in better position.
= Current Assets - Current Liabilities
2006 2007 2008 2009
38638001- 54363993- 50799914- 53874233-
54363993 3708761 5049434 11982010
-50500992 50655232 45750480 41892223

Comments:
In 2006 the firm has shortage of working capital. For this it has to take loans
from bank to meet its day to day current assets requirement.

46
Current ratio
This ratio measures the firm ability to meet its current obligation through current
assets. The higher the current ratio the firm will be considered greater liquid.
Normally the current ratio of 2 or above is desired but it depends in the industry in
which the firm operates. It is calculated as follows:

Current Assets
= ----------------------
Current Liabilities

2006 2007 2008 2009

38638001 54363993 50799914 53874233
7877392 3708761 5049434 11982010
4.91 14.66 10.06 4.5

Comments:
The overall current ratio is over the satisfactory level of 2 in all the years. This
ratio is extraordinary high in 2007 and 2008, which is over 10. This means
that the firm had greater current assets as compared to liabilities. It also
means that the firm has greater investment indulge in current assets. This
may be due to purchase of inventory in bulk quantities.

47
Quick Ratio
The quick ratio is similar to the current ratio except it excludes the inventory which is
the least liquid current asset. A quick ratio of 1 or greater is generally acceptable but it
depends on the industry. It provides better estimates in the business where it is
difficult to sold inventory quickly. It is calculated as follow:

Current Assets-Inventory
= ----------------------------------
Current Liabilities

2006 2007 2008 2009

36351394 52012810 45085335 44746696
7877392 3708761 5049434 11982010
4.61 14.02 8.93 3.73

Comments:
The quick acid test ratio is same as the current ratio. It show the same trend
as the current ratio, which means that the firm has very little investment intact
with the inventory. This ratio shows that firm has excessive current assets,
which are more than sufficient to pay the current liabilities.

48
 ACTIVITY RATIOS
Activity Ratios are used to measure the speed with which various accounts are
converted into sales or cash. These ratios are as follows:
Cost of Goods Sold to Net Sales
This ratio show the percentage of cost of goods sold to the sales. The lower the
percentage will be the greater will be the profit of the company. The formula of this
ratio is as follow:
Cost of Goods Sold
= ------------------------- x 100
Net Sales

2006 2007 2008 2009

12292226 19892985 21267257 31755455
22375508 36888310 33581356 37157872
54.94% 53.83% 63.33% 87.46%

Comments:
From the above table and graph it is clear that cost of goods sold is more than
50% for all the years. It is minimum in 2007 and maximum in 2009 which is an
alarming situation for the company that its cost is more than 87%. The
company should see it cost in 2009 to be safe from further losses. This may
be the reason for the losses in the year.

49
Administrative Expenses Ratio
This ratio show the percentage administration cost incurred to net sales. The lower
this ratio is the greater will be the Net Profit of the company. The formula of this ratio
is as follow:

Administrative Exp
= ------------------------ x 100
Net Sales

2006 2007 2008 2009

9676690 10381069 9179643 9138463
22375508 36888310 33581356 37157872
43.25% 28.14% 27.34% 24.6%

Comments:
From the above chart and graph it is clear that administration cost is over 25%
for all years. The admin cost in 2006 is the highest which is above 43% of
sales and the major contributor for the losses in that year. After that
management has control it remain below 30% which is a good sign.

50
Inventory Turnover
Inventory turnover commonly measures the activity, or liquidity of a firm s inventory.
The greater inventory turn over is better for the company. It gives meaning full result
when it will be compared with the other firms operating in the industry. It is
calculated as follows:

C.G.S
= ----------------
Inventory

2006 2007 2008 2009

12292226 19892985 21267257 31755455
2286607 2351183 5709579 9127537
5.38 8.46 3.72 3.48

Comments:
Inventory turnover for the years is volatile. It is above the satisfactory level of
2. It is 5.38 in 2006 and jump to 8.46 in the next year which show that the
sales of goods increased but then it came to normality of below 4 in the next 2
years. This is due to rapid increase in cost of goods sold.

51
Average Age of Inventory
Average age of inventory show the time in which the inventory is within the
organization. It includes both the time to produce and to sell the inventory. The lower
age of inventory is beneficial for the company. It is calculated as follows:
365
= ---------------------------
Inventory Turnover

2006 2007 2008 2009

365 365 365 365
5.38 8.46 3.72 3.48
68 Days 43 Days 98 Days 105 Days

Comments:
The above graph and table show that the age of inventory is decreasing in the
first 2 years and then start increasing in later 2 years. The highest age is 105
days which means that the inventory took 105 days to be sold after purchased
which is an alarming situation for the company.

52
Average Collection Period
The average collection period, or average age of accounts receivable, is useful to
evaluate the credit and collection policies of the organization. Average collection
period is meaning full only in relation to the firm credit terms. It lower collection
period is beneficial for the organization. It is calculated as follows:
Account Receivables
= ------------------------------×365
Sales

2006 2007 2008 2009

4577477 9333690 27922602 4808380
22375508 36888310 33581356 37157872
75 Days 92 Days 303 Days 47 Days

Comments:
From the above graph and table it is clear that the collection system of the
company is not effective. It takes much longer to the company to collect
money from its debtors. The minimum is 47 days which are far higher than the
average of 30 days in 2009. Before 2009 this time is very long e.g. 303 days
in 2008.

53
Average Payment Period
The average payment period is calculated in the same manner in which average
collection period is calculated. It depends on the credit terms extended to the company
by its creditors. The higher payment period is beneficial for the company. It is
calculated as follows:

Accounts Payables
= ---------------------------------×365
Purchase

2006 2007 2008 2009

5578325 2407678 1904819 1614940
10590252 15135426 21157494 32004655
192 Days 58 Days 33 Days 18 Days

Comments:
The higher payment period is better for the company, but in this case the
payment period is reverse which means that the company is paying their
debts very quickly, which may cause them in future. In 2009 this period is only
18 days which are less then the average of 30 days period.

54
Total Assets Turnover
The total asset turnover indicates the efficiency which the firm uses its assets to
generate sales. Generally, the higher the asset turnover the more efficiently its assts
are used to generate sales. It is calculated as follows:
Sales
= --------------------------
Total Assets

2006 2007 2008 2009

22375508 36888310 33581356 37157872
116129655 131222999 127409292 129059318
0.20 0.28 0.27 0.29

Comments:
From the above graph and table it is clear that the total assets turnover is
increasing but it is increasing very slowly and it is very low. That means that
the management is not using its resources very efficiently to generate profits.

55
 DEBT RATIOS
The debt position of a firm indicates the amount of other people's money being used
in attempting to generate profits. In general, financial analysts are most concerned
with long-term debts, because these commit the firm to paying interest over the long
run as well as eventually repaying the principal borrowed.
Debt Ratios are following:
Debt Ratio
The debt ratio measures the proportion of the total assts financed by the firm
creditors. The higher this ratio greater the amount of other peoples money being
invested in the business. It is calculated as follows:
Total Liabilities
= ------------------------ x 100
Total Assets
2006 2007 2008 2009
7877392 3708761 5049434 11982010
116129655 13122299 127409292 129059318
6.8% 2.83% 8.4% 8.72%

Comments:
Debt ratio should be minimum. In 2006 it is 6.8% which means that
debts are 6.8% of the total assets. In 2007 this percentage decreases but
after that it increased very quickly to about 8.5% in the next 2 years, which
may cause liquidity problem to the company. Overall this ratio is satisfactory.

56
Times Interest Earned
It measures the firm's ability to pay its contractual interest payment. The higher this
ratio will be the greater the firm able to pay its interest payment. It is calculated as
follows:
EBIT
= ---------------
Interest

2006 2007 2008 2009

406592 6614256 3134456 (3736046)
61754 32203 9524 8830
6.58 205.39 329.11 (423.10)

Comments:
This ratio is the ability of the business to pay interest. This ratio is very good
for the first 3 years of the company, which means that they can pay their
interest payment very easily and they did not get any loan for that years as
well. But in 2009 due to the loss the company will face difficulty in paying their
interest payment as this ratio becomes negative.

57
 PROFITABILITY RATIOS
There are many measures of profitability. Each relates the returns of the firm to its
sales, assets, and equity or share value. As a group, these measures allow the analyst
to evaluate the firm's earnings with respect to a given level of sales, a certain level of
assets, the owner's investment, or share value. Without profits a firm could not attract
outside capital.
G.P. Margin
The G.P ratio measures the percentage of profit remains after the firm has pay for its
good. The higher gross profit margin is better for the organization. This show the
lower the cost is. It is calculated as follows:
G.P
= ---------- x 100
Sales
2006 2007 2008 2009
10083282 16995325 12314099 5402417
22375508 36888310 33581356 37157872
45.06% 46.07% 36.66% 14.54%

Comments:
From the above graph and table it is clear that the G.P ratio for the first two
years is satisfactory and above 45% of sales. But after that this percentage
starts decreasing and reach to 15% in 2009 which is due to the cost of goods
sold is increasing very quickly. The management has to reduce cost to save
the company from the losses in subsequent years.

58
Operating Profit Margin
Operating profit margin measures the percentage of profit remains after deducting all
expenses except interest and taxes. It is called the pure profit of the organization. The
higher operating profit margin is preferred. It is calculated as follows:

Operating Profit
= ------------------------ x 100
Sales

2006 2007 2008 2009

344838 6582053 3124932 (3749855)
22375508 36888310 33581356 37157872
1.54% 17.84% 9.3 % (10.1)%

Comments:
In the first year operating profit is very low as compared to gross profit if that
year is above 40%, which means that the company has incurred high amount
of operating expenses in that year which leads the company to the losses.
After that operating profit of the next year is satisfactory as it is above 17%,
but it start decreasing from 2008 and in 2009 it become the loss of10%, which
is due to the low G.P. This should be controlled by the management.

59
Net Profit Margin
Net profit margin measure the profit remains after paying all the cost, expenses,
interest, taxes. The higher net profit is better for the organization. It is calculated as
follows:
N.P
= ------------- x 100
Sales

2006 2007 2008 2009

(550123) 4832089 4845626 (4282550)
22375508 36888310 33581356 37157872
(2.46)% 13.1% 14.43% (11.53)%

Comments:
The net profit of the company is not good as it show the loss in 2006
and 2009. This is because of the higher operating and cost of goods. In 2007
and 2008 this ratio show profit, but this is low as compared to operating profits
of the year. The net profit is due to the other income.

60
Earning Per Share (EPS)
EPS represent the number of rupees earned during the period on behalf of each
outstanding share of common share. It is generally of interest of present and proposed
share holders. It is calculated as follows:
Net Profit after Tax
(Available to Common Stock holders)
= ------------------------------------------------------
No. of outstanding common stock holders

2006 2007 2008 2009

(550123) 4832089 4845626 (4282550)
100000 100000 100000 100000
(5.50) 48.32 48.46 42.83

Comments:
The above graph and table shows that EPS in 2006 is negative which means
that it shareholders are at loss. But after that the EPS becomes positive and
above 40% which means that shareholders earnings are increasing.

61
Return on Total Assets (ROA)
ROA measures the overall efficiency of the management in generating profit with its
available assets. It is also called return on investment. Higher ROA is better for the
organization. It is calculated as follows:
Net Profit after Tax
= ---------------------------x 100
Total Assets

2006 2007 2008 2009

(550123) 4832089 4845626 (4282550)
116129655 131222999 127409292 11982010
0.47% 3.68% 3.8% 3.31%

Comments:
Return on total assets is not very good. It is below 4% which means that the
company is generating profit only 4% relative to the assets employed. The
management should take active steps to increase this percentage. This also
shows that management is not effectively using the assets.

62
Return on Equity (ROE)
ROE measures the return on common share holder investment in the firm. Generally
the higher the return, the better off is the shareholders. It is calculated as follows:

Net Profit after Tax

= ------------------------------ x 100
Stock holders Equity

2006 2007 2008 2009

(550123) 4832089 4845626 (4282550)
11379713 15925059 20770676 16488126
4.83% 30.34% 23.39% (25.97)%

Comments:
ROE in the 2006 is relatively low, which is due to the net loss the company is
facing. In 2007 and 2008 the return on equity is satisfactory and above 20% of
the capital employed. But in 2009 the return become negative which means
that owners are bearing heavy losses on their investment. This percentage in
above 25%.

63
Book Value per Share
Book value per share measures the value of the share of the share holder in the
company. It includes both the current profit and the retained earning as well. It is
calculated as follows:

Common Stock holder's equity

= ---------------------------------------
No. of outstanding shares

2006 2007 2008 2009

11379713 15925059 20770676 16488126
100000 100000 100000 100000
113.79 159.25 207.71 164.88

Comments:
This ratio shows that the book value per share is constantly increasing and
the owner investment in constantly increasing and they are at profit for their
investment.

64
 Snapshot of Ratios
SR.NO RATIO 2006 2007 2008 2009
LIQUIDITY RATIOS
1. CURRENT RATIO 4.91 14.66 10.06 4.5

2. QUICK ACID TEST 4.61 14.02 8.93 3.73

RATIO
ACTIVITY RATIOS
3. C.G.S TO SALES 59.94 58.83% 63.33% 87.46%

4. ADMISISTRATION 43.25% 28.14% 27.34% 24.6%

EXPENSES TO SALES
5. INVENTORY 5.38 8.46 3.72 3.48
TURNOVER
6. AVERAGE AGE OF 68 43 98 105
INVENTORY DAYS DAYS DAYS DAYS
7. AVERAGE 75 92 303 47 DAYS
COLLECTION PERIOD DAYS DAYS DAYS
8. AVERAGE PAYMENT 192 58 33 18 DAYS
PERIOD DAYS DAYS DAYS
9. TOTAL ASSET 0.20 0.28 0.27 0.29
TURNOVER
DEBT RATIOS
10. DEBT RATIO 6.8% 2.83% 8.4% 8.72%

11. TIME INTEREST 6.58 205.39 329.11 (423.10)

EARNED RATIO
PROFITABILITY RATIO

12. GROSS PROFIT 45.06% 46.07% 36.66% 14.54%

MARGIN
13. OPERATING PROFIT 1.54% 17.84% 9.3% (10.1)%
MARGIN
14. NET PROFIT MARGIN (2.46)% 13.1% 14.43 (11.53)%

15. EARNING PER SHARE (5.50) 48.32 48.46 42.83

16. RETURN ON TOTAL 3.68% 3.68% 3.8% 3.31%

ASSETS
17. RETURN ON EQUITY 4.83% 30.34% 23.39% (25.97)%

18. BOOK VALUE PER 113.79 159.25 207.71 164.88

SHARE

65
 References

• www.mzj.com.pk

• http://www.icaew.com/index.cfm/route/156349/icaew_ga/en/Library/Guides_
and_publications/Knowledge_guides/Knowledge_Guide_to_International_Sta
ndards_on_Auditing_ISA#history

• Official document of mzj.

• Company profile of mzj.

• http://www.businessdictionary.com/definition/audit.html#ixzz0yTa

EgqbQ

• http://en.wikipedia.org/wiki/Audit

• http://www.cof.org/files/Documents/Education_Collaborations/Audit

%20Conference%20Call

%20Handouts/3_Levels_of_Attestation_Services_Defined-

HANDOUT_3.pdf

• Auditing by Khawaja Amjad Saeed.

• Managerial Finance by G.E. Shim

The following documents are annexed:

• Balance sheet of 4 years.

• Income statement of 4 years.

• Internship completion certificate.

• Letter of authorization.

66
• Variance analysis of 2007-2008

67