Executive summary

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Table of contents
Step 1 Ensuring that ethical requirements continue to be met for Renata Limited _______ 3 Step 2 Ensuring the terms of the engagement are understood for Renata Limited ______ 4 Step 3 establishing the overall audit strategy for Renata Limited ______________________ 4 Understanding Renata Limited____________________________________________________ 4 Understanding Renatas accounting system and internal control ____________________ 5 Risk assessment ________________________________________________________________ 6 Specific audit risk _______________________________________________________________ 6 Materiality _______________________________________________________________________ 7 Analytical procedure _____________________________________________________________ 7 Budget __________________________________________________________________________ 8 Timetable _______________________________________________________________________ 8 Staffing _________________________________________________________________________ 8 Step 4 developing an audit plan_____________________________________________________ 9 Tolerable error __________________________________________________________________ 9 Expected error _________________________________________________________________ 10 Audit risk ______________________________________________________________________ 10 Sampling method _______________________________________________________________ 10 Test of control questionnaire ____________________________________________________ 11 Test of Detail ___________________________________________________________________ 14 Accounting estimates ___________________________________________________________ 14 Appendix ________________________________________________________________________ 15

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Audit strategy The formulation of the general strategy for the audit which sets out the scope, 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 client 4. The audit firm has no previous Litigation with the client. 5. The General Manager sales of Renata Limited-Mr. X hasfamily relationshipswith 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 interest 8. Our partners or staffs does not have any beneficial interest and trusteeships 9. Renata Limited has no business relationship with any of our associated firms 10. Provisions of other services, specialist valuations and advocacy 11. The auditors have not been act as anof 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 Limited

Having obtained all the information and taking appropriate steps to minimize it, it can reasonably said that ethical requirements are met to perform the audit properly by maintaining independence and ensuring the availability of resources.

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Step 2 Ensuring the terms of the engagement are understood for Renata Limited For RenataLimited, the terms of the engagements are1. 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.

Step 3 establishing the overall audit strategy for Renata Limited Understanding Renata Limited The audit firm should fill Know your client checklist to obtain an understanding of Renata Limited. The following information has been foundReneta Limited (previously known as Pfizer Laboratories Bangladesh) is a public limited company incorporated in Bangladesh in 1972. Shareholders Directors Operations : General public : Mr. Kaiser Kabir, Mr. Md. ShafiulAlam, Mr. ManzoorHasan : Manufacture, marketing and distribution of Pharmaceuticals and

animal health products.

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Subsidiary companies: Renata Agro Industries Ltd, Purnava Ltd Customers Suppliers IT : General public, UNICEF : local suppliers and different exporters from abroad : the accounting system is fully computerized

Financial performance: The Companys financial trend is positive for the last 5 years. Future plan : Reneta Oncology Limited, herbal division

Understanding 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 standards The 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 controlsystem. 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 questions1. Review accounting policies to determine whetherComply with applicable accounting standards.

2. Review accounting policies to determine whether accounting policiesconsistently applied to all like transactions. 3. Review accounting policies Are appropriate to the nature of the clients business 4. Are properly disclosed in accordance with the requirements of BAS

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Risk assessment A detailed risk assessment have to done because 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 risks1. 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 risk The 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. Specialattention must be given to ensure that cut-off period is applied and physical count matches book value. The company can use the following tableSpecific risk affecting Management client response Financial areas and reporting Audit assertions approach

affected

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Materiality Materiality 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 turnover Or gross assets Tk. 0-Tk.5 Crores Tk.5 Crores-Tk.10 Crores Tk.10 Crores- Tk.20 Crores Tk.20 Crores- Tk.56 Crores Over Tk.56 Crores 3.00% 2.50% 2.00% 1.50% 1.00% 10% 10% 10% 10% 10% Tk.1-Tk.15 Lacs Tk.15 Lacs-Tk.25Lacs Tk.25 Lacs-Tk.40Lacs Tk.40 Lacs-Tk.84Lacs Over Tk.56 Lacs % of Gross Profit Materiality ranges

Analytical procedure Here are some extracts from the book of accounts of Renata Limited-

Particulars

2012

2011 Comments

Revenue 7671572303 6519639234 Revenue growth is logical Cost of sales 3619613644 3099355955 Expense is logical Gross profit 4051958659 3420283279 Gross profit increased logical Financing cost 370881897 215315416 Financing cost increased due to new debt Operating 2161099398 1708135175 operating expenses increased due to political expenses reason

Profit before 1712375851 1438836938 profit after tax has decreased tax

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Net profit after 1237926366 1087719131 NPAT has decreased substantially tax

Key analytical ratios are given belowParticulars Gross profit ratio Net profit ratio Cost of sales percentage Operating cost percentage Inventory turnover Trade receivable collection Net asset turnover 2012 0.53 0.16 0.47 0.28 1.82 40.12 1.51 2011 0.52 0.17 0.48 0.26 1.96 35.84 1.65

Budget Fee BDT 500000/= Timetable Account to be ready for discussion with the client by 30 September 2014. Particulars Availability of accounting record Information requests to creditors Plausible date

Staffing Senior 2 weeks Junior 4 weeks There will be 2 audit visit. 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 days
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Partner review 3 days

Step 4 developing an audit plan To 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 checked1. 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 error Tolerable 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-

Particulars Profit before tax Gross profit Revenue Total assets Net assets Net profit after tax

Amount

Total
85618792.55 40519586.59 76715723.03 195061559.4 253523987.4 123792636.6 775232285.6

1712375851 5.00% 4051958659 1.00% 7671572303 1.00% 9753077971 2.00% 5070479748 5.00% 1237926366 10.00% Total

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Expected error 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 Following table can be used to adjust any errorParticulars Potential errors Actual errors Adjustment needed

Audit risk To minimize audit risk of Renata Limited, the auditor should ensure that1. 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 method Sampling method that can be used for RenataLimited are1. Monetary unit sampling This 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 sampling All items have an equal chance of selection. For example- Sales items should be selected on this basis. 3. Sequence sampling

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Sequence 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 questionnaire For performing test of control the company can use questionnaireRevenue 1. Is revenue balances are recorded properly 2. Does the receivable ledger match with receivable ledger control account 3. Consider whether cut-off period is applied properly 4. Consider whether revenue balances matches with revenue balance 5. Is the revenue balance in agreement with dispatch notes 6. Is appropriate measure to safeguard trade receivable statements 7. Is invalid invoices are rejected by the accounting system? Purchase 1. 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 cost 1. Is the payroll independently approved for accuracy?
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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 assets 1. 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? Bank
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1. 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 person 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?

Inventory 1. 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 documentation 5. 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 andinventory? 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 those risk to an acceptable level.
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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 correct1. Is there any pattern whereby accounting judgments and estimates made? 2. Is the estimate conform to previous year calculation, industry information and non-financial information? 3. Consider adjustment in estimates are required.

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Appendix I. Date To The Managing Director Reneta Limited Plot # 1, Milk Vita road, Sector-7 Mirpur, 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:
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(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; and iii) 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 Title Date:

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II. Date: To The Auditor Hassan & Co. Chartered Accountants Sub: Management Representation Letter Dear 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.
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 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 Noteno. 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 Title Date:

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