Audit planning and Procedures of MI Cement Factory Ltd.

Welcome to our Presentation

NAME ID NO

ZARIN TASNIM 17-009

TAMANNA NIGAR 17-031

FATEMA-TUJ-JOHORA SHORNA 17-119

NABILA MAHABUB 17-189

SAMANTA HAQUE 17-191

SUBMITTED BY:

SUBMITTED TOMohammad Salahuddin Chowdhury

Lecturer DEPARTMENT OF FINANCE

UNIVERSITY OF DHAKA

Company Overview

M.I. Cement Factory’s brand "Crown Cement" is renowned both at home and abroad. It is one of the leading manufacturers of cement in Bangladesh.On December 31, 1994 it started its journey with the commitment for providing high quality cement to the countryCrown Cement is the largest cement exporter in Bangladesh. The major export market of Crown cement is the northeastern states of India including Tripura, Meghalaya, eastern and western region of Assam. Corporate Social Responsibility (CSR) has become a fundamental business practice and has gained much attention from board of directors and executive management team of M.I. Cement Factory Ltd.

Process of assurance

Audit strateg

y

•involves the formulation of the general strategy for the audit, which sets the scope, timing and direction of the audit and guides the development of the audit planAudit

plan

•More detailed than audit strategy

•sets out the nature, timing and extent of audit procedures to be performed by the engagement team in order to obtain sufficient appropriate audit evidence

Planning the assignment

Approaches of audit planning

Approaches

1.Ensuring that all the ethical requirements are met

2.Ensuring that the terms of the engagement are understood by both auditor and MI Cement Management

3.Establishing the overall audit strategy for MI Cement

4.Developing an audit plan for MI Cement

Developing Audit Strategy: key contents

• General economic factors of Bangladesh and cement industry

conditions• Important characteristics of M.I Cement, such as-business,

principal business strategies, financial performance, Reporting requirements, including changes since the previous audit

The setting of materiality for audit planning purposes.The possibility of material misstatements, including the experience of past periods or frauds.The identification of complex accounting areas including those involving estimates.The expected assessment of risks of fraud or error and identification of significant audit areas

The effect of information technology on the auditPossible change of emphasis on specific audit areas

Understanding M.I cement’s environment

Risk & materiality

Consequent nature, timing and extent of procedures

The number of locations. Basically we have four production locations.Staffing requirements – the contribution and benefit plans for employeesNeed to attend client premises for inventory count or other year-end procedures.

The possibility that the going concern basis may be subject to questionConditions requiring special attentionThe nature and timing of reports or other communication with the M. I Cement that are expected under the engagement

Co-ordination, direction, supervision and review

Other matters

Steps to create strategy

The terms of engagement

• write up the nominal ledger and draft statutory accounts from the M.I Cement’s records.

Understanding the Company and its business

• Assess risks and identify procedure• Plan and perform the audit effectively and efficiently• Evaluate the audit evidence

Special audit problems

•We looked at the factors that the company organized a contributory provision fund and its recognition from the National Board of revenue.•We ensured both of them were consistent with the company’s earnings and expenses

Results of Analytical Procedures

• We will show the analytical performance and the evaluation basis

Materiality

• We are not claiming to have found every error, but we figured out the relevant materiality

Risk Evaluation and audit approach

Other matters

Budget and fee

•We placed no reliance on internal controls or analytical procedures .A substantive approach was adopted. There was risk of understatement of sales, So we checked till rolls to cash book, estimated the sales mix and purchase mix

• We are going to count here the important inventory and other year-end purchases of MI cement

•We have prepared detailed time budget

Audit risk

Audit risk

Inherent risk Control risk Detection

riskSignificant

risk

MI Cement’s Inherent risk is

low

MI Cement’s control risk is

moderate

MI Cement’s control risk is moderate to

high

Internal control

Actions MI cement takes to minimize internal control breakdowns

might include:

Management displaying a culture of responsiveness to

identified control weaknesses and encouraging reporting of internal control weaknesses

Training in internal control processes as part

of staff induction, with regular follow up training

Easy access to user-friendly documented internal procedures

Having a financial management practice manual that reflects

current practice of the agency

Regular review of potential risks that may

significantly impact agency operations

Regular review and update of internal operational,

financial and other processes Performance

audit reports

Test of Controls in Purchasing and Revenue system of M.I.Cement Factories Ltd

Check that references are being obtained for all new customers

Check that all new accounts on the receivable ledger have been authorized by senior staff

Check that orders are only accepted from customers who have within the credit terms and limits

Check that customer’s orders are being matched with production order and dispatch notes

Tests of control : Purchasing

Verify details of trade sales or goods dispatch notes with sales invoices

Verify details of trade sales with entries in inventory records

Verify non routine sales (scrap, noncurrent assets etc)

Verify credit notes

Test numerical sequence of dispatch notes and enquire into missing numbers

Tests of control : (dispatch and Invoicing)

Review list of suppliers and check a sample to orders made

Check sequence of pre numbered order forms

Check orders are supported by a particular purchase requisition

Review security arrangements over blank orders

Tests of control : Ordering

Check invoices for goods are supported by goods received notes

Check calculation and additions

Check for returns that credit notes are duly received from suppliers

Test numerical sequence and enquire into missing numbers

Tests of control : (Goods inward s and recording of invoices)

Evaluation Systems (Existence, valuation)

• Tangible assets are (property, plant, equipment) BAS 16 are calculated at historical cost less cumulative depreciation and cumulative impairment.

Trade and other Receivable (Valuation assertion)

• Trade receivables are carried at original invoice price. All receivables are considered as good and realizable.

Inventory (Valuation assertion)

Inventories are valued in accordance with BAS 2 in lower cost and at Net realizable value. NPV is based on estimated selling price in the ordinary course

of business less any expected cost to be occurred in the future.

Evidence & sampling CAAT

Audit softwareTest data

Audit software makes use of the assurance providers’ own specialised software. There are a number of off the shelf packages available, or the assurance provider could have a tailor made system. Audit software works on the basis of interrogating the client’s system and extracting and analysing information.

Under this test of control, the assurance provider supervises the process of running data through the client’s system

Audit Sampling

Random selection

Systematic selection

Haphazard selection

Sequence selection

Monetary unit sampling

Among all the five sample methods, we will use MUS .It is more convenient to use in today’s digital world. As M I Cement keeps its records in electronic mode, we can surely conduct our analysis at ease and perfection. We will use computers and statistical tools to choose the samples. So every sample has an equal chance of being chosen.

Audit ReportOpinion

Qualified

Unqualified

Recommendation

•For conducting more feasible statistical analysis we would need more professional expertise opinions .therefore, it is important for us to build a strong network with the professional auditors

•Developing more technological expertise for using research and statistical tools in audit analysis

•Developing more appropriate intuition for assessment of managerial assumption and estimates

•Getting well acquainted with the assigned company managerial and auditing committee