Template of Auditor’s Report of NBFI in Bangladesh

Independent Auditor’s Report

To the Shareholders of ABC Company Limited

Report on the Audit of the Consolidated and Separate Financial Statements

Opinion
We have audited the consolidated financial statements of ABC Company Limited and its
subsidiaries (the “Group”) as well as the separate financial statements of ABC Company
Limited (the “Company”), which comprise the consolidated and separate balance sheets as at 31
December 2018 and the consolidated and separate profit and loss accounts, consolidated and
separate statements of changes in equity and consolidated and separate cash flow statements for
the year then ended, and notes to the consolidated and separate financial statements, including a
summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements of the Group and separate
financial statements of the Company give a true and fair view of the consolidated financial
position of the Group and the separate financial position of the Company as at 31 December
2018, and of its consolidated and separate financial performance and its consolidated and
separate cash flows for the year then ended in accordance with International Financial Reporting
Standards (IFRSs) as explained in note XX.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditors’ Responsibilities for
the Audit of the Consolidated and Separate Financial Statements section of our report. We are
independent of the Group and the Company in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code),
Bangladesh Securities and Exchange Commission (BSEC) and Bangladesh Bank, and we have
fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Institute
of Chartered Accountants of Bangladesh (ICAB) Bye Laws. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated and separate financial statements of the current
period. These matters were addressed in the context of our audit of the consolidated and separate
financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.

Please refer to Annexure 1 for some examples of Key Audit Matters (KAM) for illustrative
purposes.
Template of Auditor’s Report of NBFI in Bangladesh

Other Information
Management is responsible for the other information. The other information comprises all of the
information in the Annual Report other than the consolidated and separate financial statements
and our auditors’ report thereon. The Annual Report is expected to be made available to us after
the date of this auditor’s report.

Our opinion on the consolidated and separate financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other
information identified above when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated.

Depending on situation as illustrated in ISA 720 any one of the following paragraphs shall
be considered for reporting.

If, based on the work we have performed on the other information that we obtained prior to the
date of this auditor’s report, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.

Or

When we read the annual report, if we conclude that there is a material misstatement therein, we
are required to communicate the matter to the board of directors of the Company.

Responsibilities of Management and Those Charged with Governance for the

Consolidated and Separate Financial Statements and Internal Controls

Management is responsible for the preparation and fair presentation of the consolidated financial
statements of the Group and also separate financial statements of the Company in accordance
with IFRSs as explained in note XX, and for such internal control as management determines
is necessary to enable the preparation of consolidated and separate financial statements that
are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, management is responsible for
assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Group and the Company or to cease
operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s and the Company’s
financial reporting process.
Template of Auditor’s Report of NBFI in Bangladesh

Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial
Statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate
financial statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated
and separate financial statements

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain
professional skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the consolidated and separate
financial statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.

 Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances.

 Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

 Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s and
the Company’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated and separate financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group and the Company to cease to continue as a going
concern.

 Evaluate the overall presentation, structure and content of the consolidated and separate
financial statements, including the disclosures, and whether the consolidated and
separate financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.

 Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
Template of Auditor’s Report of NBFI in Bangladesh

We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those
matters that were of most significance in the audit of the consolidated and separate financial
statements of the current period and are therefore the key audit matters. We describe these
matters in our auditors’ report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.

Report on other Legal and Regulatory Requirements

In accordance with the Companies Act, 1994, the Securities and Exchange Rules 1987, the
Financial Institutions Act, 1993 and the rules and regulations issued by Bangladesh Bank, we
also report that:

(i) we have obtained all the information and explanations which to the best of our
knowledge and belief were necessary for the purpose of our audit and made due
verification thereof;

(ii) in our opinion, proper books of accounts as required by law have been kept by the
Company so far as it appeared from our examination of those books;

(iii) the consolidated balance sheet and consolidated profit and loss account together with the
annexed notes dealt with by the report are in agreement with the books of account and
returns;

(iv) the expenditures incurred were for the purpose of the Company’s business for the year;

(v) the financial statements of the Company have been drawn up in conformity with the
Financial Institutions Act, 1993 and in accordance with the accounting rules and
regulations which were issued by Bangladesh Bank to the extent applicable to the
Company;

(vi) adequate provisions have been made for loans, advances, leases, investment and other
assets which are, in our opinion, doubtful of recovery and Bangladesh Bank’s
instructions in this regard have been followed properly;

(vii) the financial statements of the Company conform to the prescribed standards set in the
accounting regulations which were issued by Bangladesh Bank after consultation with
the professional accounting bodies of Bangladesh;

(viii) the records and statements which were submitted by the branches have been properly
maintained and recorded in the financial statements;
Template of Auditor’s Report of NBFI in Bangladesh

(ix) statements sent to Bangladesh Bank have been checked on sample basis and no
inaccuracy has come to our attention;

(x) taxes and other duties were collected and deposited in the Government treasury by the
Company as per Government instructions found satisfactory based on test checking;

(xi) nothing has come to our attention that the Company has adopted any unethical means i.e.
‘window dressing’ to inflate the profit and mismatch between the maturity of assets and
liabilities;

(xii) proper measures have been taken to eliminate the irregularities mentioned in the
inspection report of Bangladesh Bank and the instructions which were issued by
Bangladesh Bank and other regulatory authorities have been complied properly as
disclosed to us by management;

(xiii) based on our work as mentioned above under the auditor’s responsibility section, the
internal control and the compliance of the Company is satisfactory, and effective
measures have been taken to prevent possible material fraud, forgery and internal
policies are being followed appropriately;

(xiv) the Company has complied with relevant laws pertaining to capital, reserve and net
worth, cash and liquid assets and procedure for sanctioning and disbursing loans/leases
found satisfactory;

(xv) we have reviewed over 80% of the risk weighted assets of the Company and we have
spent around xxx person hours for the audit of the books and accounts of the Company;

(xvi) the Company has complied with relevant instructions which were issued by Bangladesh
Bank relevant to classification, provisioning and calculation of interest suspense;

(xvii) the Company has complied with the 'First Schedule' of Bank Companies Act, 1991 in
preparing these financial statements; and

(xviii) all other issues which in our opinion are important for the stakeholders of the Company
have been adequately disclosed in the audit report.

Dhaka, ------ February 2019 Engagement Partner name*

Signature

* ISA 700 (Revised) requires that the name of the engagement partner shall be included in the
auditor’s report on financial statements of listed entities unless, in rare circumstances, such
disclosure is reasonably expected to lead to a significant personal security threat.
Template of Auditor’s Report of NBFI in Bangladesh

Annexure 1

Examples of some possible Key Audit Matters (KAM) of a Financial Institutions only for
illustrative purposes. The following lists are not exhaustive and hence respective Audit
teams shall independently evaluate KAM applicable for the audit and also tailor wordings.

Risk Our response to the risk

Measurement of provision for loans and advances
The process for estimating the provision We tested the design and operating
for loans and advances portfolio associated effectiveness of key controls focusing on
with credit risk is significant and complex. the following:
 Tested the credit appraisal, loan
For the individual analysis, these disbursement procedures,
provisions consider the estimates of future monitoring and provisioning
business performance and the market value process;
of collateral provided for credit  Identification of loss events,
transactions. including early warning and default
warning indicators;
For the collective analysis, these provisions  Reviewed quarterly Classification
are manually processed that deals with of Loans (CL);
voluminous databases, assumptions and Our substantive procedures in relation to
calculations for the provision estimates of the provision for loans and advances
complex design and implementation. portfolio comprised the following:
 Reviewed the adequacy of the
At year end the Company reported total companies general and specific
gross loans and advances of BDT XXX provisions;
billion (2018: BDT XXX billion) and  Assessed the methodologies on
provision for loans and advances of BDT which the provision amounts based,
XXX billion (2018: BDT XXX billion). recalculated the provisions and
tested the completeness and
We have focused on the following accuracy of the underlying
significant judgements and estimates which information;
could give rise to material misstatement or  Finally assessed the
management bias: appropriateness and presentation of
disclosures against relevant
 Completeness and timing of accounting standards and
recognition of loss events in Bangladesh Bank guidelines.
accordance with criteria set out in
Bangladesh Bank FID circular
no………;
 For individually assessed provisions,
the measurement of the provision
may be dependent on the valuation of
collateral, estimates of exit values and
the timing of cash flows;
 Provision measurement is primarily
dependent upon key assumptions
relating to probability of default,
ability to repossess collateral and
recovery rates;
See note no…..to the financial statements
Template of Auditor’s Report of NBFI in Bangladesh

Risk Our response to the risk

Valuation of treasury bill and treasury bond
The classification and measurement of T- We assessed the processes and controls put
Bill and T-Bond require judgment and in place by the Group to identify and
complex estimates. confirm the existence of financial
instruments.
In the absence of a quoted price in an
active market, the fair value of T-Bills and We obtained an understanding, evaluated
T-Bonds is determined using complex the design and tested the operating
valuation techniques which may take into effectiveness of the key controls over the
consideration direct or indirect financial instrument valuation processes,
unobservable market data and complex including controls over market data inputs
pricing models which require an elevated into valuation models, model governance,
level of judgment. and valuation adjustments.

We tested a sample of the valuation

models and the inputs used in those
models, using a variety of techniques,
including comparing inputs to available
market data.

Finally assessed the appropriateness and

presentation of disclosures against relevant
accounting standards and Bangladesh
Bank guidelines.
See note no…..to the financial statements
Measurement of deferred tax assets
The Company reports net deferred tax We obtained an understanding, evaluated
assets to totaling BDT XXX million as at the design and tested the operational
31 December 2018. effectiveness of the Company’s key
controls over the recognition and
Significant judgment is required in relation measurement of DTAs and the
to deferred tax assets as their recoverability assumptions used in estimating the
is dependent on forecasts of future Company’s future taxable income.
profitability over a number of years.
We also assessed the completeness and
accuracy of the data used for the
estimations of future taxable income.

We involved tax specialists to assess key

assumptions, controls, recognition and
measurement of DTA’s.

Finally assessed the appropriateness and

presentation of disclosures against IAS 12
Income Tax.
See note no…..to the financial statements
Template of Auditor’s Report of NBFI in Bangladesh

Risk Our response to the risk

Valuation of defined benefits and pension obligation
The Company operates a number of We tested the design and operating
defined benefit schemes which in total are effectiveness of key controls over the
significant in the context of the overall completeness and accuracy of data
balance sheet. At year end the Company extracted and supplied to the Group’s
reported a net gratuity liability of BDT actuaries, which is used to calculate the
XXX million (2018: BDT XXX million). pension assets and pension schemes’
surplus or deficit.
The valuations of the retirement benefit
liabilities are calculated with reference to a We also tested the controls associated with
number of actuarial assumptions and inputs the actuarial assumptions setting process
including discount rate, rate of inflation and the measurement of the fair value of
and mortality rates. The net pension the schemes’ assets. We concluded that the
liability is sensitive to changes in the key controls were designed, implemented
assumptions. and operated efficiently.

We tested the employee data used in

calculating obligation.

We assessed the appropriateness and

presentation of disclosures against IAS 19
Employee Benefits.
See note no…..to the financial statements
Legal and regulatory matters
We focused on this area because the We obtained an understanding, evaluated
Company and its subsidiaries (the the design and tested the operational
“Group”) operates in a legal and regulatory effectiveness of the Group’s key controls
environment that is exposed to significant over the legal provision and contingencies
litigation and similar risks arising from process.
disputes and regulatory proceedings. Such
matters are subject to many uncertainties We enquired to those charged with
and the outcome may be difficult to governance to obtain their view on the
predict. status of all significant litigation and
regulatory matters.
These uncertainties inherently affect the We enquired of the Group’s internal legal
amount and timing of potential outflows counsel for all significant litigation and
with respect to the provisions which have regulatory matters and inspected internal
been established and other contingent notes and reports. We also received formal
liabilities. confirmations from external counsel.

Overall, the legal provision represents the We assessed the methodologies on which
Group’s best estimate for existing legal the provision amounts are based,
matters that have a probable and estimable recalculated the provisions, and tested the
impact on the Group’s financial position. completeness and accuracy of the
underlying information.

We also assessed the Group’s provisions

and contingent liabilities disclosure.
See note no…..to the financial statements
Template of Auditor’s Report of NBFI in Bangladesh

Risk Our response to the risk

IT systems and controls
Our audit procedures have a focus on IT We tested the design and operating
systems and controls due to the pervasive effectiveness of the Group’s IT access
nature and complexity of the IT controls over the information systems that
environment, the large volume of are critical to financial reporting. We
transactions processed in numerous tested IT general controls (logical access,
locations daily and the reliance on changes management and aspects of IT
automated and IT dependent manual operational controls). This included testing
controls. that requests for access to systems were
appropriately reviewed and authorized. We
Our areas of audit focus included user tested the Group’s periodic review of
access management, developer access to access rights. We inspected requests of
the production environment and changes to changes to systems for appropriate
the IT environment. These are key to approval and authorization. We considered
ensuring IT dependent and application the control environment relating to various
based controls are operating effectively. interfaces, configuration and other
application layer controls identified as key
to our audit.
Where deficiencies were identified, we
tested compensating controls or performed
alternate procedures. In addition, we
understood where relevant, changes were
made to the IT landscape during the audit
period and tested those changes that had a
significant impact on financial reporting.
See note no…..to the financial statements
Carrying value of investments in subsidiary(s) by the Company
The Company has invested in equity shares We have reviewed Management’s analysis
of its subsidiary XYZ Limited and the of impairment assessment and recoverable
carrying value of this investments at 31 value calculation of subsidiaries in
December 2018 is BDT million. accordance with IAS 36.

In particular, our discussions with the

At the time of conducting our audit of the
separate financial statements of the Management were focused on the
Company we have considered the continued appropriateness of the value in
recoverable value of the Company’s use model, the key assumptions used in the
model, the reasonably possible alternative
investments in XYZ Limited stated at cost.
assumptions, particularly where they had
Management has conducted impairment the most impact on the value in use
assessment and calculated recoverable calculation.
value of its subsidiary XYZ Limited in We also checked mathematical accuracy of
accordance with IAS 36. the model, recalculated discount rate used
within the model, inputs used in the
determination of assumptions within the
model were challenged and corroborating
information was obtained with reference to
external market information, third-party
sources.
See note no…..to the financial statements
Template of Auditor’s Report of NBFI in Bangladesh

Disclaimer: This template Auditor’s Report for Non-Banking Financial Institution (NBFI) in Bangladesh
has been developed under the requirement of ISA 700 (revised) and examples of some Key Audit
Matters (KAM) with a view to share the idea in this regard. The sample KAM is not exhaustive and
auditors need to apply their judgement in order to identify if there are other items which may fall under
KAM. ICAB assumes no responsibility or liability whatsoever for accuracy and completeness of this
template. So, intended users may follow this template subject to required modification at their own risk.