Audit

of
Provident Funds

Last Session: The Final Touch

Presenter:
Altaf Noor Ali
Chartered Accountant
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 Final Session: 4 - 5.30 pm = 90 min
1. Audit documentation: What’s on working paper file?
2. Final audit review and discussion with client
3. Resolving matters arising out of audit
4. Audit Report Format
5. Financial statements / disclosures [accounting policies]
6. End Process: Closing Accounts, Post-closing trial
balance, Initialling accounts, approval by trustees,
signing of audit report, disclosure in employer account
7. Management letter and discussion
8. Updating Working Paper File [index, timesheets, revised
schedules, etc]. Memo note on matters for next year
9. Billing for audit fee and re-appointment
10. Final Word 2
Audit Documentation

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 Provident Fund Audit:
Audit Working Paper File Documentation
1. It is the most problematic area for auditors. Think of
it like writing a book
2. Curb the tendency of having a photocopy of each
document
3. Once audit is finalised, prepare an index.
4. Assign a section to each of the following:
[A=Accounts Final B=Audit Programs, Management Letter,
Trustee Resolutions, C=Trial Balance, D=Investments &
Return, E=Salary Reconciliation, F=Current Account,
G=Bank, H=Profit Allocation, I= Expenses, J= Outdated
5. Referencing is the weakest part.
6. Time Sheets & Diary should be meticulously kept.
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 Audit Review
Problem Areas:
1. Documents missing e.g nobody followed up for
bank confirmation, cdc balance statement of
holdings at reporting date is not attached.
2. Client document not signed such as trustee
resolutions, representation letter, etc
3. Document not referenced and cross referenced
properly with the trial balance.
4. Something discussed and not documented or
followed-up.
5. When an employee who’s left files a case.
6. Disclosure in financial statements. 5
 Provident Fund Audit:
Review
1. Audit is a tough job, and review is perhaps
the most vigorous if done properly. Review is
the best way of improving quality of audit,
but it is almost never performed.
2. Think of it as a double check, as important as
checking back that everything is lock and safe
before leaving home or parking your car.
3. Start the review from Bank A/c, move to
Current Account, then to Investments [and
returns] and Member Transactions.
4. Perform analytical review. Try to understand
the reasons behind the change in figures.
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Resolving Matters arising
out of Audit

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 Provident Fund Audit:
Matters arising out of audit
1. Analytical review may require probing
some areas in further details.
2. A member may have been permitted to
permanently withdraw more than his
contribution.
3. Lax policy on permanent withdrawals.
Loose supporting evidence.

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Format of Audit Report

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 Audit Report>>
Auditor’s Report to the Trustees
We have audited the attached financial statements of ABC (Private)
Limited Employees Provident Fund [the ‘Fund’ ] comprising
Statement of Financial Position as at 30 June 2006, Statement of
Financial Performance for the year then ended, and the explanatory
notes, which are an integral part of these statements.
The preparation and presentation of financial statements, based on
underlying records, is the responsibility of the Trustees of the Fund.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We have conducted our audit in accordance with established auditing
practices. These practices require that we plan and perform audit to
obtain reasonable assurance that the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the Trustees of the Fund, as
well as evaluating the overall presentation of financial statements. We
believe that our audit provides a reasonable basis for our opinion. 10
 >>Audit Report
In our opinion, the identified and attached financial statements provide
a true and fair view of the financial position of Fund at 30 June 2006
and of the results of its activities for the year then ended.
We note that at 30 June 2006, investment in shares of listed companies
of Rs. 12.60 m was in excess of prescribed limit of Rs. 6.34 m.
According to the Employees’ Provident Fund [Investment in Listed
Securities] Rules, 1996 total investment in shares of listed companies
shall not exceed thirty percent of the net asset value of Rs. 21.13 m.
Also, that investments in two companies, viz, NBJ Ltd. (Rs. 252,500]
and WCC Ltd [Rs. 250,000] do not have consecutive three years
dividend record.
With these exceptions, in our opinion, the identified and attached
accounts provide a true and fair view of the financial position of ABC
[Private] Limited Employees Provident Fund as at 30 June 2006 and
of the results of its activities for the year then ended.
ANV Chartered Accountants.
Karachi- 15 September 2006.
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Improving Quality of
Disclosures

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 Note 2005 2004
MEMBERS' ACCOUNT & LIABILITIES
Members' Account:
Opening Balance 9,853,547 8,667,813
Contributions
- Members 2,040,944 1,839,286
- ITIM Associates (Private) Limited 2,040,944 1,839,286
4,081,888 3,678,572
Less: Outgoing Members’ Settlements (1,292,743) (2,967,625)
Permanent Withdrawal (1,567,000) (337,532)
(2,859,743) (3,305,157)
Net Income(loss) for the year allocated to Members (510,051) 812,319
Closing Balance 3 10,565,641 9,853,547
Liabilities:
Outgoing Member Dues 82,542 107,987
10,648,183 9,961,534
ASSETS
Investments
- Shares of Listed Companies 4 6,302,910 7,590,875
- Term Finance Certificates 5 0 616,521
- Pakistan Stock Market Fund 6 9,193 6,032
- Pakistan Income Fund 7 886,922 808,983
7,199,025 9,022,410
Loan to Members 1,841,260 246,079
Income Receivable 8 38,853 3,058
Receivables against sale of shares 743,408 0
Cash at bank 825,637 689,987
10,648,183 9,961,534

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 Note 2005 2004
Income/Return on Account Balances
- Dividend Income 561,625 125,000
- Term Finance Certificates, net 51,934 137,167
- Pakistan Stock Market Fund 3,162 891,742
- Pakistan Income Fund 77,939 56,375
- Loan to Members 90,760 29,665
- Bank Deposits 55,418 22,341
Profit on sale of listed shares, net 469,092 837,006
1,309,930 2,099,296
Less: Diminution in value of Investments 4 (1,814,162) (1,269,589)
Tax at source, on Bank account income (4,989) (17,088)
Bank charges (830) (300)
(1,819,981) (1,286,977)
Net income (loss) allocated to Members (510,051) 812,319

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 Notes to the Accounts
THE FUND AND ITS ACTIVITIES:
The Fund is an ‘approved provident fund’ under Part I of
the Sixth Schedule to the Income Tax Ordinance, 2001.
The employees of ABC (Private) Limited, on
confirmation of appointment with the Company, are
eligible to be Members of the Fund. The Members and
the Company as employer make matching contribution
to the Fund on monthly basis. The funds so available are
invested in securities or held in a separate bank account.
The net income for the period so generated is distributed
to the Members in proportion to their respective
balances.
The Fund is governed by the ABC (Private) Limited
Employees Provident Fund Rules and the Income Tax
Ordinance, 2001.
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 NUMBER OF SHARES Book Market Surplus /
Company
Opening Purchases Bonus Disposal Closing Value Value (Deficit)
Askari Commercial Bank Ltd. 10,000 10,000 0 0 0
Azgard Nine Ltd. 10,000 10,000 0 0 0
Bank of Punjab Ltd. 25,000 25,000 0 0 0
Dewan Farooque Motors Ltd. 10,000 500 10,000 500 9,600 9,600
Dewan Salman Fibre Ltd. 10,000 10,000 0 0 0
DG Khan Cement Co. Ltd. 10,000 10,000 0 0 0
Engro Chemicals Pakistan Ltd. 5,000 6,500 11,500 0 0 0
Fauji Fertiliser Company Ltd. 40,000 25,000 15,000 511,300 403,500 (107,800)
Faysal Bank Ltd 30,000 1,000 21,000 10,000 425,517 538,000 112,483
Fauji Fertilizer Bin Qasim Ltd. 10,000 10,000 0 0 0
Hub Power Co. Ltd. 15,000 15,000 473,297 396,000 (77,297)
Int'l Housing Finance Ltd. 20,000 20,000 195,694 180,000 (15,694)
Javed Omer Vohra & Co. Ltd. 50 25 25 50 15,638 13,355 (2,283)
Jehangir Siddiqui Investment Bank Ltd. 50,000 5,300 44,700 1,983,537 1,303,005 (680,532)
MCB Bank Ltd. 20,000 30,000 50,000 0 0 0
National Bank of Pakistan Ltd. 20,000 20,000 0 0 0
Nishat Mills Ltd. 30,000 30,000 0 0 0
Oil & Gas Dev Corp Ltd. 10,000 10,000 0 0 0
Pak Oilfileds Ltd. 20,000 15,000 35,000 0 0 0
Pak Suzuki Motor Co. Ltd. 5,000 5,000 0 0 0
Pakistan Capital Market Fund 70,000 50,500 60,000 60,500 617,100 722,975 105,875
PICIC Growth Fund 45,000 45,000 0 0 0
Pakistan Petroleum Ltd. 1,500 1,500 0 0 0
Pakistan State Oil Ltd. 17,000 17,000 0 0 0
Pakistan Telecom Ltd. 1,000 20,000 21,000 0 0 0
Sui Northern Gas Co. Ltd. 10,000 10,000 0 0 0
Sui Southern Gas Co. Ltd. 96,500 96,500 3,203,170 2,233,975 (969,195)
TRG Pakistan Ltd. 25,000 25,000 361,286 252,500 (108,786)
World Call Communication Ltd. 20,000 35,000 30,000 25,000 330,533 250,000 (80,533)
Total : 151,050 642,000 1,525 482,325 312,250 8,117,072 6,302,910 (1,814,162)
2004: 151,050 8,860,464 7,590,875 (1,269,589)

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 Opening Profit Closing
S. No. Employee Contribution Settlement Withdrawals
Balance Allocation Balance
44 Mohsin Ahmed 9,994 24,002 (1,148) 0 0 32,848
45 Mufaddal Ismail Lanewala 9,946 34,068 (1,245) 0 0 42,769
46 Muhammad Ali 0 11,356 (100) 0 0 11,256
47 Muhammad Asif Iqbal 0 40,260 (922) 0 0 39,338
48 Muhammad Fahad Iqbal 151,582 48,644 (8,810) 0 0 191,416
49 Muhammad Imran 118,334 41,806 (6,987) 0 0 153,153
50 Muhammad Nasar Sabih 312,674 81,290 (17,891) 0 0 376,073
51 Muhammad Naveed Siddiqui 0 19,354 (351) 0 0 19,003
52 Muhammad Rashid Saleem 256,777 73,546 (14,842) 0 0 315,481
53 Muhammad Usman Ghani Khan 116,852 36,522 (7,254) 0 0 146,120
54 Murtaza Moinuddin 97,478 51,878 (6,142) 0 0 143,214
55 Mushahid Sharif 179,962 48,396 (10,339) 0 0 218,019
56 Namra Tayyab 0 17,290 (275) 0 0 17,015
57 Naresh Kumar Nihalani 99,897 37,164 (6,430) 0 0 130,631
58 Nasir Raza 5,760 21,672 (761) 0 0 26,671
59 Obaid Riaz 0 11,356 (100) 0 0 11,256
60 Omar Bin Ayaz 0 15,226 (208) 0 0 15,018
61 Ovais Mehboob Ahmed Khan 1,548 7,740 0 (9,288) 0 0
62 Qaiser Islam 109,262 39,876 (6,481) 0 0 142,657
63 Rahil JM. Manasia 0 11,356 (100) 0 0 11,256
64 Rahim Hasnani 1,160,992 360,000 (52,239) 0 (450,000) 1,018,753
65 Rashid Sarwar 0 19,354 (351) 0 0 19,003
66 Rehan Younus 0 19,740 (328) 0 0 19,412
67 Rizwan Sharif 24,519 36,780 (2,211) 0 0 59,088
68 Saqib Shahzad Farooqi 0 5,038 (46) 0 0 4,992
69 Sarfaraz Ahmed 147,676 16,520 0 (164,196) 0 0
70 Shahjahan Durrani 270,304 37,164 0 (307,468) 0 0
71 Shahzad Ahmed 0 13,162 (208) 0 0 12,954
72 Shahzad Momin 1,548 6,192 0 (7,740) 0 0
73 Shakeeb Ahmed 24,119 34,836 (2,157) 0 0 56,798
74 Sheikh Rizwan Ahmed 22,537 33,288 (1,863) 0 0 53,962
75 Sheikh Waqar-ul-Hassan 181,805 108,000 (11,819) 0 0 277,986
76 Sophia Saleem Virani 0 20,124 (331) 0 0 19,793
77 Syed Abbass Hussain 214,701 34,068 0 (248,769) 0 0
Syed Asif Iqbal 219,128 65,040 (12,722) 0 0 271,446
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79 Syed Mansoor Ali 10,992 18,970 0 (29,962) 0 0
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80 Syed Muhammad Azfar Jafri 1,656,237 436,368 (83,670) 0 (900,000) 1,108,935
81 Syed Tariq Ahmed 146,180 56,518 (8,749) 0 0 193,949
 End Process
Closing Accounts,
Post-closing trial balance,
Initialling accounts,
Approval by trustees,
Signing of audit report,
Disclosure in employer account
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 Management Letter &
Discussion

Critical for improving the

quality of accounting
Should be ideally done within
a month of signing of report
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 Updating Working Paper File
index,
timesheets,
revised schedules, etc
memo note on matters for next year

Whatever you do, there is unlikely to

be a perfect working paper file, but
it is possible to have one near it!
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Billing for audit fee and appointment
for next year
Problem Area:
Why auditors are paid last?
Enhancement
Out of Pocket
Don’t expect any favours.

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 Before I finish….
Thank U
to the Institute,
specially
Mr. Moiz Ahmad Executive Director
Mr. Asif, Director, Comp & Evaluation, for
coordination
Messrs. Kashif & Umer Hayat, for making
arrangements here
and all of you, for coming over.
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 Final Word….

This may be
the end of Presentation,
But it should not be
the end of Learning.

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 Thank You
End of Final Session

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