Internship Report

Bangladesh University
of Business & Technology (BUBT)
TABLE OF CONTENTS
Chapter-1 ...................................................................................................................................................... 3
INTRODUCTION ......................................................................................................................................... 3
1.1 Introduction ........................................................................................................................................ 4
1.2 Scope of the report ............................................................................................................................. 4
1.3 Objectives of the report...................................................................................................................... 4
1.4 Methodology of the study .................................................................................................................. 5
1.5 Limitation of the study........................................................................................................................ 5
Chapter-2 ...................................................................................................................................................... 6
COMPANY OVERVIEW ............................................................................................................................... 6
2.1 Background ......................................................................................................................................... 7
2.2 Firms Practice..................................................................................................................................... 7
2.3 Firms Aim ........................................................................................................................................... 7
2.4 Firms Commitment ............................................................................................................................ 7
2.5 Partners Profile ................................................................................................................................... 7
2.6 Services that provided by the firm...................................................................................................... 9
2.6.1 Assurance..................................................................................................................................... 9
2.6.2 Direct Tax Compliances................................................................................................................ 9
2.6.3 Indirect Tax Compliances ........................................................................................................... 10
2.6.4 Accounting ................................................................................................................................. 10
2.6.5 Other Services ............................................................................................................................10
2.7 Firms Clients...................................................................................................................................... 10
2.7.1 Manufacturing ...........................................................................................................................10
2.7.2 Financial Sector ..........................................................................................................................11
2.7.3 Power, Oil & Petroleum ............................................................................................................. 11
2.7.4 Trading & Service .......................................................................................................................11
2.7.5 Education Sector ........................................................................................................................12
2.7.6 Non-Government Organization (NGO) ......................................................................................12
Chapter-3 ....................................................................................................................................................13
THEORETICAL BACKGROUND OF AUDITING.....................................................................................13
3.1 Definition of Accounting and Auditing..............................................................................................14
3.2 Distinction between Auditing & Accounting.....................................................................................16
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An Audit Procedure of Chartered Accountants firm with special reference of MARHK & CO.
3.3 Requirement of an Effective Audit.................................................................................................... 17
3.4 Types of Audit ................................................................................................................................... 18
3.5 AICPA Generally Accepted Auditing Standards.................................................................................20
3.5.1 General Standards:.....................................................................................................................20
3.5.2 Standards of Field Work............................................................................................................. 21
3.5.2 Standards of Reporting .............................................................................................................. 22
3.6 Audit Risks......................................................................................................................................... 23
3.7 Types of Audit Documentation ......................................................................................................... 24
3.8 Contents of an Audit File...................................................................................................................25
3.9 Audit Responsibilities........................................................................................................................26
3.9.1 Responsibilities of Management: ..............................................................................................26
3.9.2 Responsibilities of Auditors: ...................................................................................................... 27
3.10 Bangladesh Standards on Auditing (BSA) .......................................................................................27
3.11 International Standards on Auditing (ISA) ......................................................................................29
Chapter-4 ....................................................................................................................................................31
AUDIT PROCEDURE FOLLOWED BY MARHK & CO. .......................................................................... 31
4.1 Annual audit procedures of MARHK & CO. Chartered Accountants ................................................32
4.1.1 Identify firms overall goals........................................................................................................ 33
4.1.2 Gather & evaluate initial information........................................................................................35
4.1.3 Assess general risks....................................................................................................................36
4.1.4. Assess account-specific risks..................................................................................................... 36
4.1.5 Development of effective and efficient audit plan/ work program........................................... 39
4.1.6 Conduct audit testing.................................................................................................................39
4.1.7 Evaluate and communicate audit results...................................................................................41
Chapter-5 ....................................................................................................................................................49
FINDINGS, RECOMMENDATION & CONCLUSION.............................................................................. 49
5.1 Findings of the Study.........................................................................................................................50
5.2 Recommendation of the Study ......................................................................................................... 51
5.3 Conclusion......................................................................................................................................... 52
5.4 Appendix ........................................................................................................................................... 53
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Chapter-1
INTRODUCTION
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1.1 Introduction
Human being cannot gain all knowledge by reading books, journals, newspaper and his/her
academic text book. Each and every people in our society face new challenges every day while
they work. Only academic education is not enough for the students to learn things and
confidence among student to reach his/her own desired destination in days to come and stand
on his own feet. The students of Bangladesh University of Business & Technology who are
enrolled in the BBA program have to take a mandatory 3 months internship program at any
organization. Students have the opportunity to gain practical knowledge through the internship
program. In this program I was assigned to work with MARHK & CO. one of the renowned
Chartered Accountants firm in Bangladesh. The assignment is to gain a practical experience
how the audit work is planned, performed and administrated in different institution and
organizations in Bangladesh.
1.2 Scope of the report

I have been assigned in MARHK & CO. that gave me the scope to familiarize with the audit
procedure of the organization. Major parts of scope are point out below:
Audit procedure which is followed by the organization for performing any audit.
Nature and importance of it has depicted in this study.
Audit methodology of the firm, which is followed by the organization for performing
any audit.
Work in the field level by testing the accounting policies, records and accounts as a part
of audit team of MARHK & CO.
1.3 Objectives of the report

BROAD OBJECTIVE
The broad objective of the study is to analyze the audit procedure of MARHK & CO
Chartered Accountants.
SPECIFIC OBJECTIVES
The specific objectives regarding the study are as follows:
a) To know the procedure of audit planning and manner of implementing the plan.
b) To have an idea about the prescribed format about the audit report.
c) To gather practical knowledge from the organization through direct involvement.
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1.4 Methodology of the study

Type of research:
In this study descriptive research has undertaken.
Data collection procedure:
1) Primary sources of data
2) Secondary source of data
1) Primary source of data
a) Informal conversation with the partners, audit managers and audit staff.
b) Informal discussing with articled students regarding different areas of audit procedures
while working with them.
c) Practical work exposures.
2) Secondary source of data
a) Annual audit report, management audit report, accounting system and audit working
paper.
b) Studied various accounting books and journal.
c) Studied Bangladesh Standard on Auditing.
1.5 Limitation of the study

During the internship program I have to face constraint and problem while trying to make the
report presentable for my respected faculty members. Moreover some of the latest data could
not be collected due to confidential reasons but the other reasons are as follows:
I have got 3 months to prepare a vast report
Limitation due to dependence of secondary data.
Every organization has confidential data and information which they dont want
them to get revealed.
As it is my first practical experience I may not be able to cover all the aspect of the
audit procedure.
Besides I have failed to observe application of related laws procedures followed
during audit function.
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Chapter-2
COMPANY OVERVIEW
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2.1 Background
Firm MARHK & CO., was established in the year 1999, and has since that time it has been
providing quality services since inception. The firm has strong team of qualified staff and
associates with other experts in various fields.
2.2 Firms Practice

MARHK & CO. is a medium sized Auditing & Taxation firm in Bangladesh with a team of
dynamic accountants and professionals serving domestic and international clients from all business
sectors. The firm has also retained the services of Chartered Accountants, Cost Accountants,
Company Secretaries and Advocates as Consultants on assignment basis.
2.3 Firms Aim

Firms aim is not only to meet clients' needs but also to exceed their expectations and to totally
delight them with their service quality. At SGA their moto is to have Respect for the Client and
Profession, Honesty & Competence
2.4 Firms Commitment
Providing their clients with a full range of high quality services in auditing,
accounting, taxation, company law and secretarial services and management
consulting.
Carrying out all aspects of their work to high level of professionalism and
excellence.
Giving their clients value for money in the services we provide
2.5 Partners Profile

MARHK & CO employs qualified professionals who work under the direct supervision of
partners in the fields of auditing, accountancy, taxation, consulting and other special
assignments. Presently, MARHK has over 40 professionals in various fields. MARHK &
CO continuously seeks and employs technical experts and specialists from various
disciplines such as economists, social scientist, cost accountants, EDP experts, lawyers,
engineers, and financial analysts from a panel of consultants. MARHK & CO also recruits
talented graduate and postgraduate students from diverse fields as articled students. The
partners supervise the performance, potential and commitment of these students to help
them acquire knowledge, experience, and professional standards.
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Name and Position
Core Competencies and Experience

Countrys leading consultant in Tax, Fiscal Affairs & VAT and
Md. Shamsul Huda, Corporate Laws, and Corporate finance and special assignments.
Expertise in SEC rules and Stock Exchange regulation. He has
FCA
experience in the area of financial management, designing of
Sr. Partner
accounting & management system of various organizations. He
also has exposure in designing budgetary control system and
MIS.
Expertise in auditing particularly banks & financial institutions.
Additional specialization in tax and corporate affairs. He played
Md. Mobarak Ali,
active role in preparation of Financial Statements of various
FCA
organizations in compliance with the requirement of
Sr. Partner
International Accounting Standards (IAS).
Expert in consultancy, particularly financial consultancy in SOE
and Private Group Entities, He prepared and implemented
Md. Zohurul Islam, financial management manuals in many organizations including
Rural Electrification Board, Dhaka Improvement Trust, Manarat
FCA
International University and so on. He carried out several
Partner
important feasibility studies on economic and marketing aspects
of different enterprises and institutions.
He gained exposure in developing the Operational Manual,
Accounting Manual, Chart of Accounts, Accounting Policy, and
Financial Reporting formats for various organizations. He has
experience in planning, and supervision of the assignments,
Mizanur Rahman preparing financial statements in line with the requirement of
International Accounting Standards He also has exposure in
Khan, FCA
implementation of computerized accounting system in various
Managing Partner
organizations. He also has exposure on audit of Banks &
Financial Institutions in line with various BRPD, FE & others
Circulars, rules & regulation of Bangladesh Bank, Bank
Companies Act etc.
He obtained experience in the field of Cost analysis and decision
making regarding product pricing, preparing the project profile,
preparation of Accounts compliance with BAS and relevance
laws, Reporting as per management requirements, Inventory
control, Budgetary control, Income Tax and VAT dealings,
Md. Mahbubur
Finance, Accounting & Audit more than 18 years. He gained
Rahman, FCA
experience in the above mentioned areas by working in Quashem
Group, Bashundhara Group, Abdul Monem Group, Meghna
Group etc. He also gained experience in publicly traded
companies for IPO purposes.
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Kazi Mustaid
Murshed, FCA
He obtained experience in working in local and multi-national

companies in the field of preparing of financial statements in
compliance with BAS and relevance laws & regulations of
Bangladesh. He has more than 18 years experience in working
for companies like Beximco, ACI, Atlas Copco (BD) Ltd. He
also has three years experience in the working as manager audit
& compliance in Rahman Rahman Huq in the area of Accounting
System Development, Internal Control System Development,
Inventory Control, Business Evaluation etc.
2.6 Services that provided by the firm

Assurance & Auditing, Taxation, Accounting, Company Law & Secretarial Services, Consultancy
and Financial Management services provide Assurance & Auditing, Taxation, Accounting,
Company Law & Secretarial Services, Consultancy and Financial Management services to a large
and wide variety of clients in and outside Bangladesh.
They have a stated policy of ensuring high quality services to each client irrespective of its location
and size. That they achieve by bringing the professional and analytical skills to an assignment,
which they have developed, through the academic background, internal training, continuing
professional education and engagement experience of their personnel.
At 'MARHK & CO.' they have experienced significant growth since its inception in early 1999.
The firm's vision is conceptualized by like-minded professionals and over the years, the firm has
gained in-depth experience in providing a multitude of services to a number of business houses.
The working of the firm is webbed through efficient communication and documentation, written
systems and procedures and of course their 'Intellectual Capital'.
2.6.1 Assurance
Statutory Audit under the Bangladeshi Companies Act

Tax Audit as per the Bangladeshi Income Tax Act
Management and Internal Audit (based on mutually agreed scope)
2.6.2 Direct Tax Compliances
Quarterly compilation and submission of TDS returns

Computation of advance Fringe Benefit Tax liability (Quarterly)
Computation of advance Income Tax liability (Quarterly)
Computation of Wealth Tax liability (Annual)
Transfer Pricing certification as required under the Income Tax Act
Certification of withholding tax for foreign remittances
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2.6.3 Indirect Tax Compliances
Compilation, submission of monthly excise returns

Compilation, submission of Value Added Tax returns
Compilation, submission of Service Tax returns
2.6.4 Accounting
Limited scope review/ due diligence review of financial statements/ MIS reports
(frequency mutually agreed upon)
Transition of accounts prepared under Bangladeshi GAAP to IFRS or US GAAP
and review thereof
Reconciliation of statutory filings with the books of accounts
Retainer services for book closure activities
Stock and Asset verification and reconciliation
2.6.5 Other Services
Foreign Exchange compliance's under Foreign Exchange Management Act and

Reserve Bank of Bangladeshi directives
Appearing and making submissions on behalf of the clients to authorities pertaining
to Direct taxes, Indirect taxes and foreign exchange control
Valuation of assets under various financial valuation models
2.7 Firms Clients

2.7.1 Manufacturing
Macro Footwear Ltd.

Apollo Ispat Complex Ltd.
Apollo Wires & Cables Ltd.
K.M. Steel Mills Ltd.
Bengal Thread Industries Ltd.
Metropolitan Steel Mills Ltd.
Sagar Garments Ltd.
Phoenix Poultry Ltd.
Bangladesh Small & Cottage Industries Corporation
Build- up Plastic (Bd) Ltd.
Dandy Dyeing Limited
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Multi Products Ltd.

Faridpur Jute Fibres Ltd.
Chanda Spinning Mills Ltd.
Sharmin Textile Dying & Printing Ind.
M/s Shil Mill Fabrics
M/s Aziz Machinery & Tools
Halima Handicrafts
Haque Steel Complex Ltd.
Haque Steel & Re- rolling Industries (Pvt.) Ltd.
2.7.2 Financial Sector
Jiban Bima Corporation

Basic Bank Limited
Phoenix Insurance Co. Ltd.
Janata Insurance Ltd.
Reliance Insurance Ltd.
Rajshahi Krishi Unnayan Bank
Homeland Life Insurance Co. Ltd
GSP Financier Co. (Bangladesh) Ltd.
Meghna Life Insurance Company Ltd.
Islami Insurance Bangladesh Ltd.
2.7.3 Power, Oil & Petroleum
Regional Accounting Office (RAO), BPDB

Dhaka Electric Supply Co. Ltd.
Rural Electrification Board (REB)
BPDB (Consumers Accounts Audit)
Titas Gas Transmission & Distribution Co. Ltd.
Jalalabad Gas Transmission & Distribution Co. Ltd.
Bangladesh Oil, Gas & Mineral Corporation (Petrobangla)
Bangladesh Water Development Board
2.7.4 Trading & Service
Bangladesh Chemical Industries Corporation (BCIC)

Bangladesh Sugar & Food Industries Corporation
Mobarakhonj Sugar Mills Corporation
Summit Aviation Services Limited
Modern Structural Service Ltd.
Bangladesh Sericulture Board (BSD)
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Amir Trading Corporation

Haesong Corporation Ltd.
JAGO Corporation Ltd.
Merchantex Co. Ltd.
British American Tobacco Societies Ltd.
2.7.5 Education Sector
Bangladesh University of Business & Technology

Primary and Mass Education
Ministry of Education (Education Institution)
Radiant International School and College
2.7.6 Non-Government Organization (NGO)
Salvation Army Bangladesh Ltd.

Health and Development Project of Salvation Army
Aids Management Project of Salvation Army
Supoth
Christian Aid, Bangladesh Field Office
Development Organization for Rural Poor (DORP)
Eco-social Development Organization ( ESDO)
Come to Work
We are Friends for Human
Assistance for Slum Dwellers funded by Water Aid
Southern Gono Unnyan Samity funded by the Govt. of Bangladesh
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Chapter-3
THEORETICAL BACKGROUND OF
AUDITING
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3.1 Definition of Accounting and Auditing

Accounting is the recording, classifying and summarizing of economic event in a logical manner
for the purpose of providing information for decision making. The function of accounting is to
provide certain types of quantitative information that management and others can use to make
decisions. To provide relevant information, accountants must have a thorough understanding of
the principles and rules that provide the basis for preparing the accounting information. In addition,
accountants must develop a system to make sure that the entitys economic events are properly
recorded on a timely basis and at a reasonable cost.
Auditing is the process by which a competent, independent person accumulates and evaluates
evidence about quantifiable information related to a specific economic entity for the purpose of
determining and reporting on the degree of correspondence between the quantifiable information
and established criteria. This definition includes several key words and phrases. To understand the
definition, different terms are discussed below:
Competent, Independent Person: The auditor must be qualified to understand the criteria used
and competent to know the types and amount of evidence to accumulate to reach the proper
conclusion after the evidence has been examined. The auditor must also have an independent
mental attitude. It does little good to have a competent person who is biased performing the
evidence accumulation when unbiased information and objective thinking are needed for the
judgments and decisions to be made. Independence cannot be absolute by any means but it must
be a goal that is worked toward; and it can be achieved to a certain degree.
Evaluating Evidence: Evidence takes many different forms, including oral testimony of the
audit (client), written communication with outsiders and observation by the auditor. It is important
to obtain sufficient quality and volume of evidence to satisfy the audit objectives.
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Quantifiable Information and Established Criteria: To do an audit, there must be information

in a verifiable form and some standards (criteria) by which the auditor can evaluate the
information. Quantifiable information can and does take many forms. It is possible to audit such
thing as a companys financial statements, the amount of time it takes an employee to complete an
assigned task, the total cost of a government construction contract and an individuals tax return.
The criteria for evaluating quantitative information can also vary considerably. For example, in
auditing a vendors invoice for the acquisition of raw materials, it is possible to determine whether
materials of the quantity and stated description were actually received whether the proper raw
material was acquired considering the production needs of the company or whether the price
charged for the goods was reasonable.
Economic Entity: Whenever an audit is conducted, the scope of the auditors responsibility must
be made clear. The primary method involves defining the economic entity and the time period. In
most instances the economic entity is also a legal entity such as a corporation, unit of government,
partnership or proprietorship. In some cases, however, the entity is defined as a division, a
department or even an individual.
Reporting: The final stage in the audit process is the audit report the communication of the
findings to users. Reports differ in nature but in all cases they must inform readers of the degree
of correspondence between quantifiable information and established criteria. Audit can be applied
to virtually every facet of an organizations operations. Such audits are both challenging and
interesting because the auditor is charged with developing objective criteria by which an operation
can be evaluated and the auditor by necessity becomes intimately familiar with many operational
aspects of an organization.
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3.2 Distinction between Auditing & Accounting

Many financial statements users and members of the general public confuse auditing with
accounting. The confusion results because most auditing is concerned with accounting information
and many auditors have considerable expertise in accounting matters. Although auditing and
accounting are related, they are distinct from each other.
Accounting
GAAP
Recording of
transactions and
preparation of
financial statement
Evaluation of
financial statement
Audit
Accounting and Auditing Contrast

Accounting involves collecting, summarizing, reporting and interpreting financial data.
Accounting is the process of recording, classifying, and summarizing economic events in a logical
manner for the purpose of providing financial information for decision making. The function of
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accounting to an entity and a society as a whole is to provide certain types of quantitative

information that management and others can use to make decisions. To provide relevant
information, accountants must have a thorough understanding of the principles and rules that
provides the basis for preparing the accounting information. In addition, accountants must develop
a system to make sure that the entitys economic events are properly recorded on a timely basis
and at a reasonable cost. Auditing, by contrast, utilizes the theory of evidence in much the same
way as does the legal profession to verify the overall reasonableness (fairness) of the financial
statements presented. In auditing for accounting data, the concern is with determining whether
recorded information properly reflects the economic events that occurred during the accounting
period. Since the accounting rules are the criteria for evaluating whether the accounting
information is properly recorded, any auditor involved with these data must also thoroughly
understand the rules. In the context of the audit of financial statements these are generally accepted
accounting principles (GAAP).
3.3 Requirement of an Effective Audit

In order for an audit to be completed properly, auditor must contain certain attributes Such as:
Auditor must have a thorough understanding of the entity being audited and the industry of which
it is a part. The auditor must also have a comprehensive knowledge of GAAP in order to audit
effectively. A solid grasp of concepts of internal control, a careful review and evaluation of internal
accounting controls are also necessary ingredients to an effective audit. In addition to
understanding the company, the auditor must also be knowledgeable in the area of evidence
gathering and evaluation. According to Taylor and Glezen, 1979, to become a chartered
accountant, a person must fulfill the following three requirements:
An Educational Requirement
An Experience Requirement
A Testing Requirement
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3.4 Types of Audit

In the following mention different types of audit that were performed by MARHK & CO.
Chartered Accountants.
Operational Audit
Compliance Audit
Audit of Financial Statements
Internal Audit
Interim Audit
Performance Audit
Governmental Audit
Operational Audit: Operational Audit refers to the study of business operations for the purpose
of making recommendations about the economic and efficient use of resources, effective
achievement of business objectives and compliance with company policies. At the completion of
an operational audit recommendations to management for improving operations are normally
expected. The goal of operational audit is to help managers to discharge their management
responsibilities and improve profitability. An operational audit can be applied to virtually every
facet of an organizations operations. Such audits are both challenging and interesting because the
auditor is charged with developing objective criteria by which an operation can be evaluated and
the auditor by necessity becomes intimately familiar with many operational aspects of an
organization. Because of many different areas in which operational effectiveness can be evaluated,
it is impossible to characterize the conduct of a typical operational audit.
Compliance Audit: Compliance Audit is an operational-style audit that determines if a company

is following the rules of an agreement or contract. Companies make agreements or enter contracts
for a variety of business purposes. These agreements and contracts are carefully reviewed and
audited to ensure no fraud or misstatements exist as the company meets the contractual obligations.
Public accounting firms or individual Certified Public Accountants (CPA) may be responsible for
conducting the external compliance audit on companys contracts and agreements.
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Audit of Financial Statements: Financial statements audits are conducted to determine whether
financial statements are presented fairly in accordance with Generally Accepted Accounting
Principles (GAAP). However, public sector financial audits also determine whether financial
statements are presented in accordance with applicable laws and regulations. An audit of financial
statements is conducted to determine whether the overall financial statements that is quantifiable
information being verified are stated in accordance with specific criteria. The financial statements
most commonly included are the statement of financial position, income statement and statement
of cash flow including accompanying footnote. The assumption underlying an audit of financial
statements is that they will be used by different groups for different purposes. Therefore, it is more
efficient to have one auditor perform an audit and draw conclusion that can be relied upon by all
users.
Internal Audit:
Internal audit is an independent appraisal function established within an
organization to examine and evaluate its activities as a service to the organization. The objective
of internal auditing is to assist members of the organization in the effective discharge of their
responsibilities. Internal audit is practiced by auditors employed by an organization such as a bank,
hospital, city government or industrial company. The Institute of Internal Auditors (IIA) is the
international organization that governs the standards, continuing education, and generals rules of
the conduct for internal auditors as a profession.
Interim Audit: Interim audit refers to the procedures applied prior to the clients year end,
primarily for the purpose of lowering the assessed risk level. The interim audit phase consists of
resting the clients internal accounting controls and performing substantive tests of transactions.
Interim audit procedures performed several weeks or months before the balance sheet date. In
recent years, certain changes in the information processing environment have begun to alter the
traditional approach to the interim audit. Instead of testing the internal control procedures during
a single interim time period auditors are applying these tests along with tests of selected
transactions at frequent intervals throughout the year. This sometimes referred to as Continuous
Audit. This type of audit is especially applicable to those clients with sophisticated computer based
accounting applications.
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Performance Audit: Performance audit refers to an independent examination of a program,

function, operation or the management systems and procedures of a governmental or non-profit
entity to assess whether the entity is achieving economy, efficiency and effectiveness in the
employment of available resources.
Governmental Audit: Governmental audit may be defined as testing and reporting on conformity
with laws and regulations relating to recipients of federal financial assistance. Governmental audit
refers to the independent auditors responsibility for determining compliance with laws and
regulations when engaged in audits of state and local governmental units as well as other not-forprofit entities that are the recipients of federal finance assistance. Governmental auditors are
employed by various state, local and federal agencies.
3.5 AICPA Generally Accepted Auditing Standards

Auditing standards are general guidelines to aid auditors in fulfilling their professional
responsibilities in the audit of historical financial statements. They include consideration of
professional qualities such as competence and independence, reporting requirements and evidence.
These standards were developed by the AICPA in 1947.
The three Generally Accepted Auditing Standards are as follows:
3.5.1 General Standards:

The general standards stress the important personal qualities that the auditor should possess.
Technical Training and Proficiency: The audit is to be performed by individuals having adequate
technical training and proficiency. Adequate technical training and proficiency as an auditor
assures clients that CAPs are able to adequately perform the services for which they represent
themselves. This standard is normally interpreted as requiring the auditor to have formal education
in auditing and accounting, adequate practical experience for the work being performed and
continuing professional education. Auditors must be technically qualified and experienced in those
industries in which their audit clients are engaged.
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Independence in Mental Attitude: The auditor must have an independent mental attitude.
Auditors independence means that the auditors must be independent of management if they are
to adequately serve the interests of financial statements users. Auditors are expected to be unbiased
and impartial with respect to the financial statements and other information when they audit. They
are expected to be fair both to the companies and executives who issue financial information and
to the outside persons who use it. Auditors independence has two aspects: independence in facts
and independence in appearance. Auditors must not only be independent in their mental attitude
toward audit- independence in facts but also must be perceived by users as independent of the
client independence in appearance.
Due Professional Care: The forth general standard involves due professional care in the
performance of all aspects of auditing. The exercise of due professional care requires observance
of all the general standards and the field work standards. Auditors must be competent, be
independent, plan and supervise the audit, understand the internal control system and obtain
sufficient competent evidence if they expect to be properly careful. The standard of due care
requires that the prudent auditor apply judgment in a conscientious manner that is carefully
check the relevant factors before reaching a decision. Due professional care also suggests that the
auditor makes a reasonable effort to ensure that the financial statements are free from material
misstatements. Due professional care includes consideration of the completeness of the working
papers, the sufficiency of the audit evidence and the appropriateness of the audit report. As a
professional, the auditor must avoid negligence and bad faith, but the auditor is not expected to
make perfect judgments in every instance.
3.5.2 Standards of Field Work

The field work standards concern evidence accumulation and other activities during the actual
conduct of the audit in the field.
Adequate Planning and Supervision: This standard deals with ascertaining that the engagement
is sufficiently well planned to ensure an adequate audit and proper supervision of assistants.
Adequate planning and supervision are required if the audit is to proceed in a systematic fashion.
Audit planning involves obtaining an understanding of the entity, assessing audit risk and
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developing the audit programs. To ensure an adequate quality of auditing assistants must be
properly supervised. Supervision of assistants includes instructing assistants to be sure they know
that what they are to do and why keeping informed about significant problems encountered,
reviewing their work and work papers and resolving differences of opinion among the audit staff.
Understand the Internal Control Structure: A sufficient Understanding of the internal control
structure is to be obtained to plan the audit and to determine the nature, timing and extent of tests
to be performed. Organizations implement accounting systems and control structures so that it can
process large volumes of data in an efficient manner that should minimize the possibility of
misstatements occurring. The controls identified by an organization to ensure that only properly
authorized transactions are processed and that the transactions are fully, accurately and timely
recorded are referred to as the organizations internal control. One of the most widely accepted
concepts in the theory and practice of auditing is the importance of the clients internal control
structure to generate reliable financial information. If the auditor is convinced that the client has
an excellent internal control structure that includes adequate internal controls for providing reliable
data and for safeguarding assets and records, the amount of audit evidence to be accumulated.
Sufficient Competent evidence: Sufficient competent evidential matter is to be obtained through
inspection, observations, inquiries and confirmations to afford a reasonable assurance basis for an
opinion regarding the financial statements. Evidence is all the influences upon the minds of
auditors that ultimately guide their decisions sufficient competent (reliable and relevant) evidence
must be obtained to evaluate the assertions embodied in the financial statements including the
related footnotes.
3.5.2 Standards of Reporting

The four reporting standards relate to the attest function at the end of the audit result. The ultimate
objective of independent auditors- the report on the audit- is guided by the four reporting standards.
Presentation in Accordance with GAAP: The auditor is required to state explicitly whether the
financial statements are fairly presented in accordance with the agreed upon the criteria for the
profession GAAP.
Consistency: The consistency standard indicates that once management chooses from among
alternative acceptable method of accounting, the same principles will be used from year to year
are consistent to enhance the comparability and usefulness of the financial statements. This does
not mean that these principles must be followed rigidly. When a company makes a change in
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principles, the change must be described in the footnotes to the financial statements are referred to
in the audit report.
Disclosures: Informative disclosures in the financial statements are to be regarded as reasonably
adequate unless otherwise stated in the report. Readers of the financial statements are usually not
in a position to know whether the disclosure and related footnotes are adequate. If nothing is
mentioned in auditors report, the readers can assume that the disclosures are adequate. The auditor
is guided by FASB and other authoritative pronouncement to determine whether the required
disclosures have been made.
Opinion: The report shall either contain an expression of opinion regarding the financial
statements taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When
an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases where
an auditors name is associated with the financial statements, the report should contain a clear-cut
indication of the character of the auditors work and the degree of responsibility the auditors is
taking The type of opinion rendered depends on the results of the auditors examination. The
auditors report should indicate the type of examination performed and the degree of responsibility
taken for it.
3.6 Audit Risks

The auditor should obtain an understanding of the accounting and internal control systems
sufficient to plan the audit and develop an effective audit approach. The auditor should use
professional judgment to assess audit risk and to design audit procedures to ensure it is reduced to
an acceptably low level.
Audit risk is defined as the risk that the auditor may unknowingly fail to appropriately modify
his/her opinion on financial statements that are materially misstated. So audit risk is the risk that
the auditor gives an inappropriate audit opinion when the financial statements are materially
misstated. Audit risk has three components that are describe below:
Inherent risk is the susceptibility of an account balance or class of transactions misstatement
that could be material, individually or when aggregated with misstatements in other balances or
classes, assuming that there were no related internal controls.
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Control risk is the risk that a misstatement could occur in an account balance or class of
transactions that could be material individually or when aggregated with misstatements in other
balances or classes will not be prevented, detected and corrected on a timely basis by the
accounting and internal control systems.
Detection risk is the risk that an auditors substantive procedures will not detect a misstatement
that exists in an account balance or class of transactions that could be material individually or when
aggregated with misstatements in other balances or classes.
Audit Documentation
Auditors are required to prepare and retain written documentation that provides a sufficient
appropriate record of the basis for the audit report and evidence that the audit was planned and
performed.
3.7 Types of Audit Documentation

Audit Documentation includes:
Overall audit strategy
Audit Plan
Risk analysis
Audit Programmers
Summary of significant matters
Letter of Confirmation and representation
Checklists
Correspondence and
Copies of client records

For large audits much of the knowledge of business information may be kept on a
permanent file and the audit plan may contain a summery or simply cross refer to
the permanent file. Typical information on a permanent file includes:-
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Names of management, those charged with governance, shareholders
System information
Background to the industry and the clients business
Title deeds
Directors service agreements
Copies of contract and agreements
3.8 Contents of an Audit File

Typically, there are at least three sections, as follows:
1. Planning
2. Performance and
3. Completion
Planning
The main element of this section is likely to be the Audit Planning Memorandum. This document
is the written audit plan and will be read by all members of the audit team before work starts. Its
contents are likely to include:
Background information about the client, including recent performance
Changes since last years audit
Key accounting policies
Important laws and regulations affecting the company
Clients trial balance
Preliminary analytical review
Key audit risks
Overall audit strategy
Materiality assessment
Timetable of procedures
Deadlines
Staffing and budget
Locations to be visited
Performance
Working papers are likely to consist of:
Lead Schedule- showing total figures, which agree to the financial statements
Back- up Schedule- breakdowns of totals into relevant sub totals
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Audit work programmed detailing
The objectives being listed
Work completed
How sampled items selected
Conclusions drawn
Who did the work
Date work completed
Who received it
Completion
The completion stage of an audit has a number of standard components
Going concern review
Subsequent events review
Final analytical review
Accounting Standard checklist
Letter of representation
Summary of adjustments made since trial balance produced
Summary of unadjusted errors
Draft final
Draft report to these charged with governance
3.9 Audit Responsibilities

3.9.1 Responsibilities of Management:
Management are responsible for ensuring that the entity complies with relevant laws and
regulations, including: Company Law
Corporate governance Law
Health and Safety Law
Employment Law
Stock Exchange rules and
Financial reporting regular
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This requires the monitoring of legal requirements, the development of systems of
internal
control to ensure compliance and an effective system of assessing the effectiveness of these control
systems.
3.9.2 Responsibilities of Auditors:

The auditors is responsible for expressing an opinion indicating that reasonable assurance has been
obtained that the financial statements as a whole are free from material misstatement, whether due
to fraud or error and that they are fairly presented in accordance with the relevant accounting
standards (Generally Accepted Accounting Principles & International Accounting Standards).
Noncompliance with laws and regulations can impact the financial statements users because
companies in breach of the law need to make provisions for future legal costs and fines. In the
worst case scenario this could affect the ability of the company to continue as a going concern.
Therefore the auditor has to consider compliance with laws and regulations when planning,
performing and reviewing audit procedures.
3.10 Bangladesh Standards on Auditing (BSA)

Every Chartered Accountants Firms operating in Bangladesh is bound to maintain and follow the
standards namely Bangladesh Standards on Auditing (BSA) and Bangladesh Auditing Practice
Statements (BAPS) adopted by the Institute of Chartered Accountants of Bangladesh (ICAB) to
conduct the audit activities. All of their standard are maintained by MARHK & CO. Chartered
Accountants. There are about 40 Audit Standards which are as follows:
BSA NO
Present Title (BSA)
120
Framework of Bangladesh Standards on Auditing
200
Objective and General Principles Governing and Audit of Financial Statements
210
Terms of Audit Engagements
220
Quality Control for Audits of Historical Finance Information
230
Audit Documentation
240
The Auditor's Responsibility to Consider Fraud in an Audit of Financial

Statements
Consideration of Laws and Regulations in an Audit of Financial Statements
250
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260
Communications of Audit Matters with Those Charged with Governance
300
Planning an Audit of Financial Statements
310
Knowledge of the Business
315
Understanding the Entity and Its Environment and Assessing the Risks of
Material Misstatement
320
Audit materiality
330
The Auditors Procedures in Response to Assessed Risks
400
Risk Assessment and Internal Control
401
Auditing in a computer Information systems Environment
402
Audit Considerations Relating to Entities Using Service Organization
500
Audit Evidence
501
Audit Evidence-Additional Considerations for Specific items
505
External Confirmations
510
Initial Engagements-Opening Balances
520
Analytical Procedures
530
Audit Sampling and Other Means of Testing
540
Audit of Accounting Estimates
545
Auditing Fair Value Measurements and Disclosures
550
Related Parties
560
Subsequent Events
570
Going Concern
580
Management Representations
600
Using the Work of Another Auditor
610
Considering the Work of Internal Auditing
620
Using the Work of an Expert
700
The Independent Auditors Report on Complete Set of General Purpose

Financial Statements
710
Comparatives
720
Other Information in Documents Containing Audited Financial Statements
800
The Auditors Report on Special Purpose Audit Engagements
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1000
Inter-Bank Confirmation Procedures
1004
The Relationship Between Bank Supervisions and Banks External Auditors
1005
The Special Considerations in the Audit of Small Entities
1009
Computer-Assisted Audit Techniques
1014
Reporting by Auditors on Compliance with International Financial Reporting

Standards
3.11 International Standards on Auditing (ISA)

International Standards on Auditing (ISA) are professional standards for the performance of
financial audit of financial information. These standards are issued by International Federation of
Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).
All of their standard are maintained by MARHK & CO. Chartered Accountants.
There are about 36 Audit Standards which are as follows:
ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with International Standards on Auditing
ISA 210, Agreeing the Terms of Audit Engagements
ISA 220, Quality Control for an Audit of Financial Statements
ISA 230, Audit Documentation
ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements
ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements
ISA 260, Communication with Those Charged with Governance
ISA 265, Communicating Deficiencies in Internal Control to Those Charged with Governance
and Management
ISA 300, Planning an Audit of Financial Statements
ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding
the Entity and Its Environment
ISA 320, Materiality in Planning and Performing an Audit
ISA 330, The Auditor's Responses to Assessed Risks
ISA 402, Audit Considerations Relating to an Entity Using a Service Organization
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ISA 450, Evaluation of Misstatements Identified during the Audit
ISA 500, Audit Evidence
ISA 501, Audit Evidence-Specific Considerations for Selected Items
ISA 505, External Confirmations
ISA 510, Initial Audit Engagements-Opening Balances
ISA 520, Analytical Procedures
ISA 530, Audit Sampling
ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and
Related Disclosures
ISA 550, Related Parties
ISA 560, Subsequent Events
ISA 570, Going Concern
ISA 580, Written Representations
ISA 600, Special Considerations-Audits of Group Financial Statements (Including the Work
of Component Auditors)
ISA 610, Using the Work of Internal Auditors
ISA 620, Using the Work of an Auditor's Expert
ISA 700, Forming an Opinion and Reporting on Financial Statements
ISA 705, Modifications to the Opinion in the Independent Auditor's Report
ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent
Auditor's Report
ISA 710, Comparative Information-Corresponding Figures and Comparative Financial

Statements
ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents

Containing Audited Financial Statements
ISA 800, Special Considerations-Audits of Financial Statements Prepared in Accordance with

Special Purpose Frameworks
ISA 805, Special Considerations-Audits of Single Financial Statements and Specific Elements,
Accounts or Items of a Financial Statement
ISA 810, Engagements to Report on Summary Financial Statements
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Chapter-4
AUDIT PROCEDURE FOLLOWED BY
MARHK & CO.
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4.1 Annual audit procedures of MARHK & CO. Chartered Accountants

Audit responsibility is to provide the opinion on the financial statements whether in accordance
with GAAP and audit is conducted in accordance with Bangladesh Standards on Auditing (BSAs)
as well as International Standards on Auditing (ISAs). They also seek to provide auditing and
management consultancy services that are innovative, efficient and most importantly responsive
to the clients business needs. By following there seven steps they are conducting their audit in a
proper way and they can say their opinion can give true and fair view of financial statements. There
are seven steps involved in the procedures that come from one after another are as follows point
out in the table:-
MARHK & CO. CHARTERED ACCOUNTANTS ANNUAL AUDIT PROCEDURES
1.IDENTIFY FIRMS OVERALL GOALS

Efficiency
Opinion on Financial Statements

Errors
Irregularities
Going Concern
Client Value
2. GATHER & EVALUATE INITIAL INFORMATION

Understand the client business.
Identify client expectations.
Consider internal control structure.
Consider materiality.
3. ASSESS GENERAL RISKS

Consider impact pervasive factors.
Establish overall audit approach.
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Decide consideration and timing.
4. ASSESS ACCOUNT SPECIFIC RISKS

Select mitigating controls risk which reliance
Identify accounts and transactions to be
will be placed.
addressed.
Develop procedures to test mitigating
Identify types of financial statements
Controls system
misstatements.
Assess remaining risk to be addressed by
Identify risk indicators.
substantive tests.
5. DEVELOP EFFECTIVE AND EFFICIENT AUDIT PLAN/ WORK PROGRAM

Test of control
Substantive tests
6. CONDUCT AUDIT TESTING

Test of control
Substantive tests
7. EVALUATE AND COMMUNICATE AUDIT RESULTS

External reports
Internal reports
4.1.1 Identify firms overall goals

MARHK & CO. Chartered Accountants considers accounting standards in formulating an opinion
indicating that reasonable assurance has been obtained that the financial statements as a whole are
free from material misstatements, whether due to fraud or errors and that are fairly presented in
accordance with Generally Accepted Accounting Principles (GAAP). In forming an opinion, the
audit team also addresses responsibilities for:
Error
Irregularities
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Efficiency
Client value
Errors
Errors are unintentional misstatements or omissions of accounts or disclosures in the financial
statements may involve:
a) Mistakes in gathering or processing accounting data from which financial statements
are
prepared.
b) Incorrect accounting estimates arising from oversight or misinterpretation of facts.
c) Mistakes in the application of accounting principles relating to amount, classification and
manner of presentation or disclosure.
The audit team is required to design the audit to provide reasonable assurance through detection
of material errors.
Irregularities
Irregularities are intentional misstatements or omission of amounts or disclosures in the financial
statements, including fraudulent financial reporting and misappropriation of assets. So there is
always a risk that material irregularities may occur and not to be detected. This risk is increased
by the possibility of managements dominate of internal controls, collusion, forgery or unrecorded
transactions.
Efficiency
The audit team should design audit procedures that accomplish the overall goals discussed above
in the most efficient manner. Performing an efficient audit involves:
a) Performing risk assessment and planning with adequate partner and manager involvement.
b) Designing the combination of audit procedures based on the risk assessment that will efficiently
reduce the risk of undetected material misstatements.
c) Assigning work to adequately trained and supervised persons with appropriate experience and
skill levels.
Client Value
It has long been a tradition of the firm to provide enhanced value to clients as an integral part of
our audits. This strategy has allowed us to differentiate our approach are diverse from other firms.
Delivering added value as an integral part of an audit and effectively communicating the added
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value information that is a key factor in building and maintaining a sound relationship with client
top management and directors etc.
4.1.2 Gather & evaluate initial information

After involving with the client, the first task of MARHK & CO. Chartered Accountants is to collect
and evaluate the relevant and necessary information related to the clients business for the purpose
of:
Understanding the clients business
Considering the internal control structure
Identifying client expectation
Considering materiality
Understand the clients business

Before involving in an audit, the auditor should understand the client business properly. Proper
planning and designing of an audit is dependent on proper understanding of clients business. So
after appointing by a client, the members of an audit team use various sources to gain an
understanding of the client business. The following source which provides understanding to the
auditors about the client business.
Annual Report
Financial and Administrative Manual
Previous years Audit Report (Internal & External)
Ledger Book
Internal Reports
Discussion with client.
Consider internal control structure

Every business has some kind of accounting system by which transactions are processed, record
and maintained. The existence of a reliable system of internal control can be a great help to the
auditor, because the objectives of the system should be:
a)
Ensuring that the records are complete, accurate and properly authorized,
b)
Detecting errors and fraud.
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After involving with a client, Auditors try to understand the internal control structure of the client
business as much as possible because understanding of the clients internal control structure helps
auditor to determine the extent of our audit tasks.
Identify client expectations

As external auditor of MARHK & CO. Chartered Accountants should identify the clients
anticipation to design and perform the audit to meet the client expectations.
Consider materiality
Information is material if its omission or misstatement could influence the economic decisions of
users taken on the basis of the financial statements. Materiality depends on the size of the item or
error judged in the particular circumstances of its omission or misstatement.
4.1.3 Assess general risks

During audit planning and risk assessment, MARHK & CO. Chartered Accountants obtain initial
audit evidence in order to:
1. Effectively assess the inherent risk of potential financial statement misstatements,
2. Identify indicators of possible going concern problems and
3. Identify account specific risk and design an overall audit approach to provide
reasonable
assurance.
The assessment of risk is accomplished using a top-down approach. The audit team focuses
initially on high level information. The nature and extent of documentation is vary significantly
based on an entitys size, complexity, ownership characteristics and level of risk.
4.1.4. Assess account-specific risks

Specific Risk Analysis (SRA) is built on information obtained during General Risk Assessment
(GRA) after considering the evaluation of the internal control system. SRA is done to design the
nature and extent of substantive tests on auditing stage.
At the Account Balance and Class of Transaction
For the account balance and class of transaction level risk assessment the following major account
heads should be considered:
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Cash, Bank, Inventory, Fixed Assets, Accounts Receivables, Accounts Payables, Revenue,
Expense, Payroll, Net Assets, Retained Earnings, and Fund balances, Other Assets, Other
Liabilities, Investment and Loan.
The Auditors of MARHK & CO. generally assess the risks at account balance level in view of the
following items:
Financial statement accounts likely to the liable to misstatement.
The complexity of underlying transactions and other events which might require
using
the work of an expert.
The degree of judgment involved in determining account balances.
Susceptibility of assets to loss or misappropriation.
The completion of unusual and complex transactions, particularly at or near period end.
Transactions are not subjected to ordinary processing.
Audit Risks
In determining the nature, timing and extent of substantive procedures required to reduce audit
risk to an acceptably of the auditor should consider the assessed levels of inherent and control
risks. In this regard MARHK & CO. consider:
a)
The nature of substantive procedures,
b)
The timing of substantive procedures and
c)
The extent of substantive procedure.
Consideration of Fraud and Error

MARHK & CO. has professional responsibility for materially misstated in the financial statements
resulting from errors and irregularities. As auditors, they must provide reasonable assurance
through detect of materials errors and irregularities.
The potential for financial statement fraud exists on every engagement. To address the risk of
potential fraud we must:
1.
Assess the risk of potential fraud
2.
Design their audit procedures to respond identified risks.
They perform their audit with appropriate professional skepticisms and due processional care.
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Inquiries of Management
When planning the audit, MARHK & CO. Chartered Accountants make inquiries of management:
a) To obtain an understanding of:
1. Management evaluation of the risk that the financial statements may be materially
misstated as a result of fraud and error.
2. Management has put the accounting and internal control systems in place to address
such risk.
b) b) To obtain knowledge of management understands regarding the accounting and
internal control system in place to prevent and detect error.
c) c) To determine whether management is aware of any kind fraud that has affected the
entity or suspected fraud that the entity is investigating and
d) d) To determine whether management has discovered any material errors.
Assessment of Inherent Risk and Control Risk

When assessing inherent risk and control risk, they generally consider how the financial statements
might be materially misstated as a result of fraud or error. In considering the risk of material
misstatement resulting from fraud, the auditor should consider whether risk factors indicate the
possibility of either fraudulent financial reporting or misappropriation of assets.
Assessment of Detection Risk
Based on the assessment of inherent and control risks, they design substantive procedures to reduce
the detection risk to an acceptably low level. In designing the substantive procedures they address
the fraud and risk factors that have been identified as being present.
Documentation
If during the performance of the audit, fraud risk factors are identified that cause the auditor to
believe that additional audit procedures are necessary, the auditor should document the presence
of such risk factors and the auditors response to them.
Management Representations
The auditor should obtain written representations from management that:
It acknowledges its responsibility for the implementation and operations of accounting and internal
control systems that are designed to prevent fraud and error. It has disclosed to the auditor the
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results of its assessment of the risk that the financial statements may be materially misstated as a
result of fraud.
Communication
When the auditor identifies a misstatement resulting from assumed fraud or error, then auditors
responsibility is to communicate to the management those charged with governance in some
circumstances, to regulatory and enforcement authorities.
4.1.5 Development of effective and efficient audit plan/ work program

Work program is a list of procedures that are needed to be performed to conduct the audit. The
program may also contain the audit objectives for each area and should have sufficient detail to
serve as a set of instructions to the assistants involved in the audit and as a means to control the
proper execution of the work.
They use work programs were developed for different types of business and for different types of
account heads. Usually an audit work program contains Client procedures and background information.
Audit objectives.
Audit procedures.
Performance and results of work.
Conclusions.
The work program must be completed and any revisions in the program, made during testing must
be adequately explained and approved by the audit manager.
4.1.6 Conduct audit testing

After completing the work program, the MARHK & CO. Chartered Accountants audit team is also
required to design the audit and to provide reasonable assurance concerning the companys
financial statements through detection of material errors and frauds. The Job In-charge of an audit
team is responsible to ensure that the following two test are considered at the time of financial
statements audit for providing reasonable assurance concerning the companys financial
statements to the interested users of the company.
1. Test of Controls
2. Substantive Test
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Test of controls
Test of control is an approach to further reducing the assessed level of control risk by testing a
sample of transactions and estimating pertinent error rates. Test of control may assume the form
of observation, reprocessing or document testing.
Test of control approach is likely to be effective when:
1.
The organization is not too small
2.
Number of transactions records are not very few and
3.
The control system is non-existing or very weak.
The auditor performs tests of control to determine, how well the companys control actually
functioned during the period under audit.
Substantive tests
Substantive tests are procedures performed to detect misstatements in financial statement balances.
The Auditor perform the following two types of Substantive tests:
Analytical procedures
Details tests
Analytical Procedures are the testing of financial information by evaluating actual vs. expected
relationships among financial and non-financial data. Analytical procedures may be used as a
substantive test of balances and for a final review of yearend financial statements. The auditor
should apply analytical procedures at the planning and overall review stages of the audit.
Analytical procedures include the consideration of comparisons of the entitys financial
information with
Comparable information for prior periods.
Anticipated results of the entity, such as budgets or forecasts, or expectations of the auditor,
such as an estimation of depreciation.
Similar industry information, such as a comparison of the entitys ratio of sales to accounts
receivable with industry averages or with other entities of comparable size in the same
industry.
MARHK & CO. Chartered Accountants generally apply analytical procedures at near the end of
the audit when forming an overall conclusion as to whether the financial statements as a whole
are consistent with the auditors knowledge of the business.
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Details tests
Detailed tests may include in the following matters
a) Confirmation of third parties- Bank Account Payable & Account Receivable
b) Observation of asset Inventory count, Cash Count and Fixed Assets count
c) Tests of reconciliation- Bank reconciliation
d) Analysis of account
e) Vouching
f) Exception tests
g) Cut off tests
h) Inquire
i) Valuation tests
j) Evaluation of Financial Statements
k) Reading of minute of meeting of stockholder, directors and committee.
Confirmations
The audit team should determine whether the use of external confirmations is necessary to obtain
sufficient appropriate audit evidence to support certain financial statement assertions. In some
situations, audit evidence from external sources is more reliable than internal audit evidence.
Accordingly, audit evidence in the form of written responses to confirmation requests received
directly by the auditor from third parties who are not related to the entity being audited, may assist
in reducing audit risk for the related assertions to an acceptably low level. Examples of accounts
receivables, accounts payables and bank balance confirmation form that are used by MARHK &
CO. Chartered Accountants to confirm the clients balance of various accounts receivables and
accounts payables.
4.1.7 Evaluate and communicate audit results

At the last stage of audit, the audit team communicates the result of the audit to the management
and the stakeholders of the company. The audit team issues two types of reports:
a)
External Report which is commonly known as the Auditors report
b)
Internal Report which is known as Management Letter.
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4.1.7.1 Reporting the result of the Audit

The audit report is the terminate step in the audit process. It summarizes the scope of the audit and
presents the auditors finding in the form of an audit opinion. The audit report concisely describes
the auditors responsibility, the nature of the examination and the auditors findings.
Reporting is essential to the audit process because it explains what the auditor did and the
conclusion achieve. Frequently, it is the only part of the audit users see. Therefore, from the users
point of view, the report is the auditors product.
Audit reports are designed to promote clear communication between the auditor and the financial
statement reader by clearly delineating the following:
What was audited and the division of responsibility for financial statements between the clients
management and the auditor (introductory paragraph)
The nature of the audit process (scope paragraph)
The auditors opinion on the fairness of the financial statements (opinion paragraph)
Each part of the audit report is significant in terms of the information conveyed to the user and the
responsibility assumed by the auditor. Regardless of the auditor, the following parts of the audit
report remain the same:
Report Title
Audit Report Address
Introductory Paragraph
Scope Paragraph
Opinion Paragraph
Date of Audit Report
Auditors Address and
Auditors signature
Report Title: The audit report must contain a title. Also, except when the auditor lacks
independence, the title must include the word independent, to distinguish it from other kinds of
reports rendered by CPAs.
Audit Report Address: The auditors report should be mentioned appropriately addressed as
required by the circumstances of the engagement and local regulations. The report is ordinarily
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addressed either to the shareholders or the broad of directors of the entity whose financial
statements are being audited.
Introductory Paragraph: The introductory paragraph identifies the financial statements covered
by the audit report and clearly differentiates managements responsibility for preparing the
financial statements from the auditors responsibility for expressing an opinion on them.
Management responsibility is direct, where the auditor has an indirect responsibility for exercising
due care in conducting the audit and expressing an opinion on the financial statements. In contrast,
the auditors responsibility is to audit these financial statements in order to express an opinion. An
illustration of these matters in an introductory paragraph is:
We have audited the accompanying balance sheet of the ABC Company as of June 31,20XX
and the related statements of income and cash flows for the year ended. These financial
statements are the responsibility of the companys management. Our responsibility is to express
an opinion on the financial statements based on our audit.
Scope Paragraph: The auditors report should be describe the scope of the audit by starting that
the audit was conducted in accordance with BSA & ISA. Scope refers to the auditors ability to
perform audit procedures deemed necessary in the circumstances. The reader needs this as an
assurance that the audit has been carried out in accordance with established standards are practices.
The report should include a statement that the audit was planned and performed to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
The auditors report should describe the audit as including:I.
Examining on a test basis evidence to support the financial statements amounts and
disclosures.
II.
III.
Assessing the accounting principles used in the preparation of financial statements.

Assessing the significant estimates made by management in the preparation of financial
statements.
IV.
Evaluating the overall financial statements presentation.
The report should include a statement by the auditor that the audit provides a reasonable assurance
basis of the opinion. An illustration of these matters in a scope Paragraph is:
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We conducted our audit in accordance with Bangladesh Standards on Auditing (BSA) & ISA
(International Standards on Auditing). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining on a test basis, collection of evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management as well
as evaluating the overall financial statements presentation. We believe that our audit provides
a reasonable assurance basis for our opinion
Opinion Paragraph: The opinion Paragraphs of the auditors report should clearly indicate the
financial reporting framework used to prepare the financial statements and state the auditors
opinion as to whether the financial statements gives a true and fair view in accordance with that
financial reporting framework and where appropriate, whether the financial statements comply
with statutory requirements. The terms used to express the auditors opinion are give a true and
fair view or present fairly, in all material respects and are equivalent. In addition to an opinion
on the true and fair view (or fair presentation, in all material respects), the auditors report may
need to include an opinion as to whether the financial statements comply with other requirements
specified by relevant statutes or low. An illustration of these matters in an opinion paragraph is:
In our opinion, the financial statements give a true and fair view of ( present fairly, in all
material respects), the financial position of the company as of June 31,20XX and of the results
of its operations and its cash flows for the year ended in accordance with Bangladesh
Accounting Standards (BAS).
Date of Audit Report: The report should be signed by the auditor and usually is dated as of the
close of audit field work. This inform the reader that the auditor has considered the effect on the
financial statements and on the report of events and transactions of which the auditor become
aware and that occurred up to that date.
Auditors Address: The report should name a specific location, which is generally the city where
the auditor maintains the office that has responsibility for the auditor.
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Auditors signature: The report should be signed in the name of the audit firm. The auditors report
is generally signed in the name of the firm because the firm assumes responsibility for the auditor.
4.1.7.2 MARHK & CO. Auditors Report

Upon completion of the audit field work then MARHK & CO. Chartered Accountants must decide
whether an opinion can be rendered. If an opinion cannot be rendered, the auditor must clearly
disclaim an opinion and give the reasons for the disclaimer. If an opinion can be rendered, the
auditor must decide whether to issue a Positive and Negative opinion through audit report,
according to Bangladesh Standards on Auditing and International Standards on Auditing.
4.1.7.3 Positive Opinion

(A)Unqualified Auditors Report
MARHK & CO. Chartered Accountants expressed an unqualified audit report when the auditor
concludes that the financial statements are prepared in all material respect, in accordance with the
applicable financial reporting framework. In addition, an unqualified opinion indicates that the
financial records have been maintained in accordance with the standards known as Generally
Accepted Accounting Principles (GAAP). This is the best type of report a business can receive.
Typically, an unqualified report consists of a title that includes the word independent. This is
done to illustrate that it was prepared by an unbiased third party. The title is followed by the main
body. Made up of three paragraphs, the main body highlights the responsibilities of the auditor,
the purpose of the audit and the auditors findings. The auditor signs and dates the document,
including his address.
(B) Modified Auditors Reports
In addition to modified audit report, MARHK & CO. Chartered Accountants sometimes provide
modified audit report. An auditors report is considered to be modified in the following situations:
1. Matters that do not affect the auditors opinion
Emphasis of matter
2. Matters that do affect the auditors opinion
Qualified opinion
Disclaimer of opinion and
Adverse opinion
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Matters that do not affect the auditors opinion

In certain circumstances, an auditors of MARHK & CO. Chartered Accountants may be modified
by adding an emphasis of matter paragraph to highlight:
i.
A material matter regarding a going concern problem.
ii.
A significant uncertainty (other than a going concern problem).
The addition of such an emphasis of matter paragraph does not affect the auditors opinion. The
paragraph would preferably be included after the opinion paragraph and would ordinarily refer to
the fact that the auditors opinion is not qualified in this respect.
Matters that do affect the auditors opinion (Qualifications in audit reports)

An auditors of MARHK & CO. Chartered Accountants may not be able to express an unqualified
opinion when either of the following circumstances exists and in the auditors judgment, the effect
of the matter is or may be material in the financial statements:
There is a limitation on the scope of the auditors work;
There is a disagreement with management regarding the acceptability of the accounting

policies selected, the method of their application or the adequacy of the financial statement
disclosures.
4.1.7.4 Negative Opinion

(A) Qualified Opinion
In situations when a companys financial records have not been maintained in accordance with
GAAP but no misrepresentations are identified, that time MARHK & CO. Chartered Accountants
will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an
unqualified opinion. A qualified opinion includes in additional paragraph that highlights the reason
why the audit report is not unqualified.
(B) Adverse Opinion
The worst type of financial report that can be issued to a business is an adverse opinion. This
indicates that the firms financial records do not conform to GAAP. In addition, the financial
records provided by the business have been revoltingly misrepresented. Although this may occur
by error, it is often an indication of fraud. When MARHK & CO. Chartered Accountants issued
46 | P a g e
adverse opinion, after that a company must correct its financial statement and have it re-audited,
as investors, lenders and other requesting parties will generally not accept it.
(C) Disclaimer of Opinion
In some instance, an auditor is unable to complete an accurate audit report. This may occur for a
variety of reasons, such as an absence of appropriate financial records. When this happens, that
time MARHK & CO. Chartered Accountants issues a disclaimer of opinion, stating that an opinion
of the firms financial status could not be determined.
4.1.7.5 Internal report/ Management letter

As a value added service to the client, MARHK & CO. Chartered Accountants gives a management
letter to its audit clients. The main purpose of the letter of management is to draw the attention of
management to areas of weakness requiring rectification. It is also possible for the auditor to
suggest areas where economies or improved efficiency are possible. It will usually deal with
matters not serious enough to justify an audit qualification.
Purposes of Management Letter
The principal purpose of management letter is to enable the auditor to give comments on
the accounting records, systems and controls that has examined by auditor. Significant
areas of weakness in systems and controls that might lead to material errors should be
highlighted and brought to managements attention.
As a secondary purpose of management letter may also be used to provide management

with other constructive advice.
A letter to management is also a useful means of communicating matters that have come
to the auditors attention during the audit that might have an impact on future audit.
Contents
Generally the following matters, arising out of the audit
Weaknesses in the structure of accounting systems and internal controls,
Deficiencies in the operation of accounting systems and internal controls,
Unsuitable accounting policies and practices,
Non-compliance with accounting standards.
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Points made in previous years management letter should be reviewed. Where they have not been
dealt with effectively, the auditors should enquire why appropriate action has not been taken.
Management response:
The auditor should request a reply to all the points raised, indicating what action management
intends to take as a result of the comments made in the management letter. It should be made clear
in the report that the auditor expects at least an acknowledgement of the letter or where they
considers it appropriate, the directors discussion of the letter to be recorded in the board meeting.
Basic Elements of the Management Letter
The management letter includes the following basic elements ordinarily in the following present:
a)
Addressee
b)
Transmittal Letter
c)
Title
d)
Background Information
e)
Scope of Work, e.g.
f)
i.
Compliance
ii.
Authorization
iii.
Accuracy
iv.
Monitoring
v.
Safeguarding
Findings: Each finding consists of four different sections as under:

i.
Fact (What it is)
ii.
Effect (What impairment was caused by not complying with the criteria)
iii.
Recommendation (That corrects the cause and the condition as applicable)
iv.
Management Response
g)
Date of the report
h)
Auditors address and
i)
Auditors signature.
48 | P a g e
Chapter-5
FINDINGS, RECOMMENDATION &
CONCLUSION
49 | P a g e
5.1 Findings of the Study

During my internship period, I had the chance to engage with the audit team of MARHK &
CO. Chartered Accountants and perform the audit tusks. On the basis of my own experience
and discussion with others I had found some issues that can be address as the problems of
MARHK & CO. Chartered Accountants, which are as follows:
To perform audit program it required sufficient and skilled members in proper

formation of an audit team. But in MARHK & Co. Chartered Accountants it is not
happen all the time. For that the unformed audit team junior auditors cannot assure the
proper standards of the subject matter.
Performance of the students must be supervised by the audit team supervisor to ensure
the quality of audit performance. Which is not happen in most of the audit program.
Audit standard require before performing the task auditors must need to know about
the clients business nature. But in some case, the student of MARHK & CO. Chartered
Accountants are not given proper orientation about the new clients business. As a
result, perform the audit activities without having proper knowledge about the clients
business.
Auditors cannot examine all the documents and sample size has taken as random basis
which may cause the misjudgments of the subject matter.
Most of the time evidences are not collected properly to assure the accuracy of the
information.
50 | P a g e
5.2 Recommendation of the Study

Based on the findings, I have tried to dictate some necessary recommendation in my report;
which are as follows:
The auditor should select at least three quarter of the documents regarding the financial
statements to verify so that the chance of material misstatements in the untested
documents can be reduced and the audit report will be more reliable.
To get an outline regarding the new clients business, MARHK & CO. Chartered
Accountants arrange proper orientation for the students so that they can be able to
verify the documents and issue the audit report properly.
Junior students must need to supervise by the supervisor to ensure their performance.
They must need to be concern about following the proper audit procedure.
They should prepare audit team by proper number of member with different level of
skills to ensure the reliability of the audit program.
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5.3 Conclusion
In this report, I have tried my level best to cover the details audit procedures as followed by
MARHK & CO. Chartered Accountants in accordance with Bangladesh Standards on Auditing
(BSA) and International Standards on Auditing (ISA) in providing auditing service to its clients.
At first I have tried to give the theoretical understanding about the audit and its related issues to
the users so that they can get a clear view about the audit then I have also studied the rules and
regulations that are required by the ICAB for auditing. MARHK & CO. Chartered Accountants
performs an excellent job in providing audit services for the clients. The staffs who are directly
associated with the excellence of audit service deserve to be acclaimed for their endeavor to this
end. MARHK & CO. Chartered Accountants believes in creating the difference in the market place
by offering impeccable quality.
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5.4 Appendix
Bangladesh Standards on Auditing (BSA)
Bangladesh Accounting Standards (BAS)
Paper F8 (INT/UK) Audit and Assurance
Audit Practice Manual by (ICAB)
Audit Guideline of MARHK & CO. Chartered Accountants
Mautz,R.k & sharaf,H.A (1961) The Philosophy of Auditing American Accounting

Association
Arens, Alvin, A & Loebbecke, James,K,(2009-2010), Auditing-An Integrated Approach (8th

Edition),Prentice Hall International Inc
Website of MARHK & CO. Chartered Accountants
www,google.com
www. Wikipedia.co
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Bangladesh University

of Business & Technology (BUBT)

1.2 Scope of the report

Nature and importance of it has depicted in this study.

1.3 Objectives of the report

1.4 Methodology of the study

1.5 Limitation of the study

2.2 Firms Practice

2.3 Firms Aim

2.4 Firms Commitment

2.5 Partners Profile

Name and Position

Core Competencies and Experience

He obtained experience in working in local and multi-national

2.6 Services that provided by the firm

Statutory Audit under the Bangladeshi Companies Act

2.6.2 Direct Tax Compliances

Quarterly compilation and submission of TDS returns

2.6.3 Indirect Tax Compliances

Compilation, submission of monthly excise returns

2.6.5 Other Services

Foreign Exchange compliance's under Foreign Exchange Management Act and

2.7 Firms Clients

Macro Footwear Ltd.

Multi Products Ltd.

2.7.2 Financial Sector

Jiban Bima Corporation

2.7.3 Power, Oil & Petroleum

Regional Accounting Office (RAO), BPDB

2.7.4 Trading & Service

Bangladesh Chemical Industries Corporation (BCIC)

Amir Trading Corporation

2.7.5 Education Sector

Bangladesh University of Business & Technology

2.7.6 Non-Government Organization (NGO)

Salvation Army Bangladesh Ltd.

3.1 Definition of Accounting and Auditing

Quantifiable Information and Established Criteria: To do an audit, there must be information

3.2 Distinction between Auditing & Accounting

Accounting and Auditing Contrast

accounting to an entity and a society as a whole is to provide certain types of quantitative

3.3 Requirement of an Effective Audit

3.4 Types of Audit

Compliance Audit: Compliance Audit is an operational-style audit that determines if a company

Internal audit is an independent appraisal function established within an

Performance Audit: Performance audit refers to an independent examination of a program,

3.5 AICPA Generally Accepted Auditing Standards

3.5.1 General Standards:

3.5.2 Standards of Field Work

3.5.2 Standards of Reporting

3.6 Audit Risks

3.7 Types of Audit Documentation

Overall audit strategy

Summary of significant matters

Letter of Confirmation and representation

Copies of client records

Names of management, those charged with governance, shareholders

Background to the industry and the clients business

Directors service agreements

Copies of contract and agreements

3.8 Contents of an Audit File

Audit work programmed detailing