ANALYSIS OF AUDITOR’S REPORT
REFHAN MAIZE PRODUCTS LTD.
SUBMITTED TO: SIR M.FARHAN AFZAL
SUBMITTED BY: UMAR SAEED
CMS 20533
M.COM –IV
6/1/2019
Page |
Contents
Introduction of Company: ............................................................................................................... 1
Vision Statement: ............................................................................................................................ 1
Mission Statement:.......................................................................................................................... 1
Corporate Social Responsibility Policy: ......................................................................................... 1
Analysis of the Audit report 2016 and 2017 of Refhan Maize Products Limited .......................... 1
1.
Controls Testing: ..................................................................................................................... 2
2.
Substantive Testing: ................................................................................................................ 2
1.
Cash Balances: ........................................................................................................................ 2
A. Presentation and Disclosure ................................................................................................... 2
B. Valuation or Allocation .......................................................................................................... 3
C. Completeness ......................................................................................................................... 3
D. Rights and Obligations ........................................................................................................... 3
2.
Receivable Balances ............................................................................................................... 3
A. Presentation and Disclosure ................................................................................................... 3
B. Valuation or Allocation .......................................................................................................... 3
C. Completeness ......................................................................................................................... 4
D. Existence or Occurrence ........................................................................................................ 4
E. Rights and Obligations ........................................................................................................... 4
F. Related Income Statement Effects .......................................................................................... 4
3. Inventory .................................................................................................................................... 4
A. Presentation and Disclosure ................................................................................................... 4
B. Valuation or Allocation .......................................................................................................... 4
C. Completeness ......................................................................................................................... 5
D. Existence or Occurrence ........................................................................................................ 5
E. Rights and Obligations ........................................................................................................... 5
F. Related Income Statement Effects .......................................................................................... 5
4. Fixed Assets ................................................................................................................................ 5
A. Presentation and Disclosure ................................................................................................... 5
B. Valuation or Allocation .......................................................................................................... 5
C. Completeness ......................................................................................................................... 5
D. Existence or Occurrence ........................................................................................................ 6
i
E. Rights and Obligations ........................................................................................................... 6
Limitations of Audit Report: ........................................................................................................... 6
i.
Scope of Audit Might Limited By Management. ................................................................ 6
ii. Time Too Constraints for Auditors. ..................................................................................... 6
iii.
Auditors’ Independence. .................................................................................................. 6
iv.
Risks That Might Not Detect By Auditors ....................................................................... 6
v. Auditors Qualification and Competency. ............................................................................ 7
References: ...................................................................................................................................... 8
ii
Introduction of Company:
Rafhan is a Pakistani food brand of Unilever and one of the biggest food brands in
Pakistan. The brand was started by the Pakistani Unilever for corn oil and desserts. It produces
the corn oil, cornflour, custard, ice cream, jelly and pudding. Rafhan brand was established by
Ingredion Incorporate (Formally Corn Products International USA) and was sold out in 1998 to
Uniliver. Rafhan brand is also using by Rafhan Maize for the industrial selling.
It serves textiles, confectionery, processed food, dairy, ice cream, beverages,
pharmaceuticals, paper, corrugation, baking, chemicals, edible oils, poultry, livestock,
aquaculture, and various other industries. The company is headquartered in Faisalabad, Pakistan.
Rafhan Maize Product Company Limited is a subsidiary of Ingredient Incorporated.
Vision Statement:
To be premier provider of refined agriculturally based products and ingredients in the
region.
Mission Statement:
To grow business consistently through positive relationship with customers to attain full
customer satisfaction and to bring continual improvement by adopting only those business
practices which add value to our customers, employees and shareholders.
Corporate Social Responsibility Policy:
All donations, charity, contributions or other payments of similar nature can be made to
the deserving charitable or other institutions, sports organizations and clubs for the welfare of the
community. However, wherever possible, such payments should be restricted to the institutions
who are registered with the Income Tax department for this purpose and where donations are
allowable as admissible expenses by tax authorities. The payment to other organizations/clubs
can be made where it is in the best interest of the Company to make such donation.
Analysis of the Audit report 2016 and 2017 of Refhan Maize Products Limited
The audit report presented by the Auditing firm KPMG for the Refhan Maize Ltd.
Company is unqualified. In which the auditors have fairly expressed their opinion that the
company has followed the required Accounting and Financial Reporting Framework. They also
claim that they have conducted audit in accordance with the auditing standards as applicable in
Pakistan.
The analysis is done by dividing the report into various points. First of all the auditors
claim that they have audited the statements of company and obtained all the necessary
information that is required for the audit purpose. There are clear frameworks from independent
auditing standard setters which provide rules and guidelines for how an audit should be carried
out and the level of assurance obtained. It is the auditor’s responsibility to plan and conduct the
audit in such a way that it meets the applicable auditing standards and sufficient appropriate
evidence is obtained to support the audit opinion. However, what constitutes sufficient
appropriate evidence is ultimately a matter of professional judgment. The auditor considers a
Page | 1
number of factors in determining whether financial statements are free of material misstatement,
and in evaluating any misstatements identified. These factors require professional judgment,
where auditors use their skill and experience to form a view based upon the evidence gathered on
the financial statements taken as a whole.
The auditor in order to obtain evidences performs the following:
1. Controls Testing:
As businesses have grown more complex and sophisticated, and the costs of labour have
risen, automated systems and processes have necessarily become much more prevalent. A wellrun business will have its own systems and controls in place to operate efficiently, safeguard its
assets, and to provide reasonable assurance that its transactions are properly reported and that its
financial statements are complete and accurate. The auditors assess the effectiveness of these
controls in preventing and mitigating the possible risk of material misstatement in those
areas where the auditor plans to use such controls to adjust the nature, timing and extent
of their testing. If they believe the controls are effective, and they have tested that they
operated reliably throughout the year, then the level of substantive audit evidence needed
to give an opinion may be reduced. Even if the controls are reliable, varying degrees of
substantive audit evidence will still always need to be gathered.
2. Substantive Testing:
In addition to testing controls, the auditor is required to perform further procedures to
gather evidence from substantive procedures (substantive audit evidence), which can include a
combination of the following:
 Physically observing or inspecting assets (such as inventory or property, plant and
equipment);
 Examining records to support balances and transactions;
 Obtaining confirmations from third parties the company does business with (such as
its suppliers, customers and in particular the banks it uses);
 Checking elements of the financial statements by comparison to relevant external
information and investigating any differences (for example, using an external
market index to check pricing and valuations); and
 Checking calculation
It is not possible to go through the audit procedure of all the elements of financial
statements of the Refhan Maize Product Company in this analysis. However the audit procedure
adopted by the auditor for some elements is discussed as under:
1. Cash Balances:
A. Presentation and Disclosure
1. Read or review the financial statements to verify proper classification.
2. Read or review the financial statements to verify disclosures such as those relating
to compensation balances.
3. Determine the conformity with GAAP.
Page | 2
B. Valuation or Allocation
1. Simultaneously count cash on hand and negotiable securities.
2. Confirm directly with the bank:
 Account balances
 Direct liabilities to bank
 Contingent liabilities to bank
 Letters of credit
 Security agreements under the Uniform Commercial Code
 Authorized signatures
3. Count petty cash fund and reconcile with vouchers.
C. Completeness
1. Obtain bank cutoff statement and determine propriety of year-end outstanding
checks and deposits-in-transit.
2. Examine or prepare year-end bank reconciliation.
3. Prepare a proof of cash.
4. Perform analytical procedures.
D. Rights and Obligations
1. Read minutes of the board of directors’ meetings.
2. Determine existence of compensating balances, levies, etc.
3. Verify names on accounts through confirmation requests.
2. Receivable Balances
A. Presentation and Disclosure
1. Determine appropriate classification of account balances.
2. Read or review the financial statements in order to verify disclosure of:
 Restrictions—pledging, factoring and discounting
 Related party transactions
3. Trace amounts on trial balance to general ledger control accounts and subsidiary
ledger totals.
B. Valuation or Allocation
1. Confirm account balances where reasonable and practicable using positive
and/or negative confirmation requests.
2. Examine collections in the subsequent period cash receipts journal.
3. Examine and verify amortization tables.
4. Examine aging schedules.
5. Review adequacy of allowance for doubtful accounts.
6. Review collectibility by checking credit ratings (e.g., Dun and Bradstreet
ratings).
7. Verify clerical accuracy and pricing of sales invoices.
8. Foot daily sales summaries and trace to journals.
Page | 3
9. Perform tests for omitted and invalid (or unsupported) transactions with respect
to subsidiary ledger account balances.
C. Completeness
1. Perform sales and sales return cutoff tests.
2. Perform analytical procedures.
3. Test for omitted transactions.
D. Existence or Occurrence
1. Inspect note agreements.
2. Confirm accounts receivable and notes receivable balances.
3. Review client documentation.
E. Rights and Obligations
1. Read minutes of board of directors’ meetings.
2. Read leases for pledging agreements.
3. Determine pledging and contingent liabilities to bank by using a standard bank
confirmation.
F. Related Income Statement Effects
1. Review installment sales profit recognition.
2. Verify accuracy of sales discounts and term discounts.
3. Review bad debt expense computations.
4. Recalculate interest income on notes receivable.
3. Inventory
A. Presentation and Disclosure
1. Read or review the financial statements to verify footnote disclosure of:
 Valuation method and inventory flow, e.g., lower-of-cost-or-market value,
first-in-first out
 Pledged inventory
 Inventory in or out on consignment
 Existence of and terms of major purchase commitments
B. Valuation or Allocation
1. Verify the correct application of lower-of-cost-or-market value.
2. Verify the quality of inventory items.
3. Vouch and test inventory pricing.
4. Perform analytical procedures.
5. Verify the propriety of inventory flow.
6. Consider using the services of a specialist to corroborate the valuation of
inventory.(e.g., a gemologist to corroborate the valuation of precious stones).
Page | 4
C. Completeness
1. Perform cutoff tests for purchases, sales, purchase returns, and sales returns.
2. With respect to tagged inventory, perform tests for omitted transactions and
tests for invalid transactions.
3. Verify the clerical and mathematical accuracy of inventory listings.
4. Reconcile physical inventory amounts with perpetual records.
5. Reconcile physical counts with general ledger control totals.
D. Existence or Occurrence
1. Observe client inventory counts.
2. Confirm inventory held in public warehouses.
3. Confirm existence of inventory held by others on consignment.
E. Rights and Obligations
1. Determine existence of collateral agreements.
2. Read consignment agreements.
3. Review major purchase commitment agreements.
4. Examine invoices for evidence of ownership.
5. Review minutes of the board of directors’ meetings.
F. Related Income Statement Effects
1. Verify that ending inventory on the balance sheet is identical to ending
inventory in the Cost of Goods Sold section.
4. Fixed Assets
A. Presentation and Disclosure
1. Read the financial statements in order to verify:
 Disclosure of historical cost
 Disclosure of depreciation methods under GAAP
 Financial statement classification
 Disclosure of restrictions
B. Valuation or Allocation
1. Examine invoices.
2. Inspect lease agreements and ascertain the proper accounting treatment (e.g.,
capital vs. operating lease).
3. Analyze repairs and maintenance accounts.
4. Analyze related accumulated depreciation accounts.
5. Vouch entries in fixed asset accounts.
6. Test extensions and footings on client-submitted schedules.
C. Completeness
1. Perform analytical procedures.
2. Inspect fixed assets.
3. Examine subsidiary schedules.
Page | 5
4. Reconcile subsidiary schedules with general ledger control.
D. Existence or Occurrence
1. Inspect fixed assets.
2. Examine supporting documentation.
E. Rights and Obligations
1. Inspect invoices.
2. Inspect lease agreements.
3. Inspect insurance policies.
4. Inspect title documents.
5. Inspect personal property tax returns.
6. Read minutes of the board of directors’ meetings.
Limitations of Audit Report:
i. Scope of Audit Might Limited By Management.
This is popular discussion about audit’ issues. In the audit standard, auditors should
have full right to access to any kind of information that could help them to obtain audit evidence
express their opinion. However, in practice, management might try their best to prevent auditors
to obtain some sensitive information. These are probably the management don’t fully trust
auditors ethic related to confidentiality or management themselves have integrity problems.
These problems might prevent auditors to provide the best quality of audit opinion that it should
be.
ii. Time Too Constraints for Auditors.
In practice, auditor normally face too time constraints which does not provide them
enough time to perform their testing as they should be.
iii. Auditors’ Independence.
Code of ethic required auditors to stay independence from their audit client. This is to
make sure that auditors do not bias when they perform their works as well as when they issue
audit opinion.
iv. Risks That Might Not Detect By Auditors.
Inherent Risks and Fraud Risks. Audit standard require auditors to have proper audit
planning as well as risks assessment. This is to make sure that the audit quality is maintain, and
audit risks are identified and minimize. However, these things could not auditor to eliminate all
kind of risks of material misstatement from financial statements. For example, inherent risks and
fraud risks.
Page | 6
v. Auditors Qualification and Competency.
This is also the importance point. We all know that in order to run audit firm,
someone who represent the firm need to hold CPA qualification. But the thing is because the
competition, and because of the amount of works, the quality of audit report might have some
problems.
************
Page | 7
References:
https://www.wikiaccounting.com/audit-approach-four-types-audit-approaches/
http://www.rafhanmaize.com/
https://www.accountingtools.com/articles/audit-procedures.html
https://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-studyresources/f8/technical-articles/audit-procedures.html
https://accounting-simplified.com/audit/introduction/limitations-of-audit.html
https://smallbusiness.chron.com/limitation-scope-audit-report-10016.html
https://accounting-simplified.com/audit/introduction/limitations-of-audit.html
Page | 8