(Use Firm’s Letterhead here)
MONNOO ENERGY LIMITED
Management Letter for the audit of
the year ended June 30, 2023
Presented to:
Board of Directors
Presented By:
Fazal Mahmood &
Company,
Chartered Accountants
Private and Confidential
Board of Directors
Monnoo Energy Limited
3 Montgommery Road,
Lahore
Date: ______________
Dear Sir,
Subject: Management Letter for the audit of MONNOO ENERGY LIMITED for the year ended June
30, 2023
We have completed the audit of financial statements of MONNOO ENERGY LIMITED (hereinafter
referred to as “the Company”) for the year ended June 30, 2023 and we are pleased to present to you the
results of our work.
In planning and performing our audit of the financial statements of the Company, we considered the
company’s internal control in order to determine our audit procedures for the purpose of expressing an
opinion on the financial statements and not to provide assurance on the internal controls. Our
consideration of internal controls would not necessarily disclose all matters in internal control that might
be significant deficiencies in internal control or deficiencies in the design or operation of internal control.
A deficiency in internal control exists when:


A control is designed, implemented or operated in a way that is unable to prevent, detect and correct,
misstatements in the financial statements on a timely basis; or
A control necessary to prevent, detect and correct misstatements in the financial statements on a
timely basis does not exist.
A significant deficiency is a deficiency or combination of deficiencies in internal control that in our
judgment is of sufficient importance to merit the attention those charged with governance. We noted
certain matters involving the system of internal controls and its operation and we are submitting our
observations and recommendations as part of our report.
This report is solely for the information and use of the management of the company and is not intended
to be and should not be used by anyone other than the intended users.
We would like to record our appreciation for the assistance and support we received from the company’s
management team during the entire audit process. We would be pleased to provide any clarification that
you may require on the issues raised in this report.
Yours faithfully,
_________________________________
Fazal Mahmood & Company
Chartered Accountants
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Table of Contents
Introduction ............................................................................................................................................... 3
Responsibilities of management........................................................................................................ 3
Responsibilities of auditors ................................................................................................................ 3
Audit approach and audit findings ....................................................................................................... 4
Independence......................................................................................................................................... 4
Application of accounting standards ................................................................................................ 4
Significant audit adjustments ............................................................................................................ 4
Weaknesses in internal control .......................................................................................................... 4
Weaknesses ................................................................................................................................................ 5
Internal control weaknesses and related recommendations............................................................. 9
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Introduction
We have completed the audit of the financial statements of MONNOO ENERGY LIMITED for the year
ended June 30, 2023. Our audit was conducted in accordance with International Standards on Auditing.
Our engagement letter sets out the basis on which we act as auditor of your company and the respective
areas of responsibility of management and of ourselves, which we highlight below:
Responsibilities of management
As management of the company, you are responsible for the preparation of financial statements that
present the financial position and financial performance of the company in accordance with the
accounting policies of the company. Our auditor's report has explained that management is responsible
for the preparation and presentation of the financial statements in accordance with the applicable
financial reporting framework and this responsibility includes:



Designing, implementing and maintaining internal control relevant to the preparation of financial
statements that are free from misstatement, whether due to fraud or error;
Selecting and applying appropriate accounting policies; and
Making accounting estimates that are appropriate in the circumstances.
The audit of the financial statements does not relieve management of this responsibility.
You are also responsible for making available to us, as and when required, personnel to whom we may
make direct inquiries, all the company’s accounting records, all other relevant records, including minutes
of all management meetings, and information and explanations which we consider necessary for the
performance of our duties as auditors.
Responsibilities of auditors
As auditors, we have a responsibility to report to management of the company whether, in our opinion,
the financial statements prepared by management present the state of the company's financial affairs at
the financial statement date and its profit or loss for the year then ended in accordance with the
accounting policies of the company. In arriving at our opinion, we considered the following matters, and
report:


Whether proper books of account have been kept by the company, so far as appears from our
examination of those books; and
Whether we have obtained all the information and explanations that to the best of our knowledge
and belief we consider necessary for the purposes of our audit.
Our professional responsibilities also include considering whether other information in documents
containing audited financial statements is consistent with those financial statements.
We also have a responsibility to report to the company our observations and recommendations in relation
to the company's internal control environment.
You should appreciate that our consideration of internal control relevant to the company's preparation of
the financial statements is only performed to the extent required to express an opinion on the company's
financial statements. Our comments on these controls will therefore not necessarily address all possible
improvements that might be suggested as a result of a more extensive special examination.
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We have provided you with this separate report, addressed to the company’s management, concerning
any material weaknesses in the design or implementation of internal control over financial reporting that
come to our attention during the audit of the financial statements and which, in our view, require
management's attention. This report also includes a confirmation of our continued independence from
influence that would make our audit opinion subjective.
This report may not be provided to a third party without our prior written consent. Such consent will be
granted only on the basis that this report is not prepared with the interests of anyone other than the
company’s management in mind and that we accept no duty or responsibility to any other party.
Audit approach and audit findings
Our audit approach is risk focused and controls based. In planning and performing the audit, we
assessed the internal controls of the relevant key cycles operated by management, in order to determine
our audit procedures for the purposes of expressing an opinion on the financial statements of the
company.
We have assessed and tested internal controls to the extent we considered appropriate to support our
audit opinion. Where control deficiencies were noted, we tailored our audit approach appropriately to
supplement this work with additional substantive tests of detail to allow us to support our opinion.
Independence
International Standards on Auditing ("ISAs") and our internal quality control procedures requires that we
confirm to you, as the management, our continued independence from influence that would make our
audit opinion subjective. We have re-assessed our independence at this date and can confirm that we are
independent of the company.
Application of accounting standards
The significant accounting policies and other explanatory notes adopted by the company are disclosed in
the notes to the financial statements.
Significant audit adjustments
In carrying out our audit procedures, we consider materiality in terms of the aggregate level of
misstatement that could be considered material to key elements of the company's financial statements. As
the users of the financial statements are anticipated to focus primarily on the results of the company, we
determine our materiality level based on those operating results.
There were no significant audit adjustments to the financial statements.
Weaknesses in internal control
The weaknesses in the design or operation of internal controls that came to our attention during the audit
are detailed in the subsequent sections.
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Weaknesses
This section of our report sets out the key financial reporting findings in respect of identified as part of
our audit procedures.
Weaknesses
Property, Plant & Equipment
It is observed that the fixed assets register is not being maintained by the management as per TR-6 of
the Institute of Chartered Accountants of Pakistan. Company should maintain fixed assets register as
per criteria given by the Institute of chartered accountants of Pakistan under technical release 6, which
shall minimum contain the following particulars;
A detailed description of each item
The original cost of the item
Date of its acquisition
Classification of the item
The location and/or the custodian of the item
The rate of depreciation
Accumulated depreciation
The depreciation charge for the period
The department/cost center/product to which the depreciation is charged
Date of revaluation (if any)
Revalued amount (if any) of the items
Depreciation on revalued amount
Accumulated depreciation on the revalued amount.
Physical verification of fixed assets should be carried out at regular intervals and should be
reconciled with the fixed assets records and adjusted accordingly.
Kindly provide the related party disclosures of sale and purchase.
Long Term Deposits
Management has not provided us the detail of long term deposits on letterheads.
Stores, Spares & Loose Tools
Management has not provided us aging analysis of stores spares & loose tools along with breakup of
slow moving and obsolete items.
Also, management has not confirmed reconciliation balance (complete valuation) on letterhead.
Stocks
Management has not provided to us aging analysis of Stocks as at the year end and Policy for
provision of obsolete stock.
Management has not confirmed to us reconciliation balance (complete valuation) on letterhead.
Management has not provided any production accounts relating to stocks.
Management policy is to record stocks at average cost calculated on moving average basis but in the
item ledger of Argina X-40 Mysella and Furnace Oil rate of issuance and closing balance changes
without new purchase.
Trade Debtors
Management has not provided subsequent clearance of receivable balance during the year.
Kindly provide maximum aggregate balance due to debtors for disclosure purpose.
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Due from Associated Undertakings
Management has not provided to us subsequent clearance status for due from associated undertakings.
Kindly provide us bases for interest working of Due To Associated Undertakings.
Advance to Suppliers
For Advance to Suppliers, management has not provided us confirmation from following parties along
with their ageing and subsequent clearance:
Party
IGI General Insurance
Fair Technology
MM International
Pakistan State Oil Limited
Shell Pakistan
Balance
Rs 3,741
Rs. 100,000
Rs. 23,059
Rs. 5,245
Rs. 5,430
Insurance Receivable
Management has not provided us detail explanation of insurance receivable.
Bank Balance
In financial statements management has presented pay orders in bank balance not in cash equivalents.
Equity
Form A provided to us by management is not updated as previous auditor name is still mentioned in
auditor’s section.
Management has not provided us resolution for removal of predecessor and appointment of new
auditor.
Loan From Directors
Management has not provided to us confirmation from Directors for loan to directors.
Loan From Holding Company and Loan from Associated Companies
For Long Term Loans management has not provided to us any subsequent clearance of principle or
markup.
Management has not provided to us confirmation of Olympia Blended Fiber Mills Limited II regarding
balance of Rs. 1,932.
Kindly provide us bases for interest working of Due from Associated Undertakings.
Deferred Liability
Management has not provided to us signed report from TRT Associates. Also not on letterhead.
Kindly provide banks statements for payment of gratuity.
Creditors
For Creditors, management has not provided us confirmation from following parties along with their
ageing and subsequent clearance:
Party
Adamjee Insurance Company Limited
Efu Life Insurance
Meerab Trade Links
Modern Anti Fire Corporation
Aslam & Brothers
Faisal Enterprises
Balance
Rs 4,400
Rs.Nil
Rs.Nil
Rs.Nil
Rs.Nil
Rs.Nil
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Also, there is a ledger with outstanding balance of Rs. 16,400. Kindly provide invoice related to
outstanding and balance along with subsequent clearance.
Accrued Liabilities
Management has not provided us subsequent clearance of following accrued liabilities:
Description
Salaries & Wages Payable - Mill & Office
Accrued Other Charges
EOBI Payable
Social Security Payable
Balance
Rs 487,802
Rs. 13,070
Rs. 6,176
Rs. 14,829
Employee Income Tax Payable
Management has not provided us subsequent clearance for employee income tax payable.
Worker Profit Participation Fund
Kindly provide us with working of markup percentage charged during the year.
Advance From Employees
Management has not provided us employee wise detail including opening, during the movement and
closing balance. Also provide:
For addition, provide supporting evidence.
For deduction, provide supporting from salary sheet or other.
For closing, provide confirmation employees on company’s letterhead.
Contingencies & Commitments
Management has not provided confirmation from legal advisor.
Taxation
Management has not provided to us assessment orders of cases as highlighted in confirmation from tax
advisors. Also, Management has not provided us taxation working on letterhead signed by company’s
Head of Tax Department and also provide us taxation working signed by company’s Tax Advisor on
their letterhead.
General
Management has not provided to us:
For Omitted Liability Testing, ledgers of the month of July 2023, of expenses and purchases.
For Remuneration note, number of directors, chief executives and other executives and
remuneration paid to them on letterhead.
For Plant Capacity note, capacity detail on letterhead
For Related Party Note, detail of transactions with related parties for both current and
previous year on the letterhead.
For License issued by NEPRA, ledger of payment of license.
For list of employees, showing the leavers and joiners during the year on Company's
Letterhead.
Composition of Internal audit team and internal audit reports for current year.
Approved price list, commission rates and discount policy on company’s letterhead.
Effect of increment on Gross Salary basis.
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Internal control weaknesses and related recommendations
Observation
There are no credit approvals for
accounts receivables.
Implication
The absence of credit approvals
for accounts receivables can lead
to increased bad debt risk,
distorted revenue reporting, cash
flow disruption, reputation
damage, and potential regulatory
violations.
Recommendation
Develop clear credit policies.
Implement segregation of duties.
Establish a credit review
committee.
Monitor and update credit limits.
Use automated approval
workflows.
Provide regular training.
Conduct periodic internal audits.
Strengthen management
oversight.
Management’s Response
According to management they
will resolve the highlighted
observation.
Credit and Sales department are
not independent
The lack of independence
between the Credit and Sales
departments increases the risk of
biased decision-making and
potential conflicts of interest in
assessing customer
creditworthiness and approving
sales transactions.
Lack of surprise audits over cash
departments increases the risk of
undetected fraudulent activities
and misappropriation of funds.
To address this internal control
weakness, it is recommended to
establish a clear organizational
structure that separates the
Credit and Sales departments,
ensuring independent oversight
and decision-making for credit
approvals and sales transactions.
Implement a regular schedule of
surprise audits for cash
departments to deter and identify
potential fraudulent activities
and enhance accountability.
According to management they
will resolve the highlighted
observation.
There are no surprise audits over
cash departments
According to management they
will resolve the highlighted
observation.
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There is no rotation of accounting
personnel
Without rotation of accounting
personnel, the organization is at a
higher risk of fraud, errors, and
collusion due to lack of oversight
and fresh perspectives.
There are no individual asset
identification plates.
The absence of individual asset
identification plates increases the
risk of inaccurate asset tracking
and potential loss or
misplacement of valuable assets.
Implement a mandatory rotation
policy for accounting personnel
to mitigate potential risks,
enhance accountability, and
ensure cross-training for
continuity in financial operations.
Implement a comprehensive asset
labeling system with unique
identification plates to enhance
accountability and facilitate
accurate asset monitoring and
control.
According to management they
will resolve the highlighted
observation.
According to management they
will resolve the highlighted
observation.
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