The Auditor General of Pakistan (AGP) has uncovered a loss of Rs 3.5 Crore in state-owned oil and gas explorer Pakistan Petroleum Limited (PPL) in hiring of a consultant in a short time that also led to rejection of the bid for acquiring British Petroleum (BP) assets in Pakistan.

According to the audit report for 2010-11, lapse of a considerable time in hiring of the consultant to assess BP assets resulted in an inadequate evaluation of technical assets which ultimately led to rejection of the final bid price, besides a wasteful expenditure of Rs 3.5 Crore in hiring of the consultant.

PPL offered final bid price of $200 million on December 8, 2010, but it was rejected by BP because it was too low compared to an offer of $775 million made by United Energy Group Limited. The PPL managing director was not available for comments.

On July 20, 2010, British Petroleum Exploration Company announced plans to sell its production assets and exploration licence in Pakistan on a fast track basis and close the transaction by the end of the year.

In response, PPL submitted Expression of Interest (EOI) on July 26. Later on September 16, the government expressed the desire to make a joint bid from different exploration and production companies namely PPL, Oil and Gas Development Company (OGDC), PEL and Zhenhua. Then on September 24, PPL submitted an EOI and confidentiality agreement to BP for participation in the sale of assets.

For submitting the final bid offer, BP fixed the date of November 8. However, the date was extended later to December 8 after PPL approached the petroleum ministry secretary, seeking extension in the bid submission date.

According to the audit report, auditors observed that consulting firm RPS Energy, which was hired to prepare a technical bid, showed reservations, saying it was not possible to do due diligence of plants and facilities in a short time. However, PPL’s own team examined BP assets on November 23-24.

According to the auditors, the PPL management in its reply to the audit observations in February this year stated that the auditors’ viewpoint about lapse of considerable time in hiring of consultant is incorrect as the process of hiring consultants and advisers is conducted on a fast track basis without any delay and letters of award to all consultants/advisers were issued on October 21, 2010. However, RPS’ reservations about making a field visit were genuine in view of the limited time.

The auditors were of the view that the reply of PPL management was not tenable as on September 15, 2010, BP in its response to the PPL EOI raised reservations about allowing Norinco International Co to participate in the sale process. So, the PPL management was required to revise its EOI and tried to mobilise advisory/consultancy consortia on a fast track basis.

On the acceptance of bid price of $775 million, quoted by United Energy Group (UEG), a Hong Kong-based investment group, the PPL management stated the bid price offered by PPL and OGDC amounting to $200 million was enough keeping in view the actual worth of BP assets in Pakistan. But the auditors rejected this argument, saying UBS analysts had estimated, in a research note in July 2010, that BP fields in Pakistan were worth $690 million.

“Audit also holds the view that PPL and OGDC lost their joint bid for acquiring BP assets as it was significantly lower than those submitted by other parties. The purchase would have been relatively more important for PPL, as output from its mainstay Sui gas field in Balochistan has been declining over the past few years,” the report said.

(EconomyAge) – A.F.Ferguson, Pakistan’s member firm of PriceWaterCoopers, a huge market leader in audit industry, issued and cleared a certificate for its client, GlaxoSmithKline, a pharma giant, to issue bonus shares from free reserves.

According to Companies’ Rules 1996, proposed issue of bonus should not be less than twenty five percent of the enhanced paid-up capital.

According to documents received by EconomyAge, A.F.Ferguson gives a green single to GSK (GlaxoSmithKline). The letter sent to Karachi stock exchange read:

We have ascertained from the company’s financial statements for the year ended December 31, 2011, that the company’s residual “free reserves” in terms of meaning given in the companies (issue of capital) Rules 1996, after the proposed issue of bonus shares of a face value of Rs 239.269 Million would not be less than twenty five percent of the enhanced paid-up capital of Rs 2.63 Billion.

GSK made just over a Rs 1 Billion in last year 2011 on  sales revenues of Rs 21 Billion

In another interesting turn of events, Afghan government start blaming A.F.Ferguson & Co of Pakistan, a member of PriceWaterCoopers. The finance ministry of Afghanistan said that an “erroneous” audit and inadequate help from international banking advisers compounded financial problems at the embattled Kabul bank.

These  comments came after a top U.S. Treasury Department official visited Kabul Thursday to discuss improving oversight of the nation’s private banking sector. This wasn’t the first time when Afghan government start blaming, and in this case their own audit firm, others to cover up their misdeeds.

Many critics are already pointing fingers on Afghan government and recent finger pointing on A.F.Ferguson might be an attempt to shift the spot light from them. A.F.Ferguson & Co responded, “We don’t understand the basis for this comment”.

We’ll keep you you updated on latest findings.

According to American Banker Mobile banking through mobile devices such as cellular phones, smart phones and personal digital assistants has more than doubled globally since 2008, with consumers in the Asia-Pacific region, Central and Eastern Europe and the United States at the forefront, new research from KPMG International suggests.

The New York-based audit, tax and advisory firm in late July released results from its Global Consumers and Convergence survey. KPMG conducted the research earlier this year through an online and telephone survey of 5,627 consumers in 22 countries including as Australia, Germany, France, Japan and India. Respondents on average were 35 years old; in the U.S. respondents on average were 37.

Survey results showed that 34% of all consumers are comfortable using mobile phones for online banking and financial transactions, compared with 14% who said so in 2008.

Some 46% of consumers said they have used their mobile device for banking compared with 19% who said so in 2008. About 30% of all respondents said they conduct personal banking on their mobile device at least once a month, compared with 10% who said so in 2008.

And despite the recent uptick in mobile banking in the U.S., KPMG noted in its report that U.S. mobile-banking users are still in the minority, which represents a significant market opportunity.

Earlier this month, the Boston-based advisory research and consulting company, IDC Financial Insights also reported the use of mobile-banking service in the U.S. is increasing but is still not a widely accepted practice.

Aside from mobile banking increasing, consumers also are more likely to use their mobile device to purchase something from a merchant’s mobile website, according to the survey. More than 10% of U.S. consumers indicated they had shopped through their mobile device, double the amount in 2008. U.S. respondents 55 or older, however, noted they are hesitant to engage in mobile purchases.

Globally, 28% of respondents said they had accessed an Internet site from their phone, up from 10% who said so in 2008, while 41% of consumers in the Asia-Pacific region said they have used their mobile device to make purchases from a merchant’s site, up from 14% in 2008.

The findings of this study time in with the preparation of the upcoming overhaul of the 4th and 7th Accounting Directives – to be unveiled by the European Commission end 2010-early 2011 – which should encompass a part on audit exemption thresholds; and also of two forthcoming EC green papers respectively on corporate governance (to be published end of May) and on the role of audit due in September.

At the roundtable, around 30 informed stakeholders – including the European Commission, academics, as well as financial services experts and practitioners – sought to answer a series of questions about the potential consequences of increasing the audit exemption thresholds in the EU.

They discussed whether the audit exemption threshold across the EU was at the right level, what evidence was used in setting the audit exemption threshold and whether the criteria which are taken into account – such as turnover figures, balance sheet totals and number of employees – are the right factors. They also examined the regulatory burden of an audit, especially on SMEs, versus the value of an audit, as well as the role of audit to fight against bribery, corruption and money laundering.

Neil Stevenson, ACCA’s Executive Director-Brand, said: “This debate clearly highlighted that the value of audit needs to be considered in the context of a wider societal approach to checks and balances which provide assurance to all stakeholders. It is clear that audit can drive confidence in markets.”

Surprisingly, the discussions revealed that the vast majority of European companies (around 98. 7%) are today exempted from statutory audit, covering almost half of all employees in Europe, and that approximately 1.4 million audits are performed each year while the EU mandates only 0.3 million . The audit exemption threshold also varies according to member states: some, such as Belgium and Germany, keep it close to the €8.8 million EU threshold, while others – such as Greece(remember something), Poland or Spain – keep it significantly lower.

Many participants agreed on the benefit of incremental approaches to gradually raising the threshold, not at EU level but at individual member state’s level, stressing that any increase should be accompanied by an evidence-based impact assessment.

Sara Harvey, Chair of ACCA’s auditing technical committee said: “At a time when governments are looking to the private sector to lead the economies of Europe out of recession and into full recovery, auditing and accounting contribution to the achievement of business confidence – in instilling financial discipline and ensuring better corporate governance – should not be treated lightly, even at the small entities level.”

Ms Harvey added: “The role of audit in society is important and there is no doubt that having a respected form of auditors looking over the books helps businesses access finance. However, to better tackle SMEs’ needs, we should start thinking about introducing a cheaper and quicker scaled-down version of the full audit and involve agreeing procedures with the business to provide assurance on the areas of risk which are of most importance to them, such as cash control, using a ‘segmented’ approach.”

• Tolerable misstatement by financial statement classification will affect sample sizes determined statistically or non-statistically.  Using a higher level of tolerable misstatement when risk at the assertion level is low or medium results in fewer individually significant items, smaller sample sizes and less audit work to achieve the desired level of assurance.
• Using a factor of up to 1/3 (or maybe higher!) of tolerable misstatement at the financial statement or assertion levels to determine the lower limit for individually significant items when risk is less than high to moderate allows us to eliminate work by auditing fewer individually significant items.  Account balances on the trial balance,general journal entries, unusual transactions in the general ledger, individual accounts receivable balances and outstanding checks on bank reconciliations that are less than the respective lower limits are examples of applications where testing can be reduced.
• Potential adjustments less than the lower limit can be recorded on an Error Analysis Form for error analysis by the in-charge accountant, thereby limiting the number of proposed adjustments to the trial balance.

• Paper-passed adjustments require no further consideration or documentation.

As most of us know, maximizing time savings on audits usually results from planning decisions that reduce audit work.  Reflecting risks of material misstatement at the financial statement and assertion levels in making materiality decisions during planning can be one of our most significant opportunities to save time!

After the collapse of Lehman Brothers, everyone is pointing finger as who were responsible but the bigger question in my opinion is-what exactly is the role of auditors?

The accounting behind the Lehman Brothers and the report was quite uncomfortable for everyone especially Audit Fraternity. According to an article in Accountancy Age, the claim from Anton Valukas, the bankruptcy examiner, is that the position of Lehman was misrepresented and that auditor Ernst & Young was negligent in not spotting the problem.

According to the article, the examiner believes that there was evidence to bring charges against both the company and the audit firm. Things like these are giving a bad name to audit industry. Auditors are always in a special position, despite being outsiders, they know lot more than others. And if a billion dollar corporation start ending this way, then who will they audit in the end?

An auditor is just like a financial doctor and not fulfilling their duties of “True and Fair” reports is just like a doctor who sells the organs of his/her patients.  As far as the results of the report is concerned, everyone is still waiting but we hope that it make sure that these incidents won’t happen again in future.

Please give us your comments as how we can avoid such incidents?

copyright www.paksitanacca.com, 2010

Brendan Murtagh, president of the Association of Chartered Certified Accountants (ACCA), said the full benefits of the audit – to businesses, the economy and society as a whole ? are often not being realised.

He said that while audit has “a key role to play” as a source of public confidence in financial reporting, it can also play a valuable role in establishing and maintaining business trust.

Mr Murtagh said that while the audit model is not broken, the accountancy profession should consider the needs of a wider range of stakeholders.

It can achieve this by extending the scope of the audit from giving an opinion on financial statements to engaging on issues such as risk management and corporate governance, he added.

“Would auditors be up to the job? We believe they would,” Mr Murtagh stated.

ACCA is the global body for professional accountants, possessing members in 170 countries around the world.

The exams results, issued on 22 February, revealed that 6,678 students successfully completed their final exams to become ACCA affiliates.

‘We are delighted that results are steadily improving throughout the professional level papers,’ said Aude Leonetti, ACCA acting executive director – learning. ‘This is, we believe, due to our continued focus on study resources and strong partnerships with learning providers around the world.

‘We are also extremely pleased to see that performance in the Fundamentals paper F5 (Performance Management) continues to improve as a result of the package of support that we put in place for this paper. We continue to focus on ensuring that students have the best possible resources to enable them to progress through ACCA’s internationally recognised examinations.

‘It is encouraging to see that despite the global economic conditions, tens of thousands of people continue to develop their skills for a career in accounting. We also want to congratulate the 6,678 people who have now completed their exams and we look forward to welcoming them to ACCA membership on completion of their practical experience requirements and professional ethics module. ACCA is committed fully to supporting these individuals in the next phase of their careers.’

The pass rates for the December 2009 sitting of the ACCA Qualification are as follows:

• Paper F1 Accountant in Business – 66%*
• Paper F2 Management Accounting – 58%*
• Paper F3 Financial Accounting – 64%*
• Paper F4 Corporate and Business Law – 42%
• Paper F5 Performance Management – 52%
• Paper F6 Taxation – 51%
• Paper F7 Financial Reporting – 39%
• Paper F8 Audit and Assurance – 40%
• Paper F9 Financial Management – 37%
• Paper P1 Professional Accountant – 49%
• Paper P2 Corporate Reporting – 58%
• Paper P3 Business Analysis – 48%
• Paper P4 Advanced Financial Management – 41%
• Paper P5 Advanced Performance Management – 42%
• Paper P6 Advanced Taxation – 39%
• Paper P7 Advanced Audit and Assurance – 39%

The pass rates for the December 2009 sitting of the Certified Accounting Technician (CAT) scheme are as follows:

• Paper 1 Recording Financial Transactions – 64%*
• Paper 2 Information and Management Control – 65%*
• Paper 3 Maintaining Financial Records – 62%*
• Paper 4 Accounting for Costs – 63%*
• Paper 5 Managing People and Systems – 42%
• Paper 6 Drafting Financial Statements – 57%
• Paper 7 Planning, Control and Performance Management – 58%
• Paper 8 Implementing Audit Procedures – 30%
• Paper 9 Preparing Taxation Computations – 59%
• Paper 10 Managing Finances – 36%

via ACCA Global

Periodic or specific purpose adhoc audit conducted by external independent qualified accountant(s). Its objectives is to determine, among other things, whether

(1) the accounting records are accurate and complete

(2) prepared in accordance with the provision of GAAP

(3) the statements prepared from the accounts present fairly the organizations’ financial position and the result off its financial operations.

How to Perform an External Audit

External audits are essentially assessments of some aspect of a company’s operation. The audit may be focused on the structure and propriety of the company’s finances, legal and ethical compliance with legal and industry standards as they relate to operational procedures, or an evaluation of the human resource compliance of the corporation. An external audit is always conducted by a party that has no personal or financial interest in the company or its operations. Regardless of the type of external audit involved, there are a few essential processes that will always be involved.

• Meet with company management and/or executives to define the perimeters of the audit. If the audit is primarily focused on finances, this will entail meeting with the Chief Financial Officer of the organization, as well as key accounting personnel. In other instances, this may involve Human Resources personnel, or employees who oversee the day to day operations of the production floor.
• Research the company online. Find out what you can find in media reports, message boards, and other places around the Internet that may be relevant to the audit process. This is mainly helpful when conducting audits related to issues other than accounting, although the research could yield some important data that is relevant to a financial audit as well.
• Gather relevant documents and data. This means gaining access to both paper documents and also any electronic systems that are used to house the relevant information. The data may come from file cabinets, internal electronic storage, or involve securing access credentials to data that is stored on a remote server.
• Read all relevant data. This include hard copies as well as electronic files. Becoming familiar with both the type of documentation that is done as well as how detailed the information happens to be will provide a foundation for understanding what to look for and where to find what you need.
• Prepare a list of questions and present to your contacts at the organization. The questions will have come to mind while reading through the data supplied. This may allow you to find more information that will help to fill in gaps in the data you have already reviewed.
• Organize the data and the responses to the questions. Combining all input into a format you can easily work with will speed up the process of the audit.
• Assess the data at your fingertips. This will mean identifying areas where the company appears to be in compliance as well as pointing out areas that are not in compliance and could use some additional attention.
• Make suggestions for improvement. While this is not always the function of a financial external audit, it has become increasingly common for auditors to offer advice on how to improve existing systems so that the operation is more in compliance with industry or government standards.