EXECUTIVE SUMMERY – Audit procedure is mainly a step by step approach. As this is a case study on a selected NGOs (according to ACNABIN no one can disclose the name of the Company name) particular project, it will cover a little area of NGO auditing. But the snapshot can be obtained from this study. The selected NGO has wide range of operations. As an audit firm ACNABIN does complete set of procedures to be followed at the time of audit performed. From engagement to report submission the process is followed with reasonable and professional care and maintaining all rules and regulation and standards.
In this report the main focus was on the implementation procedure of audit and finding out the features that is taken to audit the NGOs. NGO auditing is not like general company auditing. Huge amount of foreign donations are involved here. For that reason the verification of the authenticity of foreign donation is mandatory in case of NGO auditing. The 35 conditions imposed by NGOAB are considered a guideline in this regard.
The auditing is done to find out irregularities regarding stock management, fixed asset management, proper implication of Bangladesh Accounting standards, VAT Act, Income tax ordinance, labor law and other included in internal control system.
The recommendation provided by the auditor is obviously beneficial for the NGOs as those can improve the quality of the respective NGOs performance. In the audit a follow up of the previous year’s audit is verified whether that is solved or not. If not, recommendation on taking proper action is communicated to the management.
But the effort will best be obtained when the transparency of financial reporting will be ensured through a system where the audit procedure will be more flexible and easy to understand. Because it will ensure greater accessibility of people to disclose and evaluate as well as understand and implement the auditing and accounting knowledge.
The auditing profession has contributed and will be contributing a greater extent in ensuring transparency and efficiency of internal control system of various sector of Bangladesh. The achievement of the auditors will be then when the maximum people of the country will be aware about their rights and then proper transparency will come conquering all obstacles.
CHAPTER – ONE
Bangladesh has a history of rich sociological bondage. This social bondage is a basic cultural attributes of Bangladeshi society. With the span of time the social bondage and other social developmental and other activities is now loosing the appeal and effectively. But the state and governmental system is not as adequate to fulfill the requirement of the people of our country. The new capitalist culture is now expanding the income gap between the rich and poor. Undesirable Social and Cultural hazards are now growing in numbers. Government is elected by the people but due to some sort of systematic hazards and cultural deterioration all governmental activities do not fully benefit the people of the country. NGO’s are welcomed here to replace this type of responsibilities which would have to be done by the Government. Non Governmental Organizations (NGO) is not financed by the Government. NGO’s mainly receive fund from foreign countries and they expend this on different projects aiming to maintain social awareness covering the site of education, sanitation and health. To ensure proper transparency and accountability generally auditing is done on those NGOs. Because there are huge possibilities of misusing the fund received from the foreign donor. Potential threats and prospects of NGO auditing is now a very important aspect to raise awareness of the stakeholders of the NGO’s and making an evaluation to improve the quality of auditing. This NGO receive a huge amount of Donations which are transmitted to Sub-recipients NGOs and with prescribed instruction and Budgets. But due to some difficulties and Problems the proper clarification of the audit made cannot be achieved. Due to the weakness in internal control system and other associated external problems the proper utilization of fund money sometimes fall apart. To minimize the risk of that misuse the roll of auditors is important. What should be those roles in assessing the risk, minimizing those risks, strengthening the internal control system and making adequate contribution to the development of the country is an important aspect of this internship report proposal. ACNABIN as a leading chartered accountancy firm has a wide practical exposure on the NGO auditing. In this study those information are incorporated which are best conform the procedure of Auditing of a NGOs by a CA firm.
1.2 Objectives of the study:
Generally in our academic life we get theoretical knowledge about different aspects. But now a day, in the job market there is no substitute of work experience. Getting meaningful work experience in one major field of study must to be given a high priority. After getting theoretical knowledge from university, it is all about the application of that knowledge in real world situations. It has immense importance to establish relationship between theory and practices in real world situation. Practically The Procedure of NGO auditing is deeply characterized by the current accounting and auditing standards, Role of regulatory authorities, Activities of Different Financial and Non-Financial Institutions from home and abroad and Government itself. The objectives of this report are:
Gaining practical knowledge and experience on how a chartered accountancy firm (ACNABIN) performs an audit and a how audit work.
Special Procedures taken by the Firm (ACNABIN) to audit NGOs and their sub recipients.
Understanding the field level problems related to the implementation of the prescribed procedure from the part of both Auditor and client?
Getting a exposure of the Problems in internal control system of different Organizations and plausible recommendations.
Understanding how NGO’s are being benefited by the supervision of the audit firm with adequate exposure on future prospects.
1.3 Methodology of collecting Information:
The hypothesis which I have developed will be through empirical testing research based on the collection of quantitative data taken from financial statements, balance sheets of Different Sub-Recipients and the selected NGO itself. I will mainly focus on the qualitative aspect of my audit. Because for most of the cases, auditing is not only to focus on quantitative aspects of information, it is focusing on qualitative aspects of information also. And there is a high confidentiality regarding the quantitative information.
In order to prepare the assigned project paper I have collected necessary information from two types of source as follows:
1) Primary sources information.
2) Secondary sources information.
Primary sources information
- I have collected primary information by working with NGO audit teams.
- Discussing with engagement partner, audit manager, audit stuff and articled students.
Secondary sources information
- I have also collected secondary information like annual audit report, management audit report, accounting system, Policies, Circulation & audit working papers.
- The information was obtained from various corresponding files of the firm.
1.4 Limitation of the study:
During my study, I have confronted some challenges. I have tried my best to overcome those challenges. Even then, I have some limitations. The study is conducted with an objective to make a thorough study of external audit procedure. The challenges I mentioned before can be termed as the limitation of my study. Those limitations are as follows:
a) As the internship was the first practical experience, it was not possible for me to know all and everything of audit procedure.
b) Some qualitative information is incorporated and for that reason the name of the NGO cannot be mentioned.
NGO means Non Government Organization. NGOs are not self-serving in aims and related values. Their aim is to act in the public arena at large, on concerns and issues related to the well being of people, specific groups of people or society as a whole. They are not pursuing the commercial or professional interests of their members.
Non-governmental development organizations are potentially critical catalysts for unlocking the energies and resources of the poor and voiceless, and for building pluralistic and democratic societies. To be effective in this role, they must formulate and implement programs that strategically promote and support long-term changes that have large-scale development multiplier effects. All too often the early successes of NGOs are difficult to sustain let alone replicate on a larger scale, because of problems in organization and management. (Brown, David. 1988. “Organizational Barriers to NGO Strategic Action.” Institute for Development Research, Boston, 10 pp.)
“Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person.” (Loebbecke.1986)
In other words Auditing is subject to expectations and demands which are, justifiably or otherwise, often disappointed (Kealey, Lee & Stein 2007).
According to the Companies Act 1994, accounts of companies registered under this act must be audited by chartered accountants within the regulations of the Bangladesh Chartered Accountants Order 1973. Similarly, all books of accounts maintained by a non-government organization receiving foreign donations shall be audited by a chartered accountant as defined in the same Order (http://www.banglapedia.org/httpdocs/HT/A_0361.HTM)
NGO Auditing is being characterized as a tool to find out the possible threats and risk associated with the operation of the NGO. To ensure Accountability in NGO sector previously studies are done. With regard to the evolution of NGO accountability practices and their implications on NGOs, Songco (2007) finds that the effort of creating a more proactive environment for NGO accountability is to dissect the different levels at which accountability needs to be promoted, the methods that can be used by NGOs operating in these different levels and incentives and disincentives that can be instituted in this regard. Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and its impact on enforcing and balancing accountability.
Srinivas(2005) claims that NGO accountability covers issues such as organizational management, project implementation, financial management and information disclosure. It is related to issues such as answerability, responsibility, liability, dependability, conscientiousness, reliability, trustworthiness, legitimacy, and transparency. There has been a rising visibility and stakes of NGOs’ work. A crisis of legitimacy in many sectors, especially business and government has amplified the need for NGOs as a ‘counterbalance’.
Srinivas(2005) concludes that cases of NGO misconduct in advocacy, fund use, management, and governance, have come to light, questioning their very legitimacy and congruency with social values and expectations. Some NGO have also ignored the fact that they are answerable to key stakeholders and the constituency that they work with, for promises of performance. Bendell (2006) concluded based on the submissions of eleven world leading NGOs that the core values and operating principles for international NGOs, should include good governance and management; fundraising and multi-stakeholder engagement. It also makes specific reference to respect for universal principles (such as the Universal Declaration of Human Rights), independence, responsible advocacy, effective programs, non-discrimination, transparency and ethical fundraising.
With regard to the evolution of NGO accountability practices and their implications on NGOs, Songco (2007) finds that the effort of creating a more proactive environment for NGO accountability is to dissect the different levels at which accountability needs to be promoted, the methods that can be used by NGOs operating in these different levels and incentives and disincentives that can be instituted in this regard.
Lloyd R. and de las Casas, L. (2005) investigate NGO self-regulation and its impact on enforcing and balancing accountability. They argue that increasing visibility and increasing criticism, among other factors, have led to growing pressure on NGOs to be more accountable, both from within and outside of the sector.
PROFILE OF ACNABIN
Founded in 1985, ACNABIN started with seven partners. The name “ACNABIN” comes from the acronyms of the founder partners:
A = ABM Azizuddin
C = Anwaruddin Chowdhury
N = Abu Syed Mohammad Nayeem
A = Mohammad Akhtaruzzaman
B = ATMA Bari
I = Iftekhar Hossain
N = Mohammad Nurun Nabi.
At present the partnership comprises four founder partners and three new partners.
3.1 The Profile Of Acnabin At A Glance:
NAME OF THE AUDIT FIRM : ACNABIN
DATE OF ESTABLISHMENT : 15 February 1985
TELEPHONE, FAX & E-MAIL : BDBL Bhaban (13th Floor)
12 Kawran Bazar Commercial Area
Phones: (880-2) 8144347-52
Fax #: (880‑2) 8144353-54
Web site: www.acnabin-bd.com
BRANCH OFFICE : House # 734, Road # 26, CDA R/A, Chittagong.
NAME OF PARTNERS,
QUALIFICATION : ABM Azizuddin
B.Com. (Hons). M. Com., FCA
(ICAB Regn. # 46)
: Iftekhar Hossain
B. Com., FCA
(ICAB Regn. # 150)
: Abu Sayed Mohammed Nayeem
B. Com. (Hons.), M. Com., M. Sc., (UK), FCA, FCCA
(ICAB Regn. # 353)
: Mohammad Nurun Nabi
(ICAB Regn. # 370)
: Md. Rokonuzzaman
M. Com., FCA
(ICAB Regn. # 739)
: M. Moniruzzaman
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 787)
: Md. Mominul Karim
B. Com. (Hons.), M. Com., FCA
(ICAB Regn. # 934)
3.2 Manpower Strength
|– Senior Director-Taxation|
|– Director-Audit & Consultancy (Chartered Accountant)|
|– Manager-Audit & Consultancy (Chartered Accountant)|
|– Manager-Taxation & Corporate Affairs (Chartered Accountant)|
|– Deputy Manager-Taxation & Corporate Affairs|
|– Deputy Manager-Audit & Consultancy|
|– Senior Assistant Manager-Audit & Consultancy|
|– Senior Assistant Manager-Taxation & Corporate Affairs|
|– Assistant Manager-Audit & Consultancy|
|– Assistant Manager-Taxation & Corporate Affairs|
|– Executive and Junior Executive-Audit, Consultancy & Taxation|
|*** copied organogram|
3.3 Role of the Personnel:
The role of a partner is to get new clients and also sometimes the clients approach the partners themselves. The partners also make sure the existing clients are provided with the best possible service. Partners guide their employees to prepare a proposal which is to be submitted to the client depending on what kind of service the client requires.
ii. Audit manager:
An audit manager is a Chartered Accountant who assists the partners in various ways. He/ She review reports before signing by the engagement partner.
A supervisor may or may not be a Chartered Accountant. He has to complete the course and having some years experience in the field of accountancy therefore he designated as the Audit Supervisor of the firm. Audit manager briefs the audit supervisor on where and when an audit has to be performed and how the job is to be carried out.
iv. Senior student:
An audit senior has some years of experience in the accountancy field therefore he has been designated as the audit Senior of the firm. Audit senior is briefed by the audit manager and supervisor about where and when an audit has to be performed and how the job is to be carried out.
v. Semi-Senior Student:
A semi-senior student has to complete at least one year of article ship in the firm. Every time he is liable to his assigned senior/s.
vi. Junior Student:
Junior Students are the fresher who have just joined as an articled to the firm.
3.4 Non Professional Staff:
The numbers of non professional staffs involved with the firm are as follows:
General Manager (GM)
Photocopy Machine Operator
3.5 Services Provided By the Firm
ACNABIN provides a wide range of high quality services of diversified nature to its clients in the private and public sectors in Bangladesh. It also renders services to international development agencies and expatriate consultants those are associated with various projects in Bangladesh.
(a)Services offered cover the following areas
Taxation – individuals, companies, banks, branch offices, liaison offices
Accountancy and management training
Company formation and secretarial work
Investigation of frauds and irregularities
Setting up branch office and setting up liaison office
Companies’ registration with Board of Investment, Ministry of Industries etc.
Work permits, visa, security clearance of expatriates
Bank accounts opening for foreign clients
Obtaining permission from the central bank regarding inward and outward remittance
Obtaining trade license, factory license, Import Registration Certificate, Export Registration Certificate, Bonded warehouse facility, VAT registration, Membership of Trade Association/chambers etc.
Providing services regarding setting up of office, drafting rent/lease agreement, recruitments of staff etc.
Preparation of manual and policy guidelines in respect of finance, accounts, internal control, inventory, procurement, operation, administration, human resources etc.
Services relating to fixed assets management, inventory management etc.
Services with regard to share issue, right issue, initial public offering, prospectus
Outsourcing of accounting services, payroll, internal audit etc.
Helping clients in adopting international and local accounting standards
Tax planning and tax management of expatriates
Business plan developments
Feasibility study of projects
Due Diligence Review
Data processing with computers
Privatization consultancy (includes pre-privatization review, restructuring, valuation in particular and privatization assistance in general)
Company acquisition, merger, spin off, amalgamation etc.
Liquidation and winding up of companies
Human Resource Development Issues
Organizational consulting services.
Designing computerized systems for MIS and accounting and its implementation
Other services as per needs of the clients.
(b) Following are a few of the major category of clients receiving ACNABIN’s services
Manufacturing and Trading
|Energy and Telecommunications|
Oil and gas
Power and power generation
Courier and cargo services
3.6 Association and Membership
(a) Affiliation with International Auditing/Accounting Firm
ACNABIN is an independent member of Baker Tilly International, 8th largest network in the world with 145 independent member firms in 110 countries.
(b) Relationship with International Accounting Firm
(i) Association with ASNAF-ASEAN Accounting Firms, Singapore since 18 February 2003.
(ii)Services already provided to the clients include:
Due diligence review
Joint venture enquiries
Establishing business presence
(c) USAID, EC and CIDA Enlisted
In 1993 ACNABIN have been enlisted by the United States Office of Regional Inspector General/Audit, Singapore to perform financial audits of USAID fund recipients in Bangladesh. We have been also enlisted by the European Commission and Canadian International Development Agency to conduct financial audit of the recipients of their fund.
(d) Collaboration with other consulting firms
ACNABIN has been able to establish close working relationship with many national and international consulting firms in Bangladesh through its efficient and dedicated services. ACNABIN has thus enriched its professional base for serving the clients’ interest in the best possible manner.
(a) Metropolitan Chamber of Commerce and Industries
(b) The Dhaka Chamber of Commerce & Industries
(c) American Chamber of Commerce in Bangladesh.
Firm’s registration with relevant authorities
i. Partners of ACNABIN is registered with The Institute of Chartered Accountants of Bangladesh (ICAB) for audit practice.
ii. ACNABIN is enlisted with the Non-Government Organization Affairs Bureau Bangladesh (NGOAB), Enlistment # 21 with NGOAB.
iii. ACNABIN is registered with the Registrar of Joint Stock of Companies and Firms # PF 27897/86 under Section 58 (1) of the Partnership Act, 1932 (IX of 1932) dated June 21, 1986.
**** Information Gathered from ACNABIN Manual
AUDIT PROCEDURES FOR NGOs FOLLOWED BY ACNABIN
4.1 ENGAGEMENT PROCEDURES
Before discussing the Audit Procedures followed by ACNABIN, I try to focus on the engagement procedures through which ACNABIN is engaged/ recruited by the NGO to perform the audit. ACNABIN faces three kinds of situations in engagement process:
Engagement with new NGO.
Engagement with existing NGO.
Directly appointed by the NGO.
Before starting the audit work, some letters are exchanged between ACNABIN and NGOs.
In case of engagement with new NGO:
4 (four) letters are exchanged between ACNABIN and NGO including acceptance letter of appointment at the time of involving with the new NGO. Following stages are followed by both ACNABIN and NGO:
Stage-1: NGO requires for technical and financial proposal from the ACNABIN
NGO generally gives circular with the newspaper or directly wants proposal for audit from the audit firm. In case of direct offer they request to the audit firm to submit a quotation for the cost of conducting audit of the NGO. They also mention the specific date to confirm the decision taken by the audit firm and completion date for audits. The NGO firm mentions here the key areas of the audit in the form of attachment. It assures that if ACNABIN audits NGO’s firm, they will supply the formal terms of reference/audit mandates to govern the conduct of audit.
Stage-2: The technical and financial proposal is sent by ACNABIN to the NGO
After reviewing the NGO letter or paper’s circular, audit firm drafts a proposal letter to the NGO. The proposal letter contains technical and financial proposal for carrying out the subject of audit. ACNABIN estimates its personnel costs after considering the mandates to be utilized and using the minimum hourly rate of fees as prescribed by The Instituted of Chartered Accountants of Bangladesh (ICAB). The firm also mentions that as it is an estimate, the cost may vary with variation in number of mandates estimated to be utilized for the job.
Stage-3: Acceptance by the NGO on the basis of proposal of ACNABIN – A letter of contract
After receiving proposal letters from various audit firms, the NGO then selects the one which is favorable to them, and it appoints the audit firm for audit purpose. From the technical and financial proposal of the ACNABIN the NGO understands the nature of the audit (such as independent, external) to assess the organization’s internal control system in administering the audited matter.
Stage-4: A letter is sent by ACNABIN to the NGO confirming to work with the NGO – Confirmation Letter
After receiving the acceptance letter from the NGO, ACNABIN provides confirmation letter describing the firm’s willingness to work with the NGO.
In case of engagement with existing NGO
Three letters are exchanged between the ACNABIN and NGO:
- 1. Willingness letter for reappointment: In this letter ACNABIN wants to audit this year. It can request to increase audit fee or change some other conditions.
- 2. NGO sends appointment letter.
- 3. ACNABIN accept this appointment.
In case of directly appointed by the NGO
If the NGO is interested to work with ACNABIN, then it directly sends an appointment letter to the firm which includes all terms and conditions. If all terms and conditions are favorable to the ACNABIN then it accepts the appointment and sends a letter to the NGO as an auditor.
4.2 Audit Procedures Followed By ACNABIN
The primary goal of ACNABIN at the time of involving in any audit engagement is to provide the opinion on Financial Statements in accordance with Bangladesh Standards on Auditing (BSA) as well as International Standards on Auditing (ISA). ACNABIN also seek to provide auditing and management consultancy services that are innovative, efficient and most importantly responsive to the NGO’s needs.
There are seven steps involved in the procedures that come one after another. Steps are as follows:
Identity Overall Goals
Gather & Evaluate Initial Information
Assess General Risks
Assess Account-Specific Risks
Develop Effective and Efficient Audit Plan/Work Program
Conduct Audit Testing
Evaluate and Communicate Audit Results
4.2.1 Identify Firm’s Overall Goals
The goal of ACNABIN in conducting an audit is to express an opinion as to whether the financial statements are prepared and presented fairly in accordance with Generally Accepted Accounting Principles (GAAP). The Firm’s policies on Generally Accepted Accounting Principles are contained in Accounting Standards. The audit team considers these standards in formulating an opinion. In forming an opinion, the audit team also addresses responsibilities for:
Irregularities and other matters
Errors are unintentional misstatements or omissions of accounts of disclosures in financial statements and 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 and;
c) Mistakes in the application of accounting principles relating to amount, classification, manner of presentation or disclosure.
The audit team is required to design the audit to provide reasonable assurance of detection of material errors. The In-charge of an audit team is responsible to ensure that the following matters are considered at the time of audit:
Existence or occurrence. Assets or liabilities of the entity exist at a given date and recorded transactions have occurred during a given period.
Completeness. All transactions and accounts that should be presented in the financial statements are so included.
Accuracy. Transactions and account balances are accurately recorded.
Valuation. Assets are stated at realizable value, and liabilities are stated at expected settlement amounts.
Rights and obligation. Assets are the rights of the entity and liabilities are the obligations of the entity at a given date.
Presentations and disclosure. Particular components of the financial statements are properly classified, described and disclosed.
Irregularities and other matters
Irregularities are intentional misstatements or omission of amounts or disclosures in financial statements, including fraudulent financial reporting and misappropriation of assets. So there is always a risk that material irregularities may occur and not be detected. This risk is increased by the possibility of management’s override of internal controls, collusion, forgery, or unrecorded transactions. Thus, while the audit team is required to design the audit to provide reasonable assurance of detection of material misstatements regarding irregularities, the following matters must be considered by the In-charge of the audit team:
Detection of Material Irregularities
Detection of Material Misstatements resulting from illegal acts having a direct effect on the Financial Statements.
Alertness for the Unsupported Transactions.
The audit team should design audit procedures that accomplish the overall goals discussed above in the most efficient manner. Performing an efficient audit involves:
Performing front-end risk assessment and planning with adequate partner and manager involvement.
Designing the combination of audit procedures based on the risk assessment that will efficiently reduce the risk of undetected material misstatements to an appropriately low level.
Assigning work to adequately trained and supervised persons with appropriate experience and skill levels.
It has long been a tradition of ACNABIN to provide enhanced value to NGOs as an integral part of audits. This strategy has allowed ACNABIN to differentiate our approach from that of other firms. Delivering added value as an integral part of an audit and effectively communicating the added value information to top management, directors etc. is a key factor in building and maintaining a sound NGO relationship.
Most NGOs and most of related personnel would agree that the achievement of ACNABIN differentiate from other firms and communicate the value of ACNABIN audit by consistently stressing the following:
Sound working relationship
Understanding NGO’s Activities and Funding.
4.2.2 Gather & Evaluate Initial Information
After involving with the NGO, ACNABIN first task is to collect and evaluate the relevant and necessary information related to the NGO’s operation for the purpose of:
Understanding the NGO’s activities and operation
Considering the internal control structure
Identifying NGO expectation
Understand the operation of NGOs
Proper planning and designing of an audit is dependent on proper understanding of NGO’s operation. So after appointing by a NGO, we, the members of an audit team use various sources to gain an understanding of NGO operation. Different sources which provide us NGO’s operating information are as follows:Annual report
Previous year’s audit Work Papers
Discussion with NGO
NGO policies and circulation