Summer Internship

Report 2015
Osama Tariq
2016-11-0121
BDO Ebrahim and Co.
June 15, 2015 to July 24, 2015
External Audit
Karachi-Pakistan

Table of Contents
1 Note on Audit Firm...................................................................4
1.1 History.........................................................................................4
1.1.1 BDO International....................................................................................... 4
1.1.2 BDO Ebrahim & Co..................................................................................... 4
1.2 Services Provided.........................................................................5
1.3 International Affiliations................................................................6
1.4 Major Clients (local)......................................................................6
1.5 Specializations..............................................................................7

2 Note on Sindh Leasing Company-Client......................................7

2.1 History.........................................................................................7
2.2 Vision, Mission & Strategic Objectives............................................8
2.3 Major Clients................................................................................8
2.4 Lines of business; Products and services........................................8
2.5 Ownership structure.....................................................................9
2.6 Organization Chart........................................................................9
2.6.1 Board of Directors...................................................................................... 9
2.6.2 Audit Committee........................................................................................ 9
2.7 Industry Analysis........................................................................10
2.8 Associated Concerns...................................................................10
2.9 Major Revenues & Expenses........................................................10
2.10 Market Position & Future Prospects............................................11

3 Audit Methodology.................................................................11
3.1
3.2
3.3
3.4

Planning and risk identification....................................................11

Strategy and risk assessment......................................................12
Execution...................................................................................12
Conclusion and reporting.............................................................12

4 Application of IT in Audit.........................................................13
5 Note on Areas Assigned..........................................................13
5.1
5.2
5.3
5.4

Audit Plan...................................................................................13
Steps performed by me individually.............................................14
Problems observed & Solutions....................................................15
Sampling Technique....................................................................15

6 A note summarizing your experience with the audit firm

highlighting lessons learned in the field of...................................16
6.1 Management skills:.....................................................................16
6.2 Interpersonal skills......................................................................16
6.3 Presentation skills......................................................................16

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6.4 Organizational Behavior..............................................................16
6.5 Time management skills..............................................................17

7 Other relevant and interesting learning opportunities that came

across during the internship........................................................17
7.1 Excel and Almainc skills...............................................................17

8 Works Cited............................................................................ 18

1 Note on Audit Firm

1.1

History

1.1.1 BDO International

BDO International provides worldwide professional services network of public accounting firms,
having clients all over the world. Currently BDO bearing employs around 60 (Leasing),000
employees, partners and staff in 1,328 offices throughout the world, BDO has member firms in
151 countries, and is the sixth largest accounting firm in the UK.
Fred Stoy founded the firm in 1903 as Stoy and Co later Jack Hayward joined the firm in 1919
and it became Stoy Hayward and Co. Furthermore merger took place with Finnie and Co in 1992
and the BDO Binder Hamlyn offices that did not join Arthur Andersen or Deloitte & Touche in
1994 created BDO Stoy Hayward, which turned out to be the UK member of BDO International.
BDO Simpson Xavier head office in Dublin now has over 300 employees in a new building
(Beaux-Lane House) just off Stephen's Green. This building was until recently shared CACI
(Credit Agricole Creditor Insurance) and Michael Page. The names 'Simpson Xavier' were
dropped in November 2009, with the firm adopting the worldwide branding of BDO. The
rebrand, which included design, messaging, all of the separate global websites, marketing
collateral and trickle-down implementation across the 110 countries took just over five months.
The intention was to create a global consistency, so that the BDO network could be presented as
a single entity. (Internatinal)
1.1.2 BDO Ebrahim & Co.
On January 1, 1951, Mr. Ebrahim Dahodwala founded Ebrahim & Co. (now BDO Ebrahim &
Co.) in Karachi. The firm soon acquired a reputation for delivering quality services and became
one of the most successful firms of the post partition period. The firm was primarily involved in
delivering quality audit, taxation and corporate secretarial services.
In 1982 the firm became part of the BDO network becoming a full member firm within the first
few years of the relationship. The firm has adopted all the technical standards set by BDO
International for practice management. In this context the partners and staff have attended
training conferences around the world and have trained staff locally to comply with the standards
of BDO International. Through a continued investment in training and development, BDO strives
to be at the forefront of professional expertise and service delivery in Pakistan.
The firm has demonstrated service capabilities across the service areas, across the nation in key
cities of Karachi, Lahore and Islamabad. These strategic locations enable the Firm to service the
needs of national clients with multi-location requirements.

The leadership of the firm have a clear strategy for achieving growth by providing quality
services to a very broad range of clients from financial services to not for profit entities and
manufacturing to service oriented industries. The mission, vision and values for the Firm have
been clearly defined and are aligned to meet the objectives of BDO International globally.
(Pakistan)

1.2

Services Provided

BDO has three main service lines

The role of audit is a very vital one in the corporate world today. Pertaining to the
importance of audit in this complex world of business, BDO has expertise in conducting
audit and assurance offering competence and delivering quality to each of our clients.
Assurance comprises of Statutory Audit, Interim Audits, Interim reviews, Special purpose
audits, Regulatory audits, Agreed upon procedures engagements, Forensic audit, IT audit,
Special certifications under regulatory requirements, Audit of non financial information, Cost
audit, Management audit, Share transfer audit and Reporting auditors for Initial Public
Offering.

In an ever-changing political and technological environment especially in Pakistan, a

business cannot sustain without minimizing their risks to its operations due to legal, political
and technological factors. In regard to this, BDO provides risk-related services which
includes,

Internal Audit

Risk Assessment

Enhancement or establishment of internal audit function

Strategic Partnering and Co-sourcing

Evaluation of the effectiveness of the Internal Audit Function

Information Technology Internal Audits

Regulatory Risk and Compliance

Corporate Governance Assessment

Audit Committee Effectiveness Evaluation

Internal control evaluations services

Internal control over financial reporting based on COSO

Framework

Enterprise Risk Management

ERM using best practices (COSO ERM)

Risk assessments

Risk Registers
Risk Indicator design and mapping
Loss event analysis
Business Process Enhancement
Operational Process Assessments
Systems implementation reviews
Business process integration
Project Management office reviews
Financial analysis and modeling
Special Accounting Projects
Financial Institution Services
Compliance with SBP Guidelines
Basel II
Loan loss reserve evaluation
Operational audit
Technology Risk and Security

Corporate finance advisory functions to identify the business risks and give solutions to
manage and minimize them with strategies and controls. For these subservices include
Developing business plans, Mergers and acquisitions, Share valuations, Preparation of
feasibility studies, Capital restructuring and debt rescheduling, Assisting in making
arrangements for placements, Assisting in making underwriting arrangements,
Acquirer/Vendor due diligence, Business valuations and Distressed debt restructuring. In
addition to this, BDO also provides technological insights related to business continuity and
exposure to information technology. Other Advisory Services consists of subservice
lines: Accounting And Business Advisory, Business Process Outsourcing, Business Process
Reengineering, Corporate Secretarial, Corporate Insolvency And Restructuring, Human
Resource Consultancy, Management Consultancy, Information Technology Consultancy,
Litigation Support.

Tax Services includes Tax compliance, Withholding tax, Sales tax, International
tax, Tax planning, Personal taxation, corporate taxation and Wealth management.
1.3

1.4

International Affiliations

BDO international
Major Clients (local)

State life insurance

Colgate Palmolive Pakistan

1.5

Crescent steels
Reliance insurance

Specializations

Audit
Taxation
Special Advisory Services

2 Note on Sindh Leasing Company-Client

2.1

History

Sindh Leasing Company (SLCL) by the Companies Ordinance 1984 was incorporated in
Pakistan on 16th December 2013 and on 24th January 2014 it was given formal license to function
as a leasing company by the Securities and Exchange Commission of Pakistan (SECP).
Government of Sindh owns 100% of the company. Currently Sindh Leasing Companys head
office is located in Karachi and has two operating branches in Hyderabad and Naudero. Also
launch of branch offices in Nawabshah, Sukkur and Lahore is in the line.
Government of Sindh through SLCL aims to improve the regional economy of Interior Sindh.
Sindh Leasing Company is working towards provision of direct and indirect employment for the
residents of these regions and facilitating the process of access to funds to individuals; providing
especial financial assistance to small and medium enterprises and farmers in order to boost their
businesses and standard of living.
The company has enriched itself with strong sponsors to tackle financial aspects, an experienced
Board of Directors to enable efficient administration of the company and competent management
team to guide the company towards an enlightened and successful future. And most importantly
the objectives of the company are achieved through ethical and prudent business practices. (Ltd)

2.2

Vision, Mission & Strategic Objectives

Vision:
To catalyze the untapped potential of the economy through ease of
access to finances across sectors ranging from the agro-based to industrial
leading the country towards prosperity.

Mission:
To provide lease finance and other products and services, tailor
made to suit the requirements of the customer, be it a small farmer, small and
medium size entrepreneur(s) or enterprise(s) or woman owned business, for
sustainable and long-term financial solutions.
2.3

Major Clients

Major Client(s) of Sindh Leasing Company limited:

2.4

Omni Group of Companies

Hum Network
Hascol Petroleum

Lines of business; Products and services

Sindh Leasing Company Ltd. offers a flexible product range tailored to suit the specific
requirements and financial needs of individual customers and SMEs. The company makes sure
that their product range fulfills the need of an individual or any Small and Medium Enterprise in
the country. Their dedicated team of professionals ensures that they meet their customer's
requirements on time.
Sindh Leasing Company Limited offers the following financial services to its customers, which
include individuals, small and medium enterprises and famers to boost their businesses. The
company places strong importance on provision of customer services with efficiency and aims to
deliver the products to their customers with cost effective processes.
The following services come under the banner of consumer and corporate lease or in short
financial lease. SLCL provides automobile lease for purchase of new vehicle, generator lease for
energy provision in industries. Also the company offers agricultural lease, which includes lease
for tube wells, tractors and varying agricultural equipment in order to fund agricultural
businesses. Business lease is offered to equip or set up new and upcoming offices. And lease for
service or industrial sector is also offered.
Other products of the company include financial services namely factoring and bill discounting,
options for term loans, syndicate finance and working capital.
Sindh Leasing Company Limited has customers with varying portfolios. The companys target
market includes small and medium sized entities having a wide range of business lines. They
also target companies in the manufacturing, agricultural and services sector by providing
corporate lease packages for businesses and employees in these sectors. Finally employees from

Government of Sindh and its subsidiary departments, other ministries and autonomous bodies are
also client of Sindh Leasing Company Limited.

2.5

Ownership structure

Sindh Leasing Company is an unlisted company that is 100 percent owned by the government of
Sindh where 99, 999, 995 shares are held by a shareholder and five different shareholders hold
the remaining five shares.

2.6

Organization Chart

2.6.1 Board of Directors

Mr. Muhammad Bilal Sheikh

Non Executive Director

Mr. Sohail Khan Rajput

Non Executive Director

Syed Shah Nawaz Nadir Shah

Non Executive Director

Mr. Ali Murtaza Kazmi

Independent Non-Executive Director

Syed Saeed Reza

Independent Non-Executive Director

Mr. Muhammad Imran Malik

Independent Non-Executive Director

Mr. Naim Farooqui

Executive Director / CEO

2.6.2 Audit Committee

Syed Shah Nawaz Nadir Shah

Chairman

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Mr. Muhammad Bilal Sheikh

Syed Saeed Reza

Member
Member

Chief Executive Officer:

Naim Farooqi

Chief Financial Officer:

Rehan Anjum

Head of Legal:

Ms. Charmaine Hidayatullah

Vice President-Head of Credit Administration:

Hasnain Raza

Vice President - Head of Information Technology:

Syed Farrukh Hussain

Name of Auditor:
Legal Advisor:

BDO Ebrahim & Company

Nadeem Ahmed Khan

2.7

Industry Analysis

Sindh Leasing Company does not consider any firm as its main competitor however it considers
Standard Chartered as a market leader in leasing industry of Sindh. Currently both Sindh Leasing
Company and Standard Chartered are not comparable to each other as Sindh Leasing Company
is relatively smaller than Standard Chartered Limited. Moreover Sindh Leasing Company targets
the entire Sindh, according to Sindh Leasing Company no other firm is currently catering to the
demand of Sindh only.

2.8

Associated Concerns

BDO Ebrahim and Company (External auditor)

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2.9

Grant Thornton Anjum Rahman (Internal auditor)

Nadeem Ahmad Khan (Legal Advisor)

Major Revenues & Expenses

Major chunk of revenues come from finance leases and from the return earned on investment and
deposits.
Major expenses of this client mainly comprised of administrative costs such as electricity, rent,
salaries and generator. Apart from it, costs associated with depreciation of the machinery also
formed an equally important cost in expenses.

2.10 Market Position & Future Prospects

Sindh Leasing Company Limited has a promise of a prosperous future despite the uncertainty of
the leasing sector. It has started making inroads in the corporate world and the momentum would
continue in the times ahead as new branches are opened in the current fiscal year and beyond.
The management has geared itself for the potential business possibilities by lining up a credit
line of Rs 1,000 Million from Sindh Bank Limited. Government of Sindh on its part has also
sanctioned a deposit of Rs 500 Million to begin with (subject to SECPs approval). With such
funding support from its sponsors, company is well positioned to manage the growth in business
without compromising its quality. The main focus of the company, in terms of portfolio, remains
to target good clients in the corporate sector. The Company also plans to expand its geographical
reach and diversify its portfolio. (Pakistan)

3 Audit Methodology
BDO applies a five-step method that helps them to quickly understand their business and to
deliver results at speed.

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3.1

Planning and risk identification

The audit process has phases which are important to achieving a quality audit, the planning phase
is particularly important because that is where risks are identified and audit procedures are
designed to respond to identified risks. It is in the planning phase where the understanding of the
entity and the skills and experience of the audit team come together to create a tailored audit
program that addresses the risks.
We performed risk assessment procedures where we:

Captured information about the entity and its environment, including its outsourced
activities, IT profile, operating structure and nature of its revenues

Made inquiries of management, internal auditors, and those charged with governance

Made inquiries of others in the entity, as needed

Determined materiality

Performed preliminary analytical procedures

Evaluated the inherent risk indicators

Captured entity-level controls

Identified significant cycles

Captured information about the accounting system

After we had identified the financial statement risks that could cause a material misstatement,
then we evaluated which of the identified risks are more likely to cause a material misstatement,
including those that should be considered significant. This proved to be a challenging aspect of
the risk assessment process for us where partner and manager become part of process while
setting up audit strategy.

3.2

Strategy and risk assessment

Audit team identified and assessed risks of material misstatement at the financial statement level
and the assertion-level for classes of transactions, account balances and disclosures, whether due
to error or fraud, and related IT General Controls and develop an appropriate audit plan (one that
reduces audit risk to an appropriate level) in order to provide reasonable assurance to Sindh
Leasing Company.
3.3

Execution

Audit Team performed substantive procedures based on the their risk assessments, including the
determination of reasonably possible risks and the intended control reliance. We reassessed our
combined risk assessments throughout the audit and determine whether changes are necessary to
our audit strategy in response to a change in our combined risk assessments.
3.4

Conclusion and reporting

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As a concluding process we did the following activities minutes of meetings, responses to

attorney inquiry letters, events occurring subsequent to the balance sheet date, representations
from management, significance of misstatements, including missing disclosures, fairness of
presentation (including disclosures) of the financial statements, final analytical procedures etc. to
ensure that the we have sufficient appropriate audit evidences based on which clean audit report
will be issued.

4 Application of IT in Audit
BDO Ebrahim & Co. applies the Horizon methodology using Qurius, their proprietary software
tool. Using Qurius, audit teams identify financial statement risks and link them to the processes
and internal controls that have been established to address those risks. This enables audit teams
to tailor an audit response that is appropriate to the assessed risks. Qurius also generates audit
programs for different industries that are customized for individual client situations and focused
on financial statement risk areas.
Qurius assists audit teams in documenting, evaluating and when appropriate, testing internal
controls; As a result, it helps audit teams identify opportunities for strengthening internal
controls.
Limitations exists in this software, Qurius does not support preparation of financial statement,
mapping of chart of accounts resulting chances of some misappropriation and human error.
Ms. Excel assists in preparing working papers and to perform statistical analysis, and
mathematical tools. These includes lead schedule, break-ups, substantive procedures, analytical,
expectations, which are properly referred and cross referred and subsequently attached in the
documentation tool i.e. Qurius
Technology allows them to reduce the time that was previously spent on various routine
functions and enables them to extract and analyze data with a minimal amount of effort. As a
result of this, they concentrate their efforts on the business issues

5 Note on Areas Assigned

5.1

Audit Plan

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As it was for the first time that BDO provided its services as an external auditor to Sindh leasing
company limited hence we needed to start from the scratch. Not only this but the year 2014-2015
was likewise the first complete audit year for Sindh leasing company limited as it was
incorporated in December 2013.Upon reaching the Sindh leasing company limited head office
our audit team met with the management to acquire the preliminary information regarding SLCL
operations. The primary work that needed to be accomplished at the start of our audit was to first
and foremost create different checklists for SLCL so we could get a better understanding of how
the company was operating. These checklists were created from the companys ordinance 1984
and the NBFC rules and regulations as according to our supervisors that is the sector that our
company lies in. We also focused on the financial statements of Sindh Leasing Company Limited
to develop our audit strategy on which to base our audit plan approach. Significant balances were
identified in which there was a risk of material misstatement either in the form that accounting
policy may not be followed or it might provide an incentive to the management for conducting
earnings management. Extensive work was performed on these significant balances in the form
of performing either substantive procedure or a combination of test of controls and substantive
procedure. Substantive procedures covered inquiry from the client, inspection of documents,
physical verification, confirmations, performing vouching on the transactions occurring during
the year, subsequent marking of account balances etc.

5.2

Steps performed by me individually

As an auditor we were first expected to make a walk-through and this task was assigned to me
and for this I arranged meetings with the department heads of Credit Administration Department
(CAD) and Credit Marketing Department (CMD). After meeting the departments heads and
going through their procedurals manuals I started working on the walkthrough. After the
completion of this task I was assigned to do vouching, as it was a very basic task, to perform it I
selected a sample of expenses, which seemed material. However vouching turned out to be a
time consuming process, as the payment slips were not maintained in any specific order in the
books of the organization.
At the same time Sindh leasing companys management was busy finalizing their financial
statements as of 30th June 2015 hence I got the chance to do the cash count as well.
Once the management was done finalizing its financial statements our core work started.
I performed some analytical tests such as client wise revenue and product wise revenue.
Alongside we also calculated the liquidity, profitability, solvency and assets ratios for the current
and the pervious audit cycle. After this these figures were compared and only large differences
were investigated. Also I had to compare the Sindh leasing Company limited practices with the
practices of the rest of the industry. I compared companys concentration of risk with that of the
industry and found out that SLCLs concentration of risk was more inclined towards finance
lease. Also companys major expenses were compared with that of the industry that showed that
the companys operating cost were much higher than that of the industry. The reasons for the
differences were then investigated. Overall the comparison showed that SLCLs performance was
satisfactory.

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After this I selected certain fixed assets randomly from the fixed assets register. Fixed assets
were selected from all categories that included computer equipment, electrical equipment,
furniture and fittings, intangible assets and motor vehicles. Then depreciation was calculated
based on the rates of the company and the written down value that was calculated as at 30th June
2015. The companys written down value was checked against our own written down value and
the difference was noted. The discrepancies found was not very large or were immaterial hence
was not investigated further. Alongside any additions and disposals to the fixed assets and their
depreciation was also checked. Finally we prepared the Lead sheet that showed the written down
value of the assets as at the end of the year.

5.3

Problems observed & Solutions

Time management was big challenge for audit team where there was too much delay in flow of
information from client. Excuses that we got to hear were client is busy in finalizing its
schedules, consolidating the records, group reporting etc. due to which auditors will not be
entertained for some time. Since financial audit are bounded with stringent time lines audit team
need to inform their upper hierarchy about the status of job, to which we keep sending Audit
Requirement Checklist to client on daily basis, keeping manager and partner in CC. At times
significant work pressure led to unpleasant work environment but effective stress management
by Job in charge among team, extended work hours bring the atmosphere back to normal.
Since this was first year of engagement and previously audit was performed by another auditor
(the predecessor auditor) it was necessary for the audit team to perform work on opening
balances. We tested prior period transactions, reviews of records of prior counts, and the
application of analytical procedures to attain reliance on prior period information.
5.4

Sampling Technique

Sampling procedures are used to test details by applying the audit procedures to the individual
items selected. Because the items examined in a sample are representative of the total population,
based on which the audit team is able to project the sample results to the total population. BDO
selected the suitable benchmark, based on which they applied reasonable measurement
percentage to apply to the benchmark to determine the planning materiality. BDO selected total
revenue as their benchmark and used 5% as measurement percentage. Tolerable error is based on
the planning materiality set and is focused on the individual account balances or class of
transaction. 50% of planning materiality was set as tolerable error. Testing threshold is set for
individual transactions to be tested for the purpose of conducting detailed substantive
procedures. It was set to be 10% of tolerable error. Transactions above testing threshold were
either vouched or were verified from other sources if vouching was not possible.

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6 A note summarizing your experience with the

audit firm highlighting lessons learned in the
field of
As I walked into the BDO office on my first day of work, I was very aware of new aspects which
I will learn new over there and bring some change in myself. Over there I learnt following

6.1

Management skills:

I learnt that deadlines are very important and any work that is delayed will reflect as bad
management skills. At times you have to handle multiple task and to that efficiently & effectively
one must have good management skills where he can prioritize its work.
6.2

Interpersonal skills

I also learned more about the significance of corporate culture. Visiting client site throughout the
internship introduced me to a variety of distinct corporate cultures. Communicating with
different individuals at different hierarchical level groomed my interpersonal skills and taught
me how to convey effective messages across the audience.
6.3

Presentation skills

There were times when I had to present my opinions and views on improving some processes or
ways of doing things, and with the process of feedback, it was refined over time.
6.4

Organizational Behavior

Working at a client enabled me to learn about their atmosphere and helped me to understand the
workplace culture, and hence the organizational behavior of staff. It is an important piece of
information because as an auditor one needs to be in constant touch with the client staff and the
best way to meet deadlines is to work in harmony with them.

6.5

Time management skills

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I learned that smart people utilize their time wisely. During field works it is difficult to have
client support staff working till extended hours. However auditors can stay late to finish up their
jobs. In order to handle such circumstances office timings are used to gather information and
extended hours for testing.

7 Other relevant and interesting learning

opportunities that came across during the
internship.
7.1

Excel and Almainc skills

Firsthand experience of using Accounting Software i.e. Almanic and Microsoft Excel, added
value in my skills. I got used to Almanic and its functions within a week and towards the end of
the internship, I was able to operate the software professionally. I also became familiar with
Excel shortcuts and advanced excel functions especially the excel formulae that were used to
assist in the audit. I am sure I will be able to apply the skills that I learned here in my academic
and professional career in future.

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8 Works Cited
Internatinal, BDO. BDO Internatinal. 2014. 10 September 2015
<http://www.bdointernational.com/Pages/default.aspx>.
Leasing, Sindh. Annual Report June 2014. Annual Report. karachi, 2014.
Ltd, Sindh Leasing Company. Sindh Leasing. 10 August 2015. 10 september 2015
<http://www.sindhleasingltd.com/>.
Pakistan, BDO. BDO Pakistan. 2015. 10 September 2015
<http://www.bdoebrahim.com.pk/>.