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AUDIT:
An examination and verification of companys financial and accounting record and supporting documents bay a professionals such as public certified accountant.
An audit is an evaluation of an organization, system, process, project or product. It is performed by a competent, independent, objective, and unbiased person or persons, known as auditors. The purpose is to verify that the subject of the audit was completed or operates according to approved and accepted standards, statutes, regulations, or practices. It also evaluates controls to determine if conformance will continue, and recommends necessary changes in policies, procedures or controls. Auditing is a part of some quality control certifications such as ISO 9000 IN ACCOUNTING AUDIT IS: Systematic examination and verification of a firms book of accountant, transaction record, other relevant documents, and physical inspection of inventory by qualified accountants (auditors). Quality control: Periodic (usually every six months) onsite-verification (by a certification authority) to ascertain whether or not a documented quality system is being effectively implemented.
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AUDIT REPORT:
An audit report is a codification of the process, findings and outcomes of the audit process, usually prepared by the auditors and project team.
The auditors report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an auditee). The report is subsequently provided to a user (such as an individual, a group of persons, a company, a government, or even the general public, among others) as an assurance service in order for the user to make decisions based on the results of the audit
arrangements on the quality of its programmes. The audit report is made available to the institution, first in draft form for initial comments, and then in its final, official form. It contains, among other things, the description of the method of the audit, the findings, the conclusions of the auditors, and various appendices listing the questions asked. In Europe, the document is often called an evaluation report or an assessment report. (ii) Such a report may also be prepared about an accreditation agency, describing its quality assurance arrangements and the effect of these arrangements on the quality of the programmes in the institutions for which it is responsible. (Vlsceanu et al., 2007, p. 32)
so egregious that they hurt the reputation of whoever is being audited. An "adverse opinion report" means there were too many errors and misrepresentations found in the financial statements that the person being audited cannot be considered to be in conformity of standard accounting principles and laws. Finally a "disclaimer of opinion" report means the auditor cannot give a rating at all, be it due to conflict of interest or lack of proper paperwork that makes a fair rating impossible or unethical to give.
Unqualified Opinion
The most frequent type of report is referred to as the Unqualified Opinion, and is regarded by many as the equivalent of a clean bill of health to a patient, which has led many to call it the Clean Opinion, but in reality it is not a clean bill of health. This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are represented fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in other words means that the companys financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor. The first paragraph (commonly referred to as the introductory paragraph) states the audit work performed and identifies the responsibilities of the auditor and the auditee in relation to the financial statements. The second paragraph (commonly referred to as the scope paragraph) details the scope of audit work, provides a general description of the nature of the work, examples of procedures performed, and any limitations the audit faced based on the nature of the work. This paragraph also states that the audit was performed in accordance with the countrys prevailing generally accepted auditing standards and regulations. The third paragraph (commonly referred to as the opinion paragraph) simply states the auditors opinion on the financial statements and whether they are in accordance with generally accepted accounting principles.The following is an example of a standard unqualified auditors report on financial statements as it is used in most countries, using the name ABC Company as an auditees name:
Board of Directors, Stockholders, Owners, and/or Management of ABC Company, Inc. 123 Main St. Any town, Any Country We have audited the accompanying balance sheet of ABC Company, Inc. (the Company) as of December 31, 20XX and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in (the country where the report is issued). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in (the country where the report is issued). AUDITORS SIGNATURE Auditors name and address Date = Last day of any significant field work this date should not be dated earlier than when the auditor has sufficient audit evidence to support the opinion.
however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or clean opinion, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the unqualified opinion are: Single deviation from GAAP this type of qualification occurs when one or more areas of the financial statements do not conform to GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole. Examples of this include a company dedicated to a retail business that did not correctly calculate the depreciation expense of its building. Even if this expense is considered material, since the rest of the financial statements do conform with GAAP, then the auditor qualifies the opinion by describing the depreciation misstatement in the report and continues to issue a clean opinion on the rest of the financial statements. Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP. Examples of this include an auditor not being able to observe and test a companys inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply states that the financial statements are fairly presented, with the exception of the inventory which could not be audited. The wording of the qualified report is very similar to the unqualified opinion, but an explanatory paragraph is added to explain the reasons for the qualification after the scope paragraph but before the opinion paragraph. The introductory paragraph is left exactly the same as in the unqualified opinion, while the scope and the opinion paragraphs receive a slight modification in line with the qualification in the explanatory paragraph. The scope paragraph is edited to include the following phrase in the first sentence, so that the user may be immediately aware of the qualification. This placement also
informs the user that, except for the qualification, the rest of the audit was performed without qualifications: Except as discussed in the following paragraph, we conducted our audit... The opinion paragraph is also edited to include an additional phrase in the first sentence, so that the user is reminded that the auditors opinion explicitly excludes the qualification expressed. Depending on the type of qualification, the phrase is edited to either state the qualification and the adjustments needed to correct it, or state the scope limitation and that adjustment could have but not necessarily been required in order to correct it. For a qualification arising from a deviation from GAAP, the following phrase is added to the opinion paragraph, using the depreciation example mentioned above: In our opinion, except for the effects of the Companys incorrect determination of depreciation expense, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of
the opinion paragraph, where the auditor clearly states that the financial statements are not in accordance with GAAP, which means that they, as a whole, are unreliable, inaccurate, and do not present a fair view of the auditees position and operations. In our opinion, because of the situations mentioned above (in the explanatory paragraph), the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of
Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion of the financial statements referred to in the first paragraph.
Uses
An audit report comes in handy in many financial situations. The report is essentially the same as a job reference. It takes the research and findings of a trained financial specialist and uses them to verify that your financial reputation and future is secure. The audit report then serves as a good word to creditors, banks and any other financial institution that may need to investigate your financial history and stability. A clean audit report can help when getting a loan or line of credit.
INTRODUCTION:
Muslim Commercial Bank Limited. (MCB), the largest private sector bank in Pakistan. Incorporated in 1948 by the Adamjee group, MCB soon earned a reputation of solid and conservative financial institution. During the 1960s the bank grew rapidly with a concentration on trade finance products. In 1947, MCB was nationalizes along all other private sector banks. MCB was the first bank to be privatized in 1991 during the Nawaz Sharifs government financial sector deregulation policies. During the first five years, the private management concentrated on growth utilizing its extensive network of branches and developed a large and stable deposit base. Since privatization, the bank has made tremendous headway in improving the operational efficiency through human resource development and employment of technology. The bank today boasts the target online brand and ATM network in the country. MCBs main focus remains on consumer banking and its growing reputation as a full service provider gives the bank an edge in front of increased competition in the banking sector in Pakistan. With a network of over 1200 branches and a team of dedicated professionals, MCB with an international outlook and a regional focus ensures prompt customer service and innovative solutions to business and personal needs.
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2008
40,043,824 2008 11,560,740 28,483,084 39,631,172 2,083,994 4,043,100 1,335,127 4,100,079 96,631,874 262,135,470 4,019,121 17,263,733 24,463,963 19,810,476 443,615,904 2,953,394 617,554 10,551,468 22,663,840 727,564 330,181,624 740,429 (103,198) 437,137 21,345,781 855,697 385,179,850 5,791,440 58,436,054 30,255,403 6,282,768 36,768,765 7,546,878 9,193,332 23,135 817,824 25,244,865 8,387,837 6,191,189 21,867,566 58,436,054 7,341,357
2009
51,616,007 2009 15,814,463 35,774,544 38,774,871 1,484,218 6,009,993 5,796,527 3,000,000 167,134,465 41,576 253,249,407 7,322,321 18,014,896 28,452,223 23,040,095 509,223,727 3,331,856 459,741 8,201,090 44,662,088 341,402 367,604,711 773,768 3,196,743 15,819,082 736,118 439,483,714 5,642,88 69,740,013 34,095,108 6,911,045 38,385,760 10,107,189 15,779,127 142,824 690,150 61,075,932 10,940,163 218,664,081 23,154,945 69,740,013 7,703,305
-prior years -deferred Profit after taxation Unappropriate profit brought forward Transfer from surplus on revaluation of fixed assets Profit available for appropriation Basic /diluted earning per share
Quick ratios:
Quick ratio shows a firms ability to meets it current liabilities with its current assets excluding inventories and prepaid expenses, which are least liquid portion of the current assets. Since banks dont have any sorts of inventories, therefore only prepaid expenses are subtracted from the current assets of the bank. Quick Ratio = Cash + Account Receivable + Marketable Securities/Current Liabilities
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Working Capital:
Working capital is the difference between current assets and current liabilities. Working capital is often considered a measure of liquidity by it self. This ratio shows the amount of liquidity. Working capital is used to check liquidity of the organization. Working Capital= Current Assets Current Liabilities
Cash Ratio:
Cash and equilent are the most liquid assets. The cash ratio shows the proportion of the assets held in the most liquid possible form. It is used to check the liquidity of the organization Cash Ratio= Cash Equivalents + Marketable Securities/Current Liabilities 2007 43,491,402 342,463,187 0.13 2008 43,491,402 363,396,932 0.12 2009 44,784,864 420,467,889 0.11
Debt Ratio:
It shows that how much assets have been financed by liabilities and it also shows the Margin of protection available for the creditors. Debt Ratio: Total Liabilities / Total Assets 2007 355,365,842 410.485.517 87% 2008 385,179,850 443,615,904 87% 2009 439,483,714 509,223,727 86%
Return on Investment:
Return on investment measure the ratio of profit generated in relation to the total assets employed. Net profit after tax divided by total assets gives the return on investment. ROI= Net Profit after Tax/Average (Long-term Liabilities + Equity
ROA:
ROA=Net Profit After tax / Average Total Asset 2007 15,265,562 376,296,880 4.1% 2008 15,374,600 427,050,710 3.6% 2009 15,495,297 476,419,815 3.3%
Income/Expense Ratio
Income/Expense Ratio= Total Income/Operating Expense
Price/Earning Ratio:
Price/Earning Ratio=Market Price per Share/Diluted Earning Per share 16
Dividend Yield
Dividend Yield= Dividend per Common Share / Market Price per Common Share Dividend per Common Share Market Price per Common Share Dividend Yield 2007 12.50 399.95 3.13% 2008 11.50 125.81 9.14% 2009 11.00 219.68 5%
2008
1.12 .85 43,144,763 0.12 61.30% 86% 23.23% 189% 3.6% 4.10 Times Rs. 24.47 51.68% 9.14%
2009
1.11 .72 47,700.847 0.11 64% 86% 20% 146% 3.3% 3.83 times Rs. 22.42 49.06% 5%
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1.12 1.115 1.11 ratio 1.105 1.1 1.095 1.09 2007 2008 years 2009 current ratio
Quick Ratio:
Quick ratio
0.85 0.8 quick ratio 0.75 quick ratio 0.7 0.65 2007 2008 years 2009
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w rkin ca ita o g p l
am u t on
5 ,0 0 0 0 0 ,0 0 4 ,0 0 0 5 0 ,0 0 4 ,0 0 0 0 0 ,0 0 3 ,0 0 0 5 0 ,0 0 3 ,0 0 0 0 0 ,0 0 2 ,0 0 0 5 0 ,0 0 2 ,0 0 0 0 0 ,0 0 1 ,0 0 0 5 0 ,0 0 1 ,0 0 0 0 0 ,0 0 5 0 ,0 0 ,0 0 0
w rkin ca ita o g p l
20 07
20 08 y ears
20 09
Cash Ratio:
cash ratio
0.13 0.125 0.12 ratio 0.115 0.11 0.105 0.1 2007 2008 years 2009 cash ratio
64.00% 62.00% 60.00% percnetage 58.00% 56.00% 54.00% 52.00% 2007 2008 Debt Ratio years 2009 debt to equit rati
Debt Ratio:
percentage
Debt Ratio
2007
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2008
2009
years
ROI:
R I O
30% 25% 20% percentage 15% 10% 5% 0% 2007 2008 years 2009 R OI
ROA:
20
R A O
4.50% 4.00% 3.50% 3.00% 2.50% RO A 2.00% 1.50% 1.00% 0.50% 0.00%
R A O
2007
2008 years
2009
Rs.
precent age
52.00% 51.50% 51.00% 50.50% 50.00% 49.50% 49.00% 48.50% 48.00% 47.50%
Ratio
2007
2008 years
2009
Dividend yield:
d ide d ye iv n ild
1 .0 % 0 0 9 0 .0 % 8 0 .0 % 7 0 .0 % 6 0 .0 % 5 0 .0 % 4 0 .0 % 3 0 .0 % 2 0 .0 % 1 0 .0 % 0 0 .0 %
d id n ye iv e d ild
20 07
20 08 y ears
20 09
Quick Ratio:
Prepaid expenses are considered as current assets so they are included in current ratio calculation. Prepaid expenses are less liquid. Normally it is not easily converted into cash on short notice. In 2008 quick ratio is better than other years it show that bank can easily recover its liabilities on short notice.
Working Capital
Working capital is better in 2009, which is 47,700,847. It means that are Assets utilized more economically in 2009 as compared to 2007, 2008.
Cash Ratio:
Higher cash ratio also shows the higher rate of satisfaction like other liquidity ratios. Cash ratio is more important liquidity ratio. Cash ratio is higher in 2007 as compared to 2008 & 2009.
Debt Ratio:
Financial leverage is the extent to which a firm is financed with debt. In Muslim Commercial bank, years 2007 & 2008 were financed with debt as compare to year 2009.
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Return on Investment:
This ratio is more meaningful for share holders who are interested to know the profit earned by the company because the dividend paid from available profit higher ratio means factor of production fully utilized and good position. Here return on Investment is higher in 2007 as compare to year 2008 & 2009.
Return on Assets:
This ratio has a decreasing trend. It means the assets of the business are not fully utilized in more and efficient way and also shows an unfavorable trend of the business. This ratio of the bank was too low in the year 2009, as compare to other two years.
decreasing EPS, which will surely decrease share price. This ratio has the same trend as the return on the assets.
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Best and optional policies and attractive compensation packages, for employees, which has really improved their commitment, dedication and hard work, towards the accomplishment of banks objectives. MCB instant financing products for customer wanting instant loan facility at MCB branches. Attention and sensitivity to competition prevailing in the country. Easy access to the customers at their residential localities through a large number of branches. Recognition of critical condition and need for Drastic immediate change. It is well aware of the Market and adopts strategy according to the competitors strategy.
Weaknesses:
. Less job satisfaction of employees. Customer facing problem of NADRA verification while opening their accounts because its process is time consuming To give everyone equal protocol is lacking among employees Customers having account with small amount are not given same services like dealing to others who have high account. Lack of decentralization. Banks is planning to restructure its departments and is going to be centralized very soon. Lack of organizational loyalty among employees. Promotions generally on seniority basis. Attitude of senior managers at head office has to change towards junior staff Competent staff unwilling to serve in the audit due to an absence of firm rotation policy. As most of the employees are young they have more tendencies to switch the organization and to seek more opportunities.
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Opportunities:
To go global fully. Low exposure to consumer banking providing opportunity to explore the segment. Emergence of Islamic banking in the country and MCB is increasing its Islamic Banking operations. SBP policy to allow Islamic banking business separately. Bank has earned a good name by introducing innovative products like car financing home financing credit cards these products can easily enhance the market share. Bank introduces Islamic banking in country that attracts large number of people. Free staff training facilities offered. Greater profitability can be achieved through strong internal control Profit and deposit of banking industry have shown an increasing trend because of better marketing environment. Elimination of risk of fraud through professional training Opportunity to open branch in ruler area to increase its branch network and gain more profit. The bank can earn more profit by advancing to farmers and industrialists at low rates. New schemes for deposits and finances should be introduced regularly
Threats:
Current economic crunch. Political instability. Strong competition. Rising deposit rates. Foreign banks in market having more marketing budgets. People losing trust in banks.
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Decline in private and public sector credit due to tight monetary policy Participation of foreign banks local market that can hurt the market share Growing NPLs of the industry which may hurt MCB Mergers and acquisition activities, consolidating the banking sector of MCB is also vulnerable it Changes in government policies
Recommendations:
The bank should finance its loans in those projects that are meeting the required standard and should avoid the political pressure. The bank should bring forward the new talent as fresh knowledge and education is considered very important to increase the efficiency and production. There is needed to make the outlook situations of branches in those manners that can complete the other modern banks in the banking market. Keeping in view the hard work by the staff members at all levels of management, staff should be given bonus and increment every year. Nepotism should be avoided in this connection There are some employees untrained which decreases the efficiency of the bank branch. All the employees should well train.
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Most of the bank employees are sticking to one seat only, with the result that they become master of one particular job and loose their grip on other banking operation. In my opinion each employee should have regular job change. People have to wait for re-cashing their cheques and for paying their School Fees, which is not good for reputation of bank, it should be improved.
REFERENCES:
www.forum4finance.com www.qualityresearchinternational.com www.en.wikipedia.org www.ehow.com www.mcb.com Annual report of MCB 2009 www.fool.com www.accountingformanagement.com www.multpl.com www.wikinvest.com
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