WELCOMETO MY

INTERNSHIPPRESENTATION

PRESENTED TO

Department of Business Administration

UNIVERSITY OF ASIA PACIFIC

Ms. Afia MuqtadirAssistant Professor

PRESENTED BYMAHFUZA AKTER(Student of MBA) ID : 10206038

UNIVERSITY OF ASIA PACIFIC

TOPIC : MBA; INTERNSHIP REPOT ON

THE FACTORS AFFECTING AUDITOR INDEPENDENCE OF AN EXTERNAL AUDIT IN BANGLADESH

The internship report that I have been assigned is an important

requirement of MBA program at University of Asia Pacific. My

practical Study is on K. B. NEWAZ & CO. Chartered Accountants,

Dhaka under the principal of the firm Mr. AKM Badiun Newaz

Khan FCA. I have found the study to be quite interesting,

beneficial and knowledgeable. I have tried my level best to

prepare an effective & creditable report.

K. B. NEWAZ & COK. B. NEWAZ & CO. are an independent firm of chartered accountants based in Dhaka, Bangladesh working with clients throughout the country. The firm has a rich and illustrious history and it is one of the oldest accounting firms in Bangladesh. The CA firm is energy and vision and quickly became a community leader in Bangladesh. K. B. NEWAZ & CO. have gained an extensive experience in auditing, accounts and taxation work, both in private and public sectors and have carried out a large number of consultancy assignments along with information technology consultancy in industrial and commercial sectors. K. B. NEWAZ & CO. really do care about the success of their selected clients. They believe they should not expect to be rewarded, unless they have provided added value. Their goal is to continually improve the well-being of their customers and their team members.

AUDIT

An audit is historically the most important type of assurance service in Bangladesh. This is because all limited liability companies registered with the Registrar of Joint Stock Companies have been required by law to have an audit.

AUDITING Involves examination of financial statements to prove the true and fair view of company’s affairs.It is done mainly at year-end after the directors have prepared the financial statements, although the planning work could be carried out earlier.An audit is mainly governed by the international standards on auditing (ISA).The auditor must be independent of all the stakeholders such as management.It is a statutory requirement that financial statements are audited.

AUDITOR

An auditor is an accountant who specializes in analyzing a business’ financial records for accuracy. This is a vital service. Every business can benefit from a periodic audit. Hiring or contracting an auditor to look over the records helps to save money and eliminate inefficiency.Auditors are used to ensure that organizations are maintaining accurate and honest financial records and statements.

The Auditor should comply with the Code of Ethics for Professional Accountants issued by the Council of the Institute of Chartered Accountants of Bangladesh. Ethical principles governing the auditors’ professional responsibilities (ICAB, 2004) are: Independence; Integrity; Objectivity; Professional competence and due care; Confidentiality; Professional behavior; and Ethnical StandardsThe auditor should conduct an audit in accordance with BSAs or ISAs as adopted in Bangladesh. These contain basic principles and essential procedures together with related guidance in the form of explanatory and other material.

GENERAL PRINCIPLES OF AN AUDIT IN BANGLADESH

AUDITOR INDEPENDENCE Auditor independence has been defined by different people above but there are some concept about an auditor that needs to be emphasized. The concept requires that auditor should carryout his work freely and in an objective manner.Audit independence is defined as an auditor' unbiased mental attitude in making decisions throughout the audit and financial reporting .The attribute of independence is a very specialized concept for auditors. Looking for maintaining the highest ethical standard for the accounting profession, independence refers to the quality of being free from influence, persuasion or bias In addition, independent auditor is expected to be without bias with respect to the client under audit and should appear to be objective to those relying on the results of the audit.

EXTERNAL AUDITIndependent auditors are sometimes called external auditors because The external auditor must be independent from the client audited, both in mind as in appearance and the external auditor is someone who is able, in the light of all relevant facts and circumstances, to form an objective and impartial opinion on all matters that fall within the scope of his engagement. An external audit is an independent examination of the financial statements prepared by the organisation. They are focused on the financial accounts or risks associated with finance and are appointed by the company shareholders. The main responsibility of external audit is to perform the annual statutory audit of the financial accounts, providing an opinion on whether they are a true and fair reflection of the company’s financial position.

THE FACTORS AFFECTING AUDITOR INDEPENDENCE

31%

9%20%

24%15% Self Interest

Self Review Advocacy FamiliarityIntimidation

Self-interest This occurs when the audit firm or a member of the audit team could benefit from a financial interest in, or other self-interest conflict with, an audit client. Examples of circumstances that may create this threat include, but are not limited to: A direct financial interest or material indirect financial interest

in an audit client; A loan or guarantee to or from an audit client or any of its

directors or officers; Undue dependence on total fees from an audit client; Concern about the possibility of losing the engagement; Having a close business relationship with an audit client; Potential employment with an audit client; and Contingent fees relating to audit engagements.

Self-reviewThis occurs when the audit firm, or an individual audit team member, is put in a position of reviewing subject matter for which the firm or individual was previously responsible, and which is significant in the context of the audit engagement. Examples of circumstances that may create this threat include: A member of the audit team being, or having recently been, a

director, officer or other employee of the audit client in a position to exert direct and significant influence over the subject matter of the audit engagement;

Performing services for an audit client that directly affect the subject matter of the current, or a subsequent, audit engagement; and

Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the audit engagement.

Advocacy

when the audit firm, or a member of the audit team, promotes, or may be perceived to promote, an audit client’s position or opinion to the point where objectivity may be compromised. Examples of circumstances that may create this threat include: Dealing in, or being a promoter of, shares or other securities

in an audit client; and Acting as an advocate on behalf of an audit client in litigation

or in resolving disputes with third parties.

FamiliarityThis occurs when, by virtue of a close relationship with an audit client, its directors, officers or employees, an audit firm or a member of the audit team becomes too sympathetic to the client’s interests. Examples of circumstances that may create this threat include: A member of the audit team having a close family member

who, as a director, officer or other employee of the audit client, is in a position to exert direct and significant influence over the subject matter of the audit engagement;

A former partner of the firm being a director, officer or other employee of the audit client, in a position to exert direct and significant influence over the subject matter of the audit engagement;

Long association of a senior member of the audit team with the audit client; and

Acceptance of gifts or hospitality, unless the value is clearly insignificant, from the audit client, its directors, officers or employees.

IntimidationThis occurs when a member of the audit team may be deterred from acting objectively and exercising professional scepticism by threats, actual or perceived, from the directors, officers or employees of an audit client. Examples of circumstances that may create this threat include: Threat of replacement over a disagreement with the

application of an accounting principle; Pressure to reduce inappropriately the extent of work

performed in order to reduce fees; and Dominant personality in a senior position at the audit client,

controlling dealings with the auditor.

Amongst the factors which influence the independence of an external auditor, the factors which have the most impact on external auditors in Bangladesh are:Environment: Above all the environment in which auditor is operating in Bangladesh itself encourages dependence rather than independence of an auditor. As Habibullah (1984) has quoted a Chartered Accountant on practice, 'We (the auditor) certify statements wrongly prepared. We are sons of the soil. We are contaminated by the dirty environment'.

Safeguards

Safeguards should include requirements for entry into the accounting profession, continuing educational requirements, professional disciplinary processes, external reviews of a firm’s quality control system and legislation governing the independence requirements of the firm.

Within the audit client

Created by the profession, legislation or regulation

Safeguards should include a corporate governance structure, such as an audit committee, to provide appropriate oversight and communications regarding a firm’s services. Other safeguards could include the employment of high-quality staff in sufficient numbers to ensure that a member of the assurance team would not be required to make managerial decisions for the entity and having internal procedures to ensure an objective choice when commissioning non assurance engagements.

There are many factors which affect the independence of an external auditor and there are necessary safeguards too. But if an auditor is honest and is mentally prepared to act honestly and independently ,then threat can stop him from doing so.

Conclusion

Specific recommendations to improve the situation are given below : Auditors should be guided by the rules of the professional body. An auditor should be punished for violating ethics. An auditor should not be a party in any way in the clients' organization. An auditor should not invest in the client's entity as stockholder or lender. Audit fees should not be fixed by the director. There should not have any personal relationship between the auditor and

the employees which may influence the receiving of appointment letter. The audit remuneration must be a reasonable one. The auditors should be aware of their social responsibility.

Recommendation

THANK YOU