BBA- 6B

Audit and Assurance

Final Project

Submitted to: Sir Ali Sajjad

Team Members

Nimra Naseer
Mahnoor Altaf Sahar Hadi
(Leader)
BBHM-F18-203 BBHM-F20-203
BBHM-F20-214

Sobia Inshal
BBHM-F20-146 BBHM-F20-219
 Table of Contents
Task 1: Company Portfolio ......................................................................................................................... 3
Mission........................................................................................................................................................ 4
Values ......................................................................................................................................................... 4
Objectives ................................................................................................................................................... 4
Company Description ................................................................................................................................. 5
Task 2: Board of Directors .......................................................................................................................... 6
Audit Committee......................................................................................................................................... 6
Human Resource and Remuneration (HR & R) Committee....................................................................... 6
Auditors....................................................................................................................................................... 7
Company’s Current Analysis ...................................................................................................................... 7
Operating Style ........................................................................................................................................... 8
Step 1 ....................................................................................................................................................... 8
Step 2 ....................................................................................................................................................... 8
Step 3 ....................................................................................................................................................... 8
Internal Financial Controls ......................................................................................................................... 9
Financial Risks ............................................................................................................................................ 9
 Currency risk ................................................................................................................................. 9
 Interest rate risk ............................................................................................................................. 9
 Credit risk ....................................................................................................................................... 9
 Liquidity risk .................................................................................................................................. 9
 Capital risk ................................................................................................................................... 10
Major Challenges ...................................................................................................................................... 10
Future Prospects ........................................................................................................................................ 10
Task 5: Internal Audit Report ................................................................................................................... 11
 Nishat Mills Limited
Growing Inclusively

Task 1: Company Portfolio

The Nishat Group's flotilla-leading business is Nishat Mills Limited. It was established in
1951. It is one of Pakistan's biggest and most vertically integrated textile firms. A premier
business organization in Pakistan is the Nishat Group of Companies. The group is present
in all significant industries, including textiles, the hotel industry, agriculture, cement,
insurance, power generation, banking, dairy products, and paper goods. Today, in terms of
its managerial abilities and high-quality goods, Nishat Group is regarded as being on par
with global corporations operating locally. By combing, weaving, bleaching, dyeing,
printing, stitching, and other processes, the company creates textiles. It also buys, sells, and
engages in other business activities involving yarn, linen, cloth, and other goods and fabrics
manufactured from raw cotton, synthetic fiber, and cloth. Electricity is also produced,
stored, distributed, supplied, and sold by it.
Vision
To develop a sustainable business that aids in Pakistan's long-term economic growth by
transforming the firm into a contemporary and dynamic corporation that understands the
whole textile value chain from raw materials to retail.

Mission
To offer high-value manufactured goods to its devoted buyers and look into brand new
marketplaces in order to grow the company's sales through innovative technology and
efficient resource management. This will enable the company to prosper and grow in a way
that is both sustainable and fair.

Values
 Novelty

 Integrity

 Sustainability

 Humbleness

 Accountability

 Trust

Objectives
 To exercise strong and efficient supervision.

 To guarantee the accuracy and suitability of financial reporting.

 To examine and provide final approval to the business strategy, major financial

results, and other budgeting objectives.

 Reviewing the efficiency of the internal control system
Company Description
Company manufactures fabrics by combed, weaving, bleaching, dyeing, printing, stitching,
and other techniques, together with acquiring, distributing, and furthermore dealing in yarn,
linen, cloth, and some other goods and fabrics manufactured from cotton fiber, synthetic
fiber, and cloth. This even creates, stores, distributes, supplies, and sells power.

We visited:

Stitching Unit

21 K.M. Ferozepur
Road, Lahore, Pakistan.
Email: [email protected]
Task 2: Board of Directors

Audit Committee
The audit committee is carrying out its responsibilities in agreement together with the
Board of Directors' established positions of reference work. Four Audit Committee
meetings were conducted in the year under review.

Members of Audit Committee:

 Mrs. Mehak Adil Chairperson / Member
 Syed Zahid Hussain Member
 Mr. Mahmood Akhtar Member

Human Resource and Remuneration (HR & R) Committee

The Board of Directors-established Human Resource & Remuneration Committee is
carrying out its responsibilities in accordance with those outlined in its charter. 2 Human
Resource & Remuneration Committee Meetings were conducted in the year under review.
Members of HR &R Committee:
 Mrs. Sara Aqeel Chairpersons / Member
 Mian Umar Mansha Member
 Mr. Mahmood Akhtar Member
Auditors
➢ Riaz Ahmad & Company Chartered Accountants
The auditors Riaz Ahmad & Co, Chartered Accountants, retired during the prior company's
annual general meeting. They had requested re-appointment as they were eligible for the
post for the fiscal year that ended June
30, 2022. As stated by the Audit Committee, the Board of Directors has advised that Riaz
Ahmad & Company, Chartered Accountants be reappointed for confirmation by
shareholder at the forthcoming Annual General Meeting.

Company’s Current Analysis

Nishat Group The growing cost of raw materials has kept pressure on the textile sector
high. Since the start of the second quarter of the fiscal year 2020–2022, the price of cotton
and synthetic fiber has increased by an amount never before seen in the industry. Pakistan's
textile sector needs 15 million bales annually, but the nation could barely produce half of
that amount.

Task 3: Nishat Internal Audit

Role of Internal Audit

Nishat is a diversified business group based in Pakistan, with interests in various sectors
such as textiles, power generation, cement, banking, and automobiles. The internal audit
function in Nishat plays a critical role in ensuring that the company's operations are
conducted in compliance with legal and regulatory requirements, and that internal controls
are in place to mitigate risks and safeguard the company's assets.
The specific roles and responsibilities of the internal audit function in Nishat may include:
 Conducting risk assessments:
The internal audit function is responsible for identifying and assessing risks across Nishat's
operations. This involves understanding the company's business processes, identifying
potential risks and vulnerabilities, and evaluating the adequacy of existing controls.
 Developing internal audit plans:
Based on the risk assessment, the internal audit function develops an annual audit plan that
outlines the specific audits that will be conducted during the year. The plan is reviewed
and approved by senior management and the audit committee.
  Conducting audits:
The internal audit function conducts audits across Nishat's operations to assess the
effectiveness of internal controls and compliance with policies and procedures. This
includes financial audits, operational audits, and compliance audits.
 Reporting and communicating results:
After each audit, the internal audit function prepares a report that summarizes the findings
and recommendations for improvement. These reports are shared with management and
the audit committee, and the internal audit function may also present the findings to the
board of directors.
 Monitoring progress and follow-up:
The internal audit function tracks the status of audit recommendations and follows up with
management to ensure that corrective actions are implemented in a timely manner.

Overall, the internal audit function in Nishat plays a crucial role in promoting good
governance, risk management, and compliance across the company's diverse business
operations.

Operating Style
Following are the steps involved in internal audit procedure by Nishat Group.
Step 1
Checklist the base document that is previous year report published at stock exchange for
the year 2020-2021. Collect all information regarding previous year finances, profit-loss
conditions, accounting policies, changes in equity, and inventory cost.
Step 2
Starting to make a report to HOD that includes the financial statement, statements of profit
or loss, statement of revenue, balance sheets, cash flow statement, and notes to financial
statements, in addition to a description of considerable accounting procedures and other
explanatory details.
Step 3
Discussion with head of internal Auditor Mr. Mirza Fayyaz and conclude suggestions for
improvements and future prospects, which is submitted to board of directors for review and
implementation on improvements and measures.
Task 4: Internal Control System

Internal Financial Controls

To secure the firm's assets, detect and prevent scam, and guarantee conformity with all
legal and regulatory obligations, the company has founded an efficient and effective
method of organizational and administrative controls. The Internal Audit function, which
was duly recognized by the Board, examines and monitors overall structure of internal
controls on a regular basis. The Audit Committee analyses the internal controls on a
monthly basis as a component of its duty.

Financial Risks
The Company's Board of Directors is in charge of developing the financial risk
management procedures, which are carried out by the Company's Finance Department.
Following are the financial risks that the company faces:
 Currency risk
The Company is subject to currency risk as a result of numerous currency exposures,
especially in relation to the United States Dollar (USD), the Euro, the Japanese Yen, and
the Arab Emirates Dirham (AED) (JPY). The amount of foreign currency risk that the
company is exposed to is limited to its bank accounts and the money it owes or receives
from foreign organizations.
 Interest rate risk
The causes of the firm's interest rate risk include long-term financing, short-term
borrowing, loans and improvements to corporation enterprises, and bank balances in
savings accounts. Using fixed-rate financial products, the corporation is subject to fair
market value interest rate risk.
 Credit risk
Trade debts are a source of the Company's credit coverage to credit risk and deficit losses.
The bulk of our clients have solid financial standing, and we have got lived performing
business with all of them for a long time, so this risk is reduced. Because we don't anticipate
our clients performing below par, the credit risk is low.
 Liquidity risk
The availability of sufficient cash via dedicated credit facilities from banks and financial
organizations is at the very least to blame.
  Capital risk
To ensure the Company can continue operating as a going concern and provide returns to
shareholders and benefits to other stakeholders, as well as to maintain an ideal capital
structure to lower the cost of capital, is our goal while managing capital. The Company has
a capital structure with less leverage. Based on the gearing ratios, we keep an eye on the
capital structure.

Major Challenges
The sustained increase in cotton prices will be a key issue for the business in fiscal year
2021-2022, as it will have a detrimental influence on the dynamics of the worldwide textile
markets and, as a result, the company's profitability. More profits, on the other hand, would
arise from an increase in the dollar's value relative to the Pakistani rupee caused by market
forces interacting. The company's growth initiatives, which it started with the Temporary
Economic Refinance Facility (TERF), are already underway and should be finished on
time. The new open-end yarn factory, with a daily production capacity of 700 bags, is set
to open in the second quarter of fiscal year 2021-2022. In October 2021, a second
significant project with 130 broader looms began commercial production.

Future Prospects
 For yearly periods starting on or after January 1, 2023, the Disclosure of Accounting
Policies is in force. The purpose of these changes is to assist preparers in determining
which accounting rules to report in their financial statements.
 Deferred tax will be in effect for year periods beginning on or after January 1, 2023,
and will be related to assets and liabilities derived from a single transaction. These
modifications make it easier for firms to account for deferred tax on transactions
such as leases and decommissioning agreements.
 The accounting estimate definition will change starting on or after January 1, 2023,
for yearly periods. In order to assist businesses in differentiating between accounting
policies and accounting estimates, the concept of accounting estimate was changed
and replaced with a new definition.
 For the year period starting on or after January 1, 2022, the property, plant, and
equipment: Proceeds before Intended use clause will take effect. It makes it clear
that sales revenue and the cost of goods created during the process of getting a piece
of real estate, a piece of equipment, or both to the location and condition where it
can function as planned by management.
  Liabilities will be categorized as current or non-current for the year period starting
on or after January 1, 2023. The addition of these changes to the standards will make
it clearer whether an obligation is categorized as current or non-current.

 Cost of Fulfilling a Contract is a contingent liability and contingent asset that

becomes effective for the year period starting on or after January 1, 2022. It primarily
modifies the financial statement by adding paragraphs that clarify what constitutes
the cost of fulfilling a contract.
The Investment Products modification clarifies that while using the 10% test to
decide whether to recognize a financial responsibility, an entity considers only fees
paid or collected between the company and the borrower, not costs paid or obtained
from the other party. account.

 The modifications stated above are made to capital instruments, contingent

obligations, leasing commitments, specific hedging accounting rules, and reporting
standards; they are expected to have a major impact on the financial statement.

Task 5: Internal Audit Report

INDEPENDENT AUDITOR’S REPORT

To the members of Nishat Mills Limited
Report on the Audit of the Financial Statements
Opinion
We have audited the annexed financial statements of Nishat Mills Limited (the Company),
which comprise the statement of financial position as at 30 June 2021, and the statement
of profit or loss, the statement of comprehensive income, the statement of changes in
equity, the statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory
information, and we state that we have obtained all the information and explanations which,
to the best of our knowledge and belief, were necessary for the purposes of the audit.
In our opinion and to the best of our information and according to the explanations given
to us, the statement of financial position, the statement of profit or loss, the statement of
comprehensive income, the statement of changes in equity and the statement of cash flows
together with the notes forming part thereof conform with the accounting and reporting
standards as applicable in Pakistan and give the information required by the Companies
Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair
view of the state of the Company's affairs as at 30 June 2021 and of the profit, other
comprehensive income, the changes in equity and its cash flows for the year then ended.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) as
applicable in Pakistan. Our responsibilities under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted
by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our
other ethical responsibilities in accordance with the Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Information Other than the Financial Statements and Auditor’s Report
Thereon
Management is responsible for the other information. The other information comprises the
information included in the annual report, but does not include the financial statements and
our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of Management and Board of Directors for the Financial
Statements
Management is responsible for the preparation and fair presentation of the financial
statements in accordance with the accounting and reporting standards as applicable in
Pakistan and the requirements of Companies Act, 2017 (XIX of 2017) and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative
but to do so.
Board of directors are responsible for overseeing the Company’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs as
applicable in Pakistan will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
 Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control.
 Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
 Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern.
  If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events
or conditions may cause the Company to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with the board of directors regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide the board of directors with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the board of directors, we determine those matters
that were of most significance in the audit of the financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Based on our audit, we further report that in our opinion:
1. proper books of account have been kept by the Company as required by the
Companies Act, 2017 (XIX of 2017);
2. the statement of financial position, the statement of profit or loss, the statement of
comprehensive income, the statement of changes in equity and the statement of cash
flows together with the notes thereon have been drawn up in conformity with the
Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account
and returns;
 3. investments made, expenditure incurred and guarantees extended during the year
were for the purpose of the Company’s business; and
4. zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of
1980), was deducted by the Company and deposited in the Central Zakat Fund
established under section 7 of that Ordinance.
The engagement partner on the audit resulting in this independent auditor’s report is Syed
Mustafa Ali.

RIAZ AHMAD & COMPANY

Chartered
Accountants
Lahore
Date: 24 September 2021