00 Engagement team planning meeting.pptx

Its a Meeting Minots

1. Engagement Audit Planning Meeting United Finance Limited Audit for the year ending 31 December 2021 30 November 2021 Note: This deck contains matters for engagement teams to consider in their planning discussions and is not meant to be exhaustive. Engagement teams are required to tailor the deck to suit their client situations.

2. Session Agenda Background of the Company Engagement Team Scope and Nature of the Engagement Engagement Risk Assessment Financial Statements Key Audit Matters (KAM) Key Takeaways and Questions 01 02 03 04 05 06 07

3. Background of the Company United Finance Limited started its journey as United Leasing Company Limited in 1989 with a single product focus. Duncan Brothers Limited, a well-established company operating in Bangladesh for over 150 years, Asian Development Bank, Commonwealth Corporation along with several local and international corporations came together to form this institution. In 1995, the Company obtained license from Bangladesh Bank as a financial institution and has been trading in A-category shares in the Dhaka Stock Exchange. United Finance is one of the only 13 financial institutions allowed by the Government to take Public Sector deposits. Initially United Finance focused on providing lease financing mostly to the medium sized customers but over the years it has diversified its range of products to meet the financial needs of clients ranging from corporate to individuals, irrespective of size. The Company started operation as a leasing company with only one office in the capital. With the progression of time, it expanded its wings to cover areas beyond Dhaka. Now United Finance Limited operates through 23 branch offices across the country bringing all 64 districts under its financial coverage.

4. Engagement Team Name Role Phone Email Faruk Uddin Ahammed Engagement Partner [phone] [email protected] Md. Nayan Mia Engagement Manager [phone] [email protected] Md. Enamul Haq Rudro Executive [phone] [email protected] Israt Jahan Chandni Executive [phone] [email protected] Sabbir Md. Mirazul Hoque Associate [phone] [email protected] Mrittika Ashraf Associate [phone] [email protected] Moazzem Hossen Senior Software Engineer [phone] [email protected] Shamme Akhter Analyst, IT Audit [phone] [email protected] Name Role Name Role Ashik Iqbal EQCR Partner Muhammad N I Sarkar Manager, Tax & Legal

5. Engagement Team Particulars Response Industry Non-Banking Financial Organization Total Hours Spent 1200 Partner Hours 84 Lead Manager Hours 174 RA team hours 84 Any other specialist involved – hours Not Applicable EQCR Hours spent 48 Team mix – Number of Associates, AM, DM, Manager and so on 1 Manager, 2 Audit Executive and 2 Associates Whether ETBL Done – Please provide work paper reference Yes (Engagement team planning meeting) Planning meeting with EQCR – please provide work paper reference Yes (EQCR meeting minutes) If any consultations have been sought – please provide the details and the work paper reference Not Applicable

6. Scope and Nature of the Engagement Nature of Engagement Statutory audit of the financial statements of the Company for the year ended December 31, 2021; Auditors Report to the Shareholders on the financial statements.

7. Engagement Risk Assessment Based on the detail assessment as performed in the Engagement Risk Memo, Professional Service Risk/Engagement Risk has been considered as “Greater than normal” as per DPM 3210 Engagement team have planned significant involvement of Engagement Partner in each areas of audit. Also planned to involve EQCR to ensure engagement quality and RA team to mitigate IT risk. GAAC is not applicable because the Company does not meet the criteria for including under GAAC. 01 02 03

8. Financial Statements

9. Materiality Materiality Performance Materiality* Clearly Trivial Threshold United Finance Limited 170,000,000 127,500,000 8,500,000 Basis for computation of materiality: ET’s assessment is that the regulators’ main focus area is lease, loans and advance as explained under benchmark area of this document and therefore, it would be more rational, practicable and acceptable to consider the benchmark as lease, loans and advances and hence, this has been used as benchmark. Information on how the benchmark was selected: Benchmark was selected based on the analysis and comparisons of user focus areas and key financial data i.e Lease, loan and advance, Net assets, PBT, etc. Focus area of the users of the financial statement: Based on our multiple analysis, we have noted that, users/investors place more focus on the total leases, loans and advances of the company. [Ref: 13120 Materiality Memo]

10. Fraud Brainstorm Fraud Risk Discussion took place amongst engagement team members: We have also discussed on core risks outlined by the Bangladesh Bank: The risk management of a bank covers six (6) core risk areas of banking introduced by Bangladesh bank which are –investment risk management, foreign exchange risk management, asset liability management, prevention of money laundering, internal control and compliances risk and information and technology (ICT) risk management. We will identify and evaluate KPIs and understand Financial Reporting Process. We will involve partner where necessary of any fraud identified. We have discussed applicable fraud risk factors and potential fraud schemes We have discussed that we will perform interview and inquiries with those charged with governance. We will perform procedures for identified fraud risks including risk of management override.

11. Significant Risk Dashboard Fact Based Risk Assessment Risk Whether areas of key judgement/estimate Preliminary assessment of KAM Financial statement Level Management override of control Management override of controls may occur in various ways, including journal entries and other adjustments, accounting estimates that are subject to management bias that could result in a material misstatement in the financial statements, unsupportable or inappropriate business rationale for material transactions. No judgement involved Considered as a KAM (IT area – new Software) Leases, loans and advances Lease, loans and advances may not be approved through following the approval process No judgement involved Not considered as KAM Interest income from leases, loans and advances 1. Recognition of revenue may be misstated due to unapproved/wrong interest rate and duration of loan. 2. Interest may be recognized on classified lease, loans and advances No judgement involved Not considered as a KAM Provision on Non-performing Loans (NPL) 1. Classification of lease, loans and advances may not be done following BB's guidelines 2. Provision may not be kept as per the provision required following BB's guidelines Classification status may depend on qualitative judgement Considered as KAM Legend: Fraud Risk

12. Risk Assessment — Significant Risks to the Financial Statements and Planned Audit Response Fact Based Risk Assessment (Cont’d) Engagement teams to consider preparing the table above for each identified Significant Risk — it has been pre-populated with a suggested approach to documenting the presumed fraud risk related to management override of controls, which is only illustrative Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Management Override of Internal Controls Yes Financial Statement Level Risk (Fraud Risk) Management override of controls may occur in various ways, including journal entries and other adjustments, accounting estimates that are subject to management bias that could result in a material misstatement in the financial statements, unsupportable or inappropriate business rationale for material transactions. Audit Response: 1. Process of Journal Entries and Test of Control Surrounding JE: a) Obtain detail understanding of business process of posting and review of Journal Entries and documented the same as part of FCRP. b) Test D&I and OE of the control surrounding the review and approval of JEs. Samples [Total no as per the methodology] selected on sample basis.

13. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Management Override of Internal Controls Yes Financial Statement Level Risk (Fraud Risk) Management override of controls may occur in various ways, including journal entries and other adjustments, accounting estimates that are subject to management bias that could result in a material misstatement in the financial statements, unsupportable or inappropriate business rationale for material transactions. Audit Response: 2. Test of MOC through Journal Entries: a) Based on understanding of the JE process, noted by ET that most of the entries passed in Central Payment Department (CPD) & Branches. There are also Standard Entries through finUltimus software like interest income from Leases, Loans and Advances and interest expenses for deposits. Hence ET has planned to collect the data dump file and test whether any unusual transaction is noted. ET based on the review of the Trial Balances will select certain accounts heads which are susceptible to Estimate /Judgements and Unusual Transactions. For those selected account balances ET will perform complete review of the Ledgers /Ledger Scrutiny to identify any Unusual Transaction outside the normal course of business.

14. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Management Override of Internal Controls Yes Financial Statement Level Risk (Fraud Risk) Management override of controls may occur in various ways, including journal entries and other adjustments, accounting estimates that are subject to management bias that could result in a material misstatement in the financial statements, unsupportable or inappropriate business rationale for material transactions. b) In additional to the same based on ET understanding of the preparation of the financial statement and test for MOC - whether any Top Side Entry is passed. 3. For Estimate Testing: a) Obtain the calculation on loan loss provision of the bank and then tests based on our samples whether calculation is made in line with the local laws (BB regulations). b) For the other provisions, obtain the calculation and then checks based on our samples, whether the calculation is correct. c) Obtain customers loan files based on sample and analyze the credit history of them for adequacy of NPL Provision perspective. d) Obtain the calculation of tax provision and check whether the calculation is made as per Income tax Ordinance 1984. e) Obtain the latest FS and then check whether it is prepared and disclosed as per Schedule of Banking Companies Act 1991.

15. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Leases, loans and advances Yes Completeness, Rights and Obligations (Significant risk) Lease, loans and advances may not be approved through following the approval process. Audit response: 1. Obtain lease, loan and advance customers list as on 31 September 2021 (for interim period). 2. Select sample from execution during the year. 3. Obtain the selected loan files. 4. Cross check the expiry dates (for Short term loan) with the FICL statements. (For Term Loan/Lease/Home Loan, we shall obtain the repayment schedule and customer bank statement.) 5. Check for appropriate approval, sanction letter and document the findings Further, perform the same procedure after obtaining data up to 31 December 2021.

16. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Provision on Lease, loans and advances Yes Occurrence, Accuracy, Completeness, Valuation and allocation (Significant risk) 1. Classification of lease, loans and advances may not be done following BB's guidelines 2. Provision may not be kept as per the provision required following BB's guidelines Audit response: 1. Obtain FICL statements of the last quarter. 2. Recalculate the classification status based on the expiry date mentioned in FICL statements. 3. Obtain the sanction letters on sample basis. 4. For Term Loan, Lease and Home loan, we shall obtain the repayment schedule and customer bank statement. Check the last repayment date and also cross check the period of overdue. For short term (revolving) loans we will cross check, the expiry dates with the FICL statements. 5. Obtain the list of judgmentally classified loans during the year and cross check with CL statements. 6. Check whether judgmentally classified loans have been classified in according with the guidelines prescribed by Bangladesh Bank.

17. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Provision on Lease, loans and advances Yes Occurrence, Accuracy, Completeness, Valuation and allocation (Significant risk) 1. Classification of lease, loans and advances may not be done following BB's guidelines 2. Provision may not be kept as per the provision required following BB's guidelines 7. Recalculate the provision of the FICL statements based on Guideline of Bangladesh Bank 8. Obtain the statement of account of the selected facilities/customers and verify the last payment received from the statement of account. 9. In addition to the steps mentioned above for checking the accuracy of the identification and calculation of NPL, ET will identify customers based on MUS sampling and for certain cases out of the samples independently reviewed the credit history of the customers to ensure that no additional provision for NPL is required over and above the minimum required as per Bangladesh Bank requirements.

18. Fact Based Risk Assessment (Cont’d) Significant Risk Fraud Risk Related Assertion/ Account Balance/ Disclosure Level Risk or Financial Statement Level Risk Identification of Risk of Material Misstatement ("What Could Go Wrong") and Audit Response Illustrative Planned Audit Response Interest income from leases, loans and advances Yes Occurrence, Accuracy, Cut-off(Significant risk) 1. Recognition of revenue may be misstated due to unapproved/wrong interest rate and duration of loan. 2. Interest may be recognized on classified lease, loans and advances Audit Based on sample size: 1. Obtain customer account statement. 2. Recalculate interest income and cross check with interest amount on customer statement . 3. Obtain approval of interest rate changing for customers (if any). 4. Cross check interest rate of sanction letter with the rate inputted in the system. 5. Check whether interest on Classified loans are recorded under suspense account correctly

19. Higher Assessed Risk of Material Misstatement Dashboard^ Fact Based Risk Assessment (Cont’d) Risk Whether area of key judgement / estimate Preliminary assessment of KAM* Leases, loans and advances: Valuation of security value may be overstated to reduce the NPL provision. Also, the collateral (for property mortgage) may not be appropriate. While determining the security asset value Judgement is used, but the degree of judgement is low. Not considered as KAM Fixed assets including land, building, furniture and fixtures: Assets shown in the balance sheet may not exits or may have been sold by the company may not actually own the assets. No judgement used Not considered as KAM Right-of-use assets: The Company may not consider all lease agreement under IFRS 16 Lease. Also, the Company may use inappropriate internal borrowing rate while calculating right of use of assets. No judgement used Not considered as KAM Interest suspense account: Interest of classified loan may not be accounted as per circular issued by Bangladesh. No judgement used Not considered as KAM Salaries and allowances: Payroll costs may not be recorded at correct amount or per contract with the employees. No judgement used Not considered as KAM Related party transactions No judgement used Not considered as KAM

20. Internal Controls Have the entity level controls been tested and found to be effective. Clearly state the ones that we are going to be placing reliance on. Plan for testing of internal controls – how the walkthroughs would be performed and at which locations (in case of a multi locational engagement) What is the basis for scoping out of certain locations Whether the process and controls are common across locations Whether the IT systems / applications / tools used are common across locations Whether the ET is planning to adopt a common control strategy as per IC 1-19 of Internal Control Deloitte Guidance Q&As Nature, timing and extent of control procedures Whether the ET is planning to rely on controls tested during the prior periods (rotation strategy as per Audit Alert 62 dated December 16, 2016) Whether the ET is planning to adopt a roll forward strategy or spread the samples across the entire period of intended reliance Are there any immaterial components which can be scoped out for control testing (refer to Internal Control Alert # 10) Plan for testing of IUC and IPE Were all the business cycles controls operating effectively in the previous year? If not were alternate controls identified by the ET? What is the plan for such controls for the current year Have there been any deficiencies in internal controls during the previous year and have they been remediated by the company Plan for testing Financial Closing and Reporting Process (including controls over cash flows) Consider including items such as:

21. Involvement of RA Account Balance / Class of Transaction Application Used Whether scoped in Tools Used Whether scoped in Whether server with client or outside (including outside the country) Whether any service organization is being used All the ABCOTD items finUltimus Yes N/A N/A With client Yes, Leads Corporation is the developer of the software We have planned to use the RA team to check the General IT Control (GITC). We have planned to use the RA in the areas where automated controls implemented i.e.: Interest income from leases loans and advances, Calculation of overdue periods of the leases, loans and advances, Interest expenses on deposits. We have planned to involve the RA team in the process understanding of implementation of new accounting software and also in other areas. We have planned to use RA team to test the SOD/Access control in new software as a part of GITC testing. We have budgeted testing hours for RA team. We identified RAITs are appropriately addressed, and no exception was identified in General IT control during the audit period. We also identified the automated controls and no exception have been noted.

22. Internal auditor of the company is in house team. Engagement team have obtained understanding of the functionality of Internal Audit Department of the company. The company called it Internal control and compliance (ICC) department. In ICC department there are three wing i.e internal compliance team, internal audit team and system audit team. ET has discussed regarding the plan to set a separate meeting with the three team to know the process and their year wise activities. Understanding the internal audit function Understanding the internal audit function

23. Key takeaways and Questions