CONTINGENCIES LIABILITIES



| |AUDIT OBJECTIVES | | | | |

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| | |To determine whether: | | | |

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| | |A. |The contingent liabilities disclosed by the management includes all| | | |

| | | |contingencies wherein it is not yet confirmed whether the entity | | | |

| | | |has a present obligation that could lead to outflow of economic | | | |

| | | |benefits or the amounts of which cannot be measured with sufficient| | | |

| | | |reliability or the existence of which will be confirmed only by the| | | |

| | | |occurrence of one or more uncertain future events not wholly within| | | |

| | | |the control of the entity and that these are adequately classified | | | |

| | | |and disclosed. | | | |

| | |B. |Contingent liabilities do not include: | | | |

| | | | | | | |

| | | |any obligation which should be provided for in the books of account| | | |

| | | |of the Company as the probabilities of its outcome against the | | | |

| | | |Company are on the higher side and the quantum and timing of | | | |

| | | |payment may be estimated; | | | |

| | | |any obligation for which the possibility of outflow of resources | | | |

| | | |embodying economic benefits is remote. | | | |

| | |C. |All the future commitments embodying outflow of economic benefits | | | |

| | | |against committed transactions have been identified, classified and| | | |

| | | |disclosed as commitments. | | | |

| | |D. |All significant subsequent events have been identified, analysed | | | |

| | | |and adjusted for or disclosed as appropriate. | | | |

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| | |SUBSTANTIVE PROCEDURES | | | |

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| | |1. General Contingencies | | | |

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| | |1.1 |Obtain schedule of contingencies. | | | |

| | |1.2 |Review the results of audit procedures performed in other heads of | | | |

| | | |accounts. | | | |

| | |1.3 |Read significant contracts, loan agreements, leases, service | | | |

| | | |guarantees, insurance policies (or note the lack of insurance), and| | | |

| | | |other sales or leases contracts. | | | |

| | |1.4 |Determine, through inquiry and review of sales and/or lease | | | |

| | | |agreements, policies in effect with respect to returns, | | | |

| | | |repurchases, and future allowances applicable to sales or leases. | | | |

| | |1.5 |Determine, through inquiry and review of minutes, | | | |

| | | |contracts/agreements, and bank confirmations, accounting and | | | |

| | | |operating policies in effect with respect to interest rate and | | | |

| | | |foreign currency futures/hedges. | | | |

| | |1.6 |If an estimate of financial effect of contingency is disclosed in | | | |

| | | |financial statements then inquire of and discuss with management | | | |

| | | |the client’s policies and procedures for determining the estimated | | | |

| | | |financial effect of contingencies, including those resulting from | | | |

| | | |litigation, claims, and unasserted claims. | | | |

| | |1.7 |Ensure that the amount disclosed should be the best estimate of the| | | |

| | | |outflow which may be required to settle the potential obligation at| | | |

| | | |the balance sheet date which an enterprise would rationally pay to | | | |

| | | |settle such potential obligation at the balance sheet date or to | | | |

| | | |transfer it to a third party at that time. | | | |

| | |1.8 |Ensure that the risks and uncertainties that inevitably surround | | | |

| | | |those events and circumstances are taken into account in reaching | | | |

| | | |the best estimate of a contingency. | | | |

| | |1.9 |Ensure that future events that may affect the amount required to | | | |

| | | |settle a potential obligation is reflected in the estimated amount | | | |

| | | |where there is sufficient objective evidence that they may occur. | | | |

| | |1.10 |Ensure that the effect of possible new legislation is taken into | | | |

| | | |consideration in measuring the disclosed amount of contingencies | | | |

| | | |when sufficient objective evidence exists that the legislation is | | | |

| | | |virtually certain to be enacted. | | | |

| | |1.11 |Ensure that gains from the expected disposal of assets is not taken| | | |

| | | |into account in measuring a contingent amount, even if the expected| | | |

| | | |disposal is closely linked to the event giving rise to the | | | |

| | | |contingency. | | | |

| | |1.12 |Where some or all of the expenditure required to settle a | | | |

| | | |contingent liability is expected to be reimbursed by another party,| | | |

| | | |ensure that the reimbursement should be disclosed when, and only | | | |

| | | |when, it is virtually certain that the reimbursement will be | | | |

| | | |received if the enterprise settles the potential obligation. | | | |

| | |1.13 |Ensure that the client’s representation regarding contingencies and| | | |

| | | |commitments has been included in general representation letter. | | | |

| | |2. Tax Contingencies | | | |

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| | |2.1 |Obtain professional opinion of the tax consultant of the entity so | | | |

| | | |as to assure the degree and extent of exposure. | | | |

| | |2.2 |Refer to the tax working papers, particularly tax position schedule| | | |

| | | |in order to identify any potential contingent liability. | | | |

| | |2.3 |Obtain from client any reports/details of sales tax audits/income | | | |

| | | |tax audits. | | | |

| | |2.4 |Obtain from client any notices of demand/show cause notices served | | | |

| | | |during the period/subsequent to year-end. | | | |

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| | |3. Litigation, Claims and Assessments | | | |

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| | |3.1 |Review the cases identified in the light of details as provided. | | | |

| | |3.2 |Circularize confirmations to legal counsels. Prepare confirmation | | | |

| | | |control sheet. Mail first requests. Send second and third requests | | | |

| | | |as required. | | | |

| | |3.3 |Examine documents, including correspondence and invoices from | | | |

| | | |lawyers, in the client’s possession concerning litigation, claims | | | |

| | | |and unasserted claims. | | | |

| | |3.4 |Evaluate replies to our letters from legal Advisors. | | | |

| | |3.5 |Analyse the disputed claims of contractors and other parties and | | | |

| | | |review the details of disputes as provided to us. | | | |

| | |3.6 |Complete Contingencies and Commitments Form [Litigation, claims and| | | |

| | | |assessments and compliance with laws and regulations – Practice | | | |

| | | |Aid]. | | | |

| | |3.7 |Inquire of management and describe client policies and procedures | | | |

| | | |for identifying, evaluating, and accounting for litigation, claims | | | |

| | | |and assessments. | | | |

| | |3.8 |Inquire of the appropriate level of management and describe the | | | |

| | | |policies and procedures that the client has in place to monitor | | | |

| | | |compliance with laws and regulations, including those procedures | | | |

| | | |designed to prevent the occurrence of illegal acts. | | | |

| | |3.9 |Make inquiries from the appropriate level of management of the | | | |

| | | |existence of illegal acts or events of non-compliance with laws and| | | |

| | | |regulations. | | | |

| | | | | | | |

| | |4. Outstanding bank guarantees | | | |

| | | | | | | |

| | |4.1 |Prepare summary in accordance with the confirmations received from | | | |

| | | |banks. | | | |

| | |4.2 |Review the bank guarantee letters/agreements. | | | |

| | |4.3 |Examine returned standard bank confirmations forms and any other | | | |

| | | |returned confirmations of bank credit arrangements for contingent | | | |

| | | |liabilities, letters of credit, and compensating balance | | | |

| | | |arrangements. | | | |

| | |4.4 |Ascertain whether any bank guarantee also constitutes/reveals a | | | |

| | | |contingency. | | | |

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| | |5. Commitments | | | |

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| | |5.1 |Obtain schedule of commitments from the client. | | | |

| | |5.2 |Inquire as to material commitments to complete sales contracts at a| | | |

| | | |loss or that cannot be fulfilled; repurchase assets previously | | | |

| | | |sold; purchase quantities in excess of requirements or at prices in| | | |

| | | |excess of prevailing market prices; construct or acquire property, | | | |

| | | |plant, equipment, investments, intangibles, or other non current | | | |

| | | |assets. | | | |

| | |5.3 |Refer capital commitments relating to long- term projects from | | | |

| | | |capital work in progress. | | | |

| | |5.3.1 |Refer minutes of meeting of Board of Directors for potential | | | |

| | | |capital commitments. | | | |

| | |5.4 |Refer unfulfilled purchase orders relating to capital expenditure | | | |

| | | |for potential capital commitments. | | | |

| | |5.5 |Cross refer potential capital commitments from capital expenditure | | | |

| | | |budgets. | | | |

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| | |6. Standard Working Schedules | | | |

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| | |6.1 |Ensure that the following FIRM’S STANDARD FORM schedule have been | | | |

| | | |incorporated, if applicable, in our working papers: | | | |

| | | |Contingent Liabilities (Bank wise); | | | |

| | | |Capital Commitments; | | | |

| | | |Contingencies – pending litigations; | | | |

| | | |Form for Documentation of information regarding law suits – company| | | |

| | | |being plaintiff; | | | |

| | | |Letter of credit – capital and operating; | | | |

| | | |Commitments – Letter of Guarantee (contra); | | | |

| | | |Contingencies and commitments; | | | |

| | | |Pending litigations and other legal matters; | | | |

| | | |Operating lease commitments; and | | | |

| | | |Finance lease commitments. | | | |

| | |7. Subsequent Events Review | | | |

| | | | | | | |

| | |7.1 |Read the latest available interim financial statements; compare | | | |

| | | |them with the financial statements being reported upon; and make | | | |

| | | |any other comparisons considered appropriate in the circumstances | | | |

| | | |(including comparison to the budget or loan covenants, if deemed | | | |

| | | |necessary). | | | |

| | |7.2 |Review latest budget or forecast for subsequent period for items | | | |

| | | |impacting the current audit. | | | |

| | |7.3 |Review the following for unusual transactions after year-end: | | | |

| | | |General Ledger | | | |

| | | |Cash Book | | | |

| | | |Sales Reports | | | |

| | | |Income Statement | | | |

| | | |Balance Sheet | | | |

| | |7.4 |Fill subsequent events/Post Balance Sheet Events review checklist. | | | |

| | |7.5 |Inquire of and discuss with officers and other executives having | | | |

| | | |responsibility for financial and accounting matters (limited where | | | |

| | | |appropriate to major locations) as to whether there have been any | | | |

| | | |events, transactions, etc., that occurred after yearend up to and | | | |

| | | |including the opinion date that have a significant effect on the | | | |

| | | |financial statements or should be disclosed therein. | | | |

| | |7.6 |Discuss whether the internal statements have been prepared on the | | | |

| | | |same basis as that used for the statements under audit. | | | |

| | |7.7 |Discuss whether any substantial contingent liabilities or | | | |

| | | |commitments existed at the date of the balance sheet being reported| | | |

| | | |on or at the date of inquiry. | | | |

| | |7.8 |Discuss whether there was any significant change in the capital | | | |

| | | |stock, long-term debt or working capital to the date of inquiry. | | | |

| | |7.9 |Discuss the current status of items in the financial statements | | | |

| | | |being reported on that were accounted for on the basis of | | | |

| | | |tentative, preliminary or inconclusive data. | | | |

| | |7.10 |Discuss whether any unusual adjustments had been made during the | | | |

| | | |period from the balance sheet date to the date of inquiry. | | | |

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| | |Other tests as deemed necessary | | | |

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| | |Management Letter | | | |

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| | | |Prepare management letter points including: | | | |

| | | |Internal control weaknesses; | | | |

| | | |Business improvement opportunities; | | | |

| | | |Legal non-compliance; | | | |

| | | |Accounting system deficiencies; and | | | |

| | | |Errors and irregularities not material at the financial statements | | | |

| | | |level. | | | |

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| | |Disclosure | | | |

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| | | |Ensure appropriate disclosure have been made in accordance with the| | | |

| | | |reporting framework and fill relevant portion of Financial | | | |

| | | |Statement Disclosure Checklist (FSDCL). | | | |

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| | |Supervision, Review and Conclusion | | | |

| | | | | | | |

| | |1. |Perform Senior review and supervision. | | | |

| | |2. |Resolve Senior review points. | | | |

| | |3. |Resolve Partner and Manager review points. | | | |

| | |4. |Conclude response to the audit objectives. | | | |

Audit conclusion

Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at the beginning of this audit program have been achieved, except as follows:

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Date:____________ Signature Job Incharge Manager Partner

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S/AP

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