audit committee analysis

Department of Accounting & Information SystemsUniversity of Dhaka

Audit Committee & Corporate Performance

A study on selected listed entities in Bangladesh

Group 115 May 2010

Submitted to

Mohammad TareqLecturer

Department of Accounting & Information SystemsUniversity of Dhaka

Table of contents

What is an audit committee?.............................................................................................3Requirement of SEC..........................................................................................................3Entity specific analysis......................................................................................................5

Grameenphone Ltd........................................................................................................6Audit Committee of Grameenphone Ltd....................................................................6Corporate performance - Highlights..........................................................................7

Square Pharmaceuticals Ltd...........................................................................................9Audit Committee........................................................................................................9Corporate performance of Square Pharmaceuticals Ltd..........................................10

FU- Wang Ceramic Industry Ltd.................................................................................10Audit Committee......................................................................................................11Corporate performance of FU- Wang Ceramic Industry Ltd...................................12

Reckitt Benckiser (Bangladesh) Ltd............................................................................13Audit Committee......................................................................................................14Corporate performance of Reckitt Benckiser (Bangladesh) Ltd..............................14

Beximco Pharmaceuticals Ltd.....................................................................................15Audit Committee......................................................................................................15Corporate performance – Highlights........................................................................16

Annexure 1......................................................................................................................17

2

What is an audit committee?

An Audit Committee is an operating committee of the Board of Directors charged with oversight of financial reporting and disclosure. Committee members are drawn from members of the company's board of directors, with a Chairperson selected from among the committee members. A qualifying audit committee is required for a publicly-traded company to be listed on a stock exchange.

Requirements of SEC

A company should have an Audit Committee as a sub-committee of the Board of Directors.

The Audit Committee should assist the board of directors in ensuring that the financial statements reflect true and fair view of the state of affairs of the company and in ensuring a good monitoring system within the business.

An Audit Committee shall be responsible to the Board of Directors. The duties of Audit Committee should be clearly set forth in writing.

Constitution of Audit Committee

1. The Audit Committee should be composed of at least three members.

2. The Board of Directors should appoint members of Audit Committee who should be directors of the Board of Directors of the company and should include at least one independent director.

3. When the term of service of committee members expires or there is any circumstance causing any Committee member to be unable to hold office until expiration of the term of service, thus making the number of the committee members to be lower than the prescribed number of 3 persons, the board of directors should appoint the committee member(s) to fill up the vacancy(ies) immediately or not later than 1 month from the date of vacancy(ies) in the committee to ensure continuity of the performance of work of the Audit Committee.

Chairman of the audit committee

3

EA[Type your address] [Type your phone num

ber] [Type your e-m

ail address]

1. The board of directors should select one member of the Audit Committee to be the Chairman of the Audit Committee.

2. The Chairman of the Audit Committee should have a professional qualification or knowledge, understanding and experience in accounting or finance.

Reporting to the Board of Directors

1. The Audit Committee should report on its activities to the Board of Directors.

2. The Audit Committee should immediately report to the Board of directors on the following findings, if any:-

Report on conflicts of interests; Suspected or presumed fraud or irregularity or material defect in the

internal control system; Suspected violation of laws , including securities related laws, rules

and regulations; and Any other matter which should be disclosed to the board of directors

immediately.

Reporting to the Authorities

If the audit committee has reported to the Board of Directors about anything which has material impact on the financial condition and results of operation and has discussed with the Board of Directors and the Management that any rectification is necessary and if the Audit Committee finds that such rectification is unreasonably ignored , the Audit Committee should report such finding to the Commission, upon reporting of such matters to the Board of Directors for three or completion of a period of 9 months from the date of first reporting to the Board of Directors, whichever easier.

Reporting to the Shareholders and the General Investors

Report on activities carried out by the Audit Committee, including any report made to the Board of Directors during the year, should be signed by the Chairman of the Audit Committee and disclosed in the annual report of the issuer company.

4

Entity specific analysis

The following entities were covered by our analysis-

Name of entity Done by

Grameenphone Ltd. Md. Atiqur Rahman (ID 001)

Reckitt Benckiser (Bangladesh) Ltd Muhammad Tauheedur Islam (ID 002)

FU- Wang Ceramic Industry Ltd.A.H.M Mehedi Hasan (ID 003)

BEXIMCO Pharmaceuticals Ltd Mir Imrul Hasnat (ID 004)

Square Pharmaceuticals Ltd.Faria Akhter (ID 006)

5

Grameenphone Ltd.

Audit Committee of Grameenphone Ltd.

From the study of the Annual Report of 2008 of Grameenphone Limited, information about Audit Committee is stated below:

Sl. No Title Compliance Status

1 Audit committee √2 Composition of Audit Committee √3 Audit Committee Members appointment All members are appointed

except the independent director.

4 Term of service of Audit committee √5 Chairman of Audit Committee √6 Audit Committee chairman’s

qualification√

7 Reporting to the Board of Directors Audit Committee was formed in late 2008 and it started function in 2009

8 Report of conflict of Interest Ref. 79 Defect in the internal control system to

the Board of DirectorsRef. 7

10 Suspected infringement of laws to the Board of Directors

Ref. 7

11 Any of the matters (out of the above, a:c) Ref. 7

12 Reporting to the Authorities -SEC Ref. 713 Reporting to the Shareholders Ref. 7

Composition

Mr. Dipal Chandra Barua (Chairman)Mr. Barua is the Deputy Managing Director of Grameen Bank and Founding Managing Director of Grameen Shakti. He was one of the core builders of the Nobel Peace Prize winning organization – Grameen Bank. Mr. Barua has extensive experience in the fields of poverty alleviation, micro credit, rural development and people’s participation as a result of his affiliation with Grameen Bank. He holds a Bachelor of Arts (Hons) and a Master of Arts in Economics from the University of Chittagog.

6

Per Erik HyllandMr. Per Erik Hylland is the Senior Vice President, Corporate Development, of Telenor Asia. He has professional experience in banking, information technology and telecommunications industries. He is an information technology engineer educated in Norwegian Ministry of Defence.

Observation

Grameenphone Ltd. formed its audit committee late in 2008. Independent director could not by appointed at that time as per the requirement of SEC. The vacancy was however fulfilled.

The company did not have any audit committee in 2005.

Corporate performance - Highlights

Key performance indicators of the Grameenphone Ltd. stood as follows-

Corporate-performance of Grameenphone Ltd.

Ratios

Year

2005 2008

Return on investment 37.3% 23.1%

Return on asset 14.0% 3.0%

Return on owners equity 37.9% 11.1%

Net profit ratio 23.5% 4.9%

Asset turnover 0.59 0.57

Earnings per share* 2.84 0.25 *Converted to 1 Taka per value share for 2005 to ensure comparability

7

Graphical Presentation

8

Square Pharmaceuticals Ltd.

Audit Committee

From the study of the Annual Report of 2008 of Square Pharmaceuticals Ltd., information about Audit Committee is stated below:


1 Audit committee √2 Composition of Audit Committee √3 Audit Committee Members appointment √


qualification√

7 Reporting to the Board of Directors √

8 Report of conflict of Interest Not applicable9 Defect in the internal control system to

the Board of DirectorsNot applicable


Not applicable

11 Any of the matters (out of the above, a:c) Not applicable

12 Reporting to the Authorities -SEC Not available from the report

13 Reporting to the Shareholders √

Composition

Mr. M. Sekander Ali (Chairman and Independent Director)Mr. Samuel S. Chowdhury, (Director)Mr. Kazi Iqbal Harun, (Director)

Observation

The company has a full fledged audit committee as per the requirements of SEC. The roles and responsibilities are also clearly mentioned. The company did not have any audit committee in 2005.

9

Corporate performance of Square Pharmaceuticals Ltd.

Ratios

Year 2005 2008 Return on investment 16.6% 17.6%

Return on asset 12.5% 14.3%

Return on owners equity 18.2% 19.0%

Net profit ratio 19.1% 19.2%

Asset turn over 0.65 0.74

Earnings per share* 234.67 156.56 *Based on 100 Taka share


10

FU- Wang Ceramic Industry Ltd.

Audit Committee

From the study of the Annual Report of 2008 of FU- Wang Ceramic Industry Ltd., information about Audit Committee is stated below:




qualification√


8 Report of conflict of Interest No such incident9 Defect in the internal control system to

the Board of DirectorsNo such incident


No such incident

11 Any of the matters (out of the above, a:c) √

12 Reporting to the Authorities -SEC No such incident13 Reporting to the Shareholders √

Composition

Mr. Narayan Roy, FCA, FCS (Independent Director)Names of other members were not made available in the annual report.

Observation

The company should disclose the name of the members of the audit committee. In addition, the other matters in point 11 in the above mentioned table should have been made clear to the readers by inclusion of proper description. The company did not have any audit committee in 2005.

11

Corporate performance of FU- Wang Ceramic Industry Ltd.

Ratios

Year

2005 2008 Return on investment 4.9% -1.6% Return on asset 3.2% -0.9%

Return on owners equity 4.9% -1.7%

Net profit ratio 6.5% -2.5%

Asset turn over 0.50 0.35

Earnings per share* 7.09 (2.48) *Based on 100 Taka share


12

Reckitt Benckiser (Bangladesh Ltd.

Audit Committees

From the study of the Annual Report of 2008 of Reckitt Benckiser (Bangladesh) Ltd., information about Audit Committee is stated below:




qualification√


8 Report of conflict of Interest No such incident9 Defect in the internal control system to

the Board of DirectorsNo such incident


No such incident


12 Reporting to the Authorities -SEC No such incident13 Reporting to the Shareholders √

Composition

Mr. Rashid-ul-Hasan, (Chairman)A.H.M. Lutful Huda ChowdhuryNaveedul Islam Khan (Secretary)

Observation

The company did not have any audit committee in 2005.

13

Corporate performance of Reckitt Benckiser (Bangladesh) Ltd

Ratios

Year 2005 2008 Return on investment 25.4% 36.0% Return on asset 15.0% 15.7% Return on owners equity 27.3% 37.9% Net profit ratio 8.0% 9.5% Asset turn over 1.89 1.65 Earnings per share* 15 35 *Based on 10 Taka share


14

BEXIMCO Pharmaceuticals Ltd.

Audit Committee

From the study of the Annual Report of 2008 of BEXIMCO Pharmaceuticals Ltd., information about Audit Committee is stated below:




qualification√


8 Report of conflict of Interest √

9 Defect in the internal control system to the Board of Directors

√


√


12 Reporting to the Authorities -SEC √

13 Reporting to the Shareholders √

Composition

Mr. M. A. Qasem (Chairman)Dr. Abdul Alim Khan (Member)Advocate Ahsanul Karim (Member)

ObservationThe company has a full fledged audit committee as per the requirements of SEC. The roles and responsibilities are also clearly mentioned.

The company had no audit committee in 2005.

15

Corporate performance – Highlights

Corporate performance of BEXIMCO Pharmaceuticals Ltd

RatiosYear

2005 2008 Return on investment 5.8% 4.5% Return on asset 4.5% 3.7% Return on owners equity 7.2% 5.2% Net profit ratio 14.7% 13.6%

Asset turn over 0.30

0.27

Earnings per share* 5 4

*Based on 10 Taka share

16

Annexure 1Applicable formulas for measurement of corporate performance

1. Return on Assets

2. Return on Common Stock-holders Equity

3. Basic Earnings Per-Share (EPS)

4. Assets Turnover

5. Return on Investment

17

audit committee analysis

Documents