Finance

Finance
both the employer and employee. Pension funds were first established in the United States in 1959 to benefit the widows and children of Church ministers. It was not until 1875 that the American Express Company established the first corporation pension fund. By 1940, only 400 pension funds were in existence, mainly for employees in the railroad, banking and public utilities industries. Since then, the industry boomed, so that currently over 700,000 pension funds now exist (Saunders & Cornett, 2004). The company or employer is the organization sponsoring the pension plan. It incurs the cost and makes contributions form employer, administers the pension assets and makes the benefit payments to the pension recipients (retired employees). The following graph shows the three entities involved in a pension fund and indicates the flow of cash among them:
Pension Fund contriInvestment Earning bution $ $ Fund Assets Figure: Resource flow of the Pension Fund

Finance Pension Fund Audit

Pension fund audit is a special kind of audit conducted with a view to expressing an opinion whether an organizations information relating to the fairness of pension funds. In conducting this audit, some piece of information are gathered in respect of trust deed, agreement, actuary, list of eligible employee, fund, amount of pension able salary, pension able service, approval, dependent child and so on. Moreover, loans and advances given from the fund, the outstanding loan amount, the loan loss provision, the interest on investment, the loan status etc. are also collected from the corporate office of the respective company. This is the responsibility of the trustees to prepare the financial statements of pension fund and the auditors responsibility is to express an independent opinion on these financial statements based on their audit. 4. To have an idea regarding the audit compliance in respect of a pension fund a) Audit of investment Every pension fund should invest its funds in specific sources and income earned should be added to members accounts. The audit procedures in this respect are: i. Opening balance confirmed with last years audited accounts. ii. A schedule of investment prepared by the fund is collected and the total amount of investment is verified. iii. Addition of different investments like pratirakkha Sanchaya Patra (PSP), Bangladesh Sanchaya Patra (BSP) and FDR during the year is to be confirmed from approval of trustees. iv. Examining the inclusion of investment in the book of accounts. v. Determining the total encashment made and related procedures are followed. vi. All the investment papers (PSP & BSP) are verified physically. b) Audit of accrued interest on investment Interest is accrued on provident fund investment because this is not realized before the year-end. Audit procedures are: i. Opening balance is confirmed from last years audited accounts. ii. Interest realized during the year is confirmed from general ledger. iii. Calculation of accrued interest is checked on test basis. iv. Total amount of accrued interest and interest on encashment are verified. c) Audit of receivables Contribution of both the employee and the employer is received by the fund. The employer deducts the employees contribution from the salary. The audit procedure is that opening balance is checked from the last years audited financial statements. The amount of receivable is checked from the journal voucher and verified whether the amount is posted in the general ledger. d) Audit of other receivables Opening balance is confirmed from last years audited accounts. An excess payment made to an employee during the time he/she leaves the company may be included in the schedule of other receivables. The amount of such payment is confirmed from other relevant documents. e) Audit of loan to members The company may sanction loan out of its pension fund to the members as per rules. The audit procedures are:
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Finance
i. Opening balance of loan account is confirmed from last years audited accounts. I) Audit of expenses This refers to the audit fee. The audit procedures are: i. Opening balance is confirmed from the last years audited accounts. ii. The accruals for the current year are verified from the general ledger. iii. Posting is verified form the journal voucher and the basis, on which the estimate is made, is confirmed. j) Bank charges The bank statement is checked to confirm the bank charges posted in the journal voucher. k) Audit of interest earned The audit procedures in this regard are: i. Interest calculation is checked on the test basis. ii. Interest on savings account is checked from the bank statement.

A CASE STUDY ON PENSION FUND: AUDIT PROCEDURES AND COMPLIANCE

Mst. Nusrat Sahrmin Syed Abdulla Al Mamun James Bakul Sharkar
Abstract: Pension fund audit is a special kind of audit conducted with a view to expressing an opinion whether an organizations information relating to the fairness of pension funds. In this paper, the authors would like to focus on all areas of the pension fund audit. Actually the auditors conducted their audit in accordance with Bangladesh Standards on Auditing (BSA). Those standards require that auditors plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimate made by management, as well as evaluating the overall financial statements presentation. The auditors believe that their audit provides a reasonable basis of opinion. So in this study the authors tried to explain the audit procedures for all the balance sheet items as well as for all the revenue items considering the pension fund of X Company Limited as a case. More over the authors have focused on the BSA compliance regarding that pension fund audit. Keywords: Pension fund, Pension fund audit, Bangladesh Accounting Standards (BAS), Bangladesh Standards on Auditing (BSA), Pension fund audit procedures, Pension fund audit compliance

Methodology
The study is mainly based on data taken from audit working papers of a multi-national company. However, the data used in this study has been further analyzed and processed for the purpose of the study. The data has been collected through free discussion with the executives of Company X, the officials of Rahman Rahman Huq (RRH) and X Companies pension fund audit team Bangladesh Accounting Standards (BAS), Bangladesh Standards on Auditing (BSA), X Companies Pension Fund Rules & Trust Act 1882, Income Tax Ordinance 1984, RRH (KPMG) Audit Manual and papers of home and abroad have been consulted in order to build up the framework of the study.

ii. Amount of loans given to the members is verified. iii. Determining the amount of each repayment installment from each member. iv. Deduction from salary is checked from journal voucher. f) Audit of cash at bank The audit procedures are as follows: i. Opening balance is confirmed from last years audited accounts. ii. Closing balance is confirmed from the general ledger and bank statement. iii. Confirmation from the bank is sought regarding the total amount in the bank. g) Audit of fund balance Fund balance is almost similar to the equity of a companys accounts. This normally includes total contribution and interest earned on members money. The account is shown on the liability side of the balance sheet. The audit procedures are: i. Opening balance is confirmed from the last years audited accounts.

Literature Review
benifits Pension Recipients (Employees)

Pension Fund Audit-Balance Sheet Approach

Pension fund audit can be conducted following either income statement or balance sheet approach. Pension fund audit is based on the balance sheet approach, where the balance sheet is considered as the most important financial statement. The theory (based on the balance sheet equation) is that if the balance sheet is properly drawn up each year, the income statement must also be correct. This approach is most suitable for companies whether they are small or large, where assets and liabilities are substantial in relation to throughput (for example, property companies). This approach therefore concentrates audit testing on the account balances in the balance sheet with a limited amount of testing on the profit and loss account.

Employer (company) Employer

Introduction
There is no denial that pension plans exist to provide postretirement benefit to employees at an organization. A pension plan is really a number of promises to pay people income after retirement. In a traditional "defined benefit" pension plan, the pensions are defined according to a formula specified in the plan documents. This usually takes the form of a percentage of the "best years" of salary. Pension fund is created to make the plan a success. Audit of the pension fund is very essential as the participants in the pension fund contribute money so that they can derive benefit from it at the time of their separation from the company. Members in the pension fund have to rely on the audit regarding the due amount from the fund. Auditors discharge their responsibility regarding the proper use of members money through pension fund audit. Through out the process of audit, auditors have to comply with few standards. They basically look at whether the money in the fund are being invested properly and if so whether the investment gives due return or not.

the company. Actually pension fund is an irrecoverable trust benefit scheme to provide retirement and death benefits to such persons as may be admitted thereto and capable of being approved by the National Board of Revenue (NBR) under the provision of Income Tax Law relating to Superannuation funds. The pension fund is normally controlled and managed by Trustees who have been vested all powers and authorities. Pension plans are usually considered "patient capital" because of their long time horizon. Brockington, R. (1993) defines pension fund as, A fund built up over a period of time by contributors in order to provide subscribers with a pension on retirement. The purpose of the fund is to keep money belonging to the prospective pensioners separate from that of the employing company. Christopher Nobes (2003) defined pension fund as, Assets set aside for the eventual payment of pension obligations. The term is generally used when the assets have been irrecoverably set aside by an employer, and handed over to trustees or to a financial institution. A pension fund is an arrangement whereby employers provide benefits (payments) to employees after they retire for services they provided while they were working (Kieso, Weygandt & Warfield, 2005). The pension fund arrangement is contributed by

Regardless of the manner in which pension funds are contributed, the funds must be managed until needed to pay benefits. Pension portfolios are evenly invested in common stock, corporate bonds, stock and other credit instruments. Pension fund management can be classified according to the strategy used to manage the portfolio. With a matched funding strategy, investment decisions are made with the objective of generating cash flows that match planned outflow payments. An alternative strategy is projective funding, which offers managers more flexibility in constructing a pension portfolio that can benefit from expected market and interest rate movements. Some pension funds segment their portfolios with part used for matched funding and the rest for projective funding (Madura, 2006). Pension Fund Accounting: The pension fund should be a separate legal and accounting entity for which a set of books is maintained and financial statements are prepared. Pension accounting may be divided and separately treated as accounting for employer and accounting for pension fund. Maintaining books and records and preparing financial statements for the fund known as Accounting for employees benefit plans or Accounting for the pension fund. (Kieso, Weygandt & Warfield, 2005)
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Till now a very few studies have been done in the area of pension fund. The audit procedures and compliance was also a new area of indication. Whatever little has been attempted in this context is too scanty and wanting in many respects. In pension fund study, Linda Walker (1991) focused and examined the public pension fund audit. In her study, she cited that, It is a very big responsibility to proceed to the public fund audit. Moreover, the Association of Public Pension Fund Auditor (APPFA) has their regular publications regarding the pension fund audit. But all these are relating to the concept of fund management and the procedures of audit maintained to a public pension fund. In this paper, the authors attempted to explain a detailed audit procedures maintained by an international audit firm RRH (KPMG).

Pension Fund Audit Compliance

The authors basically attempt to observe to what extent the auditors complied with the relevant Bangladesh Standards on Auditing (BSA) in respect of pension fund audit of Company X in the year of 2005. The study focused on thirty two standards while auditing the pension fund. It is observed that most of the standards have been complied with, few are in non-compliance and there are others which are not applicable in this context. The compliance status of pension fund audit is summarized in a table, which are as follows:

ii. Contribution is confirmed from general ledger and employees personal file. iii. Monthly contribution deposited in the bank is checked. iv. Yearly contribution cross checked from the companys payroll sheet. v. Members and companys interest calculation is checked. vi. The provident fund balance confirmation is obtained from the employees. h) Audit of liabilities This refers to the loan taken from the company by the fund. The audit procedures are: i. Opening balance is confirmed from the last years audited accounts. ii. The approval of loan received and any agreement that is in vogue between the company and the fund are checked. iii. Bank statement showing the loan deposited is checked. iv. Closing balance is calculated. v. A schedule is prepared, which shows the purpose for which loans are taken and the amount taken for the purpose.
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Pension fund audit procedures

Usually most audit firms follow balance sheet approach in auditing pension fund. RRH also follows the approach while auditing the pension fund of X Company. They collected the financial statements (The balance sheet and the profit and loss account) of Company X for audit purpose. The pension fund has been created under the provision of the trust deed and the provident fund. Appointment of trustees From the trust deed of Company X, it is found that there should be at least three trustees to maintain the fund. Accordingly, three trustees and the chairman maintain the fund. Audit of pension fund The audit procedures in regards to pension fund items shown on the balance sheet and the revenue accounts are given as follows:
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Objective of the Study

The objective of the study can be broadly classified into two sections, which are as follows: General objective: To have an understanding of pension fund audit procedures and compliance with Bangladesh Accounting Standards (BAS) of a particular Company Specific objectives: 1. To know about the Bangladesh Accounting Standards (BAS) applicable in the preparation of financial statements of a pension fund 2. To know about the rules that are generally followed by pension fund 3. To examine the audit procedures followed in the audit of a pension fund
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Concept of Pension Fund

Pension fund is a fund that is set to provide retirement and death benefit to its member on the termination of his/her service with

A pension plan is really a number of promises to pay people income after retirement. In a traditional "defined benefit" pension plan, the pensions are defined according to a formula specified in the plan documents. This usually takes the form of a percentage of the "best years" of salary. Pension fund is created to make the plan a success.

Mst. Nusrat Sahrmin, Lecturer, Faculty of Business, ASA University Bangladesh, Syed Abdulla Al Mamun, Senior Lecturer, School of Business United International University, Mr. James Bakul Sharkar, Assistant Professor, Faculty of Business, ASA University Bangladesh.

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Finance
Pension Fund Audit Compliance
BSA 200: General principle governing an audit of financial statement BSA Requirements The auditor should comply with code of ethics for professional Accountants issued by the council of the Institute of Chartered Accountants of Bangladesh. For Example, independence, integrity and objectivity. The auditor should conduct in accordance with Bangladesh Standards on Auditing. The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that cause the financial statements to be materially misstated. The standard requires that the auditor and the client agree on the terms of engagement. Compliance Yes Remarks

Yes Yes

210: Terms of Audit Engagement

Yes

For recurring audit, the auditor can revise the terms of engagement if the circumstance requires. The form of any reports of other communication of results of engagement. 220: Quality Control for Audit work Professional requirements Skills and competence Assignment of work Delegation Consulting Acceptance and retention of clients Monitoring Direction to assistants to whom the work is delegated Supervision

Not

Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes

Here management has been made between RRH (auditor) and X Bangladesh Ltd. (client) Employees pension fund and the engagement letter in terms of References. The need for revising was not felt examining the situation prevailing. In this audit, the report can be unqualified, qualified or a disclaimer. The audit firm should implement quality control policies and procedures by maintaining these procedures.

Review the work performed by the assistants 240: Documentation Information concerning legal and organizational structure of the entity Information concerning economic and legislative environment Understanding of the accounting and internal control systems. Analysis of significant ratios and trends Copies of communication with other auditors, experts or other third parties. Letters of representation received by the entity. Copies of financial statements and auditors report In order to plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework applicable to the entity and the industry and how the entity is complying with that framework.

Yes Yes No Yes N/A N/A N/A Yes Yes

The auditor should implement those quality control procedures that are, in the context of the policies and procedures of the firm, appropriate to the individual audit. The auditors collected the trust deed and the Pension fund Rules under which the pension fund was created and whether this is a recognized one.

250: Consideration of Laws and Regulation in an audit of financial Statements.

In performing the audit of Pension fund the auditors have to have a vast knowledge on all the provisions and rules of their deeds.

(To be Continued ........)

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