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Advance Auditing
Course Instructor:
Sir Asad
April 12. 2018
spring 2018
Role of internal audit in the organization efforts to establish and validate business
risk management

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Respected Sir,

I am thankful to ALLAH Almighty, for making my efforts worthy of condition. I

am thankful to my course instructor, Sir. Asad, whose assistance, guidance and
support from initial to final level enabled us to develop the understanding of the

Excutive summery
INTRODUCTION TO THE COMPANY ......................................................................
Business and Products .................................................................................................
Governance of Nishat Mills Limited ............................................................................
Market description

Product review




TOPIC: Role of internal audit in the organization efforts to establish and validate
business risk management
NML Strategic


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Executive Summary

Nishat has grown from a cotton export house into the premier business group of
Pakistan concentrating on 4 core businesses; Textiles, Cement, Banking and Power
Generation. Today, Nishat is considered to be at par with multinationals operating

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locally in terms of its quality products and management skills. The company is free
from the energy crisis because it has set up its own power generation units that are
not even fulfilling the energy requirement of Nishat mills but they are also selling
this to Government. The company is holding the position with the spinning, weaving
and dying units with the extraordinary production capacity.
Different departments are working well to achieve the strategic aims of the
company. They are adopting the latest Management information system to access
data that results in producing timely results for different departments.

The PEST analysis shows that company has lived away from any kind of
complications that may have affect the company’s goodwill by fulfilling the legal,
environmental requirements and using international financial rules in the production
of financial statements

.The SWOT analysis depicts that strengths are greater in number as compared to
weaknesses and threats that shows the company does well know its position and
keep the system up to date. Still there are some lacks that company should overcome


Nishat Mills Limited is the flagship company of Nishat Group. It was established in
1951. It is one of the most modern, largest vertically integrated textile companies in
Pakistan. Nishat Mills Limited has 227,640 spindles, 789 Toyota air jet looms. The
Company also has the most modern textile dyeing and processing units, 2 stitching
units for home textile, two stitching units for garments and Power Generation
facilities with a capacity of 120 MW. The Company’s total export for the year 2016
was Rs. 39.868 billion (US$ 393.683 million). Due to the application of prudent
management policies, consolidation of operations, a strong balance sheet and an
effective marketing strategy, the growth trend is expected to continue in the years to
come. The Company's production facilities comprise of spinning, weaving,
processing, stitching and power generation.

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Business and Products

 Spinning
 Weaving
 Processing
 Home Textile
 Garments
 Power Generation

Governance of Nishat Mills Limited

1) Audit Committee

Mr. Khalid Qadeer Chairman/Membe

1 Qureshi r
2 Syed Zahid Hussain Member
Ms. Nabiha Shahnawaz
3 Cheema Member

HR & R Committee

1 Mian Hassan Mansha ber
2 Mian Umer Mansha Member
3 Mr. Khalid Qadeer Qureshi Member
Ms. Nabeeha Shahnawaz
4 Cheema Member

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2) Board of Directors

Chief Executive
Mian Umer Mansha Officer
Mian Hassan Mansha Chairman
Mr. Khalid Qadeer
Qureshi Director
Mr. Saeed Ahmad Alvi Director
Director (Nominee
Syed Zahid Hussain NIT)
Ms. Nabiha Shahnawaz
Cheema Director
Mr. Maqsood Ahmad Director

Market Description

Today’s consumer has evolved with a certain set of needs and demands which are
clearly defined in their minds and are more than capable in making purchasing
decisions where they evaluate each product feature to their mental scale and
purchase only if it rates higher in their perception. Nishat is now just not a store
anymore, rather the outlets are something to which the customer can relate to and
would feel comfortable in revisiting it if need be. Their brands reflect a certain
image and class to the consumers who buy the products to enhance their already
groomed personality. Striving hard on these lines Nishat Linen has made its mark in
the market where it especially targets those discerning customers who seek
uniqueness, quality, design, fashion and style in the products they buy without
having to compromise on pricing.

Without any doubt the target market of Nishat Linen comprises of customers who
have a distinct set of demands where they focus on product uniqueness, quality and
design which would setthem apart from other females. From housewives seeking to
impress others through impressive kitchen and bed linen to socialites and

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professionals with a sophisticated and exclusive sense of dressing, Nishat is very
successful as it caters to a privileged market segment that can pay for high quality
and style


Nishat aims to position its product as an exclusive and classical brand for both upper
and middle class customers. Additionally they provide customer support services
specifically to women to help them design their clothing by Nishat’s experienced
designers. That is their differentiating point from their competitors.

Product Review

Nishat’s product line is highly wide-ranging where it sells bed linen to kitchen
coordinates, upholstery to apparel providing it significant positioning and
penetration in the market to cater to the customers who want a one-stop shop

Nishat’s complete product line is as follows:

 Nisha – Clothing Line for women

 Naqsh – Clothing Line for men
 Bed & Kitchen Linen and Accessories
 Bed sheets
 Bed spreads (regular/ bridal sets)
 Kitchen (table linen, mats, table runners, bread boxes, aprons)
 Cushions ((Zari, 6 piece sets, matched with bed sheets)
 Fillings

Jai Namaz
Fashion Accessories
Shawls & Stoles

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Nishat’s Star unit, doubtless, is Nishat, their clothing line for women. It is a unit that
sells throughout the year and as quoted by the Manager of their Clifton outlet,
“Nishat sells at the same rate even during times of recession”. According to him,
Nishat has experienced more profit during recession because of continued high sales
of their clothing line for women. Launched in

2004, Nisha grew by leaps and bounds and now stands alongside brands like Khaddi
& Gul Ahmed By Ideas, It has been categorized as a Star product line of Nishat as
the market for women fabric and apparel is huge, ever growing and presents quite a
lot of potential. It has a high market share due to its exclusivity and quality that
distinguishes it from its competition. As a consequence, it requires heavy investment
to support its image as a brand with an attitude.

.Question Mark:

Naqsh, the clothing line of Nishat for men, can be categorized as its Problem Child
or Question Mark. It’s a unit that hasn’t shown much potential and as a result hasn’t
managed to gain as much market share or generate as much cash as was expected
and required of it. The market for eastern wear for men has seen a rapid growth since
the past few years and presents so much of unexplored potentia With every designer
coming up with an exclusive clothing line for men, Naqsh faces serious competition
from not only Gul Ahmed and Al-Karam but other market leaders such as Amir
Adnan, Junaid Jamshed and Rizwan Beyg etc. To survive in such a fiercely
competitive and fast-growing market, Naqsh requires heavy investments to hold its
ground but hasn’t managed to succeed in gaining enough market shares as yet.


Finally, fashion clothing of Nishat can be termed as Dog; unit with a low market
share in a moderately growing industry of accessories.The demand for fashion
accessories like hand bags, clutches etc, though has always been there, but it does
not have that much of a growth potential. With much of the investment being done in
the other three units, Nishat hasn’t paid heed to this particular market offering.
Known by the masses as a brand for clothing and bed linen, only a niche segment of
the market is aware of Nishat’s accessories even when ingenuity and style is

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maintained here as well. Hence, this unit generates just enough cash to maintain its
market share.

Competitive Review

Fashion industry of Pakistan is develop on daily basis as it faces a series of

continuous changes in the market trends. Following the track of the fashion industry,
females also have been grooming alongside where the long ago held concept of a
female happiness in kitchen has been changed to a fashionable and modern
individual who takes care of her grooming, her dressing and her appearances. The
customers are now focused on designs and how each would represent and set off
their image in the minds of their friends and relatives. These are the main areas of
concerns the customer face while choosing something to wear for themselves or
even for their families. With the endorsing of celebrities the competition in the
market have increased manifolds as the customers are bombarded with commercials
in which the major celebrities have been endorsing their products.

Vision Statement

To transform the Company into a modern and dynamic yarn, cloth and processed
cloth and finished product manufacturing Company with highly professionals and
fully equipped to play a meaningful role on sustainable basis in the economy of

Mission Statement

To provide quality products to customers and explore new markets to

promote/expand sales of the Company through good governance and foster a
sound and dynamic team, so as to achieve optimum prices of products of the
Company for sustainable and equitable growth and financial condition of the

SWOT Analysis for Nishat


 One of the first few brands to launch bed linen in Pakistan.

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 Strong product diversification.
 Outlets in nearly every city of Punjab and three outlets in Karachi which is
also the business capital.
 Catering all market segments except children.
 Strong product development and most significantly according to all the
 Affiliation with a professional designer Mahin Khan.
 Organized records of customer database.
 Valuable services to all its loyal and first time customers by offering discount
cards and membership cards.
 Limited designs for both fabrics and linen are sold in the market for every
season that creates differentiation of their product.


 Nishat linen is not catering the middle and the lower income group that can be
seen by looking at the price range of their products:
 Unstitched fabric: Rs. 2900 to 4900
 Stitched fabric: Rs. 1400 to 5000
 Bed Sheets: Rs. 1150 to 2950
 Quilt Covers: Rs. 1800 to 5500
 Nishat linen does not carry out exhibitions therefore customers have little
knowledge about their products with respect to their competitors.
 Nishat linen has not been able to expand its market in Karachi due to high
logistics cost since their mill is in Faisalabad Punjab.
 All the promotional strategies are focused on fabrics as it is their star product.
Bed linen gets little promotional campaign.


 Nishat linen can look to get affiliated with more diversified designers who are
into accessories as well.
 Publish their own catalog for bed linen and fabric and put them at different
book stores so that customers have easy access to their designs.

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 Nishat can get into western clothing line which will give them an edge over
their competitors.
 Their Lahore unit is manufacturing denim fabric for Levi’s which is of
superior quality. This gives an opportunity to Nishat to launch their own
denim brand in the market.
 They should look to open an outlet in an area like North Nazimabad where the
market has a lot of potential and people have the purchasing power as well.


 Strong promotional campaigns of competitors producing fabrics through

 Fabric designs of their competitors are available at other retail stores as well
where as their fabrics are available at their outlets only.
 Most of their bed linens is exported therefore the local market tend to suffer
where as their competitors like ideas and Chen One are more focused on the
local market gaining competitive advantage.

(Topic)Role of internal audit in the organization efforts to establish and validate

business risk management

NTERNAL AUDITWhat is internal auditing?

“Internal auditing is an independent, objective assurance and consulting

activity designed to add value and improve an organisation’s operations. It helps an
organisation accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control
and governance processes.”

Internal Auditor can make:

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 an objective assessment of operations and share ideas for best practices.

 provide guidance for improving controls, processes and procedures,

performance, and risk management.

Thus, internal audit activity can play an important role and support the board
and management in fulfilling an essential component of their governance
mechanisms. The internal auditor furnishes analysis, appraisals, recommendations,
counsel and information concerning the activities reviewed. The internal auditor can
suggest ways for reducing costs, enhancing revenues, and improving profits.

Scope of Internal Auditing

The external auditors have to express an opinion on accuracy and fairness of

financial information. The scope of internal audit is much wider than
statutory/external audit. It should ideally cover all the organisation’s activities. They

 Financial audit –accuracy, completeness and fairness of financial


 Operational audit- effectiveness and efficiency of operations

 Safeguarding of assets

 Review of projects

 Management audit

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 Fraud detection- developing fraud exposures for every audit and
detecting red flags

 Review of effectiveness of internal control

 Compliance with laws, regulations, policies and procedures

 Preservation of ethical culture – monitor the ethical climate and report

on red flags that may compromise ethic

Responsibilities of Internal Auditor

Internal Audit is a service to management. Its functions include examining and

evaluating internal control and providing assurance to the management. It is a part of
the organisation's system of internal control and its scope includes ALL aspects of
internal control, not just financial control. The scope of internal audit is much wider
than statutory/external audit as discussed in detail above. It should ideally cover all
the organisation’s activities.

Risk management

Risk is a concept used to express uncertainty about events and/or their

outcomes that could have a material effect on the goals of the organisation.
Every company that is in business has to take risks. In order to progress, a business
entity has to identify risks, evaluate them, decide if they are at an acceptable level
and, if they are not, design controls to respond to those risks. After controls have
been identified to mitigate risks, the effectiveness of controls has to be evaluated on
a regular basis. This is risk management.

Risk management has to be integrated into the organisation’s culture and

embedded in all its day-to-day and periodic activities. Enterprise–wide risk

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management is a structured, consistent and continuous process across the whole
organisation. The overall responsibility for risk management lies with the Board.

Internal auditing activity’s role with regard to Risk Management is to provide

objective assurance to the board on the effectiveness of an organisation's ERM
activities in managing key business risks and that the system of internal control is
operating effectively. The Chief Audit Executive (CAE) has to ensure that the
internal audit activity maintains its independence and objectivity when providing
assurance and consulting services.

The Institute of Internal Auditor’s (IIA) position paper The Role of Internal
Auditing in Enterprise-wide Risk Management provides guidance to the internal
auditor as to what roles internal auditing should and should not play throughout the
ERM process. The internal audit activity can be involved in providing assurance that
risks are identified, reported, evaluated, mitigated and reviewed regularly.

The roles which auditing should NOT undertake

 Setting the risk appetite.

 Imposing risk management processes.

 Management assurance on risks.

 Taking decisions on risk responses.

 Implementing risk responses on management's behalf.

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 Accountability for risk management.



IFE matrix is a summary step in conducting an internal strategic management audit

is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy formulation
tool summarizes and evaluates the major strengths and weaknesses in the functional
areas of a business, and it also provides a basis for identifying and evaluating
relationships among those areas.
The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can
be used to evaluate how an organization or a company is performing in regards to
identified internal strengths and weaknesses of an organization or a company. The
IFE matrix method conceptually relates to the Balanced Scorecard method in some
The IFE matrix consists of following attributes mentioned below.

Internal Factors

Internal factors are extracted after deep internal analysis of the company. Obviously
every company has some weak point and strong point that’s the reasons internal
factors are divided into two categories namely strengths and weakness.

Strengths are the strong areas or attribute of the company, which are used to
overcome weakness and capitalize to take advantage of the external opportunities
available in the industry.

Weakness are painful for the company means these are the weak factors which needs
to be improve in future otherwise if they exposed to the competitors they can take
the advantage of it.


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Internal weakness are further divided in two categories namely minor weakness and
major weakness same goes of the strengths (minor strength and major strength)

There are some important points related to rating in IFE matrix.

 Rating is applied to each factor.

 Major weakness is represented by 1.0
 Minor weakness is represented by 2.0
 Minor strength represented by 3.0
 Major Strength represented by 4.0


The weight range from 0.0 means not important and 1.0 means important, sum of all
assigned weight to factors must be equal to 1.0 otherwise the calculation would not
be consider correct.

Weighted Score

Weighted score value is the result achieved after multiplying each factor rating with
the weight.

Total Weighted Score

The sum of all weighted score is equal to the total weighted score, final value of total
weighted score should be between range 1.0 (low) to 4.0(high). The average
weighted score for IFE matrix is 2.5 any company total weighted score fall below
2.5 consider as weak. The company total weighted score higher then 2.5 are
considering as strong in position.

Steps to develop IFE Matrix

 List key internal factors as identified in the internal audit process. Use a total
of from ten to twenty internal factors, including both strengths and

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weaknesses. List strengths first and then weaknesses. Be as specific as
possible, using percentages, ratios, and comparative numbers.

Internal Factor Evaluation Matrix

 Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to
each factor. The weight assigned to a given factor indicates the relative
importance of the factor to being successful in the firm’s industry. Regardless
of whether a key factor is an internal strength or weakness, factors considered
to have the greatest effect on organizational performance should be assigned
the highest weights. The sum of all weights must equal 1.
 Assign 1 to 4 rating to each factor to indicate whether that factor represents a
major weakness (rating = 1), a minor weakness (rating = 2), a minor strength
(rating = 3), or a major strength (rating = 4). Note that strengths must receive a
4 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus
company based, whereas the weights in Step 2 are industry based.
 Multiply each factor’s weight by its rating to determine a weighted score for
each variable.
Sum the weighted scores for each variable to determine the total weighted score for
the organization.
Internal Factor Evaluation Matrix for Nishat Mills

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KEY FACTORS t Rating weighted score


lowest employee turnover 0.15 4 0.6

Highly experienced professionals 0.08 3 0.24

Decentralized organizational structure 0.1 3 0.3

Efficient information system 0.05 3 0.15

Good financial position/strong group 0.08 4 0.32

Location of plants 0.06 4 0.24

Highest capacity of production 0.2 4 0.8


Less advertising focus 0.1 2 0.2

Maintenance of Imported machinery 0.1 1 0.1

High production cost 0.08 1 0.08

1 3.03

Discussing the NISHAT MILLS IFE the sum of weighted score shows that company
has strong internal position. Now elaborating each strength and weakness will tell
that why and how it has been rated and what the company is doing that makes it
strong internally. The factors are explained below:


 Lowest employee turnover is one of the most attractive strength and its
rating is 4 which mean company is having a great policy for this strength.
Nishat mills employee turnover is almost equal to zero this is due to their good
incentives and compensations for their employees. The environment of the

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company is very good and this helps the employees grooming Nishat gives
free medical and provide transport to their employees.

 Highly experienced professionals are hired. The rate given to this strength is
3 which mean company is doing quite well for this strength. Well experienced
people are hired at top levels. They are not compromising in this because their
top management has hold of the company.

 Decentralized organizational structure is also one more strength which

shows efficiency of the company. This is rate 3 and it is due to the friendly and
empowering environment of Nishat. Employees are given preference and they
are motivated in decision making. Top management takes in account middle
and lower level employees also and hence this company is considered in top
companies of the country.

 Efficient information system of Nishat mills has made us rate as 3. For any
company now a day its information technology should be very efficient
because this is an IT era. Nishat has very good information system to handle
its customer as it deals most in B2B so they have good concern to this field.

 Good financial position/strong group is rate as 4. As everyone knows that

Nishat Mills is of Mansha group which is also in other businesses like MCB
bank and in insurance business. So this group has good financial position in
the market and has good credit rating which can help them in any new
investment and this strength is most important for any company as there is
competition in the market.

 Location of plants is also rate as 4 which mean that this strength is handled
by Nishat mills efficiently. Nishat plant location s close to each other e.g. one
is in Ferozpur road and dyeing section in chunian etc. so this helps them
reduce their transportation cost and managing their plants easily.

 Highest capacity of production is rate as 4 because Nishat has 13600

spindles in their production which raises its capacity and this is and important
and excellent strength rather than its competitors. Nishat this policy has made
us to rate it the most.

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 Less advertising focus is rate as 2. Nishat is an export oriented company so

they less focus on advertisement. We have rated it as 2 because before Nishat
don't have any policy for their advertisement but now they have focused on its
advertisement department which can be seen by print media advertisement of
Nishat linen.

 Maintenance of Imported machinery is rated as 1. As Nishat Mills uses

imported machinery in their production so their maintenance is costly. For
instance if any spare part is needed so they have to import it and this can be
costly for them as our country's have in stable environment. Nishat mills don't
have any good policy to handle this weakness so we have considered it 1.

 High production cost for Nishat Mills is another weakness which should be
handled but Nishat doesn't have much policy for it so we have rated as 1. They
make quality yarn product so their cost is also high. The imported machinery,
spindles etc made it costly.

Marketing strategies of NML

Today textile industry is facing big challenges. Inflation and decline in purchasing
power resulted in decline in demand, which increased the competition to a greater
extent. In spite of the above facts Nishat mills ltd, had been successful in
maintaining its market position and growth.

NML has adopted different marketing strategies over the years to sustain its better
position in the economy of Pakistan. These strategies are described below.

 Diversification strategy

 Market development strategy

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 Contacting old customers

 New & innovative product development

 Improved quality products

Diversification Strategy

Market yarn is diversified to increase the customer base. Under this, diversification
program, business with Malaysia, Korea, Taiwan and UK have been initiated.
Product range is also increased to cater for the different needs of increased number
of buyers production volume is also increased by concentrating on coarse counts
with a result of increase in volume from 90-95 containers per month to around 115
containers a month.

Market Development

In order to reduce their dependence on a few markets especially FAR EAST, new
markets were developed for grey cloth. This diversification not only reduced their
dependence on Hong Kong but also gave better profit margins at times when Hong
Kong market was very depressed. Under this market diversification, they started
business with South Africa, Australia, Taiwan, Srilanka, Italy etc.


Nishat Mills limited is one of the largest composite units in Pakistan.Nishat Mills is
having centralized system for the betterment of thes ystem they have to decentralize
it because the group has got very good management workforce. On the other hand
the group in the textile sector doesn’t fulfill the demand of foreign countries because
of high production cost, the core object of this report is to reflect those areas which
needs to be improve.In this era of technology, the Information” is the key to success
in the business. This means that the successful businessman will be who will have

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the right information at the right time. This comment leads to the conclusion that the
Information Sharing Process should really be improved.

 Nishat Mills should focus towards understanding the changing needs of the

 Nishat Mills in Pakistan should increase their branches

 Nishat Mills should design and launch customized products

 Nishat Mills should come up with online system only offers transfer payments
from one account to another easily for the customer.







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