Financial Statement Analysis Solved Papers May' 2014, Dibrugarh University B.Com 6th Sem

Financial Statements Analysis Solved Question Paper May' 2014
COMMERCE (Speciality)
Course: 602 (Financial Statement Analysis)
Full Marks: 80
Pass Marks: 32
Time: 3 hours

1.(a) Fill in the blanks with appropriate word or words:                  1x5=5

(i) Financial system are______. (estimates of fact/ recorded facts/anticipated facts.)

(ii) long term solvency ratio is the same as_____ (current ratio/acid-test ratio/ debt-equity ratio)

(iii) The objective of financial reporting for business enterprises are based on_____ (GAAP/the need of conservatism/need of the users of the information).

(iv) The institute of chartered Accountant of India has decided to converge the Indian reporting of corporate India with effect from 1^st April______ (2011/2012/2013).

(v) Disclosures in financial statement of banks and similar financial institutions are associated with_____ (IAS 30/IAS 31/IAS 32)

(b)State whether the following statements are true or false:                     1x3=3

(i) Financial statements accomplish only external reporting.        False

(ii) Current ratio is also known as liquid ratio.       False

(iii) IFRS-4 is associated with insurance contracts.              True

2. Write short answer to the following questions:                            4x4=16

(a) Discuss the significance of financial statement Analysis.

Ans: Objectives (Purposes) and significance of Financial Statement analysis:

Financial analysis serves the following purposes and that brings out the significance of such analysis:

a)       To judge the financial health of the company: The main objective of the financial analysis is to determine the financial health of the company. It is done by properly establishing the relationship between the items of balance sheet and profit and loss account.

b)      To judge the earnings performance of the company: Potential investors are primarily interested in earning efficiency of the company and its dividend paying capacity. The analysis and interpretation is done with a view to ascertain the company’s position in this regard.

c)       To judge the Managerial efficiency: The financial analysis helps to pinpoint the areas wherein the managers have shown better efficiency and the areas of inefficiency. Any favourable and unfavourable variations can be identified and reasons thereof can be ascertained to pinpoint weak areas.

d)      To judge the Short-term and Long-term solvency of the undertaking:  On the basis of financial analysis, Long-term as well as short-term solvency of the concern can be judged. Trade creditors or suppliers are mainly interested in assessing the liquidity position for which they look into the following:

Ø  Whether the current assets are sufficient to pay off the current liabilities.

Ø  The proportion of liquid assets to current assets.

e)      Indicating the trend of Achievements: Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profits and net profit etc. can be ascertained. Value of assets and liabilities can be compared and the future prospects of the business can be envisaged.

(b) What are the limitations of ratio analysis?

Ans: Limitations of Ratio Analysis

In spite of many advantages, there are certain limitations of the ratio analysis techniques. The following are the main limitations of accounting ratios:

a)       Limited Comparability: Different firms apply different accounting policies. Therefore, the ratio of one firm cannot always be compared with the ratio of other firm.

b)      False Results: Accounting ratios are based on data drawn from accounting records. In case that data is correct, then only the ratios will be correct. For example, valuation of stock is based on very high price, the profits of the concern will be inflated and it will indicate a wrong financial position. The data therefore must be absolutely correct.

c)       Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison.

d)      Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.

e)      Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way.

(c) Distinguish between ‘Financial reporting’ and ‘financial statements’.

Difference between Financial Reporting and Financial Statements

Basis	Financial Reporting	Financial Statements
Meaning	Financial reporting is the process of preparing, presenting and circulating the financial information in various forms to the users which helps in making vigilant planning and decision making by users.	Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.
Objective	The main objective of financial reporting is to present financial information of the business entity which will help in decision making.	The main objective of financial statements are to show operating efficiency and financial position.
Process	Financial reporting is process of disclosure of financial results and related information to management and external stakeholders.	Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability.
Part	All financial reports are not a part of financial reporting.	All financial statements are part of financial reporting.
Length	A Financial report is much longer than financial statements.	Financial statements are in summarised format.
Format	There is not specific format of financial reports. It is prepared according to the need of the internal and external users.	Financial statements are prepared in a format prescribed under Schedule III of the Companies Act’ 2013.

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(d) What are the benefits of Global Accounting Standard?

Ans: Benefits of Global Accounting Standard:

1. Global Accounting Standard brings improvement in comparability of financial information and financial performance with global peers and industry standards. This will result in more transparent financial reporting of a company’s activities which will benefit investors, customers and other key stakeholders in India and overseas.

2. The adoption of Global Accounting Standard is expected to result in better quality of financial reporting due to consistent application of accounting principles and improvement in reliability of financial statements.

3. Global Accounting Standard provide better access to the capital raised from global capital markets since Global Accounting Standard are now accepted as a financial reporting framework for companies seeking to raise funds from most capital markets across the globe.

4. Global Accounting Standard minimize the obstacles faced by Multinational Corporations by reducing the risk associated with dual filings of accounts.

5. The impact of globalization causes spectacular changes in the development of Multinational Corporations in India. This has created the need for uniform accounting practices which are more accurate, transparent and which satisfy the needs of the users.

3. (a) What do you understand by Analysis of Financial Statements? “Financial Statements suffers from a number of limitations.” Discuss.        4+7=11

Ans: Meaning of Financial Statements

Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.

The American Institute of Certified Public Accountants states the nature of financial statements as “Financial Statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgments.”

In the words of Myer,” The financial statements provide a summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and income statement showing the result of operations during a certain period”.

Limitations of financial statements

Financial Statements suffers from various limitations which are given below:

(i) Historical Records: Persons like shareholders, investors etc., are mainly interested in knowing the likely position in future. The financial statements are not of much help as the information given in these statements is historic in nature and does not reflect the future.

(ii) Ignores Price Level Changes: Price level change and purchasing power of money are inversely related. Different assets are shown at the historical cost in financial statements. It, therefore, ignore the price level change or present value of the assets.

(iii) Qualitative aspect Ignored: Financial statements considered only those items which can be expressed in terms of money. Financial Statements ignores the qualitative aspect such as quality of management, quality of labour force, Public relations.

(iv) Suffers from the Limitations of financial statements: Since analysis of financial statements is based on the information given in the financial statements, it suffers from all such limitations from which the financial statements suffer.

(v) Not free from Bias: Financial statements are largely affected by the personal judgement of the accountant in selecting accounting policies. Therefore, financial are not free from bias.

(vi) Variation is accounting practices: Different firms follow different accounting practices. For example, depreciation can be provided either on SLM basis or WDV basis. Profits earned or loss suffered will be different when different practices are followed. Therefore, a meaningful comparison of their financial statements is not possible.

Or

(b) What are the tools normally adopted by a financial analyst while analyzing the financial statements? Explain how economic value added to the statements is useful for a potential investor    6+5

Ans: Tools of Analysis of Financial Statements

1. Comparative Statements: These are the statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods. It usually applies to the two important financial statements, namely, balance sheet and statement of profit and loss prepared in a comparative form. The financial data will be comparative only when same accounting principles are used in preparing these statements. If this is not the case, the deviation in the use of accounting principles should be mentioned as a footnote. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’.

2. Common Size Statements: These are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for the same year or for several years. This analysis is also known as ‘Vertical analysis’.

3. Trend Analysis: It is a technique of studying the operational results and financial position over a series of years. Using the previous years’ data of a business enterprise, trend analysis can be done to observe the percentage changes over time in the selected data. The trend percentage is the percentage relationship, in which each item of different years bears to the same item in the base year. Trend analysis is important because, with its long run view, it may point to basic changes in the nature of the business. By looking at a trend in a particular ratio, one may find whether the ratio is falling, rising or remaining relatively constant. From this observation, a problem is detected or the sign of good or poor management is detected.

4. Ratio Analysis: It describes the significant relationship which exists between various items of a balance sheet and a statement of profit and loss of a firm. As a technique of financial analysis, accounting ratios measure the comparative significance of the individual items of the income and position statements. It is possible to assess the profitability, solvency and efficiency of an enterprise through the technique of ratio analysis.

5. Funds flow statement: The financial statement of the business indicates assets, liabilities and capital on a particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. Financial statements are not helpful in analysing such situation. Therefore, a statement of the sources and applications of funds is prepared which indicates the utilisation of working capital during an accounting period. This statement is called Funds Flow statement.

6. Cash Flow Analysis: A Cash Flow Statement is similar to the Funds Flow Statement, but while preparing funds flow statement all the current assets and current liabilities are taken into consideration. But in a cash flow statement only sources and applications of cash are taken into consideration, even liquid asset like Debtors and Bills Receivables are ignored. A Cash Flow Statement is a statement, which summarises the resources of cash available to finance the activities of a business enterprise and the uses for which such resources have been used during a particular period of time. Any transaction, which increases the amount of cash, is a source of cash and any transaction, which decreases the amount of cash, is an application of cash. Simply, Cash Flow is a statement which analyses the reasons for changes in balance of cash in hand and at bank between two accounting period. It shows the inflows and outflows of cash.

Economic Value-Added (EVA)

Economic Value-Added is the surplus generated by an entity after meeting an equitable charge towards providers of capital. It is the post-tax return on capital employed (adjusted for the tax shield on debt) less the cost of capital employed. Companies which earn higher returns than cost of capital create value, and companies which earn lower returns than cost of capital are deemed harmful for shareholder value.

EVA Calculation: EVA = (r-c) x Capital

where: r = rate of return, and

c = cost of capital, or the weighted average cost of capital.

Economic Value Added Statements

Value Added Statement is a financial statement that depicts wealth created by an organization and how is that wealth distributed among various stakeholders. The various stakeholders comprise of the employees, shareholders, government, creditors and the wealth that is retained in the business. As per the concept of Enterprise Theory, profit is calculated for various stakeholders by an organization. Value Added is this profit generated by the collective efforts of management, employees, capital and the utilization of its capacity that is distributed amongst its various stakeholders. Consider a manufacturing firm. A typical firm would buy raw materials from the market. Process the raw materials and assemble them to produce the finished goods. The finished goods are then sold in the market. The additional work that the firm does to the raw materials in order for it to be sold in the market is the value added by that firm. Value added can also be defined as the difference between the value that the customers are willing to pay for the finished goods and the cost of materials.

Advantages of a Value Added Statement

a)       It is easy to calculate.

b)      Helps a company to apportion the value to various stakeholders. The company can use this to analyze what proportion of value added is allocated to which stakeholder.

c)       Useful for doing a direct comparison with your competitors.

d)      Useful for internal comparison purposes and to devise employee incentive schemes.

4.(a) From the following information, prepare the balance sheet of X company showing the details of working:      12

 

OR

(b) What do you mean by Ratio Analysis? Discuss its objective. State the significance of solvency ratio.     4+4+4=12

Ans: Meaning of Ratio Analysis

A ratio is one figure expressed in terms of another figure. It is mathematical yardstick of measuring relationship of two figures or items or group of items, which are related, is each other and mutually inter-dependent. It is simply the quotient of two numbers. It can be expressed in fraction or in decimal point or in pure number. Accounting ratio is an expression relating to two figures or two accounts or two set accounting heads or group of items stated in financial statement.

Ratio analysis is the method or process of expressing relationship between items or group of items in the financial statement are computed, determined and presented. It is an attempt to draw quantitative measures or guides concerning the financial health and profitability of an enterprise. It can be used in trend and static analysis. It is the process of comparison of one figure or item or group of items with another, which make a ratio, and the appraisal of the ratios to make proper analysis of the strengths and weakness of the operations of an enterprise.

According to Myers, “Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements."

Objectives of Ratio analysis

a)       To know the area of the business which need more attention.

b)      To know about the potential areas which can be improved with the effort in the desired direction.

c)       To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the business.

d)      To provide information for decision making.

e)      To Judge Operational efficiency

f)        Structural analysis of the company

g)       Proper Utilization of resources and

h)      Leverage or external financing

Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial position of a company used the ratio analysis to work out a particular financial characteristic of the company in which they are interested. Ratio analysis helps the various groups in the following manner:

a)       To work out the profitability: Accounting ratio help to measure the profitability of the business by calculating the various profitability ratios. It helps the management to know about the earning capacity of the business concern.

b)      Helpful in analysis of financial statement: Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc.

c)       Helpful in comparative analysis of the performance: With the help of ratio analysis a company may have comparative study of its performance to the previous years. In this way company comes to know about its weak point and be able to improve them.

d)      To simplify the accounting information: Accounting ratios are very useful as they briefly summaries the result of detailed and complicated computations.

e)      To work out the operating efficiency: Ratio analysis helps to work out the operating efficiency of the company with the help of various turnover ratios. All turnover ratios are worked out to evaluate the performance of the business in utilising the resources.

f)        To workout short-term financial position: Ratio analysis helps to work out the short-term financial position of the company with the help of liquidity ratios. In case short-term financial position is not healthy efforts are made to improve it.

g)       Helpful for forecasting purposes: Accounting ratios indicate the trend of the business. The trend is useful for estimating future. With the help of previous years’ ratios, estimates for future can be made.

5. (a) what should be the objective of Financial reporting by business enterprises? Explain qualitative characteristics of a good financial reporting.      4+7=11

Ans: Objectives of Financial Reporting

The following points sum up the objectives & purposes of financial reporting:

a)       Providing information to management of an organization which is used for the purpose of planning, analysis, benchmarking and decision making.

b)      Providing information to investors, promoters, debt provider and creditors which is used to enable them to male rational and prudent decisions regarding investment, credit etc.

c)       Providing information to shareholders & public at large in case of listed companies about various aspects of an organization.

d)      Providing information about the economic resources of an organization, claims to those resources (liabilities & owner’s equity) and how these resources and claims have undergone change over a period of time.

e)      Providing information as to how an organization is procuring & using various resources.

f)        Providing information to various stakeholders regarding performance of management of an organization as to how diligently & ethically they are discharging their fiduciary duties & responsibilities.

g)       Providing information to the statutory auditors which in turn facilitates audit.

h)      Enhancing social welfare by looking into the interest of employees, trade union & Government.

Qualitative Characteristics of Financial Reports

The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. The Qualitative characteristics of useful financial reporting identify the types of information which are likely to be most useful to users in making decision about the reporting authority on the basis of information in its financial report. Financial information is useful when it is relevant and presented faithfully. Some of the qualitative characteristics which makes the financial reports useful to its users are given below:

a)       Relevance: Information is relevant if it would potentially affect or make a difference in users’ decisions. A related concept is that of materiality i.e. information is considered to be material if omission or misstatement of the information could influence users’ decisions.

b)      Faithful Representation: This means that the information is ideally complete, neutral, and free from error. The financial information presented reflects the underlying economic reality.

c)       Comparability: This means that the information is presented in a consistent manner over time and across entities which enables users to make comparisons easily.

d)      Materiality: Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the information relates in the context of an individual entity's financial report.

e)      Verifiability: This means that different knowledgeable and independent observers would agree that the information presented faithfully represents the economic phenomena it claims to represent.

f)        Timeliness: Timely information is available to decision makers prior to their making a decision.

g)       Understandability: This refers to clear and concise presentation of information. The information should be understandable by users who have a reasonable knowledge of business and economic activities and who are willing to study the information with diligence.

h)      Transparency: This means that users should be able to see the underlying economics of a business reflected clearly in the company’s financial statements.

i)        Comprehensiveness: A framework should encompass the full spectrum of transactions that have financial consequences.

j)       Consistency: Similar transactions should be measured and presented in a similar manner across companies and time periods regardless of industry, company size, geography or other characteristics.

OR

(b) How does good corporate governance benefit the stakeholder of a company? Corporate social responsibility is mandatory for corporates from April 1, 2014, what social cost and social benefits to be included in a CSR report?         5+6=11

6. (a) what do you mean by Global convergence of Accounting Standards? Why is it necessary to converge the Indian GAAP with IFRS in accounting practices?       5+6=11

Or

(b) What are the benefits may have enjoyed by a Nation’s economy if there is a single set of Global Accounting Standard? State the steps to be adopted by an entity for the first time adoption of IFRS.         5+6=11

7. (a) Discuss the recommendation of RBI Group on accounting and auditing on harmonization of Accounting standards.     11

OR

(b) Discuss the IRDA guidelines regarding the financial reporting of Insurance companies (as per IFRS-4, optional) on insurance contract.

Ans: Financial Reporting Requirements of Insurance Companies in India

To protect the interests of policyholders and to increase transparency and credibility of insurance companies there is a need to have an effective regulatory system for financial reporting of insurance companies. Reporting requirements of insurance companies are different from that of other companies, because of the concept of policyholders and shareholders’ fund, segment reporting in respect of all the funds maintained by the company, complexity of insurance contracts and insurance itself is an intangible product.

Earlier the accounts of insurance companies were governed by Insurance Act 1938, but passing of Insurance Regulatory Development Authority Act (IRDA Act) in 1999 opened a new chapter for disclosure norms of insurance companies. In the year 2002, the IRDA came up with regulations for the preparation of the financial statements of insurance companies. According to the Insurance (Amendment) Act, 2002, the first, second and third schedules prescribed for balance sheet, profit and loss account and revenue account respectively as given in Insurance Act, 1938 have been omitted. Now revenue account, profit and loss account and balance sheet are to be prepared as per the formats prescribed by IRDA. However, the statutes governing financial reporting practices of insurance companies in India are: Insurance Act 1938, IRDA Act, 1999 (including IRDA Regulations), Companies Act and Institute of Chartered Accountants of India (ICAI).

IRDA Act 1999 (Including IRDA Regulations)

Insurance Regulatory Development Authority (IRDA) has prescribed various regulations from time to time. Preparation of Financial Statements and Auditor’s Report of Insurance Companies Regulations, 2002 are one of them. These regulations are related to the financial reporting practices of insurance companies. These regulations are important constituents of the Indian regulatory regime. According to the regulations made by the authority in consultation with the Insurance Advisory Committee, accounts of insurance companies are prepared according to the prescribed formats given by the authority. Details are given as under:

a) Preparation of Financial Statements: After the commencement of Insurance Regulatory Development Authority, Regulations, 2002, all the life insurance companies shall comply with the requirements of Schedule A and general insurance companies with Schedule B of these regulations while preparing their financial statements. The auditor’s report on the financial statements of all insurance companies shall be in conformity with the requirements of Schedule C. IRDA given the list of items to be disclosed in the financial statements of insurance companies under Part II of Schedule A (for life insurance companies) and Schedule B (for general insurance companies) of the (Preparation of Financial Statements and auditor’s report of Insurance Companies) Regulations, 2002. According to these regulations, following disclosure will form part of financial statements of insurance companies:

1.       Every insurance company will disclose all significant accounting policies and accounting standards followed by them in the manner required under Accounting Standard I issued by the Institute of Chartered Accountants of India. (ICAI).

2.       All companies will separately disclose if there is any departure from the accounting policies with reasons for such departure.

3.       Disclosure of investments made in accordance with statutory requirements separately together with its amount, nature, security and any special rights in and outside India.

4.       Disclosure of performing and non-performing investments separately.

5.       Disclosure of assets to the extent required to be deposited under local laws for otherwise encumbered in or outside India.

6.       All the companies are required to show sector-wise percentage of their business.

7.       To include a summary of financial statements for the last five years in their annual report to be prepared as prescribed by the IRDA.

8.       Disclose the basis of allocation of investments and income thereon between policyholders’ account and shareholders’ account.

9.       To disclose accounting ratios as prescribed by the Insurance Regulatory and Development Authority.

Disclosure of following items is made by way of notes to balance sheet:

1.       Contingent Liabilities.

2.       Actuarial assumptions for valuation of liabilities for life policies in force.

3.       Encumbrance’s to assets of the company in and outside India.

4.       Commitments made and outstanding for loans, investments and fixed assets.

5.       Basis of amortization of debt securities.

6.       Claims settled and remaining unpaid for a period of more than six months as on the balance sheet date.

7.       Value of contracts in relation to investments, for purchases where deliveries are pending and sales where payments are overdue.

8.       Operating expenses relating to insurance business and basis of allocation of expenditure to various segments of business.

9.       Computation of managerial remuneration.

10.   Historical costs of those investments valued on fair value basis.

11.   Basis of revaluation of investment property.

b) Management Report: According to the IRDA Regulations 2002, all the insurance companies are required to attach a management report to their financial statements. The contents of the management report are given under PART IV (Schedule A and Schedule B) of these regulations and reproduced below:

1.       Confirmation regarding the continued validity of the registration granted by the IRDA.

2.       Certification that all the dues payable to the statutory authorities has been duly paid.

3.       Confirmation to the effect that the shareholding patterns and the transfer of shares during the year are in accordance with the statutory or regulatory requirements.

4.       Declaration that the management has not directly or indirectly invested outside India the funds of the policyholders.

5.       Confirmation regarding required solvency margins.

6.       Certification to the effect that no part of the life insurance fund has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investment of the life insurance funds.

7.       Disclosure with regard to the overall risk exposure and strategy adopted to mitigate the same.

8.       Operations in other countries, if any, with a separate statement giving the management’s estimate of country risk and exposure risk and the hedging strategy adopted.

9.       Ageing of claims indicating the trends in average claim settlement time during the preceding five years.

10.   Certification to the effect as to how the values, as shown in the balance sheet, of the investments and stocks and shares have been arrived at, and how the market value thereof has been ascertained for the purpose of comparison with the values so shown.

11.   Review of assets quality and performance of investment in terms of portfolio, i.e. separately in terms of real estate, loans, investments. Etc.

12.   A schedule payment, which have been made to individuals, firms, companies and organizations in which directors of the insurance company are interested.

13) A responsibility statement indicating therein that:

Ø  In the preparation of financial statements, the applicable amounting standards, principles and policies have been followed along with proper explanations relating to material departures, if any;

Ø  The management has adopted accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the operating profit or loss and of the profit or loss of the company for the year;

Ø  The management has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act, 1938 and Companies Act 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

Ø  The management has prepared the financial statements on a going concern basis;

Ø  The management has ensured that an internal audit system commensurate with the size and nature of the business exists and is operating effectively.