CONTENT

1. PURPOSE

2. MAJOR ISSUES

3. A. ACCOUNTS & RECORDS

4. B. REPORT 

5. C. ACCOUNTING STANDARDS 

6. D. COMPANIES ACT

7. E. TERM OF REFERENCE

8. F. INTERNAL AUDIT AND AUDIT COMMITTEE

9. G. TAX ASSESSMENT        

10. H. APPOINTMENT AND DURATION FOR AUDIT

11. I. AUDIT FEES

12. J. NEW APPLICANTS

13. K. VISITS

14. L. PANEL OF STATUTORY AUDITORS FOR 2000-2007

15. M. RECOMMENDATIONS   

16. Annexure A
    Programme of Auditor General with the various firms.

17. Annexure B
    Record of the discussions held by the Auditor General of Bhutan with the senior partners of various firms of chartered accountants of Kolkata.

The Royal Audit Authority under authority of the Companies Act of the Kingdom of Bhutan is responsible to empanel the Statutory Auditors for auditing the Bhutanese companies. Since we do not have Bhutanese firms Indian firms were being empanelled since 1989.

The current panel being in existence for some time and many new applications had been received, it was found necessary a fresh panel be prepared.

Accordingly, the Auditor General accompanied by two senior auditors viz. Bhanu Bhakta Chhettri, Assistant Auditor General and Ugyen Wangchuk, Dy. Chief Auditor visited Kolkata between 22.01.02 to 08.02.02 (Annexure A).

The objective was to:

1.      Meet and discuss with  Chartered Accountant firms  their experiences in accounting and auditing issues in Bhutan in particular and other related issues in general; and

2.      Interview interested firms for empanelment with the Royal Audit Authority.

Meetings were held in the Liaison and Transit Office, Ministry of Finance on issues/matter pertaining to Auditing and Financial Management in general with senior partners.

A  total of 43 firms attended.  20 firms whom we met were those already empanelled by the Royal Audit Authority, 9 of those engaged by the RAA previously in Bhutan and the 23 fresh ones.

The firms stated that there was a time where due to poor record keeping and accounting, auditors were not able to give their opinion on the accounts in Bhutan. However it was reported that considerable improvement has taken place in the accounts and record keeping over the years. 

MAJOR ISSUES

During these sessions several issues of importance emerged towards improving auditing in Bhutan.

i. The statutory auditing is found to be one of the essential means to achieve accountability in the corporate sector; and

ii. The Chartered Accountants saw the merit in the RGOB hiring from Kolkata both from the efficiency and effectiveness point of view.

Issues that emerged were those that were adequately addressed by the authorities and agencies. The salient ones are recapitulated as given below;

A. ACCOUNTS & RECORDS

1.       Accountants in the companies, particularly smaller companies are generally not properly/fully trained.

2.      Training on computerized accounting is necessary.

3.      Many companies do not keep their accounts ready when the auditors visit the companies.

4.      The internal control system within most of the companies is weak.

5.      Physical verification of assets (cash, stock, fixed assets etc.) and cash had not been given importance.

6.      There is no proper check between the book balance and the physical balance of inventory.

7.      Many old outstanding debts are without adequate information about the debtors essential for pursuing the collection.

8.      Unclear distinction between capital and revenue expenditure especially for tax purposes.

9.      Provisioning against Non Performing Assets (NPA) only specify  the minimum limit.

10.  Security value of assets mortgage is ignored while determining

the amount of Non Performing Assts and provision required.

11.  Guidelines on rescheduling of loan are not adequate.

12.  Reconciliation of accounts was still deficient in some companies.

13.  There was no system of confirmation of balances.

B. REPORT

1. Management Report are generally found not generated in the Financial

 Institutions.

2.   Adequate actions have not been taken by the management on qualifications repeatedly issued by the auditors.

3. Audit Reports are not followed up effectively by the Boards and the managements.

4. No time-frame found given to implement audit recommendations.

5. Transparency in the system and decision making process should be encouraged.

C. ACCOUNTING STANDARDS

1.      There are no accounting standards within the country necessary for uniformity, consistency and comparability.

2.      The costing records need improvement to help in reduction of unnecessary cost/expenditures and for proper financial management.

3.      Most companies do not have Accounting Manual.

D. COMPANIES ACT

1.      Many companies did not comply with the Companies Act.

2.      Need for establishment of a Company Law Board to implement the Companies Act.

3. The Board and Annual General Meeting are not held separately by the Government Companies.

E. TERM OF REFERENCE

1.      Terms of Reference (TOR) issued by the RAA need to be revised in keeping with the changing commercial environment.

F. INTERNAL AUDIT AND AUDIT COMMITTEE

1.       Internal audit is weak or non-existent in the companies in Bhutan.

2.   There is a need to form Audit Committees in the companies.

G. TAX ASSESSMENT

1.      The tax assessment is not carried out timely.

H. APPOINTMENT AND DURATION FOR AUDIT

1.      Three years term given to auditors were considered short.

2.      The current practice of private sector companies obtaining quotations for audit fees companies is unethical and against the guidelines issued by the Institute of Chartered Accountants.

I. AUDIT FEES

1.      The fees paid did not commensurate for the efforts put in by the firms in Bhutan.

2.      The financial institutions pay particularly lower fees.

3.      The actual expenses should be reimbursed and audit fees be paid separately.

J. NEW APPLICANTS

Discussions with applicant firms mainly focused on the experience and types of audit carried on by the firms.

The firms generally perform the following types of audits:

·        Statutory audit

·        Internal audit

·        Stock audit

·        Fraud base auditing

·        Concurrent audit, branch audit, branch inspection audit done for Banks.

·        Consultancy works such as Taxation, Project feasibility study, merger/demerger, Company Law matters, Merchant Banking etc.

Many firms provide financial services on turnkey basis right from project feasibility reporting to financing arrangements, accounting and computerisation as well as development of Management Information System. 

Firms also submit different types of report such as:

·        Management Report.

This report was submitted to the management reporting on the weaknesses of the internal control system and management affairs.

·        Long form Report.

This report is used in the Banking sector.

·        U/S 619 Report.

This report is used for by the auditors to directly report to the Controller & Auditor General of India.

K. VISITS

Out of 23 fresh firms interviewed, 14 were short-listed and site visits of their offices were carried out between 04.02.2002 to 07.02.2002.in order to meet the other partners and employees of the firm, to ascertain the working environment and the size of the offices. Where necessary and possible site visits were conducted such as Taj Leather Works, Khadim’s Shoe Factory etc.

L. PANEL OF STATUTORY AUDITORS FOR 2002-2007

Based on the information obtained, the final panel will be prepared and Chartered Accountant firms notified in due course of time. The recent visit had now made it possible to check the credibility of the firms. The RAA also has complete record on

each of them. The fresh panel will be circulated for use by all Bhutanese firms and for appointment of new auditors to public sector firms.

M. RECOMMENDATIONS

The team has the honour to submit the following recommendations;

 a. OBSERVATIONS ON ACCOUNTS & RECORDS OF BHUTANESE COMPANIES:

1.      The Corporations may not only recruit properly/fully trained accountants but consider regular refresher and advance training for accountants including training on computerised accounting.

2.      The Board and management of Companies must plan their works and make counterpart personnel available when the auditors visit the companies. In fact Auditing to be respected as a useful tool to improve the performance and productivity than a mere formality.

3.      The Board and management of Companies must improve supervision, monitoring and evaluation capacities and internal control system within the companies in most cases. To upgrade from dead boards to dynamic ones.

4.      Physical verification of assets and cash should be given more importance and made an inevitable part of the functioning.

5.      Proper check between the book balance and the physical balance need to be seen periodically by supervisors at every level.

6.      Corporations must maintain detail and complete record of old outstanding debts as old outstanding debts pursued.

7.      Corporations must maintain clear distinction between capital and revenue expenditure especially for tax purposes. Maintenance expenditure irrespective of the amount should be allowed for tax purpose.

8.      Provisions for Non Performing Assets (NPA) must specify the minimum limit and the maximum limit to avoid over provisioning.

9.      Security value of assets mortgage  is not to be ignored while determining the amount of Non Performing Assts and provision required.

10.  Adequate Guidelines on rescheduling of loan be made.  If rescheduling is done due to lower amount of loan availed as against the sanctioned amount, provisioning may not be necessary.

11.  The Companies must reconcile accounts timely and fully.

12.  The Companies must introduce systems of confirmation of balances, i.e., debtors, creditors etc.

b. REPORT   

1.      All the Financial Institutions must adopt the system of generating Management Report in addition to normal statutory audit reports..

2.      The appropriate authorities and the Board of Directors be concerned of and take prompt actions on qualifications repeatedly issued by the auditors and report follow up is system is streamlined.

3.      Auditors must insist upon Quantification of qualifications in the Audit Reports and should itself be a qualification to create impact of their work on the accounts within a time frame should be given to implement audit recommendations.

4.      The appropriate authorities and the Board of Directors must adopt a policy and practice of Transparency in their system and decision making process to give correct image to the other stakeholders.

c.       ACCOUNTING STANDARDS  

1.   The Ministry of Finance must speed up the progress on the formulation of 

national accounting standards to provide uniform accounting standard within the country necessary for uniformity, consistency and comparability.

2.      The companies need to improve the costing records to help in reduction of unnecessary cost/expenditures and for proper financial management.

3.      All companies must have Accounting Manual.

d.       COMPANIES ACT

1.      The Ministry of Trade and Industry must carry out their role to ensure compliance of the Companies Act. All companies must act on the non-compliance pointed out by the auditors urgently.  

2.      Ministry of Trade and Industry may wish to study the need for establishment of a Company Law Board to ensure that the Companies Act has been complied to.

3.      The Companies must hold the requisite Board Meeting and the Annual General Meeting strictly within the time frame prescribed in the Companies Act for proper accountability.

4.      Annual General Meeting must be convened after the Board Meeting and separate resolutions should be passed. The Ministry of Trade and Industry may consider reviewing related provisions pertaining to Government Companies in the Companies Act of the Kingdom of Bhutan 2000.

e.     TERM OF REFERENCE

       1.    The RAA must review the Terms of Reference (TOR) for appointment of the statutory auditors to make it relevant in the changing commercial environment.

f.      INTERNAL AUDIT AND AUDIT COMMITTEE

        1. All Corporations need to introduce internal audit. Additionally, financial; institutions should also consider introducing concurrent audit.

          2. The companies must appoint /form Audit Committees to strengthen the internal control system and take actions on the audit reports.

g.    TAX ASSESSMENT

       1. The Ministry of Finance may carry out the tax assessment done in Bhutan in time not to result companies in large amount of tax payable causing financial problems. 

h.     APPOINTMENT AND DURATION FOR AUDIT

         1.    The RAA must review the merit of the term of three years given to auditors for a particular company to four to five year terms.

        2.   The RAA must look into the irregularity pointed out as to the current practice of private sector companies obtaining quotations for audit of their companies vis-à- vis the professional ethics laid down by the Institute of Chartered Accountants.

        3.    The RAA must look into the report of one firm’s  stated unethical dismissal before term.

 i.      AUDIT FEES

          1.    The RAA must review the audit fees in Bhutan that were constant over a considerable longer period. Besides, lower fee level in the financial institutions would need to be reviewed by the RMA/ Financial Institutions.

          2.    The RAA to review that the actual expenses subject to limits should be

reimbursed. Further, the distinction between the audit fee and out of pocket        expenses must be maintained and the same must not be fixed on consolidated basis.

          3.   The Royal Audit must consider Bhutanese companies  be required to submit following types of report  such as:

·        Management Report.

This report was submitted to the management reporting on the weaknesses of the internal control system and management affairs.

·        Long form Report.

This report is used in the Banking sector.

·        U/S 619 Report.

(This report is used for by the auditors to directly report to the Controller & Auditor General of India.)

j.      TYPES OF AUDITS

        1.    The Ministry of Trade and Industry, RMA, the BCCI and the relevant authorities  may encourage all Bhutanese companies gradually to have the following accountability activities introduced in their companies:

·        Statutory audit

·        Internal audit

·        Stock audit

·        Fraud base auditing

·        Concurrent audit, branch audit, branch inspection audit done for Banks.

k.      HUMAN RESOURCES DEVELOPMENT: Chartered Accountant Training:

A dialogue could be initiated by the RAA as to how the Royal Audit Authority and other organisations could be accommodated by the CA firms in their organisations for training of Bhutanese as Chartered Accountants in India.

 GENERAL IMPRESSIONS

It is heartening to know from larger firms that a great number of Chartered accountant firms are interested to take up assignment in Bhutan not purely for business opportunities but to help Bhutan and promote their profession.

This is affirmed from the individual meetings as well as the statements made during a dinner hosted by the Association of Chartered Accountants of West Bengal for the officials of the RAA.

The team had also been greatly educated about the Chartered Accountants education and training system, arrangements and practice. Most startling is the finding that the Royal Government of Bhutan has been highly deficient in the profession, both from the regulatory as well as compliance assurance mechanisms.

The larger and more experienced firms were requested to train Bhutanese auditors. They are willing to support us in training of our officials. They advised us also to explore the possibilities  under the aegis of  the Institute of Chartered Accountants of India in New Delhi.

We are happy to learn that there is possibility to draw on the database of the C & AG of India for empanelling firms to audit in Bhutan. In India all Chartered accountant firms interested to take up auditing of public sectors have to be empanelled with C&AG and all banks with the Reserve Bank of India.

Partners who are currently serving as Members of the Council of the Institute of Chartered Accountants of India from Kolkota and the Association of the Chartered Accountants of West Bengal had expressed their interest to help the RAA and to work very closely in the near future. The former assured that should there be any request being put to the Institute of Chartered Accountants they would endorse the same.
We returned home not only won more friends but with useful knowledge and feedback from those who have taken up assignments in Bhutan and many new ideas for consideration. 

Dated   :                                                                      Kunzang Wangdi
                                                                                  Auditor General

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Annexure A

Programme of Auditor General with the various firms.

 Date:- 25.01.02

Sl.No.	Name of the firms
1.	Price Waterhouse
2.	Lovelock & Lewis
3.	A.R.Das
4.	N.C.Mitra
5.	L.B. Jha & Co.
6.	Gupta & Co.

Date:- 28.01.02

Sl.No.	Name of the firms
1.	Ray & Ray
2.	Kothari & Co.
3.	Nag & Associates
4.	S.Ghose & Co.
5.	T.K. Ghose & Co.
6.	K.C. Sharkar & Co.

Date:- 29.01.02

Sl.No.	Name of the firms
1.	Bhattacharjee Das & Co.
2.	R.N. Bhaduri
3.	DKD & Associates
4.	Amit Chokhani  & Co.
5.	Basu, Dey &  Kapoor
6.	S.N. Mukerjee & Co.
7.	J. Gupta & Co.

Date:- 30.01.02

Sl.No.	Name of the firms
1.	Deliotte Haskins & Sells
2.	Ajay  Mishra & Associates
3.	S.K. Das & Associates
4.	Dass  &  Ghosh
5.	Chowdhury Ray & Associates

Date:- 31.01.02

Sl.No.	Name of the firms
1.	Ghosh  & Associates
2.	SRI Associates
3.	Mukhapadaya  Dutta & Co.
4.	A  Dasgupta  &  Co.
5.	K  Banerjee
6.	M.P. Surekha
7.	S.S. Khothari

Date:- 1.02.02

Sl.No.	Name of the firms
1.	Maheswari & Associates
2.	K.C. Battacharya & Co.
3.	D.P. Sen & Co.
4.	S.K. Battacharya & Co.
5.	Ghousal  &  Ghousal
6.	Singhi & Co.
7.	B.P. Agarwal & Associates
8.	P.K. Mitra

 Date:- 4.02.02

Sl.No.	Name of the firms
1.	N. Sharkar & Co.
2.	S.  Dasgupta  & Associates
3.	G. Chowdhury & Associates
4.	Chowdhury Sharma & Associates

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Annexure B

Speech to be delivered by Auditor General at the Calcutta Club on 2^nd February at the felicitation dinner hosted by the Association of Chartered Acountants of  Kolkatta.

1.      Hon’ble President of the Association of CAs of Kolkata, Shri. P.R. Samanta

Vice President Shri R.L. Das Sharma and S.K. Ghandi.

Secretary General Shri. I.N. Nag,

Joint Secretary, Mr. T. Dutta,

The distinguished members and

Ladies and Gentlemen.

2.      My colleagues, family and myself are deeply honored and happy to be here this evening in the distinguished company in this very historic place, Calcutta Club. While my previous visits did not allow me to explore, for the first time I had been able to see more of this beautiful city and meet more of its wonderful people.

3.      The Indo-Bhutan and Bengal-Bhutan is a relationship that dates back to time immemorial. Probably it goes as far back as when the rivers of Bhutan had started flowing and irrigating the great plains of India. As far as when traders, politicians and pilgrims began exchanged visits. The great saints of Bengal taught Budhism in the Himalayas and the great Bengal tiger roamed both the Indian plains and the Bhutanese sub-tropical forests unrestrained.

4.      Chartered Accountants from Kolkata have come to Bhutan with the launching of the Indo-Bhutan public sector corporations beginning with PC A and Chukha Hydro-power Projects. And in the early eighties when we corporatised and disinvested more of the successful public activities and the growth of the private sector in itself.

5.      Bhutan unlike other nations did not and do not enjoy the luxury of the qualified and the skilled human resources. We have to plan and develop every single person at the expense of the state. The distinguished Prime Ministers of India such as Nehru, Indira Gandhi and so on had been very instrumental in this process.

6.      We had to embark on training of our people in the accountancy profession. Mr. Chetri here is one of the products and is the first chartered accountant. More are being trained. Yet almost most of them will be absorbed as government auditors and finance managers.

7.      A formation of a chartered accounting firm is yet to see its day.

8.      Under such circumstances His Majesty’s Government considered it proper that the Royal Audit Authority coordinate the assignment of statutory auditors to the Bhutanese firms as mandated by the companies Act 1989. 

Ladies and Gentlemen, 

9.      Accountability is the bedrock of the Royal Government’s policies and the national objectives. The statutory auditing is one of such means. 

10.  The auditors are mostly CAs from India. We all know that we have concentrated only in Kolkata as we saw the merit in doing so both from the efficiency and effectiveness point of view. We understand and relate better than we may do with others given the historic ties and bonds that existed.

11.  Our meetings that are taking place have brought us to light many points that were taken for granted both by the Royal Government and the business community.

12.  We shall return home not only won more friends but with a lot of knowledge and feedback that were shared by all of you who had taken up assignments in Bhutan. I have promised some of you that these would form useful input towards enhancement of accountability and improving culture and systems of the auditing and accounting. 

13.  We go back satisfied that a great number Chartered accounted firms are interested to take up assignment in Bhutan. 

14.  As is the exemplary nature of Indo-Bhutan relation, I was personally touched to learn that business is not the criterion but you are committed to help Bhutan and promote the profession. 

15.  The recent C and AG of India’s visit to Bhutan and the signing of the MOU between the two Supreme Audit Institutions formalized the government-to-government cooperation in government auditing. Your willingness to support us in training of our Articles, I hope will bring the circle full. We look forward in our mutual interest, to institutionalize the CA Training in Bhutan in the near future. 

16.  I am happy to share the news that a senior colleague is already in New Delhi trying to explore the possibilities of cooperation of CA training with the Institute of Chartered Accountants of India. He will also explore how we can cooperate in empanelment of firms to audit in Bhutan. I am confident of the support assured by distinguished Members of the Council of the Institute of Chartered Accountants of India from Kolkota. 

17.  Kolkata is the gateway to Bhutan and the nearest seashore or the trading harbor for a landlocked country Bhutan. All international trade enter and exit through here. A great number of Bhutanese regain their life in the hands of Bengali doctors and care of health professionals. A great number of boys and girls study in your prestigious education institutions in Kolkata itself. We light your homes and energise your industries with cheap electricity that we supply. We expect to see a vibrant West Bengal, a dependable Bhutanese hydro energy consumer in turn rendering Bhutan more self reliant in financing its needs with its own resources. 

18.  Indo-Bhutan friendship is one of the unique one in the whole of the world. It is not governed by mathematics but by appreciation and accommodation for each other. 

19.  While ULFA, Bodo and anti-national movement tests this relationship, it is important for the peoples of our two countries to look beyond these problems to sustain the existing relationship and goodwill in the years to come. 

20.  Bhutan is in many ways transforming so fast. The King had not only unilaterally given away the power to govern; His Majesty the King has constituted a Drafting Committee to draft the constitution for the country. While apprehensive, we expect, as was the case in all initiatives made by our King, this one would yet be another great move that shall uphold our national security and sovereignty. 

21.  In such a changed political system auditing will likely play a greater part towards fulfilling the roles that are laid down by our laws and obligation as member nation of INTOSA and ASOSAI. 

22.  I look forward to working with the Association and the firms in West Bengal very closely in the near future. 

23.  Thank you for inviting us for the great dinner and the wonderful evening with honourable members of the Association. 

24.  Long live the Association and long live Indo-Bhutan Friendship.