Submitted To: Sir, Adnan Ashraf Sb. Auditors' Report To The Members

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Roll NO.

12540 Assignment: Financial reporting analysis

Submitted to: Sir, Adnan Ashraf Sb.


AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of MIAN TEXTILE INDUSTRIES LIMITED (the Company) as at
June 30, 2011, and the related profit and loss account, statement of comprehensive income, cash flow statement and
statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that
we have obtained all the information and explanations which, to the best of our knowledge and belief, were
necessary for the purposes of our audit.
It is the responsibility of the Company's management to establish and maintain a system of internal control, and
prepare and present the above said statements in conformity with the approved accounting standards and the
requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free
of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the above said statements. An audit also includes assessing the accounting policies and significant
estimates made by management, as well as, evaluating the overall presentation of the above said statements. We
believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:
(A) Short term loans, overdues and current portion of long term liabilities of Rs. 390.745 million consisting of (i)
Rs. 154.421 million from Habib Bank Limited (Note 8.6, 8.7 & 8.8), (ii) Rs. 190.889 million from NIB Bank (Note
8.9) and (iii) Rs. 45.435 million from Other borrowings are classified as long term liabilities instead of current
liabilities. The result is that long term liabilities are overstated while the current liabilities are understated to extent
stated above. Short term loans are classified as long term by the management of the Company for the reasons that
banks have been moved for conversion of short term loans in to long term loans and the matter is yet under
negotiation. Treatment accorded to short term loans is not appropriate as one of financer (IDBP) vide its
communication No. BOL/SETT/159 has refused to accede to Company's request. Other financers have also not
conveyed their willingness of converting short term loans into long terms.
(B) It is also observed that markup on bank loans and leases amounting to Rs. 53.401 million and prior period
deferred markup Rs. 61.264 million on loans ( not rescheduled) aggregating Rs.114.665 are presented in financial
statements under the head deferred markup instead of showing it as current liabilities. Here again deferred liabilities
are overstated and current liabilities are understated.
(C) Foreign currency loans disclosed at Note 8.6 and 8.7 are not translated in to Pak rupees at the exchange rate
prevailing as on 30th June 2011 as required by IAS-21. Thus non-current liabilities are under stated by Rs. 48.582
million. Loss for the year as well as accumulated losses are reduced by Rs. 48.582 million.
(D) The company has not provided mark up on long term and short term loans and leases due to litigation with the
parties for current period Rs. 60.280 Million and prior periods Rs. 27.858 Million aggregating to Rs. 88.138 Million
by which the accumulated losses are understated. Current period loss is also understated by Rs. 60.280 Million.
Except for the effects on the financial statements of the matters stated above, we report that:
(E) in our opinion, proper books of account have been kept by the Company as required by the Companies
Ordinance,1984;
(F)
(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in
conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are
further in accordance with accounting policies consistently applied;

Nasir Mahmood MBA 3rd

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Roll NO.12540 Assignment: Financial reporting analysis

Submitted to: Sir, Adnan Ashraf Sb.


(ii) the expenditure incurred during the year was for the purpose of the Company's business; and
(iii) the business conducted, investments made and the expenditure incurred during the year were in
accordance with the objects of the Company;
(G) in our opinion, except for the effect of matters referred in paragraph (A) to (D) and to the best of our information
and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive
income, cash flow statement and statement of changes in equity together with the notes forming part thereof
conform with approved accounting standards as applicable in Pakistan, and, give the information required by the
Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the
Company's affairs as at June 30, 2011 and of the loss, its comprehensive loss, its cash flows and changes in equity
for the year then ended;
and
(H) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.
(I) Attention is invited to the followings:
(i) A perusal of financial statement reveals that share holders equity shows an adverse balance of Rs.
362.631 million and current liabilities have exceeded current assets by Rs. 23.944 million. If un-provided
expenses amounting Rs. 183.093 million are taken in to consideration the equity adverse balance will
increase to Rs. 545.724 million. Similarly when this year short term loans classified as long term loans,
are reclassified, the excess of current liabilities over the current assets would increase to Rs. 529.354
million. The situation indicates that Company is facing acute financial stringencies and it has failed to
meet its obligations and make payments to banks regularly in terms of loan agreements. It is also noted
that due to shortage of working capital, the Company has discontinued its own production of yarn and
cloth and it has engaged in producing the yarn and cloth for other customers The Company is
continuously sustaining losses and this year a loss of Rs. 36.002 million has been made. Thus there is
material uncertainty on the Company's ability to continue as going concern. The reasons advanced by
management for making accounts ongoing concern basis are stated at Note 3.
(ii) Claims receivables disclosed at Note 16.1 include an amount of Rs. 29.851 million receivable on account of
cotton damages, bad quality and late shipments etc and are outstanding since 1999. The decision regarding
recoverability of these claims is pending before Honorable Court of Civil Judge. However, no provision is made in
financial statements.
(iii) Company's claims against banks indicated at Note 16.5, 16.6, 16.7 and 16.8 are not recognized in these financial
statements in light of IAS-37 as the cases are pending in court of law and in view of the uncertain conditions the
benefit cannot be ascertained accurately.
(iv) No terms and conditions regarding repayment of director's loan amounting Rs. 38.564 Million at Note 7 have
been laid down in the form of agreement and in the absence of such agreement, the requirement of AS-39 for
amortization of loan cannot be fulfilled. NIB bank limited has not made compliance of our letters issued for
confirming loan and interest balances. The financial statements of the company for the year ended June 30, 2010
were audited by M/s 'Naveed Zafar Hussain Jaffery & Co., Chartered Accountants' whose report dated October 07,
2010 expressed qualified opinion for non compliance with IAS-1, IAS-21, classifying current portion and overdue
portion of long term loans and short term loans under non-current liabilities and un-provided markup on loans and
lease.

(MANZOOR HUSSAIN MIR & CO.)


CHARTEREDACCOUNTANTS
Audit Engagement Partner: Manzoor Hussain Mir
LAHORE

Nasir Mahmood MBA 3rd

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