Dated: 28 December 2022

The Managing Director

ERA-InfoTech Limited
Fareast Tower (Level-3),
35 Topkhana Road, Dhaka-1000 Bangladesh.

Sub: Management letter on External Audit Service (Accounting System Review Audit) of ERA-
InfoTech Limited for the year ended 30 June 2022.

Dear Sir,

We set out in the following pages our management letter containing certain matters concerning the internal
control, accounting practices and procedures of your company which came to our attention during the course
of our review audit. In order to facilitate the prioritization of resources within ERA-InfoTech Limited to
address these observations, we have assigned a risk grading to each observation on the following basis:
Grade Basis
A Significant control weakness or business risk that requires immediate management attention.
B Control weakness that should be included in management's plan to address in the forthcoming
year.
C Matter that is procedural in nature or observation only.

Each point contained in this report is divided into seven sections outlining the following:

 Observation;
 Risk;
 Exposure rating;
 Recommendation;
 Management response;
 Implementation date;
 Individual responsible for the implementation.

We have reviewed the accompanying Statement of Financial Position of ERA-InfoTech Limited, Statement of
Profit & Loss and other Comprehensive Income and Statement of Changes in Equity for the year then ended
30 June 2022. These financial statements are the responsibility of the Company’s management. Our
responsibility is to issue a report on these financial statements based on our review.

We conducted our review in accordance with the International Standard on Review Engagements 2400 (or
refer to relevant national standards or practices applicable to review engagements). This Standard requires that
we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of
material misstatement. A review is limited primarily to inquiries of company personnel and analytical
procedures applied to financial data and thus provides less assurance than an audit. We have not performed an
audit and, accordingly, we do not express an audit opinion.

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Based on our review, nothing has come to our attention that causes us to believe that the accompanying
financial statements do not give a true and fair view in accordance with International Accounting Standards
(IAS) and International Financial Reporting Standards (IFRS).

We would like to take this opportunity to express our thanks to the management and staff of the company at
all levels for the co-operation and assistance that they have extended to us during the course of our
assignment.

Please do not hesitate to contact us should you require further clarification regarding any of the matters
discussed in this report.

Yours faithfully

Mahfel Huq & Co.

Chartered Accountants

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Scope of Internal Audit Service (Accounting System Review Audit):

We have performed the Accounting System Review of the company according to “International Standards on
Auditing (ISAs)” and terms and conditions provided in the letter of appointment as referred “External Audit
Service (Accounting System Review Audit)” dated 22 June 2022. During the course our review of
management financial statements, we have checked some accounting records on test of detailed basis as were
considered necessary for the purpose of review under the circumstances. Further we confirm that we have
exercised reasonable care and skill to locate the weaknesses but in no case, it is a guarantee that all the control
weaknesses have been discovered and disclosed in our reports.

Methodology:

We conducted our review audit in accordance with International Standard on Auditing (ISAs), International
Accounting Standards (IASs), and International Financial Reporting Standards (IFRSs). Those standards
require that we plan and perform the review audit to obtain reasonable assurance about whether the financial
statements are prepared appropriately and accurately. A review audit includes examining evidence supporting
the amounts and disclosures in the financial statements are prepared in accordance with applicable financial
reporting standards and compliant with laws and regulation. A review audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our review audit provides a reasonable basis for our opinion.
The method we follow to perform the audit are:

1. Planning;
2. Analytical producers;
3. Sampling;
4. Reasonableness check;
5. Substantive procedure;
6. Legal Compliance check;
7. Enquiry;
8. Inspection;
9. Review;
10. Estimate;
11. Internal control and compliance check

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 2. Memorandum of Review Finding

1. Inability to provided documents for Office Renovation

Observations

During our course of audit, we asked for supporting documents of office renovation showed Tk.
10,447,485 as an addition to property, plant & equipment, but we could not verify the amount due to a
lack of sufficient appropriate evidence.

Risk

1. Depreciation may be overstated and amortization may be understated.

2. Asset and liabilities may be understated.
3. There can be misstatement and wrong valuation in the books of accounts;
4. This can lead to other manipulations.

Exposure rating

Recommendation

The management should ensure that an appropriate and systematic audit can take place.

Management response

Implementation date

Individual responsible for the implementation

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2. Fixed Assets are not revalued

Observations

As per the International Accounting Standards (IAS) 16-Property, Plant, and Equipment, fixed assets
that have significant changes in fair value should be revalued every three or five years or at a
reasonable interval. However, during our audit, we observed that no valuation of the corporation’s
fixed assets has yet been done

Risk

Non-compliance with the requirements of IAS 16 could adversely impact the credibility of the
financial statement.
Exposure rating

Recommendation

We presume that there have been significant changes in the fair value of the company's fixed
assets as there was no revaluation conducted since inception.

Management response

Implementation date

Individual responsible for the implementation

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3. No depreciation charges for revalued of property, plant & equipment

Observations

During the course of our review engagement, we have observed that in note no. 4.00, The company
was revalued of property, plant & equipment in 2012 and the written down value is Tk 13,880,152, but
there is no depreciation charge from 2012 to 2021.

Risk

1. The assets had been overstated and expenses understated.

2. Which is non-compliance of accounting principal as per International Financial reporting standard.

Exposure rating

Recommendation

The management should ensure that an appropriate and systematic audit can take place.

Management response

Implementation date

Individual responsible for the implementation

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4. Property, plant & equipment

Observation

The Fixed Assets Register, Assets Identification Tag, and Fixed Assets Management Policy were not
maintained properly.

Risk

1. Assets may be disposed without authorization;

2. It indicates poor Internal control;
3. It creates chance for misuse/loss of fixed assets;

Exposure Rating

Recommendation

The management should take proper steps in order to resolve this issue, ensure assets are properly
tagged with unique asset IDs, implement fixed asset management policy to ensure control and proper
utilization of fixed assets.

Management response

Implementation date

Individual responsible for the implementation

5. Full year’s depreciation has been charged on the fixed asset addition.

Observation

During our review audit, we observed that full year’s depreciation has been charged on the fixed asset
addition. As per accounting policy, depreciation is to be charged from the date of acquisition and in
operation. While checking the fixed asset schedule, we found that full year’s depreciation has been
charged instead of the fractional day.

Risk

Due to inaccurate charging of depreciation the written down values of fixed assets were misstated
which will continue to remain wrongly stated unless rectified. As a result, the expenses in the financial

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 statements were also misstated, having impact on the financial statements of the organisation as a
whole though not material.

Exposure rating

Recommendation

The Management of the company should take proper initiatives to train the concerned employees on
proper implementation of depreciation and other accounting policies/treatments. Necessary accounting
adjustments should be made for rectifying the under/overcharging of depreciation on fixed assets.

Management response

Implementation date

Individual responsible for the implementation

6. Non-compliance of IFRS-16 (Leases)

Observations

During the course of our review engagement, we have observed that the Era-InfoTech Limited shall
assess whether the office rent contract is, or contain a lease. As per section 23 and 29 of the IFRS 16,
the Company shall measure the right-of-use assets and as per section 26 and 36, the Company shall
measure the lease liability. However, in our audit, it reveals that he standards in this regard were not
being followed.

Risk

It indicates overstate of current assets and understate of non-current assets.

Exposure rating

Recommendation

The management should recognize right of use asset and lease liability to comply IFRS-16.

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 Management response

Implementation date

Individual responsible for the implementation

7. Non-Compliance of Interest calculation of FDR

Observations

During the course of our review engagement, we have observed that Financial Statements has been
prepared according to IAS- 1 (Presentation of Financial Statement) based on accrual basis but Interest
on FDR has been calculated on cash basis. The financial statements of the company showed that the
amount earned for the principal and interest during the year was Tk 14,45,805 whereas the amount in
the supporting documents was Tk 14,29,720. Therefore, the difference of FRD was Tk 16,084.

Risk

Revenue and Receivable may be understated.

Exposure rating

Recommendation

The Management should calculate FDR interest on accrual basis as per para 27 of IAS-1.

Management Response

Implementation date

Individual responsible for the implementation

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8. Miscellaneous Expense (Board)

Observation

During the course of our review engagement, we have observed that Era-InfoTech Ltd. has expense
amount Tk. 5,359,107 for Miscellaneous Expense (Board) for the period of 01 July 2021 to 30 June
2022. As per Section-30 of the Income Tax Ordinance-1984 Miscellaneous Expense is not admissible
expense to determine profit. The NBR will disallow this Miscellaneous Expense in the event of Tax
Assessment.

Risk

Financial penalty may impose by the regulatory authority for such noncompliance.

Exposure rating

Recommendation

The management of Era-InfoTech Ltd. should comply with the provision of Income Tax Ordinance-
1984 in order to avoid any legal consequence.

Management Response

Implementation Date

Individual Responsible for the Implementation

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9. Accounts Receivables are carried forward for a long period.

Observations

During the course of our review engagement, we have observed that Era-InfoTech Ltd. has
outstanding receivable balance of Tk. 13,39,46,305 for the year ended 30 June 2022. We checked and
verified some sales (Service provided) to customer with their outstanding receivable balance and
contract agreement with the client on a sample basis and we notified that bills are regularly provided
to the customers/clients on the basis of roster/deed/agreement (hours of security service provided) and
received payment regarding bills in the following month. But some customers/clients are not paying
on regular basis. In order to ensure that services provided to a client in a period are properly recorded
as receivable in that period, the list is given below:

S.L. Client Receivables

1. First Security Islami Bank Ltd 750,000
2. NRB Bank Limited 1,500,000
3. Bangladesh House Building Finance 10,615,000
4. Rangs Motors Limited 630,000
5. Sea Resource Group 2,895,000
6. Trust Bank Limited 762,300
7. Mercantile Bank Limited 413,400
Total Amount 16,815,700

Recommendation

The management of “Era-InfoTech Ltd.” should continue this practice like regularly sending bills to
the customer and collect payment in order to avoid cash flow deficit. And also, should take necessary
steps to collect bills from the customer which are not paying on regular basis.

Management Response

Implementation date

Individual responsible for the implementation

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10. Conclusion

Finally, we take this opportunity to convey our appreciation to the management of “Era-InfoTech Ltd.”
The courtesy and cooperation extended to our representatives during the assignment work. We would be
pleased to discuss further our suggestions and comments and assist in their implementation, if those are
considered appropriate.

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