Wishing all alumni, clients and staff a smooth year end 2015

Auditing Whats Involved?

NEWS
Fighting erupted in South Sudan's capital, Juba, in mid-December 2014 triggering clashes throughout much of the country. Several ceasefire agreements and ongoing negotiations have failed to bring an end to the conflict. Disagreements over many aspects of the July 2011 division of Sudan and South Sudan, notably border delineation, look set to continue, but the two countries will try to maintain general co-operation.  Sudan's real GDP is expected to grow by an average of 3.7% in 2015-19 (Source EIU).

Big Race Weekend

Watch Lewis Hamilton overtake Nico Rosberg at the start of the Abu Dhabi Grand Prix: http://t.co/YtWo4IAE8N pic.twitter.com/6WQIklAVlC
— BBC Sport (@BBCSport) November 23, 2014

Race Report: Lewis Hamilton wins the 2014 Drivers' Championship after victory in #AbuDhabiGP http://t.co/KO1QFDsby1 pic.twitter.com/qmr9GEv5CA

— IndySport (@IndySport) November 23, 2014

Lewis Hamilton wins the #AbuDhabiGP and the 2014 Drivers' Championship http://t.co/1dUpfw34VL pic.twitter.com/3P7NIXQCk3

— IndySport (@IndySport) November 23, 2014

Middle East - Asia investment. China a key player

China to double Iranian investment http://t.co/jxs1eHfQRj

— BBC News (World) (@BBCWorld) November 16, 2014

FOCUS: Investment in Sudan

Sudan KPMG Country Profile

National Investment Encouragement Act 2013

http://images.mofcom.gov.cn/sd/201304/20130423150140234.pdf

Regarding the requirement for a local involvement 

Section 8 reads

Prohibition of Discrimination between Projects 

8- (1) For the purpose of this Act, no discrimination shall be made between the investors as being 

Sudanese, or non- Sudanese, or as being public, private sector, co-operative or joint sector. 

(2) No discrimination shall be made between similar projects in similar areas in respect of granting 

concessions and guarantees. 

Notes

1. The government eliminated the Ministry of Investment in December 2011 and replaced it with a High Council on Investment.

2.  Sudanese investment law states that “just compensation” must be offered in the case of nationalization or confiscation of all or part of any investment for “the public interest.” 

3.  Performance Requirements/Incentives

Investors must begin their projects within six months of receiving a license, submit reports every six months during the period in which the project receives special privileges, keep regular books and maintain records on the assets of the project exempted from customs duties, and exempted imported materials, and present, to the Minister, the Competent Minister and the State Minister, annually, during the period of validity of the privileges, a copy of the annual report of the project, approved by a certified auditor.

Sudanese investment law specifies certain sectors as strategic for the purpose of providing additional or special incentives: (1) infrastructure, including roads, ports, electricity, dams, communications, energy, transport, contracting business, education, health and tourist and information technology services and water projects; (2) natural resource extraction and exploitation; and (3) agriculture and industrial production.

Investments in strategic sectors are exempt from tax on profits for a period of ten years. The High Council on Investment may grant non-strategic investments an exemption of five years. The government may also extend benefits including free land and exemptions from other taxes and fees to strategic and non-strategic investments. Such projects may include, but are not limited to, investment in the least developed areas of the country; investments that assist in the development of export capabilities; investments that contribute to rural development; investments that increase employment; investments that are charitable in nature; and investments that develop scientific and technological research.

4.  Foreign Trade Zones/Free Ports

Sudan has established two free trade zones: Suakin on the Red Sea near Port Sudan and Aljaily near Khartoum. According to the Free Zones and Free Markets Law of 1994, industrial, commercial or service investments which are licensed in the free zones enjoy the following advantages:

-- Exemption of the projects from tax on profits for 15 years, renewable for an extra period dependant on the decision made by the concerned minister;

-- Salaries of expatriates working in projects within the free zones are exempted from personal income tax;

-- Products imported into the free zone or exported abroad are exempted from all customs fees and taxes except service fees and any other fee imposed by the board of the Sudan Free Zones Company;

-- Real estate inside the free zones area is exempted from all taxes and fees;

-- Invested capital and profits are transferable from Sudan to abroad through any bank licensed to operate in the free zone;

-- Money invested in the free zones may not be frozen or confiscated.

Source

http://www.state.gov/e/eb/rls/othr/ics/2012/191239.htm

FOCUS: The work of Crown Agents in Sudan and South Sudan

What we do in Economic Development

We help countries grow their economies, strengthen their health systems and improve financial management. We do this by providing consultancy and training in health systems strengthening, trade and growth, public private partnerships, public financial management and governance. We are one of the world's leading experts in public procurement and supply chain management and we provide financial services to facilitate development, focusing on international payments and cash management, trade finance and investment management for donors, NGOs and financial institutions.

find out more

SUDAN

Crown Agents has worked in Sudan for the past 40 years, assisting public bodies such as Sudan Railways, the Finance Ministry, and the Central Bank. We provide a full range of services, including supply chain services, public financial management, international banking and training. Our work has included arranging for the transportation of vehicles and equipment for use by African peacekeepers in Darfur and reforming the humanitarian system through the Sudan Common Humanitarian Fund.

SOUTH SUDAN

We have been supporting the government of the Republic of South Sudan to build a strong and effective state since the country’s independence on 9 July 2011.  In partnership with the new government, donors and other organisations, such as DFID and TradeMark East Africa, our public financial management, supply chain and consultancy expertise is supporting a number of projects.

Our customs administration reform and capacity building efforts have helped boost the post-conflict country’s revenue by 1,100 per cent.  We are also managing the Health Pooled Fund, which is the country’s largest health sector project, to ensure the delivery of essential health services to citizens and transfer ownership of the health system from NGOs to the government in six of the country’s ten states.

TRAINING

Public financial management systems are essential for the implementation of government policies and achievement of developmental objectives.
 

This course explores the fundamentals of governance reforms and the key issues and solutions across the PFM landscape including budget preparation and execution, accounting, monitoring and evaluation, performance measurement and auditing.

It also explains management theories and strategic planning frameworks essential to understanding the current issues and trends in integrated PFM reforms.

What the the DFID 2011-15 programs in South Sudan?

Banking - how are the top 5 and top 50 getting on?

Banking The 2013 results make interesting viewing https://t.co/yVP7aFjoXn Top 50 Banks paid some $136bn in tax and some $136bn in dividends

— peter i brealey (@KhartoumFCA) October 24, 2014

Banking 2013 results Top 5 to Top 50 Total loans/Tier1 capital 7x, 9x Post tax profit to assets 0.9%, 0.6%. Non performing loans 1.3%, 2.6%

— peter i brealey (@KhartoumFCA) October 24, 2014

Inflation in Sudan

Sudan’s Central Bureau of Statistics (CBoS) said the monthly inflation rate has declined to 39.2% in September compared to 46.4% in August.

The official dollar exchange rate stated by the Central Bank of Sudan (CBoS) is 5.8 SDG.

Sudan’s economy was hit hard since the southern part of the country declared independence in July 2011, taking with it about 75% of the country’s oil output.

The Sudanese pound has lost more than half its value since South Sudan’s secession, pushing inflation rates to record levels given that the East African nation imports most of its food.

1. http://www.sudantribune.com/spip.php?article52719
2. http://www.sudantribune.com/spip.php?article52311
3.  http://www.cbs.gov.sd/en/


Inflation in Sudan is sensitive to the price of imported foodstuffs as meat, bread, grains and legumes and vegetables which amounts to 36% of the total consumer spending.

Country Subject Descriptor Units Scale Country/Series-specific
Notes 2010 2011 2012 2013
Estimates Start After Sudan Inflation, average consumer prices
 Index Source: National Statistical Office. Central Bureau of Statistics.
Latest actual data: 2010 Harmonized prices: No Frequency of source data: Monthly Base year: 2007/08. January 2007=100 Primary domestic currency: Sudanese Pound. Data last updated: 09/2013
2010 2011 2012 2013
143.666 169.661 229.975 303.839 2010

Sudan Inflation, average consumer prices Percent change
 See notes for: Inflation, average consumer prices (Index).

 2010 2011 2012 2013
12.990 18.094 35.550 32.118

2010 International Monetary Fund, World Economic Outlook Database, October 2013
http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weorept.aspx?pr.x=85&pr.y=5&sy=2010&ey=2013&scsm=1&ssd=1&sort=country&ds=.&br=1&c=732&s=PCPI%2CPCPIPCH&grp=0&a=#download

The Khartoum Stock Market

The Khartoum Stock Exchange was established in 1994 following the passage of the Securities Market Act by the Transitional National Assembly. The Khartoum Stock Exchange is the only market which operates according to Islamic Sharia law. There are currently eight brokers on the Khartoum Stock Exchange.

Tax rates in Sudan

Public finance

Highlights of today's #MEFMI14 Africa Ministers & Central Bank Govs' meeting in Washington DC @EY_GovtPublic https://t.co/c22TVnnXSR

— EY (@EYnews) October 6, 2014

Serving the public interest

With the great Arthur Bailey President of the ICAEW at LANSCA bash. ICAEW members represent nearly 1.5m UK businesses pic.twitter.com/jow9B6Lby7
— peter i brealey (@KhartoumFCA) October 4, 2014

The future of audit reports?

KPMG Rolls Royce - beyond true and fair. The future of audit reports or should auditors stick to the knitting? http://t.co/5YQIXSGk7X
— peter i brealey (@KhartoumFCA) September 29, 2014

Background paper on restoring trust 

MODEL IFRS ACCOUNTS

President Kiir addresses UNGA

Full text

"Our oil flows through the Sudan. In the spirit of cooperation, my Minister of Foreign Affairs and International Cooperation will soon commence more joint visits with his Sudanese counterpart to donor countries, to appeal and lobby for lifting and waiving Sudan’s foreign debt, as it was agreed in the Cooperation Agreements." 

Near 60 years of audit tax and advisory service

The Abdel Latif El Tayeb team at play 1980

Auditors, the audit plan, the audit programme and internal control

The audit plan helps obtain sufficient appropriate evidence for the circumstances, keep audit costs down, helps avoid misunderstandings.  The audit plan requires knowledge of client's business, development of audit strategies (who, when and how), preparation of the audit programme of testing of controls and transactions.  

Getting it wrong - Companies can exhibit 5% stock price decline following announcement of accounts restatement; decline 20% if due to fraud.  Trust but verify - Shareholders expect an objective third party to provide assurance that the information is accurate not to identify fraud.  

In practice Audit committee effectiveness likely depends not only on qualification but engagement. Objective is to improve earnings quality.  Auditors identify items that could be materially misstated, design and execute tests to determine whether such misstatements have occurred.  

Auditors generally test assertions accuracy in three areas — transactions and events, account balances, presentation and disclosure.  Auditors identify items that could be materially misstated, design and execute tests to determine whether such misstatements have occurred.  

Auditors judge their work scope and findings against materiality of uncorrected errors which make statements of income and assets inaccurate.  

Audit materiality is not just a number crunch of assets and income. Failure to understand the many qualitative factors can cause restatement.  

When audit risk is high, auditors carry out more extensive testing, less reliance on the work of others and less testing of controls. So besides regulatory requirements investment in and maintenance of internal control materially impacts the quality of financial statements

1. ISA300 https://www.frc.org.uk/Our-Work/Publications/APB/ISA-300-Planning-an-audit-of-financial-statements.pdf

Chartered Institute of Internal Auditors

Become an audit leader. Unlock your potential with the new Qualification in Internal Audit Leadership. http://t.co/4fFVcDIZgb
— TheIIA (@TheIIA) September 27, 2014

Oman 
Arabic materials

Fair value - Calculating terminal value in Stock Market Two Stage DCF valuation

Calculate the Terminal Value 
Having estimated the free cashflow produced over the 5 year forecast period, we need to come up with a reasonable idea of the value of the company's cash flows after that period. To help us do this we use, for students of Sudanese history, the easily remembered "Gordon" growth model.

Gordon Growth Model There are several ways to estimate a terminal value of cash flows, but one well-worn method is to value the company as a perpetuity. The model uses this formula:

Terminal Value = Final Projected Year Cash Flow X (1+Long-Term Cash Flow Growth Rate) (Discount Rate – Long-Term Cash Flow Growth Rate)

Reference
1  http://www.investopedia.com/university/dcf/dcf4.asp
2 Why use the Morningstar Ibbotson method http://www.stb.dot.gov/decisions/readingroom.nsf/WebDecisionID/39443?OpenDocument
3 Morningstar Equity Research http://www.morningstar.co.uk/uk/research/equities

Students - internal control

Internal audit around the world
SOX The 2013 Framework
Compliance efficiency review

 Basic concept video

Internal Control and Internal Audit with MindsetLearn https://t.co/9xi9kvUsbY Notes http://t.co/k36lc4mAgW
— peter i brealey (@KhartoumFCA) September 24, 2014

What is SOX compliance? https://t.co/TvD6OzN3Ka After Enron et al SOX background https://t.co/aTUKsp2cE3 discussion https://t.co/PrpDclskby
— peter i brealey (@KhartoumFCA) September 24, 2014

Students - commercial bank valuation, the dividend discount model

Basic concept video 

I like this basic concept video. The presenter manages to capture the key concepts underlying a 100 page report in 20 minutes giving a sound and sensible basis for communicating the valuation reports findings and conclusion to others.

Equity Analysts notes for leading commercial banks
Here are 4 equity analysts thoughts on 4 leading commercial banks

More advanced
A report from McKinsey
Basel Accords http://www.bis.org/