PSO Class Project

Final Project Auditing & Insurance

Submitted to: Haseeb HassanSubmitted By:Arslan RiazRaheel AhmedKazimZainHassan

Introduction:Pakistan State Oil is a multi-million and global competitive state-owned megacorporation and the leading oil market presiding entity in Pakistan. Headquartered in Karachi, Sindh Province of Pakistan, it has several state divisions in the different cities in Pakistan, with administrative management business network infrastructure well expanded, and built at par with international standards, represents 82% of countrys national energy sources.The PSO is horizontally integrated and is the largest state-owned energy megacorporation active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. The PSO conducts major renewable energy activities, including in biofuels, hydrogen, solar, nuclear and wind power as well as defence management. The megacorporation is the largest entity in the country, with well expanded business presence in abroad.The PSO has a primary listing at the Karachi Stock Exchange (KSE), and is a constituent of the KSE-30 Index. The PSO is the third largest entity to be placed in the KSE, ranking behind the Shell Pakistan a subsidiary of Royal Dutch Shell.History:The creation of Pakistan State Oil (PSO) can be traced back to the year 1974, when on January 1st; the government took over and merged Pakistan National Oil (PNO) and Dawood Petroleum Limited (DPL) as Premiere Oil Company Limited (POCL). Soon after that, on 3rd June 1974, Petroleum Storage Development Corporation (PSDC) came into existence. PSDC was then renamed as State Oil Company Limited (SOCL) on August 23rd 1976. Following that, the ESSO undertakings were purchased on 15th September 1976 and control was vested in SOCL. The end of that year (30th December 1976) saw the merger of the Premier Oil Company Limited and State Oil Company Limited, giving way to Pakistan state Oil (PSO).After PSOs inception, the corporate culture underwent a comprehensive renewal program which was fully implemented in 2004. This program over the years included the revamping of the organizational architecture, rationalization of staff, employee empowerment and transparency in decision making through cross functional teams. This new corporate renewal program has divided the companys major operations into independent activities supported by legal, financial, informative and other services. In order to reinforce and monitor this structural change, related check and balances have been established by incorporating monitoring and control systems. Human Resource Development became one of the main priorities on the companys agenda under this corporate reform. It is due to this effective implementation of corporate reform and consistent application of the best industrial practices and business development strategies, that PSO has been able to maintain its market leadership in a highly competitive business environment.For the past 35 years, Pakistan State Oil has been fuelling the needs of the nation. Acknowledged as the leading Public Sector Company of Pakistan, PSO has been driving the wheels of the national economy and is the first public company to pass the 1 Trillion rupee revenue mark.Currently the Company is engaged in the marketing and distribution of various POL products including Motor Gasoline , High Speed Diesel (HSD), Furnace Oil (FO), Jet Fuel (JP-1), Kerosene, CNG, LPG, Petrochemicals and Lubricants. PSO has the most wide-spread retail network in the country with over 3,500 retail outlets and is also the major fuel supplier to aviation, railways, power projects, armed forces, marine and agriculture sectors. The Company also possesses the countrys largest storage capacity representing nearly 74% of the nation's total storage capacity.PSO is now on the road to becoming a fully integrated firm encompassing facets of exploration, refining, transportation and shipping. Through this plan, PSO will not only reduce operational costs, it will also be able to reduce dependence on external supply sources and develop self-sufficiency in the energy sector. The Companys future plans also include exploring new product markets, expanding the lubricants product range, further expansion of the company retail network, and reducing product movement costs.

Vision:To excel in delivering value to customers as an innovative and dynamic energy company that gets to the future

We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers, based on. Professionally trained, high quality, motivated workforce, working as a team in an environment, which recognizes and rewards performance, innovation and creativity, and provides for personal growth and development. Lowest cost operations and assured access to long-term and cost effective supply sources. Sustained growth in earnings in real terms. Highly ethical, safe environment friendly and socially responsible business practices.

Why Choosing Pakistan State Oil for discussion?Because it affects the whole economy at large and due to its values which are as follows.ValuesExcellence:We believe that excellence in our core activities emerges from a passion for satisfying our customers' needs in terms of total quality management. Our foremost goal is to retain our corporate leadership.Cohesiveness:We endeavor to achieve higher collective and individual goals through team. This is inculcated in the organization through effective communication.Respect:We are an Equal Opportunity Employer attracting and recruiting the finest people from around the country. We value contribution of individuals and teams. Individual contributions are recognized through our reward and recognition program.Integrity:We uphold our values and Business Ethics principles in every action and decision. Professional and personal honesty, dedication and commitment are the landmarks of our success. Open and transparent business practices are based on ethical values and respect for employees, communities and the environment.Innovation:We are committed to continuous improvement, both in New Product and Processes as well as those existing already. We encourage Creative Ideas from all stakeholders.Corporate Responsibility:We promote Health, Safety and Environment culture both internally and externally. We emphasize on Community Development and aspire to make society a better place to live in.

Upcoming Initiatives:Establishment of Refinery in Khyber Pakhtunkhwa:An important step in PSO's efforts to secure the national energy supply chain, the Company plans to establish a state-of-the-art (EURO IV) refinery with a capacity of 40,000 barrels per day in Khyber Pakhtunwa. By establishing this refinery, PSO will be able to diversify its business offerings, improve availability of POL products in the country, reduce supply lines and transport costs for the northern region as well as help save substantial foreign exchange savings for the national exchequer. This project will also help drive economic growth in the region by offering job opportunities for both skilled and unskilled labor as well as increase foreign investment in the area.Major Product Line of Pakistan State Oil: Retail Fuels Gaseous Fuels Alternate Fuel Cards Lubricants Aviation & Marine Non Fuel Retail ChemicalsOverall Industry ComparisonMarket LeaderPSO is the market leader in all types of fuel and lubricant oil. It has a 72% [1]market share of the total market for POL products. In the lubricants market, it has a 31% market share which is just more than the illegal/informal sector has and slightly more than what SPL or Caltex has. The company dominates in the regulated sector but not in the non-regulated area where there is much more for improvement as it only contributes 3% towards its total sales volume. PSO has 3475 retail outlets while its closest competitor SPL has only 1182 outlets. This position obviously gives PSO a stronger position for its operations.

BALANCE SHEET

As per Audited for last 5 years

201220112010200920082007

Rupees in '000

ASSETS

Non- Current Assets

Property, plant and equipment 58319936084731637523698702574605498012317

Intangibles299991288223625068872105502126212

Long term investments196807323141682019270215351427010972990591

Long term loans, advances and receivables 385497324554317889405780477745627972

Long term deposits and prepayments 123740148748125951836557909865913

Deferred tax12023169574875033273407337401037

963161098585108874593147321191123132812224042

Current Assets

Stores, spare parts and loose tools134431115339113863112143115814127891

Stock-in-trade885237949537839358598668406982096236006729562055

Trade debts218022292124721832117501074805098303390472813599966

Loans and advances526118430716409987418015396220365974

Deposits and short term prepayments252840610273813673785518034014331583913

Other receivables2122166225202814557542128067791568179015751198

Taxation net5314752631195146580709627

Cash and bank balances162402523090061778056288311830186401522276

33779598425281489619337314813868952411587869262513273

Net Assets in Bangladesh------

total Assets34742759426267340620224774115342164312711002074737315

EQUITY AND LIABILITIES

Share Capital171519017151901715190171519017151901715190

Reserves 482447184018779527620868191555952924986419224027

499599084190298529336058208767853096505420939217

Non-Current Liabilities

Long term deposits11760781023531948476854718834598768308

Retirement and other service benefits251850222337171887751167302015741481644063

369458032572482836227252773824087462412371

Current liabilities

Trade and other payables2467674601918510171560357161101237028106756541431075

Provosions688512688512688312688512726116688512

Accrued interest / mark-up54448543213333302135556380217928131961

Short term borrowings45772649245415111302101518654526109979089064781

Taxes payable----72670379398

2937731062175135111700754561300231209373622051385727

Total equity And Liabilities3474275942629734062024774115342164312711002074737315

PROFIT AND LOSS ACCOUNT

As per audited for last 5 years

201220112010200920082007

Rupees in '000

Sales - net of trade discounts and allowances119992790297491706487717325471982176583213959411057592

Less:

- Sales tax-163861410-137969158-118563577-97386723-742494721-52418310

- Inland freight equalization margin-11642892-16417542-15851726-9199864-136859541-8932956

-175504302-154386700134415303-106586587-879354261-61351266

Net sales1024423605820530364742757951612695589495278533349706326

Cost of products sold-990101083-786250059-713591707-609685478-465254907-337446896

Gross profit24322522342803052916624430101113002362612259430

Other operating income213399418159511479054145166613965271278932

Operating costs

Transportation costs -1205394-810423-631849-513673-337886-369328

Distribution and marketing expenses-5863170-5178233-4055238-3960953-3264599-2745289

Administrative expenses-1659530-1514532-1125891-1151793-116074-1002712

Depreciation-1127587-1120999-1137637-1141698-1119137-1098157

Amortisation-15491-18210-44752-52615-47689-41908

Other operating expenses-9272048-2239725-2416518-3994389-3352969-755420

-19143220-10879122-941188510815121-9283021-6012814

Profit From Operations173132962521713421233413-6353344313860424238

Other Income755058141437106095348776686224509927949786

Finance costs-11658928-11903162-9882010-6232056-1367898-1158112

132049491745768217446751-11808714210836946791674

Share of profit of associates469468516752516401451850294318330306

Profit before taxation136744171797443417963152-11356864213774127121980

Taxation-46183623195120-89135564658329-7323617-2432182

Profit for the year9056055147793149049596-6698535140537954689798

In Rupees

Earnings per share - basic and diluted52.886.1752.76-39.0581.9427.34

Profitability Ratios:Ratios201220112010200920082007

Gross Profit Margin2.9%3.5%3.3%0.4%5.1%3.0%

Operating Profit Margin1.4%2.6%2.4%(0.9%)3.8%1.9%

Net Profit Margin0.7%1.5%1.0%(0.9%)2.4%1.1%

Earnings per Share(in Rs.)52.8086.1752.7639.0581.9927.34

Return on Total assets2.6.%5.6%4.4%(4.3%)11%6.2%

Return on Common Equity18%35%30%(32%)45%22%

Calculations and InterpretationsGross Profit Margin : Gross Profit Sales

Gross Profit Margin for 2012 = 34322522 = 2.9% 1199927907






Graph:

Interpretations:The gross profit Margin shows the margin of profit after excluding the cost of goods sold from sales. A higher gross profit margin is estimated.Now we consider the PSOs financial position, in 2007 the ratio was 3.0% which means that for each rupee of sales generated 0.03 rupee is retained for further operating expenses, interest payment, taxation and distribution of shares which is very low. Companies usually have much greater gross profit margin(depending upon the type of company). This may be explained in terms of high value of cost of goods sold which is almost 81% of sales. The reason behind higher COGS can be explained in terms of increasing prices of petroleum. We can see improvement in 2008 as the ratio increased to 5.1% , while in 2009 the margin is very low i.e. 0.4%. After that ratios improved from 3.3% to 3.5% in 2010 and 2011 respectively. Yet again the margin declined in 2012 which is 2.9%. However if we consider public utility then it is quite acceptable. This lower margin of gross profit is the cause of other profitability ratios to be low.The overall effect of gross profit margin can be seen in above graph.

Operating Profit Margin: Operating Profit Sales

Operating Profit Margin for 2012 = 17313296 = 1.4% 1199927907



Operating Profit Margin for 2009 = (6353344) = -0.9% 719282176



Graph:

Interpretations:Operating profit margin gives an estimate of how much PSO generates on each rupee of sales before interest, taxation and distribution of shares. It determines the pricing strategy and operating efficiency of PSO. Usually a high or increasing operating margin is expected.In the present scenario, the margin is low because of low gross profit. However being public utility it is quite acceptable.The Margin is 1.4% for 2012, 2.6% for 2011, 2.4% for 2010, -0.9% for 2009, 3.8% for 2008 and 1.9% for 2007. The difference is because of difference in operations. Higher operations tend to have higher sales. Overall margin for past 6 years can be seen in graph.

Net Profit Margin: Net Profit SalesNet Profit Margin for 2012 = 9056055 = 0.7% 1199927907

Net Profit Margin for 2011 = 14779314 = 1.5% 974917064


Net Profit Margin for 2009 = (6698535) = -0.9% 719282176


Net Profit Margin for 2007 = 4689798 = 1.1% 411057592Graph:

Interpretations:Net Profit Ratio indicates how much of Sales PSO has secured as profit or in other words it is the actual earning of PSO. The margin is 0.7% in 2012 which is less than that of 2011 i.e. 1.5%. Similarly 2011 can be compared with 2010s value that is 1.0% and so on up to 2007s value. The lower values are due to higher COGS which is due to increasing prices of petroleum. The lower value indicates the less efficient operations and thus leads to lesser reserves and low earning available for stockholders.

Earnings per Share: Earnings available for common stockholders Number of shares of common stock outstanding (1)

Earnings per share for 2012 = 90560550 = 52.80 1715190



Earnings per share for 2009 = 66985350 = (39.05) 1715190



Graph:

Interpretations:This ratio indicates the amount PSO earn from each outstanding share of common stock. Ratio for 2012 is 52.80 which mean that PSO earn Rupees: 52.80/- from each share of common stock. 2011 has the highest EPS among the last 6 years Rupees: 86.17/- per share of common stock. Company can improve its EPS by either decreasing the number of shares of common stock outstanding or by increasing the earnings available for common stock holders.

Return on Total Assets: Earnings available for common stockholders Total Assets

Return on Total Assets for 2012 = 9056055 = 2.6% 347427594



Return on Total Assets for 2009 = (6698535) = 4.3% 153421643

Return on Total Assets for 2008 = 14053795 = 11% 127110020


Graph:

Interpretations:This indicates how effectively a company is using its assets. The values for 2012 are 2.6% which is low as compared to 5.6% of 2011. This indicates that in 2012 the total assets are not used effectively as compared to 2011, although total assets were more in 2012. Higher COGS is one of the major reasons for this result. Similarly the later years can be compared relatively. However the most efficient one was 2008 where maximum output was taken from the total assets.The collective trend is shown in table.

Return on Common Equity: Earnings available for common stockholders x 100 Common Stock Equity

Return on Common Equity for 2012 = 905605500 = 18% 49959908



Return on Common Equity for 2009 = (6698535) = -32% 20870785



Graph:

Interpretations:This ratio indicates how much profit PSO has generated with the investments of common stockholders. The ratio for 2012 is 18% which is almost have of 2011 that is 35% although the investment of 2011 is less than 2012. This leads to the lack of proper asset allocation or might be the oil prices are the cause of low outcome. Similarly 2011 has higher value than 2010 which is 30%. 2009 was lowest with -32% values. 2008 was the highest in last 6 years which was 45%. The general detail can be studied from graph.

Market RatiosRatios201220112010200920082007

Price /Earnings Ratio4.4603.074.93(5.47)5.0914.31

Market/book Ratio0.811.081.521.763.22.31

Calculations and InterpretationsPrice/Earning Ratio :Market Price per share of Common Stock Earnings per share

Price/Earning Ratio for 2012 = 235.8 = 4.46 52.80



Price/Earning Ratio for 2009 = 213.65 = (5.47) 39.05


Price/Earning ratio for 2007 = 391.5 = 14.31 27.34

Graph:

Interpretations:Price/Earning ratio measures the amount that investors are willing to pay for each rupee of PSOs earnings. It also indicates the degree of confidence that investors have in firms future performance. Higher value indicates higher confidence.If we consider the value of 2012 which is 4.46 and compare it with that of 2011 that is 3.07 then we can say that investors has more confidence in 2012 performance than of 2011 performance. Similar comparison can be done for the rest of years. 2009 was worst where the value was -5.47 indicating a very poor confidence of investors. 2008 has the highest value in 5 year analysis with 5.09 confidence level. The two major factors affecting this ratio are market price per share of common stock and earnings available for common stockholders.

Market/Book Ratio: Market Price per share of Common Stock Book Value per share of Common StockWhere

Book Value per Share = Common Stock Equity : Number of Shares of Common Stock outstanding

Market/Book Ratio for 2012 = 235.8 = 0.81 where Book value per share = 49959908000 = 291.5 291.28 171518901

Market/Book Ratio for 2011 = 264.58 = 1.08 where Book Value per share = 41902985000 = 244.30 144.30 171518901





Graph:

Interpretations:This ratio relates the companys book value per share of common stock with market value per share of common stock. It provides an assessment of how investors view the companys performance. In 2012, the ratio was 0.81 which indicates that investors payed 0.81 rupee for each 1 rupee of book value of PSOs stock which is low in terms of earnings and in terms of investors confidence. The condition was quite satisfactory in the rest of the past 6 years, however we saw a declining effect in the ratio from 2007 to 2011 from value 3.20 to 1.08 which showed the decreasing confidence of investor about companies performance.

Liquidity Ratios

Ratios20122011201020092008

Current Ratio1.141.161.131.061.23

Quick Ratio0.840.720.790.750.57

Current Ratio: Current Assets : Current Liabilities Current Ratio for 2012 = 337795984 = 1.14 29773106

Current Ratio for 2011 = 252816896 = 1.16 217513173



Current Ratio for 2008 = 115878692 = 1.23 93736220Graph:

Interpretations:The Ratio tells the ability to full fill its short term obligationCompany data shows that for every one rupees of liability there is 1.14 rupees of asset in 2012. The ratio was 1.16, 1.13, 1.06, 1.23 in the year 2011, 2010, 2009 & 2008 respectively. Company can improve its current ratios by increasing its accounts receivables and by decreasing the account payables.

Quick Ratio :Current Assets Inventory Current Liabilities

Quick Ratio for 2012 = 337795984-88523794 = 0.84293773106 Quick Ratio for 2011 = 252814896-95378393 = 0.72217513173

Quick Ratio for 2010 = 193373148-58598668 = 0.79170075456

Quick Ratio for 2009 = 138689524-40698209 = 0.75130023120

Quick Ratio for 2008 = 115878692-62360067 = 0.5793,736,220

Graph:

Interpretations:The Ratio tells more precisely and accurately companies the ability to full fill its short term obligations.This ratio is more precisely because in this ratio we subtract the inventory; it is difficult to convert the inventory into the cash.To pay the 1 rupee current liability there is only 0.84 rupees of assets in 2012, while in 2011to pay the 1 rupee liability there is only 0.72 rupees of assets, to pay the liability of 1 rupee in 2010 there is only 0.79 rupees of assets , while in 2009 to pay the liability of 1 rupee there is only assets of 0.75 rupees, in 2008 to pay the liability of one rupee there is 0.57 rupees of assetcompany can increase its quick ratio by maximum utilization of inventory .they should fully utilizes their all assstes ,they should also works on the average collection period time

Activity Ratio:

Ratio 20122011201020092008

Inventory Turnover Ratio 13% 12.6% 17%13.9%12.1%

Average Collection Period52.1245.3441.1928.9314.86

Average Payment Period62.8577.1441.4259.3344.86

Total Asset Turnover3.453.714.34.64.58

Inventory Turnover Ratio: Cost of Goods Sold Avg Inventory

Inventory Turnover Ratio for 2012 = 1199927907 = 13% 91951093.5

Inventory Turnover Ratio for 2011 = 974917064 = 12.7% 76966530.5

Inventory Turnover Ratio for 2010 = 877173254 = 17% 49648438.5

Inventory Turnover Ratio for 2009 = 719282176 = 13.9% 51529138

Inventory Turnover Ratio for 2008 = 583213959 = 12.1% 45961061

Graph:

Interpretations:

Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory. The company shows the greatest efficiency in 2010 where the company inventory turnover was 17% which SHOWS GOOD LIQUIDITY OF INVENT0RY but later in following year it shows descending values .IN 2011 A SLITE IMPROVEMENT IN 2012Company can improves its inventory turnover by AVOIDING OVER STOCKING AND steps should be taken to increases in sales to consume more inventory

Average Collection Period: Average debtors x 365 Sales

Average Collection Period for 2012 = 171372062 x 365 = 52.12 1199927907





Graph:

Interpretations:

Average collection period is the number of days that i a company to collect its accounts receivables.52.1245.3441.1928.9314.86The company shows that average collection period is continuously increasing in following years.The company can increase it collection period by defining it polices to its debtors so that all accounts receivable should be received in prescribed time

Average Payment Period: Average Creditors x 365 Purchases

Average Payment Period for 2012 = 1693092385 x 365 = 62.85 983246484

Average Payment Period for 2011 = 173943366.5 x 365 = 77.14 823029784


Average Payment Period for 2009 = 95595633.5 x 365 = 59.33 588023620


Graph:

Interpretations:It measures how many days it takes to pay off accounts payable.Company data shows a major variation in payment period. With, owes in 2011 which was 41 days and highest in2011 showing 77 days. In 2012 it has approximately 62 days to pay it accounts pay able

Total Assets Turnover: Sales Total AssetsTotal Assets Turnover for 2012 = 1199927907 = 3.45 347427594

Total Assets Turnover for 2011 = 974914064 = 3.71 262673406





Graph:

Interpretations:The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate salesThe company total asset turnover ratio is not declining in every year which is not satisfactory. Low asset turnover ratio suggests problems with excess production capacity, poor inventory management, or lax collection methodsThe company should have to utilizes it all resources .and plants to increase it sales.it should increase the sale by maximum utilization of its resources e.g. inventory

Debt RatioRatios201220112010200920082007

Debt Ratio0.8561.1891.1691.1571.3221.389

Times Interest Earned Ratio2.172.52.81-0.816.67.14

Debt Ratio: Current Liabilities + Non-current Liabilities Total Assets

Debt Ratio for 2012 = 293773106 + 3694580 = 0.856 347427594

Debt Ratio for 2011 = 217513173 + 3257248 = 1.189 262673406

Debt Ratio for 2010 = 170075456 + 2836227 = 1.169 202247741

Debt Ratio for 2009 = 130023120 + 2527738= 1.157 153421643

Debt Ratio for 2008 = 93736220 + 2408746 = 1.322 127110020

Debt Ratio for 2007 = 51385727 + 2412371 = 1.389 74737315

Graph:

Interpretations:Debt Ratio Measures what proportion of debts a company has as compared to its assets. Thus it shows the measure of debtness of a company. It helps investors determine the level of risk of an organization.Now we consider the present scenario, in 2012 the ratio was 0.856 which indicates that assets were greater than liabilities ensuring a safe side for investors. While in the previous years the ratio was greater than 1 which indicates that companies loans were more than assets. 2007 was worst where ratio was at extreme for last 6 years which was 1.389, however if we consider 5 years analysis then 2008 was worst with value 1.322. The values for 2011, 10 and 09 are 1.189, 1.169 and 1.157 respectively.

Times Interest Earned Ratio: Earnings before interest and tax Interest

(Note: As in the balance sheet, interest has already been deducted before taxation so we will add the value of tax as well in the below ratios)

Times Interest Earned Ratio for 2012 = 13674417 + 11658928 = 2.17 11658928


Times Interest Earned Ratio for 2010 = 17963152 + 9882010 =2.81 9882010

Times Interest Earned Ratio for 2009 = (110356864)+6232056 = (0.8) 6232056



Graph:

Interpretations:It indicates the companys ability to meet its debt obligations or interest obligations. Or simply we can that it indicates that for how much times the net operating profit covers the interest payment. Usually a value of 2 and greater is considered to be acceptable. So the Condition was quite acceptable for 2012, 11 and 10 with values 2.17, 2.5 and 2.81. However for 2009 the value was in negative -0.8 which was very hopeless for PSO to pay off interest. Condition was much satisfactory for 2008 where the value was 16.6. It meant that if the PSO earnings were shrinking by 93% (16.6-1.0/16.6), it would still be able to pay off interest payments.

Auditors and their Firm Details

A. F. FERGUSON & CO.A. F. Ferguson & Co.(a member firm ofPricewaterhouseCoopersnetwork) is among the largest firms of professional accountantsinPakistan, operating in three metropolitan cities viz.Karachi,LahoreandIslamabad. The firm also has an office inKabul,Afghanistan. The firm operates under international membership of Price waterhouse Coopers and is also known internationally as PricewaterhouseCoopers Pakistan (PwC Pakistan).Broadly, the firm offers professional services in the fields ofAccounting,AuditandAssurance,Taxation, Transaction Advisory, Risk Advisory Services, SPA and HR Consultancy. Internally, the firm is organized along two separate service lines- Assurance and Business Advisory Services (ABAS), Tax and Legal Services (TLS) which are equally split into 8 'sections' Each service line has its own leader (partner)The firm currently employs nearly 1600 people: partners, senior managers, managers, assistant managers, and professional trainees. Firm's clientele includes leading groups/ companies of Financial and Non-Financial sectors.The head office of the firm is situated at State Life building no. 1-C, I.I. Chundrigar Road, Karachi, Pakistan.

DELOITTE YOUSUF ADIL CHARTERED ACCOUNTANTS.Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management, taxand related services to select clients.These firms are members of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (DTTL). Each DTTL member firm provides services in particular geographic areas and is subject to the laws and professional regulations of the particular country or countries in which it operates.

Each DTTL member firm is structured in accordance with national laws, regulations, customary practice, and other factors, and may secure the provision of professional services in its territory through subsidiaries, affiliates, and other related entities. Not every DTTL member firm provides all services, and certain services may not be available to attest clients under the rules and regulations of public accounting.

Audit Report and Important PointsWe have audited the annexed balance sheet of Pakistan State Oil Company Limited as at June 30, 2006 and the related profit and loss account, 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 Companys 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)in our opinion, proper books of accounts have been kept by the Company as required by the Companies Ordinance, 1984;

b)in our opinion:

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 accounts and are further in accordance with accounting policies consistently applied, except for the changes as stated in note 2.4.2 with which we concur;

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;

c)in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, 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 Companys affairs as at June 30, 2006 and of the profit, its cash flows and changes in equity for the year then ended; and

d)in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Effectiveness of Internal Control System

Pakistan State Oil Successfully Upgrades In-House SAP System to Latest ECC 6.0 Version

With an ideology of continuous self-improvement and as part of its ongoing efforts to streamline its operational efficiency, Pakistan State Oil (PSO), the nation\'s leading public sector company has successfully upgraded its internal SAP system to the latest ECC 6.0 version.

The upgrading process involved seamless integration of 12 SAP modules, a database of over 1500 GB of data and the profiles and access protocols of over 500 SAP users. The entire system enhancement process was carried out jointly by the PSO-Information Communication & Technology (ICT) and Finance Departments in a period of just 5 days with minimum disruption in the Company\'s business operations. This revamp will allow PSO to provide business support at par with international standards to its employees and business partners. This initiative has been undertaken by the managementkeeping in view the role such system improvements play as success factors for the organization\'s development.

With this technical upgrade, new horizons in business innovation, cost reduction and functional capacity improvements have opened up at PSO. Furthermore, the Company can now fully utilize the functional improvements provided in ECC 6.0 like enhanced reporting through New General Ledger features; enhanced management of Internal Controls for Corporate Governance; improvements to credit management and introduction of Treasury Risk Management techniques.

Leading from the front, PSO is committed to do what it takes to provide for thefuel needs of the country in a timely and responsible manner.

Suggestions and Recommendations Replace decentralized recruitment with a proper hiring system run by the company itself Training of sales force should be done by the company, not its dealers SOPs are not defined Safety standards are not met Lack of cleanliness Courtesy training Separate sales for both key accounts and general customers Geographical divisions should be redefined More focus on current political and economic research and developing contingency plans Building team work in Sales Force

Crux of ReportPakistan State Oil is growing with a rapid pace and it also putting its utmost efforts toward the future initiative it desired to achieve. It delivered strong values to the customers due to which it is in position to avail the maximum market share and still working hard to achieve more. Auditors give unqualified opinion which shows that the financial statements are free from material misstatement whether due to fraud or error and its internal controls are working effectively. By following the research and development suggestions and the recommendations we suggest it can further excel itself for betterment in future.

Annexures

Annexure (1)

References:http://www.psopk.com

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Documents

PSO Class Project