INTOSAI WGAP: The role and responsibility of the Central Auditing Organization in controlling the privatized business units in which the state is minority stakeholder (Egypt) - Paper for the 6th meeting, Warsaw, 5-6 October 1999

The Egyptian privatization program included several methods for transferring the ownership of the State in public sector companies to the private sector. One of such methods is to float the majority of the companies' shares for private sector in a public subscription whilst keeping the minority of the shares under State ownership represented by the public business sector holding companies.

Once the majority of shares in a company are sold to the private sector, it is then considered a private sector company and is consequently subject to the private sector companies law and regulations.

In case the State minority share value represents at least 25% of the Privatized company's capital, said company is still subject to the control of the Central Auditing Organization (C.A.O.) as auditor. However, such a company is entitled to have its own auditor.

The C.A.O. shall perform its function according to Law No. 144 of 1988 amended by Law No. 157 of 1998 and in its capacity as auditor of those companies, by auditing their final accounts, financial positions and balance sheets to ensure their correctness and fair representation of the companies' activities according to the generally accepted accounting principles, standards and systems. It also includes reporting by audit findings about errors, violations and defects in applying laws, regulations and resolutions.

The public body which owns shares in the such company or bank, should submit the annual audit report to the C.A.O., within a period of two weeks following the date of receipt of this report. It must also submit any data, statements or other documents related to the company which it participates in, within two months of the date of the C.A.O.'s request for auditing and expressing its opinion thereon.

The C.A.O. shall prepare its related report and send it to the participating public body and to the concerned official authorities, within two months of the date of receiving the annual audit report, statements, documents and requested data.

The President of the C.A.O. is entitled to retain auditors from amongst those practicing the public accounting profession, to audit such companies. The retained auditors shall report to the C.A.O. and to the audited companies.

The C.A.O. may prepare a report of its findings to be sent to the concerned company in order to be submitted, together with the auditors' report, to its general assembly.

In certain cases and according to the estimation of the C.A.O. as to the importance of some privatized companies in which the State's share represents a minority and in addition to the Auditor retained by the C.A.O.'s President, the C.A.O. performs a complete audit including carrying out the following procedures:

1.	To indicate whether the company's accounts include the necessary data as prescribed by laws and systems and whether the balance sheet adequately presents the company's real financial position at the end of the period under audit and also whether current operations accounts, profits and loss accounts, revenues and expenses accounts fairly present results of operations, profits or losses, revenues and expenses of such period, in conformity with generally accepted accounting principles.
2.	To endorse and supervise stock taking inventory procedures at the company under audit, for the purpose of ensuring that stock taking and valuation of items had been conducted in accordance with such procedures as well as generally accepted principles. Any change in the basis and methods of valuation and stock taking should be noted.
3.	To judge the adequacy of provisions set up by the company to cover all obligations, responsibilities and expected losses and to indicate whether any required reserves are not shown on the balance sheet.
4.	To indicate any violation to the provisions of laws and systems which had occurred during the fiscal year in such a manner that affects the activities and financial position or profits of the company under audit, then indicate what has been undertaken in this respect and whether such a violation still exists at the balance sheet date.
5.	To verify the soundness of accounting and internal control systems of the audited company and ensure the correctness of accounting transactions treatment and recording in books. Such verification should not be confined to documentary audit, but should be extended to encompass the verification of transaction soundness as well as the proper application of the general rules and systems already determined. It ensures that the assets recorded in books and registers do exist, have been recorded at their original cost and are properly depreciated. Such verification establishes the correctness of revenues as well as the seriousness of the obligations.
6.	To participate, whenever possible, in stock taking of the audited company's stores and in cash counting of its treasuries. The auditors should occasionally perform sudden partial or total stock taking in the audited companies and indicate their results in the audit reports.
7.	To approve the audited companies tax returns, along with declarations to be submitted to government authorities which need such approval.