PricewaterhouseCoopers - Mexico Audit Services to Small and Medium-Size Clients, Barriers Faced and Overcome Carlos Méndez PwC

PricewaterhouseCoopers Página 2 Index Contents Background I. PwC Clients Segmentation – Audit Approach II. PwC Focus Strategy III. PwC Clients Segmentation - Approach Tools IV. IAASB IAPS Particular Considerations in the Audit of Small Businesses

PricewaterhouseCoopers Página 3 I. Background Market: Size of the market (National Institute of Statistics, Geography and Informatics – “INEGI”):

PricewaterhouseCoopers Página 4 I. Background - Continued Characteristics and Barriers: a) Internally- Companies managed and supervised by its owners. Limited personnel with no segregations of duties. No formal procedures. There are controls without a high grade of development. Poor technology information systems development. Unqualified and untrained employees. Few sources of income.

PricewaterhouseCoopers Página 5 I. Background - Continued b) Externally- Lack of financial resources. Lack of tax incentives. Informal economy, disloyal competition. Lack of reinvestment by the owners. Companies focus in market without awareness of back office support. Complexity in tax compliance requirements.

PricewaterhouseCoopers Página 6 I. Background - Continued PwC challenge is to maintain our independence for our clients while we advise them in the early stages of their growth. SMEs management relies heavily in our external advice. We advice the clients not only in audit matters but also in the following areas,: Companies´ incorporation Tax compliance Bookkeeping Corporate governance Payroll

PricewaterhouseCoopers Página 7 I. Background - Continued The financial information is used in most cases only for the need to comply with tax requirements and it is not in the priority of company's management.

PricewaterhouseCoopers Página 8 II. PwC Clients Segmentation - Audit Approach PIE PE Public Interest Entities: - Subject to regulations for protecting groups of people - Generally listed in Stock Exchanges - High visibility Private Entities: - Non PIE - Generally private proprietary - Local visibility

PricewaterhouseCoopers Página 9 SEC PIEPE II. PwC Clients Segmentation - Audit Approach - Continued Other Stock Exchanges Non Significant Entities qualified as immaterial for consolidation reporting purposes

PricewaterhouseCoopers Página 10 SEC PIEPE Non significant HNR II. PwC Clients Segmentation - Audit Approach - Continued Other Stock Exchanges High Network Risk: Entities with high financial and reputation risk to the firm.

PricewaterhouseCoopers Página 11 SEC PIE PE HNR Integrated audits SOX Complex systems (ERP´s): Reliance in controls, focus in systems review and analytical procedures Middle Market Non complex systems: Some reliance in controls, focus in balance validations Non significant II. PwC Clients Segmentation - Audit Approach - Continued Other Stock Exchanges Middle Market

PricewaterhouseCoopers Página 12 SEC PIE PE HNR Integrated audits SOX Complex systems (ERP´s): Reliance in controls, focus in systems review and analytical procedures Middle Market Non complex systems: Some reliance in controls, focus in balances validations Non significant II. PwC Clients Segmentation - Audit Approach - Continued VSE Middle Market Very Small Entities Non complex systems or lack of them: Focus in balance validations Other Stock Exchanges

PricewaterhouseCoopers Página 13 III. PwC Focus Strategy Factors to consider a Middle Market Company: Non High Network Risk Entities Non Public Interest Entities Non Complex Non Financial Sector Small audit teams

PricewaterhouseCoopers Página 14 III. PwC Focus Strategy - Continued Strategies: Acceptance risk analysis Specialized group of professionals dedicated to attend this market, with advisory vision Same methodology worldwide adapted to the characteristics of these clients Access to different industries knowledge applied to this segment Establishment of strict training programs Development of specific audit tools for middle market and very small entities

PricewaterhouseCoopers Página 15 SEC PIE PE HNR Master Database 404 General Master Database Middle Market Database IV. PwC Clients Segmentation Approach Tools Other Stock exchanges Very Small entities Database Middle Market VSE Non significant

PricewaterhouseCoopers Página 16 V. IAASB IAPS Particular Considerations in the Audit of Small Businesses International Auditing Practice Statements (IAPS 1005): “The special considerations in the audits of small entities” The purpose of IAPS 1005 is to describe the characteristics commonly found in small entities and indicate how they may affect the application of International Standards of Audit (ISA). Is a guidance on the application of ISAs to the audit of small entities. Does not establish any new requirement for the audit of small entities; nor does it establish any new exemptions. All audits of small entities are to be conducted in accordance with ISAs.

PricewaterhouseCoopers Página 17 V. IAASB IAPS Particular Considerations in the Audit of Small Businesses - Continued In Mexico the Commission for Supporting the Independent Professional Practice of the Mexican Institute of Public Accountants issued on December 2005 the Audit Guidance for Small and Medium-Size Businesses, with similar purposes. PricewaterhouseCoopers Methodology follows the ISAs.