Internship in financial Department (TNPL).pdf

A REPORT ON THE INTERNSHIP PROGRAMMEAT TAMIL NADU NEWSPRINT AND PAPERS LIMITED Submitted to Loyola College (Autonomous), Chennai. In Partial Fulfilment of the Requirement of the Skill Based Course of the Award of the Degree of BACHELOR OF COMMERCE IN CORPORATE SECRETARYSHIP BY PUNITHAN. S 15-BC-203 Under the guidance of Dr. S. CECILIYA JOTHI MUTHU Assistant Professor, Department of BBA & B.COM Corporate Secretaryship MARCH 2018 Department of BBA & B.Com Corporate Secretaryship Loyola College, Chennai – 600 034. - 1 - DECLARATION I S. PUNITHAN, Dept No: 15-BC-203, hereby declare that this report of internship work done at TAMIL NADU NEWSPRINT AND PAPERS LIMITED is the original work done by me and submitted to the department of B.COM-CORPORATE SECRETARYSHIP, Loyola College, Chennai, in the partial fulfillment of requirements for the award of the degree of B.Com(Corporate Secretaryship)under the guidance of Dr. S. CECILIYA JOTHI MUTHU. INTERNAL GUIDE PUNITHAN. S Dr. S. CECILIYA JOTHI MUTHU 15-BC-203 Date: Place: CHENNAI - 2 - ACKNOWLEDGEMENT It is my profound privilege to thank our Principal Rev.Dr.M.Arockiasamy Xavier, S.J and Deputy Principal Dr. Fathima Vasanth for giving me an opportunity to undergo internship training, which helped me to acquire practical knowledge. I express my sincere thanks to the Co-ordinator of the Department of BBA and Corporate Secretaryship Dr.P.Sushama Rajan for allowing me to undertake institutional training at and for their valuable support in completion of this project. I would like to thank my project mentor and guide Prof.Dr.S.Ceciliya Jothi Muthu, for encouraging and guiding me throughout my time in the program. Her experience and expertise has been a source of inspiration and comfort as i have set out to begin my career. I also take this opportunity to thank my work guide Mr.Senthil Velan (TAMIL NADU NEWSPRINT AND PAPERS LIMITED), for guiding me through out my period of internship and helping me to acquire necessary skills. PUNITHAN. S 15-BC-203 - 3 - CONTENTS Chapters Titles Page. No I Introduction 1 II Conceptual Framework 14 III Work Experiance 49 IV Skills Accuired 53 V Suggestions and Conclusion 56 VI Bibliography 59 VII Annexures 61 - 4 - INTRODUCTION CHAPTER -I - 5 - INRODUCTION As I am pursuing my Bachelor of Commerce degree in the specialization of Corporate secretaryship, there is an internship program to be completed in the sixth semester of the course and its mandatory for the students pursuing B.com degree. The main motive of this internship program is to make sure the students pursuing the degree to get the practical knowledge and get the exposure of the corporate world. About the Paper industry Paper industry plays an important role in the industries development in India. Paper industry occupies a large percentage in India market. It provides wide employment opportunities. Paper industry not only plays vital role in Indian economy but also enhance our product values in world market. Origin of Paper From the time, human life started in this world, people realized the need for communication and they wanted to record certain thing for future generation. Initially rocks and trees were used to carve the message. After that palm leaves were used for communication process. In olden times kings used silicon cloth to write important documents. The origin of Paper is Papyrus, which grow in abundance in delta of Egypt. After processing, the leaves were used for writing. The art of making Paper The art of paper making was first discovered in China. Its origin was kept as secret by the Chinese for a long time. Then the art of paper making slowly travelled westward and reached Samarkand in west Asian. Then the manufacture and usage of paper gradually spread along southern shores of Mediterranean. After that it reached Spain then Morocco and then spread widely all over the world. - 6 - FIRST PAPER MILL IN THE WORLD The first paper mill was started in China and the Baghdad. After 40 years, a paper mill was started at Hainault in France. Then the art of paper making entered into England, Switzerland and Netherlands. In 1800, a book was published describing the method of manufacturing paper from pulp and vegetable pulp. A PERSPECTIVE OF PAPER INDUSTRY IN INDIA The earliest efforts in mechanizing then paper industry in India could be traced to the beginning of 19th century when the Baptist missionary, William Carey started a paper path of government. Meantime in 1985, the Indian paper making association was established and it rendered a proud service to paper industry. The growth and development of the organized paper industry in India can be broadly divided into three phases 1870 to World War-II, 1936 to 1950s and 1950s to present day. PRESENT TREND Paper Industry in India has a long history with the first being commenced in 1832. Though the paper industry in India is more than a century old, it grew at a very slow pace till 1950. The industry had only 17 mills till 1950 and 1.6 lakhs tonnes of paper; presently the industry is crowded with nearly 400 companies. India’s per capital consumption of paper is around 3kg to 3.5kgs against the 27% in Singapore 14kg in Singapore china, 11kg in Indonesia and 40kg at Asian pacific region. India’s consumption is far less than average per capital consumption of the world, which is 45.6kg. The industry production in the current is around 2.8 million tonnes. - 7 - INDUSTRY PROFILE Paper is a material made in thin sheet as an aqueous deposit from linen rags, wood pulp or other form of cellulose which is used for writing, printing and wrapping etc. Paper plays a vital role in communication purpose. Paper was invented by TSAI-LUN in LEI-YANG province of China. The first paper machine was invented by a French man, NICOLOUS-LOUIS ROBERT in 1799. In India, the first paper machine was set up at Serampore in West Bengal. TS’AI LUN seems to have made his paper by mixing finely chopped mulberry bark and hemp rags with water, mashing it flat and then pressing out the water and letting it dry in Sun. He may have based his idea on bark cloth, which was very common in China and also made from mulberry bark. TS'AI LUN's paper was a big success, and began to be used all over China. By the 400's AD, people in India were also making paper. People all over the Islamic world soon began using paper, from India to Spain. By 1250 AD, the Italians had learned to make good paper and sold it all over Europe. In 1338, French monks began to make their own paper. Once they had learned to make paper, they became more interested in also learning about Chinese printing, and a man called Gutenberg produced the first printed Bible in 1453. By this time, people in the country of the Aztecs (modern Mexico) had also, independently, invented paper. Their paper was made out of agave plant fibres, and people used it to make books. Meanwhile, in China people were using paper in more and more different ways. They were using it for kites, and even for toilet paper! Pulp and Paper manufacturing industry is one of the largest among the top ten in the world. Today the world paper production has crossed 300 million per annum. - 8 - Company Profile To be the market leader in the manufacture of world class eco-friendly papers by adopting innovative technologies for sustainable development. TNPL was formed by the Government of Tamil Nadu in April 1979. The primary objective of the company is to produce Newsprint, Printing and Writing paper using bagasse a sugarcane residue as the primary raw material. The registered office of the company is situated at Gundy, Chennai. The products are being marketed throughout the country and also being exported to 20 countries around the world. The factory is situated at Kagithapuram in Karur district of Tamil Nadu. The initial capacity of the plant was 90,000 TPA of Newsprint, Printing and writing paper, which commenced production in the year 1984. The capacity was doubled to 1, 80,000 TPA in January 1996 after implementation of the first project. Recently the capacity has been further enhanced to 2, 30,000 TPA in April 2003 through up gradation of both the paper machines. The largest production capacity in India at a single location and paper machines with built in flexibility for manufacturing Newsprint, Printing and writing papers in the same machine. TNPL has the unique arrangement with the sugar mills for sourcing the raw material in the form of exchange of steam/fuel for bagasse. TNPL is committed to manufacture and supply eco-friendly papers to customer’s satisfaction with the emphasis on continual improvements in its quality management systems. Meeting customers’ requirement with eco-friendly raw materials (viz.., Bagasse) for paper making through continuous process improvements is TNPL’s Quality policy, Quality standardization without compromise on environment is being accomplished with online quality control at various stages of production. Despite opening up of Indian markets for imports, TNPL has been consistently recording increasing in year by year, which demonstrates the company’s commitment to Quality. Direct interaction with customers through customer service cell has helped the company in meeting the Customer Satisfaction Index (CSI) ranging from 7.01 to 7.50. Customized products are also being - 9 - manufactured by TNPL to meet the customer delight. The Online Integrated Information system (OIIS) a mini ERP package developed by CMC ltd.., for TNPL integrates the flow of information from all the section of the company covering Production, Materials, finance and Marketing etc.., Thus OIIS has greatly improved information for faster and timely decision making for assured product quality. The automated process control facilities ensure complaint free products at various stages upto the final packing and dispatch. By using bagasse as the primary raw material instead of wood. TNPL is saving deforestation of about 30,000 acres of forestland every year. Due to the usage of bagasse the chemical consumption in the pulp bleaching process is lower. TNPL’s effluents completely comply with the norms set by Tamil Nadu Pollution Control Board. TNPL is adopting activated sludge treatment system. Further the treated effluent water is being used to irrigate 1500 acres of land around the factory. The farmers are cultivating cash crops such as sugarcane, groundnut etc.., and using TNPL effluent water. TNPL has obtained the prestigious ISO 14001 certificates from RWTUV, Germany for successfully establishing and applying environmental management system for development manufacture and supply of paper. THE VISION: To be the market leader in the manufacture of eco-friendly world class papers adopting innovative technologies. THE MISSION: 1. Attain leadership in paper industry. 2. Promote the usage of Bagasse in the manufacturer of Newsprint and Printing and
Writing paper. 
 3. Minimize environmental impact and become an environment friendly 
organization. - 10 - Company’s Board TNPL has many administrative heads for each separate department. Thiru.K. Gnanadesikaran as Chairman, with the directors Thiru.K. Shanmugam, Thiru.N.Narayanan, Tmt.Anu George, Thiru.V.Nagappan, Thiru.V.Narayanan, Tmt.Soundara Kumar, Thiru.V. Chandrasekaran and Thiru.S.Shivashanmugaraja as Managing Director and Thiru.K. Vellaingiri as Deputy Managing Director. Objectives ü Company committed to satisfy customers for the product, TNPL develop, manufacture and supply with emphasis on. ü Customer requirements at competitive prices.
 ü Use of Eco-Friendly raw materials.
 ü Improve the quality of the paper to that of International standards.
 ü Become globally competitive in terms of cost, pricing and quality. ü Continuous process improvements. Involvements of all employees. Suppliers and dealers. TNPL Export Network TNPL export their products to various countries like Australia, Egypt, Greece, Indonesia, Jordan, Kenya, Malaysia, Myanmar, Nepal, Nigeria, Philippines, Singapore, Sri Lanka, South- Africa, Taiwan, Turkey, U.A.E.., U.K. Yemen. - 11 - Organization Chart - 12 - - 13 - Awards and Accolades In pursuit of excellence, TNPL has won many accolades. This is in recognition of its continuous innovation and constant improvement in all spheres of its activity. • Best paper Mill 2007-08 
 • Environment Protection – 2002 
 • Export Award – 2006-07 
 • Excellence in Cost Management – 2008 
 • Credit Rating by ICRA Ltd 
 • Safety Award – 2002 
 • Energy Award – 2001 • Excellence in Corporate governance – 2004 • The Energy and Resources Institute (TERI) Corporate Award – 2008 • Dun & Bradstreet Corporate Awards 2017 • IPMA Paper Mill of the Year award for the year 2015-16 Achievements 2016-17 1. Sales turnover crossed Rs. 3000 crore mark for the first time. 
 2. Profit after tax of Rs 264.56 Crore exceeded the previous highest record achieved in 2015-16 by Rs. 4.75 Crore. 
 3. Achieved Highest Paper sales of 415683 MT during the FY 2016-17. Domestic sales accounts for 80% and Exports 20%. 
 4. De-inked Pulp Production increased by 25995 MT from 42705 MTs in the previous year to 68700 MTs during the current year. 
 5. 71.29 Crore units of power were generated, of which 69.24 Crore lakh units were consumed and 2.05 Crore units were exported to the State Grid. Power drawn from State Grid constitutes only 1.61% of total power consumed. 
 6. Overall water consumption was contained at 40 KL Per ton of paper. 
 - 14 - 7. Cement production increased by 38103 MT from 196573 MT in the previous year to 234676 MT during the current year. 
 8. Cumulatively 1,20,715 acres of land have been brought under Company’s Farm Forestry and Captive Plantations schemes, benefitting 23,287 farmers. 
 9. Term Loans amounting to Rs. 154.19 crore were repaid as per schedule. 
 10. Dun & Bradstreet, Mumbai, has selected TNPL as the Top Indian Company under the sector Paper and Board products for “Dun & Bradstreet Corporate Awards 2017”, sixth time in a row. 
 11. TNPL has bagged the “IPMA Paper Mill of the Year award” for the year 2015-16 from Indian Paper Manufacturers’ Association (IPMA), New Delhi. This award is given once in two years for the overall best performance in Industry. TNPL has received the Paper Mill of the year award five times and three times in a row. 
 12. During the year, the company received the Top Export Award for the year 2014-15 from CAPEXIL (Chemicals & Allied Products Export Promotion Council of India). in recognition of the company’s export achievement in respect of Paper, Paper Board & Paper Products Panel. 
 13. TNPL received the “Most Innovative Environmental Project Award” under the category of “CII Environmental Best Practices Award 2017” from CII for elimination of usage of Sulphuric Acid in DHT stage of Hard Wood pulp bleaching. 
 - 15 - Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information (FDUPSI) Formulated in line with sub-regulation (1) of Regulation 8 of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,2015 read with Schedule A thereof A. This code may be called “TNPL Code for Fair Disclosure of Unpublished Price Sensitive Information (FDUPSI)" B. Covenants of the Code 1. TNPL shall ensure to make prompt public disclosure of unpublished price sensitive information (UPSI) that would impact price discovery no sooner than credible and concrete information comes into being in order to make such information generally available. 'UPSI’ means any information which is likely to materially affect the price of the securities and shall include: financial results; dividends; change in capital structure; mergers, demergers, acquisitions, delisting, disposals and expansion of business and such other transactions; changes in key managerial personnel; and material events in accordance with the Listing Agreement. 'Generally available information' means information that is accessible to the public on anon- discriminatory basis. 2. TNPL shall ensure to make uniform and universal dissemination of UPSI to avoid selective disclosure. 3. TNPL has designated Thiru.V. Siva Kumar, Company Secretary as a Chief Investor Relations Officer to deal with dissemination of information and disclosure of UPSI. 4. TNPL shall ensure prompt dissemination of UPSI that gets disclosed selectively, inadvertently or otherwise to make such information generally available. - 16 - 5. TNPL shall ensure to make appropriate and fair response to queries on news reports and requests for verification of market rumours by regulatory authorities. 6. TNPL shall ensure that information shared with analysts and research personnel is not an UPSI. 7. TNPL shall develop best practices to make transcripts or records of proceedings of meetings with analysts and conference calls with investors/analysts on the official website of the company to ensure official confirmation and documentation of disclosures made. 8. TNPL shall handle all UPSI on a need-to-know basis. “Need-to-know” basis means that UPSI should be disclosed only to those within the company who need the information to discharge their duty and whose possession of such information will not give rise to a conflict of interest or appearance of misuse of the information. 9. Powers of the Board of Directors The Board of Directors reserves the right to amend or modify the Code in whole or in part, at any time without assigning any reason whatsoever and to establish further rules and procedures, from time to time, to give effect to the intent of the Code. The decision of the Board of Directors of the Company with regard to any or all matters relating to the Code shall be final and binding on all concerned. 10.Disclosure of the Code on Public Domain The Code shall be published on the official website of the Company. Any amendment(s) to the Code, duly approved by the Board of Directors of the Company, shall be promptly intimated to the Stock Exchanges and shall also be updated on the official website of the Company. - 17 - CONCEPTUAL FRAMEWORK CHAPTER -II - 18 - CONCEPTUAL FRAMEWORK FINANCE Ø Finance is a field that deals with the study of investments. It includes the dynamics of assets and liabilities over time under conditions of different degrees of uncertainty and risk. Finance can also be defined as the science of money management. Market participants aim to price assets based on their risk level, fundamental value, and their expected rate of return. Finance can be broken into three sub-categories: public finance, corporate finance and personal finance. Ø Finance may be defined as the art and science of managing money. It includes financial service and financial instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function is the procurement of funds and their effective utilization in business concerns. Ø The concept of finance includes capital, funds, money, and amount. But each word is having unique meaning. Studying and understanding the concept of finance become an important part of the business concern. FINANCE DEPARTMENT v Account department is the main department in the company. Various types of accounts are maintained in the department. All the expenditure made and all the income gained are done, recorded and maintained through this department. The part of an organization that manages its money. The business functions of a finance department typically include planning, organizing, auditing, accounting for and controlling its company's finances. The finance department also usually produces the company's financial statements. - 19 - v Business concern needs finance to meet their requirements in the economic world. Any kind of business activity depends on the finance. Hence, it is called as lifeblood of business organization. Whether the business concerns are big or small, they need finance to fulfil their business activities. v In the modern world, all the activities are concerned with the economic activities and very particular to earning profit through any venture or activities. The entire business activities are directly related with making profit. (According to the economics concept of factors of production, rent given to landlord, wage given to labour, interest given to capital and profit given to shareholders or proprietors), a business concern needs finance to meet all the requirements. v Hence finance may be called as capital, investment, fund etc., but each term is having different meanings and unique characters. Increasing the profit is the main aim of any kind of economic activity. DEFINITION v According to Khan and Jain, “Finance is the art and science of managing money”. v According to the Wheeler, “Business finance is that business activity which concerns with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”. v According to the Guthumann and Dougall, “Business finance can broadly be defined as the activity concerned with planning, raising, controlling, administering of the funds used in the business”. - 20 - v In the words of Parhter and Wert, “Business finance deals primarily with raising, administering and disbursing funds by privately owned business units operating in non- financial fields of industry”. v Corporate finance is concerned with budgeting, financial forecasting, cash management, credit administration, investment analysis and fund procurement of the business concern and the business concern needs to adopt modern technology and application suitable to the global environment. v According to the Encyclopaedia of Social Sciences, “Corporation finance deals with the financial problems of corporate enterprises. These problems include the financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the administrative questions created by growth and expansion, and finally, the financial adjustments required for the bolstering up or rehabilitation of a corporation which has come into financial difficulties”. TYPES OF FINANCE Ø Finance is one of the important and integral part of business concerns, hence, it plays a major role in every part of the business activities. It is used in all the area of the activities under the different names. Finance can be classified into two major parts: Ø Private Finance, which includes the Individual, Firms, Business or Corporate Financial activities to meet the requirements. Ø Public Finance which concerns with revenue and disbursement of Government such as Central Government, State Government and Semi- Government Financial matters. Ø Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Ø Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources - 21 - FINANCIAL MANAGEMENT v Financial management is an integral part of overall management. It is concerned with the duties of the financial managers in the business firm. v The term financial management has been defined by Solomon, “It is concerned with the efficient use of an important economic resource namely, capital funds”. v The most popular and acceptable definition of financial management as given by S.C. Kuchal is that “Financial Management deals with procurement of funds and their effective utilization in the business”. v Howard and Upton: Financial management “as an application of general managerial principles to the area of financial decision-making. v Weston and Brigham: Financial management “is an area of financial decision- making, harmonizing individual motives and enterprise goals”. - 22 - v Joshep and Massie: Financial management “is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations. v Thus, Financial Management is mainly concerned with the effective funds management in the business. In simple words, Financial Management as practiced by business firms can be called as Corporation Finance or Business Finance. SCOPE OF FINANCIAL MANAGEMENT Financial management is one of the important parts of overall management, which is directly related with various functional departments like personnel, marketing and production. Financial management covers wide area with multidimensional approaches. The following are the important scope of financial management. 1. Financial Management and Economics Economic concepts like micro and macroeconomics are directly applied with the financial management approaches. Investment decisions, micro and macro environmental factors are closely associated with the functions of financial manager. Financial management also uses the economic equations like money value discount factor, economic order quantity etc. Financial economics is one of the emerging area, which provides immense opportunities to finance, and economical areas. 2. Financial Management and Accounting Accounting records includes the financial information of the business concern. Hence, we can easily understand the relationship between the financial management and accounting. In the olden periods, both financial management and accounting are treated as a same discipline and then it has been merged as Management Accounting because this part is very much helpful to finance manager to take decisions. But nowadays financial management and accounting discipline are separate and interrelated. 3. Financial Management or Mathematics - 23 - Modern approaches of the financial management applied large number of mathematical and statistical tools and techniques. They are also called as econometrics. Economic order quantity, discount factor, time value of money, present value of money, cost of capital, capital structure theories, dividend theories, ratio analysis and working capital analysis are used as mathematical and statistical tools and techniques in the field of financial management. 4. Financial Management and Production Management Production management is the operational part of the business concern, which helps to multiple the money into profit. Profit of the concern depends upon the production performance. Production performance needs finance, because production department requires raw material, machinery, wages, operating expenses etc. These expenditures are decided and estimated by the financial department and the finance manager allocates the appropriate finance to production department. The financial manager must be aware of the operational process and finance required for each process of production activities. 5. Financial Management and Marketing Produced goods are sold in the market with innovative and modern approaches. For this, the marketing department needs finance to meet their requirements. The financial manager or finance department is responsible to allocate the adequate finance to the marketing department. Hence, marketing and financial management are interrelated and depends on each other. 6. Financial Management and Human Resource Financial management is also related with human resource department, which provides manpower to all the functional areas of the management. Financial manager should carefully evaluate the requirement of manpower to each department and allocate the finance to the human resource department as wages, salary, remuneration, commission, bonus, pension and other monetary benefits to the human resource department. Hence, financial management is directly related with human resource management. - 24 - Functions of Financial Management 1. Estimation of Capital Requirement: Estimation depends upon expected costs, profits, future programs and policies of a firm. Estimation must be adequate, as it can increase the earning capacity of the firm. 2. Determination of Capital Composition: It is based on long term-short term debt equity analysis. This will depend upon the proportion of equity capital a company is processing and additional funds which have to be raised from outside parties. 3.Choice of sources of funds: Choice of funds depend upon the relative merits and demerits of each resource. Various sources of funds are: v Issue of shares and debentures v Loans to be taken from banks and financial institutions v Public deposits to be drawn, like in the form of bonds 4. Investment of Funds: Financial Manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns are possible. 5. Disposal of surplus: It refers to the decisions on the net profits made about the dividend declaration and retained earnings. 6. Management of cash: The Financial manager has to make decisions with regards to cash management. It is required for many purposes like payment of wages and salaries, bills, creditors, maintenance of stock, raw materials, etc. 7. Financial Control: Financial Manager not only has to plan, procure and utilize funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc. - 25 - AUDITING The term audit is derived from the Latin term ‘audire,’ which means to hear. In early days, an auditor used to listen to the accounts read over by an accountant in order to check them Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt. Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra by Kautilya detailed rules for accounting and auditing of public finances. The original objective of auditing was to detect and prevent errors and frauds Auditing evolved and grew rapidly after the industrial revolution in the 18 of the joint stock companies the ownership and management became separate. The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were the employees. The term auditing has been defined by different authorities. Spicer and Pegler: "Auditing is such an examination of books of accounts and vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and that the profit and loss account gives true and fair view of the profit/loss for the financial period, according to the best of information and explanation given to him and as shown by the books; and if not, in what respect he is not satisfied." Prof. L.R. Dicksee. "auditing is an examination of accounting records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate. - 26 - The book "an introduction to Indian Government accounts and audit" "issued by the Comptroller and Auditor General of India, defines audit “an instrument of financial control. It acts as a safeguard on behalf of the proprietor (whether an individual or group of persons) against extravagance, carelessness or fraud on the part of the proprietor's agents or servants in the realization and utilisation of the money or other assets and it ensures on the proprietor's behalf that the accounts maintained truly represent facts and that the expenditure has been incurred with due regularity and propriety. The agency employed for this purpose is called an auditor." INTERNAL AUDIT Internal audit is the existence and operation of management control system and evaluate its effectiveness, and as a result may recommend giving up some control actions and develop others. It evaluates the internal control on its functionality in relation to general management, but also in relations with external control entity received from the outside. Internal audit is the activity of objective examination of all activities of economic entities in the real purpose of independent evaluation, risk management and control and their processes. Internal Audit has as aims: v verification of compliance of the economic entity audited policies, programs and their management in accordance with legal provisions; v evaluating the implementation of financial and non-financial controls and arranged and performed by the head entity in order to increase economic efficiency; v evaluating the adequacy of financial and non-financial data and information for management to know the reality of the economic entity; v protecting those assets and off balance sheet and identify measures to prevent fraud and losses of any kind. - 27 - Internal audit review the entity's activities and services, primarily to improve them. It leads to strict policies and procedures established by that entity and it is not limited to financial matters. Internal audit is: v a permanent review of the entity's economic activity; v an independent appraisal activity for the economic entity's management, by examining the financial operations, accounting and other services on all; v an evaluation of conformity assessment tasks and accounting records, reports, assets, capital and results; v a certificate or certification of financial accounting documents. Internal audit is a function of the entity's control structure. It should not be confused with the entity's internal control structure. The two departments are separate and independent, not being in the relationship of subordination. Those responsible for carrying out internal audits, coordination of work or commitments, the signing of internal audit reports must be of Internal auditing. Internal auditors are permanent employees of the entity and are directly responsible to the entity's management or the General Assembly of Shareholders. Internal Auditor: advise, assist, recommend, but not decide, his obligation is to provide a means to improve the control that each manager has on his activities and those in coordination to achieve goals. - 28 - Internal Audit Department audits at least every three years, but not limited to, the following: Ø budgetary and legal commitments arising directly or indirectly in payment obligations, including EU funds; Ø payments made through the budgetary and legal commitments, including community funds Ø sale, pledge, lease or rental of goods from the private sector of the state or administrative-territorial units; Ø public revenue, respectively the licensing and establishment of debt instruments and facilities provided to their collection; Ø allocation of budget appropriations; Ø accounting system and its reliability; Ø decision-making system; Ø management and control systems and associated risks of such systems; Ø information systems. Internal audit assignments are made based on plan. The draft audit plan is prepared by the internal audit department, based on risk assessment and by taking suggestions from the head entity, in consultation with higher-level government entities, taking into account the recommendations of the Court of Auditors. The head of the public entity approves the draft internal audit plan. The internal auditor carries out ad hoc audits, internal audit assignments that exceptional, not included in the annual internal audit plan. In carrying out audits, internal auditors carry out their activities based on work order issued by the Head of Public Internal Audit Department, which explicitly states the goals, objectives, type and duration of the internal audit, nominating and audit team. Internal audit assignments may be the main objectives: • procedures and operations to ensure compliance with rules, regulations and laws - a regular audit (an audit of this type is exemplified in this seminar notebook); - 29 - • assessing the depth of management and internal control in order to remove any irregularities and shortcomings of the public entity - the audit system; • examining the impact of the set objectives and desired quality of the public in terms of the criteria of economy, efficiency and economy - performance audit. Mission objectives are statements prepared by auditors that define what they have set out to achieve during the mission. Public Internal Audit Department shall notify the structure that will be audited, 15 days before the onset of engagement and it will include the purpose, key objectives and duration of the mission. Public Internal Audit Department shall also notify, topic in detail, joint cooperation program, and the periods in which the interventions on the spot, according to methodological norms. The internal auditors have access to all data and information, including electronic ones, which it considers relevant for the purpose and objectives specified in the order of service. Management and executive staff of the auditee is required to provide documents and information required within the timescales, and all the support needed to carry out properly the public internal audit. Internal auditors may request data, information and copies of documents certified by natural and legal persons in connection with the auditee, and they have the obligation to provide the requested date. The authorized representatives of the European Commission and European Court of Auditors shall have the rights equivalent to those provided for internal auditors in order to protect the financial interests of the European Union; they must be authorized to that effect by a written authorization, to prove their identity and position, and a document indicating the object and purpose of inspection or spot inspection. Whenever the public internal audit narrowly specialized knowledge is required, the head of internal audit department can decide whether to contract for expert services / advice outside the public entity. - 30 - VOUCHING, VERIFICATION & VALUATION MEANING OF VOUCHER Voucher is the documentary evidence in support of transactions entered in the books of accounts. For every entry in the books of accounts, there should be a voucher supporting it. Receipt, invoice, cash memo, debit note, credit note, account sales, correspondence, counter-foils of cheque book & pay- in-slip, bank pass book, dividend warrant, wage sheets, agreements, a copy of purchase order, material requisition, minutes, resolutions are some of the important vouchers. VOUCHING In simple words, vouching means verification of accuracy, authority and authenticity of transactions that appear in the books of original entry with the help of vouchers of these transactions. We shall examine some definitions of vouching given by different authors: (1) According to B.B. Bose: “By vouching is meant the verification of the authority and authenticity of transactions as recorded in the books of accounts.” (2) In the words of Ronald A. Irish, “Vouching is a technical term, which refers to the inspection of documentary evidence supporting and substantiating a transaction.” (3) De Paula writes, “Vouching means the inspection of receipts with the transactions of a business together with documentary and other evidence of sufficient validity to satisfy an auditor that such transactions are in order, have been properly authorized and are correctly recorded in the books.” CHARACTERISTICS OF VOUCHING The following characteristics of vouching are clear from above mentioned definitions: 1. It is an examination of entries in books of accounts. 2. Such examination is done with the help of vouchers like receipts, invoices, counterfoil or cheque books & pay-in-slips, pass-book, agreements, resolutions, minute book, correspondence etc. 3. Vouching substantiates a transaction. 4. It ensures the correctness of transactions entered in the books. 5. It is an important aspect auditing. 6. Auditor begins his audit-work with vouching. - 31 - OBJECTS OF VOUCHING The principal objects of vouching are as under: v To see that all transactions correctly recorded in the books of accounts. v To see that entries recorded in the books of accounts are supported by documentary evidence. v To ascertain that all transactions are duly authorized. v To ascertain that no transaction is left out from being recorded. v To see that necessary vouchers relating to entries recorded in books are with the client. Thus, the purpose of vouching is not merely to verify that the payments have been made, but to verity further that the payment relates to the business and is approved by proper authority. IMPORTANCE OF VOUCHING Vouching is the first step for auditing. The auditor commences his work with the examination of entries and vouching plays an important role in this respect. The correctness of books of accounts is tested by vouching. If the vouching is carried out with due care and intelligence, the audit work becomes smooth and easier. All subsequent steps of auditing are dependent on vouching. Usually frauds and errors can be detected by vouching. In the words of De Paula, “Vouching is the essence of auditing.” The success of failure of Auditing depends on vouching. Audit work is impossible without vouching. It is, therefore, no exaggeration to say that “the vouching is the soul of auditing.” The following points will make clear the importance of vouching: (1) Reliable examination: In vouching, the entries in original books of accounts are verified to ensure that the transactions are genuine; they are authenticated and comply with normally accepted principles of accounting. If a transaction is not authenticated or is not properly recorded, then the final accounts would not show a true and fair view of the profit or loss and state of affairs of business. The entries in the books of original entries are the foundation on which the correctness of entire accounting record is based. Thus, vouching tests the very base of accounting process. - 32 - (2) Examination of original evidences: Checking of entries is done by examining the original evidence supporting such entries. Vouchers are thus links between transactions and entries. By vouching the particulars of transactions, such as dates, amounts, the names of parties, etc. are known. Thus, details are compared with the final evidence establishing the correctness of entries in books of accounts. (3) Detection of errors at initial stage: By checking the entries, with original evidence, the errors and frauds can be located at an early stage. The maxim that ‘the prevention is better than cure’ is achieved as the vouching prevents the errors before they assume serious proportion. (4) Keeps the auditor alert: Since the starting point of audit is vouching, the auditor can detect errors and frauds in the beginning of audit. If he finds any errors, he becomes more alert and careful and extends his checking to very important transaction. He resorts to auditing in depth’ and can thus carry out his work in a more responsible manner. In case of Armitage Vs. Brewer and Knott, 1982, it was held that audit is dependent on vouching and if the auditor shows carelessness in vouching, he will be held liable for it. POINTS OF BE CONSIDERED IN VOUCHING While vouching, an auditor should keep in mind the following points: (1) Serial number: The auditor should see that the vouchers are consecutively numbered according to date and the order of transactions. If this is not done then the auditor’s time would be unnecessarily wasted in finding out required vouchers. (2) Date: The auditor should carefully check the dates on vouchers. The vouchers should relate only to the year for which the accounts are audited. Otherwise the vouchers of earlier year may be produced again and cash or goods might be misappropriated. (3) Name: The vouchers should be in the name of client. The transactions recorded in the books of a client would be correct only if they are supported by bills, documents and other evidences in the name of that particular client. The name of the party from whom the voucher is received should be compared with the name of supplier in the books of accounts. - 33 - (4) Address: The voucher should be addressed to the client in whose books the transaction is recorded. If the voucher is in the personal name of director, partner, or manager, the same may not be relating to business itself. (5) Amount: The amount shown in the voucher should tally with the amount recorded in the books of accounts. The amount in voucher should be indicated both in figures and in words, so that the alterations in figures can be avoided. (6) Particulars: The auditor should carefully examine the particulars mentioned in the voucher. From the particulars given in the vouchers, auditor is able to ascertain whether the item is of a revenue or capital nature. This distinction is of great importance, since the capital income and expenditure are shown in the Balance Sheet whereas revenue income and expenditure are shown in Profit and Loss Account. (7) Approval and Signature: Each voucher should be properly approved and authenticated. The person who authorizes payment or other transaction should put his signature in support of having approved the voucher. The auditor should have with him specimen signature of various officers, with schedule of their powers. (8) Revenue stamp: For payments exceeding Rs. 5000/- the relative receipts should bear revenue stamp of Re. 1.00. However, where the items are purchased for cash and a cash- memo is obtained, there is no need to obtain stamped receipt. (9) Continuous vouching: As far as possible the auditor should complete the vouching of a particular period of a book in single sitting. If the vouching is kept pending or incomplete, then there are chances of figures being altered and a fraud being committed after the vouching is over. (10) Cancelling the voucher: Once the voucher is audited, the same should be cancelled so that it may not be produced again. Rubber stamp, Seal or Ticks of particular colour is used to cancel the voucher. - 34 - (11) Period: The auditor should pay particular attention to the period to which the voucher relates. If the expenditure is for the period beyond the accounting year of client, the proportionate amount of expenditure should be debited to prepaid expense accounts. Similarly, from verification of period, the auditor gets an idea about income received in advance, income due but not received for which correct adjusting entries should have been passed. (12) Entry in the books of accounts: While examining vouchers, the auditor should see that correct entry is passed in the books of accounts and he should see that there is no voucher which is left to be recorded in the books of accounts. Moreover, as per details of voucher, correct classification of revenue and capital is done. (13) List of Missing Vouchers: After vouching is over, the auditor should go through the relevant books or register and find out the un-ticked items. The items may not be ticked for want of vouchers. The auditor should prepare a list of missing vouchers and ask the person concerned to obtain the same. If he does not get the vouchers within reasonable time or if he has not offered satisfactory explanation about missing vouchers, he should mention the facts in his report. In several types of expenses vouchers are not received e.g. Tea and breakfast, cartage, etc. In such cases, he should verify the signature of employees through whom the payment is made and should also see that the payments are approved by responsible person. VERIFICATION & VALUATION The auditor has to give a certificate on the accounts examined by him that the Profit and Loss Accountant shows as a true and fair view of the profit or loss of business and the Balance Sheet shows a true and fair view of the state of affairs of the business. Hence it becomes the duty of the auditor not only to vouch the expenses and incomes, but also to verify and check the valuation of the assets and liabilities of business. He has to satisfy himself that the assets and liabilities do in fact exist, and they are properly valued. - 35 - MEANING OF VERIFICATION Verification means verifying the truth of the existence, values and ownership of the assets. Before signing his report, auditor has to satisfy himself that the assets shown in the balance sheet really exist, they are in the name of his clients and the values shown are proper. The process of satisfying himself regarding all these points is ‘verification’. According to Spicer and Pegler “The verification of assets implies an inquiry into the value, ownership and title, existence and possession, the presence of any charge on the assets.” According to Joseph Lancaster “Verification of assets is a process by which the auditor substantiates the accuracy of the right-hand side of the Balance Sheet, and must be considered as having three distinct objects: (a) the verification of the existence of assets (b) the valuation of assets and (c) the authority of their acquisition”. From the definitions, it can be inferred that verification involves the following: 1) That assets actually exist. 2) That the assets are acquired for the business. 3) That the assets are properly valued. 4) Whether the assets are clean or there is a charge on the assets. 5) That its balance tallies with that shown in the balance sheet and is clearly and correctly shown in the balance sheet. DIFFERENCE BETWEEN VOUCHING AND VERIFICATION It has been stated earlier that both vouching and verification are very important aspects to auditing. However, verification is a much wider term than vouching. Verification means examining with regard to the assets shown in the balance sheet that they exist, are in the name of the company, are properly valued and are free from any charge. - 36 - The points of difference between the two may be stated as follows: 1) The object of vouching is to check that the entries made in the books of accounts are correct. Whereas the object of verification is to check the existence, valuation, ownership and possession of the assets. 2) Vouching is carried out with the help of vouchers. Verification includes in addition to vouching, the checking of physical existence, valuation and ownership of the assets. 3) Vouching is done at any time during the year. Verification is done only after accounts are completed and balances are drawn. 4) Vouching of assets is undertaken once during the life time of the asset. Verification of assets shown in the balance sheet is done every year. 5) Vouching means substantiating an entry in the books of account with the supporting vouchers like receipts, invoices, correspondence, contracts etc. 6) Vouching does not include valuation of assets and liabilities. Verification includes valuation of assets and liabilities. 7) Vouching is the first step taken before verification. It involves examining the transactions when they take place. Verification is the next step after vouching is completed. It includes checking many aspects of assets and liabilities. MEANING OF VALUATION As we have seen earlier, an auditor is required to certify that the balance sheet shows, true and fair view of company’s affairs. Naturally, if the assets and liabilities are shown at their proper values, the balance sheet would be true and fair. Hence the auditor has to satisfy himself that the assets are shown in the balance sheet at their true and fair values. Now the problem is what the correct value of an asset is. The assets would be deemed to be properly valued, if valuation is made according to the generally accepted principles of accounting. For example, the fixed assets are to be shown at cost less depreciation to date. If this practice is not followed and if depreciation is more or less than the fair amount, the profit will be understated or overstated. A number of complications will then arise and the balance sheet will not show true and fair financial position of business. - 37 - Now what are the duties of the auditor with regard to valuation of assets? As stated above, he has to ensure that generally accepted principles of accounting have been followed. He is not a technical man and cannot ascertain correct values of all types of assets. Hence, he has many times to rely on the certificates of the trusted officials of the company. But he should exercise reasonable care and skill in satisfying himself that the values of assets are correct. DIFFERENCE BETWEEN VALUATION AND VERIFICATION 1.Meaning Verification means checking whether the assets shown in the balance sheet are in the name of business, whether they exist or not, whether there is any charge on it etc. Valuation means determining the proper values of assets and liabilities shown in the balance sheet 2.Purpose The purpose of verification is to check existence, ownership and possession of assets. The purpose of valuation is to determine the proper values of assets as per generally accepted principles. 3.Basis The basis of verification is the type of assets, and liabilities. There is not fixed method of verification. The basis of valuation of assets is the types of assets are valued on different basis. 4.Certificate The auditor is not able to get certificate of verification of assets and liabilities. The auditor is entitled to get certificate of valuation of assets from responsible officer of the business unit. 5.Vouching Verification includes vouching. Valuation does not include vouching. 6.Scope The scope of verification is wide. It includes checking of many things like existence, ownership, possession etc. The scope of valuation is limited. Here only values of assets and liabilities are determined and checked. - 38 - CLASSIFICATION OF VOUCHER A voucher is a written paper or document in support of an entry in the books of account. They may be of two types : 1. Primary:- A written evidence in original is said to be the primary voucher, for example, invoice for a purchase. 2. Collateral:— When the original voucher is not available, copies thereof are produced in support or subsidiary evidence in order to remove doubt from the mind of auditor. Such a voucher is usually known as a collateral voucher. A voucher may be a receipt, invoice wage-sheet, an agreement, correspondence, bank paying-in-slip, minute books recording resolutions of directors or shareholders, and so on. While examining vouchers the following points should be noted by the auditor: 1. All vouchers have been properly filed, serially numbered and arranged in order as it saves time in finding out a particular voucher in checking. 2. The voucher is properly stamped as normally every receipt for more than five hundred rupees requires a revenue stamp unless legally exempted. 3. The date and the year of the receipt or the voucher corresponding with the cash book. The name of the party to whom the voucher is issued, the name of the party issuing voucher and the amount etc. are correct. 4. Those vouchers which have been inspected by him are stamped so as to avoid the possibility of their being produced again. 5. Every voucher is passed "as in order" by some responsible person whose signature should be noted. 6. Amount paid appears both in words and figures. If they differ, the matter should be investigated. 7. For missing vouchers, the auditor should satisfy himself with regard to the reasons of their being lost. If he is not satisfied with the explanations, he should state this fact in his report. 8. No help from any member of the staff of the client has been taken while vouching the entries and checking the vouchers. - 39 - 9. Any alteration in the voucher is duly signed by the invoice clerk. 10. In case of vouchers for insurance, rent, rates and taxes etc., the period for which the payment has been made should be noted. 11. Special attention should be paid to those vouchers which are in the personal name of one of the partners, Directors, manager, Secretary or any other official of a business and which may or may not relate to the business itself. In case of purchase, original invoice, inward book and order book etc. should be examined to ensure that the goods were purchased for the business only. Vouching of Cash transactions Vouching of cash transactions is by far the most important job in every business irrespective of its size and type of business etc. Before setting the program for vouching the cash book, an auditor should examine carefully the whole system of internal check in operation in respect of cash transactions. (Internal check has already been explained in detail previously). Vouching of Cash Payments The object of vouching the credit side of cash or bank of cash payments is not merely to ascertain that money has been paid away but to ensure that the payments have been made: (a) to the proper and right party, (b) on behalf of the business for a proper purpose, (c) for the accounting period under audit, (d) after proper authorization, (e) against a proper voucher, and (f) correctly recorded in the books of account. - 40 - FILING AND INDEXING As we know, office work involves preparation and maintenance of records and making them available as and when necessary. Records include letters, vouchers, statements, reports, invoices, telegrams etc. All these are to be preserved for future reference. The two aspects of management of records are ‘filing’ and ‘indexing’. Filing is the process of organising the documents and records in a proper sequence. Indexing is the device for locating documents which have been filed. Objectives After studying this lesson, you will be able to: • explain the meaning, objectives and functions of filing systems; • compare the relative advantages and disadvantages of centralized and departmental filing systems; • describe the basis of classification of files and different methods of filing; and • explain the meaning, purpose and types of indexing systems. Filing systems As a primary source of information, all office records need to be preserved for future reference. Filing serves the purpose of preserving records in all offices. Documents and papers are filed and made available on requirement. Filing is the process of organising the correspondence and records in a proper sequence so that they can be easily located. The term filing may this be defined as the process of so arranging and storing original records or copies of them, that they can be readily located when required. In other words, filing is the process of arranging and storing records so that they can be easily located. It involves placing of documents and papers in acceptable containers according to some predetermined arrangement so that any of them when required may be located quickly and conveniently. - 41 - Objectives The major objectives of filing process are to ensure proper arrangement, careful storing and easy availability of records. An efficient filing system is expected to have the following objectives: 1. To classify and arrange records properly. 2. To protect documents against possible loss or damage. 3. To provide a method of obtaining information without loss of time. 4. To enable past records to be made easily available to management for framing business policies and future plans. Functions The functions of a filing system are as follows: 1. Classification of documents on a pre-determined basis. 2. filing of letters and other documents after action taken in cardboard file covers or folders. 3. Preservation of file covers or folders in cabinets fitted with drawers. 4. Issue of files on requisition by any department. 5. Transfer of papers no longer in current use from the existing files to separate folders or box files at regular intervals for possible future use. 6. Disposal of old papers and records when these are no longer useful. Essentials of a good filing system The system of filing must achieve its objectives. The following are the chief characteristics of a good filing system. 1. Simplicity The system should be simple so that the employees concerned may operate it without any difficulty. - 42 - 2. Accessibility The system should enable files to be easily located and papers to be inserted in files without disturbing the arrangement. 3. Compactness The filing section should occupy reasonable space in view of the cost implication of large space. 4. Economy The cost of installation and operation of the system should be proportionate to the benefits derived from it. 5. Flexibility The system should be capable of expansion as the activities of the organisation expand. 6. Safety The records should be safe and available whenever they are needed. There should not be any danger regarding insects, rain and mishandling. 7. Retention There should be a well-defined policy of retaining or discarding the papers and records. Dead material must be discarded periodically. 8. Classification Most suitable method of classification should be adopted. Too many miscellaneous files and bulky files must be avoided. - 43 - Classification and methods of Filing Classification of documents is necessary to ensure prompt availability of records. Classification is the process of selecting headings under which records and documents are grouped on the basis of common characteristics before filing. For example, letters may be classified on the subject of correspondence. The main systems of classification of files in an office are: 1. Alphabetical 2. Numerical 3. Geographical 4. Subject wise INDEXING Indexing is an important aid to filing. Filing and indexing are so inter- related that filing without indexing is incomplete and indexing without filing does not exist. Indexing is the process of determining the name, subject or other captions under which the documents are filed. Index is a guide to records. Purpose The main purpose of an index is to facilitate the location of required files and papers. Index helps the staff to find out whether a particular file exists for a party or subject, and its place in the container. It also facilitates cross referencing. Where records are classified in numerical order, or subject wise an index is necessary. The purposes served by indexing are as follows: 1. easy location of files and documents 2. speedy cross-referencing 3. saving of time and effort in locating records 4. efficiency of record keeping 5. reducing the operating cost of records management - 44 - A good indexing system should be simple, economical, safe, elastic and efficient. It should provide for cross referencing of files. Tabs, guides or slips should be used for indications for quick referencing. Types of Index Various types of indexes are used in different offices according to their requirements. The main types of indexes are: 1) Ordinary Page Index a) Bound book index b) Loose leaf index c) Vowel index 2) Vertical Card Index 3) Visible Card Index 4) Strip Index 5) Wheel or Rotary Index ANALYSIS OF FINANCIAL STATEMENT Meaning The process of critical evaluation of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm is called ‘Financial Statement Analysis’. It is basically a study of relationship among various financial facts and figures as given in a set of financial statements, and the interpretation thereof to gain an insight into the profitability and operational efficiency of the firm to assess its financial health and future prospects. The term ‘financial analysis’ includes both ‘analysis and interpretation’. The term analysis means simplification of financial data by methodical classification given in the financial statements. Interpretation means explaining the meaning and significance of the data. These two are complimentary to each other. Analysis is useless without interpretation, and interpretation without analysis is difficult or even impossible. - 45 - Financial statement analysis is a judgemental process which aims to estimate current and past financial positions and the results of the operation of an enterprise, with primary objective of determining the best possible estimates and predictions about the future conditions. It essentially involves regrouping and analysis of information provided by financial statements to establish relationships and throw light on the points of strengths and weaknesses of a business enterprise, which can be useful in decision-making involving comparison with other firms (cross sectional analysis) and with firms’ own performance, over a time period (time series analysis). Significance Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the various items of the balance sheet and the statement of profit and loss. Financial analysis can be undertaken by management of the firm, or by parties outside the firm, viz., owners, trade creditors, lenders, investors, labour unions, analysts and others. The nature of analysis will differ depending on the purpose of the analyst. A technique frequently used by an analyst need not necessarily serve the purpose of other analysts because of the difference in the interests of the analysts. Financial analysis is useful and significant to different users in the following ways: (a) Finance manager: Financial analysis focusses on the facts and relationships related to managerial performance, corporate efficiency, financial strengths and weaknesses and creditworthiness of the company. A finance manager must be well-equipped with the different tools of analysis to make rational decisions for the firm. The tools for analysis help in studying accounting data so as to determine the continuity of the operating policies, investment value of the business, credit ratings and testing the efficiency of operations. The techniques are equally important in the area of financial control, enabling the finance manager to make constant reviews of the actual financial operations of the firm to analyse the causes of major deviations, which may help in corrective action wherever indicated. (b) Top management: The importance of financial analysis is not limited to the finance manager alone. It has a broad scope which includes top management in general and other functional managers. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most efficiently and that the firm’s financial condition is sound. - 46 - Financial analysis helps the management in measuring the success of the company’s operations, appraising the individual’s performance and evaluating the system of internal control. (c) Trade payables: Trade payables, through an analysis of financial statements, appraises not only the ability of the company to meet its short-term obligations, but also judges the probability of its continued ability to meet all its financial obligations in future. Trade payables are particularly interested in the firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore, evaluate the firm’s liquidity position. (d) Lenders: Suppliers of long-term debt are concerned with the firm’s long- term solvency and survival. They analyse the firm’s profitability over a period of time, its ability to generate cash, to be able to pay interest and repay the principal and the relationship between various sources of funds (capital structure relationships). Long-term lenders analyse the historical financial statements to assess its future solvency and profitability. (e) Investors: Investors, who have invested their money in the firm’s shares, are interested about the firm’s earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s capital structure to ascertain its influences on firm’s earning and risk. They also evaluate the efficiency of the management and determine whether a change is needed or not. However, in some large companies, the shareholders’ interest is limited to decide whether to buy, sell or hold the shares. (f) Labour unions: Labour unions analyse the financial statements to assess whether it can presently afford a wage increase and whether it can absorb a wage increase through increased productivity or by raising the prices. (g) Others: The economists, researchers, etc., analyse the financial statements to study the present business and economic conditions. The government agencies need it for price regulations, taxation and other similar purposes. - 47 - Purpose Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units. Financial analysis serves the following purposes: v Measuring the profitability The main objective of a business is to earn a satisfactory return on the funds invested in it. Financial analysis helps in ascertaining whether adequate profits are being earned on the capital invested in the business or not. It also helps in knowing the capacity to pay the interest and dividend. v Indicating the trend of Achievements Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profits and net profit etc. can be ascertained. Value of assets and liabilities can be compared and the future prospects of the business can be envisaged. v Assessing the growth potential of the business The trend and other analysis of the business provides sufficient information indicating the growth potential of the business. v Comparative position in relation to other firms The purpose of financial statements analysis is to help the management to make a comparative study of the profitability of various firms engaged in similar businesses. Such comparison also helps the management to study the position of their firm in respect of sales, expenses, profitability and utilising capital, etc. - 48 - v Assess overall financial strength The purpose of financial analysis is to assess the financial strength of the business. Analysis also helps in taking decisions, whether funds required for the purchase of new machines and equipment are provided from internal sources of the business or not if yes, how much? And also, to assess how much funds have been received from external sources. v Assess solvency of the firm The different tools of an analysis tell us whether the firm has sufficient funds to meet its short term and long term liabilities or not. Objectives Analysis of financial statements reveals important facts concerning managerial performance and the efficiency of the firm. Broadly speaking, the objectives of the analysis are to apprehend the information contained in financial statements with a view to know the weaknesses and strengths of the firm and to make a forecast about the future prospects of the firm thereby, enabling the analysts to take decisions regarding the operation of, and further investment in the firm. It serves the following purpose to be certain: v To assess the current profitability and operational efficiency of the firm as a whole as well as its different departments so as to judge the financial health of the firm. v To ascertain the relative importance of different components of the financial position of the firm. v To identify the reasons for change in the profitability/financial position of the firm. v To judge the ability of the firm to repay its debt and assessing the short-term as well as the long-term liquidity position of the firm. Through the analysis of financial statements of various firms, an economist can judge the extent of concentration of economic power and pitfalls in the financial policies pursued. The analysis also provides the basis for many governmental actions relating to licensing, controls, fixing of prices, ceiling on profits, dividend freeze, tax subsidy and other concessions to the corporate sector. - 49 - Tools of Analysis 1. Comparative Statements: These are the statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods. It usually applies to the two important financial statements, namely, balance sheet and statement of profit and loss prepared in a comparative form. The financial data will be comparative only when same accounting principles are used in preparing these statements. If this is not the case, the deviation in the use of accounting principles should be mentioned as a footnote. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’. 2. Common Size Statements: These are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making inter- firm comparisons for the same year or for several years. This analysis is also known as ‘Vertical analysis’. 3. Trend Analysis: It is a technique of studying the operational results and financial position over a series of years. Using the previous years’ data of a business enterprise, trend analysis can be done to observe the percentage changes over time in the selected data. The trend percentage is the percentage relationship, in which each item of different years bear to the same item in the base year. Trend analysis is important because, with its long run view, it may point to basic changes in the nature of the business. By looking at a trend in a particular ratio, one may find whether the ratio is falling, rising or remaining relatively constant. From this observation, a problem is detected or the sign of good or poor management is detected. - 50 - 4. Ratio Analysis: It describes the significant relationship which exists between various items of a balance sheet and a statement of profit and loss of a firm. As a technique of financial analysis, accounting ratios measure the comparative significance of the individual items of the income and position statements. It is possible to assess the profitability, solvency and efficiency of an enterprise through the technique of ratio analysis. 5. Cash Flow Analysis: It refers to the analysis of actual movement of cash into and out of an organisation. The flow of cash into the business is called as cash inflow or positive cash flow and the flow of cash out of the firm is called as cash outflow or a negative cash flow. The difference between the inflow and outflow of cash is the net cash flow. Cash flow statement is prepared to project the manner in which the cash has been received and has been utilised during an accounting year as it shows the sources of cash receipts and also the purposes for which payments are made. Thus, it summarises the causes for the changes in cash position of a business enterprise between dates of two balance sheets. Parties interested Analysis of financial statements has become very significant due to widespread interest of various parties in the financial results of a business unit. The various parties interested in the analysis of financial statements are: v Investors: Shareholders or proprietors of the business are interested in the well-being of the business. They like to know the earning capacity of the business and its prospects of future growth. v Management: The management is interested in the financial position and performance of the enterprise as a whole and of its various divisions. It helps them in preparing budgets and assessing the performance of various departmental heads. v Trade unions: They are interested in financial statements for negotiating the wages or salaries or bonus agreement with the management. v Lenders: Lenders to the business-like debenture holders, suppliers of loans and lease are interested to know short term as well as long term solvency position of the entity. - 51 - v Suppliers and trade creditors: The suppliers and other creditors are interested to know about the solvency of the business i.e. the ability of the company to meet the debts as and when they fall due. v Tax authorities: Tax authorities are interested in financial statements for determining the tax liability. v Researchers: They are interested in financial statements in undertaking research work in business affairs and practices. v Employees: They are interested to know the growth of profit. As a result of which they can demand better remuneration and congenial working environment. v Government and their agencies: Government and their agencies need financial information to regulate the activities of the enterprises/ industries and determine taxation policy. They suggest measures to formulate policies and regulations. v Stock exchange: The stock exchange members take interest in financial statements for the purpose of analysis because they provide useful financial information about companies. - 52 - WORK EXPERIENCE CHAPTER -III - 53 - During my internship, I have done most of the office related clerical job that gained me more knowledge about the financial department in a company. On my first day, I was asked to meet Mr. Prem, and coordinate with him. He insisted me to meet my internship guide Mr. Senthilavelan, CA. He gave me an overview on the company’s profile and also said that there will be a viva session in a week of time before going to the delegation of work and for the reference I was recommended to go through the last year’s (2016-17) Annual report of the company. For the first seven days, I wasn’t given any much work. I was just made to prepare for the viva session from the annual report. I took notes from the annual report as a part of preparation. On the second day, we had more co-interns incoming. They too were made to do the same as me. Later, on the day, we had an orientation in the Finance manager’s room. He gave us a brief speech about the work done in the financial department and main personals in the department. From the second week, I started to work inside the office with all other workers and all my co-interns also accompanied me. We framed a team and my team is of me and three co-interns (Swathi, Pavithra and Rajarajeshwari). We worked on the last year’s financial statements and were comparing it with previous years’ reports. On the following days, we started to work individually and I was working and helping for a senior officer in the billing and vouching process. I was working with him on cross checking and filing. Middle of the second week, I started to work on filing particularly as it was the calendar year ending time the Managing Director was also asking for some financial details of the company. It was busy week for all the senior staffs and I wasn’t given much work since the works done needed experience and intense care. But I was made sure that I have been delegated with a work since I was curious in learning something. So, they made me to do all the filing and indexing works. At the end of the second week and also the end of the year, we had a meeting for all the interns with the work guide. We had to take up the viva test. Me and all my co-interns took the viva test and we first stumbled to answer all the questions since it wasn’t from the references we had. We were again insisted to take a recourse. - 54 - Since it’s the last week of internship for the other co-interns, we were made to socialise with each other and they completed their viva on the same weekend, the next day itself. We had a socialising session and exchanged all our co-ordinates (i.e., college name, phone number, etc.). They ended up getting their completion certificate and I learned the way to get it by them. On the other side, it’s the year ending and the office works were bundled. Last day of the week and the year, I was asked to gather up all the files that I filed and indexed for cross checking by the senior officer and a double check was made by my work guide. End of the day, all my works in the filing and indexing was also a part of the Managing Directors meeting with all the department heads and the Company secretary. After new year holidays, on the first day of the year, I was assigned to billing and vouching the vouchers, bills and invoices again. I was made to sit with the same senior I was working with before. He assigned me a bit more work than usual and he was checking my competency to complete it in a stipulated time. Actually, it was an easy task requiring a lot more care and intense concentration. I somehow managed to complete the work with some help and guidance from his side. Later, on the same week, I was called by the work guide and he asked me to finish my viva test as soon as possible as I have already discussed with him about the evaluation of my work during the internship. So, I took the next two days, that is, the whole week to prepare for the viva. Rather digging the same annual report, I also consulted with the office staffs and other department employees to know more about the company and other details like exports and the like, as it wasn’t so clear in the annual report of the company. End of the third week, I took the viva and I was able to answer all the question he asked me. I was also able to speak much more about the company. I gained a lot more information about the company from the analysis work I made. Last week of the internship, on the first day, I was insisted about the first internal audit of the company. The senior employee I assist with insisted me to be ready with the files and bills that I have been arranging so far. I was also explained about the internal audit and clear picture about the process was given to me. - 55 - Middle of the last week, held the internal audit and I helped the senior officer in exhibiting all the bills and files that I have been assigned to file and index. The auditors and the Chief Executive of the Auditing committee, was able to go through the files and documents without any hindrance. I just took one day for all the auditors for the internal check and all the expenses faced for the new year gifts and all the budget that are to be faced for the Pongal celebration are completely gone through. On the last day of my internship, I had a glance at the Article of Association and the Memorandum of Association of the company. I got my worksheet signed and sealed and my works being evaluated by the Work guide. My work guide consulted with the senior employee I assisted with and the assistant work guide to whom I was assigned to assist first. After all the consultation, my works were evaluated and it was a warm farewell I received from the work guide and other employees of the company. - 56 - SKILLS ACQUIRED CHAPTER - IV - 57 - During my internship at Tamil Nadu Newsprint and Papers Limited, I have learned many things. To be particular: 1) One of the most important skill I gained is to co-operate with the workers who work with us and it’s the easy way to complete a task. 2) Timely reporting to the official who assign our job is also very important to maintain a smooth flow of work and to avoid any mistakes. 3) Corporate culture is all new thing I learn and the culture they follow in the finance department was coherent. Some of the skills include the following: 1. Time Management Skills All the work assigned to are timely scheduled and it has to be completed before a stipulated period of time, not to miss the flow of work in the office. For instance, if a file has to forwarded to the next department within a time to complete a transaction, it has to be done within the given time or at the earliest possible, which maintains the flow of work. 2. Problem Solving Skills If there are any miscorrelations in billing amount or any figures in it, I have to find it and reframe it from the root document and it is a very deep process. And the problem arising from it should be handled by mw. Once this problem occurred during my internship and I managed to solve the problem. 3. Technical Skills New ideas and techniques in filing and indexing are taught to me and I also framed my own way of performing it. To Finish the cross-checking of bills and vouchers I need follow a new technique of referring it and arranging it. - 58 - 4. Team Work During the financial statement analysis, we worked in a group and the work was made more easier and we were able to do finish any analytical work easily. We were able to exchange ideas and our work results between us and it helped me to get off Xenophobia and Agoraphobia. 5. Positive Approach As an intern, I had to develop a positive approach towards the new working environment. I learned to look every matter with a positive approach. Also, my co-interns and senior staffs in the company were motivating. 6. Patience It is one of the main skills to acquire when working in a financial department of a company. All the bills and accounting figures must be handled carefully. 7. Adaptability Skills This the most vital skill to be acquired. We must always adapt to the current situation and environment, only then we will be able to work efficiently. The environment they provided in the company for interns were more free and adaptable. 8. Concentration Most important for the billing and vouching work since any small mistake would lead to a big problem. 9. Dedication Dedication to the work we do must be 100%. I also learnt to give my full effort on doing a job since it fetches you name and accolades. 10. Communication More we communicate with people, more we become familiar about a thing or a matter. Communicating with those experienced employees gained me more knowledge about the field. - 59 - SUGESSTIONS AND LIMITATIONS CHAPTER - V - 60 - LIMITATIONS 1. Having the Internship as part of the final semester is a main drawback as we cannot know more about the corporate world further as there will be no much time left after the internship. 2. Restriction on choosing internship companies in other cities. 3. Restrictions of choosing same company for internship by multiple students. At least two must be allowed in a company. Limitations during internship 1. Departmental company and all the gained knowledge is only about the finance department alone. 2. Less work time of internship. 3. Restrictions to meet the higher-level authorities. 4. Conducting viva for evaluation is a waste of time rather evaluating our works done will be challenging. Suggestions to improve Internship 1. More or at least two students to choose one company for internship. 2. Summer internship. And it must be in second year itself. 3. Extension of internship days to at least 30 days. 4. Students must be allowed to do their internship even outside the cities or in any part of the country to gain more exposure and it’s not certain that there are many top companies inside the limit given by the college. - 61 - CONCLUSION Through this internship project, students are vastly benefitted as most of the students may enter into a corporate life and have to do the same as they did during the internship. So, this is a wonderful opportunity given to the students by the college to know more about the corporate world and their nature. I was able to meet more people and communicate with more experienced personalities and gain more knowledge about various field. I gained more knowledge about the financial management, billing, vouching, filling and indexing process followed in a company. Simultaneously, new ideas were taught to me more than I study during the course period. I have learnt more and benefitted more by this internship program. - 62 - BIBLIOGRAPHY - 63 - Bibliography 1. J Srinivasan, Fundamentals of Financial Management, Vijay Nicole Imprints,2009. 2. Dr.L. Natarajan, Practical Auditing, Margham Publications,2016. Webliography 1. www.slideshare.net 2. www.wikipedia.com 3. www.quora.com 4. www.linkedin.com - 64 - ANNEXURES - 65 -