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INTEGRITY FIRST

In looking for people to hire, you look for

three qualities: integrity, intelligence, and

energy. And if you don’t have the first, the

other two will kill you. Warren Buffett

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S. No. Topic

1.

Government Securities

2.

Make in India

3.

Investment Risk Management

4.

TDS on Immovable Property other than Agricultural Land (Section 194 IA)

5.

Advance Tax

6.

Manufacturing Sector & its Audit

INDEX

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A Government Security is a tradable instrument issued by the Central Government or the State

Governments. It acknowledges the Government’s debt obligation. Such securities can be short term or long

term. Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged

instruments. A government security may be issued by the government itself or by one of the government

agencies.

Why Government Securities are issued

Government securities are usually issued for two different reasons. The primary reason that most

government securities are issued is to raise funds for government expenditures. The government issues these

securities to cover shortfalls (deficits) in its annual budget. Additionally, cities will often issue bonds for

construction of schools, libraries, stadiums, and other public infrastructure programs.

A central bank of a country, such as the U.S. Federal Reserve, will sell debt securities for another reason - to

control the supply of money in an economy. If the government wants to slow the growth rate of money in the

economy, it will sell government securities. This means that it is sucking up dollars from the economy and

replacing them with government securities, which results in a slowing the rate of growth in the money

supply.

Advantages of Government Securities

Can be held in dematerialized form/ scripless form

Can be sold easily in the secondary market to meet cash requirements

Provides return in the form of coupons (interest)

Provides maximum safety as they carry the Sovereign’s commitment for payment of interest and

repayment of principal

Can be used as collateral to borrow funds in the repo market

Procedure for issuing Government Securities

Prior to introduction of auctions as the method of issuance, the interest rates were fixed by the Government.

With the introduction of auctions, the rate of interest (coupon rate) gets fixed through a market based price

discovery process. An auction may either be yield based or price based:-

Yield Based

Auction

• Conducted when a new Government security is issued• Investors bid in yield terms up to two decimal places , like, 8.19 per cent, 8.20 per cent, etc.

Price Based

Auction

• Conducted when Government of India re-issues securities issued earlier• Bidders quote in terms of price per Rs.100 of face value of the security, like, Rs.102.00, Rs.101.00, Rs.100.00, Rs.99.00, etc., per Rs.100/-

Government Securities

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With effect from June 1, 1997, no TDS is payable upon interest from Government Security. However, as per

Finance Act, 2007 and Government of India Notification No. F.4(10)-W&M/2003 dated May 31, 2007, tax has

to be deducted at source on the interest exceeding Rupees Ten Thousand payable during a financial year on 8%

Savings Bonds, 2003 (Taxable) with effect from June 1, 2007.

Types of Government Securities

1. Treasury Bills (T-bills)

Short term money market instruments

Presently issued in three tenors ,i.e., 91 day, 182 days and 364 days

Are zero coupon securities and pay no interest

Issued at a discount and redeemed at the face value at maturity

2. Cash Management Bills (CMBs)

Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash

Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government

Issued for maturities less than 91 days

Are also issued at a discount and redeemed at face value at maturity

3. Dated Government Securities

Long term securities and carry a fixed or floating coupon (interest rate) paid on the face value

Tenor of dated securities can be up to 30 years

The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of

Government securities and deals with the issue, interest payment and repayment of principal at

maturity.

4. State Development Loans (SDLs)

State Government raise loans from market

Issued through an auction similar to the auctions conducted for dated securities issued by the

Central Government

Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date.

Holding of Government Securities

Government Securities may be held in the form of:-

1. Physical Form:-

May be held in the form of stock certificates

A stock certificate is registered in the books of PDO.

They are transferred by executing a transfer form as the ownership and transfer details are recorded

in the books of PDO

2. Demat Form:-

Securities in the dematerialized or scripless form

The safest and the most convenient alternative to hold securities

Transfers and servicing are electronic and hassle free

Holders can maintain securities in dematerialised form through Subsidiary General Ledger Account

(SGL) & Gilt Account.

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Trading Platform

Till 2002, the Government securities market was mainly a telephone market. Buyers and sellers traded over

telephone and submitted physical Subsidiary General Ledger (SGL) transfer forms for transfer of the

Government securities. These manual operations were inefficient. Thus, the Reserve Bank of India took steps

to automate the process of trading and settlement of Government securities transactions and the Negotiated

Dealing System (NDS) was introduced in February 2002.

The Negotiated Dealing System (NDS) has two modules – one for the primary market and the other for the

secondary market.

1. Primary Market Module

Platform (NDS Auction) for auction of both, dated securities & treasury bills.

Allows participants to electronically submit their bids in the primary auctions and receive allotment

reports

2. Secondary Market Module

Generally traded on Phone

Can happen over-the-counter (OTC)

Parties need to inform trades on NDS, then data automatically flows to the Clearing Corporation of

India Ltd. (CCIL)

avoids paper based settlement process

Buyback of Government Securities

It is a process whereby the Government of India and State Governments buy back their existing

securities from the holders. The objective is to:-

Reduction of cost (by buying back high coupon securities)

Reduction in the number of outstanding securities

Improving liquidity in the Government securities market (by buying back illiquid securities)

Buyback can be done through an auction process or through the secondary market route, i.e.,

NDS/NDS-OM.

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Introduction A major new national program designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure

India has long been identified with red tapism, inspector raj and cumbersome rules and regulations that hinder smooth transaction of business. 'Make in india' campaign is a "lion's step" towards making the country a destination for global manufacturing.

HIGHLIGHTS

The campaign, 'Make in India' is aimed at making India a manufacturing hub and economic transformation in India while eliminating the unnecessary laws and regulations, making bureaucratic processes easier and shorter, and make government more transparent, responsive and accountable.

The government emphasized upon the framework which include the time-bound project clearances through a single online portal which will be further aided by the eight-members team dedicated to answering investor queries within 48 hours and addressing key issues including labor laws, skill development and infrastructure.]

This campaign basically gives hope to the unemployed to find a decent job if not big jobs as manufacturing leads to creation of lot of service sector activity. But India will have to make sure to focus on quality education rather than just skill development.

The government emphasized upon delicensing, deregulation and radical changes.

Make In India (Developing India into a Manufacturing Hub of the World)

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TAXATAION

•India's most ambitious indirect tax reform -Goods and Service Tax (GST) would replace existing state and central levies with a uniform tax, boosting revenue collection while cutting business transaction costs.

•The government will not ordinarily impose any tax retrospectively that will impose a fresh liability

LAWS

•The New Land Acquisition Act, 2014•Labour law reforms. •Exemption for firms employing up to 40 workers from compliance of labor regulations

•allow more trades to be included under the Apprenticeship Act

•Increasing the limit of overtime for workers from 50 hours per quarter to 100 hours per quarter

INFRASTRUCTURE

•Developing of more SEZ's,NIMZ's.

•Meet India's increasing energy demand.

•construction of more ports,roads,etc.

25 key sectors in

MAKE IN INDIA CAMPAIGN

1. Automobiles

2. Aviation

3. Auto components

4. Bio-technology

5. Chemicals

6. Construction

7. Defence Manufacturing

8. Electrical Machinery

9. Electronic system

10. Mining

11. Oil & Gas

12. Pharmaceuticals

13. Ports

14. Railways

15. Renewable energy

16. Roads & Highways

17. Space

18. Textile & Garments

19. Thermal Power

20. Tourism & Hospitality

21. Wellness

22. Food Processing

23. IT

24. Leather

25. Media & Entertainment

REFORMS

New Initiative

FDI

Intellectual Property Facts

National Manufacturing

Make in India - Policies

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Public Private Partnership:

The policy and regulatory frameworks (concession agreements) are well established; substantial scale-up in the last 5 years; opportunities for companies to venture as “Project Developers”.

Contractors/Consultants:

Opportunities from implementing agencies who will sub contract construction.

O&M Operators:

Substantial requirements of equipment, systems and software

Equipment suppliers:

Consistent demand of equipment due to mega infrastructure development across sectors; huge business potential for overseas players to enter the market.

Financing:

Attractive opportunities exist for Financial Institutions, Private Equity firms and private investors.

Opportunities across the value chain

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Investment risk is defined as the

probability or likelihood of occurrence

of losses relative to the expected return

on any particular investment.

Stating simply, it is a measure of the

level of uncertainty of achieving the

returns as per the expectations of the

investor. It is the extent of unexpected

results to be realized.

Risk is an important component in

assessment of the prospects of an

investment. Most investors while

making an investment consider less

risk as favorable. The lesser the

investment risk, more lucrative is the

investment. However, the thumb rule

is the higher the risk, the better the

return.

Simply put, risk management is a two-

step process - determining what risks

exist in an investment and then

handling those risks in a way best-

suited to your investment objectives.

Risk management occurs everywhere

in the financial world. It occurs when

an investor buys low-risk government

bonds over more risky corporate debt,

when a fund manager hedges their

currency exposure with currency

derivatives and when a bank performs

a credit check on an individual before

issuing them a personal line of credit.

Interest Rate Risk

•Interest rate risk is the possibility that a fixed-rate debt instrument will decline in value as a result of a rise in interest rates.

Business Risk

•Business risk is the measure of risk associated with a particular security , business risk refers to the possibility that the issuer of a stock.

Credit Risk

•This refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment

Taxability Risk

•This applies to municipal bond offerings, and refers to the risk that a security that was issued with tax-exempt status could potentially lose that status prior to maturity.

Call Risk

•Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to maturity

Inflationary Risk

•inflationary risk is the chance that the value of an asset or income will be eroded as inflation shrinks the value of a country's currency

Liquidity Risk

•Liquidity risk refers to the possibility that an investor may not be able to buy or sell an investment as and when desired or in sufficient quantities because opportunities are limited

Market Risk

•Market risk is a risk that will affect all securities in the same manner. it is caused by some factor that cannot be controlled by diversification.

Reinvestment Risk

•In a declining interest rate environment, bondholders who have bonds coming due or being called face the difficult task of investing the proceeds in bond issues with equal or greater interest rates than the redeemed bonds

Social/ legislative

Risk

•Risk associated with the possibility of nationalization, unfavorable government action or social changes resulting in a loss of value is called social or political risk

Exchange Rate Risk

•Currency or exchange rate risk is a form of risk that arises from the change in price of one currency against another

Types of Investment Risks

Investment Risk Management

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Assessing Risk

It's one thing to know that there are risks in investing.

But how do you figure out ahead of time what those risks

might be, which ones you are willing to take, and which

ones may never be worth taking? There are three basic

steps to assessing risk:

Step 1: Determining the Risk of an Asset Class

The first step in assessing investment risk is to

understand the types of risk a particular category or

group of investments—called an asset class—might

expose you to. You can generally take steps to offset

those risks. You can generally take steps to offset those

risks.

Stock

Bonds

Cash

Step 2: Selecting Risk

The second step is to determine the kinds of risk you are

comfortable taking at a particular point in time. Since it's

rarely possible to avoid investment risk entirely, the goal

of this step is to determine the level of risk that is

appropriate for you and your situation.

Your decision will be driven in large part by:

Your goals and your timeline for meeting them

Your financial responsibilities

Your other financial resources

Step 3: Evaluating Specific Investments

The third step is evaluating specific investments that you

are considering within an asset class. There are tools you

can use to evaluate the risk of a particular investment—a

process that makes a lot of sense to follow both before

you make a new purchase and as part of a regular

reassessment of your portfolio.

Company Documents- Each public company

must register its securities with the Securities

and Exchange Commission (SEC) and provide

updated information on a periodic basis.

Rating Services- It's important to check what

one or more of the independent rating services

has to say about specific corporate and

municipal bonds that you may own or may be

considering. The higher the letter grade a rating

company assigns, the. The higher the letter

grade a rating company assigns, the lower the

risk you are taking.

Also remember that managing investment risk

doesn't mean avoiding risk altogether. There might

be times when you include a lower-rated bond or

bond fund in your portfolio to take advantage of

the higher yield it can provide.

Research companies also rate or rank stocks and

mutual funds based on specific sets of criteria.

Managing investment risk There are various ways to manage investment risk,

but the two most basic are: investing as far ahead

as possible and diversification.

By investing money you can afford to lock away

Money invested in shares, bonds and property will

rise and fall in value. However, the value of your

investment is more likely to rise over time if you

commit to investing for a period of years – though

this isn’t guaranteed. Long-term investors may be

able to ride out any market falls without their

ultimate investment goals being affected

By diversifying

Diversification is the key to successful investing. It

means spreading risk. It’s the equivalent of not

putting all your eggs in one basket. You can divide

risk into various types

Asset Allocation- The first step in

managing risk is to practice asset

allocation. This means having your money

in a variety of asset classes, which include

cash, stocks, and bonds. Doing so is a

protective measure – typically when stocks

are doing well, bonds aren’t, and vice

versa.

Diversification- After you spread risk by

investing in different asset classes, you can

manage it even further through

diversification. There are many different

types and classes of stocks and bonds –

some are much more risky (but with the

potential for greater reward) than others.

Dollar Cost Averaging- Dollar cost

averaging is another way of managing

investment risk, and nothing can be

simpler to do.

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The Indian Finance Minister P. Chidambaram while announcing the Budget 2013-14 introduced TDS on

Property @ 1% on all Immovable Property Transactions over Rs. 50 Lakhs under Section 194IA.

Overview of Section 194 IA (only applied in case of Resident seller**)

** In case on non-resident sellers Section 195 is applicable.

Buyer has the option to deposit the TDS deducted on property online or offline through banks. Under this

section tax should be deposited on challan-cum-statement in Form No.26QB. Form No 16B (TDS

Certificate) is issued by the deductor within 15 days from the due date of depositing tax.

Buyer should issue Form 16B to the seller of the property in respect of TDS deducted & deposited.

Payment must be deposited with the Government, by the buyer within a period of 7 days from the end of the month in which TDS was deducted.

Buyer shall furnish all Details regarding transaction and TDS on such immovable property in Form 26QB and submit it at the time of payment

Buyer shall deduct TDS at the time of making payment

@ 1 % if seller provides PAN @ 20% if the seller does not provide PAN

If Sells an Immovable Property (Other than Agricultural land) for a value of more than or equal to 50 lakhs

Seller

Section 194 is

applicable if

IF sale agreement is entered on or after

01/06/2013

Consideration is equal to or more than Rs 5,00,000

If sale agreement is entered after 01/06/2013

Advance of 50,00,0000 or more is received before

01/06/2013

TDS on Immovable Property other than

Agricultural Land (Section 194 IA)

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TDS ON AMOUNT PAID IN INSTALLMENTS

As per Section 194IA, TDS is to be deducted at the time of payment.

The date of transfer is not relevant as TDS is not required to be

deducted at the time of transfer but is required to be deducted at the

time of payment. Therefore, irrespective of the date of transfer, the

TDS is required to be deducted at the time of payment. So even if

advance payment is being made, DS would be required to be

deducted. Moreover, in case the payment is being made in

Instalments to the Seller, the TDS would be deducted at the time of

paying each instalment.

MORE THAN 1 BUYER OR 1 SELLER

In case there is more than 1 buyer and the individual purchase price

of each buyer is less than Rs. 50 Lakhs, but the aggregate value of the

transaction exceeds Rs. 50 Lakhs, Section 194IA would be applicable

and the TDS on Property would be required to be deducted and

deposited with the govt before the due date.

Similarly, if there is more than 1 seller and the individual sale price

of each seller is less than Rs. 50 Lakhs, but the aggregate value of the

transaction exceeds Rs. 50 Lakhs, Section 194-IA would be

applicable and TDS would be required to be deducted by the buyer at

the time of making the payment to the seller.

EFFECTS OF SECTION 194IA ON REGISTRATION

OF IMMOVABLE PROPERTY

The Revenue Authorities and the registration authorities taking

cognizance of provision of Section 194IA shall refuse to register the

document for transfer of the immovable property unless the challan

for depositing the tax at source u/s 194IA is produced before it.Hence

it is better if one deducts tax if the total consideration value is in

excess of Rs. 50 lakh.

Non- Compliance

TDS not deducted/Shortly deducted

•Interest will be charged@1.5% pm•From the date of deduction till the date when it is actually deduched

TDS deducted but not paid to government

•Interest will be charged@1.5% pm •From the date of deduction till the date when it is actually deducted

RETURN FILING UNDER

SECTION 194IA

Form 26QB is equivalent to return

filing as it constitutes all necessary

details of TDS deducted by the

buyer.It is a challan-cum-statement of

deduction of Tax under section 194-

IA.

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Newsletter Title Page 1

Introduction In India one has to estimate his income during the financial year. If your projected tax liability of the current financial year is more than Rs. 10000 you are supposed to pay advance tax as per section 209 of the Act. This has to be paid in three installments. 30 % by 15th September, 60% minus first

installment by 15th December and 100% minus 2nd installment by 15th march. If

one forget to pay he is liable to pay interest @ 1% p.m. On computation of

income and taxes to be filled in the Return if advance Tax or by way of TDS fall

short of the Actual Tax Payable, the shortfall so determined is payable before filing

the Return of Income.

Who should file it?

If you are salaried, you need not pay advance tax as your employer deducts tax at source (TDS). However, you still need to file it if you have other sources of income, increasing your liability to more than Rs. 10,000. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporates.

When to file advance tax?

Advance tax or self-assessment taxes have to be paid on the 15th of September, December and March, in installments of 30 per cent, 30 per cent and 40 per cent, respectively, for non-corporates. Corporates need to pay it on the 15th of June, September, December and March. While employers deduct TDS on salaries, advance tax is paid on income that has not been subjected to TDS.

Advance tax is payable by the taxpayer during the tax year if the estimated taxes (net of taxes withheld) exceeds INR 10,000. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source.

Payment of Advance Taxes of Income Tax - Individual/Firms:

1st Payment of 30% - 15th September 2nd Payment of 60% - 15th December 3rd Payment of 100% - 15th March

Payment of Advance Taxes of Income Tax - Companies:

1st Payment of 25% - 15th June 2nd Payment of 50% - 15th September 3rd Payment of 75% - 15th December 4th Payment of 100% - 15th March

In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of

Advance Tax

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Newsletter Title Page 2

advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return.

Further, a resident senior citizen, not having any income from a business or profession, shall not be liable to pay advance tax (applicable from tax year 2012-13).

Consequences of Non-Payment:

The Income Tax Act provides for charging of interest for non- payment/short payment/deferment in payment of advance tax which is calculated as below: (i) INTEREST U/S 234A: For late or non-furnishing of return, simple interest @ 1% for every month or part thereof from the due date of filing of return to the date of furnishing of return, on the tax as determined u/s 143(1) or on regular assessment as reduced by TDS/advance tax paid or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries. (ii) INTEREST U/S 234B: For short fall in payment of advance tax by more than 10%, simple interest @ 1% per month or part thereof is chargeable from 1st April of the assessment year to the date of processing u/s 143(1) or to the date of completion of regular assessment, on the tax as determined u/s 143(1) or on regular assessment less advance tax paid/ TDS or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries. (iii) INTEREST U/S 234C: For deferment of advance tax. If advance tax paid by 15th September is less than 30% of advance tax payable, simple interest @ 1% is payable for three months on tax determined on returned income as reduced by TDS/TCS/Amount of advance tax already paid or tax relief, if any, under Double Tax Avoidance Agreement with forgiving contribution. Similarly, if amount of tax paid on or before 15th December is less than 60% of tax due on returned income, interest @ 1% per month is to be charged for 3 months on the amount stated as above. Again, if the advance tax paid by 15th March is less than tax due on returned income, interest @ 1% per month on the shortfall is to be charged for one month.

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Introduction

The manufacturing sector is back in fashion and is seen by Government as playing a vital role in rebalancing the

economy in the wake of the financial crisis. The sector is a broad church covering a wide range of industries with

companies of all sizes from large multinational groups to owner- managed businesses. It is also very important

to the Indian economy both nationally and at regional level, not least because it plays a significant role in

generating employment.

Four Flags for the Manufacturing Sectors Flag 1: Manufacturing: A roller-coaster sector

Successful manufacturing businesses need to take risks and hold their nerve in good and bad times. For many manufacturing businesses it can often seem like riding a perpetual roller coaster as they face the following challenges:

• competition and keeping pace with the changing demands of international markets through innovation and research to maintain the business’s competitive edge;

• managing their supply chains for production materials and energy by continually testing their understanding of the complexities of the supply chain and whether their contingency plans are adequate and up to date to deal with problems that can suddenly arise;

• having the right people with the right business and manufacturing skills to produce up-to-date products; and

• Developing good, reliable management information and IT systems that are it for purpose and match the requirements of the company.

Flag 2: Funding for growth

The difference between manufacturing and other sectors is that the amounts of money involved are often much greater. It needs a great deal of faith, commitment and good communication. From management and providers of finance to ride out the less good times in the economic cycle by constantly thinking ahead on liquidity, solvency and financial control. For smaller companies issues around finance are very often their top priority especially as finance has become more difficult to obtain. When it is available it is often at higher margins and with tighter covenants. To reduce dependence on financing options such as leasing, awareness of the range of funds and grants that are available from the Indian Government.

Flag 3: Attracting, retaining and rewarding people

Manufacturing businesses must to be driven by people

who, collectively, have business as well as

manufacturing skills. In some smaller companies

finding the right combination of these skills can be a

challenge; as is succession planning to ensure that

knowledge and skills are passed on as experienced

people retire. Countries such as Germany often place

great importance on skills so the India really needs

more training and apprenticeships to attract younger

people into high-value manufacturing.

Flag 4: Management information And IT

systems

New IT systems that have not been properly designed

or implemented cause potentially costly problems and

disruption for production as well as for the accounting,

billing and costing systems. Costing of discrete

products and long-term contracts is Key to success in

the manufacturing sector and clarity on actual and

projected costs is needed to avoid incorrect pricing. On

larger and long-term contracts, where there can be

huge uncertainty and risks, companies really do need to

ensure they know what the extras are, split between

those that the company can, and cannot, subsequently

Invoice. In some small to medium-sized enterprises

(SMEs), the tracking or recording of costs is often not

particularly sophisticated possibly caused by old IT

systems which have been expanded by bolting on sub-

systems.

Manufacturing Sector & its Audit

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Definition of manufacturing process as per Law

It includes those process of:-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking

up, demolishing, or otherwise treating or adapting any article or substance with a view to its use

sale, transport, delivery or disposal, or

(ii) pumping oil, water, sewage or any 3 , other substance; or]

(iii) generating, transforming or transmitting power; or

(iv) composing types for printing, printing by letter press, lithography, photogravure or other similar

process or book binding

(v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;

(Source: Factory Act, 1948)

General Procedure for Audit of a Company 1. Opening balances verification: First collect the

opening balances report from the management and verify whether the opening balances have been carried forward correctly from the previous year audited financial statements.

2. Vouching For Purchases: Ask about the purchase procedure and draw a flowchart which is very relevant for your understanding while carrying audit. Compare the Purchase Voucher with the Taxable Invoice received from the seller and Material Received Note (MRN) to confirm that whether quantity; amount is tallied or not. Also check whether the rate of material on Invoice tallies with Purchase Order (P.O) raised by the company and check whether the date on MRN is relating to the current period.

3. Vouching of Journal Vouchers (JV), Tour Bills & Cash and Bank: Verify whether the supporting bills tallied with the JV’s and that expenditure relating to the current period. While verifying the JV’s ensure whether the TDS was deducted wherever applicable. For Vouching of Tour Bills the company should maintain their tour policy, ask the management for tour policy. Verify whether bills are as per the limits set for the designation in policy. For Vouching of cash verify whether any cash payments are exceeded Rs.20, 000/- (Sec. 40A (3)) and also check for credit balances in cash. Also go to surprise verification of cash. Verify whether the Bank Reconciliation Statement (BRS) is tallied.

4. Reconciliation: During the course of audit reconcile the following:

VAT returns with purchase and sales

Provident fund (PF)

Professional Tax (PT)

Employee State Insurance (ESI) The above said statutory payments are majorly applicable to all the companies, and all other like TDS, Excise etc., also have to be reconcile.

5. Miscellaneous:

Rental Agreements: Verify whether Rent paid is as per the Rental Agreement. Also check whether Rental Agreements are updated.

PAN No.s of Contractors: Checked whether the company is maintaining Photocopy PAN cards for contractors because from the AY 11-12 onwards every company has to maintain PAN No. persons who comes under TDS applicability for that company. Otherwise Straight away deduct the TDS @ 20%.

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Audit of Manufacturing Companies

1. Understand the entity operation :- First step for conduct audit of manufacturing companies is to take a

knowledge of client operation from Beginning ( Raw Material ) to End ( Finished goods).Take a Brief

knowledge about what the entity is producing, How is produced. For conducting the audit of

manufacturing companies understanding of its Production chain, Supply chain is necessary.

2. Make a Checklist of the Section Applicable to the particular Industry: - There are many statues which

are applicable to the manufacturing entity an auditor should make a checklist for the same and check

the compliance of individual law. Some of the statues are :-

(a) Factories Act 1948

(b) Provident Funds and Miscellaneous Act,1952

(c) Employees’ Pension Scheme

(d) Employees' State Insurance Act, 1948 (e) Minimum Wages Act

(f) Payment of Bonus Act

(g) Payment of Gratuity Act,1972

(h) Workmen’s’ Compensation Act

3. Check payment of Various Statutory Dues: - Check Whether the payment of statutory dues has been

paid by Company in timely and regular basis and the Return regarding these dues has been finally

submit. Auditors should check the Booking of Various Dues through Journal Voucher and Payment

should be check through challans and also check the payment has been made as per the Return. There

are various Statutory dues for which payment challans and Return should be check some of these are :-

(a) Income Tax as per Income Tax Actl,1961

(b) Service Tax ( In case applicable )

(c) Excise Duty and Customs and Various other duty.

(d) ESI/EPF

(e) Other Dues applicable to Entity.

4. Maintenance of Books/Register as per CBEC: There are various Books /Register which must be

maintain by a manufacturing entity as per the statutory requirement. Such as RG1, RG23 as required

by the Central Board of Excise and Customs.

5. Disposable or Sale of Scrap : Special Consideration should be on the sale of Scrap check whether the

scrap is sale or Dispose as per the legal requirement or whether the payment of TCS has been made as

per the Income Tax Act,1961 .

KGS

Contact Name E-mail Mobile Mr. Anuj Somani anujsomani@kgsomani.com +91 9871098777 Mr. Bhuvnesh Maheshwari bhuvneshmaheshwari@kgsomani.com +91 9810031993

Head office: Branch Offices: Network Offices: DELHI MUMBAI BANGALORE

Delite Cinema Hall GHAZIABAD BHOPAL 3rd Floor, Gate No. 2, New Delhi, India GURGAON BUBNESHWAR

SILIGURI CHENNAI

KOLKATA

Disclaimer

• This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed. • Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. • KGS is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such views or opinion.

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