AND SCIENCE NEW PANVEL RE-ACCREDITED BY NAAC WITH A GRADE
A PROJECT ON A PROJECT REPORT ON AUDIT OF COCA-COLA CO.
In the subject AUDITING
SUBMITED TO UNIVERSITY OF MUMBAI, FOR SEMESTER-III OF MASTER OF COMMERCE (PART 2) BY VINAYAK GHARAT 3522 UNDER THE GUIDANCE OF PROF.GAJANAN WADER
YEAR-2013-2014 MAHATMA EDUCATION SOCIETYS PILLAI COLLEGE OF ARTS, COMMERCE & SCIENCE RE-ACCREDITED BY NAAC WITH A GRADE & ISO 9001:2008 CERTIFIED
DECLARATION BY THE STUDENT
I, Mr. VINAYAK GHARAT student of M.Com Part-II Roll number 3522 hereby declare that the project for the AUDITING titled,
Submitted by me for Semester-III during the Academic year 2013-2014, is based on actual work carried out by me under the supervision of PROF.GAJANAN WADER I further state that this work is Original and not submitted anywhere else for any examination.
Signature of student
MAHATMA EDUCATION SOCIETYS PILLAI COLLEGE OF ARTS COMMERCE AND SCIENCE NEW PANVEL RE- ACCREDITED BY NAAC WITH A GRADE
EVALUATION CERTIFICATE This is to certify that the undersigned have assessed and evaluated the project on, A PROJECT REPORT ON AUDIT OF COCA-COLA CO.
Submitted by VINAYAK GHARAT Student of M. Com Part-II This project is original to the best of our knowledge and has been accepted for Internal Assessment.
Internal Examiner: Principal:- Prof. GAJANAN WADER Dr. DAPHNE PILLAI
M MA AH HA AT TM MA A E ED DU UC CA AT TI IO ON N S SO OC CI IE ET TY Y S S P PI IL LL LA AI I C CO OL LL LE EG GE E O OF F A AR RT TS S C CO OM MM ME ER RC CE E A AN ND D S SC CI IE EN NC CE E N NE EW W P PA AN NV VE EL L R RE E- -A AC CC CR RE ED DI IT TE ED D B BY Y N NA AA AC C W WI IT TH H A A G GR RA AD DE E A A C C K K N N O O W W L L E E D D G G E E M M E E N N T T
T Th he e s su uc cc ce es ss sf fu ul l c co om mp pl le et ti io on n o of f p pr ro oj je ec ct t i in nv vo ol lv ve ed d t th he e c co on nt tr ri ib bu ut ti io on n o of f t ti im me e a an nd d e ef ff fo or rt ts s. . T Th hi is s p pr ro oj je ec ct t w wo ou ul ld d n ne ev ve er r h ha av ve e b be ee en n c co om mp pl le et te ed d w wi it th ho ou ut t t th he e v va al lu ua ab bl le e h he el lp p e ex xt te en nd de ed d t to o u us s b by y t th he e S Su ub bj je ec ct t t te ea ac ch he er r a an nd d P Pr ro oj je ec ct t g gu ui id de e P PR RO OF F. . GAJANAN WADER S Se ec co on nd dl ly y w wo ou ul ld d l li ik ke e t to o t th ha an nk k o ou ur r P Pr ri in nc ci ip pa al l D DR R. . D DA AP PH HN NE E P PI IL LL LA AI I a an nd d V Vi ic ce e P Pr ri in nc ci ip pa al l M MR R. . A A. . N N. . K KU UT TT TY Y f fo or r p pr ro ov vi id di in ng g u us s s su uc ch h a a p pr re es st ti ig gi io ou us s I In ns st ti it tu ut ti io on n I would also like to thank all my friends to help me in this project work and giving their precious time to me.
L La as st t b bu ut t n no ot t t th he e l le ea as st t I I w wo ou ul ld d l li ik ke e t to o t th ha an nk k o ou ur r P Pa ar re en nt ts s f fo or r m ma ak ki in ng g u us s c ca ap pa ab bl le e i in n d do oi in ng g t th hi is s p pr ro oj je ec ct t a an nd d g gi iv vi in ng g t th he ei ir r c co on nt ti in nu uo ou us s s su up pp po or rt t a an nd d g gu ui id da an nc ce e. . MAHATMA EDUCATION SOCIETYS PILLAI COLLEGE OF ARTS, COMMERCE & SCIENCE E-ACCREDITED BY NAAC WITH A GRADE & ISO 9001:2008 CERTIFIED
Internal Assessment: Project 40 Marks Name of the Student Class Division Roll No. First Name : VINAYAK
Fathers Name : VIKAS
Surname :GHARAT
M COM PART II
3522 Subject: AUDITING Topic for the Project: A PROJECT REPORT ON AUDIT OF COCA-COLA CO.
Particulars Marks Awarded Signature DOCUMENTATION Internal examiner (Out of 10Marks)
External Examiner (Out of 10 Marks)
Presentation (Out of 10 Marks)
Viva and Interaction (Out of 10 Marks)
TOTAL MARKS (Out of 40 Marks)
CONTENTS SL.NO. PARTICULARS PAGE NO.
CHAPTER-1 1 INTRODUCTION 5-5 2 DEFINITION 6-6
CHAPTER -2 3 FEATURES 7-7 4 OBJECTIVES 8-8 5 TYPES OF AUDITS AND REVIEWS 9-12 6 PROCEDURE TO BE FOLLOWED TO DETECT ERRORS. 13-13 7 DUTIES 14-14
CHAPTER 3 SUMMARY OF THE STUDY 7 LEDGER FOR AUDIT 15-16 8 IMPORTANCE & UTILITY OF LEDGER ACCOUNTS 17-17 9 CONCLUSION 18-18
APPENDICES 10 BIBLIOGRAPHY/ WEBLIOGRAPHY 19-19
INTRODUCTION -AN OVERVIEW OF AUDITING: Economic decisions in every society must be based upon the information available at the time the decision is made. For example, the decision of a bank to make a loan to a business is based upon previous financial relationships with that business, the financial condition of the company as reflected by its financial statements and other factors. If decisions are to be consistent with the intention of the decision makers, the information used in the decision process must be reliable. Unreliable information can cause inefficient use of resources to the detriment of the society and to the decision makers themselves. In the lending decision example, assume that the barfly makes the loan on the basis of misleading financial statements and the borrower Company is ultimately unable to repay. As a result the bank has lost both the principal and the interest. In addition, another company that could have used the funds effectively was deprived of the money. As society become more complex, there is an increased likelihood that unreliable information will be provided to decision makers. There are several reasons for this: remoteness of information, voluminous data and the existence of complex exchange transactions As a means of overcoming the problem of unreliable information, the decision-maker must develop a method of assuring him that the information is sufficiently reliable for these decisions. In doing this he must weigh the cost of obtaining more reliable information against the expected benefits. A common way to obtain such reliable information is to have some type of verification (audit) performed by independent persons. The audited information is then used in the decision making process on the assumption that it is reasonably complete, accurate and unbiased.
DEFINITION The term auditing has been defined by different authorities. 1. 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." 2. 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. 3 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."
FEATURES OF AUDITING a. Audit is a systematic and scientific examination of the books of accounts of a business; b. Audit is undertaken by an independent person or body of persons who are duly qualified for the job. c Audit is a verification of the results shown by the profit and loss account and the state of affairs as shown by the balance sheet. d. Audit is a critical review of the system of accounting and internal control. e. Audit is done with the help of vouchers, documents, information and explanations received from the authorities. f. The auditor has to satisfy himself with the authenticity of the financial statements and report that they exhibit a true and fair view of the state of affairs of the concern. g The auditor has to inspect, compare, check, review, scrutinize the vouchers supporting the transactions and examine correspondence, minute books of share holders, directors, Memorandum of Association and Articles of association etc., in order to establish correctness of the books of accounts.
OBJECTIVES OF AUDITING There are two main objectives of auditing. The primary objective and the secondary or incidental objective. a. Primary objective as per Section 227 of the Companies Act 1956, the primary duty (objective) of the auditor is to report to the owners whether the balance sheet gives a true and fair view of the Companys state of affairs and the profit and loss A/c gives a correct figure of profit of loss for the financial year. b. Secondary objective it is also called the incidental objective as it is incidental to the satisfaction of the main objective. The incidental objective of auditing are: i. Detection and prevention of Frauds, and ii. Detection and prevention of Errors. Detection of material frauds and errors as an incidental objective of independent financial auditing flows from the main objective of determining whether or not the financial statements give a true and fair view. As the Statement on auditing Practices issued by the Institute of Chartered Accountants of India states, an auditor should bear in mind the possibility of the existence of frauds or errors in the accounts under audit since they may cause the financial position to be mis-stated. Fraud refers to intentional misrepresentation of financial information with the intention to deceive. Frauds can take place in the form of manipulation of accounts, misappropriation of cash and misappropriation of goods. It is of great importance for the auditor to detect any frauds, and prevent their recurrence. Errors refer to unintentional mistake in the financial information arising on account of ignorance of accounting principles i.e. principle errors, or error arising out of negligence of accounting staff i.e. Clerical errors.
Types of Audits and Reviews The Audit Process In general, a typical audit includes the following sequential steps: Scheduling an opening conference to discuss the audit objectives, timing, and report format and distribution. Assessing the soundness of the internal controls or business systems and operations. Testing the internal controls to ensure proper operation. Discussing with management all preliminary observations. Discussing with management the draft audit report and their responses, if available, prior to release of the final audit report. Following up on critical issues raised in audit reports to determine if they have been successfully resolved. Internal Controls Educational Seminar Any department or organization that would like a session on Internal Controls in the University Environment should contact the Director of Internal Auditing Services at Ext. 5-4818 to schedule it. The seminars are typically 1-2 hours in length and include a 20-minute video on internal controls at colleges and universities. The presentation includes time for questions and answers and can be tailored to address a department's specific needs or requests.
Audits Types of Audits and Reviews: 1. Financial Audits or Reviews 2. Operational Audit 3. Department Reviews 4. Information Systems Audits 5. Integrated Audits 6. Investigative Audits or Reviews 7. Follow-up Audits
Financial Audit A historically oriented, independent evaluation performed for the purpose of attesting to the fairness, accuracy, and reliability of financial data. CSULB's external auditors, KPMG, perform this type of review. CSULB's Director of Financial Reporting coordinates the work of these auditors on our campus. Operational Audit A future-oriented, systematic, and independent evaluation of organizational activities. Financial data may be used, but the primary sources of evidence are the operational policies and achievements related to organizational objectives. Internal controls and efficiencies may be evaluated during this type of review. Department Review A current period analysis of administrative functions, to evaluate the adequacy of controls, safeguarding of assets, efficient use of resources, compliance with related laws, regulations and University policy and integrity of financial information.
Information Systems (IS) Audit There are three basic kinds of IS Audits that may be performed: 1. General Controls Review A review of the controls which govern the development, operation, maintenance, and security of application systems in a particular environment. This type of audit might involve reviewing a data center, an operating system, a security software tool, or processes and procedures (such as the procedure for controlling production program changes), etc. 2. Application Controls Review A review of controls for a specific application system. This would involve an examination of the controls over the input, processing, and output of system data. Data communications issues, program and data security, system change control, and data quality issues are also considered. 3. System Development Review A review of the development of a new application system. This involves an evaluation of the development process as well as the product. Consideration is also given to the general controls over a new application, particularly if a new operating environment or technical platform will be used. Integrated Audit This is a combination of an operational audit, department review, and IS audit application controls review. This type of review allows for a very comprehensive examination of a functional operation within the University. Investigative Audit This is an audit that takes place as a result of a report of unusual or suspicious activity on the part of an individual or a department. It is usually focused on specific aspects of the work of a department or individual. All members of the campus community are invited to report suspicions of improper activity to the Director of Internal Auditing Services on a confidential basis. Her direct number is 562-985-4818. Follow-up Audit These are audits conducted approximately six months after an internal or external audit report has been issued. They are designed to evaluate corrective action that has been taken on the audit issues reported in the original report. When these follow-up audits are done on external auditors' reports, the results of the follow-up may be reported to those external auditors. PROCEDURE TO BE FOLLOWED TO DETECT ERRORS. Following procedures may be adopted by the auditor to detect the errors. 1. Check the opening balances from the balance sheet of the last year. 2. Check the posting into respective ledger accounts 3. Check the total of the subsidiary books. 4. Verify all the castings and the carry forwards. 5. Ensure that the list of debtors and creditors tally with the ledger accounts. 6. Make sure that all accounts from the ledger are taken into accounts. 7. Verify the total of the trial balance. 8. Compare the various items from the trial balance with that of the previous year. 9. Find out the amount of difference and see whether an item of half or such amount is entered wrongly. 10. Check differences involving round figures as Rs. 1,000; Rs. 100 etc . 11. See where there is misplacement or transposition of figures that is 45 for 54; or 81 for 18 etc. 12. Ultimately careful scrutiny is the only remedy for detection of errors. 13. See that no entry of the original book has remained unposted.
THE AUDITOR SHOULD PERFORM THE FOLLOWING DUTIES IN RESPECT OF FRAUD. 1. Examine all aspects of the finance. 2. Vouch all the receipts from the counterfoils or carbon copies or cash memos, sales mart reports etc. 3. Check thoroughly the salary and wages register. 4. Verify the methods of valuation of stocks. 5. Check up stock register, goods inwards notes, goods out wards books and delivery challansetc 6. Calculate various ratios in order to detect fraudulent manipulation of accounts 7. Go through the details of unusual items. 8. Probe into the details of the problems when there is a suspicion. 9. Exercise reasonable skill and care while performing the duty. 10. Make surprise visit to check the accounts.
Selling/General/Admin Expense (3,612) (2,657) (2,501) (2,450) (1,833) Research & Development - - - - - EBITDA (Operating Income Before Depreciation) 1,707 1,326 1,711 1,502 1,224 Depreciation & Amortization - - (326) (289) (236) Operating Income 2,150 1,653 1,385 1,213 989 Interest Income 33 43 23 22 31 Other Income, Net (52) (161) (86) (93) (261) Total Income Before Interest Expense (EBIT) 1,707 1,326 1,322 1,142 760 Interest Expense (152) (124) (142) (145) (159) Income Before Tax 1,555 1,202 1,180 997 600 Income Taxes (488) (401) (345) (310) (180) Minority Interest 44 40 (40) (34) (16) Net Income from Continuing Operations 1,081 761 795 653 404 Net Income from Discontinued Operations - - - - - Net Income from Total Operations 1,081 761 795 653 404
Normalized Income 1,099 761 795 653 404 Extraordinary Income/Loss - - - - - Special Income/Charges (18) - - - - Income from Cum. Effect of Acct Change - - - - - Income from Tax Loss Carryforward - - - - - Other Gains (44) - - - - Total Net Income 1,037 761 795 653 404
Accounts Payable 1,969 2,172 1,887 1,146 1,370 Short Term Debt 1,577 2,041 1,276 51 465 Notes Payable 16,297 12,871 8,100 6,749 6,066 Accrued Expenses 6,711 - - - - Accrued Liabilities 6,711 6,837 6,972 5,247 4,835 Deferred Revenues - - - - - Current Deferred Income Taxes 632 - - - - Other Current Liabilities 1,267 362 273 528 252 Total Current Liabilities 27,821 24,283 18,508 13,721 12,988 Long Term Debt 14,736 13,656 14,041 5,059 2,781 Deferred Income Tax 4,981 4,694 4,261 1,580 877 Other Non-Current Liabilities 5,468 5,420 4,794 2,965 3,011 Minority Interest 378 286 314 547 390 Capital Lease Obligations - - - - - Preferred Securities of Subsidiary Trust - - - - - Preferred Equity Outside Shareholders' Equity - - - - - Total Non-Current Liabilities 25,563 24,056 23,410 10,151 7,059 Total Liabilities 53,384 48,339 41,918 23,872 20,047 Preferred Shareholder's Equity - - - - - Common Shareholder's Equity 32,790 31,635 31,003 24,799 20,472 Total Equity 32,790 31,635 31,003 24,799 20,472 Total Liabilities & Shareholder's Equity 86,174 79,974 72,921 48,671 40,519
Ledger Accounts Accounting Entries are recorded in ledger accounts. Debit entries are made on the left side of the ledger account whereas Credit entries are made to the right side. Ledger accounts are maintained in respect of every component of the financial statements. Ledger accounts may be divided into two main types: balance sheet ledger accounts and income statement ledger accounts.
Balance Sheet Ledger Accounts Balance Sheet ledger accounts are maintained in respect of each asset, liability and equity component of the statement of financial position.Following is an example of a receivable ledger account: Receivable Account DEBIT Rs. Credit Rs. Balance b/d 400 Cash 400 Sales 900 Balance c/d 900 1300 1300
Balance brought down is the opening balance is in respect of the receivable at the start of the accounting period. These are credit sales made during the period. Receivables account is debited because it has the effect of increasing the receivable asset. The corresponding credit entry is made to the Sales ledger account. The account in which the corresponding entry is made is always shown next to the amount, which in this case is the Sales ledger. This is the amount of cash received from the debtor. Receiving cash has the effect of reducing the receivable asset and is therefore shown on the credit side. As it can seen, the corresponding debit entry is made in the cash ledger. This represents the balance due from the debtor at the end of the accounting period. The figure has been arrived by subtracting the amount shown on the credit side from the sum of amounts shown on the debit side. This accounting period's closing balance is being carried forward as the opening
balance of the next period. Similar ledger accounts can be made for other balance sheet components such as payables, inventory, equity capital, non current assets and so on. Income Statement Ledger Accounts Income statement ledger accounts are maintained in respect of incomes and expenditures. Following is an example of Office expense ledger: POSTAGE & TELEGRAM Expense Account
This is the amount of cash paid against P & T bill. The expense ledger is being debited to account for the increase in expense. The corresponding credit entry has been made in the cash ledger. This represents the amount of expense charged to the income statement. The balance in the ledger has been recycled to the income statement which is being debited by the same amount. Unlike balance sheet ledger accounts, there is no balance brought down or carried forward. Instead, the income statement ledger is closed each accounting period end with the balancing figure representing the charge to income statement. Similar ledger accounts can be made for other income statement components
Importance & Utility of Ledger Accounts The following are the important utilities of ledger accounts. 1. Ledger account keeps a permanent record of all financial transactions in a classified manner 2. Ledger account shows detailed financial information of a business regarding debtors & creditors, assets, and incomes & expenses. 3. Ledger account helps to prepare a trail balance in order to check the arithmetical accuracy of the recording of the financial transactions of the business. 4. Ledger account helps to prepare profit & loss account so as to ascertain the profit or loss of the business 5. Ledger account helps to prepare the balance sheet with a view to show the financial position of the business.
CONCLUSION The all above information is related with Auditing of ledger. It helps to know how to audit of a ledger or how to scrutinize it .
BIBLIOGRAPHY
Varsha Ainapure, Mukund Ainapure AUDITING- Manan Prakashan T.Y.B.com AUDIT- Sheth Prakashan Google (http://www.google.co.in) Wikipedia Various sites.