Volume-10 Volume-19 December-2016 September -2017 Pages 1-14 1-15 Interns SBS Digest An attempt to share knowledge By Interns of SBS and Company LLP For Private circulation only
CONTENTS AUDIT...1 AUDIT OF PURCHASES...1 DEBIT EQUITY ADVISORY...8 TYPES OF AGRICULTURAL CREDIT SCHEMES IN INDIA...8 UPDATES FEMA...13 FEMA UPDATES FOR THE MONTH OF SEPTEMBER,2017...13 COMPANIES ACT, 2013...14 RULES, CIRCULARS, NOTIFICATIONS AND ORDERS ISSUED DURING THE MONTH OF AUGUST, 2017...14
AUDIT AUDIT OF PURCHASES What is purchasing system? Contributed by Sarvani & Vetted by CA Sandeep Das The activity of acquiring goods or services to accomplish the goals of an organization. A purchasing system manages the entire acquisition process either for the material or for the services, from Purchase requisition to Vendor Settlement. In this article, we will discuss about how to conduct audit of purchases. Purchase requsition Settlement to Vendor Quotations Purchase Receiving of Goods Selection of vendors Purchase order Modes of Purchases On payment basis o Cash o Credit On Destination basis o Domestic Purchases o Imports 1 P a g e
Major Objectives of the purchases 1.Maintain the quality and value of a company s product 2.Minimize cash tied-up in inventory, 3. Maintain the flow of inputs to maintain the flow of outputs, and 4. Strengthen the organization's competitive position. Purchasing may also (a) development and review of the product specifications, (b) receipt and processing of requisitions, (c) advertising for bids, (d) bid evaluation, (e) award of supply contracts, (f) inspection of good received, and (g) their appropriate storage and release. Audit Objective Audit of Companies Purchases Act 1. Comprehensive policies and procedures addressing purchasing activities have been developed and documented. 2. The functioning is in compliance with the established policies. 3. Validate that there is proper segregation of duties within the purchasing department. 4. Ensure that adequate internal controls have been implemented to limit the exposure to unauthorized or inappropriate transactions. Audit procedure Standard Policy Every entity will have a standard process for every department/area. The first document which is to be considered while doing audit is standard policy document. Process Note The next document which is to be considered is the process note. It states the actual procedure which is being followed. If no process note is there then it should be documented after articulating with personals at the department. Any deviations between standard policy document and process note should be updated and then confirmed with the client either orally or documented 1. At the time of documenting the process, make sure that below mentioned questions are addressed into, What? Who? Why? Where? When? How? 2 P a g e
2. Obtain documentary evidence (Documentary evidence includes existing Policies, SOP, Process Flow Chart, Vouchers, Invoices, etc.,) as a supporting of the oral explanation given by the personnel wherever it deems possible and physically verify the process flow. Audit programme Audit of Companies Purchases Act An audit program, also called an action plan that documents what procedures an auditor will follow to validate that an organization is in conformance with its Standard Operating Process (SOP) and process Note. Purchase Procedure Purchase process can be divide into three stages namely 3 P a g e
1. Pre-purchases It includes receiving requisition from user department. Raising quotations. 2. Purchases It includes Vendor Selection process. Adhering with the terms of the contract and if any revised ( Updation of the same) Price alteration or Selection of Appropriate vendor. Audit of Companies Purchases Act 3. Post purchases Raising GRN (Goods received Note) on receipt of goods. Quality check Settlement to the Vendor Audit Programme for purchases Information to be obtained Purchase Requisition Register Purchase register. Obtain SOP and written process notes. Obtain hard copies of other supporting documents (invoices, Purchase order, quotations, purchase requisition and comparative statements) post selection of samples. Take the authorized list of people who can authorize purchase requisition from user department and purchase order. Obtain Authorization Limits Obtain goods receipt note and stores record of goods. Obtain Reorder Level s (Minimum and maximum) if any Procedure to be followed for verification Pick sample invoices to test check in case the purchase transactions are huge in number. The samples can be chosen based on the amount of the transactions, the supplier and the type of purchase, i.e., import or domestic purchase. Samples selected should be such that it should contain a risk element attached to it. A. Vouching The auditor should check the entries in the purchase day book with the invoice. He should pay his attention to the following points: The date of invoice. The name of the supplier. The products mentioned in PO and Invoice is entered while passing entry in accounting software. B. Purchase requisition Note Are orders placed only when the goods reach their reorder level? Check whether authorizations for raising PRN are taken manually or through system. In case manually take the specimen of the concerned person signature. 4 P a g e
C. Vendor selection process Check whether the selection process (whether raising quotations or entering into contracts) are in compliance with company s SOP and process. Verify that the minimum number of quotations that a company has to be received for each order placed (dependant on the amount of order) has been received. In case of any deviation, reasons of the same filed by the purchase team has to be verified. Approvals obtained for finalization of vendors by the authorized personnel are to be obtained. Check Stamp and signatures of the vendor and other party on the contract agreement. Check whether the terms of contract are being complied by both of the parties, in case of deviation obtain reasons for the same. The credit period allowed to the customer is to be analysed and the same is to be verified with the actual payment date. In case the amount has not been paid as per the credit terms allowed, reasons for such time lag is to be ascertained and recorded. If advance payment has been made, the terms of the contract has to be analysed to verify the same. The validity of the contract and the contract period has to be verified. Review vendor list to recognize inactive vendors. Audit of Companies Purchases Act D. Purchase Order Check whether all the authorizations needed are obtained. Check whether purchase order contains such terms to see that no liability is on the company in case of any issue. INCO Terms has to be verified for each sample. In case of any revision, has the same been authorized by the respective authorized personnel. Check whether all the purchase orders are closed only when the whole quantity is received. Ensure that there is no long outstanding open purchase Order (Po) for the respective Financial year if any notify the reasons. E. Goods receipt Note Check whether Goods receipt note is raised on receipt of goods. Whether the receipt is raised as soon as goods are received or at latter point of time. Check whether Maker-Checker control is there while raising GRN Check how the details in GRN are printed (i.e. whether they are manually typed by personnel at receiving area or it is auto populated from purchase order. Verify whether any differences are there among details mentioned in GRN, Invoice and PO. Verify whether the date of GRN is after raising purchase order. In case of Huge difference is noted among raising Purchase requisition, purchase order and GRN, reasons for the same are to be taken. F.Settlement to Vendors Settlement to vendor should be done based on three-way matching. Three-way matching can be interpreted as follows: While making settlement to vendors purchase orders, GRN and Invoice should be on same line and Amount paid should be lower of GRN amount or Invoice amount. 5 P a g e
G. Purchase returns Reasons for the return of goods are to be reviewed and the same is to be analysed if is it reasonable or not? Are all debit notes pre-numbered and numerically controlled? Are appropriate and necessary adjustments made to the respective accounts for the return of goods? Have the goods been accepted by the suppliers and have the claims been adjusted. Audit of Companies Purchases Act H. Statutory compliances Verify the purchase transactions for the applicability of tax (GST/ customs). If any taxes / duties are to be charged on the purchase transactions, verify if the same has been charged. In case the duties / taxes applicable have not been charged, the reasons for the same have to be ascertained. If exemption from payment of certain taxes has been obtained from the Government, the approval letter has to be verified. Analyse if the purchase transaction falls within the purview of the transactions for which taxes are exempt. Check whether revised invoices have been obtained from suppliers (with supplier s GSTIN number). Check whether purchases made from unregistered dealers is below Rs5000/-. I. Payment Check whether payment to supplier is made within the credit period. In case of any deviations reason for the same is to be obtained. In case of payment of any advance check whether authorizations are obtained and whether the goods are received. Check whether payment is made within 180 days from the supply of goods to avoid reversal of GST credit. Check payment is done for only goods received. Cash Purchases In case of cash purchases check whether authorizations are taken from concerned authority and GRN is raised. Comparative analysis is to be done (i.e. com paring last year cash purchases with current year, analysing which product is purchased with cash every month). In case any contract item is purchased with cash reason for the same is to be obtained. Audit findings and reporting Document all the observations which were found during audit. Recommend to auditee any appropriate adjustments, internal controls, or operational recommendations as a result of the review Discuss your observations with auditee and jot down their replies. Determine whether to include each audit finding in final audit report based on the audit disposition, the overall materiality, to the audit and relative risk exposure. 6 P a g e
Implication of GST on Purchases in India Purchasing across states is set to become a lot more hassle free as a unified tax structure will allow for seamless movement across state borders. Currently interstate logistics is a major pain area with a long queue of trucks waiting for clearance by state tax and octroy authorities is a common sight on Indian highways. This will soon be relegated to the past as free movement of goods will be possible within India. It is estimated that this will reduce distribution costs by as much as 10-15% and reduce the time taken for transport at the same time. Along with lesser inventory to be maintained due to shorter transport times, this will also open up a wider base of suppliers that will push costs further down. Audit of Companies Purchases Act This article is contributed by Sarvani, Intern of SBS and Company LLP. The author can be reached at interns@sbsandco.com 7 P a g e
DEBIT EQUITY ADVISORY TYPES OF AGRICULTURAL CREDIT SCHEMES IN INDIA Contributed by Hemanth & Vetted by CA Rajesh D 1. Farm Storage Facilities Loans or warehousing loan provided by government and banks for Storage of farm or agriculture commodities for non-perishable commodities 2. Farm Operating Loans: agriculture loans for day-to-day needs or expansion requirements. 3. Farm Ownership Loans: These include loans for buying agriculture or farming machinery, livestock, tractors etc 4. Fisheries Finance Program: This program is designed for specific projects in fisheries that qualify under the direction of Congress. A qualified program is eligible for up to 80 percent financing through a direct loan program. This loan program is designed to refinance a private debt on a fishing vessel or to provide for maintenance and repairs on an existing vessel. 5. Other Agriculture Loans: such as housing loans, grants, subsidy from government for loss of crop, crop damage, whether based agriculture subsidy etc. Agricultural schemes for farmers are as follows: Crop loans: For raising various crops or development of crops. Produce Marketing Loan Scheme: provides short term credit during requirement at the time of crop selling. Loan Against Warehouse Receipts: Farmer can get loans upto 70% of the value of goods for Stored. Kisan Credit Card Scheme: The Kisan Credit Card is a unique scheme for farmers through which they can draw a cash loan for crop production as well as domestic needs from the card-issuing branch. 8 P a g e
Kisan Shakti Yojana: Provides farm investment credit, as well as personal/domestic loans including repayment of debt to moneylenders. The permissible loan limit will be 50 per cent of the value of land or 5 times the net farm income, whichever is lower, less the outstanding amount. Land Development Scheme: Scheme for performing various activities for developing existing land such as land levelling, reclamation of soil, bunding and any other soil conservation measures. Minor Irrigation Scheme: loans provided for digging new wells (open/ bore wells), deepening existing wells, setting lift irrigation etc. Farm Mechanization Scheme: various banks provide loans for purchasing agriculture equipments, small and large farming machinery, tractors etc. Financing of Combine Harvesters: provide loan for one farmer or group of farmers for purchasing combine harvesters, heavy harvesting machines. Types Companies of Agricultural Act credit Schemes in India Land Purchase Scheme: The scheme assist small, marginal and landless farmers or labourers for purchasing land. Dairy Plus Scheme: Scheme for establishment of dairy farm including construction of shed, purchase of milch animals, milking machine and buying other dairy equipments. Broiler Plus Scheme: Scheme for construction of poultry shed, feeding room and establishment of layer or broiler poultry farm. Horticulture finance: Include loans for development of fruit orchard, such as mango, chikoo, grapes, pomegranate, apple etc. Also include loans for polyhouse, green house development and marketing of such produce. Agri Business Heads Scheme: The scheme provides self-employment opportunity to technically trained people for setting new agribusiness, purchasing farm machinery etc. Cost Associated with Agriculture Finance or Loan Reserve bank of India released circular regarding loans in India which states that processing fee for agriculture loans should not be exceeding 1% of the gross loan amount and processing fee should not be included in the margin cap or the interest cap of 26%. 9 P a g e
Agriculture Loans are either direct or indirect. Direct agriculture loans include loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such loans], directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture. Indirect agriculture loans include loans to corporate including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities Processing fee of Kisan Gold card (saral) by HDFC is Rs 250/-. Repayment schedule charges for the same are Rs 200/- per request. Late payment penalty for KGC types varies from 1.33 % to 2 % p.m. on overdue payment. Supervision charges of KGC types ranges Rs.500/- to Rs.2000/- Types Companies of Agricultural Act credit Schemes in India Processing charges of agriculture gold loan by Canara Bank varies from no charges (loan upto Rs 25000/-) to Rs. 900/- (Loan up to Rs. 3 lakh). Handling charges differ from nil to Rs. 100/-. Mortgage charges varies from no charges to Rs. 30000/-.However processing charges cannot have collected under conditions such as government sponsored schemes, self-help groups or agriculture loans given to employees. There are no processing and documentation charges for kisan credit card-central bank of India and no collateral security for loan up to 1 lakh. Government of India has exempted farmers from paying stamp duty on agriculture loan up to Rs. 5 lakh. Loans for ancillary Agro based projects: 1. NABARD LOAN for food processing: NABARD loan for food processing is available for a wide range of post-harvest processes resulting in value addition and/or enhanced storage life to the food product. The following food processing activities such as cleaning, grading, waxing, controlled ripening, labelling, packing and packaging, warehousing, canning, freezing, freeze drying and more are eligible under the scheme. The products of processing/manufacturing undertaken by the units may include: Fruits, vegetables, mushrooms, plantation crops and other horticulture crops. Milk and milk products Poultry and meat Fish and other aquatic & marine products. Cereals, pulses, oilseeds and oil crops Herbs, medicinal and aromatic plants, forest produce, etc. Consumer food products, such as bakery items, confectionery, snacks, etc. 10 P a g e
Any other ready-to-eat food/ convenience foods. Beverages, non-alcoholic drinks, energy drinks, carbonated drinks, packaged drinking water, soft drinks, etc. Food flavours, food colours, spices, condiments, ingredients, preservatives and any other item which may be required in food processing. Nutraceuticals, health foods, health drinks, etc. Any other activity approved by the competent authority for establishment in the designated Food Park. Entities Eligible for Loan Under the Scheme NABARD loan for food processing units under this scheme will be provided only for units in designated food parks. Food processing units in the following designated food parks are eligible under this scheme: Food Parks promoted by Ministry of Food Processing Industries ( MOFPI), Government of India Mega Food Parks promoted by Ministry of Food Processing Industries ( MOFPI), Government of India Food Parks/ exclusive food processing industrial estates promoted by State Governments Designated food processing/ agro processing/ multi products SEZs, including de-notified areas of these SEZs. Any other area having developed enabling infrastructure and designated as Food Park by Ministry of Food Processing Industries (MOFPI), Government of India Types Companies of Agricultural Act credit Schemes in India The following types of entities in the above designated food parks are eligible for NABARD loan: State Governments Entities Entities promoted by Government of India, Joint ventures, SPVs, Cooperatives Federations of Cooperatives, Farmers Producer Companies Limited Companies Private Limited Company Individual Entrepreneurs (Proprietorships) Term Loan Provided by NABARD Under the NABARD Food Processing Fund, term loan will be provided by NABARD either directly or inconsortium with other lenders. Term loan will be provided by NABARD at concessional rate of interest for the following: Development/Establishment of all infrastructure required in the designated Food Parks. Augmentation/modernization/creation of additional infrastructure in the designated Food Parks. Setting up of individual food processing units or any other unit that is established for supporting the operations of the food processing units within the designated Food Parks. Modernization of existing processing units in the designated Food Parks resulting in process technology upgradation, automation, increased efficiency, improvement in product quality, reduction in cost, etc. 11 P a g e
For undertaking the above activities, NABARD provides term loan of upto 75% of project cost for corporates, companies, SPVs, joint ventures and individual entrepreneurs. The term loan can be extended with a tenure of upto 7 years at NABARD s Prime Lending Rate (PLR) + Risk Premium. NABARD s present Prime Lending Rate (PLR) is 9.00%. A risk premium of upto 1% will be added on top of the NABARD PLR based on borrower s credit profile. In addition, collateral security will be requested by NABARD for sanctioning of term loan based on the borrower profile. 2. Loans to Warehouses, Cold Storage and Cold Chain Infrastructure Types Companies of Agricultural Act credit Schemes in India Activities Covered Loans will be provided for projects involving creation of storage infrastructure with a minimum aggregate capacity of 5000 metric tons (MT) for agricultural and allied produce, including construction of: Warehouses Silos Cold storage, controlled atmosphere (CA) stores, other cold chain infrastructure activities like pack houses/integrated pack houses, reefer vans, bulk coolers, individually quick frozen units, chilling/freezing infrastructure, etc. Construction/ modernization/ upgradation of Marketing infrastructure facilities of Agricultural Produce Marketing Committee (APMC). Modernization/improvement of the existing storage infrastructure projects will be considered on merit of each proposal provided it leads to scientific/additional storage capacity. There s no minimum capacity for projects of Governments/ Government owned corporations. Eligible Institutions/Entities State Governments State/Central Government Owned/assisted entities, Cooperatives, Federations of Cooperatives, Farmers Producers Organizations (FPOs), Federations of Farmers Collectives, SPVs set up under PPP mode, etc. Primary Agricultural Credit Societies (PACS) / Cooperative Marketing Societies (CMS) or similar institutions Corporates/Companies/Individual Entrepreneurs etc. Agricultural Produce Marketing Committees (APMCs) This article is contributed by at interns@sbsandco.com 12 P a g e Hemanth, Intern of SBS and Company LLP. The author can be reached
FEMA FEMA UPDATES FOR THE MONTH OF SEPTEMBER,2017 1. Risk Management and Interbank Dealings- Reports to the Reserve Bank: The Reserve Bank of India vide A.P (DIR Series) Circular No: 03 dated August 10, 2017 makes the following amendments to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, by inviting the attention of Authorised Dealers (AD) Category-I banks to the amendments made in the Master Director of Risk Management and Inter-Bank dealings dated July 5,2016. The Amendments are as follows: 1. In terms of para (viii) under Part-E (Reports to the Reserve Bank) of the above-mentioned Master Direction, the Head/Principal Office of AD Category-I banks are required to submit a statement in form BAL giving details of their holdings of all foreign currencies on fortnightly basis through Online Returns Filing System (ORFS) within seven calendar days from the close of the reporting period to which it relates. It has now been decided that w.e.f. August 16, 2017 (i.e. for the statement of first fortnight of August 2017) this statement may be submitted through the web portal at https://bop.rbi.org.in as per the format given in Annexure I. 2. In terms of para (ii) under Part-E of the above-mentioned Master Direction, Head/Principal Office of AD Category-I banks are required to submit a monthly statement of Nostro/Vostro account balances. It has now been decided to discontinue this report. For Further details, refer Master Direction and A.P (DIR Series) Circular mentioned above. These updates are contributed by Vaishnavi and vetted by CA Murali Krishna G of SBS and Company LLP, Chartered Accountants. For any queries, please reach at gmk@sbsandco.com 13 P a g e
COMPANIES ACT, 2013 RULES, CIRCULARS, NOTIFICATIONS AND ORDERS ISSUED DURING THE MONTH OF AUGUST, 2017 RULES The National Company Law Appellate Tribunal (Amendment) Rules, 2017, Dt: 23.08.2017. Vide the said amendment rule, the Ministry has amended the National Company Law Appellate Tribunal Rules, 2016, ( the Principal Rules ) by substituting the existing Rule 63 with a new Rule. The new rule details the persons who are authorised to represent before Appellate Tribunal in connection with any proceedings. http://mca.gov.in/ministry/pdf/nclatamendmentrules2017_25082017.pdf The Companies (Arrests in connection with Investigation by Serious Fraud Investigation Office) Rules, 2017, Dt: 24.08.2017. Consequent upon the notification of Sub-section (8), (9), (10) of Section 212 of the Companies Act, 2013, the Ministry has framed the rules, and these rules prescribe the procedure and guidelines to the officials of the Serious Fraud Investigation Office (SFIO) while exercising power conferred on them to the arrest of any person guilty of any offence punishable under section 212of the Companies Act, 2013, http://mca.gov.in/ministry/pdf/companiesarrestsconnectionsfiorule_25082017.pdf NOTIFICATIONS Effective date for applicability of provisions ofsection 212 (8), (9), (10), Dt: 24.08.2017. Vide the said notification, the Ministry has notified 24.08.2017, as the effective date from which the provisions of Sub-section (8), (9), (10) of Section 212 i.e., Investigation into affairs of Company by Serious Fraud investigation Office, shall come into force. http://mca.gov.in/ministry/pdf/commencementnotification_25082017.pdf Establishment of Special Court, Dt: 31.08.2017. Vide the said notification and pursuant to the provisions of Section 435 (1) of the Companies Act, 2013, the Ministry has designated the court of Additional District and Sessions Judge, Patna for the State of Bihar as Special Court for the purpose of providing speedy trial of offences punishable with imprisonment of two years or more. http://mca.gov.in/ministry/pdf/notificationspecialcourtbihar_01092017.pdf No Circulars or Orders were issued during the month of August, 2017. These updates are contributed by Arun and vetted by CS Phanindra of SBS and Company LLP, Chartered Accountants. For any queries, please reach at phanindra@sbsandco.com 14 P a g e
SATURDAY SESSIONS S.No. Event Date Speaker Venue 1 2 Overview of FDI Audit of Fixed Assets 16/09/2017 Sunil Deepthi SBS - Hyd SBS - Hyd 3 4 Introduction to Internal Audit GST POP Rules 23/09/2017 Sai Krishna Bhavani SBS - Hyd SBS - Hyd 5 6 Depositary receipts An Overview on Statutory Audit 07/10/2017 Arun Samatha SBS - Hyd SBS - Hyd SESSIONTIMINGS: 2:30 to 4:30 PM Annual Return on Foreign Liabilities and Assets (FLA return) - Visweswara Rao Returns under GST Regime - Bhavani 15 P a g e
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