A

PROJECT REPORT
ON

AUDIT & ACCOUNTING AT IL&FS TRANSPORTATION NETWORK LTD.

FOR

IL&FS TRANSPORTATION NETWORK LTD.

MASTER OF MANAGEMENT STUDIES (MMS)

UNIVERSITY OF MUMBAI

SUBMITTED TO
SINHGAD INSTITUTE OF BUSINESS MANAGEMENT
CHANDIVALI

UNDER THE GUIDANCE OF

PROF. SREELATHA G

SUBMITTED BY
SHALVI SANTOSH VAIDYA
2015-17 & F-17
FINANCE

1
 CERTIFICATE

This is to certify that Miss. Shalvi S. Vaidya has successfully completed the project
work as a part of academic fulfillment of Masters of Management Studies (M.M.S.)
semester IV examination.

Name & Signature of Project Guide

Date : _________________

DIRECTOR
SIBM

2
 DECLARATION

I, Miss. Shalvi S. Vaidya of Master of Management Studies (Semester IV) of Sinhgad

Institute of Business Management (SIBM), hereby declare that I have successfully
completed this Project on Audit & Accounting in the academic year (2015-17).
The information incorporated in this project is true and original to the best of my
knowledge.

_____________________________
Signature

3
 Acknowledgement

I wish to express my sincere gratitude to my institute and my faculty mentor

Prof. Sreelatha G to provide me this opportunity. There was always discussion
with professionals about conceptual matters, which enhanced the idea and the knowledge
of training. Thereby, I would like to acknowledge the contribution and support of each
person at IL&FS transportation and network Ltd. I would also like to express my special
thanks to my mentor Mr.Sachin Redekar, Mr. Rajesh, Mr. Hiren Gor , Mr.Prashant
Agrawal, Miss.Roshni and all the internal Auditors who provided me valuable insight
about aspect of Audit and Accounting with respect of the company and the external
environment.

4
 INDEX

S No Particulars Page No
A PRELIMINARY SECTION
1
Title Page
2
3
Certificate
4
Declaration

Acknowledgement

B MAIN BODY OF THE REPORT

I Introduction

o Profile of the company

8-10
11
o Introduction to the project title
12-13

5
o Accounting 14-15
16-19
o Types of Accounting 20-22
23
o Accounting Concepts
24-25

o Bank Reconciliation Statement 26

27
o Objectives of Accounting 28
29
o Limitations of Accounting 30-32
37
o The Accounting Standards
38-39

o Introduction to Audit 41
42
o Role of Audit 43-44
45
o Benefits of Audit 46
47
o Types of Audit
48

o Features of Audit

o Errors

o Accounting Vs Audit 49-52

53-54
o Audit Planning

o Audit Risk
55
o Audit at ITNL
55

6
 o Objectives of Audit
56-66
o Methodology

o Study area

67

II Review of Literature

o Financial history and definitions

o Evolution

III Design of the study

o Methods of gathering data

o Description of data

IV Presentation and Analysis of data

Tables

Figures

V Summary and Conclusions

Main findings and conclusions

C REFERENCE SECTION
68
Bibliography

7
 PROFILE OF THE COMPANY

Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading
infrastructure development and finance companies

IL&FS was promoted by the Central Bank of India (CBI), Housing Development Finance
Corporation Limited (HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has
8
broad-based its shareholding and inducted Institutional shareholders including State Bank
of India, Life Insurance Corporation of India, ORIX Corporation - Japan and Abu Dhabi
Investment Authority

IL&FS has a distinct mandate - catalyzing the development of infrastructure in the

country. The organization has focused on the commercialization and development of
infrastructure projects and creation of value added financial services

From concept to execution, IL&FS houses the expertise to provide the complete array of
services necessary for successful project completion: visioning, documentation,
development, finance, management, technology and execution

VISION OF IL&FS

For IL&FS, the vision of the end result, motivates the process. An aspiration fulfilled. A
community empowered. A region enriched. Such is the impetus that drives us to catalyse
small developments that make big impacts.

9
At IL&FSs conception the development of skills in financial services was considered a
critical ingredient to the commercialization of infrastructure. The Financial Services
division took shape to cater to this need

Over the last decade, this division has expanded its services to offer a suite of
sophisticated financial services and today boasts of being one of the largest integrated
financial services provider and a one-stop financial solution resource for its clients

Our teams comprise top finance professionals with several years of experience.
Continuously engaged in developing innovative, layered and competitive solutions, these
professionals have demonstrated, time and again, that the key to unraveling full value for
our customers is based on the fusion of micro financial elegance and macro enterprise-
wide architecture

The IL&FS Groups financial expertise and capabilities vests in its wholly owned
subsidiary IL&FS Financial Services Limited (IFIN). IFIN has emerged as Indias
leading financial services house for structured products, project recourse financing and
corporate infrastructure advisory At IL&FSs conception the development of skills in
financial services was considered a critical ingredient to the commercialization of
infrastructure. The Financial Services division took shape to cater to this need

Over the last decade, this division has expanded its services to offer a suite of
sophisticated financial services and today boasts of being one of the largest integrated
financial services provider and a one-stop financial solution resource for its clients

Our teams comprise top finance professionals with several years of experience.
Continuously engaged in developing innovative, layered and competitive solutions, these
professionals have demonstrated, time and again, that the key to unraveling full value for
our customers is based on the fusion of micro financial elegance and macro enterprise-
wide architecture

10
The IL&FS Groups financial expertise and capabilities vests in its wholly owned
subsidiary IL&FS Financial Services Limited (IFIN). IFIN has emerged as Indias
leading financial services house for structured products, project recourse financing and
corporate infrastructure advisory

11
 I. INTRODUCTION OF PROJECT

Following areas are being covered as a part of the training:

Information and training on accounting software (SAP) being used;

Understand the nature of expenses incurred and book the same in SAP;

Apply statutory deductions (Tax Deduction at Source),

Works Contract Tax, Labor Cess on Expense invoice booking,

Release of payments to Vendors against Invoices booked;

Preparation of Bank Reconciliation statement,

Computation of Income Tax

Booking of Income Invoices raised on Customers and Receipts of funds against

the same,

Observing and analyzing work done by the auditors

As the part of the project, had discussion with internal as well as external auditors

12
 ACCOUNTING

Accounting or accountancy is the measurement, processing and communication of

financial information about economic entities. The modern field was established by
the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the
"language of business, measures the results of an organization's economic activities and
conveys this information to a variety of users,
including investors, creditors, management, and regulators.] Practitioners of accounting
are known as accountants. The terms 'accounting' and 'financial reporting' are often used
as synonyms.

Accounting can be divided into several fields including financial

accounting, management accounting, auditing, and accounting. Accounting are designed
to support accounting functions and related activities. Financial accounting focuses on the
reporting of an organization's financial information, including the preparation of financial
statements, to external users of the information, such
as investors, regulators and suppliers; and management accounting focuses on the
measurement, analysis and reporting of information for internal use by management.[1]
[7]
The recording of financial transactions, so that summaries of the financials may be
presented in financial reports, is known as bookkeeping, of which bookkeeping is the
most common system.[8]

Accounting is facilitated by accounting organizations such as standard-setters, accounting

firms and professional bodies. Financial statements are usually audited by accounting
firms, and are prepared in accordance with generally accepted accounting principles
(GAAP). GAAP is set by various standard-setting organizations such as the Financial
Accounting Standards Board (FASB) in the United States and the Financial Reporting

13
Council in the United Kingdom. As of 2012, "all major economies" have plans to
converge towards or adopt the International Financial Reporting Standards (IFRS).

14
 TYPES OF ACCOUNTING

FINANCIAL ACCOUNTING

Financial accounting focuses on the reporting of an organization's financial information

to external users of the information, such as investors, regulators and suppliers. It
calculates and records business transactions and prepares financial statements for the
external users in accordance with generally accepted accounting principles (GAAP).
[7]
GAAP, in turn, arises from the wide agreement between accounting theory and practice,
and change over time to meet the needs of decision-makers.[1]

Financial accounting produces past-oriented reportsfor example the financial

statements prepared in 2006 reports on performance in 2005on an annual or quarterly
basis, generally about the organization as a whole.[7]

This branch of accounting is also studied as part of the board exams for qualifying as an
actuary. It is interesting to note that these two professionals, accountants and actuaries,
have created a culture of being arch rivals.

Management accounting

Management accounting focuses on the measurement, analysis and reporting of

information that can help managers in making decisions to fulfill the goals of an
organization. In management accounting, internal measures and reports are based on cost-
benefit analysis, and are not required to follow the generally accepted accounting
principle (GAAP).[7]In 2014 CIMA created the Global Management Accounting
Principles (GMAPs). The result of research from across 20 countries in five continents,
the principles aim to guide best practice in the discipline.[30]

Management accounting produces future-oriented reportsfor example the budget for

2006 is prepared in 2005and the time span of reports varies widely. Such reports may
include both financial and non financial information, and may, for example, focus on
specific products and departments.[7]

15
TAX ACCOUNTING

Tax accounting in the United States concentrates on the preparation, analysis and
presentation of tax payments and tax returns. The U.S. tax system requires the use of
specialized accounting principles for tax purposes which can differ from the generally
accepted accounting principles (GAAP) for financial reporting. U.S. tax law covers four
basic forms of business ownership: sole proprietorship, partnership, corporation,
and Limited Liability Company. Corporate and personal income are taxed at different
rates, both varying according to income levels and including varying marginal rates
(taxed on each additional dollar of income) and average rates (set as a percentage of
overall income.

16
 ACCOUNTING CONCEPTS

REVENUES

Revenues are the assets earned by a company's operations and business activities. In
other words, revenues include the cash or receivables received by a company for the sale
of its goods or services. The revenue account is an equity account with a credit balance.

There are many different kinds of revenue accounts, but they all represent the same basic
concepts: a company receives cash or a claim to cash for the sale or use of its assets.
Revenues are typically separated into two different categories: operating revenues and
non-operating revenues or other income.

Operating Revenues

Operating revenues are generated from a company's main business activities. In other
words, this is the area of activities that a company earns most of its income and chooses
to operate. Microsoft's operating revenue comes from software development and creation
because it is a software company.

Here are some examples of operating revenues:

Sales A sale is an exchange of goods for cash or a claim to cash. Sales are typically
made by manufacturers, wholesalers, and retailers when they sell their inventory to
customers. For example, a clothing retailer would record the income from selling a shirt
to a customer as a sale or a merchandise sale

Rents Rental income is earned by a landlord for allowing tenants to reside in his or her
building or land. The tenants often have to sign a rental contract that dictates the details
of the rental payments. According to the accrual method of accounting, the landlord
records rental income when it is earned not paid.

Consulting Services Consulting service or professional services include all income

from providing a service to a customer or client. For example, a law firm records
professional service revenues when it provides legal services for a client.

17
Non-operating Revenues or Other Income

Other income includes all revenues generated by a company outside of its normal
operations. Usually non-operating revenues are only a fraction of operating revenues.

18
EXPENDITURES

An expense in accounting is the money spent or cost incurred in an entity's efforts to

generate revenue. Expenses represent the cost of doing business where doing business is
the sum total of the activities directed towards making a profit.

Assets

Things that are resources owned by a company and which have future economic value
that can be measured and can be expressed in dollars. Examples include cash,
investments, accounts receivable, inventory, supplies, land, buildings, equipment, and
vehicles.

Assets are reported on the balance sheet usually at cost or lower. Assets are also part of
the accounting equation: Assets = Liabilities + Owner's (Stockholders') Equity.

Some valuable items that cannot be measured and expressed in dollars include the
company's outstanding reputation, its customer base, the value of successful consumer
brands, and its management team. As a result these items are not reported among the
assets appearing on the balance sheet.

Liabilities

In financial accounting, a liability is defined as the future sacrifices of economic benefits

that the entity is obliged to make to other entities as a result of past transactions or
other past events,[1] the settlement of which may result in the transfer or use of assets,
provision of services or other yielding of economic benefits in the future.

A liability is defined by the following characteristics:

Any type of borrowing from persons or banks for improving a business or

personal income that is payable during short or long time;

19
 A duty or responsibility to others that entails settlement by future transfer or use
of assets, provision of services, or other transaction yielding an economic benefit, at a
specified or determinable date, on occurrence of a specified event, or on demand;

A duty or responsibility that obligates the entity to another, leaving it little or no

discretion to avoid settlement; and,

A transaction or event obligating the entity that has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on
equitable obligations or constructive obligations. An equitable obligation is a duty based
on ethical or moral considerations. A Constructive obligation is an obligation that is
implied by a set of circumstances in a particular situation, as opposed to a contractually
based obligation.

20
 BANK RECONCILIATION STATEMENT

A bank reconciliation statement is a summary of banking and business activity that

reconciles an entitys bank account with its financial records. The statement outlines the
deposits, withdrawals, and other activity impacting a bank account for a specific period.
A bank reconciliation statement is a useful financial internal control tool used to thwart
fraud.

NEED AND IMPORTAANCE OF BANK RECONCILIATION STATEMENT

Bank Reconciliation is an important technique by which the accuracy of the bank balance
shown by the pass book and cash book is ensured. The need and importance of bank
reconciliation statement can be summarized in the following points:

Bank reconciliation statement ensures the accuracy of the balances shown by the
pass book and cash book.

It provides a check on the accuracy of the entries made in both the books.

It helps to detect and rectify any error committed in both the books.

21
 BRS helps to update the cashbook by discovering some entries not yet recorded.

It indicates any undue delay in the collection and clearance of some cheques.

A regular reconciliation discourages the staff of the customer or even that of the
bank embezzlement (fraudulent appropriation of funds).

22
 FEATURES OF BANK RECONCILIATION STATEMENT

As the name signifies, a bank reconciliation statement is only a statement. It is not

a ledger account as prepared on the principles of the double entry system.

It is not the part of books of accounts.

It is prepared periodically say weekly, monthly, monthly or quarterly, depending

upon the volume of banking transactions involved.

It is prepared only when there is a disagreement between the bank balance as per
the cash book and balance as per pass book.

TRIAL BALANCE

A trial balance is a bookkeeping worksheet in which the balances of all ledgers are
compiled into debit and credit columns. A company prepares a trial balance periodically,
usually at the end of every reporting period. The general purpose of producing a trial
balance is to ensure the entries in a company's bookkeeping system are mathematically
correct.

23
 OBJECTIVES OF ACCOUNTING

1. To maintain full and systematic records of business transactions:

Accounting is the language of business transactions. Given the limitations of human

memory, the main objective of accounting is to maintain a full and systematic record of
all business transactions.

2. To ascertain profit or loss of the business:

Business is run to earn profits. Whether the business earned profit or incurred loss is
ascertained by accounting by preparing Profit & Loss Account or Income Statement. A
comparison of income and expenditure gives either profit or loss.

3. To depict financial position of the business:

A businessman is also interested in ascertaining his financial position at the end of a

given period. For this purpose, a position statement called Balance Sheet is prepared in
which assets and liabilities are shown.

Just as a doctor will feel the pulse of his patient and know whether he is enjoying good
health or not, in the same way by looking at the Balance Sheet one will know the
financial health of an enterprise. If the assets exceed liabilities, it is financially healthy,
i.e., solvent. In the other case, it would be insolvent, i.e., financially weak.

4. To provide accounting information to the interested parties:

Apart from owner of the business enterprise, there are various parties who are interested
in accounting information. These are bankers, creditors, tax authorities, prospective
investors, researchers, etc. Hence, one of the objectives of accounting is to make the
accounting information available to these interested parties to enable them to take sound

24
and realistic decisions. The accounting information is made available to them in the form
of annual report.

LIMITATIONS OF ACCOUNTING

1. Transactions of non-monetary nature do not find place in accounting. Accounting is

limited to monetary transactions only. It excludes qualitative elements like management
reputation, employee morale, labor strike etc.

2. Cost concept is found in accounting. Price changes are not considered. Money value is
bound to change often from time to time. This is a strong limitation of accounting.

3. Acceptable alternatives are so broad based that comparisons are likely to be confusing
or misleading. For instance, inventory cost may be ascertained by LIFO or FIFO; or stock
may be evaluated at cost price or market price.

4. Accounting policies are framed by the Accountant. The figures of balance sheet are
largely resulted by personal judgment of accountant hence it is the subjective factor that
prevails in accounting and objective factor is ignored.

5. Recording and accounting for wages and labor is not carried out for different jobs,
processes, products or departments. This creates problems in analyzing the cost
associated with different activities.

6. It is difficult to know the behavior of costs in financial accounting as expenses are not
assigned to the product at each stage of production. Expenses are not classified into direct
and indirect and therefore, cannot be classified as controllable and uncontrollable.

Control of cost which is the most important objective of all business enterprise, cannot be
achieved with the aid of financial accounting alone.

7. Financial accounting does not provide information to analyze the losses due to various
factors idle plant and equipment, seasonal fluctuations in volume of business etc. It

25
does not help management in taking important decisions about expansion of business,
dropping a product, alternative methods of production, improvement in products etc.

8. Financial accounting does not set up a proper system of controlling materials and
supplies. Undoubtedly, if materials and supplies are not controlled in a manufacturing
concern, they will lead to losses on account of misappropriation, misutilisation, scrap,
defectives etc.

26
 THE ACCOUNTING STANDARDS

The Accounting Standards and Statements on Standard Auditing Practices are issued
by the Accounting Standards Board and the Auditing Practices Committee of the ICAI,
respectively, to establish uniform standards which have to be complied with to ensure that
financial statements are prepared in accordance with generally accepted accounting
standards so that the auditors may carry out their audits / attest function in accordance
with the generally accepted auditing practices. These standards are mandatory on the
dates specified either in the respective document or by notification issued by the Council
of the ICAI. Basically, the Accounting standards of the ICAI are to ensure that accounts
are prepared uniformly and in line with the Indian GAAPs for better understanding of the
users.

Accounting Standards used during this project:

AS1

AS3

AS7

AS9

AS19

AS21

AS22

27
 INTRODUCTION TO AUDIT

An audit is a systematic and independent examination of books, accounts, statutory

records, documents and vouchers of an organization to ascertain how far the financial
statements as well as non-financial disclosures present a true and fair view of the
concern. It also attempts to ensure that the books of accounts are properly maintained by
the concern as required by law. Auditing has become such a ubiquitous phenomenon in
the corporate and the public sector that academics started identifying an "Audit Society".
[1]
The auditor perceives and recognizes the propositions before him/her for examination,
obtains evidence, evaluates the same and formulates an opinion on the basis of his
judgment which is communicated through his audit report.[2]

Any subject matter may be audited. Audits provide third party assurance to
various stakeholders that the subject matter is free from material misstatement. The term
is most frequently applied to audits of the financial information relating to a legal person.
Other areas which are commonly audited include: secretarial & compliance audit, internal
controls, quality management, project management, water management, and energy
conservation.

As a result of an audit, stakeholders may effectively evaluate and improve the

effectiveness of risk management, control, and the governance process over the subject
matter.

The word audit is derived from a Latin word "audire" which means "to hear".[3][4] During
the medieval times when manual book-keeping was prevalent, auditors in Britain used to
hear the accounts read out for them and checked that the organizations personnel were
not negligent or fraudulent.

28
29
 Role of Audit

Since its introduction, the need for certain companies financial statements1 to be
audited by an independent external auditor has been a cornerstone of confidence
in the worlds financial systems.

The benefit of an audit is that it provides assurance that management has

presented a true and fair view of a companys financial performance and
position.

An audit underpins the trust and obligation of stewardship between those who
manage a company and those who own it or otherwise have a need for a true and
fair view, the

30
 Benefits of an audit

Auditors are generally and ultimately appointed by the shareholders and report to
them directly or via the audit committee (or its equivalent) and others charged
with governance.

However, many companies audited financial statements, and particularly public

companies, are on public record. For large public companies, they may also be
used by other parties for varying purposes (see the chart below).

In addition to shareholders, these may include, for example, potential investors

considering buying the companys shares and suppliers or lenders who are
considering doing business with it.

A rigorous audit process will, almost invariably, also identify insights about some
areas where management may improve their controls or processes.

In certain circumstances the auditor may be required to communicate control

deficiencies to management and those charged with governance.

These communications add value to the company and enhance the overall quality
of business processes.

Given the importance of its role, queries are often raised about the audit, the
auditors and the stakeholders they serve.

TYPES OF AUDIT

Internal Audit

31
Internal auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organization's operations. It helps an organization
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.
[1]
Internal auditing is a catalyst for improving an organization's governance, risk
management and management controls by providing insight and recommendations based
on analyses and assessments of data and business processes. With commitment
to integrity and accountability, internal auditing provides value to governing
bodies and senior management as an objective source of independent advice.
Professionals called internal auditors are employed by organizations to perform the
internal auditing activity.

SCOPE OF INTERNAL AUDIT

The scope of internal auditing within an organization is broad and may involve topics
such as an organization's governance, risk management and management controls over:
efficiency/effectiveness of operations (including safeguarding of assets), the reliability of
financial and management reporting, and compliance with laws and regulations. Internal
auditing may also involve conducting proactive fraud audits to identify potentially
fraudulent acts; participating in fraud investigations under the direction of fraud
investigation professionals, and conducting post investigation fraud audits to identify
control breakdowns and establish financial loss.

Internal auditors are not responsible for the execution of company activities;
they advise management and the Board of Directors (or similar oversight body) regarding
how to better execute their responsibilities. As a result of their broad scope of
involvement, internal auditors may have a variety of higher educational and professional
backgrounds.

The Institute of Internal Auditors (IIA) is the recognized international standard setting
body for the internal audit profession and awards the Certified Internal Auditor
designation internationally through rigorous written examination. Other designations are

32
available in certain countries.[2] In the United States the professional standards of the
Institute of Internal Auditors have been codified in several states' statutes pertaining to
the practice of internal auditing in government (New York State, Texas, and Florida being
three examples). There are also a number of other international standard setting bodies.

Internal auditors work for government agencies (federal, state and local); for publicly
traded companies; and for non-profit companies across all industries. Internal auditing
departments are led by a Chief Audit Executive ("CAE") who generally reports to
the Audit Committee of the Board of Directors, with administrative reporting to the Chief
Executive Officer (In the United States this reporting relationship is required by law for
publicly traded companies).

Role in internal control

Internal auditing activity is primarily directed at evaluating internal control. Under the
[Committee of Sponsoring Organizations of the Treadway Commission|COSO]]
Framework, internal control is broadly defined as a process, effected by an entity's board
of directors, management, and other personnel, designed to provide reasonable assurance
regarding the achievement of the following core objectives for which all businesses
strive:

Effectiveness and efficiency of operations.

Reliability of financial and management reporting.

Compliance with laws and regulations.

Safeguarding of Assets

Management is responsible for internal control, which comprises five critical

components: the control environment; risk assessment; risk focused control activities;
information and communication; and monitoring activities. Managers establish policies,

33
processes, and practices in these five components of management control to help the
organization achieve the four specific objectives listed above. Internal auditors perform
audits to evaluate whether the five components of management control are present and
operating effectively, and if not, provide recommendations for improvement.

34
 STEPS OF INTERNAL AUDIT

1. Establish and communicate the scope and objectives for the audit to appropriate
management.

2. Develop an understanding of the business area under review. This includes

objectives, measurements, and key transaction types. This involves review of
documents and interviews. Flowcharts and narratives may be created if necessary.

3. Describe the key risks facing the business activities within the scope of the audit.

4. Identify management practices in the five components of control used to ensure

each key risk is properly controlled and monitored. Internal Audit
Checklist[10] can be a helpful tool to identify common risks and desired controls in
the specific process or industry being audited.

5. Develop and execute a risk-based sampling and testing approach to determine

whether the most important management controls are operating as intended.

6. Report issues and challenges identified and negotiate action plans with
management to address the problems.

7. Follow-up on reported findings at appropriate intervals. Internal audit departments

maintain a follow-up database for this purpose.

35
 Internal Audit Reports

Internal auditors typically issue reports at the end of each audit that summarize their
findings, recommendations, and any responses or action plans from management. An
audit report may have an executive summary; a body that includes the specific issues or
findings identified and related recommendations or action plans; and appendix
information such as detailed graphs and charts or process information. Each audit finding
within the body of the report may contain five elements, sometimes called the "5 C's":

1. Condition: What is the particular problem identified?

2. Criteria: What is the standard that was not met? The standard may be a company
policy or other benchmark.

3. Cause: Why did the problem occur?

4. Consequence: What is the risk/negative outcome (or opportunity foregone)

because of the finding?

5. Corrective action: What should management do about the finding? What have
they agreed to do and by when?

The recommendations in an internal audit report are designed to help the organization
achieve effective and efficient governance, risk and control processes associated with
operations objectives, financial and management reporting objectives; and
legal/regulatory compliance objectives.

Audit findings and recommendations may also relate to particular assertions about
transactions, such as whether the transactions audited were valid or authorized,
completely processed, accurately valued, processed in the correct time period, and
properly disclosed in financial or operational reporting, among other elements.

Under the IIA standards, a critical component of the audit process is the preparation of a
balanced report that provides executives and the board with the opportunity to evaluate
and weigh the issues being reported in the proper context and perspective. In providing

36
perspective, analysis and workable recommendations for business improvements in
critical areas, auditors help the organization meet its objectives.

Quality of Internal Audit Report

Objectivity - The comments and opinions expressed in the Report should be

objective and unbiased.

Clarity - The language used should be simple and straightforward.

Accuracy - The information contained in the report should be accurate.

Brevity - The report should be concise.

Timeliness - The report should be released promptly immediately after the audit
is concluded, within a month.

37
External Audit/Statutory Audit

An external auditor performs an audit, in accordance with specific laws or rules, of

the financial statements of a company, government entity, other legal entity,
or organization, and is independent of the entity being audited.[1] Users of these entities'
financial information, such as investors, government agencies, and the general public,
rely on the external auditor to present an unbiased and independent audit report.

The manner of appointment, the qualifications, and the format of reporting by an external
auditor are defined by statute, which varies according to jurisdiction. External auditors
must be members of one of the recognized professional accountancy bodies.[2] External
auditors normally address their reports to the shareholders of a corporation. In the United
States, certified public accountants are the only authorized non-governmental external
auditors who may perform audits and attestations on an entity's financial statements and
provide reports on such audits for public review. In the UK,[3] Canada and
other Commonwealth nations Chartered Accountants and certified have served in that
role.

38
 Features of Audit

Audit is a systematic and scientific examination of the books of accounts of a

business.
Audit is undertaken by an independent person or body of persons who are duly
qualified for the job.
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.
Audit is a critical review of the system of accounting and internal control.
Audit is done with the help of vouchers, documents, information and explanations
received from the authorities.
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.
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

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 THE AUDITOR CAN SUSPECT FRAUD UNDER FOLLOWING
CIRCUMSTANCES

1. When vouchers, invoices, cheques, contracts are missing etc.

2. When control account does not agree with subsidiary books.
3. When the difference in trial balance is difficult to locate.
4. When there is greater fluctuation in G.P. and N.P. ratios.
5. When there is difference between the balance and the confirmation
Of the balance by the parties.
6. When there is difference between the stock as per records and the
Stock physically counted.
7. When the explanation given by the client is not satisfactory.
8. When there is a overwriting of some figures.
9. When there is a contradiction in the explanation given by different
Parties.

PROCEDURE TO BE FOLLOWED TO DETECT 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 .

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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.

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 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 challans etc
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.

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 ACCOUNTING Vs AUDIT
Basis for comparison Accounting
Meaning Accounting means
systematically keeping the
records of the accounts of
an organization and
preparation of financial
statements at the end of the
financial year.
Governed by Accounting standards
Work performed by Accountant
Purpose To show the performance,
profitability and financial
position of an organization.
Start Accounting starts where
bookkeeping ends.
Period Accounting is a continuous
process, i.e. day to day
recording of transactions
are done.
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Auditing
Auditing means inspection
of the books of account and
financial statements of an
organization.
Standards on Auditing
Auditor
To reveal the fact, that to
which extent financial
statement of an organization
gives true and fair view.
Auditing starts where
accounting ends.
Accounting is a periodic
process.
 AUDIT PLANNING

Audit planning is a vital area of the audit primarily conducted at the beginning
of audit process to ensure that appropriate attention is devoted to important areas,
potential problems are promptly identified, work is completed expeditiously and work is
properly coordinated. "Audit planning" means developing a general strategy and a
detailed approach for the expected nature, timing and extent of the audit. The auditor
plans to perform the audit in an efficient and timely manner.

Benefits of Audit Plan

It helps the auditor obtain sufficient appropriate evidence for the circumstances

It helps to keep audit costs at a reasonable level.

It helps to avoid misunderstandings with the client.

It helps to ensure that potential problems are promptly identified

It helps to know the scope of audit program by an Auditor.

Process of Audit Planning

Knowledge of client's business

Development of audit strategies or overall plan (who, when and how)

Preparation of audit programme

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 AUDIT RISK

The risk that an auditor will not discover errors or intentional miscalculations (i.e. fraud)
while reviewing a company's or individuals financial statements. There are two general
categories of audit risk risk regarding assessment of the financial materials and risk
regarding the assertions produced by evaluation of the financial materials.

Companies request an audit in order to provide confidence to investors that their financial
statements and reporting are accurate. In order to insure against potential litigation arising
from missed financial improprieties, such as material misstatements, auditors will
typically carry malpractice insurance.

CONTROL RISK IN AUDITING

Control risk, which is the risk that a misstatement due to error or fraud that could occur
in an assertion and that could be material, individually or in combination with
other misstatements, will not be prevented or detected on a timely basis by the
company's internal control.

INHERENT RISK
Inherent risk, in a financial audit, measures the auditor's assessment of the likelihood that
there are material misstatements due to error or fraud in segment before considering the
effectiveness of internal control.

DETECTION RISK
Detection Risk (DR) is the risk that the auditor will not detect a misstatement that exists
in an assertion that could be material (significant), either individually or when aggregated
with other misstatements.

SIGNIFICANT RISK

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The audit procedures performed to obtain an understanding of the entity and its
environment, including the entity's internal control, to identify and assess the risks
of material misstatement, whether due to fraud or error, at the financial statement and
relevant assertion levels. Significant risk.

CALCULATION OF AUDIT RISK

Audit Risk = Inherent Risk x Control Risk x Detection Risk

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 AUDIT AT IL&FS TRANSPORTATION NETWORK LTD.

SPVs There is an agreement between NHAI which includes tenure, income

generation, rules and regulations etc
Agreement between SPVs and ITNL is created known as development agreement
After the development agreement funds are required and raised loan is raised
internally or externally
After loan is sanctioned, operations and main agreement is created wherein
commercial operations date is given from which they can start collecting
toll/annuity.

The main objectives of Audit in IL&FS are:

1. To know the business
2. To get SOPs
3. To check whether procedure is taking place
4. SOPs are designed by the management

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 OBJECTIVES OF AUDIT

1. Primary Objectives
To determine and judge the reliability of the financial statement and the supporting
accounting records of a particular financial period is the main purpose of the audit. As
per the Indian Companies Act, 1956 it is mandatory for the organizations to appoint an
auditor who, after the examination and verification of the books of account, disclose his
opinion that whether the audited books of accounts, Profit and Loss Account and Balance
Sheet are showing the true and fair view of the state of affairs of the company's business.
To get a true and fair view of the companies affairs and express his opinion, he has to
thoroughly check all the transactions and relevant documents of the company made
during the audited period. Which will help the auditor to report the financial condition
and working result of the organization. While carrying out the process of audit, the
auditor may come across certain errors and frauds. But detection of fraud or errors are not
the primary objective of the audit. They are come under the secondary objectives of
audit.

2. Secondary Objectives
In order to report the financial condition of the business, auditor has to examine the books
of accounts and the relevant documents. In that process he may come across some errors
and frauds. We may classify these errors and frauds as below:

1 Detection and prevention of Errors

2. Detection and prevention of Frauds.

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 METHODOLOGY

Following areas are being covered as a part of the training:

Information and training on accounting software (SAP) being used;

Understand the nature of expenses incurred and book the same in SAP;

Apply statutory deductions (Tax Deduction at Source),

Works Contract Tax, Labor Cess on Expense invoice booking,

Release of payments to Vendors against Invoices booked;

Preparation of Bank Reconciliation statement,

Computation of Income Tax

Booking of Income Invoices raised on Customers and Receipts of funds against

the same,

Observing and analyzing work done by the auditors

As the part of the project, had discussion with internal as well as external auditor

Also generated the cash flows

Learnt functioning of SAP and various SAP codes in IL&FS

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 STUDY AREA

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.

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 II. REVIEW OF THE LITERATURE

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
utilization 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.

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 FINANCIAL HISTORY-ACCOUNTING

Accounting is the language of business and, by extension, the language of all things
financial. In the same way that our senses are needed to translate information about our
surroundings into something understood by our brains, accountants are needed to
translate the complexities of finance into summary numbers that the public can
understand. In this article, we will follow accounting from its roots in ancient times to the
modern profession that we now depend on.

The Bookkeepers

Bookkeepers most likely emerged while society was still in the barter and trade system
(pre-2000 B.C.) rather than a cash and commerce economy. Ledgers from these times
read like narratives with dates and descriptions of trades made or terms for services
rendered.

Example - Barter and Trade Bookkeeping

Monday, May 12 - In exchange for three chickens which I provided today,

William Smallwood (laborer) promised a satchel of seed when the harvest is
completed in the fall.

Wednesday, May 14 - Samuel Thomson (craftsman) agreed to make one chest

of drawers in exchange for a year\'s worth of eggs. The eggs are to be
delivered daily once the chest is finished.

All of these transactions were kept in individual ledgers, and if a dispute arose, they
provided proof when matters were brought before magistrates. Although tiresome, this
system of detailing every agreement was ideal because long periods of time could pass
before transactions were completed.

The New and Improved Ledger - Now With Numbers!

As currencies became available and tradesmen and merchants began to build material

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wealth, bookkeeping also evolved. Then, as now, business sense and ability with numbers
were not always found in one person, so math-phobic merchants would employ
bookkeepers to keep a record of what they owed and who owed them. Up until the late
1400s, this information was still arranged in a narrative style with all the numbers in a
single column whether an amount paid, owed or otherwise. This is called single-entry
bookkeeping and is similar to what many of us do to keep track of our checkbooks.

Coming to America

Bookkeeping migrated to America with the European colonization. Although it was

sometimes referred to as accounting, bookkeepers were still doing basic data entry and
calculations for business owners. The businesses in question were small enough that the
owners were personally involved and aware of the health of their companies. They didn't
need accountants to create complex financial statements or cost-benefit analysis.

The American Railroad

The appearance of corporations in the U.S. and the creation of the railroad were the
catalysts that transformed bookkeeping into the practice of accounting. Of the two
factors, the railroad was by far the most powerful. To get goods and people to their
destinations, you need distribution networks, shipping schedules, fare collection,
competitive rates and some way to evaluate whether all this is being done in the most
efficient way possible. Enter accounting with its cost estimates, financial
statements, operating ratios, production reports and a multitude of other metrics to give
businesses the data they needed to make informed decisions.

The railroad also shrank the country. Business transactions could be settled in a matter of
days rather than months, and information could be passed from city to city at a much
greater speed. Even time did not run evenly across the country before the railroad.
Previously, each township decided when the day began and ended by a general
consensus. This was changed to a uniform system because it was necessary to have goods
delivered and unloaded at certain stations at predictable times.

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This shrinking of the country and introduction of uniformity encouraged investment,
which, in turn, put more focus on accounting. Up to the 1800s, investing had been either
a game of knowledge or one of luck. People acquired issues of stock in companies with
which they were familiar, either by knowing the industry or knowing the owners, or they
blindly invested where their relatives and friends encouraged them to. There were
no financials to check if you wanted to invest in a corporation or business that you knew
nothing about. The risk of this type of investing made it an activity for the wealthy - a
rich man's sport with the taint of gambling. This image has never completely faded.

The First Financials

Corporations, eager to attract more capital to expand their operations, began to publish
their financials in the form of a balance sheet, income statement and cash flow statement.

Investment capital from sources outside the company became more important than that
provided by the individual owners who had pioneered business. Although bringing in this
investment capital increased the range of operations and profits for most corporations, it
also increased the pressure on the management to please their new bosses -
the shareholders. For their part, the shareholders were unable to completely trust the
management, so the need for independent financial review of a company's operations
became apparent.

The Birth of a Profession

Accountants was already essential for attracting investors, and they quickly became
essential for maintaining investor confidence. The profession of accounting was
recognized in 1896 with a law stating that the title of certified public accountant (CPA)
would only be given to people who had passed state examinations and had three years of
experience in the field. The creation of professional accountants came at an opportune
time. Less than 20 years later, the demand for CPAs would skyrocket as the U.S.
government, in need of money to fight a war, started charging income tax.

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 EVOLUTION-AUDIT

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 18th
century With the growth 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.
In India the companies Act 1913 made audit of company accounts compulsory.

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 In conclusion it can be said that auditing has come a long way from hearing of
accounts to taking the help of computers to examine computerized accounts.

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 III. DESIGN OF THE STUDY

Methods of gathering data

1. Primary Data: Practically worked on SAP and captured the outcome
and results. Met the internal auditors for the information of
functioning of audit in IL&FS
2. Secondary Data: From other sources like internet, books.

Description of data: Analytical and Descriptive

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 IV. PRESENTATION AND ANALYSIS OF DATA

Tables and figures: SAP process

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 V. Conclusion

Accounting and Auditing both are specialized fields, but the scope of auditing is wider
than accounting as it needs a thorough understanding of various acts, tax rules,
knowledge of accounting standards and standards on auditing as well as communication
skills are also required.

Apart from that, confidentiality, integrity, honesty and independence are the basic
requirements that is to be maintained while performing the audit procedure. The reports
submitted by the auditor are helpful for the users of the financial statement like creditors,
shareholders, investors, suppliers, debtors, customers, government, etc. for rational
decision making.

Although Accounting is not less, it also requires complete knowledge of the accounting
standards, principles, conventions and assumptions as well as Companies Act rules and
tax laws. The procedure of auditing is conducted only when the accounting is done
properly so; it cannot be neglected.

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 BIBLIOGRAPHY

Books

1. Service tax Manual basic and advanced

2. Guide to TDS and advanced Tax

Websites

1. Scribed.com

2. Management Paradise.com

3. CAclubindia.com

4. Investopedia.com

5. Business dictionary.com

6. Money control CNBC

7. Goodreads.com

Journals

1. Annual Reports

2. Notes

3. Schedules

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