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    Working Capital & Bank Stock Audit

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    Aarti
    This document discusses working capital and bank stock audits. [1] It defines working capital as the funds required for daily business operations, calculated as current assets less current liabilities. [2] It outlines factors that affect working capital such as receivables, inventory, credit terms, and liquidity. [3] It describes the purpose of bank stock audits is to audit inventory, receivables, and funds provided by banks to ensure they are being used as intended.

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    Working Capital & Bank Stock Audit

    Uploaded by

    Aarti
    46 views23 pages
    This document discusses working capital and bank stock audits. [1] It defines working capital as the funds required for daily business operations, calculated as current assets less current liabilities. [2] It outlines factors that affect working capital such as receivables, inventory, credit terms, and liquidity. [3] It describes the purpose of bank stock audits is to audit inventory, receivables, and funds provided by banks to ensure they are being used as intended.

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    Stock statement

    Original Title

    Aurangabad-31072015

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    This document discusses working capital and bank stock audits. [1] It defines working capital as the funds required for daily business operations, calculated as current assets less current liabilities. [2] It outlines factors that affect working capital such as receivables, inventory, credit terms, and liquidity. [3] It describes the purpose of bank stock audits is to audit inventory, receivables, and funds provided by banks to ensure they are being used as intended.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    46 views23 pages

    Working Capital & Bank Stock Audit

    Uploaded by

    Aarti
    This document discusses working capital and bank stock audits. [1] It defines working capital as the funds required for daily business operations, calculated as current assets less current liabilities. [2] It outlines factors that affect working capital such as receivables, inventory, credit terms, and liquidity. [3] It describes the purpose of bank stock audits is to audit inventory, receivables, and funds provided by banks to ensure they are being used as intended.

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    WORKING CAPITAL

    &
    BANK STOCK AUDIT

    CEP DISCUSSION BY
    CMA R P GORE
    ICMAI- AURANGABAD CHAPTER
    O N 3 1 S T J U LY 2 0 1 5
    WORKING CAPITAL

    WORKING CAPITAL ARE FUNDS REQUIRED FOR


    SMOOTH DAY TODAY OPERATIONS OF THE UNIT. ON
    ANY GIVEN DAY IT IS EQULE TO CURRENT ASSETS
    LESS CURRENT LIABILITIES= AMT BLOCKED

    CURRENT
    CURRENT
    WORKING LIABILITIES
    ASSETS
    CAPITAL
    WORKING CAPITAL
    Increase in rate
    Increase in Qty Decrease in rate
    Non moving/ INVENTORIES Decrease in Qty
    Slow moving

    Increase in Decrease in cr
    credit period ADD- period
    Increase in SUNDRY Decrease in sales
    sales DEBTORS

    Increase pmts, LESS Decrease in pmts,


    Decrease in SUNDRY increase in Cr
    credit period CREDITORS period
    WORKING CAPITAL CYCLE

    CASH
    BANK
    INVENTORIES
    & DEBTORS
    OTHER INCOME EXPENSES
    / CASH SALES /
    PURCHASES
    RECEIPT FROM
    DEBTORS PRODUCTION

    CASH SALES
    CREDIT SALES
    FACTORS AFFECTING
    WORKING CAPITAL

    Uncollected receivables - If receivables remain


    outstanding for longer period then chances of default becomes
    higher
    Obsolete inventory - If inventory remains outstanding for
    longer period of time, then these become obsolete and can't be
    sold
    Tight credit - During poor economic conditions, short term
    debt becomes less accessible and costly
    FACTORS AFFECTING
    WORKING CAPITAL (continued)

    Making payments early - Early payment reduces short


    term funds available with the company which could have been
    utilized to meet other working capital requirements
    Reduced credit limits - If a company frequently makes late
    payment to suppliers, then credit limits might get reduced
    Limits on short term lines of credit - If banks reduce
    line of credit to a company, then it will result in liquidity
    squeeze
    FACTORS AFFECTING
    WORKING CAPITAL

    Low liquidity positions - Companies can face low liquidity


    condition owing to poor financial condition of firm or due to
    nature of industry in which it operates
    WORKING CAPITAL RATIOES

    CURRENT CURRENT ASSETS/


    RATIO = CURRENT LIABILITIES

    RECEIVABLE CREDIT SALES/


    TURNOVER= AVERAGE RECEIVABLES

    INVENTORY COST OF GOODS SOLD /


    TURNOVER= AVERAGE INVENTORY
    RECEIVABLE MANAGEMENT

    Receivable Ageing
    Tradeoff between credit terms and ability to make
    sales.
    If credit terms are strict, sales may go down credit
    terms are too lax then -default on receivables
    Receivables turnover should be comparable to
    industry standards.
    Inventory management

    If inventory turnover is too low, it would imply that


    too much of capital is tied in inventory and these
    inventories can become obsolete and never get sold
    in future
    If inventory turnover is too high, it would imply that
    firm is maintaining too little inventory on hand and
    it might result in lost sales due to non-availability of
    product
    Inventory turnover of a firm should be as per
    industry standards
    Accounts PayableTurnover

    If payables turnover is too low, it would imply that


    there is excess delay in payments to suppliers. In
    future suppliers may not agree to such lax payments
    If payables turnover is too high, it would imply that
    firm is making early payment and this cash could
    have been used for other working capital purpose or
    firm could have earned interest on early payment
    amount
    Accounts payable Turnover

    Trade credit (or discount on early payment) may


    prompt a firm to make early payment ( No of days
    credit, No of days early payment % of discount
    offered )
    BANK STOCK AUDIT

    The audit of stock, debtors to workout the


    amount required for working capital & to
    safeguard the working capital / funds
    provided by the bank. To check for diversion
    of funds & for utilisation for intended
    purposes
    Normally done by retired bank employees,
    Chartered or Cost accountants- not related
    with the branch or the unit as concurrent
    auditor or statutory auditor
    Why is BANK STK AUDIT important for CMA?

    Public Sector Banks (PSBs) There are a total of 27


    PSBs in India [19 Nationalised banks + 6 S B Igroup
    + 1 IDBI bank + 1 Bhartiya Mahila Bank.] These
    banks have ,say,70,421 branches
    Private sector banks have say,14,584 branches
    Plus foreign banks have 331 branches. Thus there are
    85,336 branches where there is possibility of stock
    audit assignments.
    Where ever the advances crosses exposure as
    prescribed by RBI the stock audits have to be carried
    out by professionals
    Continued-----

    It may be possible that fees may not be attractive but


    if two/ three assignments of say same location are
    given at one time, then it can be very attractive
    But lot of CMAs all over India can get assignments &
    through the same, the industry exposure. For new
    CMAs this can be their introduction to industry
    STEPS INVOLVED

    Getting empanelled
    Allotment of assignment of unit for BSA
    Go through the letter carefully & find out special
    requirements if any
    Get copy of sanction letter ( details)
    Whether there is consortium or single bank
    financing
    Whether pledge or hypothecation
    continued

    Check from the partys account the transactions to


    check the limit enjoyed, overdrawn if any, nature of
    receipts ( direct realisation), use for long term
    purposes, diversion of funds payment to related
    parties etc
    POINTS TO BE CONSIDERED -INVENTORIES

    PHYSICAL SAFTY NATURAL CALAMINITIES


    SECURITY OF STOCK
    INSURED, IN BANKS NAME, INSURANCE
    VALUE, VALIDITY
    PHYSICAL STOCK STOCK ARRANGEMENT
    COMPARISON - PHYSICAL VIS A VIS BOOK STK
    VALUATION METHOD , VALUATION RATE
    INVENTORIES- CONTINUED

    MOVEMENT- ANY NONMOVING, ABSOLUTE


    MATERIAL
    REQUIREMENT OF PRODUCTION- WHETHER
    REASONABLE
    COMPARING THE CORRECTNESS OF
    REPORTING, AUTHENCITY OF MIS
    POINTS TO BE CONSIDERED
    SUNDRY DEBTORS

    AGING OF DEBTORS ALLOWABLE AGE


    DEBTORS MOVEMENT / BALANCE
    REASONABLE
    ACCOUNTING OF SALES, DEBTORS & ITS
    REALISATION
    WHETHER REALISATION FLOWING DIRECTLY
    IN THE CC ACCT & PMTS ONLY TO PARTY
    RELATED PARTY SALES TRANSACTION
    D P WORKING

    DP WORKED AS FOLLOWS
    INVENTORIES LESS MARGIN =
    DEBTORS LESS MARGIN (90 Days) =
    LESS CREDITORS =
    ------------------------------------------------------------
    D P AVAILABLE =

    W C LIMIT, D P AMT USED VIS A VIS DP


    CALCULATED AS ABOVE WILL CLARIFY IF
    EXCESS CREDIT USED
    PRACTICAL TIPS

    Check whether banks board displayed


    Study of the industry / unit and other details
    whatever available like on net or in some records
    Production flow chart
    System of accounting / inventory accounting
    Test check / random check
    Whether cost records are applicable
    From bank records / from partys ledger some unusal
    transactions
    The end

    THANKS ALL

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