ROLEOFAUDITORSINPRIVATEANDPUBLICCOMPANY

APROJECTSUBMITTEDTO

UNIVERSITY OF MUMBAI

FORPARTIALCOMPLETIONOFTHE

DEGREE OFMASTER IN COMMERCE

UNDER THE FACULTY OF

COMMERCE BY

MS.SHAKSHIARVINDSINGH

ROLL NO : 22

UNDER THE GUIDANCE OF

MRS.SHARMILAKARVE

J.WATUMULLSADHUBELLAGIRLSCOLLEGE

ULHASNAGAR-421001

SEMIV2023-24
 J.WATUMULLSADHUBELLAGIRLS,U
LHASNAGAR-421001

Certificate

This is to certify that MSS HAKSHI ARVIND SINGH has worked and
duly completed her Project Work for the degree of Master in Commerce
under the Faculty of Commerce in the subject of Advance Accountancy
and Finance her project is entitled, “ROLE OF AUDITORS IN
PUBLICAND PRIVATE COMPANY” Under my supervision. I further
certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any
Degree or Diploma of my University.

It is her own work and facts reported by her personal findings and
investigations.

Date of Submission: Name & Signature of

Guiding Signature

Dr. Vasant P. Mali Name & Signature of

Principal External Examiner

 Declaration by learner

I the undersigned MS. NIDHI VINOD SONKAR hereby, declare that

the work embodied in this project work titled “ROLE OF AUDITORS
INPUBLIC AND PRIVATE COMPANY” forms my own contribution
to the research work carried out under the guidance of MS. SHARMILA
KARVE is a result ofmy own research work and has not been previously
submitted to any other University for any other Degree/Diploma to this or
any other University.

Wherever reference has to be made to previous work so for thers, it has

been clearly indicated as such and included in bibliography.

I, here by further declare that all information of this document has been
obtained and presented in accordance with academic Rules and ethical
conduct.

Name and Signature of the learner

Certifiedby

NameandSignatureoftheguidingteacher
 Acknowledgme
nt

To list who all have helped me is difficult because they are so

numerous andthe depth is so enormous.

I would like to acknowledge the following as being idealistic channels

and fresh dimensions in the completion of this project.

I take this opportunity to thank the UNIVERSITY OF MUMBAI for

giving me chance to do this project.

I would like to thank my principal, DR. VASANT PANDIT MALI for

providingthenecessaryfacilitiesrequiredforcompletionofthisproject.

I take this opportunity to thank our Chief Coordinator MS.

SHARMILA KARVE for her moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide MS. SHARMILA KARVE Whose guidance and care made the
project successful.

I would like to thank my college library, for having provided various

reference book and ‘magazines related to my project.

Lastly, I would like to thank you each and every person who directly or
indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project.
 INDEX

ChapterNo Particular PageNo

1 Introduction 1-25

2 Review Of Literature 26-33

3 Research and Methodology 34-37

4 Data Analysis and 38-47

Interpretation

5 Conclusion 48

Bibliography 50

Questioner 53
 CHAPTER 1
INTRODUCTION

1
INTRODUCTION OF AUDITING
The practice of auditing existed even in the Vedic period. Historical records show that Egyptians,
Greeks and Roman used to get this public account scrutinized by and independent official. Kautaly
in his book “arthshastra” has stated that “all undertakings depend on finance, hence foremost
attention should be paid to the treasury”.

Auditing as it exists today can be associated with the emerging a joint stock company during the
industrial revolution. The company’s act of 1956 gives regulations regarding the audit work.

Meaning of Audit:

The word audit is derived from the Latin word “AUDIRE” which means to hear. Initially auditor
was a person appointed by the owners to check account whenever the suspected fraud, he was to
hear explanation given by the person responsible for financial transactions. Emergence of joint
stock companies changed the approach of auditing as ownership was pestered from management.
The emphasis now is clearly on the verification of accounting date with a view on the reliability of
accounting statement.

Definition:

Spicer and Peglar define auditing as “An examination of the books, accounts and vouchers of a
business’s shall enable the auditor to satisfy himself whether or not the balance sheet is properly
drawn up so as to exhibit a true and correct view of the state of affairs of the business according to
his best of the information given to him and as shown by the book.

Mautz: defines auditing as being “Concerned with the verification of accounting data with
determining the accuracy and reliability of accounting statements and reports.”
The international auditing practices committee defines auditing as “the independent examination
of financial information of any entity whether profit oriented or not and irrespective of size/legal
form when such an examination is conducted with a view to express an opinion thereon”.

2
Scope of Audit.

The scope of audit is increasing with the increase in the complexities of the busines. It is said that
long range objectives of an audit should be to serve as a guide to the management future decisions.

Today most of the economic activities are largely conducted through public finance. The auditor
has to see whether these larger funds are properly used. The scope of audit encompasses
verification of accounts with a intention of giving opinion on its reliability. Hence it covers cost
audit, management audit, social audit etc. It should be remembered that an auditor just expressed
his opinion on the authenticity of the account. He has no power to take action against anybody, in
this regard its said that “an auditor is a watch dog but not a blood hound”.

3
OBJECTIVES OF AUDITING.
Auditors are basically concerned with verifying whether the account exhibit true and fair view of
the business. The objectives of auditing depends upon the purpose of his appointment.

Primary Objective.

The primary objective of an auditor is to respect to the owners of his business expressing his
opinion whether account exhibits true and fair view of the state of affairs of the business. It should
be remembered that in case of a company, he reports to the shareholders who are the owners of the
company and not tot the director. The auditor is also concerned with verifying how far the
accounting system is successful in correctly recording transactions. He had to see whether
accounts are prepared in accordance with recognized accounting policies and practices and as per
statutory requirements.

Secondary Objective:

The following objectives are incidental to the main objective of audting.

Detection and prevention of errors: errors are mistakes committed unintentionally because
of ignorance, carelessness. Errors are of many types:

Errors of Omission: These are the errors which arise on account of transaction into being
recorded in the books of accounts either wholly partially. If a transaction has been totally
omitted it will not affect trial balance and hence it is more difficult to detect. On the other
hand if a transaction is partially recorded, the trial balance will not agree and hence it can
be easily detected.

Errors of Commission: When incorrect entries are made in the books of accounts either
wholly, partially such errors are known as errors of commission. Eg: wrong entries, wrong
Calculations, postings, carry forwards etc such errors can be located while verifying.

Compensating Errors: when two/more mistakes are committed which counter balances
each other. Such an error is know an Compensating Error. Eg: if the amount is wrongly
debited by Rs 100 less and Wrongly Credited by Rs 100 such a mistake is known as
compensating error.

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 Error of Principle: These are the errors committed by not properly following the
accounting principles. These arise mainly due to the lack of knowledge of accounting. Eg:
Revenue expenditure may be treated as Capital Expenditure.

Clerical Errors; A clerical error is one which arises on account of ignorance, carelessness,
negligence etc.

Location of Errors: It is not the duty of the auditor to identify the errors but in the process of
verifying accounts, he may discover the errors in the accounts. The auditor should follow the
following procedure in this regard.

Check the trial balance.

Compare list of debtors and creditors with the trial balance.

Compare the names of account appearing in the ledger with the

names of accounting in the trial balance.

Check the totals and balances of all accounts and see that they have been properly shown in the
trial balance.

5
Deduction and Prevention of Fraud: A fraud is an Error committed

intentionally to deceive/ to mislead/ to conceal the truth/ the material fact.

Frauds may be of 3 types:-

Misappropriation of Cash: This is one of the majored frauds in any organization it

normally occurs in the cash department. This kind of fraud is either by showing more
payments/ less receipt.

The cashier may show more expenses than what is actually incurred and misuse the extra
cash. Eg: showing wages to dummy workers. Cash can also be misappropriated by
showing less receipts

Eg: not recording cash sales. Not allowing discounts to customers. The cashier may also
misappropriate the cash when it is received. Cash received from 1st customer is misused
when the 2nd customer pays it is transferred to the 1st customer’s account. When the 3rd
customer pays it goes forever. Such a fraud is known as “Teaming and Lading”. To prevent
such frauds the auditor must check in detail all books and documents, vouchers, invoices
etc.

Misappropriation of Goods: here records may be made for the goods not purchase not
issued to production department, goods may be used for personal purpose. Such a fraud
can be deducted by checking stock records and physical verification of goods.

Manipulation of Accounts: this is finalizing accounts with the intention of misleading

others. This is also known as “WINDOWS DRESSING”. It is very difficult to locate
because its usually committed by higher level management such as directors. The objective
of WD may be to evade tax, to borrow money from bank, to increase the share price etc.

to conclude it cab be said that, it is not the main objective of the auditor to discover frauds
and irregularities. He is not an insurance against frauds and errors. But if he finds anything
of a suspicious nature, he should probel it to the full.

6
ADVANTAGES OF AUDIT:

Audited account are detected as an authentic record of transaction.

Errors and frauds are detected and rectified.

It increases the morale of the staff and thus it prevents frauds and errors.

Because of his expertise the auditor may advise on various matters to his clients.

An auditor acts as a trustee of his shareholders. Hence he safeguards their financial interest.

For taxation purpose auditing of account is amust.

In case of any claim is to be made from the insurance company only audited account should be
submitted.

Even in case of partnership firm auditing of accounts helps in the settlement of claim at the
time of retirement/death of a partner.

Auditor account helps in managerial decisions.

They are useful to secure loan at the of amalgamation, absorption, reconstruction etc.

Auditing safeguards the interest of owners, creditors, investors, and workers.

It is useful to take certain financial decisions like issuing of shares, payment of dividend etc.

Advantages of auditing are as follows:-

Access to Capital Market: Public limited companies must satisfy audit requirements under the
Securities and Exchange Commission in order to register securities and have them traded in the
securities markets. Without audits, companies would be denied access to these capital markets.

Lower Cost of Capital: Because of the reduced information risk associated with audited financial
statements, creditors may offer lower interest rates, and investors may be willing to accept a lower
rate of return on their investment.

Deterrent to Inefficiency and Fraud: When employees know that an independent audit is to be
made, they take care to make fewer errors in performing the accounting function and are less
likely to misappropriate company assets.

Control and Operational Improvements: The independent auditor can often make suggestions
to improve controls and achieve greater operating efficiencies within the client’s organization.
7
LIMITATIONS/DISADVANTAGES OF AUDITING
The main issue for accountants is there are some certain limitations to assurance services and for
that reason there is always a risk involved that the wrong conclusion will be drawn. Assurance can
never be absolute. Assurance providers will never give a certification of absolute correctness due
to the limitations set out below:

Testing is used – the auditors do not oversee the process of building the financial statements from
start to finish.

The accounting systems on which assurance providers may place a degree of reliance also have
inherent limitations.

Most audit evidence is persuasive rather than conclusive.

Assurance providers may sometime not test the entire item in the every subject matter.

The client’s staff members may collude in fraud that can then be deliberately hidden from the
auditor or misrepresent matters to them for the same purpose.

Assurance provision can be subjective and professional judgments have to be made. For example,
about what aspects of the subject matter are the most important, how much evidence to obtain etc.

Assurance providers rely on the responsible party and its staff to provide correct information,
which in some cases may be impossible to verify by other means.

Some items in the subject matter may be estimates and are therefore uncertain. It is impossible to
conclude absolutely that judgmental estimates are correct.

The nature of the assurance report might itself be limiting, as every judgment and conclusion the
assurance provider has drawn cannot be included in it.

It does not take into account the productivity and the skills of the employees of the business.

For smaller companies, hiring a firm to carry out an audit can be costly.

Investment may be discouraged by a bad auditing

8
QUALIFICATION & DISQUALIFICATION
OF ANAUDITORS
Qualifications of an auditor:

According to Provisions of Section 141(1) of the Companies Act, 2013 “a person shall beeligible
for appointment as an auditor of a company only if he is a chartered accountant within the
meaning of Chartered Accountants Act, 1949 and holds a valid Certificate of Practice.

It has been further provided that the firm shall also considered to appointed by its firm name
whereof majority of partners practicing in India are qualified for appointment as auditor of a
company. According to Provisions of Section 141(2) of the Companies Act, 2013, a firm
including limited liability partnership who are chartered accountants shall be authorized to act as
auditor and sign on behalf of the such limited liability partnership or firm.

A person shall appointed as an auditor if he is chartered accountant within the meaning of

Chartered Accountants Act, 1949 and holding valid certificate of practice and acting in capacity as

a) Individual

b) Partnership Firm

c) Limited Liability partnership It has been further provided that only partnerswho are
Chartered Accountants will be authorized to sign on behalf of the firm.

Disqualifications of an Auditor:

According to Provisions of Section 141(3) of the Companies Act, 2013 , following persons shall
not be eligible as auditor of the company: ‐

a) A body corporate other than LLP registered under the LLP Act, 2008

b) An officer or employee of the company.

c) A person who is partner or who in the employment, of an officer or employee of the company.

d) A person who or his relative or partner

(i) Is holding any security/interest in the company or its subsidiary or of its holding or associate
company or subsidiary of such holding company. It has been further provided that an relative may
hold security or interest in the company of face value not exceeding one lac rupees.

(ii) Is indebted to the company or its subsidiary, or its holding or associate company or subsidiary
of such holding company, in excess of Rs. 5 lacs rupees

9
 (iii) Has given guarantee or provide any security in connection with the in debtness of any third
person to the company or its subsidiary, or its holding or associate company or a subsidiary of
such holding company for value in excess of Rs. 1 lacs.

e) A person or a firm who (whether directly or indirectly) has business relationship with the
company, or its subsidiary, or its holding or associate company or subsidiary of such holding
company or associate company.

10
Appointment of auditors

(1) Subject to the provisions of this Chapter, every company shall, at the first

annual general meeting, appoint an individual or a firm as an auditor who shall hold office

from the conclusion of that meeting till the conclusion of its sixth annual general meeting and

thereafter till the conclusion of every sixth meeting and the manner and procedure of selection

of auditors by the members of the company at such meeting shall be such as may be prescribed:

Provided that the company shall place the matter relating to such appointment for

ratification by members at every annual general meeting:

Provided further that before such appointment is made, the written consent of the

auditor to such appointment, and a certificate from him or it that the appointment, if made,

shall be in accordance with the conditions as may be prescribed, shall be obtained from the

auditor:

Provided also that the certificate shall also indicate whether the auditor satisfies the

criteria provided in section 141:

Provided also that the company shall inform the auditor concerned of his or its

appointment, and also file a notice of such appointment with the Registrar within fifteen days

of the meeting in which the auditor is appointed.

Explanation.—For the purposes of this Chapter, “appointment” includes reappointment.

(2) No listed company or a company belonging to such class or classes of companies

as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years;
and
(b) an audit firm as auditor for more than two terms of five consecutive years:

11
Provided that—
(i) an individual auditor who has completed his term under clause (a) shall

not be eligible for re-appointment as auditor in the same company for five years

from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not

be eligible for re-appointment as auditor in the same company for five years from

the completion of such term:

Provided further that as on the date of appointment no audit firm having a common

partner or partners to the other audit firm, whose tenure has expired in a company immediately

preceding the financial year, shall be appointed as auditor of the same company for a period

of five years:

Provided also that every company, existing on or before the commencement of this Act

which is required to comply with provisions of this sub-section, shall comply with the

requirements of this sub-section within three years from the date of commencement of this Act:

Provided also that, nothing contained in this sub-section shall prejudice the right of

the company to remove an auditor or the right of the auditor to resign from such office of the

company.

(3) Subject to the provisions of this Act, members of a company may resolve to

provide that—

(a) in the audit firm appointed by it, the auditing partner and his team shall be

rotated at such intervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

12
(4) The Central Government may, by rules, prescribe the manner in which the companies

shall rotate their auditors in pursuance of sub-section (2).

Explanation.—For the purposes of this Chapter, the word “firm” shall include a limited

liability partnership incorporated under the Limited Liability Partnership Act, 2008.

(5) Notwithstanding anything contained in sub-section (1), in the case of a Government

company or any other company owned or controlled, directly or indirectly, by the Central

Government, or by any State Government or Governments, or partly by the Central Government

and partly by one or more State Governments, the Comptroller and Auditor-General of India

shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an

auditor of companies under this Act, within a period of one hundred and eighty days from

the commencement of the financial year, who shall hold office till the conclusion of the

annual general meeting.

(6) Notwithstanding anything contained in sub-section (1), the first auditor of a

company, other than a Government company, shall be appointed by the Board of Directors

within thirty days from the date of registration of the company and in the case of failure of the

Board to appoint such auditor, it shall inform the members of the company, who shall within

ninety days at an extraordinary general meeting appoint such auditor and such auditor shall

hold office till the conclusion of the first annual general meeting.

(7) Notwithstanding anything contained in sub-section (1) or sub-section (5), in the

case of a Government company or any other company owned or controlled, directly or

indirectly, by the Central Government, or by any State Government, or Governments, or

partly by the Central Government and partly by one or more State Governments, the first

13
auditor shall be appointed by the Comptroller and Auditor-General of India within sixty days

from the date of registration of the company and in case the Comptroller and Auditor-General

of India does not appoint such auditor within the said period, the Board of Directors of the

company shall appoint such auditor within the next thirty days; and in the case of failure of

the Board to appoint such auditor within the next thirty days, it shall inform the members of

the company who shall appoint such auditor within the sixty days at an extraordinary general

meeting, who shall hold office till the conclusion of the first annual general meeting.

(8) Any casual vacancy in the office of an auditor shall—

(i) in the case of a company other than a company whose accounts are subject to

audit by an auditor appointed by the Comptroller and Auditor-General of India, be filled

by the Board of Directors within thirty days, but if such casual vacancy is as a result of

the resignation of an auditor, such appointment shall also be approved by the company

at a general meeting convened within three months of the recommendation of the Board

and he shall hold the office till the conclusion of the next annual general meeting;

(ii) in the case of a company whose accounts are subject to audit by an auditor

appointed by the Comptroller and Auditor-General of India, be filled by the Comptroller

and Auditor-General of India within thirty days:

Provided that in case the Comptroller and Auditor-General of India does not fill

the vacancy within the said period, the Board of Directors shall fill the vacancy within

next thirty days.

(9) Subject to the provisions of sub-section (1) and the rules made thereunder, a

retiring auditor may be re-appointed at an annual general meeting, if—

(a) he is not disqualified for re-appointment;

14
(b) he has not given the company a notice in writing of his unwillingness to be

re-appointed; and

(c) a special resolution has not been passed at that meeting appointing some

other auditor or providing expressly that he shall not be re-appointed.

(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the

existing auditor shall continue to be the auditor of the company.

(11) Where a company is required to constitute an Audit Committee under section 177,

all appointments, including the filling of a casual vacancy of an auditor under this section

shall be made after taking into account the recommendations of such committee.

15
The 5 Stages of Audit
Each stage of clinical audit involves the use of specific methods; however it also requiresthe
creation of a supportive environment.
Stage 1 - Preparing for audit

The reason for undertaking the audit may arise from a problem may be identified from every day
practice, coroner’s cases or national practice that people know or feel practicecould be improved
upon.

Stage 2 - Selecting Criteria

The criterion should be written as a statement, for example:

1. All patients requesting an urgent appointment will be seen that day.

2. All patients with epilepsy should be seen at least once a year.

3. All patients on Warfarin should have their INR within the recommended limits.

Criteria can be defined from recent medical literature or the best experience of clinical practice.A
Standard should be defined in order to make it useful. It should describe the level of care to be
achieved for any particular criteria, such as:98% of patients requestingurgent appointments will be
seen the same dayOr90% of patients with epilepsy should beseen at least once a year.

The level of standard can often be controversial but there are basically 3 options:

A minimum standard - the lowest acceptable performance standard. This can be usedto
distinguish between acceptable and unacceptable practice.

An ideal standard - the care that should be given under ideal conditions and with noconstraints. This
however, is usually unattainable.

An optimum standard -lies between the minimum and the ideal. Setting these standardsrequires
judgment discussion and consensus with other members of the audit team.
Optimum standards represent the standard of care most likely to be achieved undernormal
conditions of practice.

Stage 3 - Measuring Performance

Following data analysis areas falling below the predetermined standards can be identified, with
performance either falling above, below or staying similar to the identifiedstandards.

16
Stage 4 - Making Improvements

From the final reports recommendations, key recommendations should be arranged into an action
plan and given to the appropriate stakeholders such as Directors, Co-Directors,Professionals
Managers, etc for implementation.

Stage 5 - Sustaining Improvement & Re-Audit

Without re-auditing it is impossible to see if implemented recommendations have lead toan

improved level of care. The audit cycle gives a clear checklist of the components required to
undertake an audit project successfully and is similar to that of the change management models
like Kotter’s eight step model (1996). There are three main areas which are; creating a climate for
change, engaging and enabling the whole organisationand finally implementing and sustaining
change.

TYPES OF AUDIT AND REVIEWS

Financial Audits or Reviews

Operational Audits

Department Reviews

Information Systems Audits

Integrated Audits

Investigative Audits or Reviews

Follow-up Audits

Financial Audit

A historically oriented, independent evaluation performed for the purpose of attesting to the
fairness, accuracy, and reliability of financial data. CSULB's external auditors, KPMG,perform
this type of review. CSULB's Director of Financial Reporting coordinates the workof these
auditors on our campus.

Operational Audit

A future-oriented, systematic, and independent evaluation of organizational activities.Financial

data may be used, but the primary sources of evidence are the operationalpolicies and
achievements related to organizational objectives. Internal controls and efficiencies may be
evaluated during this type of review.

17
Department Review

A current period analysis of administrative functions, to evaluate the adequacy of controls,

safeguarding of assets, efficient use of resources, compliance with related laws,regulations and
University policy and integrity of financial information.

Information Systems (IS) Audit

There are three basic kinds of IS Audits that may be performed:

General Controls Review

A review of the controls which govern the development, operation, maintenance, andsecurity
of application systems in a particular environment. This type of audit might involve
reviewing a data center, an operating system, a security software tool, or processes and
procedures (such as the procedure for controlling production programchanges), etc.

Application Controls Review

A review of controls for a specific application system. This would involve an examination of
the controls over the input, processing, and output of system data. Data communications
issues, program and data security, system change control, anddata quality issues are also
considered.

System Development Review

A review of the development of a new application system. This involves an evaluationof the
development process as well as the product. Consideration is also given to the general
controls over a new application, particularly if a new operating environment or technical
platform will be used.

Integrated Audit

This is a combination of an operational audit, department review, and IS audit applicationcontrols

review. This type of review allows for a very comprehensive examination of a functional operation
within the University.

18
Investigative Audit
This is an audit that takes place as a result of a report of unusual or suspicious activity onthe part of
an individual or a department. It is usually focused on specific aspects of the work of a department
or individual. All members of the campus community are invited to report suspicions of improper
activity to the Director of Internal Auditing Services on a confidential basis. Her direct number is
562-985-4818.

Follow-up Audit

These are audits conducted approximately six months after an internal or external audit report has
been issued. They are designed to evaluate corrective action that has been taken on the audit issues
reported in the original report. When these follow-up audits aredone on external auditors' reports,
the results of the follow-up may be reported to those external auditors.

Premium Audit

We understand that the premium audit process can be complex. EMPLOYERS’ seasoned and
knowledgeable in-housepremium audit staff is available to answer your premium audit questions
and help you navigate the myriad of workers’ compensation classifications to assist you in
accurately classifying your employees. In addition, we’verevamped our worksheets, audit services
and audit processes to make them easier to use and complete.

19
Types of Premium Audits

Your West Bend commercial insurance policy will qualify for one of four audit types:

Mail Audit: An audit form will be mailed to you to complete.

Telephone Audit: We'll call you or send you a letter. The phone auditor will walk youthrough the
audit process.

Hybrid Audit: The insured will be contacted via appointment letter or by phone to provide
verification documentation to the auditor by fax or email. The documentation is then reviewed by the
auditor and verbally discussed over the phone with the insured.

On Site Audit: We'll call you or send you a letter to schedule a time to meet in personwith a
premium auditor.

How often will an audit be done?

It depends on the type of work you do and the size of the annual premium forthe policy
to be audited. Generally, a policy is audited every year, but some policies may be
audited every third year. When will the audit be done? Within90 days after the
expiration date of the policy period so that any premium adjustments may be processed
into your premium billing cycle. The auditor will notify you by mail or telephone
shortly after the policy expiration date to schedule a convenient date for the audit. Why
is an audit necessary?
Premiums for workers’ compensation insurance and for general liability insurance are
calculated based on estimates of exposure (payroll, receipts, sales, units, etc.) to be
incurred during the policy period. An audit is conducted at the conclusion of the policy
period to determine the actual payroll and receipts incurred during the policy term.
Adjustments will be madeto the premium based on the actual information.

20
INTRODUCTION OF INSURANCE AUDIT
The insurance audit is a process common to the insurance industry. We perform an audit
to ensure you have paid no more than the appropriate premium for your exposure. An
accurate audit is a benefit to you and your business and could save you time and money.
What is an audit? An audit is an examination of your operation, records and books of
account to discover your actual insurance exposure for a specific period of time
coverage was provided.“Exposure” means your payroll, receipts or sales, units, number
of employees or contract cost. The audit is done to obtain insurance rating information
only. This information is not used by federal, state or local government to calculate taxes.
We intend audit information to be kept confidential.

What Is Insurance Audit?

The insurance audit is a process common to the insurance industry. We performan audit
to ensure you have paid no more than the appropriate premium for your
exposure. An accurate audit is a benefit to you and your business and could save youtime and
money.

Insurance Audit has provided valuable guidance to its clients since 1901. Consider that in its
historical context. Policyholders have placed their trust in us through two world wars, one cold
war, five regional wars, a stock market crash, the Great Depression, several recessions, eighteen
presidential administrations, September 11, 2001, and Hurricane Katrina. Punctuating those
landmarks were the countless fires, explosions, mudslides, droughts, tornadoes, floods,
earthquakes, strikes, shipwrecks and other natural and man-made catastrophes -- many known or
remembered only by those upon whom they were visited. From then to now, whenever and
wherever our clients have needed us, we have been there to provide expert counsel and support.

We do not sell insurance. From the beginning, our mission has been to provide objective,
unbiased advice to buyers of property and casualty insurance and risk-financing products and
services. We believe that such advice should never come solely from someone who is paid by
insurance companies to advance their interests. In fact, if insurance companies were always
straight-forward and fair with policyholders, Insurance Audit might never have come into
existence.

Insurance Audit was the first insurance consulting firm of its kind and the concept of an insurance
advisor that does not sell insurance caught on quickly. In 1945, the Wall Street Journal ran a
front page article on Insurance Audit describing how it improved its clients’ insurance coverages,
prevented losses, and reduced premiums all at the same time. Today, we approach each client with
that same kind of objective – to develop and maintain a risk-financing structure that provides an
optimal combination of superior protection and competitive cost.

21
APPOINTMENT OF AUDITORS IN INSURANCE COMPANIES

1-Eligibility Conditions : 1) Auditor of an Insurance company shall be a firm ;

2) The firm should have been established and has been in continuous practice for a period of
15 years or more;

3) (a) It should have (i) a minimum of five partners of whom atleast two should have been in
practice as partners in an audit firm for a minimum period of 10 years and (ii) atleast two other
partners have been in continuous practice in the audit firm as their partner or had been in
employment earlier with that firm for a minimum period of five years ;

3) (b) Alternatively, (i) it could be a firm which has atleast seven Chartered
Accountants including not less than two as partners who have been in continuous
practice as partners in the firm for a minimum period of 10 years and (ii) atleast three
Chartered Accountants, either partners or as employees, had been in continuous
partnership/employment with the audit firm for a minimum period of five years and
(iii) At least two partners of thefirm shall be Fellow members of the Institute and had
been in continuous practice for five years after enrolment as Fellows.

4) In both the cases mentioned in 3 (a) and 3(b) above at least one partner or paid
Chartered Accountant of the firm should have CISA/ISA or any other equivalent
qualification.

2.Maximum Number of Statutory Audits in Insurance Industry at a time : One Audit

firm would not be permitted to carry out more than two Statutory Auditsof Insurance
Companies (Life/Nonlife/Reinsurer). 3.Rotation of Joint Auditors:
1) Each insurance company will have two auditors on a joint audit. 2) One of the Joint
Auditor may have a term of 5 years and the other 4 years in the first instance. Thereafter,
the maximum duration for which the auditor could be retained would be for a period of 5
years. There will be a cooling period of twoyears. An audit firm which completes a
tenure of five/four years as the case may be, at the first instance, in respect of an
insurance company should not accept statutory audit assignment of that Insurance
company in the next two years. However, audit firm may accept statutory audit of any
other insurance company subject to the compliance of maximum two statutory audits. 4)
It is clarified that cooling period is applicable in respect of audit firms that completes a
term of five/four years as the case may be as on 31st March 2006.

22
Insurance Company Audit Procedures

Many commercial insurance policy premiums are rated on a variable basis such as payroll, gross
sales, or contract cost, and are subject to annual adjustment following the policy expiration. This
is the most equitable method of obtaining a fair premium for exposure to risk.

Your Commercial Insurance Policy is pre-paid. The insurance company charges a depositpremium,
and the premium adjustment may be either an additional premium or a refund for over-estimating
the rating basis. The insurance company will send one of theiremployees to review your books to
obtain this information, though occasionally you will receive a form to complete and return.
Telephone audits are not as desirable since there is no "paper trail" available to correct errors.

Your insurance company is not allowed to provide anyone else with copies of your audit results,
as this information is considered confidential. The premium adjustment endorsement will be sent
to your agent. Be sure to ask many questions of the auditor relating to special payroll limitations,
officer restrictions, etc. It may result in premium savings.

In addition, request a copy of the auditor's handwritten worksheet. This may be invaluablewhen
checking the audit results. The audit adjustment usually takes place between 30 and 60 days
following expiration. Your copy of the audit results will be mailed with premium adjustments
about four weeks following the audit.

General Liability

The most common rating basis is payroll, followed by gross sales, but may be admissions, area,
total cost, etc. Some rating bases are unique to the class, such as hospitals, which are rated on the
total number of beds.

Gross sales includes the entire amount charged for all goods sold or distributed, services
provided, rentals, dues, or fees. There are a few areas which may be excluded from gross sales:
sales or excise taxes which are collected and submitted to a governmental division, installment
finance charges, freight charges if billed separately, and royalty income from patent rights or
copyright income. Rates are normally appliedper $1,000.

Payroll includes all remuneration such as commissions, bonuses, and piece work. Unlike Workers
Compensation, the following may be excluded from ratable payroll-tips, group insurance
premiums, severance pay, clerical office employees, outside salespersons, drivers, and drafters.
You may exclude the overtime amount if your books are set up to distinctly show overtime apart
from regular wages. Most insurers will limit ratable payroll for officers to $27,400.

Independent Contractors Coverage

Independent Contractors Coverage provides only for your secondary liability caused by an
independent contractor. An independent contractor is a sub-contractor who has a specific job to do

23
according to his agreement with the general contractor, but who exercises control over his part of
the job. The basis of premium for Independent Contractors Coverage is the total cost to you for all

work let or sublet in construction. Be sure to obtain Certificates of Insurance from all independent
contractors and have them readily available for the auditor.

Contractual Liability

Contractual Liability is assumed by you under contract. The basis of premium for Contractual
Liability is the total cost of work designated by each contract.

Automobile

Some auto policies are subject to annual adjustment; however, most are not. For proper credit, a
continuous record of vehicles must be maintained, listing date of acquisition/sale, amount of
purchase, and usage.

Property

The most common adjustable property coverage is property subject to monthly reporting. Most
insurers will charge a deposit premium based on 75% of the policy limit. Following expiration,
the average reported values are then calculated and the provisional premium is adjusted. Note that
even though you may report values exceeding the policy limit, you do not have coverage unless
the policy is changed. You could, however, be charged for this additional report even though you
do not have the coverage.

Workers Compensation

Be certain to place an employee's entire payroll in the proper classification. You may not divide
payroll for those employees working several jobs. They must be assigned the highest rated
category. Payroll means total remuneration whether in money or a money substitute, including
items such as wages, commissions, bonuses, tips, profit sharing,etc. Work with the auditor or
your agent for proper job classifications to avoid unnecessary premium expense.

Executive officers may be limited to $1,300 per week for ratemaking purposes. Sole proprietors
and partners may be limited to $22,200. This amount varies each year, so be sure to check the
current limitation amount. Also, be aware that those persons holding 25% or more ownership may
eliminate themselves from coverage. Ask your agent for more details.

Ratable payroll does not include overtime wages. Your books must clearly list overtime to apply.
Furthermore, all direct payroll is subject to audit, but subcontractors are not. You must
demonstrate evidence (such as a Certificate of Insurance) that all subcontractors who worked for
you during the policy term carried workers compensation insurance for this exemption to apply.
Courts will require payment from your insurer for injuries if the subcontractor has no insurance.

Record Keeping Hints

24
The auditor will be happy to assist you in developing methods of compiling the necessary
information best suited to your specific business.

The following are the best sources of information for a premium audit:

Payroll journal providing monthly totals and division of payroll by type of work performed

Individual earnings records, indicating the type of work performed. The date hired and/or
terminated should be indicated. Gross payroll and overtime should be totaled by the month and
quarter.

Cash disbursements journal with monthly totals disbursed to various accounts, including
materials, subcontractors, and casual labor
Cash receipts in sales journal totaled by the month and assigned to various categories.Vehicle

titles, registrations, or ownership tax receipts

Certificates of insurance indicating coverage for subcontractors

Data processing printouts or computerized records differ widely in their value to theauditor,
depending on the program.

25
 CHAPTER 2
RESEARCH
METHODOLOGY

26
2.1 Research design and approach

Auditing is a process of examining and evaluating an organization's financial statements,

systems, processes, and controls to ensure that they are accurate, reliable, and compliant with
laws and regulations.

The design and approach of auditing typically involve the following steps:

Planning: The first step in auditing is planning, where the auditor establishes the scope of the
audit, identifies the risks, and develops an audit plan. This includes understanding the client's
business, evaluating the internal control systems, and identifying the areas that require more
scrutiny.

Risk assessment: Once the auditor has a clear understanding of the client's business, they need to
assess the risk associated with the audit. This includes identifying the risk of material
misstatement, fraud, and other potential risks that may affect the financial statements.

Testing: The auditor then tests the controls and financial transactions to ensure that they are
operating effectively and accurately. This involves reviewing documents, verifying account
balances, and testing the financial transactions to ensure that they are correctly recorded.

Reporting: After completing the testing, the auditor reports the findings to the client's
management. The report includes an assessment of the client's financial statements, internal
controls, and other important aspects of the audit. The report also includes any recommendations
for improving the client's financial reporting and control systems.

The approach of auditing may vary depending on the type of audit and the organization being
audited. For example, a financial statement audit may involve a more comprehensive approach
than an internal audit. Additionally, the approach may differ based on the industry or sector
being audited. For

27
2.2 Data collection methods

When it comes to data collection methods for an auditing project, there are various options
available depending on the type and scope of the audit.

Here are some common methods for data collection in auditing:

Interviews: Interviews with key personnel in the organization can be an effective way to collect
data about the organization's policies, procedures, and practices. Interviews can be conducted in-
person, via phone, or via video conferencing.

Observation: Observing the organization's operations and activities can provide valuable insights
into how the organization operates and can help auditors identify potential areas of risk.

Document review: Auditors can review various documents, including financial statements,
invoices, contracts, policies and procedures manuals, and other relevant documents to collect
data for the audit.

2.3 Sources of collection

There are two type of Data Collection method which is being used in research

1) Primary data
2) Secondary data

Primary data:
primary data is that is collected by a researcher from first-hand sources using methods like
survey, interviews and experiments. it is collected with the research project in mind, directly
from primary sources. The term is used in contract with the term

Secondary data:
Secondary data refers to data that is collected by someone other than the user. common
sources of secondary data for social science included census, information collected by
government departments, organisational records and data that was originally collected for
28
2.3 Sampling techniques

Sampling techniques are used in auditing to select a representative subset of data for examination
instead of examining the entire population. Sampling can help auditors to save time and
resources while still obtaining sufficient evidence to support their conclusions. Here are some
common sampling techniques used in auditing:

Random Sampling: This technique involves selecting items at random from the population. It
ensures that each item in the population has an equal chance of being selected. Random sampling
is useful when the population is homogeneous and there are no known differences between
subgroups.

Stratified Sampling: This technique involves dividing the population into subgroups or strata and
then randomly selecting items from each stratum. This technique is useful when there are known
differences between subgroups, and the auditor wants to ensure that each subgroup is represented
in the sample.

Systematic Sampling: This technique involves selecting items from the population at regular
intervals. For example, every 10th item in the population may be selected. This technique is
useful when the population is large and

2.4 Data analysis and interpretation

Data analysis and interpretation are essential steps in auditing to determine whether the
information provided by the client is accurate and complete.

Here are some common data analysis and interpretation techniques used in auditing:

Trend Analysis: This technique involves comparing financial data over time to identify trends,
anomalies, or changes in the financial performance of the organization. This technique helps
auditors to identify areas that require further investigation.

29
Ratio Analysis: This technique involves calculating financial ratios such as liquidity ratios,
profitability ratios, and efficiency ratios to assess the financial health of the organization.
Auditors can use these ratios to compare the organization's performance with industry
benchmarks or previous years' performance.

Comparative Analysis: This technique involves comparing financial data of one organization
with another organization of similar size and in the same industry. Auditors can use this
technique to identify areas where the organization is performing better or worse than its peers.

Variance Analysis: This technique involves analysing the difference between actual and expected
results. For example, auditors may compare the budgeted revenue with the actual revenue and
investigate any significant variances.

Data Mining: This technique involves using data analytics tools to identify patterns or anomalies
in large amounts of data. This technique can help auditors to identify potential areas of fraud or
errors. After analysing the data, auditors must interpret the results and draw conclusions based on
the evidence. Auditors must ensure that their conclusions are supported by sufficient evidence
and that they have considered all relevant factors. The interpretation of data is a critical aspect of
auditing, as it forms the basis for the auditor's opinion on the financial statements and other
information provided by the client.
Variance Analysis: This technique involves analysing the difference between actual and
expected results. For example, auditors may compare the budgeted revenue with the actual
revenue and investigate any significant variances. Data Mining: This technique involves using
data analytics tools to identify patterns or anomalies in large amounts of data. This technique
can help auditors to identify potential areas of fraud or errors. After analysing the data,
auditors must interpret the results and draw conclusions based on the evidence. Auditors must
ensure that their conclusions are supported by sufficient evidence and that they have
considered all relevant factors. The interpretation of data is a critical aspect of auditing, as it
forms the basis for the auditor's opinion on the financial statements and other information
provided by the client.

30
 CHAPTER 3
LITERATURE OF REVIEW

31
 Literature review on audit plan
Audit planning includes deciding on the overall audit strategy and developing an audit plan.
Auditing Standard No. 9 from the Public Company Accounting Oversight Board (PCAOB)
describes an external auditor's responsibility and the requirements for planning an audit.
According to standard No. 9, an audit plan is expected to describe the planned nature, extent,
and timing of the procedures for risk assessment and the tests to be done on the controls and
substantive procedures, along with a description of other audit procedures planned to ensure
theaudit meets PCAOB standards.
For internal auditing, the Institute of Internal Auditors provides guidance for audit planning.
Planning starts with determining the scope and objectives of the audit.
Internal auditors need to understand the business, operations, and unique characteristics of the
department/unit being audited and to develop an audit plan that defines the procedures needed
to do an efficient and effective audit.
Planning an audit involves establishing the overall audit strategy for the engagement and
developing an audit plan. Adequate planning benefits the audit of financial statements in
severalways, including the following:
• Helping the auditor identify and devote appropriate attention to important areas of the audit
• Helping the auditor identify and resolve potential problems on a timely basis
• Helping the auditor properly organize and manage the audit engagement so that it is
performed in an effective and efficient manner
• Assisting in the selection of engagement team members with appropriate levels of
capabilitiesand competence to respond to anticipated risks and allocating team member
responsibilities
• Facilitating the direction and supervision of engagement team members and the review
of their work
• Assisting, when applicable, in coordination of work done by auditors of components
andspecialists.
Audit plans have been and remain to be an important scholarly academic subject. Recently
many scholars have analyzed various aspects of audit plans. Etheridge (2011) emphasizing
theimportance of audit plan suggests that for an effective audit plan a proper auditing planning
is crucial. In this aspect Etheridge (2011) states: “Planning identifies key audit areas such as
material account balances and situations with high risk and guides the auditor’s approach and
responses to these areas” Moreover the same author claims that planning occurs in advance of
fieldwork and usually begins with an evaluation of the auditing plan in order to determine the
scope of the audit.
32
According to Mock and Wright (1999) audit planning is a two stage process:
1. Risk assessment and
2. Evidential planning.
The above mentioned authors claim that both stages are important for developing an audit plan,because
even if the auditor manages to assess the client risks, he would need to develop an appropriate
evidential plan in order to react to those risks.

The opinions of scholars regarding audit plans have their specifics. However their common opinion is
that audit plans should be risk adjusted (e.g. Bechara and Kapoor, 2012: Hammersley,2011: Fukukava,
Mock and Right, 2006: Vandervelde, 2006:).
Hammersley (2011) emphasizes the need of dynamic modification of the audit plan. The mentioned
author claims that because of the fraud risks identified during the auditing process the audit plan
prepared in preliminary phase need to be object of modification.
Vandervelde (2006) also suggests that adaptation of audit plans should be in direct proportion with the
associated risk, claiming that an auditor should response to any change of the risk factorwhen compiling
an audit plan
Bechara and Kapoor (2012) ighlight the issue of risk-based audit plans, claiming that traditional audit
plans are based on suspicion and usually directed from senior management. The traditional auditing
approach according to the above mentioned authors did not show to be effective during and before the
recent financial crisis. Therefore, Bechara and Kapoor (2012) insistfor a comprehensive risk based audit
plan, enabling detection of the risks in the prism of strategicobjectives.
Noel and Patterson (2003) suggest that formulating an audit plan is a complex task especially when the
auditee has a multiple way of frauds. These frauds according to the author may be defalcation,
fraudulent financial reporting, and a combination of these two. In addition the authorsexplain that which
of these frauds would occur depends on:
1. The relative difference of rewards and penalties from each type of fraud,
2. Strength of audit procedures, and
3. Current industry conditions the company is part of.
Fukukava, Mock and Right (2006) found that the some financial risk items such as liquidity,
profitability and flow from operations have a significant influence on audit planning decisions,
whereas, the risks which are governance-related have minor impact on audit plans.
In regard of governmental audits Meinhardt, Moraglio and Steinberg (1987) suggest that there are
issues to be addressed, such as auditing standard violation related to non compliance with rules and
regulations in power.

33
Cohen, et al. (2011) claim that even if the rules, regulations, and standards are emplaced, the
interference and the pressure from senior management to the auditors may minimize the chances for
reliable and impartial presentation of financial statement in particular or to an entire auditing process in
general.

Literature review on materiality and risk

Audit materiality is one of the most important concepts for auditors. Misstatements, including
omissions, are considered to be material if, individually or in the aggregate, they are reasonably
expected to influence the economic decisions of users based on the financial statements. Materiality in
audit comprises both quantitative and qualitative aspects.
When dealing with materiality in quantitative aspects, we must consider the following five steps:
1. Set a preliminary judgment of materiality
 It is usually done at the planning stage of an audit
 The general rule of thumb is either 1) 5-10% of normalized net income (normalized excludes
one-time gains/losses and discontinued operations) or 2) 0.5-2% of total assets
2. Consider performance materiality
 Materiality more on a line item basis, i.e., accounts receivable, inventory
3. Estimate misstatement in a cycle or account
4. information, to a user, in the context of decision to be made” (p. Estimate the total aggregate
misstatements
5. Compare 4 with 1 and determine if overall the financial statements are materially misstatedAudit
materiality, as mentioned before, is not just quantitative in nature. There are numerous qualitative
factors to consider as well. For example, if a company does not provide adequate disclosures
regarding contingent liabilities or related party transactions, it may be considered to be material. In
addition, an inaccurate description of an accounting policy may also be material ifa company chooses
to use 50 years to amortize an asset when in the note disclosures it is statedto be 5. Small errors in
financial statements can also lead to severe covenant violations. For example, if the company enters
into a covenant with their local bank to maintain a current ratio of 1.0, a minute $2,000 misstatement
can change a violation of the covenant to a maintenance of the covenant. Thus, an auditor needs to
consider both aspects of materiality in an engagement.
The main challenge faced by majority of internal auditors is how to allocate limited internal audit
resources in the most effective way - how to choose the audit subjects to examine. This requires an
assessment of risk across all the auditable areas that an auditor might examine. The objectiveis of risk-
based planning is to ensure that the auditor examines subjects of highest risk to the achievement of the
organization’s objectives. Strategic and annual audit plans must be developedthrough a process that
34
identifies and prioritizes potential audit topics. The entire population of potential auditable areas, which
can be categorized in many ways, is called the audit universe. For each element of the audit universe
the risks or opportunities have to be assessed and decisions taken on other risk factors that may
influence the priority to be given to each element of the audit universe (audit objects).
The key definitions concerning risk are: “Event – an incident or occurrence, from sources internal or
external to an organization, which may affect the achievement of objectives”. Events can havenegative
impact, positive impact or both. Events with negative impact represent risks. Events withpositive impact
represent opportunities.
Key risks are these risks that, if properly managed, will make the organization successful in the
achievement of its objectives or, if not well managed, it (the organization) will not achieve its
objectives.
Inherent risk is the level of risk before any risk mitigation actions such as control activities have been
taken into account (e.g. the inherent risk of flooding before taking into account flood prevention
measures).
Residual risk is the level of risk after taking into account risk mitigation actions such as control
activities. The auditor is most concerned with the level of residual risk. (In some cases inherent and
residual risk will be the same. But areas that are well controlled will usually have lower levelsof residual
risk.)
According to Comert (2012) materiality and risk are the most important concepts in audit planning.Back
in 1970 Frishkoff defined materiality as “The relative, quantitative importance of some pieceof financial
116). However, the concept of materiality has evolved, thus, nowadays there is a common opinion
among scholars that materiality defines the responsibility of an auditor to determine whether financial
statements are materially misstated, in order to alert the client for thepotential risk.
Whilst, auditing risk according to Etheridge (2012) can be described as a process of identifyingtypes of
potential misstatements and a controlling activities process in order to prevent or promptly detect those
misstatements that are relevant to the preparation of the financial statements. Grejadan, Joldos and
Stanciu (2010) suggest that materiality is a relative category, stating that an amount of a financial
position considered as materiality value may be important for a particularentity, whereas for another one
may not.
In this aspect Paterson and Smith (2003) urge that the relativism of materiality could increase the
auditing risk because the contextualization and relativism of materiality provides a reason for ignoring
some small financial misstatement, which could generate uncertainty, resulting in auditing risk in the
future. Therefore, the authors insist for a conservative approach regarding auditing materiality.
Socol (2008) considers materiality as a subjective concept. However, the same author analyzing the
audit materiality in the prism of subjectivism and professional judgment claims that although

35
considered subjective, absence of rules and regulations in this aspect may create drawbacks and
difficulties in regard of what is material misstatement whilst auditing financial statements, adding that
subjectivism endangers professional auditing.
Furthermore, Socol (2008) states: “The objective of an audit of the financial statements is to enable an
independent auditor to express an opinion as to whether the societies financial statements are prepared,
in all material respects, in accordance with an identified financial reporting framework” (p. 212).
Lynford and Saurav (1998) although consider materiality as a relative category propose an auditing
method that will approach to the materiality planning based on constraints imposed by ratios and other
combinations of accounts. This, according to the latter authors would enable auditor to disaggregate
materiality levels to different accounts based on their relative size and relative auditing cost.
Jankunaite (2007) stresses out the risk of materially misstated financial statements, taking as example
financial fraud scandals, such as Enron and Parlamalat, urging for a regulatory improvements.
In this aspect is worth mentioning enforcement of auditing standards. In regard of auditing standards
related to risk and materiality Fogarty, Graham and Shubert (2006) emphasize the importance of
statement on auditing standards SAS no. 107 which in original is as follows: “Auditrisk and materiality
in conducting an audit, makes clear that the overall objective of an audit is to provide reasonable
assurance-a high, but not absolute level of assurance that the financial statements are free of material
misstatements “

36
37
 CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION

38
ADVANCES TO TOTAL ASSET RATIO
This is the ratio of total advances to total assets. This ratio indicates a bank’s aggressiveness
in lending which ultimately results in better profitability. Higher ratio advances/deposit (assets) is
preferred to lower one. Total advances also include receivables. The value total asset is exchanging

the revaluation of all the assets.

Advances to Total Asset ratio = (Advances/Total assets)*100
YEAR ADVANCES TOTAL Diagram
(Rs. In crores) ASSETS (%)
(Rs. In crores)
2013 – 14 8440.29 14512.28 58.15
2014 – 15 8082.00 13377.61 60.41
2015 – 16 7353.07 14401.13 51.06
2016 – 17 5589.96 16514.70 33.84

Sales

17%
28%
2013 – 14
2014 – 15
2015 – 16
25%
2016 – 17

30%

INTERPRETATION
The advances to total asset ratio of TNSC bank has decreased from 51.06% during 2015-16
to 33.84% during 2016-17.

39
CASH POSITION RATIO
The cash position ratio is the most conservative liquidity ratio for judging the financial
stability of the company on a short-term basis. To calculate cash ratio, add the value of the company’s
cash and short-term marketable securities and to divide the total by current liabilities. This ratio shows
the ability of the company’s cash on hand to find short-term liabilities. This ratio is also called
“Absolute liquid ratio”.
Cash Position Ratio = (cash/total current liabilities)
YEAR CASH TOTAL RATIO
(Rs. In crores) CURRENT (%)
LIABILITIES
(Rs. In crores)
2013 – 14 2506.63 307.70 8.14
2014 – 15 2059.28 348.04 5.19
2015 – 16 2451.76 213.60 1.14
2016 – 17 2287.20 795.92 2.87

Sales
CASH POSITION RATIO

9 8.14 16%
8
7
6 2013 – 14
7% 5.19
5 47% 2014 – 15
4
2.87 2015 – 16
3
2016 – 17
2 1.14
1
30%
0
2013 – 14 2014 – 15 2015 – 16 2016 – 17

INTERPRETATION
The cash position ratio has increased 1.14 from during 2015-16 to 2.87 during 2016-17.

40
CURRENT RATIO
Current ratio brings out the relationship between current assets and current liabilities. It is an
indication of an industry’s ability to meet short-term debt obligations. The higher the ratio, the more
liquid the industry is. This ratio is also known as “Working Capital Ratio or Liquidity Ratio or Cash
ratio or Quick Ratio”. The ideal ratio is 2:1. It is calculated by dividing the total of the current assets
by total of the current liabilities.
Current Ratio = (Current assets/Current liabilities)
YEAR CURRENT CURRENT RATIO
ASSETSS LIABIITIES (%)
(Rs. In crores) (Rs. In crores)
2013 – 14 14501.65 307.70 47.12
2014 – 15 13368.08 348.04 38.40
2015 – 16 14221.95 419.71 33.88
2016 – 17 14884.26 787.8 18.90

Sales
CURRENT RATIO
50 47.12
14%
45
40 38.4
34%
33.88 2013 – 14
35
30 2014 – 15
25 24% 2015 – 16
18.9
20
2016 – 17
15
10
5
28%
0
2013 – 14 2014 – 15 2015-16 2016-17

INTERPRETATION
The current ratio of TNSC bank has decreased from 33.88 during 2015-16 to 18.90 in 2016-
17.

41
DEBTORS TO TOTAL CURRENT ASSETS RATIO
The analysis of the quantum of debtors shows the type of credit policy either liberal or
stringent followed by the company.
Debtors to Total Asset Ratio = (Debtors/ Total current asset)*100

YEAR DEBTORS TOTAL RATIO

(Rs. In crores) CURRENT (%)
ASSETS
(Rs. In crores)
2013 – 14 9.20 14372.47 0.06
2014 – 15 129.53 85925.25 0.15
2015 – 16 84.37 14221.95 0.59
2016 – 17 9.75 14884.26 0.06

Sales

7% 7%

17%
2013 – 14
2014 – 15
2015 – 16
2016 – 17

69%

INTERPRETATION
The debtors to total current assets ratio of TNCS bank has

39
NET PROFIT RATIO
Net profit is the ratio of net profit to the loan & advances. It is expressed in percentage. It is a
measure of overall profitability and hence proprietors. This indicates the capacity of the bank to face
adverse economic conditions. Higher the ratio, higher is the profitability.
Net Profit ratio = (Net profit/ Loans& Advances)*100
YEAR NET PROFIT LOAN & RATIO
(Rs. In crores) ADVANCE (%)
(Rs. In crores)
2013 – 14 32.22 8376.81 0.38
2014 – 15 41.38 7481.00 0.56
2015 – 2016 43.30 7353.07 0.58
2016 – 2017 43.69 5589.96 0.78

Sales

17%

34%
2013 – 14
2014 – 15
2015 – 2016
24%
2016 – 2017

25%

INTERPRETATION
The net profit ratio of TNSC bank has increased from 0.58 during 2015-16 to 0.78 in 2016-
17.

40
PROFIT TO RESERVE RATIO
This ratio is an excellent tool to find out the relationship between profit and reserves. Profit
generally is making of gain in business, activities for the n=benefit of the owners of the business, in
asset-based lending; a reserve is the difference between the value of the collateral and the amount lent.
Reserves = (Total interest-overdue interest reserves)
Profit to Reserve ratio = (Profit/ reserves)*100

YEAR PROFIT RESERVES RATIO

(Rs. in crores) (Rs. In crores) (%)
2013 – 14 32.22 773.52 4.17
2014 – 15 41.38 808.69 5.11
2015-2016 43.30 751.97 5.77
2016-2017 43.69 778.65 5.60

Sales
PROFIT TO RESERVE RATIO

7
20% 5.77
6 5.6
27% 5.11
5 2013 – 14
4.17
4 2014 – 15
3 2015-2016
2 2016-2017
25%
1

0 28%
2013 – 14 2014 – 15 2015-2016 2016-2017

INTERPRETATION
The profit to reserve ratio of TNSC bank has decreased from 5.77% during 2015-16 to 5.60%
in 2016-17.

41
STATUTORY RESERVE RATIO
The statutory reserve ratio is the savings of the bank which will be used for lending as loans and
advances. Higher the ratio, greater is the profit.
Statutory Reserve Ratio = (Statutory reserve/Total reserve)*100
YEAR STATUTORY TOTAL RATIO
RESERVE RESERVE (%)
(Rs. in crores) (Rs. in crores)
2013 – 14 226.71 720.05 31.49
2014 – 15 235.10 719.42 32.67
2015 – 16 245.82 751.97 32.69
2016 – 17 256.70 778.65 32.96

Sales

9%

10%
2013 – 14
2014 – 15
2015 – 16
23% 58% 2016 – 17

INTERPRETATION
The statutory reserve ratio of TNSC bank has increased from 32.69% during 2015-16 to
32.96% during 2016-17.

42
TOTAL INVESTENT ANALYSIS
Total investment t total asset indicates the extent of deployment of assets in investment as
against in advances. This ratio is used as a toll to measure the percentage of total asset locked up in
investment, which, by conventional definition doesn’t form part of the core income of the bank. This
ratio is calculated by dividing total investment by total assets of the bank. A higher ratio means that
the bank has conservatively kept a high cushion of investment to guard against NPAs. However this
affects its profitability adversely.
Total investment to Total Asset Ratio = (Total Investment/Total Asset)*100
YEAR TOTAL TOTAL ASSETS RATIO
INVESTMENT (Rs. in crores) (%)
(Rs. in crores)
2013 – 14 2942.14 14512.28 20.28
2014 – 15 2831.04 13377.61 21.17
2015 – 16 3154.46 14401.31 21.90
2016 – 17 3632.19 16514.69 21.99

Sales

26% 24%

2013 – 14
2014 – 15
2015 – 16
2016 – 17
25%
25%

INTERPRETATION
The total investment to total asset ratio of TNSC bank has increased by 0.9% from 21.90%
during 2015-16 to 21.99% in 2016-17.

43
TURNOVER RATIO
CAPITAL TURNOVER RATIO
Capital turnover ratio is used to calculate the rate of return on common equity and it is a
measure of how well a bank uses its equity to generate revenue. The higher the ratio is, the more
efficiency the bank is utilizing its capital. It is known as equity turnover.
Capital turnover ratio = (Loans & Advances / Capital Employed)
YEAR LOANS & CAPITAL RATIO
ADVANCES (Rs. in crores) (%)
(Rs. in crores)
2013 – 14 8440.29 1178.51 7.16
2014 – 15 8082 1191.62 6.78
2015 – 16 7353.07 1196.47 6.14
2016 – 17 5589.96 1200.94 4.65

Sales

19%
29%
2013 – 14
2014 – 15
2015 – 16
25% 2016 – 17

27%

INTERPRETATION
The capital turnover ratio of TNSC bank has fluctuated over the years from 7.16% in 2013-
14 to 4.65% in 2016-17.

44
OVERALL PROFITABILITY RATIO
This ratio is also called as ‘Return on investment’ (ROI) or ‘Return on Capital Employed’
(ROCE). These ratios show the relationships between profit and sales.
Overall Profitability Ratio = Net profit/Total assets
YEAR NET PROFIT TOTAL ASSETS RATIO
(in crores) (in crores) (%)
2013 – 14 32.21 14512.28 0.31
2014 – 15 41.38 13377.60 0.31
2015 – 16 43.30 14401.31 0.30
2016 – 17 43.69 16514.69 0.26

Sales

22%
26%
2013 – 14
2014 – 15
2015 – 16
2016 – 17
26%
26%

45
Employees and agents
As on 31 March 2014, LIC had 1,20,388 employees, out of which 24,867 were women(20.65%).

Category of employees Total Number No. of Women

Class-I Officers 31,420 6,292

Development Officers 26,621 1,033

Class III/IV employees 62,347 17,542

Total 1,20,388 24,867

46
CHAPTER 5
CONCLUSION

47
 Conclusion and suggestions OF LIC

The life insurance density of India was 9.1 percent in the year 2000-01 when
the private sector was opened up. It increased to 52.2 percent in 2009-
10.India’s life insurance density is very low as compared to the developed
countries and developing countries, inspite of India being the second most
populous country in the world. This shows that there is much scope for life
insurance sector to develop in India. The life insurance penetration of India
was 2.15percent in the year 2000- 01when the private sector was opened up..
It increased to 4.90 percent in 2009- 10.Since opening up of Indian Insurance
sector for private participation, India has reported an increase in both life
insurance density and penetration. But compared to UK, France, South Korea,
Japan and South Africa, Indiais way behind. Among developing countries it
stands second to South Africa. There is much scope for the life insurance
sector to develop in India. The prediction of new business and total premium
for both private and public sector life insurance companies in India for the
year 2015 also shows an upward trend which signifies that there is a lot of
scope for life insurance business in India.

48
BIBLIOGRAPHY
www.icai.org/resource

_file www.icaew.com

www.hkicpa.org.hk/fil e

www.naic.org

www.statutes.legis.state

49
 Questioner

1. Your Email Id

Your answer
2. Name

Your answer
3. Gender
Male
Female
Other
4. Occupation
Job
House Wife
Business
Other
5. AGE
25-30
30-45
45-60
Above-60
6. Do you know that there are auditors in private and public companies
Yes
No
7.Why do you think using private and public auditor is a problem
Yes
No
8. Why do you think using private and public auditor is a solve the problem
Agree
Normal Agree
Disagree
9. Right to visit branches has been given to the auditor under which section?
Section 222(3)
Section 228(2)
Section 228(4)
Section 228(3)
Other:

10. Do you know what is the role of auditor in a private and public company?
Yes
No
50
11. According to you company auditor is useful for the company
Agree
Normal agree
Disagree
12. Who will Appoint First Auditor
Board of director
Manager
HR
13. Do you have any idea about the Time Limit for Appointment of First Auditor
Yes
No
14. Time Limit for Appointment of First Auditor
15 day
30 day
45 day
15. The work of internal auditors is primarily for the benefit of management and the board of
directors.
True
False
16. Can auditors opinion be a base for decision making
True
False
17. Is auditing of any advantage to public and private companies
True
False
18. Auditing districts from accounting?
True
False
19. What Are the Main Functions of An Auditor?
Prepare an Audit Report.
Reporting of fraud.
Assistance in an investigation.
All of the above
20. When the audit of Company Accounts was made compulsory in India.
1894
1914
1947
1952

51
21. Which of the following audit year?
Final audit
Continuous audit
Complete audit
Internal audit
22. In Public Companies at least what should be the minimum number of directors –
2
3
4
5
23. Audit of public company is _______
Compulsory
Luxury
Voluntary
Optional
24. In private companies at least what should be the minimum number of directors –
2
3
4
5
25. Which of the following has a broder scope ?
Internal Control
Internal Audit
Internal Checking
None of the Above
26. An Internal Auditor is
Temporary Employee
Permanent Employee
Daily wager
None of the Above
27. The main object of vouching is :
To prepare Trial Balance
Conduct routine cheking
Verify authenticity & authority of transactions
Checking of Vouchers
28. Valuation is the base of
Verification
Marketing
Internal Checking
Vouching

52
29. The first auditor or auditors are appointed by
Central government
Company Law Board
Board of Directors
Shareholders
30. A number of checks & Control exercised in a business to ensure its efficient working is known as
internal check
internal control
internal audit
interim check

53