2. K.K RAO M.Com,LLB.,FCMA,MIMA,FCS

3. K.K.RAO & ASSOCIATES  Building and Other Construction Workers Act,1996 - Applicable if 10 or more construction workers, or Construction cost exceeds 10 lakhs (Excluding land cost)  Contract Labour Act,1970 - Applicable if Establishment /Contractor employs 20 or more labours  Employees Compensation Act,1923 mployees Provident Funds and Misc. provisions Act,1952  Fatal Accidents Act,1855  Minimum Wages Act,1948  Employees Liability Act,1938  Payment of Bonus Act,1965 ublic Liability Insurance Act,1991

4.  Unorganized Workers Social Security Act,2008  Equal remuneration Act,1976 - Payment of Equal pay for equal work for both man and woman  Maternity benefit Act,1961 - Regulates employment of woman before and after the child birth  Child labour (Prohibition and Regulation) Act,1986  Environment (Protection) Act,1986  Trade Unions Act,1926  Stamp duty and Registration K.K.RAO & ASSOCIATES

5. INTERNAL AUDIT  Internal Audit is continuous and systematic Process of examining and reporting the operation and records of a concern by its employees or external agencies specially assigned for this purpose  Internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively  To provide reasonable assurance to the relevant audit committee K.K.RAO & ASSOCIATES

6.  Assessing the management of risk  Assisting management in the improvement of internal controls  Activities of Internal Audit  Evaluating controls and advising managers at all levels  Working with other assurance providers  Analyzing operations and Confirm Information  Evaluating risks K.K.RAO & ASSOCIATES

7.  Control Environment  Risk Assessment  Control Activities  Information & Communication  Monitoring Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding achievement of objectives K.K.RAO & ASSOCIATES

8. Risk Assessment is a process by which an auditor Identifies and evaluates the Quantity of the Organization risk and Quality of its controls over those risks  Assessment typically analyze INHERENT RISK of business/process  Assessment should reflect changes to the system of Internal Control  Considering thematic control issues, risk tolerance  Qualitative & Quantitative factors of event occurring  Inclusion of overall auditable entity score  Supported with written analysis of risks  summary risk assessment provided to audit committee K.K.RAO & ASSOCIATES

9. Multi-disciplinary skill set Organizational alignment Data supported insight & analysis Improve the effectiveness risk management,control and governance processes K.K.RAO & ASSOCIATES

10. Scope of Internal Audit :  Verification of fixed asset register and periodic updation  Purchase of materials & equipment in terms of a) Invitation of quotations b) Evaluation of quotations c) Selection of vendors d) Receipt of goods & issue procedures  Payment process including handling, safe custody of cash & cheques in terms of a) Physical verification of cash b) Safe custody of cash & blank cheques c) Verification of vouchers & their approvals d) Review of Advances e) Review of bank reconciliation statements K.K.RAO & ASSOCIATES

11. Scope of Internal Audit (Contd):  Evaluation of procedures adopted for awarding contracts a) Invitation of Tenders b) Evaluation of Tenders received c) Selection of the contractor  Reporting on compliance of provisions of Companies Act,2013 in respect of a) Authorised, Subscribed & Paid-up capital b) Unsecured loans c) Loans & advances d) Board meetings & resolutions e) Filing returns as per legal provisions  Scrutiny of statutory compliances like TDS, Advance tax, Service tax, VAT, Works contract tax. K.K.RAO & ASSOCIATES

12. Scope of Internal Audit (Contd):  Scrutiny of internal control procedures at project site in respect of a) Record maintenance for receipt & issue of materials b) Storing arrangements for unutilized inventory c) Proper utilization & safe guarding of Assets d) Certification of project work in progress e) Accounting procedures & reporting to head office f) Proper accounting payments including classification  Verification of Interest during construction  Accounting of loan transactions MMaintaining reasonableness of internal financial controls K.K.RAO & ASSOCIATES

13.  AS – 7 (Construction contracts)  AS – 9 (Revenue recognition) K.K.RAO & ASSOCIATES

14. AS- 7  Rendering of services directly related to construction of asset  Cost and revenue is recognized only when outcome of contract is measured reliably  Expected losses should recognize as an expense for the contract AS-9  Recognition of revenue arising in the course of ordinary activities  Incase of uncertainty recognition is postponed.

15. K.K.RAO & ASSOCIATES

16. OPERATING REVENUE : K.K.RAO & ASSOCIATES  Revenue from land, plots and constructed properties.  Revenue from development charges.  Revenue from development rights (net).  Revenue from power generation.  Rental income.  Maintenance or other Service receipts.  Amount forfeited on properties.  Revenue from other activities of the Company.

17. REASONS OF UNEXPECTED COST :  Design development changes.  Schedule adjustments.  General administration changes (such as wage rates).  Differing site conditions for those expected.  Third party requirements imposed during construction.  Natural Calamities K.K.RAO & ASSOCIATES

18. Project cost allocation :  Specific identification method  Relative value method  Common Expenses i) Value of cost completed to date. ii) Management discretion. iii) Incremental cost during the year. iv) Capital employed for each project (for interest). Or a combination of above. K.K.RAO & ASSOCIATES

19. Where to apply  The duration of such project is beyond 12 months.  Most features of the projects are common to the construction contract.  The construction activities form a significant proportion of the project activity. Conditions to Apply  Total project revenue can be estimated reliably.  The probable economic benefits associated with the project will flow to the enterprises.  The cost to complete the project and cost up to stage of completion at the reporting date can be estimated reliably.  The project cost attributable to the project can be identified and measured reliably for the purpose of comparison with prior estimates.  All the approvals required for commencement of the project activity have been obtained. K.K.RAO & ASSOCIATES

20. Construction project models : 1)Public Private Partnership (PPP) Model 2)Real Estate Development Model 3) EPC Contracting Model PPP Projects Operation on the basis of  BOO ‐ Build Own Operate  BOLT ‐ Build Own Lease Transfer  BOOST ‐ Build Own Operate Share Transfer  BOT ‐ Build, Operate and Transfer  BOOT ‐ Build, Own, Operate and Transfer  BOLT ‐ Build Own Lease Transfer  BLOT ‐ Build, Lease, Operate and Transfer  DBFO ‐ Design Build Finance Operate  DBFOT ‐ Design, Build, Finance, Operate and Transfer  OMT ‐ Operate Maintain Transfer K.K.RAO & ASSOCIATES

21. Construction project models (Contd) : Real Estate Development Model : This Includes development of land and construction/ development of everything that is permanently attached to the land & It also Covers i) Green field development (Traditional model) ii) Redevelopment model EPC Model : EPC model is Engineering, Procurement and Construction Contracts finalized based on Technical and Commercial bidding process. It covers i) LSTK ‐ Lump Sum Turnkey contracts ii) Cost plus contracts iii) Item Rate Contract iv) A Combination of above K.K.RAO & ASSOCIATES

22. P OTENTIAL CAUSES OF INEFFICIENCIES : Poor quality of planning and engineering design Inappropriate contracts in use Pre-tendering approval process is slow and centralized Land acquisition problems Weak dispute resolution practices Weak performance management Non-availability or paucity of skilled and semi-skilled workers Weak risk management skills Lack of best-in-class procurement practices Low prevalence of lean construction principles K.K.RAO & ASSOCIATES

23.  Board Of Directors and Senior management Oversight  Risk Identification and Assessment  Role Accountability and Responsibility  Improvising Policies and Procedures  Internal controls  Self monitoring and Remediation  Internal Audits framework  Proper Utilization of resources K.K.RAO & ASSOCIATES

24. Compliance means ensuring conformity and adherence to regulatory acts, rules, procedures,laws,regulations Standard on Internal Audit- 17 relating to “Consideration of Laws and Regulations in an Internal Audit”

25. K.K.RAO & ASSOCIATES  To Industry Reduction in penalties Increase in Internal control Reduction of frauds & losses Increase in efficiency Customer satisfaction  To Stakeholders Ensures risk containment & safe market place Better Investor Confidence Uniform practices Better Image hence better value for Investor

26.  cost over run  Time over run TTechnological changes EEnvironmental changes PPolitical changes SSocial & Legal changes K.K.RAO & ASSOCIATES

27. I NTERNAL A UDIT R ELATED ISSUES Not getting land with in stipulated time Paying heavy Compensation to land owner Religious & Sentimental matters relating to locals- temple, masjid, church Purchase of materials without invoices/unauthorized sellers Not paying royalty- sand/bricks Not adhering to standards of construction K.K.RAO & ASSOCIATES

28. IIllegal payments to Government and tax authorities PPolitical contributions DDisaster management  Risk assessment, management and mitigation plans  Non servicing of Interest to the lenders and deposit holders  Detection of fraud iversion of funds  Over statement of inventory  Default in contractors payment  Insurance  Legal cases  Expiry of warranty,lease and Insurance K.K.RAO & ASSOCIATES

30. -K.K RAO & ASSOCIATES 2-B,SAMRAT RESIDENTIAL COMPLEX SAIFABAD,HYDERABAD Ph:9849269020 Website: www.kkraoassociates.com E-mail: kkrao.associates@gmail.comkkrao.associates@gmail.com kkrao2008@gmail.com