Slide 1.3 Understanding of Accounting System ‘To be a good auditor, one has to be a good accountant.’

Slide 1.3 The Department of Telecom of which the accounting system was on the Govt. accounting system has been converted into a Govt. Company called BSNL under the Companies Act 1956 from Therefore BSNL, being a Company has to maintain the accounts on commercial pattern in compliance with the Companies Act.

Slide 1.3 The significant provisions regarding accounting system to be followed by BSNL are as under : Section 209(1) : Every company shall keep at its registered office proper books of account with respect to –

Slide 1.3 (a)all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place; (b)all sales and purchases of goods by the company; (c)the assets and liabilities of the company; [and]

Slide 1.3 (d)in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account :

Slide 1.3 Section 209(3) : For the purposes of sub- sections (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein, - (a)if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and

Slide 1.3 (a)if such books are not kept on accrual basis and according to the double entry system of accounting.

Slide 1.3 Section 209 (4-A) : The books of account of every company relating to a period of not less than eight years immediately preceding the current year [together with the vouchers relevant to any entry in such books of account] shall be preserved in good order :

Slide 1.3 In view of above, every transaction being made by BSNL will pass through the following stages. 1.Voucher – (Cash, Bank Journal) 2.Cash Book, Bank Book and Journal. 3.Ledger - Sub Ledger –General Ledger

Slide 1.3 Stage I. Preparation of vouchers in the first stage of accounting. This is the basic document supported along with the relevant evidences about the occurrence of event.

Slide 1.3 Voucher can be of three types. 1.Cash Voucher – All the cash transaction whether payment made or payments received are entered in the Cash Book. To enter the transaction in Cash Book, one has to prepare cash voucher. These are separately numbered.

Slide Bank Voucher – All the transaction entered into with the Bank (cheques issued or money withdrawn from Bank) are entered into the Bank Book. Like Cash Book, the Bank Vouchers are prepared to enter the transaction in the Bank Book.

Slide Journal Voucher – Any transaction other than cash or bank are entered in the Journal. Journal is also called ‘residual book’. Normally following type of transaction are entered into :

Slide 1.3 Adjustment entries e.g. adjustment of security deposit while phone is disconnected/surrendered. Captalisation of WIP Write off of Sundry Balances/rebate, cancellation of bills. –Depreciation Write off obsolete stores Write back of EMD, Security Deposits etc.

Slide 1.3 Preparation of Trial Balance : From General Ledger a summary of balances of all the account is prepared which is called a Trial Balance. Being a Company, BSNL has to prepare quarterly final accounts. Therefore, a monthly/quarterly trial balance is prepared. Trial Balance is a very significant statement where every single penny received/spent gets reflected in a nutshell manner.

Slide 1.3 Preparation of Final Accounts : At the end of every quarter, a profit and loss account and a Balance Sheet is prepared from Trial Balance so as to arrive at the calculation of profit/loss earned during the period and also to know the statement of affairs of the Assets & Liabilities. The Schedule of Assets and Liabilities are also prepared along with the same.

Slide 1.3 Some of the changes which could be effected with the following audit technique suggested: a) The Half Margins/memos seeking information called informatory memo can be avoided e.g. provide a list of works completed during the year with financial break up – now available with ‘Schedule of Capitalisation’.

Slide 1.3 b) The audit could be made based on the Trial Balance instead of arranging the audit in haphazard manner. C) Instead of doing one month test audit, we may be able to audit all the significant transactions for the whole year.

Slide 1.3 d)We can provide better risk assurance to auditee than earlier system of one month test audit. Even after one month test audit, neither audit nor auditee was confident enough to feel/say that no major irregularities have remained unreported. But with the new technique we can assure to auditee that no significant error/manipulation has remained unaudited.

Slide 1.3 e)Work distribution among audit party members could be more scientific, easy and in responsible manner. f)Coverage of all significant issues in a comparatively very less time. g)Planning of mandays/party days would be realistic based on the actual figure of expenditure with break up of items.