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An Internship Report with regard to J.B. Rajbhandary & DiBins
Submitted by Sajesh Maharjan Roll no: 10450124 PU Registration Number: 2009-2-45-0066
An Internship Report Submitted to Ace Institute of Management Faculty of Management
Pokhara University
Submitted for the degree of Bachelor of Business Administration in Banking and Insurance (BBA-BI)
Kathmandu April, 2013
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Acknowledgements
This is a matter of pleasure for me to acknowledge my deep sense of gratitude to Pokhara University and my college, Ace Institute of Management for giving me an opportunity to explore my abilities via this internship programme. I would like to express my sincere gratitude to our Principal, Mr. Ashish Tiwari and our Program Director, Mr Vijaya Anand Sharma Timilsina for this opportunity.I also wish to express my gratitude to my internship supervisors Kumar Thapa and SharmilaMaharjan, for their valuable guidance and advice in completing this project. I would like to record my sincere appreciation and gratitude towards all the officials and employees of J.B. Rajbhandary & DiBins, Durbarmarg, Kathmandu, without whose kind assistance, my internship program would not have succeeded. The facts and other vital information provided by them have contributed towards making this project as comprehensive as possible. I am indeed thankful to them. I am also very thankful and grateful towards my seniors, colleagues and authorities of Ace Institute of Management for their support, encouragement, and valuable suggestions for the completion of this project as well as for their generosity and cooperation. Last but not the least, I would like to express my sincere thanks to all my family members, friends and well-wishers for their immense support and best wishes throughout the internship duration and the preparation of this report. I believe that this report will be a valuable asset not only for academic institution, but will also be useful for all those who are interested to learn about internship experiences in auditing and consulting firm.
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List of Tables and Figures
List of Tables: 1. Major Customers
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2. Fines and Penalty on Failure to submit advance tax and tax return
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3. Gratuity Rate and Calculation
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4. Gratuity Liability Calculation
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5. Gratuity Fund Calculation
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List of Figures: 1. Organizational Structure
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Table of Contents Chapter I Organization Profile 1.1 Background:
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1.2 Mission, vision, values and objectives
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1.3 Major Markets and Customers:
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1.4 Products and Services:
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1.5 Organization Design and Structure:
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1.6 Financial structure:
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1.7 Organization Performance:
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Chapter II Job Profile and Activities Performed 2.1 Job Profile and Activities Performed:
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2.2 Problems Solved:
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2.3 Key Observation:
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Chapter III Lessons Learnt and Feedback 3.1 Key Skill and Attitudes Learnt:
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3.2 Feedback to the organization:
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3.3 Feedback to the College/ University:
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References
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Annexure
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Chapter I Organization Profile 1.1 Background: After the end of 6th semester, we were entitled to indulge in Internship Programme as per the schedule of BBA-BI course of Pokhara University. Most of my colleagues joined banks, especially “A class” licensed financial institutions for their internship. Everyone was eager to have first hand experience in banking sector because we were doing BBA-BI course. But unlike others, I wanted to do something different, something not just limited to single sector and also that would go hand in hand with my under going degree simultaneously. I chose J.B. Rajbhandary & DiBins for my internship programme because I wanted to have general ideas on audit firms and their activities. I joined J.B. Rajbhandary & DiBins to get exposed to the real world of accounting and to have first hand experience on the same since I am a student of Management faculty. I wanted to know how business firms do accounting and what role does it play in the growth and development of business activities. J.B. Rajbhandary & Dibins is a partnership firm established in 1994 A.D. The firm provides auditing, due diligence, account outsourcing, project management and consulting services. The firm specializes in consulting services in areas of: Country Strategic Papers, Restructuring policies and Internal Control System Development, Mergers/Demergers, Financial Controller/ Due Diligence Review/Special Review of various Infrastructure projects on behalf of commercial banks; Forensic Audits, etc. The firm is situated at Second Floor, North Wing, Sherpa Mall, Durbar Marg, Kathmandu that occupies around 1600 sq ft of office premise.
1.2 Mission, vision, values and objectives Mission - J.B. Rajbhandary & Dibins exists to provide complete, reliable and high quality auditing and consulting services to individuals and institutions, be it
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manufacturing, trading, tourism, financial, governmental, non- governmental, medical, hydro power, hotels, and any other sectors. Vision - The firm's vision is to be the premier auditing, accounting, tax and business consulting firm by every measure that matters. Values The values of the organization are as follows: Valuing People We believe that our success depends first and foremost on people. By respecting people in everything we do, we will develop and maintain high quality, mutually beneficial relationships with our clients, professional colleagues, referral sources, vendors, community members and each other. Building Client Relationships We seek to earn long-term client loyalty by developing a deep understanding of each client's business and personal goals, by demonstrating unwavering reliability and integrity in our work and by acting as an independent and objective advisor to our clients. Upholding Quality and Integrity We will maintain an environment where a commitment to quality, honesty, respect, fairness and professional ethics governs the actions and decisions of everyone within our firm. Keys to Success The keys to success for J.B. Rajbhandary & Dibins are: Developing visibility to generate new business leads. Relationships with clients (developing loyal, respectful, and intensive contact with both clients and potential clients). Marketing/strategy and networking with other professionals. Responsiveness to clients (fast response time for special problems). Quality (especially in reporting information). Excellence in fulfilling the promise. Openness: languages and willpower for creating interregional and international contacts.
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Objectives: The objectives of J.B. Rajbhandary & Dibins are: The overall objective is to focus the activities towards its specialized services (auditing, accounting, tax and business consulting) and to become a leader in this niche in the country. Growth - To expand the business at a rate that is both challenging and manageable, serving the market with innovation and adaptability.
1.3 Major Markets and Customers: The market for J. B. Rajbhandary & DiBins is not limited to some particular type of business or any particular sector. Rather the businesses, enterprises and institutions whether small, medium or big related to any sector (Education, Financial Institutions, Trading, Hydro-power, Hospitals, Hotels, NGOs, INGOs, Business Enterprises, Manufacturing, etc) whether located inside or outside the Kathmandu Valley are the major markets for the various services provided by the organization. The firm has provided consulting and auditing services to major Banks and Financial Institutions in Nepal including Nepal Rastra Bank (NRB) and Rural Micro Finance Development Center (RMDC). Firm has also involved in advisory works, auditing and as a counterpart with local consultancy and also in the capacity of independent expert for donor agencies like Danida, UNDP, Action Aid Nepal, ADB, CIDA, etc. The list of major customers of the organization is long; however to name the few, they are categorized as follows: Table 1: Major Customers
Financial Institutions Nepal Rastra Bank Global Bank Ltd. Nabil Bank Ltd. Rastriya Banijya Bank Kumari Bank Ltd. Nepal Bank Ltd. Agriculture Dev. Bank Ltd.
Government Institutions Nepal Water Supply Corp Employees Provident Fund Nepal Drugs Ltd. National Trading Ltd Hetauda Cement Industry National Trust for Nature Conservation Chilime Hydro Power Co.
Other Institutions Butwal Power Co. Ltd. Himal Media Pvt. Ltd. Everest Express Travels Rato Bungala School Siddhartha Vanasthali School TEWA Soaltee Hotel Ltd.
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Ltd. Citizens Investment Trust DCBL Bank Ltd. Ace Development Bank Vibor Development Bank Bhaju Ratna Finance Co.
Professional Dev Bank
Diyalo Bikash Bank Nepal Clearing House Ltd. Nepal Banking Training Institute Lumbini General Insurance Sagarmatha Insurance Neco Insurance Ltd. Nepal Investment Bank Ltd.
Hotel Grand Pvt. Ltd. Shangri-La Energies Ltd., Khudi Power Ltd. Hotel De’l Annapurna Pvt. Ltd. Upper Chaku “A” Hydro Power Project (22.2 MW) Lower Modi 1 Hydropower Project (10.0 MW) ServingMinds Pvt. Ltd. World Learning Inc. Pvt. Ltd. Machhapuchhre Herbal Pvt Ltd. DANIDA UNDP ADB
1.4 Products and Services: The major products and services provided by the firm are auditing, due diligence, account
outsourcing, project management and consulting services which are as follows: Audit Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. The various types of auditing services provided by the organization are Statutory Audit, Due Diligence Audit, Internal Audit, External Audit, Financial Audit, Forensic Audit etc. The most common types of audit are briefly explained below: Financial Audits: In a financial audit, the assertions about which the auditor seeks objective evidence relate to the reliability and integrity of financial and, occasionally, operating information. This type of audit usually covers the basic set
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of financial statements (Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Changes in Equity and notes to the financial statements) Statutory Audit: A legally required review of the accuracy of a company's or governments’ financial records is what termed as Statutory Audit. The purpose of a statutory audit is same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions. Due Diligence Audit: Due Diligence is an extensive look at a company in order to make the best informed business decision about a company. Due Diligence Audit is that audit which is carried out in order to find/estimate the actual financial position of the organization before a large decision is about to take place like mergers and acquisitions, loan agreement, or when the company's financials are going to be presented to the public. Due diligence audit includes thorough investigations of the books and records that can range from asset appraisals to day to day transactions. A thorough understanding of internal controls and its effectiveness also become necessary to ensure the risk for the business is as low as possible. Internal Audit: Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting, and compliance with laws and regulations. Compliance Audit: A compliance audit determines the extent to which rules, policies, laws covenants, or governmental regulations are followed by the entity being audited. For example examination of tax returns of individuals and companies by the Internal Revenue Department for compliance with the tax laws.
Account Outsourcing: Outsourcing is gaining popularity as a way to reduce financial and operational risks by making them easier to manage. Keeping this in mind, the firm provides accounting services to various organizations. Business organizations can alleviate the burden of
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staying on top of frequent changes to tax codes and accounting regulations and provide increased levels of information transparency, visibility of controls and clarity of accountability by outsourcing of accounting system. Company Establishment: The firm also extends its services towards establishment of organizations and corporation. The firm helps in registration in company registrar office as per the company act 2063, acquiring of certificate of commencement of business, etc. Tax Management: The firm also helps in tax management for organizations. Organizations can acquire services like calculation of income tax, management of Value Added Tax (VAT), Tax Deducted at Source, timely filing and payment of tax to Inland Revenue Department, etc. Consultancy and Training The firm also offers advising and counseling services on matters relating to accounting system, tax procedures, company establishment, and numerous other financial matters. The firm provides consultancy services in areas of Country Strategic Papers, Restructuring policies and Internal Control System Development, Mergers/Demergers, Financial Controller/ Due Diligence Review/Special Review of various Infrastructure projects on behalf of commercial banks; Forensic Audits, etc.
1.5 Organization Design and Structure: The firm has around 51 staffs which includes 5 full time chartered accountants besides 2 partners who are also chartered accountants. Firm has 2 full time ACCAs, 2 MBAs and 36 staff which includes senior managers, CA Finalists, article trainees and four secretarial staff. The firm’s organizational structure is more of a functional organization structure. The two senior partners are in the top most level. There are two junior associates who fall just below the senior partners. Under junior associates are the senior managers who command the junior managers and article ships trainees. The different senior managers are assigned various functions/services offered to the clients. There is no such thing like departments and division. The whole organization can be viewed as a
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single department and the work processes are done through creation of teams/unit for particular work and service. The senior managers create a team comprising of junior managers and Articleships/trainees. The size and duration of team depends upon the nature of service offered and the requirement of the clients. The orders, command and decisions flows from top to bottom while the reporting is done through bottom to top. Figure 1: Organizational Structure
Senior Partners (2)
Junior Associates (2)
Senior Manager Audit
Senior Manager Finance
Senior Manager Project Management
Senior Manager Consulting
Junior Managers
Articleships/Trainees
1.6 Financial structure: Since, J.B. Rajbhandary & DiBins is a private partnership company, all the financial information and reports are kept strictly confidential and handled by the partners only. So, financial structure of the organization could not be identified since the organization denied providing any sorts of financial information.
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1.7 Organization Performance: From my viewpoint, to the best of my knowledge and ability, I found the overall performance of the organization above satisfactory level measured on following criteria. Financial: Since, the financial data and information were not accessible; I am unable to measure the actual financial performance of the organization. However, looking at the rush of work and the nature of the services all round the year and throughout the country, there is no doubt that the organization has sound financial performance. Moreover, the firm is the auditing and consulting firm run/managed by the chartered accountants who are experts in the field of finance. Hence, there is very less chance of the firm incurring losses. Learning and growth: During my internship period of 7 weeks, what I found is that the organization has very energetic and motivated employees. There are very few senior and junior managers above the age of 40 while most of the employees are Articleships and trainees who age falls between 24 and 30. I found good learning and sharing attitude not only in the young employees but also in the junior and senior managers. I got good opportunity of learning as during the work, the senior employees take time to teach their juniors about what is being done and why it is being done. I feel privileged for such kind of opportunity I obtained. Senior employees not only teach the juniors but also learn things from juniors and they don’t feel shy or shamed to learn new things that they were previously unaware of. There is great opportunity in growth and promotion of employees. As soon as they complete their final year and become qualified CAs and ACCAs, they get promoted in their job as well as their remunerations. Employees are not so highly satisfied with their jobs but they are not dissatisfied as well. I found high employee turnover ratio in the organization because most of the Articleships and trainees tend to opt for other alternatives after they become qualified chartered accountants (CAs).
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Customer: Wherever I was assigned to work, I found the customers there; mostly give priority to the quick delivery of the required services and reporting rather than the quality of work and reports. I must say that the delivery performance of the organization is better as they do not cross the estimated time period and most often the necessary work and reporting is completed before the prescheduled deadline. I feel that the quality of the work is good from the perspective of number of times the report gets checked and verified before the final report is handed over to the customer. Moreover, the quality of work not only depends upon the employees’ work performance but also depends upon the role played by the customers. Because of the quality of the work, delivery process and period, and the degree of customization provided as per the need of the customers, I found high degree of customer retention. Based on the customer retention rate and the delivery performance, I came to conclusion that the customers are fairly satisfied with the services they acquire. Internal business processes: Since the organization provides auditing and consulting services, it requires high degree of customer interaction and customization, internal business processes cannot be automated and the mass production cannot be achieved. The quality and speed of work not only depends upon the employees’ work performance but also depends upon the role played by the customers. Since there are no different departments, there is no duplication of activities across departments and there arises no questioning on process alignment.
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Chapter II Job Profile and Activities Performed 2.1 Job Profile and Activities Performed: I was inducted as a team member in various audit and consulting assignment where my job and responsibility included vouching, preparation of working papers, preparation of preliminary trial balance and financial statement, filing of e-returns for taxation purpose and gratuity fund calculation. All these activities that I have performed during my internship programme are the parts of the different services offered by the organization to its customers. Thus, these activities are the components/part of the organizational activities which aided in providing services to its clients/customers.
Vouching: Vouching is the act of checking evidential documents to find out errors and frauds and to know the authenticity, accuracy and reliability of books of accounts. According to F R M De Paula, “Vouching does not mean merely the inspection of receipts with the cash book, but includes the examination of the transactions of a business together with documentary and other evidence of sufficient validity to satisfy an auditor that such transactions are in order, have been properly authorized and are correctly recorded in the books.” I performed vouching at Shiva Shree Hydropower Pvt Ltd (Upper Chaku “A” Hydroelectric Project 22.2 MW), Bluebird Investment Pvt Ltd and Machhapuchhre Herbals Pvt Ltd. I conducted vouching for a period from 13 Feb 2012 to 15 February 2013 at Shiva Shree Hydropower Pvt Ltd since J.B. Rajbhandary & DiBins was appointed as the financial consultant by the Lead Bank, Citizens Bank International Ltd for Capital Expenditure Certification and Equity Certification for the partial disbursement of loan under consortium financing.
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Similarly, I did vouching for a period from 29th Mangsir 2068 to 31st Ashadh 2069 in case of Bluebird Investment Pvt Ltd, for the preparation of preliminary trial balance and financial statements for general accounting and tax purpose. For Machhapuchhre Herbals Pvt Ltd, I performed vouching from 1st Baisakh 2069 to 15th Chaitra 2069 for the purpose of Fixed Assets Valuation and Net worth valuation of the company for the purpose of term loan disbursement from Civil Bank Ltd. The main objectives of vouching are: To examine the accounting entries recorded in the books of accounts with reference to documentary evidence known as vouchers. To examine the authenticity of the transactions recorded in the books of account. To examine the adequacy and reliability of documentary evidence. Thus, it is important for an auditor due to the following reasons: 1. Vouching is the backbone of auditing: Main aim of auditing is to detect errors and frauds for proving the true and fairness of results presented by income statement and balance sheet. Vouching is only the way of detecting all sorts of errors and planned frauds. So, it is the backbone of auditing. 2. Vouching is the essence of auditing: Auditing not only checks the accuracy of books of accounts but also checks whether the transactions are related to business or not. All the transactions are performed after the prior approval of concerned authority or not, transactions are real or not because an accountant may include fictitious transactions to commit frauds. All these facts can be found with the help of vouching. So, vouching is essential for auditing. 3. Vouching is important to see whether evidences are correct or not: An auditor checks the books of accounts to detect errors and frauds. Frauds may be committed presenting duplicate vouchers. All the small and big amounts of frauds can be detected with the help of vouching. So, all the evidential documents and records are to be checked carefully and in detail by an auditor which is the scope of vouching.
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Therefore, it can be said that vouching is the heart of auditing because without the work of vouching, the work of auditing cannot be performed.
Preparation of Audit Working Papers: I prepared audit working papers simultaneously while doing vouching. The doubtful matters/transactions/entries were noted on the working papers. The entries without supporting documents and evident were noted down. Similarly, transactions/entries that require thorough checking of its supporting documents such as memorandum of understanding (MoU), agreement papers, insurance policies etc were noted for the purpose of reminder for checking of these supporting in detail later. It was necessary to prepare working papers while doing vouching. However, I could not learn the way of coding and indexing of working papers for the purpose of filing and referencing and cross referencing during report writing due to limited duration of my internship programme. I prepared working papers form Shiva Shree Hydropower Pvt. Ltd, Bluebird Investment Company and Machhapuchhre Herbals Pvt. Ltd. The audit working papers constitute the link between the auditor’s report and the client’s records. Documentation refers to working papers prepared or obtained by the auditor and retained by him in connections with performance of his audit. The main reasons/purposes for the preparation of working papers are: They constitute a permanent record of the objectives and scope of the audit, as well as the work performed during the audit. Work papers organize and coordinate all phases of the audit. They contain the back-up material in support of the audit findings, conclusions, opinions, and comments. They contain the basic material from which the audit report is prepared. They reflect the quality and reliability of the work performed by the auditor; substantiate and explain in detail the opinions and findings presented.
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Preparation of Preliminary Trial Balance and Financial Statements: I was assigned to prepare the preliminary trial balance and financial statements of the Bluebird Investment Pvt Ltd for the first year of its operation i.e. from 29th Mangsir 2068 to 31st Ashadh 2069. Preliminary Trial Balance is a summary of the balance of all accounts in the chart of accounts to, firstly, make sure the books are balanced. Then, these account balances are used to prepare financial statements such as Profit and Loss Account, Balance Sheet and Cash Flows Statement. The trial balance is a worksheet on which all the general ledger accounts with their debit or credit balance are listed. It is a tool that is used to alert errors in the books of account. The total debits must equal the total credits. If they don't equal, there is an error that must be tracked down. As the name indicates the profit and loss statement (also known as a statement of financial performance or an income statement) measures the profit or loss of a business over a specified period. A profit and loss statement summarizes the income for a period and subtracts the expenses incurred for the same period to calculate the profit or loss for the business. It reflects the past performance of the business and is the report most often used by small business owners to track how their business is performing. Balance sheet is a financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time. The balance sheet gives investors an idea of what the company owns and owes as well as the amount invested by the shareholders. The balance sheet follows the formula assets = liabilities + shareholders' equity. Each of the three segments of the balance sheet has many accounts within it, documenting the value of each one. Accounts such as cash, inventory, and property are on the asset side of the balance sheet, and accounts such as accounts payable and long-term debt fall on the liability side. Accounts on a balance sheet differ by company and by industry, as there is no set template that accurately accommodates the differences between different types of businesses. Cash Flow Statement is that financial statement which provides aggregate data regarding all cash inflows a company receives from both its ongoing operations,
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financing and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Income statement uses accrual accounting method and its benefit is that it strives to show a more accurate picture of the companies’ profitability. However, focusing on accrual based profitability without looking at cash inflows and outflows is very dangerous, not only because companies can more easily manipulate accounting profits than they can cash profits, but also because not having a handle on cash can potentially make even a healthy company go bankrupt. The key to financial analysis is to use both statements together. If there is incredibly high net income, such net income should be supported by strong cash flow from operations and vice versa. If this is not the case then investigation and follow up on such discrepancies should be done.
Filing of e-returns for tax purpose: I have also filled up the forms of e-returns on the website of Inland Revenue Department, Government of Nepal for World Learning Inc Pvt. Ltd. In order to know what is filing of e- returns we have to know the provision for payment of tax under Income Tax Act 2002. Filing of Estimate Income Tax Returns: Taxpayers who derive or expect to derive any assessable income from a business or investment shall pay tax for the year by three installments. Therefore, they are called installment payers. Taxpayers with income solely from employment are not obliged to pay tax in installments because their tax from employment income is collected by withholding. Similarly, presumptive taxpayers are also not obliged to pay tax in installments. Payment of tax by installments is fundamentally different from payment of tax by withholding. Withholding requires a person’s tax to be paid by a third party, whereas under an installment system the person pays his or her own tax. Every installment payer has to submit for the income year ahead an estimate of his tax payable. For that the estimated tax returns are to be utilized. The submission is due to be made by the date for payment of the first installment, i.e. it shall be filed together with the first installment. Since the first estimate has to be submitted after the income
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year is half, the estimate should include the actual taxpayer’s facts of the first half of the income year so that there is some thorough basis for the estimation of the possible profit of the second half of the income year. In this estimate the following amounts are to be specified: the assessable income to be derived for the income year from employment, business, and investment the source of this income the taxable income to be derived for the income year the tax to become payable calculated without reduction for any medical tax credit The installments have to be paid as follows: 40 % of the tax as estimated for the current income year less paid tax, i.e. less amounts that have already been paid by the end of the month Poush 70 % of the tax as estimated for the current income year less paid tax, i.e. less amounts that have already been paid by the end of the month Chaitra 100 % of the tax as estimated for the current income year less paid tax, i.e. less amounts that have already been paid by the end of the month Ashad If the amount of an installment calculated as above is less than Rs. 2000, the installment is not required to be paid. If at the end of the year a final tax liability remains to be paid, as, for example, a result of the income tax return filed at the end of the year the income tax paid by installments is credited against this liability. Filing of Returns of Income: In addition to the estimate (during) an income year every taxpayer has to file a return of income not later than 3 months after the end of each income year. . So, the due date of filing annual tax returns for the income year 2068/69 (2011/12) is Asoj end 2069 (Mid October, 2012). However, a taxpayer may have this due date extended for a maximum period of 3 months i.e. up to Poush end 2069 (mid January, 2013) in case he files an application in the IRD with bonafide reasons for such extension. By contrast to the estimate, this final return is based on the tax facts of the previous year so that possible misjudgments or wrong estimates are then corrected. Therefore, the taxpayer has, first, to submit an estimate for the year ahead. Second, as explained
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above the taxpayer should scrutinize and adjust this estimate on the occasion of the payments of the second and third installment. Third, at the end of the income year the taxpayer has to file a tax return based upon the facts of the previous year. That leads to an adjustment of the estimates and to a final tax liability. For the income tax return the respective forms provided by the tax authorities are to be utilized. The income tax return needs to be signed by the taxpayer or the manager. Furthermore, to be included is a statement that the return is complete, true and accurate.
Table 2: Fines and Penalty on Failure to submit advance tax and tax return
Particulars For failure to submit estimated income statement For delay in filing annual tax return
For failure to keep documents as required by Act For under estimation of advance tax installments
Fees and Interest Rs 2,000 for each of such statements. For Small Tax Payers: Rs 100 per month For Others: Fee at the rate of 0.1% on gross assessable income*or Rs 100 per month, whichever is higher. Fee at the rate of 0.1% on gross assessable income*or Rs 1000, whichever is higher. Interest at 15% per annum on shortfall amount. The limit of 80% has been revised to 90% while calculating estimation difference.
*Gross Assessable income of a person for a period means assessable income of the person for the period calculated by including all the items of taxable income and ignoring all allowable expenses, for the period.
Gratuity fund calculation: Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. An employee may leave his job for various reasons, such as - retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.
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The Labour Act 1992 has made provision for gratuity facilities to the permanent employees to be provided by the employer under Chapter 6 section 39. According to Labour Act 1992, every firm needs to maintain Gratuity fund for its permanent employees. The gratuity fund is required to be deposited in NRB licensed/permitted banks of financial institutions only. In the event that any permanent worker or employee of the establishment who has completed three years or more of service retires because of age or after having his resignation approved, or leaves the service of the establishment in any other way, he shall be entitled to gratuity in a lump sum at the following rates: Table 3: Gratuity Rate and Calculation
Time 3-8 years 8-15 years 15 years and above
Rate 1/2 of 1 month Basic Salary 2/3 of 1 month Basic Salary 1 of 1 month Basic Salary
Years of service Current date – date of appointment of permanent employee Current date – date of appointment of permanent employee Current date – date of appointment of permanent employee
Total Gratuity Rate * Years of Service Rate * Years of Service Rate * Years of Service
Gratuity for the year, say FY 2012/2013 = Total Gratuity till 2012/2013 - Total Gratuity till 2011/2012 I was lucky to get opportunity to learn gratuity calculation and also witnessed the gratuity calculation of Fishtail Hotel, Lakeside, Pokhara. Gratuity fund is to be calculated as the above mentioned procedure. However, since Fishtail Hotel had not created any Gratuity fund in the past, the Gratuity fund was calculated on the following way so that the Gratuity deposit can be financed by operating cash flows. Gratuity Liability Calculation: Table 4: Gratuity Liability Calculation:
Particulars Opening Balance of Gratuity Liability Less: Payment Before the Year Previous Year Balance Add: Current year Gratuity Total Gratuity Liability
Amount XXX XXX XXX XXX XXX
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Gratuity Fund Calculation: Table 5: Gratuity Fund Calculation
Particulars Opening Balance Of Gratuity Fund Add: Current Years Gratuity Deposit Add: Previous Gratuity Liability Deposit Closing Balance Of Gratuity Fund Interest on Gratuity fund account (%) Add: Interest on Gratuity fund account (amount) Total Bank Balance of Gratuity Fund Less: Payment for the year Remaining Bank Balance of Gratuity Fund Total Gratuity Liability Less: Payment for the year Remaining Gratuity Liability
Amount XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
2.2 Problems Solved: There are no such particular events or activities I performed, that can be viewed as the solution to some sorts of distinct problems in the organization. Only the senior partners, junior associates, and secretarial staff most often stay in the organization and do their jobs. Rest of the employees perform their duties and responsibility in the customer’s organization most of the time and remain in the office premise just for the purpose of report writing and until they are re assigned to another job or clients. Thus, my internship period lasted more on the client/customer’s organization than the office itself. However, while I was not assigned to any customer/client, I was given the job of review of internal audit report of National Trading Ltd which was typed in Nepali font by the receptionist whether the typing had any sorts of errors. I just needed to make sure that the printed report was same as that of the hand written report which was prepared by the team of junior managers and artilcles and already been verified by the senior managers. However, I pointed out a calculation mistake which was overlooked by the junior managers as well as senior managers during report review and verification besides many numerous typing mistakes. Because of that, calculation error/mistake that had been overlooked was corrected before the internal audit report
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was submitted to National Trading Limited. Had the report with calculation error was submitted, it would have created a negative impact on the image and reputation of the organization. Similarly, while I was assigned at Shiva Shree Hydropower Pvt Ltd, there once occurred a problem of carrying a huge file consisting of all the working papers and documents to the office after 5 p.m. By the time we would have reached the office, the office would have been closed. So, I told my senior colleague that I would take the responsibility of the file and would bring the file in office next day. So, we didn’t have to leave our confidential documents at the customer’s office because of my initiative. When my team had just finished the assigned work at the client, until I was reassigned to other team for other customers, I had to stay in the office. I reached the office at sharp 10:00 a.m. and found that no other articles and trainees had come to office by that time. When I entered the meeting room, where articles and trainees used to gather if they had no work, I found meeting room quite messy with many files and documents spread over the tables and the sofa. So, I arranged the documents and put the documents inside the respective files and stacked them in one of the corners of the meeting room. It didn’t look quite messy after my little effort.
2.3 Key Observation: The most important thing I found noticeable was the nature of treatment received by the new employee/trainee from the other employees. I was little worried since I knew nothing about auditing and knew no other person in the organization. I was the first one to do internship in that audit firm as only the CA students perform their Articleships after the completion of CAP II or intermediate levels. I was quite worried about whether I would be easily accepted as their colleagues or not. But I found totally different. I received great deal of co-operation and friendly behavior from all the employees, including Junior Associates and Senior Managers. During internship period, I never felt I am different than them. Rather, I started to feel like I was also one of them (one of the CA student doing Articleship not internship). I really feel lucky to receive such kind of treatment and behavior from other employees. I think
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that for such kind of friendliness and rapport, there is great role of informal talks. The organization had a culture of having breaks time and again. Employees at levels used to go outside the office premise to have some tea and cigarettes time and again. This provided great opportunity for the new comers like me to get acquainted with the organization and the employees. Another important thing I got to observe during my internship was the punctuality at workplace. I observed that employees tend to come to office mostly between 10:30 a.m. and 11:00 a.m. although the official time was 10:00 a.m. Since I had to attend class till 9:00 a.m. and after having light breakfast near the college premise, I always reach office before 10:00 a.m. and always had to sit alone for around half an hour before some one arrives. When I was assigned for the job at one of the customers, I found the same not only with my seniors but also with the employees of the client organization. Thus, what I came to conclude is that we have become very lazy and don’t give importance to time and its value. We always find the other person or activity to blame for our lateness and our habit or laziness. The next thing I got to observe was the way audit firm operates. Before my internship I had literally no idea how audit firm operates. I used to think that audit firms were big organizations like that of banks and other financial institutions. But I found totally different. Audit firms need not necessarily have big buildings and infrastructures. I realized that their biggest assets are the human resources. Even if the audit firms are small that can be accommodated to 4 – 5 small rooms, audit firms provides employment to large number of people. Although J.B. Rajbhandary & DiBins was accommodated at merely 1600 sq ft, it provided employment to around 55 employees. It is possible because employees work at the client’s office most of the time. If all the employees were to work at office at the same time, no work would have been completed as there would be no place even for standing. I got the opportunity to learn the normal day to day operations of the audit firm. Audit firms provide various auditing and consulting services to the customers based on the need of the customers. Based on the nature and type of service to be offered, a team of expert comprising of senior managers, junior managers and articles are created by the junior associate and are assigned certain duties and responsibilities. Based on the instruction, the team member performs their duties at the client’s organization and prepares report accordingly. The report prepared is reviewed and verified by the junior associates and
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finally reviewed by the senior partner/s before the report is duly signed and submitted to the client. Another thing I got to notice was the investment behavior of employees of the organization. Since all the employees are either chartered accountant, students of chartered accountant, registered auditors, etc. I found huge degree of investment behaviours and practices among them. They had investments on common stocks, initial public offerings, mutual funds, etc. Since they are financial analysts, they invests on stocks and securities based on the past organizational performance their potential future performances rather than on speculation and other people’s behaviour. I also realized that documentation is an important part of auditing process. It constitutes a permanent record of the objectives and scope of the audit, as well as the work performed during the audit. They contain the back-up material in support of the audit findings, conclusions, opinions, and comments. I found huge number of big files all over the place. The drawers and cabinets built to store files and documents were full and the documents were even stored on the top of shelves, under the tables, over the working spaces, etc. wherever there was space. I found documents which were 10 – 15 years old stored at the shelves. There were so many documents that files were stacked one after another even at the top of the cupboards.
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Chapter III Lessons Learnt and Feedback 3.1 Key Skill and Attitudes Learnt: Internship programme proved to be a valuable opportunity to learn and get acquainted with real world first hand workplace experience. It proved to be a valuable platform where we could use the knowledge gained during our classroom in the practical world. Through internship programme, I got an opportunity to expose myself to the working environment and unleash my potential. The past seven weeks at J.B. Rajbhandary & DiBins was an excellent opportunity for me to gain valuable experience in the auditing and accounting field. The major skills and attitudes that I was able learn during internship period are as follows: Simultaneous study and working skill: The internship programme made me explore my potential and ability to work and study parallel. I previously believed that I could not take work and study side by side. But my internship programme helped me develop and enhance skill of studying and working simultaneously. Team work: During my internship, I was inducted as a team member and was assigned various activities that had to be performed in a team. It taught me how activities are to be performed in a team and impact of behaviour of one on the work and performance of the other team member. I realized what we studied was real. The proper team work lead to synergy benefits. On the contrary, loafing by some team members could lead to huge negative impacts on the overall team performance. I learned the importance of team work and some general skills required while working in a team. Knowledge on general operating procedures of audit firms: Previously, I was unaware of general operating procedures of audit firms. But after completing internship period, I got to learn the general views and guidelines regarding working procedures and reporting practices.
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Experience of real world accounting and auditing practices: Our education system is more of parrot learning. Rather than doing real world examples, we stick to typical traditional theoretical system of learning even in practical courses like accounting. We were taught same sorts of practical problems. So when I was exposed to the financial statements, I was totally shocked. We were used to the hypothetical financial statements with limited number of items in trial balances and other financial statements like income statement, balance sheet etc. But when I got exposed to the real ones, I found huge differences and contrasts with the hypothetical ones that we are taught. So I got the opportunity to get acquainted with the real world auditing and accounting practices. Knowledge of Gratuity fund and the way of calculation: I had the chance to learn about what the gratuity fund is and its importance to the employees. I also got the opportunity to learn the skill of calculating gratuity fund. Became aware about general taxation system in the country: Another important thing I learnt during my internship was about the general taxation system. I got familiar with various kinds of taxes like Income tax for individuals and corporate organizations, Value Added Tax (VAT), Tax Deducted at Source (TDS) that are prevalent in the country. In addition I became aware about the installment method of payment of taxes and filing of advance tax and tax returns for the same.
3.2 Feedback to the organization: I am very much delighted and thankful to the organization for allowing me to do internship in their organization. I got the platform to have exposed on the auditing processes and enhance my knowledge and ideas. I am grateful for providing me such opportunity. I would also like to provide some suggestions and recommendation which I believe that it would enhance the quality of its services. Proper filing system and adequate cabinets/racks: In my view, proper filing of audit documentation based on some scientific method and additional cabinets/racks are to be acquired which would accommodate all the files and documents that would result on better work processes and those files could be easily accessed whenever required. Improper filing would also create negative image
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on the eyes of customers and external people who visits the office. So proper filing would help in avoiding such situation. Giving more importance and slight strictness to punctuality: During my internship, I found out that employees rarely reach the office by 10:00 a.m. I feel that the organization should take initiative on creating corporate culture of reaching office on time since there his positive relationship between the punctuality and work performance of the employees. So I recommend the organization to give importance and imposing slight degree of strictness on the punctuality of the employees.
3.3 Feedback to the College/ University: After completing the internship programme, I would like to recommend following matters to the College management and the University. Internship programme would have been more fruitful and successful if there had been arrangement for separate time schedule for internship programme rather than conducting regular classes simultaneously. I believe that the current duration of internship programme i.e. 6-8 weeks is not sufficient enough for the students to implement class room learning in the real workplace. The period of 6-8 weeks gets completed only when the students start to get acquainted with the real world. So I would like to recommend the college authority and the concerned department of the university to extend the duration of internship to at least 4 -6 months if possible. There should have been timely supervision and guidance for report writing by the internship supervisors. I would like to suggest the concerned college and university to give more priority to learning activities and get real world experience rather than forcing them to focus on the financial structure and financial information on the organization where they indulge in internship programme. The initiative by the college management for field visit to the respective organization where the students were undertaking their internship programme during internship hour was highly appreciable. However, I was disappointed since nobody came for the field visit where I did internship.
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References
Adhikari, M. D. (2011). Nepal Tax Facts. Kathmandu: Baker Tilly Nepal Pvt Ltd. Importance of Vouching. (2012, February). Retrieved April 11, 2013, from Blogspot: http://accountlearning.blogspot.com/2012/02/importance-of-vouching.html Inland Revenue Department. (2002). Income Tax Act 2002 Handbook. Kathmandu: Inland Revenue Government. Mumbai, U. o. (n.d.). Introduction to Auditing. Retrieved April 16, 2013, from University of Mumbai: http://mu.ac.in/myweb_test/study%20TYBCom%20Accountancy%20AuditingII.pdf
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Annexure Bluebird Investment Pvt. Ltd. Trial Balance Format From 29 Mangshir 2068 to 31 Ashad 2069
Particulars Capital Lumbini Bank Long Term Loan A/c Lumbini Bank Overdraft A/c Serving Minds Pvt. Ltd. TDS Payable Audit Fee Payable Inventory Cash in hand HGI Insurance Premium Expense Prepaid HGI Insurance Premium Audit Fee Legal Fee Interest Expenses Bank charges and commission Rent Expenses Advertisement Expenses Miscellaneous Expenses Firm Registration Expenses Printing and Stationary Expenses Malpot Charges Total
Dr. Amt
Cr. Amt
31 Bluebird Investment Pvt. Ltd. Profit and Loss Statement Format From 29 Mangshir 2068 to 31 Ashad 2069 Particulars Income Direct Cost Gross Profit Other Commercial Income Commercial Expenditure: Distribution Cost Administrative Cost Profit from Operation Interest Expenditure Depreciation Income from subsidiary company Income from other investment Investment cost written off Profit and loss from sales of assets Loss on Business segregation Abnormal Income or deficit profit(loss) before tax Income Tax Profit After tax Profit (Loss) Upto previous year Profit/(Loss) Balance Appropriation: a. Ordinary Reserve Fund b. Proposed Dividend - On ordinary Shares -on Preference shares c. Other reserve fund d. Income tax in respect to previous year d. balance of profit & loss transferred to balance sheet
Sch Current Period -
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Bluebird Investment Pvt. Ltd. Balance Sheet Format for the FY 2068/69 Particulars Sch Current Period Share Capital and Liabilities 1. Share capital and Reserve: (a) Share capital (b) Reserve & Profit 2. Medium and Long-term Loan (a) Secured Loan (b) Unsecured Loan Total Assets 1. Fixed Assets 2. Investment 3. Current Assets (a) Closing Stock (b) Commercial and Other receivables (c) Cash & Bank Balance (d) Advance & Deposit Less: Current Liabilities & Provisions (a) Current Liabilities (b) Commercial and other payable (c) Short-term Loan (d) Term Loan Payable in current period (e) Provisions-Income tax Net Current Assets Expenditures to the extent not written off Total
33 Bluebird Investment Pvt. Ltd. Cashflow Statement Format From 29 Mangshir 2068 to 31 Ashad 2069 Particulars A Cashflow from Operational Activities 1. Profit(Loss) before income tax Add: Depreciation Preliminary and deferred expenses 2. Cashflow Before change in changeable capital (Increase)/decrease in current assets Increase /(decrease) in current liabilities Operational cash flow Net Cash flow from Operational Activities (1+2) B Cash flow from Investing activities a. Interest or Dividend b. (Purchase) Sale of fixed assets/Investment c. Increase or (decrease) in Loans or deposits
Net Cash flow from Investing Activities C Cash flow from Financing Activities a. Issue of share capital Net Cash flow from financing Activities Increase/(Decrease) in net cash flow (A+B+C) Opening Balance of Cash and bank balance Closing balance of Cash and bank balance
Current Period
