Audit manual for Altajir Glass Industries

Introduction

An organization is an open system consisting of many sub systems like people,

finance, raw material inputs, policies, objectives etc. The various sub systems

in an organization should function in a manner consistent with the goals and

objectives of the total organizational system. Management should establish

effective systems of control to ensure that the various sub systems function in

the desired direction. One such system of control is internal auditing which as

a service activity reviews the operations of enterprise; ensures that accounting

and other allied records have been properly maintained, and assets of the

enterprise have been properly safeguarded, ensures compliance of plans,

policies, procedures, ensures adequacy or otherwise of internal control system

and procedures and also evaluates the effectiveness of various functions of

organization.

The decentralization of various activities in Altajir Glass has led to

remoteness of the top management from the spot where the real activity

takes place. Internal audit has become a necessity in such situations in helping

the management in its endeavor to achieve dynamic equilibrium by pinpointing

areas for cost reduction, areas where further improvements can be made to

improve profitability, and areas where quicker decisions can be taken by

improving management information system.

The various areas that need periodical review are listed in the following page

to achieve the above.

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 Activity Description

Marketing

Finished Stock (half yearly)

Warehouse

Insurance

Fixed Assets (Half Yearly)

Production

Working capital (Quarterly)

Company’s Quarterly performance Review (Quarterly)

Human Resources & Payroll

Commercial Audit (Half Yearly)

Stores and Spares

Mould Review (Half Yearly)

Scrap sales

Systems Review

A brief note on each activity and the guidelines to audit each of them are
listed in the pages to come.

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 Marketing

OBJECTIVES

The Objective of the Audit plan is to ascertain the following:

1. Complete, accurate, relevant and timely information is obtained from

market research and other sources to understand customer
requirements and plan marketing activity.

2. To ascertain that the right information is available to customer to

stimulate demand.

3. To ascertain the marketing and sales processes are being managed in an

economical and efficient manner.

4. There is enough contingency planning to ensure availability of goods and

services in any interruption to business.

5. To ensure that the collections are made within the agreed credit
period.

AUDIT STEPS

1. Review the marketing process

2. Exploration and development of new markets

3. Ascertain the monthly and yearly budgeting process

4. Ascertain the link between the production planning process and movement

of bottles.

5. Ascertain whether all sales during the review period are backed up by a

customer order or an agreement. Exceptions if any

6. Review of sales orders

7. Review all existing agreement for sale of the product

8. Review budgeted Vs Actual sales mix variance

9. Customer feed back review

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10. Customer Complaints Vs Actions initiated

11. Review the profitability of few major customers

12. Trace transaction cycle from Despatch note, gate pass, invoices,
delivery and payment.
13. Whether credit limits are fixed for new customers, review of terms of
sales
14. Shortages how adjusted – Check procedure

15. Debtors review as to collections, credit period,

16. Budgeted Vs actual collection for the review period

17. Review the requirement of provision for debtors

18. Review the terms of discounts and commissions

19. Review the credit notes issued during the relevant period.

20. Review culleting procedure.

MARKETING PROCESS

1. How a potential Customer is identified/Handling of customer enquiry

2. COE - when actually prepared. Test a few COE’s as against our

quotation
3. Customer Order

4. Production planning - Identify the lag between the production and

Despatch
5. Documents handling

6. Freight enquiry, quotations and finalization

7. Invoicing process, Despatch

8. Credit/debit notes on shortages/quality/discount/commission

9. Modus operandi for commission payment – Any potential risks

10. Collection plan Projection Vs actual

11. Percentage of open credit as against secured credit

12. Review for L/c problems

13. Debtors review

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 Finished Goods Stock Review

OBJECTIVE

1. To ascertain whether a physical verification of the finished stock has

been carried out.

2. To ascertain that the physical inventory sheets are reconciled with the

stock details generated by the system.

3. To ascertain that discrepancies between the physical inventory and book

inventory are advised to Finance department.

4. To review the Ageing analysis to ascertain and segregate the non moving

/ slow moving stock

5. To ensure that adequate provision is made in the books for the above

AUDIT STEPS

1. Check the process through which manufactured bottles gets converted

in to finished stock

2. Ascertain the procedure for re work

3. Review the physical verification stock sheets and ensure that they are

tied up with the book stock

4. Check how the difference if any is addressed

5. Check whether the ageing report is generated and circulated to the

related departments and action initiated either to dispose or cullet

6. In case of sale of slow moving / non moving stock check how the quality

problem is addressed in terms of bottle pressure etc.

7. In case of provision for the ageing stock, check that the provision is

duly approved by the Director

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 Warehouse

OBJECTIVE

1. To ensure that the space is adequate for stocking the finished goods

requirements of the company

2. To ensure that the production planning process is adequate to meet the

customer requirements and thereby eliminating surplus production

3. To ensure that periodical physical verification is carried out and

reconciled with the books

4. To ensure that adequate transportation arrangements are available at

call to various destinations

5. To ensure that competitors rates are scrutinized while fixing and

revising the transporters / freight rates

6. To ensure that documents are prepared immediately on despatch of

goods and forwarded

7. To ensure that culleting of finished stock is carried out only after due

approval of the Director

AUDIT STEPS

1. Review the production planning process and Procedure to handle the

excess production

2. Check whether there exists a perpetual inventory system to ensure that

all the items are physically verified and tallied with the books at least
once a year

3. Review the physical verification instructions on a regular basis

4. Check stocks lying with third parties and related confirmations from
them

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 5. Check whether master list of transporters / freight forwarders
maintained and regularly updated

6. Check for sourcing of new transporters / freight forwarders

7. Check for quotations / agreements with the transporters to ensure that

the rates are optimized

8. In case of variations check exception procedures are followed as per

the DOP

9. Check invoices to ensure that they have been prepared based on sailing
dates on a test basis

10. Check documents are submitted to Finance within the stipulated

time for negotiation with the banks

11. Ascertain the culleting procedure, documentation, analyse and

check for Director’s approval

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 Insurance
OBJECTIVE

1. To ensure that all the assets are adequately covered from all risks

2. To ensure that the risk analysis has been carried out prior to coverage

3. To ascertain that the insurance policies are reviewed to ensure their

relevance, effectiveness and usefulness in terms of cost benefit.

4. To ensure that all the insurance policies are renewed in time and there

is no delay in coverage

5. To ensure that the policies are competitively priced

6. To ensure that the deductibles are within acceptable range

7. To ensure that claims are settled within reasonable time frame

8. To ensure that all the policies are approved as per the DOP

AUDIT STEPS

1. Check the adequacy of the cover in terms of book value, replacement

value as against the actual cover

2. Check whether all statutory policies are in place

3. Check whether risk analysis has been carried out

4. Check whether insurance policies are reviewed periodically for exclusions

etc.

5. Check renewal process, timing, quotations, evaluation of insurance

companies

6. Check whether no claim bonus has been availed while renewal

7. In case of claims, check whether the insurance company has been

notified within the stipulated time limit

8. Check pending claims status, adequacy of follow up

9. In case of assignment to banks, check the endorsements are carried out

correctly

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 10. Check the proposal form to ensure that correct and proper

information is provided to the insurance company

11. Check whether the premium paid commensurate with the risk

covered

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 Fixed Assets
OBJECTIVE

1. To ensure that the fixed assets are purchased after capex approval

2. To ensure that the assets added are in line with the annual budget

3. To ensure that the cost benefit analysis is carried out before addition

4. To ensure that all the fixed assets are properly recorded, numbered,

identified location wise

5. To ensure that all the fixed assets are put to use

6. To ensure that the purchase procedure is followed for procurement

7. To ensure that proper procedure is followed for discarding / disposal of

assets

8. To ensure that all the assets are periodically physically verified and

tallied with the books

9. To ensure that a post evaluation is carried out vis a vis the original cost

benefit analysis

AUDIT STEPS

1. Check the fixed assets register for additions / deletions during the

period of coverage

2. Review the procedures for physical verification of fixed assets and

ensure that it is periodically updated

3. Check whether proper procedures are followed for addition / deletion /

disposal of assets

4. In case of deletion or replacement check whether Finance have been

intimated for de capitalisation and write off / removal from the books

of account

5. Check whether all the capex have been approved as per the DOP

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 6. Check whether any physical verification is carried out during the period

of coverage and how the discrepancies are addressed

7. Check the post investment evaluation

8. Check assets held by third parties and related confirmations

9. Check investments made on behalf of customers and its post investment

appraisal

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 Human Resources and Payroll
OBJECTIVE

1. To ensure human resources processes operate in accordance to company

policy and procedures. To ascertain that whether these are documented
and communicated to employees.

2. To ensure the human resources are managed effectively and efficiently.

3. All costs are budgeted, monitored and reported accurately on timely

basis.

4. Payment of staff complies with company policy and legal requirement

5. Payroll details are complete, accurate and valid. Any changes are
applied in timely and accurate manner.

6. There are adequate safeguards to ensure data is safe and secure.

7. To ensure that the recruitment process is in line with the company

policy

8. To review the systems from HR perspective in terms of control

9. Review the performance appraisal scheme

10. Contingency planning measures.

AUDIT STEPS

1. Review the organizational chart

2. Obtain a list of all employees with full details including date of joining,

salary details etc.

3. Compare the payroll cost for the period under review with the previous

year and analyse the variance

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 4. Test check the recruitment, resignation and dismissal of employees

during the period of coverage

5. Test check the promotions made during the period

6. Test check the leave record

7. Test check employee files to ensure that it is up to date

8. Check the HR policy on staff benefits like furnishing, HRA, commission,

mobile phones etc.

9. Check the policy on re employment of staff who left earlier

10. Test check whether the employee visa are renewed in time

11. Check on the medical insurance cover provided to the employees

12. Check the procedure on hiring of casual labour and test check

them

13. Check the AMCs / agreements finalised by HR

14. Check the control on labour camp purchases

15. Check vehicle hire procedure

16.

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