Tag: Cost Control and Management Accounting Osmania University b.com Notes

Central Vigilance Commission (CVC) is an apex Indian governmental body created in 1964 to address governmental corruption. In 2003, the Parliament enacted a law conferring statutory status on the CVC. It has the status of an autonomous body, free of control from any executive authority, charged with monitoring all vigilance activity under the Central Government of India, advising various authorities in central Government organizations in planning, executing, reviewing and reforming their vigilance work.

It was set up by the Government of India Resolution on 11 February 1964, on the recommendations of the Committee on Prevention of Corruption, headed by Shri K. Santhanam Committee, to advise and guide Central Government agencies in the field of vigilance. Nittoor Srinivasa Rau, was selected as the first Chief Vigilance Commissioner of India.

The Annual Report of the CVC not only gives the details of the work done by it but also brings out the system failures which leads to corruption in various Departments/Organisations, system improvements, various preventive measures and cases in which the commissions advise were ignored etc.

The Commission shall consist of:

• A Central Vigilance Commissioner: Chairperson.
• Not more than two Vigilance Commissioners: Members.

Role

The CVC is not an investigating agency: the only investigation carried out by the CVC is that of examining Civil Works of the Government.

Corruption investigations against government officials can proceed only after the government permits order. The CVC publishes a list of cases where permissions are pending, some of which may be more than a year old.

The Ordinance of 1998 conferred statutory status to the CVC and the powers to exercise superintendence over the functioning of the Delhi Special Police Establishment, and also to review the progress of the investigations on alleged offences under the Prevention of Corruption Act, 1988 conducted by them. In 1998 the Government introduced the CVC Bill in the Lok Sabha to replace the Ordinance, though it was not successful. The Bill was re-introduced in 1999 and remained with the Parliament until September 2003, when it became an Act after being duly passed in both the Houses of Parliament. The CVC has also been publishing a list of corrupt government officials against which it has recommended punitive action. In 2004, GoI authorized the CVC as the “Designated Agency” to receive written complaints for disclosure on any allegation of corruption or misuse of office and recommend appropriate action. This report delivers to the president.

Function:

• To undertake an inquiry or cause an inquiry or investigation to be made into any transaction in which a public servant working in any organization, to which the executive control of the Government of India extends, is suspected or alleged to have acted for an improper purpose or in a corrupt manner;
• To exercise a general check and supervision over vigilance and anti-corruption work in Ministries or Departments of the Government of India and other organizations to which the executive power of the Union extends.
• To tender independent and impartial advice to the disciplinary and other authorities in disciplinary cases, involving vigilance angle at different stages i.e. investigation, inquiry, appeal, review etc.
• To undertake or cause an inquiry into complaints received under the Public Interest Disclosure and Protection of Informer and recommend appropriate action.
• The Central Government is required to consult the CVC in making rules and regulations governing the vigilance and disciplinary matters relating to the members of Central Services and All India Services.
• Respond to Central Government on mandatory consultation with the Commission before making any rules or regulations governing the vigilance or disciplinary matters relating to the persons appointed to the public services and posts in connection with the affairs of the Union or to members of the All-India Services.

Purpose

• The main purpose for which this important body had been established was to ensure all sorts of corruptions in government sector could be well prevented and addressed minutely.
• Its major role is to recommend government agencies in “Planning, executing, reviewing and reforming” their vigilance capability.
• It is an autonomous body, responsible for monitoring all vigilance activities under the union government.
• Central Government of India formed CVC in the year 1964 as an important body that could take into account the measures and steps to prevent all the corruptions especially the governmental ones for a better system and governance.

In India, the parliamentary form of government is in force, the legislature has the power to ensure “That the appropriated money is spent economically, judiciously and for the purpose for which it was sanctioned”.

Even though the Comptroller and Auditor General of India is to audit the accounts of the government and to ensure the propriety of the money spent, yet his report is further examined by the special committee of the parliament, is known as Public Account Committee (РАС).

Functions:

1. The main function of the committee is examination of the accounts and report of the Comptroller and Auditor General in order to ensure that the appropriations sanctioned by the parliament are spent by the executive authorities, “within the scope of the demand. It means that,

(a) Expenditure should not exceed the appropriation made by the parliament,

(b) That the expenditure has been incurred for the purpose for which it was voted by the Parliament,

(c) That amount has been spent by the officials, who are legally authorised to spend the money,

(d) That the executive has not overlooked the vote of parliament by adjusting expenditure in excess of a grant of another vote whose a saving has occurred.

2. The second function of the committee extends beyond the formality of expenditure to its wisdom, faithfulness and economy. It means that the committee is not only to examine that money has been spent according to the rules and regulations, but it is also to see that the approved policy has been implemented by the executive authorities with maximum efficiency and economy.
3. The third function of the committee is to examine the technicalities of the procedure employed in maintaining the accounts. In order to discharge these functions, the committee can send for persons, papers and records for evidence purpose. The committee reports its opinion and reservations and comments on items under consideration, but it has no power to disallow any items of expenditure.
4. Finally, it is provided in the rules of procedure that the functions of the committee shall also extend in following cases:

(a) To examine the income and expenditure statement of state corporations, trading and manufacturing schemes, corners and projects.

(b) To examine the statement of accounts of autonomous and semi-autonomous bodies.

(c) To examine the accounts of those stores and stocks where the audit has been conducted by the Comptroller and Auditor General.

Procedure:

The committee conducts scrutiny by putting questions to the official’s witness. In conducting the major role of committee’s deliberation the chairman plays the most important role. The chairman, briefed by the Comptroller and Auditor General and the Secretary of the Committee takes the lead in putting questions to the official witnesses.

The official witnesses also come with full preparation to provide full knowledge of the problem to be Committee. The meetings of the committee are private and every care is taken to keep the secrecy of the witness.

After the examination of official witnesses, the committee sits down to discuss the framework of its report. When the thorough discussion is over the committee prepares its report, which contains recommendations and findings of the committee.

The report is generally prepared by the parliament secretariat, with guidance of the chairman and is sent to the Comptroller and Auditor-General for factual verification. After verification, the report is again considered by the committee.

Thereafter it is presented to the parliament for by the chairman acceptance. Sometimes the committee also functions through its sub-committee to study some special problems. The sub-committee submits its report to the committee.

After thorough considerations of the committee, the report is prepared on the basis of the facts placed before it. Then the committee submits the report with its recommendations to the house.

The term creditor can mean different things depending on the situation, but it typically means a financial institution or person who is owed money.

If you’re the person who owes the money to a creditor, you may be referred to as a debtor or borrower.

Once a borrower and lender agree on terms for financing and sign a loan agreement, they’re entering into a contract. That contract often specifies the repayment agreement terms of the loan and the expected payment amounts.

You may hear the terms lender and creditor used interchangeably. The same goes for borrower and debtor. But you’ll more likely hear creditor and debtor used during legal proceedings where a creditor is trying to collect on an outstanding balance, such as during a bankruptcy case.

There are several types of creditors, such as real creditors, personal creditors, secured creditors and unsecured creditors.

Personal creditors: These are friends or family you owe money.

Real creditors: A real creditor is a financial institution, such as a bank or credit card issuer, that has a right to be repaid.

Secured creditors: These lenders have a legal right often through a lien to property you used as collateral to secure the loan.

Unsecured creditors: A credit card issuer is a good example of this type of creditor. You may owe money, but it’s unsecured debt, meaning you haven’t agreed to give the creditor any property such as a car or home as collateral to secure your debt.

Ex.

Auto loans: Similar to a mortgage, an auto loan is a loan that someone takes out in order to purchase a vehicle.

Mortgage: A mortgage is a loan you take out from a financial institution to purchase a house. In this case, the creditor would be the financial institution that provides the borrower with the mortgage loan.

Credit cards: Credit cards offer a revolving credit line with a specified credit limit. The credit card issuer that extended the credit line could be the creditor if you have an outstanding balance.

Student loans: Students who cannot afford the cost of tuition on their own can apply for financial aid, including student loans to cover expenses such as tuition, housing and books. When the time comes to repay the student loan, payments are made to the creditor.

Personal Loans: A personal loan is a loan often unsecured that can help you pay for a big project like home improvements or to consolidate debt. If you have an outstanding balance on the personal loan, the creditor is likely the lender that issued the loan.

The company can make the payment to creditors journal entry by debiting the payables account and crediting the cash account.

• If we pay creditor through cheque, then the journal entry will be

Creditor A/C Dr

To, Bank A/C

(Being creditors paid through cheque)

• If we pay creditor through cash, then the journal entry will be

Creditor A/C Dr

To, Cash A/C

Payable account here can be accounts payable, note payable, loan payable, or other types of payables depending on the type of debts the company has as well as the name of the ledger account in the chart of accounts for the credit it owes.

For example, when the company borrows the money from the bank, it may record the debt as note payable or loan payable for the liability it owes to the bank. On the other hand, if the company purchases goods on credit from its supplier, it may record the liability as the accounts payable or the trade payable depending on which one it deems.

An auditor may rely on the directors of the company or on the certificates of other professional in respect of valuation of the assets, provided he uses reasonable care and skill. In matters relating to valuation of assets the auditor must adhere to the generally accepted principles of valuation, commercial practices and accounting standards.

The auditor should ensure that adequate depreciation has been charged on assets before determining the current value. The auditor should state the basis of valuation of assets in the Balance Sheet as certified by the directors or engineers, architect etc. as the case may be.

Valuation means estimation of various assets and liabilities. It is the duty of Auditor to confirm that assets and liabilities are appearing in the balance sheet exhibiting their proper and correct value. In the absence of proper valuation of assets and liabilities, they will exhibit either overvalued or under-valued.

It is therefore required for an Auditor to exercise reasonable care and skill to analyze the basis of valuation from technical experts and satisfy himself that assets shown in Balance-sheet are properly valued accordance with the generally accepted conventions and accounting principles.

Components of Valuation

Methods of valuation of assets are as hereunder:

• Book Value: This is the value as appearing in the books of accounts; the cost price less depreciation.
• Cost Price: This is the cost price paid at the time of acquisition of assets plus the freight charges, octroi charges, and commissioning and installation charges, etc. to bring that asset in usable condition.
• Realizable Value: A Value which can be realized from the sale of assets.
• Market Value: A value which the asset can fetch at the time of sale.
• Replacement Value: A value on which an asset can be replaced.
• Conventional Value: It means the cost price less depreciation written off ignoring any kind of fluctuation in the price.
• Scrap Value: If the asset is not in working condition and sold as scrap, then the sale value of asset is scrap value.

Basis of Valuation

Auditor should ensure that the basis of valuation is correct and reliable. He should keep in mind the process of valuation which is as follows:

• Original cost
• Expected working hours of the assets
• Wear and tear expenses
• Scrap value
• Chances of asset become obsolete

Fixed asset is valued at cost price less depreciation and current assets should be valued at cost or market price whichever is less.

Vouching, Verification and Valuation

In vouching, accounting entries are checked with the bona-fide vouchers.

• Verification proves the existence, ownership and title of assets.
• Valuation certifies the correct value of asset.
• Vouching is done after original entry in the books of accounts.
• Verification and valuation are done at the end of the financial year.
• Vouching is done by Senior Auditor and Audit Clerk.
• Verification and valuation are done by the Auditor
• Bonafide vouchers are sufficient evidence for vouching
• For Valuation Auditor has to depend upon certification from owner/partner/director.
• Verification is done by physical verification, title deeds and receipt of payment, etc.

Verification and Valuation of Copyright

Copyright

Copyright provides legal protection and legal rights to an author by which the publication of his work by another is prohibited. Copyright remains with the author for lifetime and even 50 years after his death.

Verification of Copyright

• The Auditor should examine the agreement between the author and the publisher.
• If there are numbers of copyright with the same publisher. Auditor should ask for the schedule of copyrights.

Valuation of Copyright

Copyrights lose their value over a passage of time; hence the value of copyright is not stable. In case where the sale of publication is very low or nil, value of copyright should be written off.

Value of copyright in the Balance-sheet will be shown as cost less the value written off.

Verification and Valuation of Fixed Assets

Verification of Freehold Land and Building

• Auditor should examine the title deed of the land and building.
• Land and building shown in the books should be according to the title deed.
• Profit or loss on sale of it should be duly adjusted in the account.
• Any addition to it should be carefully examined by the Auditor.

Verification of Mortgage Property

• The Auditor should confirm that there should be no second or third mortgage on it.
• The Auditor should obtain certificate from mortgagee that title deed is in his possession.
• The Auditor cannot be held responsible if there is any defect of title. The Auditor can only verify that title deed apparently in order and in the name of client.
• If Auditor feels necessary he can obtain certificate from legal advisor about the validity of title deed of the client.

Valuation of Building

• Building should always be valued at cost less.
• Although the market value of building may be much higher than the cost, still depreciation on building should be provided.
• Depreciation will be provided even if building is not in use.
• Market or releasable value should not be taken into account because both are fluctuating.

Verification of Freehold Land

• Freehold land is a non-depreciable asset, hence it will be shown at cost.
• Cost includes legal charges, registration fees, purchase price and broker commission, etc.
• Payment made to improvement trust or Municipal Corporation for water, sewerage, road, development charges, etc. it will also be included in the cost of the freehold land.
• If the basis of valuation of it is market value or realizable value, it should be clearly mentioned in the balance sheet.

Verification of Building under Construction

• Auditor should verify the architect certificate and contractor receipt for the amount paid.
• Auditor should obtain a certificate from a responsible officer to that effect, if the staff of client is also engaged in its construction.

Verification of Leasehold Property

There should be separate accounting for freehold and leasehold property. Leasehold property is acquired for fix duration on lease.

• Inspection of lease agreement for value and duration.
• Lease agreement should be registered with the registrar.
• Terms and condition of the lease should be properly complied for.
• The Auditor should examine the last receipt of rent to ensure the lease agreement is in continuation without any break due to nonpayment of rent.