Wednesday, June 30, 2010

MIS Aiou Old Papers

0 comments

mis 2008

mis 2004

mis 2003

mis 2002

mis 2001a

mis 2001mis 2000

Accounting Principles and Inventories

0 comments
Several accounting principles have special relevance to inventories. Among them are consistency, disclosure, materiality, and accounting conservatism.

Consistency Principle

The consistency principle states that businesses should use the same accounting methods and procedures from period to period. Consistency helps investors compare a company's financial statements from one period to the next.
Suppose you are analyzing a company's net income pattern over a two-year period. The company switched from LIFO to FIFO during that time. Its net income increased dramatically but only as a result of the change in inventory method. If you did not know of the change, you might believe that the company's income increased because of improved operations.
The consistency principle does not require that all companies within an industry use the same accounting method. Nor does it mean that a company may never change its methods. However, a company making an accounting change must disclose the effect of the change on net income. Sun Company, Inc., an oil company, disclosed the following in a note to its annual report:

Disclosure Principle

The disclosure principle holds that a company's financial statements should report enough information for outsiders to make knowledgeable decisions about the company. In short, the company should report relevant, reliable, and comparable information about its economic affairs. With respect to inventories, the disclosure principle means disclosing the method being used to value inventories. Suppose a banker is comparing two companies—one using LIFO and the other FIFO. The FIFO company reports higher net income, but only because it uses the FIFO inventory method. Without knowledge of the accounting methods the companies are using, the banker could loan money to the wrong business.

Materiality Concept

The materiality concept states that a company must perform strictly proper accounting only for items that are significant for the business's financial statements. Information is significant—or, in accounting terminology, material—when its presentation in the financial statements would cause someone to change a decision because of that information. Immaterial items justify less-than-perfect accounting. Their inclusion and proper presentation would not affect a statement user's decision. The materiality concept frees accountants from having to report every last item in strict accordance with GAAP.
How does a business decide where to draw the line between the material and the immaterial? This decision depends on how large the business is. Lucent Technologies, the maker of cordless phones, for example, has over $38 billion in assets. Management would likely treat as immaterial a $1,000 loss of inventory due to spoilage. A loss of this amount may be immaterial to Lucent's total assets and net income, so company accountants may not report the loss separately. Will this accounting treatment affect banker's or investor's decision about Lucent? Probably not. So it doesn't matter whether the loss is reported separately or simply embedded in cost of goods sold.

Accounting Conservatism

Conservatism in accounting means reporting items in the financial statements at amounts that lead to the most cautious immediate results. What advantage does conservatism give a business? Managers must be optimistic to be good leaders. This optimism sometimes causes them to look on the bright side of operations, and they may overstate a company's income and asset values. Many accountants regard conservatism as a counterbalance to managers' optimistic tendencies. The goal is for financial statements to present realistic figures.
  • Conservatism appears in accounting guidelines such as
  • "Anticipate no gains, but provide for all probable losses."
  • "If in doubt, record an asset at the lowest reasonable amount and a liability at the highest reasonable amount."
  • When there's a question, record an expense rather than an asset."
Conservatism directs accountants to decrease the accounting value of an asset if it appears unrealistically high. Assume that a company paid $35,000 for inventory that has become obsolete and whose current value is only $12,000. Conservatism dictates that the inventory be written down (that is, decreased) to $12,000.

Lower-of-Cost-or-Market Rule

The lower-of-cost-or-market rule (abbreviated as LCM) shows accounting conservatism in action. LCM requires that inventory be reported in the financial statements at whichever is lower—the inventory's historical cost or its market value. For inventories, market value generally means current replacement cost (that is, the cost to replace the inventory on hand). If the replacement cost of inventory falls below its historical cost, the business must write down the value of its goods. The business reports ending inventory at its LCM value on the balance sheet.

Tuesday, June 22, 2010

The Seven Signals for Success

0 comments

Here are seven general suggestions on good body language for the interview.

  1. Walk slowly, deliberately, and tall upon entering the room.
  2. On greeting the interviewer, give (and, hopefully, receive) a friendly "eyebrow flash": that brief, slight raising of the brows that calls attention to the face, encourages eye contact, and (when accompanied by a natural smile) sends the strong positive signal that the interview has gotten off to a good start.
  3. Use mirroring techniques. In other words, make an effort -- subtly! – to reproduce the positive signals your interviewer sends. (Of course, you should )
  4. Never mirror negative body signals.) Say the interviewer leans forward to make a point; a few moments later, you lean forward slightly in order to hear better. Say the interviewer leans back and laughs; you "laugh beneath" the interviewer's laughter, taking care not to overwhelm your partner by using an inappropriate volume level. This technique may seem contrived at first, but you will learn that it is far from that, if only you experiment a little.
  5. Maintain a naturally alert head position; keep your head up and your eyes front at all times.
  6. Remember to avert your gaze from time to time so as to avoid the impression that you are staring; when you do so, look confidently and calmly to the right or left; never look down.
  7. Do not hurry any movement.
  8. Relax with every breath.

Wednesday, June 16, 2010

Cover Letter for Resume

0 comments
May 25, 2010
Dear :
We spoke on Wednesday afternoon and, as promised, I'm enclosing a copy of my resume.
I'm also enclosing copies of:
  • A comparative market analysis of male fine-apparel purchasers in New York and Chicago, which I conducted for a French clothing retailer.
  • A report I compiled for an organic foods company exploring the efficacy of expanding into the South.
  • A proposal for a focus group to help a major airline assess the popularity of new routes and frequent-flayer program enhancements. 
  • If you have questions, please call me at (+92) 333-5199328. I look forward to hearing from you soon.
Sincerely,
Enclosure

Teacher Resume

0 comments

Hamza Javed
Windows_Live_Writer_logo

   thminicasinha House # 810, Model Town,Islamabad email_002 rajahamza@live.com.pk

CERTIFIED ELEMENTARY SCHOOL TEACHER (K-6)

Dedicated elementary teacher eager to resume full-time teaching career (currently a substitute for the Sometown PSD). Offer a proven track record of commended performance teaching grades K-6, with a passion for education and a commitment to optimizing student and school success.

Core Competencies

— Classroom Management
— Creative Lesson Planning
— Curriculum Development
— Instructional Best-Practices
— Standardized Testing/Scoring
— Learner Assessment
— Experiential Learning
— Special Needs Students/IEPs

Experience

  • SOMETOWNPUBLICSCHOOL DISTRICT Some town, IN
  • Substitute Teacher (K-12),1/09 to Present
  • Elementary Teacher (K-6),8/04 to 6/07
  • Student Teacher (Intern),1/04 to 5/04
Hired as a full-time teacher following student teaching practicum, instructing all academic subject areas to classrooms of up to 28 1st, 2nd and 4th grade students. Left Some town PSD (on excellent terms) at the end of the 2007 academic year to provide full-time care to cancer-stricken parent, and enthusiastically rehired as a substitute teacher for the current spring term.

Key Contributions

  • Earned high marks for the quality of classroom teaching, lesson plans and instructional materials used in teaching diverse subjects (e.g., language arts, math, science, social studies and history).
  • Developed innovative approaches that were held as the model standard for meeting district goals in areas including technology integration across the curriculum, experiential learning, literacy and diversity.
  • Taught general education students and individuals with learning challenges within a mainstreamed, inclusive classroom.
  • Consistently commended for ability to redirect students exhibiting behavior problems by replacing disruptive, unproductive patterns with positive behaviors. Led district-wide in-service on classroom management.
  • Served on school committees and taskforces focused on curriculum development, textbook review, fundraising andante-bullying efforts.
  • Quickly became a “first-to-call” resource in current substitute teaching role, typically working four days per week.Personally requested by many full-time teachers to take over their classrooms during absences.

Primary Caregiver,6/07 to 12/08

Stepped away from the classroom to serve as caregiver to parent diagnosed with stage IV cancer. Provided daily care, assisted with financial affairs and coordinated treatment with medical professionals and hospice team.

Education & Credentials

  • INDIANAWESLEYANUNIVERSITY— Marion, IN
  • BA in Elementary Education, 2004
  • Indiana Teacher Certification (Grades K-6),2004 (renewed in 2009)

Sunday, June 13, 2010

Download MIS Study Notes

0 comments
Click link to Download Management Information's System Study notes.
Download%20Button%20(Blue)

Allama Iqbal Open University

0 comments

aiou5

Allama Iqbal Open University (AIOU) is the first Open University in Asia. AIOU is a unique institution in Pakistan because of its philosophy, system, approach, functions and overall structure. The University with its main campus at Islamabad and huge network of regional centers spread all over the country is serving its clientele all over Pakistan and in the Middle East. AIOU is a Distance Education institution, which provides multi disciplinary education from basic to doctoral level programs.

The Allama Iqbal Open University was established in May, 1974, with the main objectives of providing educational opportunities to masses and to those who cannot leave their homes and jobs. In the last 34 years, the University has more than fulfilled this promise.

It has opened up educational opportunities for the working people and has provided access to the females on their door steps. It has also done pioneering work in the field of Mass Education. It is now breaking new grounds in the fields of professional, scientific, and technical education. It is attempting to reach out to the remotest areas of Pakistan. It is also attempting to harness modern information Technology for spreading education in Pakistan.

The idea of Distance Education was first mooted in UK in late 60s by the British Prime Minister, Mr. Harold Wilson. He was of the view, that educational opportunities must be provided to those who might have missed better education due to early employment and wish to upgrade, their knowledge and skills, in their spare times in the evenings at home. The UK Open University was, thus established in 1969. Since then it has become a major institution of learning in UK and has opened up opportunities for millions of working people. The gospel of distance and Open Learning has, since then spread throughout the world. More than sixty Open Universities are operating around the world on the basis of Distance Education. Modern information Technology has made the task of Distance Education much more easier and effective.

The AIOU, when established in 1974, was the second Open University in the world and first in Asia and Africa. It, thus, speaks of the foresight of the policy-makers of that time. As the last 34 years of AIOU have proved, Distance Education has opened up new opportunities for millions, particularly women, and supplemented the efforts of the federal and provincial governments in a big way and that too without becoming a burden on their resources.

The idea of Distance Education assumed greater relevance and acceptance in Pakistan due to the factors of poverty and relative deprivation of women. The rate of literacy, incidence of dropouts, and excess to higher education is much lower in the poorer classes of Pakistan. The incidence of poverty is much higher in the rural areas, where formal education is much less established. The rate of literacy and education is much lower for females in Pakistan, particularly in the rural areas, due to poverty and conservative traditions. Many conservative parents under the pressure of old age traditions do not allow their daughters to go out to the schools. The AIOU, through its system of Distance Education has, thus, provided educational opportunities to these housebound girls and women. This explains the reasons why the majority of the students enrolled with the University are females.

Latterly, the University is trying to fulfill another current need. Professional and technical education in Pakistan is becoming very costly, especially in recent years, because of government policy to encourage private sector in these fields. The lower middle class and poorer classes are being marginalized and their children have very little chance to get high education in fields like Business Administration, Computer Science, Medicine and Engineering. The AIOU is attempting to meet this challenge and to keep a window open for these classes by keeping the costs at the minimum and by creating a Student Assistance Fund.

Aiou website

essex_website_design

Download NBP Internship Report

0 comments
aiou5
The Aiou MBA students are required to undertake internship after completion of 15 courses in any Financial Institutions/ Stock Exchanges/Insurance Companies for 6 to 8 weeks and then submit the report for the same as per the standard format of the department. The following is the link to Download the Internship Report on National Bank of Pakistan as per standard format of the AIOU.
Download%20Button%20(Blue)

Format of the Internship Report for MBA HRM

0 comments


nbp internship report front page
1. Title Page
2. Acknowledgements
3. List of Contents
4. List of tables & illustrations, if any
5. Introduction
6. Objectives of studying the organization
7. Overview of the organization
7.1 Brief history
7.2 Nature of the organization
7.3 Business volume
7.4 Profile of employees
7.5 Product lines
8. Organizational structure
8.1 Main offices
8.2 HRM operations
9. Structure of the HRM Department
9.1 Number of employees working in the HRM Department
10. Functions of the HRM Department
10.1 Major Functions
10.2 Support to other departments
11. Critical analysis of the theoretical concepts relating to practical experiences i.e. relate the theoretical concepts with your practical experience during your Internship with the HRM Department
11.1 Requirement analysis
11.2 Data gathering
11.3 System Design
11.4 Implementation
12. Short-falls/weaknesses of the HRM Department
13. Conclusions & recommendations for improvement
14. References & Sources used
15. Annexes

Instructions

The report should be:
  1. Double space typed on A4 size,
  2. 75 gram paper,
  3. With bold headings & sub-headings,
  4. With margins set as top,
  5. Bottom & right 1 inch whereas left 1.5 inch.
  6. These typed pages should be hard board binding in black color consisting of 25 to 30 pages.
  7. Latest Mailing Address, Roll Number, Registration Number & Telephone Number should be clearly mentioned in the report.

Format of the Internship Report for MBA MIS

0 comments
nbp internship report front page

1. Title Page
2. Acknowledgements
3. List of Contents
4. List of tables & illustrations, if any
5. Introduction
6. Objectives of studying the organization
7. Overview of the organization
7.1 Brief history
7.2 Nature of the organization
7.3 Business volume
7.4 Profile of employees
7.5 Product lines
8. Organizational structure
8.1 Main offices
8.2 MIS operations
9. Structure of the MIS Department
9.1 Number of employees working in the MIS Department
10. Functions of the MIS Department
10.1 Major Functions
10.2 Support to other departments
11. Critical analysis of the theoretical concepts relating to practical experiences i.e. relate the theoretical concepts with your practical experience during your Internship with the MIS Department
11.1 Requirement analysis
11.2 Data gathering
11.3 System Design
11.4 Implementation
12. Short-falls/weaknesses of the MIS Department
13. Conclusions & recommendations for improvement
14. References & Sources used
15. Annexes

Instructions

The report should be:
  1. Double space typed on A4 size,
  2. 75 gram paper,
  3. With bold headings & sub-headings,
  4. With margins set as top,
  5. Bottom & right 1 inch whereas left 1.5 inch.
  6. These typed pages should be hard board binding in black color consisting of 25 to 30 pages.
  7. Latest Mailing Address, Roll Number, Registration Number & Telephone Number should be clearly mentioned in the report.

Format of the Internship Report for MBA Marketing

0 comments
nbp internship report front page
1. Title Page
2. Acknowledgements
3. List of Contents
4. List of tables & illustrations, if any
5. Introduction
6. Objectives of studying the organization
7. Overview of the organization
7.1 Brief history
7.2 Nature of the organization
7.3 Business volume
7.4 Profile of employees
7.5 Product lines
8. Organizational structure
8.1 Main offices
8.2 Marketing operations
9. Structure of the Marketing Department
9.1 Number of employees working in the Marketing Department
9.2 Marketing operations
10. Functions of the Marketing Department
10.1 Marketing strategy
10.2 Product planning, development & management
10.3 Pricing strategy
10.4 Distribution strategy
10.5 Promotional strategy
11. Critical analysis of the theoretical concepts relating to practical experiences i.e. relate the theoretical concepts with your practical experience during your Internship with the Marketing Department
11.1 Success and failure of different products of the organization in the market along with reasons
11.2 Major competitors of the organization
11.3 Future prospects of the organization
12. Short-falls/weaknesses of the Marketing Department
12.1 Critical analysis of the management patterns of the organization with reference to marketing operations, weak areas which need to be improved.
13. Conclusions & recommendations for improvement
14. References & Sources used
15. Annexes

Instructions

The report should be:
  1. Double space typed on A4 size,
  2. 75 gram paper,
  3. with bold headings & sub-headings,
  4. with margins set as top,
  5. bottom & right 1 inch whereas left 1.5 inch.
  6. These typed pages should be hard board binding in black color consisting of 25 to 30 pages.
  7. Latest Mailing Address, Roll Number, Registration Number & Telephone Number should be clearly mentioned in the report.

Format of the Internship Report for MBA Finance

0 comments
nbp internship report front page
1. Title Page
2. Acknowledgements
3. List of Contents
4. List of tables & illustrations, if any
5. Introduction
6. Objectives of studying the organization
7. Overview of the organization
7.1 Brief history
7.2 Nature of the organization
7.3 Business volume
7.4 Number of employees
7.5 Product lines
8. Organizational structure
8.1 Main offices
8.2 Comments on the organizational structure
9. Structure of the Finance Department
9.1 Number of employees working in the Finance Department
9.2 Finance & Accounting operations
10. Functions of the Finance Department
10.1 Accounting system of the organization
10.2 Finance system of the organization
10.3 Use of electronic data in decision-making
10.4 Mobilization of funds
10.5 Generation of funds
10.6 Sources of funds
10.7 Allocation of funds
11. Critical analysis of the theoretical concepts relating to practical experiences i.e. relate the theoretical concepts with your practical experience during your Internship with the Finance Department
11.1 Financial analysis (ratio analysis, horizontal & vertical analysis of the organization for the last five years)
11.2 Organization analysis with reference to the industries listed on the stock exchange
11.3 Behavior of the studied organization in allocation of various funds to different assets
11.4 Future prospects of the organization
12. Short-falls/weaknesses of the Finance Department
12.1 Critical analysis of the management patterns of the organization with reference to financial operations, weak areas that need to be improved.
13. Conclusions & recommendations for improvement
14. References & Sources used
15. Annexes

Instructions

The report should be:
  1. Double space typed on A4 size,
  2. 75 gram paper,
  3. With bold headings & sub-headings,
  4. With margins set as top,
  5. Bottom & right 1 inch whereas left 1.5 inch.
  6. These typed pages should be hard board binding in black color consisting of 25 to 30 pages.
  7. Latest Mailing Address, Roll Number, Registration Number & Telephone Number should be clearly mentioned in the report.

Business Communications Solved Assignment

0 comments

Some thinkers opinion is that vocabulary in social life is most important tool for effective communication.  Why? What are the situations in which you will find a good vocabulary to be invaluable?

Answer

Communication

It is a vital ingredient in all-human interactions.  It is through communication that thoughts, ideas, feelings and emotions are transmitted among people.  There is a variety of ways in which thinkers define communication.  In communication use of vocabulary plays a vital role.  According to a recent survey poor communication skills is the main career handicap of young people today. 

Vocabulary in social life as an important tool

In our social life the books we have read, the games we play, school subjects, hobbies - all our interests are reflected in our vocabulary.  It is no surprise then that teachers and parents rely on vocabulary growth as one way of measuring success in school.  Knowing many words, of course, does not make any one a good student automatically.  But hardly anyone does well in school without developing a good vocabulary.
Our jobs, promotions and professional reputation often depend on the success or failure of our written and oral communication.  Also we find that ability to communicate effectively is a valuable asset during many activities in our personal life.
Effective communication - written or spoken - also helps to better accomplish various aims in personal activities.  We will some thing need to write letters, proposals, or reports, or to present our views orally, whatever our purposes we will usually achieve them effectively when we apply the same skills that help us to communicate effectively.
Different words convey different meaning to different people.  Some make mistakes while talking to others.  Some use irritating words, which can upset others.  Having command on vocabulary people can select right words while talking with others.  The right choice of words, even of a single word, may make the difference between settling an important issue at hand or igniting a society-wide dispute.
The ability to communicate well can help us get along with others.  It can inspire others to like and follow us.  In addition, if we adopt the habit of making cordial comments to those we work with and of sending short notes to people we know, we will soon have an extensive network of contacts who wish us well.
Using the right word in the right place is a crucial skill in business communication.  The following sets of words sound similar, we should be careful not to use one when we mean to use the other:
At the end it is pertinent to say that vocabulary in social life as well as in the life of business is most important tool for effective communication.  As communication may be written, verbal or non-verbal. Written communication is based on letters, notes, memos etc., whereas the verbal communication is based on oral, e.g. discussion, verbal order, dialogue etc. and non-verbal communication is through body language, i.e. gestures, facial and other expressions.  In all of them vocabulary stands as a basic element.

There are many management theories given by different management theorists.  Write communication implications of each theory separately.

Answer

There are various schools of thought of management which represent different approaches to management as put forward by the founders of these schools. Some of the more common of these approaches are described below:

CLASSICAL SCHOOL

A set of management theories that focus on increasing the efficiency of the organization as a whole.

Scientific Management -Frederick Winslow Taylor

The scientific theory of management treats the management process as a science, i.e. as a set of general rules which can be successfully followed by any practicing manager for improvement of employee efficiency. This theory of management was founded by Frederick W. Taylor in 1911, who is also known as the father of scientific management.  The objectives of his theory are:
  1. The rules of thumb in management should be replaced with scientific (organized) knowledge.
  2. In group efforts, harmony should be achieved.
  3. Instead of chaotic individualism, management should seek cooperation among workers.
  4. The management should strive for the maximum, rather than restricted, output.
  5. All workers should be developed to the maximum for their own and the company’s prosperity.
Among the major followers of scientific management are Henry L. Gantt, Frank Gilbreth and Lillian Gilbreth.

Communication implications

Frederick Taylor had not given clear picture in his approach about the communication and its function but he had shown a little importance to downward communication for achievement of organizational tasks.

   Bureaucracy - Max Weber (1864-1920)

Max Weber was a German Sociologist.  His theory of bureaucracy was meant to rationalize the practice of management.  As per his approach a management emphasizes a structural organization in which positions and authority are defined according to formal rules.

Communication implications

Weber’s approach of a structural organization is highly formalized.  He emphasizes on downward communication instead of horizontal relationship in the organization that should initiate at the top of hierarchy or in a formal chain of command.

Administrative Management - Henri Fayol (1841-1925)

Henri Fayol identified in his administrative management six functions of any business organization.  In which
  1. Technical activities such as production;
  2. Commercial activities such as buying and selling;
  3. Financial activities i.e., finding capital;
  4. Security activities i.e., protecting property;
  5. Accounting activities such as balance sheet; and
  6. Managerial functions i.e.,
    • Planning,
    • Organizing,
    • Leading and
    • Controlling.

      Communication implications 

Henri Fayol emphasizes the necessity of every formal flow of communication as well as informal communication to achieve the objectives of organizational productivity.  He realized the importance of time and suggested a “Gang Plank” principle to reduce the channels and the time in the communication.

THE HUMAN RESOURCES SCHOOL

A management perspective that views employees as responding to the interpersonal processes within the work unit.

  Theory “X” and Theory “Y”  - Douglas M. McGregor (1906-1964)

In his approach he contrasted the traditional management views of employees (Theory “X” - employees are seen as lazy, Un ambitious and in need of coercion to complete work tasks) with his new view of employees (Theory “Y” - employees are seen as interested in assuming responsibility, capable of innovative approaches to work problems and having no inherent distaste for work)

Communication implications

As per assumptions about the Theory “X”, the communication implications will be downward with the objective to convey orders and command and there will be no provision of response or feed back.  As far as Theory “Y” is concerned, the  communication implications of this approach is that communication flows naturally without any traditional barriers in formal way i.e., upward, down ward and horizontally as well as informally to achieve the objectives of binding the organization together to form an effective work unit.

Linking Pin Model & Four Systems of Management

Resis Likert in his approach analyzed organizations and developed a continuum of four organization types.  At one extreme is the traditional organization that relies heavily on formal authority and formal chain of command.  At the other extreme is an ideal form of organization that relies on managers and employees collaboration uses a wide array motivational processes and encourage freer interaction among organization members.

      Communication implications

At one extreme the informational flows downward, so that manager can be able to know little of the problems faced by subordinates.  Between manager and subordinates rarely communication about organization achievements.  At the other extreme communication flows through formal liens and manager understand the problems faced by the subordinates and communication between managers and subordinates flows frequently and freely.

The Systems Approach -  Daniel Katz and Rober Kahn

In this approach to management, every entity is regarded as an open system, which has a boundary and also interacts with its external environment. It treats not only physical aspects but also human beings and concepts as systems, and then studies the results of interactions between systems.   The advantage of this theory is that it provides a neat and systematic approach to management. However, it cannot be applied to all types of circumstances.

Communication implications

In this approach necessity and importance have given to horizontal relationship to achieve the objectives of organization to form an effective work unit.

                   Contingency Theory - Situational Approach - Joan Woodward, Paul Lawrence & Jay Lorsch

In this approach, a manager’s decisions and actions depend upon the particular set of circumstances and the environment, i.e. they will be different in different situations. This theory also realizes that management is both a science and an art, and the best way to perform managerial practice is to apply both science part and the art part. The science part is applied through our theoretical knowledge, whereas the art part is applied through intuition and experience. The contingency approach to management is, considered to be the most useful and successful of all management theories.

Communication implications

This approach permits managers to communicate with people to understand their different views as well as to resolve conflict through formal structure or face to face interaction.

To make your oral presentation you have four choices of kinds of speaking for delivering the message.  What are these? Discuss these in detail.

There are a variety of delivery methods in which four choices are more common to choose from.  These kinds of speaking for delivering the message are
  1. Memorization method,
  2.   Manuscript reading method, (
  3. Extemporaneous method, and
  4. Impromptu method. 
These are discussed in detail as under:

Memorization method

This refers to memorizing an entire speech, for delivery.  This act of delivery is not successful because it is possible to forget the lines of speech.  Furthermore, a memorized speech often sounds very stiff and stilted.  It is useful, if we memorize a quotation, an opening paragraph or a few concluding remarks which will give us confidence.  This act is also useful for trained actors.

Manuscript reading method

This art refers to reading the entire written speech for delivery.  This act is often used by delivering a technical or complex presentation.  This art wants enough practice so that the presenter can still maintain eye contact with the audience.  This art is often used by government officials giving policy statements.  Demand of this art from presenter is enough practice.  Large-spaced typed with wide margins pages helpful in presentation.

Extemporaneous Method

Speaking from notes is generally the best way to handle delivery.  It is most effective and easiest mode.  In this way speaker delivers speech with the help of an outline, note cards, or visual aids.  It gives something to refer to an still allows for eye contact and interaction with the audiences.  This art also provides the facility to speakers of expending or reducing the points of their speech as per demand of the audience.

Impromptu Method

This relates to impromptu or unrehearsed speech that is delivered in two situations.  One is, when the speaker agreed to speak but have neglected to prepare the remarks.  The other is when speaker called on to speak unexpectedly.  This way is good only for those who are extremely good public speakers.

Discuss two examples of how your non-verbal communication contradict your spoken words.

Non-verbal Communication

Non-verbal communication which is the process of communicating without words, allow us to communicate through cues, gestures, vocal qualities, spatial relationships and attitudes toward time.  Action is the ultimate form of communication.  It speaks with an unmistakable voice. It has few rules and often occurs unconsciously.  Non-verbal communication contradict our spoken words in fundamental ways.
For example we cannot pick up a book on non-verbal language and master the vocabulary of gestures and expressions that are common in our culture.  For one thing, it is less structured, which makes it more difficult to study.  As no one teaches a baby to cry or smile, yet these forms of self-expression are almost universal.
Non verbal communication also differs from verbal communication in terms of intent and spontaneity.  We generally plan our words.  When we say, “Please get back to me on that order by Friday,” we have a conscious purpose.  We think about the message, if only for a moment.  However, when we communicate non-verbally, we sometimes do so unconsciously.  We do not mean to raise an eye brow or blush.  Those actions come naturally.  Without our consent, our emotions are written all over our faces.

Business & Labor Laws Solved Assignment

0 comments

Define consideration, state the exceptions to the general rule of law in Pakistan that an agreement made without consideration is void?  Can agreements be valid without consideration?

Answer      

CONSIDERATION

When at the desire of the promisor, the promisee or any other person, has done or has abstained from doing something, such act or abstinence is called a consideration for the promisee.
For example “A” agrees to sell his house to “B” for Rs. 50,000/-.  Here “B’s promise to pay the sum of Rs. 50,000/- is the consideration for “A’s promise to sell the house and A’s promise to sell the house is the consideration for B’s promise to pay Rs. 50,000/-.
The agreement must be for lawful consideration and with a lawful object.
  • Consideration is said to be unlawful -
  • when it is forbidden by law;
when it is of such a nature that if permitted it would defeat the provisions of any law; or
  • it is fraudulent; or
  • it involves an injury to the person or property of another; or
  • the court regards it as immoral or opposed to public policy.
No action can be brought on a contract which is prohibited by the general law or a statute;
For example “A” and “B” enter into an agreement for the division among them of gains acquired or to be acquired by them by FRAUD.  The agreement is void as its object is unlawful.
EXCEPTIONS TO THE GENERAL RULE OF LAW IN PAKISTAN THAT AN AGREEMENT MADE WITHOUT CONSIDERATION IS VOID
The law governing the contracts in Pakistan is contained in the Contract Act, 1872.  A contract may be defined as an agreement which is enforceable at law and every promise, constituting an offer and its acceptance, is an agreement. For validity of an agreement, consideration is always necessary.  Wherein an agreement, consideration is not present, the agreement is void.
“A” promises for no consideration to give to “B” Rs. 2000/-.  This is a void agreement.
But an agreement without consideration can be treated as a contract.-
When it is expressed in writing and registered under the law of registration of documents and is made on account of natural love and affection between parties standing in near relations to each other:
“A” for his natural love and affection, promises to give his son “B”, Rs. 2000.  “A” puts his promise to “B” in writing and registers it.  This is a  contract.
When it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was compellable to do:
“A” supports “B’s infant son.  “B” promises to pay “A’s expenses on doing so.  This is a contract.
When it is a promise made in writing and signed by the person to be charged therewith, to pay wholly or in part, a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
“A” owes “B” Rs. 2,000/-, the debt is barred by Limitation Act.  A signs a written promise to pay “B” Rs. 1000/- on account of the debt.  This is a promise.
Explanation (2) to section 25 provides that an agreement to which consent of the promisor is freely given is not void merely because the consideration is inadequate. 
“A” agrees to sell a house worth Rs. 20,000/- for Rs. 500/-.  A’s consent to the agreement was freely given.  The agreement is a contract notwithstanding the inadequacy of consideration.
But the inadequacy of consideration may be taken into account by the court in determining the question whether consent of the promisor was freely obtained.

Distinguish between a “condition” and “warranty”?  Can a buyer treat the breach of condition as a breach of warranty only?  If so what will be his/her rights in such a case?

Answer

The law governing the contracts of sales of goods in Pakistan is contained in the Sale of Goods Act, 1930.  A contract of sales of goods is a contract in accordance to which the seller either transfers or agrees to transfer the property in goods to the buyer for a price.

  “CONDITION” AND “WARRANTY”

In every contract of sale of goods there are stipulations (statements or promises made by parties to a contract) made with reference to goods which are the subject matter thereof.  Such stipulations which are the subject matter of a contract, may be classified as “condition” or “warranty”.
If stipulation forms are the very basis of the contract, or is essential to the main purposes of the contract, it is known as a condition. If, however, the stipulation though not essential to the main purpose of the contract is collateral to the main purpose of the contract, that is to say, is a subsidiary promise, it is known as a warranty.
Whether a stipulation in a contract of sale is a condition or warranty depends, in each case, upon the construction of the contract. No special form of words is necessary to create a warranty or a condition; a stipulation my be a condition though called a warranty in the contract; the Court will determine this for itself from the intention of the parties, which is to be gathered from the terms of the contract. All through the Act, the distinction between condition and warranty is clearly drawn.
CAN A BUYER TREAT THE BREACH OF CONDITION AS A BREACH OF WARRANTY ONLY - RIGHTS IN SUCH A CASE
The effect of a breach of condition is to give the aggrieved party a right to treat  the contract as repudiated; whereas in the case of a breach of warranty he cannot reject the goods or to treat the contract as repudiated, but all that he is entitled to claim, is  damages.
When there is a breach of a contract on the part of the seller, the buyer is not bound to reject the goods but has an option; he may either reject the goods, or may elect to treat the breach of condition as breach of warranty, accept the goods and claim only damages (Section 13). But in cases where the buyer has accepted the goods or part thereof or where the contract is for specific goods the property in which has passed to the buyer the breach of a condition by the seller will be treated as a breach of warranty and the buyer cannot exercise the right to reject the goods or to treat the contracts repudiated.

IMPLIED CONDITIONS AND WARRANTIES

 In every contract of sale

  • There is an implied condition as to seller’s title, that is, the seller has a right to sell the thing as it is and has the right to pass the property in the thing to the buyer.
  • In case of an agreement to sell, there is an implied condition that he will have  right to sell the goods at the time when the property is to pass.
  • there is an implied warranty that the buyer shall have and enjoy quiet possession of goods i.e. nobody shall interfere with the possession of goods by reason of want of title of the seller.
  • there is an implied warranty that the goods are free from any charge or encumbrance.

IMPLIED CONDITION AS TO QUALITY OR FITNESS

There is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. But this rule is subject to certain exceptions:
  • Generally the rule “caveat emptier” (buyer  beware) applied when a buyer buys specific article, but where the buyer orders goods to be supplied and trusts the judgment of the seller to select the goods which shall be applicable for the purpose for which they are intended, which is known to both the parties, there is an implied condition that they are fit for that purpose. It  must be shown -
that the goods were required for a particular purpose of which the seller was aware;
      • the buyer relief on the seller’s skill or judgment; and
      • it was the seller’s business to the supply such goods.
  • When goods are bought by description from a seller who deals in the particular goods (the seller must be dealing in the particular kind of goods) it is always an implied condition that the goods shall be of a merchant able quality. The term that the goods shall be “merchant-able quality” is answered when they do not differ from the normal quality of described goods. But when the buyer has examined the goods, the condition is not applicable as far as defects which the examination would have revealed.
  • An implied warranty or condition as to fitness for a particular purpose may be established by providing a usage of trade.
  • When the parties choose to agree that there shall be certain warranties or conditions, the order warranties or conditions implied by various sections if inconsistent with the express warranties or conditions will not apply.


Part One: Define partnership, stating its essential features.  What is the effect of non-registration of a firm under Partnership Act?

Answer    

PARTNERSHIP

The law which regulates the partnership business in Pakistan is known as the Partnership Act, 1932 and defines “Partnership” as the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.
Under the law, there cannot be more than 10 partners in banking business and more than 20 partners in any other business.  For those professions, however which are debarred from doing business in the form of a limited company, such as Physicians, attorneys and the accountants, this maximum limit does not apply.

KINDS OF PARTNERSHIPS


  • Partnership at will
    • In this form the partners are free to dissolve the partnership whenever they desire.

  • Particular Partnership
    • It is a partnership created for any particular adventure or undertaking.  Partnership created for a single undertaking (usually of a short duration) is also known as Joint Venture.

ESSENTIAL FEATURES

The following are essential elements of a partnership business:
  • There must be an agreement between the parties concerned.  Though it may be written or implied one.
  • There must be a business, which means and includes any trade, profession or vocation.
  • It must be carried on by all or some of the partners for the benefit of all of them.
  • It must be carried on for the purpose of earning profits which would be divided amongst the partners, in the agreed way or ratio.

EFFECT OF NON-REGISTRATION OF A FIRM UNDER PARTNERSHIP ACT

When there is no agreement between the partners, the rights and duties of the partnership are determined by the following provisions of the Partnership Act:
  • No partner has the right to a salary.
  • No interest is to be allowed on capital or drawings.
  • Interest at the rate of 6% will be allowed on a partner’s loan to the firm.
  • Profits and losses will be shared equally.

Describe the procedure for the incorporation of a private limited company under the provisions of the Companies Ordinance, 1984.

Answer

Securities and Exchange Commission of Pakistan (formerly Corporate Law Authority), a body corporate, is exercising and performing such powers and functions as are conferred on it by or under the Companies Ordinance, 1984. The following are the requirements for incorporation of a company limited by shares under the Companies Ordinance, 1984:

AVAILABILITY OF NAME

The first step is to seek the availability of name.  A person may apply along with a fee of Rs. 200/- to the Company Registration Office, Securities and Exchange Commission of Pakistan.  He may propose one or more names according to his priority.  The name should not be inappropriate, deceptive, or designed to exploit or offend the religious susceptibilities of the people.  It should not have close resemblance with the name of any existing company.

MODE OF FORMING A COMPANY

Any seven or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and complying with the requirements of the Companies Ordinance in respect of registration, form a public company and any two or more persons so associated may, in like manner, form a private company.

DOCUMENTS FOR REGISTRATION

The following documents are required to be submitted with the concerned Registrar for registration of a private limited company.

  • Memorandum and Articles of Association
    • Four printed copies of Memorandum and Articles of Association duly signed by each subscriber in the presence of at least one witness.  One copy should be affixed with special adhesive stamps at the rates prescribed under the Stamp Act, 1899.

  • Form-I
Declaration of compliance with the requirements of the section 30(2) of the Companies Ordinance, 1984 signed by
    • an advocate, entitled to appear before any High Court in Pakistan or the Supreme Court: or
    • a member of the ICAP or the ICMAP practicing in Pakistan; or
    • a person named in the Articles as a Director or other officer.

  • Form 21
    • Notice of situation of registered office of the company. (section 142)

  • Particulars of Directors and Officers
    • including the Chief Executive, Managing Agents, Secretary, Chief Accountant, Auditor and Legal Advisor, etc. (Section 205)

  • Registration/Filing Fee
    • A copy of the original treasury challan on account of registration and filing fee deposited in the Banks in the account of the SECP at the rates as prescribed by it, according to the authorized capital of the company.

  • Power of Attorney
    • The promoters have to execute a Power of Attorney in favor of one of the subscribers or any consultant/adviser to make amendments/alterations in the Memorandum and Articles of Association if found defective by the Registrar.  He will also be authorized to file the papers and collect the certificate of incorporation.  The Power of Attorney must be on a Non-Judicial stamp paper and duly attested by a Notary Public.

Describe the procedure for incorporation of a public company limited by shares.

Answer

DOCUMENTS FOR THE REGISTRATION OF A PUBLIC COMPANY

Apart from the documents mentioned for registration of a private company, the following additional documents are required to be filed for registration of a public company.

  • Form- 27
    • List of persons consenting to act as directors.

  • Form 28

  • Consent to act as Directors/Chief Executive.

REQUIREMENTS AFTER INCORPORATION

PRIVATE COMPANIES

  • Private companies may commence business from the date of incorporation.
  • In case of increase in paid up capital, a circular under section 86(3) of the Companies Ordinance shall be issued to all the members and one copy thereof filed with the Registrar concerned and thereafter; Form “3” to be filed within 30 days of the allotment of shares.
  • First annual general meeting is required to be held within eighteen months from the date of incorporation under section 158 and consequently  Form “A” to be filed with the Registrar concerned within 30 days.
  • First election of directors to be held at the first annual general meeting and the next after every three years.
  • Subsequent annual general meetings are required to be held once at least in every calendar year, within a period of six months following close of the financial year and not more than fifteen months after holding the last preceding AGM under section 158 and Form “A” to be filed within 30 days.
  • Any appointment/change in the Directors, Chief Executive, Auditors, Chief Accountant is required to be notified to the Registrar concerned on Form 29 within 14 days of the said appointment/change.

PUBLIC COMPANIES

  • Public companies may not commence business unless commencement of business certificate is obtained from the Registrar concerned under section 146.
  • Statutory meeting is required to be held under section 157 within a period of not less than three months, not more than six months, from the date at which the company is entitled to commence business.  A statutory report is required to be forwarded to the members and five copies thereof certified in the prescribed manner delivered to the Registrar, at least 21 days before the date of Statutory Meeting.
  • First audited accounts are required to be laid in the first annual general meeting to be held within 18 months from the date of incorporation.  Five copies of the accounts signed in the prescribed manner and an annual return in Form “A” to be filed to the Registrar concerned within 30 days of the date of AGM.
  • Subsequent AGMs shall be held and audited accounts presented therein within a period of six months of the closing of financial year and not more than fifteen months of preceding AGM.
  • For election of directors, the procedure laid down for private companies in the above paragraph is also applicable for public companies.
  • Any change in the personnel of directors/chief executive, auditors, secretary, chief accountant, legal adviser as mentioned above for the private companies.
  • In case of increase in paid up capital as procedure laid down for private companies.

What are the specific requirements of law in regard to the particulars, which must be contained in the prospectus of a public limited company?

Answer     

A prospectus is any prospectus, notice, circular, advertisement or other invitation, offering to the public for subscription or purchase of any shares or debentures, of a company. “Public”, however, is not restricted to the public at large, but includes any well-defined class of the public.  But a distribution to a limited number of people selected by the company is not an issue to the public.  A prospectus may be issued by or on behalf of company or by or on behalf of any person engaged or interested in the formation of a company.
The prospectus is the very foundation of a company’s edifice. It is on the basis of the statements made in the prospectus that the public takes shares or debentures of the company. Therefore the object of the law governing company prospectuses is to require the company to provide in the prospectus certain information to enable the prospective investor to decide whether or not to subscribe for the company’s shares or debentures. Under section 53 of the Companies Ordinance, 1984 every prospectus issued by or on behalf of a company, or by or on behalf of any person who has been engaged or interested in the formation of a company shall state the following matters:-
Who are the directors and what benefit they get as such;
  1. Profit made by the promoters;
  2. Capital required by the company in cash;
  3. Past financial records of the company;
  4. Preliminary contracts, commission preliminary expenses;
  5. Voting and dividend rights of each class of shares.
Every prospectus of a company, when issued by a company before it commences its business, must stated:-
  1. The contents of the memorandum its signatories, founders, shares and the number of redeemable preference shares intended to be issued;
  2. Director’s qualifications and remuneration;
  3. Names of directors, Chief Executive and managing agents, and the remuneration payable to Chief Executive, managers and managing agents;
  4. The minimum subscription on which the directors may proceed to allotment;
  5. Shares and debentures issued within three previous years as paid up in full or in part otherwise than in cash, and the consideration therefore;
  6. Where the issue of shares or debentures is underwritten, the names of the underwriters with the opinion of the directors that the underwriters resources are sufficient to discharge their underwriting obligations;
  7. The name and addresses of vendors of property who are to be paid out of the proceeds of the issue, and price of the same. If any such property has been transferred by sale within two years preceding the issue of the prospectus, the amount paid by the purchaser at such transfer shall be mentioned. If such property is a business, the profits accruing from such business during each of the three years preceding the issues of the prospectus or during each year of the business less than three years, shall have to be mentioned;
  8. Commission for placing shares or debentures paid during two previous years, and discount in respect of the shares issued;
  9. Estimated amount of preliminary expenses;
  10. The amount paid to promoters within two previous years, and the consideration for the payment;
  11. Date of, and parties to, all material contracts, including contracts relating to purchase of property mentioned in (7) above, with the time and place at which such contracts of a copy thereof may be inspected;
  12. Names and addresses of auditors;
  13. Interest of directors in the promotion of, or in the property proposed to be acquired by the company;
  14. The right of voting at meetings of the company conferred by, and the rights in respect of capital and dividends attached to, the several classes (if any) of shares;
  15. The nature and extent of restrictions (if any) imposed by the articles upon the members in respect of the right to attend, speak or vote at the company’s meeting, or upon their right to transfer shares, or upon the director’s powers of management; and
  16. Where any part of the sums is to be provided out of sources other than share capital, particulars of the amount to be so provided and the sources thereof.
Where a prospectus is published as a newspaper advertisement, it shall not be necessary in the advertisement to specify the contents of the memorandum, or the signatories thereto, and the number of shares subscribed by  them.

Banking Law & Practice Solved Assignment

0 comments

Q.1 How does the State Bank of Pakistan control the banking system of the country? 

Answer 

In the following salient features of the State Bank of Pakistan to control the banking system are discussed which are mainly instruments used in Pakistan since all the conventional control techniques are not applicable in developing countries:

Bank rate

This is the rate at which the State Bank buys or discounts bills of exchange and other commercial papers.  This is also the basic interest rate.  All the other interest rates in the banking system, like the deposit rate paid by the banks to their depositors and the rates at which bank lend for short and long periods, are tied to it.  With any change in the bank rate, similar changes take place  in the entire interest rate structure of the banking system.

Cash Reserve Requirement

All scheduled banks are required to deposit a certain percentage of their total liquid assets with the State Bank.  Technically, the government can bring about a change in reserve requirement but normally the State Bank exercises this authority on the government’s behalf.  A rise in the cash reserve requirements restricts the bank’s lending operations while a fall can encourage them to advance more credit.

Selective Credit Control

The State Bank usually have considerable authority to control the composition of bank credit.  SBP can direct banks regarding the distribution of credit between different sectors and uses, between long term and short-term loans, margin requirements for advances against certain types of assets and the interest to be charged on different types of advances and from different borrowers.

Credit Ceiling

A credit ceiling for the banking system as a whole or for each individual bank, can exercise some influence over the total volume of credit though not on its direction or use.

Liquidity Ratio

  This is the ratio between a bank’s liquid resources and its total liabilities.  While a low liquidity ratio may lower public confidence in the banking system and may also allow banks to liquidate their investments in government securities to finance credit expansion, a high ratio adversely affects the credit flow in the economy and the overall profitability of the bank.

Open market operations

This consists of the purchase and sale of securities by the State Bank in the open market.  The quantity of cash in the money market increases with the purchase of securities whereas their sale has contra-dictionary effect.

Credit Quota

The State Bank can also limit its own lending to banks by fixing a credit quota for each bank and borrowing over and above the limit may carry a higher interest rate.
In Pakistan, in addition to these instruments, the State Bank of Pakistan also offers informal advice, guidance, and persuasion to banks in various matters.  Such informal control may have become fairly important particularly after the nationalization of banks and the consequent unification of their operating policies.

Q.2 What are the negotiable instruments?  Discuss in detail.

Answer  

NEGOTIABLE INSTRUMENTS

Under the Negotiable Instruments Act, 1881 “a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer”.  However, in general terms a Negotiable Instrument is one which is, by a legally recognized custom of trade of law, transferable by delivery or by endorsement and delivery in such circumstances that (a) the holder of it for the time being may sue on it in his own name; and (b) the property in it passes, free from equities, to a bona fide transferee for value, notwithstanding any defect with title of the transferor”.

     CHARACTERISTICS

  • Negotiable instruments are transferable from person to person like cash.  In other words, the property attributed to these instruments passes from one person to another, either by endorsement or by delivery.
  • The transferee of a negotiable instrument is entitled by law to sue on the instrument in his own name in case of dishonor.
  • A bona fide transferee of a negotiable instrument for value takes if free from all defects in the title of his transferor.  This is the main difference between negotiable instrument and other subjects or ordering transfer.

KINDS

There are three main kinds of negotiable instrument:
  • Bills of exchange;
  • Cheques;
  • Promissory notes;
These are discussed in detail as under:

BILLS OF EXCHANGE

“An instrument in writing, containing an unconditional order, signed by the maker, directing a certain person, to pay certain sum of money, only to or to the order of a certain person, or to the bearer of the instrument”.
Characteristics are:
  • It must be in writing.
  • It must be singed by the maker.
  • It must contain an unconditional order.
  • It must direct a certain person to pay a certain amount of money to a certain person or his order or to bearer.
  • It must be properly stamped.
PARTIES
There are generally three parties to a Bill of Exchange:
  • Drawer:Drawer is the person giving the order.
  • Drawee:  Drawee is the person to whom the order is addressed.
  • Payee or Endorsee:  Payee or Endorsee is the person named in the instrument to whom or to whose order the money is directed to be paid.

CHEQUE

“A cheque is defined as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. 
In general term, it is a bill of exchange drawn on a banker which is payable on demand.  A cheque is a peculiar type of negotiable instrument which resembles a bill of exchange in particulars but does not so resemble in other.  Thus:
  • a cheque does not require acceptance;
  • it is not intended for circulation;
  • but for immediate payment;
  • it is not entitled to any days of grace;
  • it is always drawn on a banker;
  • it is payable to bearer on demand (unless crossed).
VARIETIES
  • Open cheque:This can be presented to the banker on whom they are drawn and paid by them “over the counter”.
  • Crossing:This is a device adopted by the business community and sanctioned by law, which has the effect of making cheques payable to a bank only or to a particular bank in an account with such bank.  Crossing is of two types.  General crossing which consists of drawing two parallel transverse lines, across the fact of cheque, either with or without the words “not negotiable” and/or the words “and Co” in between.  If in addition to general crossing, the name of specified banker to whom the cheque is to be payable, is also written on the face of the instrument, with or without the words “not negotiable”, it is called special crossing”.
  • Order cheque :This is a cheque (a) which is expressed to be so payable or (b) which is expressed to be payable to a particular person, without containing words prohibiting transfer or indicating that it shall not be transferable or (c) which is expressed to be payable to the order of a certain person.
  • Marked cheque :This means a cheque which is “marked” or certified by the banker on whom it is drawn, to the effect that it would be honored when presented for payment.

PROMISSORY NOTES

“This is an instrument in writing (not being a bank note or currency note) containing an unconditional undertaking signed by the maker, to pay on demand or at a fixed or determinable future time, a certain sum of money only, to or to the order of a certain person or to the bearer of the instrument”
No precise form is necessary but the above definition lays down that the following are the essentials of a Promissory Note:
  • It must be an unconditional written promise.
  • It must be singed by the maker called “promiser”.
  • It must contain a promise to pay a certain sum in money only.
  • The money should be payable to or to the order of a certain person or to the bearer of the Promissory Note.
  • It may be made by two or more persons and they may be liable thereon jointly and severally.
  • The amount promised in the Promissory Note must be payable on demand or at a fixed or a determinable future time.
  • A Promissory Note is incomplete until it has been delivered to the payee or the bearer.  Moreover, the sum promised in a Promissory Note can be made payable by stated installments.  The Promissory Note may be made by two or more makers who may be liable thereon jointly and severally, according to is tenor.

Q.3 As a banker how would you appraise an industrial project?  Support your answer with arguments.

Answer      

To appraise an industrial project, a banker has to make sure that five basic prerequisites are fulfilled before taking decision.  The five basic principles are:
  • Safety
  • Maintaining liquidity;
  • Maintaining wide dispersal;
  • Financial advantage; and
  • Economic Advantage.

SAFETY

The baker must be very careful while financing various projects because if the ventures which he is financing are not viable then he will lose not only the bank’s money but is likely to bring hardship to a large number of depositors.  It must be kept in mind that the depositor place their money at the disposal of the bankers because they are sure of its safety.  In view of the above, the bakers has to do a great deal of thinking and homework before he allows finances for a certain venture.  The following matters have to be looked into by a banker most carefully to ensure safety of the money:
  • Character of the person or persons desirous of obtaining finances.  He must be the kind of person who can be trusted with the amount being provided to him.
  • Previous record of their relationship with the baker has also to be considered.  If a party has been a client for a long period of time and his previous record shows that he has honored his commitments in the past, the banker can without any fear of the future consequences provide finance.
  • Capacity to honor their commitments and management ability are other factors which have to be considered.  A businessman may not have unlimited financial resources but his capacity to manage investments may be of a high order in which case the task of the bank becomes easy.
  • The financial viability of the project is another factor because a party may have large resources at his disposal and also have management capabilities but the project which he proposes is doomed from the beginning because it is not financially viable.

MAINTAINING LIQUIDITY

This means ability to convert assets into ready cash.  The banker must make sure that the money he is lending is not blocked for a long period of time so that it can be lent to other people.  The banker should always be hesitant to advance finances to customers for purchase of fixed assets because this kind of asset cannot be changed into liquid assets when needed.

MAINTAINING WIDE DISPERSAL

The dispersal of the amount of advances should be broadly based so that a large number of borrowing customers may benefit from the financing.  The banker must ensure that his funds are not invested in specific sector like textile industry, heavy engineering or agriculture, etc.  He must see that from his available funds he advances them to a wide range of sector.  Dispersal of advances is very necessary from the point of security as well, because it reduces the risk of recovery when something goes wrong in one particular sector.

FINANCIAL ADVANTAGE

A banker needs sufficient amount of banking spread over the year so that he can meet expenses which he has to meet in regard to interest paid to customers, payment to dividend to shareholders, meeting the expenses and overhead, payment of salaries and keeping adequate amount for financing future investments.   Banking itself is a business and therefore, the banker must always keep in mind that he has to create conditions of financial advantage.

ECONOMIC ADVANTAGE

The bankers have always keep in sight the overall nature of economic and social objectives of development in the country.  For this purpose he has got to think in terms of economic advantage of the nation as a whole upper most in his mind and see that the projects financed by him are in line with national objectives.

    Q.4 Write notes on the following:-

       Answer

LETTER OF CREDIT

In export and import, both importer and exporter may be not known to each other.  When an importer is not particularly well known to an exporter, but the transaction is being conducted directly between the importer and exporter, then they use the services of a bank through a letter of credit, which is also known as Documentary Credit.  A letter of credit is a satisfactory way of ensuring payment before control of the goods is surrendered.  The usual way in which this is effected by an irrevocable letter of credit which may be confirmed in certain cases.  A really detailed understanding of letter of credit is necessary for all those who are engaged in international trade.  A documentary credit is an understanding by a bank at the request of its customer, an importer, to pay an exporter or accept the exporter’s term bill of exchange in respect of goods consigned to the importer when satisfactory documents including evidence of shipment and all other documents required under the terms of the credit are produced at a named place within a specified period.

TYPES  

Revocable credit
A revocable credit gives no undertaking to the exporter that payment will actually be made because it may be cancelled or amended at any time without prior notice to the beneficiary.
Irrevocable letter of credit
An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented and that the terms and conditions of credit are complied with.  The issuing bank, in case of irrevocable credit gives a binding or definite undertaking to the beneficiary that he will pay against documents or that the bills drawn in compliance with the terms of credit will be honored.
Confirmed letter of credit
When an issuing bank authorizes or requests another bank to confirm its irrevocable credit and the latter has added its confirmation, such confirmation constitutes a definite undertaking of such bank, in addition to that of the issuing bank, provided that the stipulated documents are presented according to the terms and conditions of the credit.  The beneficiary of such credit has a double assurance of getting his money, the undertaking by his bank and the issuing bank.  The confirmed credit eliminated practically all the risks to the seller.
Unconfirmed letter of credit
In this type, these credit are carried with undertaking by the opening bank but not confirmed by the advising bank.  The majority of credits covering international trade are irrevocable credits but most of them are not confirmed.  The reason is that buyer is not prepared to pay an additional charge for confirming the credit or it may effect on the cost of the goods by the seller.
Sight and acceptance letter of credit
There are two categories of credit in connection with payment; (i) sight letter of credit which means that the payment is to be made on demand or on presentment of bill of exchange; and (ii) acceptance letter of credit in which type facility in payment is allowed to the buyer i.e., payment on 30, 60, 90 days document against acceptance basis.
Revolving credit
A credit which contains a condition that the credit amount is to be renewed or reinstated automatically in stated circumstances without the need for further specific amendment.  A credit revolve around amount or around time.  A credit which revolves in relation to time is for more usual and practical instrument.

ENDORSEMENT

An endorsement means the writing of a person’s name on the back of a negotiable instrument;  This can be given also on the face of an instrument.  It has no particular form of words and can be given on a piece of paper annexed to a negotiable instrument.  It should be given for the purpose of negotiation which has been defined in section 14 of the Negotiable Instrument Act, 1881.
Classes of endorsement are:
Blank & Full endorsement:  In Blank, it consists of the bare signature of the endorser and the instrument so endorsed becomes payable to bearer.   In Full, it specifies, in addition to the signature of the endorser, the person to whom or to whose order the instrument is payable.
Restrictive Endorsement: This prohibits further negotiation of the instrument  i.e.,  the endorsee has no power to transfer this rights to any one further.
Partial Endorsement: This purports to transfer to the endorsee only a part of the amount payable on a bill of exchange or promissory note.
Conditional Endorsement:  This makes the transfer of the instrument from the endorser to the endorsee after the fulfillment of stated conditions.
“Sans Recourse” Endorsement:  When an endorser wants to exclude his liability to the endorsee or subsequent holder he indicates it clearly on the instrument by writing the words “SANS RECOURSE” or “Without Recourse”.
Bankers in Pakistan accept endorsements in the following forms:
  • Endorsements by:
-     individuals
-     married women
-     illiterate persons
-     agents for individuals
-     joint payees
-     firms
-     joint stock companies
-     clubs, societies and association, etc.
-     official payees
-     executors and administrators
-     trustees
-     public bodies.
The liabilities of an endorser are:
  • like the drawer of a bill of exchange or cheque, the endorser of these instruments is only a surety for the principal debtor and his liability is secondary and conditional.
  • By endorsing the negotiable instrument, the endorser takes the liability of acceptance or payment of the endorsed instrument when it falls due, according to its apparent tenor.
  • If the endorsed instrument is dishonored, the endorser is liable to compensate the holder for the loss or damage which he may sustain on account of such dishonor.

Auditing Solved Assignment

0 comments

What is the importance of Auditing for the business profession?

Financial statements of companies are very useful in business profession and the following people or group of people are likely to want to see and use these:

  • Actual or Potentially owners or shareholders, lenders or debenture holders, employees, customers and suppliers.
  • People who advise the above accountants; stockbrokers; credit rating agencies; financial journalists; trade unions; statisticians.
  • Competitors and people interested in mergers, amalgamations and takeovers.
  • The government, including the tax authorities, departments concerned with price control, consumer protection, and the control and regulation of business.
  • The public, including those who are interested in consumer protection, environmental protection, and political and other pressure groups. 
  • Regulatory organizations.

All these people must be sure that the financial statements can be relied upon.  The problem, which has always existed when managers report to owners is “Can the owners believe the report? 

The report may

  • Contain errors
  • Not disclose fraud
  • Be inadvertently misleading
  • Be deliberately misleading
  • Fail to disclose relevant information
  • Fail to conform to regulations

The solution to this problem of credibility in reports and accounts lies in appointing an independent person called an auditor to investigate the report and report on his findings.

A further point is that modern companies can be very large with multi-national activities.  The preparation of the accounts of such groups is a very complex operation involving the bringing together and summarizing of accounts of subsidiaries with differing conventions, legal systems and accounting and control systems.  The examination of such accounts by independent experts trained in the assessment of financial information is of benefit to those who control and operate such organizations as well as to owners and outsiders.

Many financial statements must conform to statutory or other requirements. The most notable is that all company accounts have to conform to the requirements of the Companies Ordinance, 1984.

The primary aim of auditing is to enable the auditor to say, “these accounts show a true and fair view” or, of course, to say that they do not.  The objects of an auditing are:

Primary

To produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading and using them can have belief in them.

Subsidiary

  • To detect errors and fraud
  • To prevent errors and fraud by the deterrent and moral effect of the audit
  • To provide spin-off effects.  The auditor will be able to assist his clients with accounting, systems, taxation, financial, and other problems.

What factors are considered by an auditor in developing an audit plan? Explain

It is of great importance that an audit is planned in advance because:

  • The intended means of achieving the audit objectives must be established;
  • The audit can be controlled and directed.
  • Attention can be focused on the critical and high risk areas;
  • The work can then be completed economically and to time scale requirements.

The following are the matters to be taken into account and the preparation of an audit plan:

Matters to take into account

  • The work to be performed in addition to the audit.
  • Reviewing last year’s working papers.
  • Changes in legislation or auditing or accounting practice.
  • Analytical review of management accounts, consulting with management.
  • Changes in the business or its management or ownership.
  • Changes in systems or accounting procedures.
  • Timing measurements.
  • Extent of preparation by the client of analyses and summaries.
  • Use of internal audit.
  • Degree of reliance on internal controls.
  • Joint auditors if any.
  • Rotational‑ testing.
  • Liaison with the audit committee.

The general strategy will be directed toward the following matters:

  • Terms of engagement. Work to be done ‑ audit, precise accounting work to be done for client, tax. Etc., letters to be sent ‑ letter of weakness etc, reports to third parties e.g. regulatory authorities;
  • The client and its background. History, products, locations, especially noting factors like a new managing director, a new computer, a new product.
  • Important figures and ratios. From previous years and if available, from management and draft accounts.
  • Audit risk areas. These might include stock, work in progress, or dealings with a company under common ownership. 
  • The effect of information technology on the audit.
  • Extent of involvement of internal audit.
  • Requirement for involvement of specialists. These may be from within the audit firm e.g. computer audit or rarely external specialists.
  • Setting of materiality levels.
  • Client assistance. Assistance from the client may be required in providing documents and analyses, providing computer time, arranging visits to branches.
  • The audit approach. The extent of reliance on internal control, the use of substantive tests and analytical review procedures.
  • Timetable. Dates of interim, year end and final audits and of dead lines to meet e.g. AGM of company.
  • Staffing requirement.
  • Budget and fee.
  • The operating style (e.g. direction from the top or disseminated decision making) and control consciousness of directors and management.
  • Possibilities of error or fraud.
  • Involvement With subsidiaries and their auditors, branches, divisions and other components of the audit assignment.
  • Regulatory requirements (especially important in some types of company e.g. those in financial services.
  • Going concern issues.

Explain different situations of professional misconduct in relation to Chartered Accountants in practice.

Professional accountants are required to observe proper standards of professional conduct whether or not the standards required are written in the rules or are unwritten. They are specifically required to refrain from misconduct, which is difficult to define precisely but which includes any act or default, which is likely to bring discredit on himself, his professional body or the profession generally.

Several general points can be made:

  • Professional independence is exceedingly important. This is very much an attitude of mind rather than a set of rules.
  • Integrity is vital. Synonyms for integrity include honesty, uprightness, probity, rectitude, and moral soundness.
  • Accountants must not only be people of integrity and independence; they must also be seen to be so. Any interest (e.g. owning shares in a client company) which might diminish an accountant's objectivity of approach or which might appear to others, must be avoided.
  • When an accountant has ethical difficulties or is unsure of what course of conduct to follow, he should consult his professional body or take legal advice. If in doubt always seek advice.

Points to note:

  • The ethical codes are in some areas mandatory.
  • In some areas they give guidance only. For example in the independence ethical guide, the 15% fees rule is for guidance only client giving 10% of gross fees may influence an auditor who fears the loss of income if he loses the client.
  • In all these ethical matters an accountant must not only behave correctly, he must also be seen to be behaving correctly.
  • These matters are occasionally tested.
  • Ethics are taken very seriously by professional accountants.
  • Professional accountants are not allowed to give investment advice or conduct investment business unless they are authorized to do so.
  • Auditors become privy to all sorts of information in the course of their work.  Auditor and their staff must regard all such information as totally privileged and not disclose it to third parties except in circumstances where there is a legal right or duty to disclose it. They may not also use such information for personal gain, e.g. by insider trading.
  • Partners and staff of audit firms can become so familiar with the management or staff of a client company that they lose their objectivity. This must be avoided perhaps by rotating the partners and staff involved.
  • Independence is a big, issue at the time of writing and the practice of audit firms performing other services for their audit clients has come into some criticism. Warnings are made in the, ethical guides of the professional bodies of the risks to objectivity in performing these services but these all fall a long way short of prohibition. The real question is whether an audit firm can offer a totally dispassionate opinion if it and/or an associated firm are supplying services like:
  • Bookkeeping
  • Preparing the annual accounts
  • Taxation
  • Advice on company secretarial matters
  • Management consultancy
  • Obtaining staff
  • Selecting computer systems
  • Litigation support
  • Corporate financial advice e.g. on capital raising or takeovers
  • In a particular situation an auditor may well feel, that he or she is a professional person and is quite capable of giving an independent audit opinion even though:
  • The fee for the opinion is fixed by the directors
  • The directors can engineer a change of auditor if they wish the senior conducting the audit prepared the final accounts the firm advised the firm on the choice of a computer firm for the supply of new hardware and software
  • The firm investigated a company which the client company purchased the firm advised the client on a complex scheme for tax avoidance.

What are the objectives of internal control?  Explain various types of internal control.

Internal control is defined as the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

OBJECTIVES OF INTERNAL CONTROL

If we look into the definition of the internal control, it will find out that the following are objectives of internal control.

Internal control generally

  • To carry on the business in an orderly and efficient manner, to ensure adherence to management policies, safeguard its assets, and secure the accuracy and reliability of the records.

Cash and cheques received by post

  • To ensure that all cash and cheques received by post are accounted for and accurately recorded in the books.
  • To ensure all such receipts are promptly and instantly deposited in the bank.

Cash sales and collections

  • To ensure that all cash, to which the enterprise is entitled, is received.
  • To ensure that all such cash is properly accounted for and entered in the records.
  • To ensure that all such cash is promptly and instantly deposited.

Payments into bank

  • To ensure that all cash and cheques received are banked intact.
  • To ensure that all cash and cheques received are banked without delay at prescribed intervals, preferably daily.
  • To ensure that all cash and cheques received are accounted for and recorded accurately.

Cash balances

  • To prevent misappropriation of cash balances.
  • To prevent unauthorized cash payments.

Bank balances

  • To prevent misappropriation of bank balances.
  • To prevent teeming and lading.

Cheque payments

  • To prevent unauthorized payments being made from bank accounts.

Wages and salaries

  • To ensure that wages and salaries are paid only to actual employees at authorized rates of pay.
  • To ensure that all wages and salaries are computed in accordance with records of work performed whether in respect of time, output, sales made or other criteria.
  • To ensure that payrolls are correctly calculated.
  • To ensure that payments are made only to the correct employees.
  • To ensure that payrolls deductions are correctly accounted for and paid over to the appropriate third parities.
  • To ensure that all transactions are correctly recorded in the books of account.

Purchases and trade creditors

  • To ensure that goods and services are only ordered in the quantity, of the quality, and at the best terms available after appropriate requisition and approval.

THE TYPES OF INTERNAL CONTROL INCLUDE

Organization

An enterprise should have a plan of organization which should define and allocate responsibilities, every function should be in the charge of a specified person who might be called the responsible official.  Thus the keeping of petty cash should be entrusted to a particular person who is then responsible for that function.

Segregation of duties

No one person should be responsible for the recording and processing of a complete transaction.

Physical controls

This concerns physical custody of assets and involves procedures designed to limit access to authorized personnel only.

Authorization and Approval

All transactions should require authorization or approval by an appropriate person.  The limits to these authorizations should be specified.

Arithmetic and Accounting

This check that the transactions have been authorized, that they are all included and that they are correctly recorded and accurately processed.

Personnel

Procedure should be designed to ensure that personnel operating a system are competent and motivated to carry out the tasks assigned to them, as the proper functioning of a system depends upon the competence and integrity of the operating personnel.

Supervision

All actions by all levels of staff should be supervised.  The responsibility for supervision should be clearly laid down and communicated to the person being supervised.

Management controls

These are controls, exercised by management which are outside and over and able the day to day routine of the system.

Acknowledgement of performance

Persons performing data processing operations should acknowledge their activities by means of signatures, initials, rubber stamps, etc.

Budgeting

A common technique used in business is the use of budgets, which can be defined as quantitative plans of action.  Budgets having been agreed, can be compared with actual turn out and differences investigated.

Differentiate between internal control and internal audit.

INTERNAL CONTROL

Internal control is defined as the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

The control environment is a new concept in auditing.  Internal controls have limitations.

Limitations of internal control

  • Internal controls are essential features of any organization that is run efficiently. However it is important to realize (especially for art auditor) that internal controls have inherent limitations that include:
  • A requirement that the cost of an internal control is not disproportionate to the potential loss that may result from its absence.
  • Internal controls tend to be directed at routine transactions. The one‑off or unusual transaction tends not to be the subject of internal control
  • Potential human error caused by stress of workload, alcohol, carelessness, distraction, mistakes of judgment, cussedness, and the misunderstanding of instructions
  • The possibility of circumvention of controls either alone or through collusion with parties outside or inside the entity abuse of' responsibility
  • Management override of controls
  • Fraud
  • Changes in environment making controls inadequate
  • Human cleverness ‑ however secure the computer code designed to prevent access, there is, always some hacker who get in.
  • Requires that auditors’ must always perform some substantive tests of material items as well as relying on internal controls. The inherent limitations of internal controls are the reason.

INTERNAL AUDITING

Internal auditing is a fast growing and important activity. Internal auditing has a definition.

The essential elements of an internal audit function are: independence, staffing, training; relationships, due care, planning, controlling, recording, systems controls, evidence and reporting.

There are differences between internal and external audits in terms of: scope, approach, responsibility and persons to report to. The work of internal auditor's very often includes checking documents. Internal auditing is now considered a major discipline and there are many textbooks on the subject. It is important that Internal Audit report to the highest level, preferably the Board or an audit committee. The guideline has much to say on the objectivity, the staffing and the training of internal auditors and on planning, control and reporting. These ideas are very similar to those of guidelines for external audit. The guideline gives a very good summary of the stages in a systems audit as:

  • Identify the system, parameters (e.g. the details of a system for identifying bad credit risks before sales)
  • Determine the control objectives (e.g. to prevent sales to bad credit risks)
  • Identify expected controls to meet control objectives (e.g. inspection of sales ledger account before granting credit to existing customer)
  • Review the system against expected controls (e.g. is inspection of the sales ledger account included in the system)
  • Test the controls designed into the system against control objectives (e.g. are the sales ledger inspections and other controls adequate [or alternatively too stiff] to prevent sales to bad risks)
  • Test the actual controls for effectiveness against control objectives
  • Test the operation of controls in practice
  • Give an opinion based on audit objectives as to whether the system provides an adequate basis for effective control and whether it is properly operated in practice.

Explain the main features of internal control system in the following functions of purchases and trade creditors:

  • BUYING
  • RECEIPTS OF GOODS
  • ACCOUNTING FOR PURCHASES
  • PAYMENT OF OUTSTANDING BALANCES

The main features of internal control system in the above mentioned functions of purchases and trade creditors are:

Objectives

  • To ensure that goods and services are only ordered in the quantity, of the quality, and at the best terms available after appropriate requisition and approval.
  • To ensure that goods and services received are inspected and only acceptable items are accepted.
  • To ensure that all invoices are checked against authorized orders and receipt of the subject matter in good condition.
  • To ensure that all goods and services invoiced are properly recorded in the books.

Measures

  • There should be procedures for the requisitioning of goods and services, only by specified personnel on specified forms with space for acknowledgement of performance.
  • Order forms should be pre-numbered and kept, in safe custody. Issue of blank order form, books should be controlled and recorded.
  • Order procedures should include requirements for obtaining tenders, estimates or competitive bids.
  • Sequence checks of order forms should be performed regularly by a senior official and missing items investigated.
  • All goods received should be recorded on goods received notes (preferably renumbered) or in a special book.
  • All goods should be inspected for condition and agreement with order and counted on receipt. The inspection should be acknowledged., Procedures for dealing with rejected goods or services should include the creation of debit notes (pre-numbered) with subsequent sequence checks and follow up of receipt of suppliers' credit notes.
  • At intervals, a listing of unfulfilled orders should be made and investigated.
  • Invoices should be checked for arithmetical accuracy, pricing, correct treatment of VAT and trade discount, and agreement with order and goods-in records. These checks should be acknowledged by the performer preferably on spaces marked by a rubber stamp on the invoices.
  • Invoices should have consecutive numbers put on them and batches should be pre-listed.
  • Totals of entries in the invoice register or daybook should be regularly checked with the pre-lists.
  • Responsibility for purchase ledger entries should be vested in personnel separate from personnel responsible for ordering, receipt of goods and the invoice register.
  • The purchase ledger should be subject to frequent reconciliation in total by or be checked by an independent senior official.
  • Ledger, account balances should be regularly compared with suppliers' statements of account.
  • All goods and service procurement should be controlled by budgetary techniques. Orders should only be placed that are within budget limits. There should be frequent comparisons of actual purchases with budgets and investigation into variances.
  • Cut off procedures at the year-end are essential.
  • A proper coding system is required for purchase of goods and services so that the correct nominal accounts are debited.

Explain three basic steps or Sampling process i.e., designing, selection and evaluation of samples in detail.

DESIGNING

The auditor, in considering a particular population, has to consider how to obtain assurance about it. Sampling may be the solution. Factors which may be taken into account in considering whether or not to sample include:

  • Materiality. Petty cash expenditure may be so small that no conceivable error may affect the true and fair view of the accounts as a whole.
  • The number of items in the population. If these are few (e.g. land and buildings), a hundred per cent check may be economic.
  • Reliability of other forms of evidence ‑ analytical review (e.g. wages relate closely to number of employees, budgets, previous years, etc.) ‑ proof in total (VAT calculations). If other evidence is very strong, then a detailed check of a population (100% or a sample) may be unnecessary.
  • Cost and time considerations can be relevant in choosing between evidence seeking methods.
  • A combination of evidence seeking methods is often the optimal solution.

STAGES

  1. Audit objectives. Why is this test being carried out? What contribution does it make to the overall assessment of true and fair view?
  2. The population. The population has to be defined precisely. This may be all sales rather than all sales invoices.
  3. The sampling unit. Note that in compliance testing it is the operation of the control on a transaction not the transaction, which is the sampling unit.
  4. The definition of error in substantive tests. In stock calculations, an error of greater than Rs.1 only may constitute an error for this purpose.
  5. The definition of deviation in compliance tests. The deviation may be any failure to carry out a control procedure or it may be a partial failure.
  6. The assurance required. This is a function of the other sources of evidence available. The tolerable error or deviation rate. This is related to materiality.
  7. The expected error deviation rate. This is a factor, which is not intuitively expected by students. In fact, errors increase the impreciseness of conclusions drawn from sampling and larger sample sizes are required if there are many errors.
  8. Stratification. It may be desirable to stratify the population into sub‑populations and sample them separately or in some cases, such as high value items, do a hundred per cent check.
  9. Selection of the items to be tested.
  10. Testing the items.
  11. Evaluating the results. This should also be done in stages: Analyze the errors/ deviations detected in relation to the planning definitions.
  12. Statistical and other sampling methods
  13. Use the errors/deviations detected to estimate the total error in the population. This is called projection of the errors from the sample to the population.
  14. Assess the risk of an incorrect solution. This will be related to the amount of projection of error compared with the tolerable error and the availability of alternative evidence.

JUDGEMENT SAMPLING - SELECTION & EVALUATION

In auditing, a sample should be:

  • Random ‑ a random sample is one where each item of the population has an equal (or specified) chance of being selected. Statistical inferences may not be valid unless the sample is random.
  • Representative ‑ the sample should be representative of the differing items in the whole population. For example, it should contain a similar proportion of high and low value items to the population (e.g. all the debtors).
  • Protective ‑ protective, that is, of the auditor. More intensive auditing should occur on high value items known to be high risk.
  • Unpredictable ‑ client should not be able to know or guess which, items will be examined.
  • Selecting a sample of appropriate size on the basis of the, auditor's judgment of what is desirable.  This approach has some advantages:
  • The approach has been used for many years. It is well understood and refined by experience.
  • The auditor can bring his judgment and expertise into play. Some auditors seem to have a sixth sense.
  • No special knowledge of statistics is required.
  • No time is spent on playing with ~ mathematics. All the audit time is spent on auditing.

There are some disadvantages:

  • It is unscientific.
  • It is wasteful; usually sample sizes are too large.
  • No quantitative results are obtained.
  • Personal bias in the selection of samples is unavoidable.
  • There is no real logic to the selection of the sample or its size.
  • The sample selection can be slanted to the auditors needs e.g. selection of items near the year-end to help with cut‑off evaluation.
  • The conclusions; reached on the evidence from samples is usually vague ‑ a feeling of 'it seems OK' or of vague disquiet.

Overall, judgment sampling is still the preferred method by a majority of auditors. Partly this can be defended on the grounds that the auditor is weighing several strands of evidence (internal control, business background, conversations with employees, subjective feelings, past experience, etc.) and is usually investigating several things at once (e.g. more than one control evidenced, on an invoice, proper books, internal control compliance and substantive testing of totals) so that the whole process is too complex to reduce to the simple formulations of the statistician. On the other hand, the statistician can reply that judgment sampling in the past worked well because very large samples were always taken. Today, the small samples required by economic logic require careful measuring of the risks attached and this can only be done by the use of statistical techniques.

Under what conditions Statistical sampling likely to could be prove most successful as an audit technique.

Drawing inferences about a large volume of data by an examination of a sample is a highly developed part of the discipline of statistics. It seems only common sense for the auditor to draw upon this body of knowledge in his own work. In practice, a high level of mathematical competence is required if valid conclusions are to be drawn from sample evidence. However most firms that use statistical sampling have drawn up complex plans, which can be operated by staff without statistical training. These involve the use of tables, graphs or computer methods.

The advantages of using statistical sampling are:

  • It is scientific.
  • It is defensible.
  • It provides precise mathematical statements about probabilities of being correct.
  • It is efficient ‑ overlarge sample sizes are not taken.
  • It tends to cause uniform standards among different audit firms.
  • It can be used by lower grade staff who would be unable, to apply the judgment needed by judgment sampling.
  • There are some disadvantages:
  • As a technique it is not always fully understood so that false conclusions may be drawn from the results.
  • Time is spent playing with mathematics which might better be spent on auditing.
  • Audit judgment takes second place to precise, mathematics.
  • It is inflexible.
  • Often several attributes of transactions or documents are tested at the same time. Statistics does not easily incorporate this.
  • Prove Most Successful
  • complex check of all the transactions and balances of a business is no longer required of an auditor.  The reasons for this are:

Economic the complete check would take so long that accounts would be ancient.

Time the complete check would take so long that accounts would be ancient history before users saw them.

 Practical users of accounts do not expect or require 100% accuracy.  Materiality is very important in accounting as well as auditing.

Psychological a complete check would so bore the audit staff that their work would become ineffective and errors would be missed.

Fruitfulness a complete check would not add much to the worth of figures if, as would be normal, few errors were discovered.  The emphasis in auditing should be on the completeness of record and the true and fair view.

Explain the application of Stratified and cluster sampling in audit practice.

There are several methods available to an auditor for selecting items

STRATIFIED SAMPLING

Stratified this means dividing the population into sub populations (strata = layers) and is useful when parts of the population have higher than normal risk (e.g. high value items, overseas debtors). Frequently high value items form a small part of the population and are 100% checked and the remainder are sampled.

CLUSTER SAMPLING

Cluster sampling this is useful when data is maintained in clusters (groups or bunches) as wage records are kept in weeks or sales invoices in months. The idea is to select a, cluster randomly and then to examine all the items in the cluster chosen. The problem with this method is that this sample may not be representative.

Vouching has been described as “the essence of auditing” Amplify this statement and explain the techniques involved in vouching.

Vouching is the very essence of auditing.  The whole success of the audit depends upon the intelligence and skill with which this part of the work is performed. 

As the primary aim of auditing is to enable the auditor to say, “these accounts show a true and fair view” or, of course, to say that they do not.  The primary objects of an auditing are to produce a report by the auditor of his opinion of the truth and fairness of financial statements so that any person reading and using them can have belief in them.  Its subsidiary objects are to detect errors and fraud; to prevent errors and fraud by the deterrent and moral effect of the audit; to provide spin-off effects.  The auditor will be able to assist his clients with accounting, systems, taxation, financial, and other problems.

And the vouching involves a consideration of each entry in the books and vouching the available evidence to support each entry.  The evidence usually consists of documents and papers and should satisfy the auditor that:

  • Management authorized the transaction.
  • The transaction came within the aims and objects of the organization.
  • The transaction was correctly and adequately described by the entry in the books.
  • The entry is correctly incorporated in the final accounts.

Therefore, it is evident that vouching provides the examination of every business transaction with its supporting documentary evidence, the checking of which enables the auditor to satisfy himself that the transaction is in order; has been properly authorized and has been correctly allocated and entered in the book.

TECHNIQUES INVOLVED IN VOUCHING

The auditor should examine the books in which the purchase invoices are recorded and the file of purchase invoices.  Each invoice will be examined and the following points must be borne in mind:

  • The invoice should be addressed to the firm
  • It should at least appear to be an authentic invoice from the supplier
  • The goods should be of a nature relating to the business carried on
  • The invoice should bear the signature or initials of the clerk deputed to check them
  • The invoice should have attached to it a docket signed by the gate-keeper acknowledging receipt of the goods or bear reference to a goods inwards book or some other evidence that the goods have actually been received.
  • The entry should be extended into the correct column in the purchase daybook or be otherwise correctly coded so that it ends up in the right place in the final accounts.  Particular attention should be paid to goods of a capital nature.
  • The detail relating to VAT and discounts should also be checked.
  • Calculations and extensions should be checked.
  • The date should fall in the accounting period.
  • If the invoice date and the date of supply of the goods or services fall in different periods, the auditor must see that the correct treatment has been given to the item in the final accounts.

Explain how your would vouch the Following

Recovery of Bad Debts Written Off

In vouching audit it is ensured that all bad debts should only be written off after due investigation and acknowledged authorization by senior management.  For this purpose the following procedure is adopted:

  • To see the yearly ageing schedule of accounts receivable.
  • Past history of recovery from the debtors.
  • The period of credit allowed and taken
  • Previous provisions of bad debts.
  • Correspondence with the relevant debtors.
  • Properly written off to the Profit and Loss Accounts

Refund of Insurance Premium made

  • This will be done in the following way:
  • Examine the actual policy to ascertain its total premium
  • Check up the demand note of insurance company
  • See the official receipt of the insurance company
  • Actual payment made to the insurance company
  • Is any refund was due? On what basis
  • Receipt of refund paid.

Discounted Bill Dishonored

It is required to examine if dishonored bills are dishonored:

  • Accounts of bills receivables
  • Discounting of the bill
  • Presenting of bill in the bank
  • Serving of a notice
  • Bank statement; or
  • Receipt from the Notary public.

Distinguish between a positive and negative confirmation of accounts receivable and state the circumstances when each could be used.

A practice that is becoming very common in the verification of debtors is to circularize the debtors or some of them for direct confirmation. The advantages of this technique are:

  • Direct external evidence is available for the existence and ownership of an asset.
  • It provides confirmation of the effectiveness of the system of internal control.
  • It assists in the auditor's evaluation of cut‑off procedures.
  • It provides evidence of items in dispute.

There are two methods, which can also be used together:

Negative

The customer is asked to communicate only if he does not agree the balance. This method is mostly where internal control is very strong.

Positive

Customer is asked to reply whether he agrees the balance or not or is asked to supply the balance himself. This method is used where there is:

  1. Weak internal control.
  2. Suspicion of irregularities.
  3. Numerous bookkeeping errors.

The approach is as follows:

  • Obtain the co‑operation of the client ‑ only he can ask third parties to divulge information.
  • Select method ‑ positive, negative, or a combination of the two.
  • Select a sample.  All customers can be circularized but this is unusual.
  • Do not omit ‑ Nil balances - Credit balances - Accounts written off in the period.
  • Give weight to overdue or disputed balances.
  • Use stratified samples, e.g. all large balances and only some small ones.
  • The letter should be from the client.
  • It should request a reply direct to the auditor.
  • It may contain a stamped, addressed, envelope or a pre‑paid reply envelope.
  • It must be dispatched by the auditor.
  • Receive and evaluate replies.
  • Follow up when replies are not received. This is the major problem.
  • Circularization is sometimes carried out at dates other than the year-end. This will occur only when internal control is very strong.

Discuss the specific points which you will keep in view during verification of the following:

DEFERRED COST

As the deferred cost is a heavy expenditure in the nature of revenue incurred and the benefit of which is likely to extend beyond the financial year in which it takes place.  For verification purposes, it is verify that this is temporarily capitalized and to be spread equally over number of years for which it is anticipated that benefit would be reaped by the business.

POST BALANCE SHEET EVENTS

Event occurring after the date of the balance sheet may assist in the assessment of the position, as it existed on that date in respect of some of the item appearing in the balance sheet.  These are stated as under:

  • Liabilities – to determine the amount of contingent liabilities, etc.
  •  Provision for taxation – for its correctly calculation.
  • Fixed assets – for showing settled amount.
  •  Debtors – to determine the correct amount and accounting it.
  •  Stock-in-trade – to establish the realizable value.

INVESTMENTS

  • Before making any investment, it is required to take proper approval of the authority that should be within the objectives provided in the Memorandum of Association.  To verify the investments, the following work is carried out:
  • Investments certificates are in the name of owners, and their value is up to investment and comparing it with its ledger.
  • Checking the market value with the quotation list at the date of the balance sheet.
  • Scrutinize each individual investment account to ensure that all interest has either been received or accrued in books.
  • In case of the limited companies, enquire into the question of dividend income.
  • Any amount of uncalled capital relating to shares held as investments and give a foot-note of it in the balance sheet.
  • Enquire into the speculative transaction with particular reference to short-term purchases and sales.

How would you ascertain the adequacy of the provision for doubtful debts in the accounts of a large manufacturing concern?

The valuation of debtors is really a consideration of the adequacy of the provision for bad and doubtful debts. The auditor should consider the following matters:

  • The adequacy of the system of internal control relating to the approval of credit and following up of poor payers.
  • The period of credit allowed and taken.
  • Whether balances have been settled by the date of the audit.
  • Whether an account is made up of specific items or not.
  • Whether an account is within the maximum credit approved.
  • Reports on each debtor from collectors, trade associations, etc.
  • Present value and reliability of securities, if any, lodged as collateral.
  • Questions of set‑off.
  • The state of legal proceedings and the legal status of the debtor eg in liquidation or bankruptcy.
  • Effect, if any, of the Statute of Limitations.
  • Comparison of debtors to sales with comparison of the ratio with those of previous periods and those achieved by other companies.
  • Evidence of any debt in dispute e.g. for non-delivery, breakages, poor quality etc.

Note that:

  • Debts, which are considered irrecoverable, should be written off to the profit and loss account.
  • Provisions for doubtful debts should be set up against debts, which are considered doubtful.

Some companies make round‑sum or percentage provisions against doubtful debts. This practice is generally unacceptable to an auditor unless based on good statistical evidence, which may come from past experience or may come from data about other similar undertakings which is obtainable from trade associations or which is publicly available.

 

| Aiou MBA © 2011. All Rights Reserved | Design by Raja Hamza | Back To Top |