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CONTROL OF
PURCHASES AND SALES
Subject: AUDITING II
Group members:
01 Sanjay Acharya
36 Vineeth Mudaliyar
43 Tanmai Patel
54 Priyanka Sureka
55 Sancheet Wagle
ACKNOWLEDGEMENT
We take immense pleasure in presenting our project on
“INTERNAL CONTROL OF PURCHASES AND SALES” of
Auditing-II under the guidance of Prof. Shermin Almeida
We are indebted to our project guide Prof. Shermin Almeida
Auditing - II in charge of 2nd Semester for spending her valuable
time and energy and supporting us throughout our endeavor.
We are also grateful to the teaching and the non-teaching staff of
the college.
INDEX
• INTERNAL CONTROL AND ITS COMPONENTS
• OBJECTIVES
• ACHIEVEMENTS
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INTERNAL CONTROL AND ITS COMPONENTS
Internal controls are methods and policies designed to prevent fraud, minimize errors,
promote operational efficiency, and achieve compliance with established policies and
procedures. In accounting and auditing, internal control is defined as a process effected
by an organization's structure, work and authority flows, people and management
information systems, designed to help the organization accomplish specific goals or
objectives. It is a means by which an organization's resources are directed, monitored, and
measured. It plays an important role in preventing and detecting fraud and protecting the
organization's resources, both physical (e.g., machinery and property) and intangible
(e.g., reputation or intellectual property such as trademarks). At the organizational level,
internal control objectives relate to the reliability of financial reporting, timely feedback
on the achievement of operational or strategic goals, and compliance with laws and
regulations. At the specific transaction level, internal control refers to the actions taken to
achieve a specific objective (e.g., how to ensure the organization's payments to third
parties are for valid services rendered.) Internal control procedures reduce process
variation, leading to more predictable outcomes. Internal control is a key element of the
Foreign (FCPA) of 1977 and the Sarbanes–Oxley Act of 2002, which required
improvements in internal control in United States public corporations. Internal controls
within business entities are also referred to as operational controls.
The control environment means the overall attitude, awareness, and actions of directors
and management regarding the internal control system and its importance in the entity.
There are potentially many control activities, but they generally fall into five categories:
1 1. Adequate separation of duties
2 2. Proper authorization of transactions and activities;
3 3. Adequate documents and records
4 4. Physical control over assets and records; and
5 5. Independent checks on performance
Control activities
Monitoring
Monitoring is a process that deals with ongoing or periodic
assessment of the effectiveness of their design and operation
Monitoring should address whether proper accounting
records are being maintained and whether the financial
information used within the business and for publication to
third parties is reliable
When evaluating the ongoing monitoring the following issues
might be considered
1 a. Extent to which personnel obtain evidence as to
whether the system of internal control continues to
function
2 b. Periodic comparisons of amounts recorded with the
accounting system with physical assets
3 c. Responsiveness to internal and external auditor
recommendations on means to strengthen internal
controls
4 d. Effectiveness on internal audit activities.
Effective internal control implies the organization generates reliable financial reporting
and substantially complies with the laws and regulations that apply to it. However,
whether an organization achieves operational and strategic objectives may depend on
factors outside the enterprise, such as competition or technological innovation. These
factors are outside the scope of internal control; therefore, effective internal control
provides only timely information or feedback on progress towards the achievement of
operational and strategic objectives, but cannot guarantee their achievement.
COTTON CORPORATION OF INDIA LTD.
CCI- AN ORGANIZATION
CCI Operations cover all the cotton growing states in the country
comprising of
• Gujarat Maharashtra and Madhya Pradesh in Central Zone and Andhra Pradesh
In Maharashtra, CCI made its entry during cotton season 2002-03, after the state
government of Maharashtra relaxed its monopoly procurement scheme thereby allowing
ginneries, traders & CCI to purchase raw cotton from the farmers of the state.
CCI was established on 31st July 1970 as a Government Company registered under the
Companies Act 1956. In the initial period of setting up, as an Agency in Public Sector,
Corporation was charged with the responsibility of equitable distribution of cotton among
the different constituents of the industry and to serve as a vehicle for the canalization of
imports of cotton.
OBJECTIVES
With the changing cotton scenario, the role and functions of the Corporation were also
reviewed and revised from time to time. As per the Policy directives from the Ministry of
Textiles, Government of India in 1985, the Corporation is nominated as the Nodal
Agency of Government of India, for undertaking Price Support Operations, whenever the
prices of kapas (seed cotton) touch the support level. As per this Textile Policy of 1985,
the specific role assigned to the Corporation, in brief, is as under: -
• To undertake price support operations, whenever the market prices of kapas touch
the support prices announced by the Government of India, without any
quantitative limit;
In the event of kapas prices ruling above MSP level, Corporation undertakes commercial
operations at its own cost for supply of cotton to mills in the State sector as well as
private sector. All these operations are dovetailed to benefit the cotton growers on the
one hand and supply of quality cotton to the textile mills on the other hand. As
Implementing Agency for Mini Missions III & IV of Technology Mission on Cotton, CCI
is striving its best to achieve the laid down targets in respect of development of market
yards and modernization of ginning & pressing factories. These targets of IXth Plan
period have already been achieved and the projects targeted through the Xth Plan
period, are at different stages of completion.
ACHIEVEMENTS
• CCI has been championing the interest of Indian cotton farmers for more than
three decades and is the single largest cotton trading company in the country.
• Serving the cotton farmers of the country in realizing fair price of their produce,
by operating more than 300 procurement centers on All-India basis. CCI remains
present in the market yards from day one of the kapas arrivals so as to ensure fair
competition at the time of auction.
• To supply cotton to the textile industry at competitive prices, CCI keeps on selling
cotton on day-to-day basis and does not speculate on prices. We also believe in
transparent working and fair trade practices. We also strike a balance between
offering fair price to cotton growers and excellent pre and post sales services to
cotton buyers.
• Achieved all targets of annual programme for use of official languages. CCI has
been honored with first prize for Indira Gandhi Raj Bhasa shield for 15th time.
• CCI is a profitable and MOU signing Company with the Ministry of Textiles,
Government of India since 1992-93 with MOU ratings of Good to Excellent.
The constitution of Audit Committee is decided by Board of Directors that how many
members are there and what reference for their constitution are. As nominated by Board,
presently three Directors constitute the Audit Committee.
The scope of the Audit Committee has been defined by the Board as under:
1 a) To oversee the Corporation’s financial reporting process and the disclosure of
its financial information to ensure that the financial statement is correct, sufficient
and credible.
1 c) To review with the management, external and internal auditors, the adequacy of
internal control system.
1 d) To discuss with the internal auditors any significant findings and follow up
thereon.
1 f) To discuss with external auditors before the audit commences, nature and scope
of audit as well as have post-audit discussion to ascertain any area of concern.
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3 g) To review the Corporation’s financial and risk management policies.
CENTRAL JOINT MANAGEMENT COUNCIL (CJMC) :
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There is a Central Joint Management Council at Head Office comprising of equal
representation from management as well as staff side, the meetings of which are held
twice in a year. The composition of the Central Joint Management Council is as under:
The high level Purchase & Sales Committee reviews and finalises the offers received
during the day as per the indicative prices fixed by Price Fixation Committee at Head
Office. The P&S Committee consists of the following officers:
Director (Mktg.) / CGM (Mktg) can invite any other officers to assist them from
Marketing Department, if required. In the absence of Chairman the next senior most
officer will Chair the meeting. The functions of the Committee are broadly given in
Annexure –A. Director (Mktg.) should ensure the minutes are circulated in time.
• To review the international and domestic market situation on daily basis in respect
of demand and supply, prevailing prices, expected trends and other related aspects
like prices of competitive fibres, position of yarn having bearing of the demand
and supply position of cotton as also its prices, both on the short terms as well as
on long term basis.
• To decide about the individual offers received for transactions in the domestic as
well as sales against ‘H’ Form, for acceptance, countering or rejection keeping in
view the best interest of the Corporation.
• To decide about the purchase price for various varieties and grades to be
purchased under different branches as well as fix cost ceilings for the same.
• To discuss and decide various points of agenda regarding financial matters like
L/C, bank guarantee facility, allowing of godown storage facility and other sales
related issues.
The Committee for deciding the indicative sales prices for domestic & export markets
will now consist of the following officers:
Director (Mktg.) / CGM (Mktg) can invite any other officers to assist them from
Marketing Department, if required. In the absence of Chairman the next senior most
officer will Chair the meeting. The functions of the Committee would be to decide the
indicative selling prices for the day keeping in view the market conditions and other
relevant information and data. It should be ensured by the Chairman of the Committee
that the indicative prices are circulated / put on the website preferably before 12.00 noon
everyday.
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