CHAPTER 22
ACCOUNTING
AND AUDIT OF
DEPARTMENTAL COMMERCIAL UNITS
22.1 The undertakings, whether of the Central or State Governments, which are run on commercial lines can be broadly grouped into any one of the following three categories:
(i) Departmentally managed undertakings which
form part and parcel of government activities;
(ii) Government companies and deemed government
companies set up under the Companies Act where Government or Government - owned
and controlled institutions own 51 per cent or more of the paid up capital;
(iii) Corporations set up under the specific
Acts of the Legislature.
22.2 The principal difference between
departmental concerns and the other types of concerns is in the degree and extent
of autonomy allowed to them. Departmentally managed concerns are directly under
a Ministry or Department of Government and are subject to Government rules and
procedure (sometimes with minor modifications). Government corporations and
companies, on the other hand, are governed by separate Acts of
Parliament/legislature which contain detailed provisions regarding their scope
and functions etc. or by the Companies Act, 1956.
The
succeeding paragraphs describe the provisions relating to Departmental Commercial
Units*.
Accounts
22.3 An accounting system must be framed in such
manner as will provide the management of the concerns with information as to
the details of the transactions of the concerns as well as the financial
results of the operations.
22.4 In the case of departmental undertakings
the responsibility for the introduction of a commercial Accounting System rests
with the Finance Ministry or Department of the Government of India or of the
State but a Commercial Accounting system will not be introduced without
consultation with the Audit Officer concerned. The Audit Officer is responsible
for seeing that the system that may be adopted conforms to the fundamental
principles of accounts and audit.
22.5 Departmental concerns maintain accounts on
a single entry system (as distinct from the double entry system in vogue in
commercial accounts) and on a cash basis i.e. their accounts only show the
actual receipts and disbursements during the accounting period and do not
include assets or liabilities accrued during the period.
22.6 For the purpose of ascertaining the profit
or loss arising out of the year’s transactions, these concerns prepare a
proforma Trading and Profit and Loss Account and Balance Sheet annually. For
this purpose, it is necessary, first, to put the accounts on a double-entry
basis; this is usually done by entering the total figures of receipts and
expenditure under each head (such as establishment, stores etc.) in a journal
and thereafter into various ledger accounts; and secondly, to bring in the
additional liabilities and assets (such as debts and claims) accrued during the
year (e.g. including debts acquired for purchases made during the year,
excluding payments made during the year of debts acquired in previous years
etc.). These will also be journalised and posted to the relevant ledger
accounts. The trial balance is then compiled from the totals of the various
ledger accounts and the Profit and Loss Account and the Balance Sheet prepared
in the usual way.
22.7 For the purpose of determining the capital
to be shown on the Balance Sheet, the net cash withdrawals from the treasury
and the net book adjustments made for services rendered by other departments
are taken into account, as also the Profit and Loss up to the date of the
Balance Sheet.
* Government Corporations Companies are dealt
with in Chapter 31.
Audit
22.8 The duties of the auditor commence when
those of the accountant have been completed. The accountant and his staff write
up the books of accounts and prepare therefrom at the end of the year or
half-year, as the case may be, the manufacturing, Trading, Profit and Loss
Accounts and the Balance Sheet which are placed eventually before the auditor.
It is impossible to lay down rules or regulations which are applicable without
exception to all audits and auditors must, therefore, use their own judgement
whether the general rules are applicable to the audit in which they are
engaged.
The main functions of audit, however, are:
(a) to secure that the commercial accounts
present a full and true picture of the financial results of the undertaking in
terms of commercial ideas of liability and assets, debit and credit, profit and
loss;
(b) to ensure that subsidiary accounts are so
prepared as to render it possible to compare, as far as may be, the relative
efficiency of Government trading and manufacturing institutions with one
another or with similar institutions not controlled by Government;
(c) to verify the correctness of the allocation
of expenditure between capital and revenue, the valuation of assets upon a
reasonable basis, and the adequacy of provision for depreciation and bad debts.
22.9 An auditor has frequently to accept the
results of what is known as ‘internal control’. The following are examples of
what are known as internal checks: a periodical examination by the
Superintendent of a concern of cash book vouchers or petty cash vouchers,
including the additions of the cash book and petty cash book, and the balancing
of the cash book periodically with the bank or treasury pass book, a periodical
examination of debtor’s accounts; the calling over of the postings of the day
books and journal into ledger by clerks who have no duty connected with the
writing up of these books and the posting of them into ledger accounts; a
system of continuous stock verification; or the checking of pay rolls by clerks
who are in no way connected with the preparation of the rolls.
22.10 It is an important part of an auditor’s
duty to scrutinize the system of internal control in order to see that it is
adequate in itself and as independent in character as circumstances permit, and
to assure himself that the system is being applied efficiently. The extent of
the scrutiny to be applied should depend on the adequacy of the system of internal
control and on the completeness and accuracy with which it is being applied.
22.11 Authority for audit of all Trading and
Manufacturing and Profit and Loss Accounts and Balance Sheet of departmental
concerns vests with the Comptroller and Auditor General.
Results
of Audit
22.12 A synopsis of the results shown by the
Proforma Profit and Loss Accounts and Balance Sheets of Departmental concerns
together with audit reviews of selected concerns incorporating also their
proforma accounts in a simplified form, and any salient feature of the
Financial Review drawn up by the Administration are included in the Comptroller
and Auditor General’s Audit Reports which are presented to Parliament/State
Legislature each year.
Parliamentary
Control
22.13 Parliamentary Control over departmental undertakings is the same
as over any Government Department. These concerns derive their finances from
the Budget allocations of the Administrative Ministries/ Departments; their
receipts go into the Consolidated Fund of the Union/State and their payments
have to be made from the fund within the grant voted for the purpose by
Parliament/ State Legislature.