“Auditing is a systematic examination of financial statements, records and related operations to determine adherence accepted to generally accepted accounting principles management policies or stated requirements”.

In simple terms Auditing is a process of checking of the transactions of the business with its books of accounts and evidence with a view of find out the arithmetical accuracy of the accounts, the correctness and truthfulness of the transaction recorded in the books and their results thereon.

Salient Features of Auditing 

(i) The audit is a systematic examination of the books, accounts, documents and vouchers of a business organization.

(ii) The purpose of the examination of books, accounts, documents etc. is to ascertain how far they present a true and correct view of the state of affairs of a particular concern.

(iii) The auditor has to satisfy himself that the books have been drawn up properly and they give a true and fair view of the state of affairs.

(iv) Audit conducted in a haphazard manner does not serve the desired purpose.

(v) The report of the auditor is prepared for a particular financial period.

Main function of Auditing 

(i) Auditing helps to ascertain the systems to accounting, internal control, management of a business organization.

(ii) Auditing helps to test-check the system of the internal control of a business concern.

(iii) Auditing plays an important role in verification of the assets and liabilities of a business organization an also ensures that assets are valued properly.

(iv) To check the arithmetical accuracy of records.

(v) auditing helps to ensure that Books of Accounts are maintained according to the requirement of statue governing the business.

(vi) To ensure that the opinion covers all aspects by the professional standards.

Advantages of Auditing 

• It ensures the correctness of the accounts of the concern.
• Errors and fraud are detected very easily with the help of auditing.
• Audited accounts are considered more reliable as evidence in the court of law.
• Loans and credit can easily be obtained from banks on the basis of audited accounts.
• Audited accounts are considered more reliable for the purpose of various type of taxation.
• The auditing of accounts make the clerk who maintain them at least careful and verigilent.
• The audited accounts are helpful in the settlement of claims by the insurance company in case of fire.
• Audited accounts are taken as more reliable and useful during the course of amalgamation.
• In the case of employer employee dispute, audited accounts are helpful in the determination of profits and trends of profitability. 

Limitations of Auditing

Audit have lots of benefits, but it also have some limitations which are following - 

• An audit may not reveal the complete truth. This may happen when accounts are prepared with malafide intentions.
• The author’s report depends upon the explanations and information given by the management. Incorrect information and explanations affect the author’s report.
• An auditor may not always work independently. Reason being that theoretically he is appointed by the shareholders but actually it is the director who appoint him.
• Auditing is a post-mortem examination. There is no use o such an examination when the events have already happened.
• Audit work generally depends on the prevalent system o internal control, but it may not be effective.

"Auditing begains where accountancy ends"

Auditing and accountancy have a very close relationship, yet their nature and scope are quite different.” Accounting comes first. When accounts are finalized, thereafter audit works begins. Here are some diffrence between auditing and accountancy.

Difference between Accounting and Auditing

Treasury stock or treasury shares

Treasury stock also known as treasury shares. When a company acquires its shares either by way of buyback or when shares are initially created but not issued to the public.

In other words, when an issuing company buys back its stock or shares on its name to hold it or resale it after some time then such shares are known as treasury shares. After the buyback of the treasury shares, the share capital of the issuing company decreases.

Features of treasury shares

• Treasury shares are not entitled to dividends.
• No voting rights
• No claim at the time of liquidation.
• No inclusion in the calculation of market capitalization.

What is the difference between treasury shares and retired shares?

• When a company buys back its shares on its name and holds it then such shares are known as treasury shares, whereas when a company buys back its shares and destroyed it then such shares are known as retired shares.
• Treasury stock can be retired (canceled) or resale in an open market whereas retired shares are permanently canceled.
• Treasury shares can be reissue but retired shares never can be reissue.

What are the similarities between treasury shares and retired shares?

• Both treasury shares and retired shares don’t receive dividends.
• Treasury shares and retired shares don’t have any voting rights and ownership.
• Both treasury shares and retied shares not included in the calculation of outstanding shares.

Meaning of some terms used in this article

1. Authorized Shares – The maximum number of shares a company allows to issue.

2. Issued shares – The total number of shares a company has ever issued.

3. Outstanding shares – The total number of shares currently held by investors.

Accounting treatment for treasury stock or treasury shares –

• Treasury stock represents the number of shares repurchased from the open market it reduces shareholders' equity by the number of treasury shares.
• Treasury stocks are shown as a “negative figure” under the capital in the balance sheet.
• Treasury shares are shown at historical cost or par.
• Treasury stock is a contra entry equity account.

How to calculate treasury shares / Formula for calculating treasury shares -

Total number of shares issued         = XXX

(-) Total number of outstanding shares = (XXX)

Number of treasury shares            = XXX

What is “negative treasury stock”?

We know when issuing the company acquires its shares from the open market and hold it then those shares become treasury shares or stock. Treasury shares appear at cost or par value in the shareholder's equity section of the balance sheet as a “negative figure”.

Are treasury shares included in the market cap?

We know that,

Market capitalization = shares outstanding × price per share

Where share outstanding = the total shares of common stock issued (excluding those hold as treasury shares)

Therefore, we can say that

Market cap = [the total shares of common stock issued – treasury shares] × price per share

Hence proved, treasury shares are not included in market cap.

What is "Negative treasury stock 

Treasury Stock is a contra equity item. It is not reported as an asset; rather, it is subtracted from
stockholders' equity. The presence of treasury shares will cause a difference between the number of
shares issued and the number of shares outstanding

Effects of treasury stock on retained earnings -

When a corporation buys back some of its issued and outstanding stock, the transaction affects retained earnings indirectly. The cost of treasury stock must be subtracted from retained earnings, reducing amounts the company can distribute to stockholders as dividends.

Treasury stock financing or investing activity? 

The purchase of treasury stock results in a decrease in stockholders' equity. Changes in stockholders' equity and long-term liabilities are shown in the financing activities section of the statement of cash flows. The purchase of Treasury Stock will cause a decrease in cash from financing activities.

Methods of buyback of shares of stock in the USA -

1. Open market stock buyback

A company can buy back its shares own shares directly from the open market. Buyback through this method does not impose any legal obligations on a company to complete the buyback program. Thus, a company enjoys the flexibility to cancel the stock buyback program at any time. The primary advantage of the open market stock buyback is its cost-effectiveness because a company buys back its shares at the current market price and doesn't need to pay the premium.

2. Fixed-price tender offer

In the Fixed-price tender offer method, the company makes a tender offer to the shareholders of the company to buy back the shares on a fixed date and at a fixed price. The price of the tender offer almost always includes the premium relative to the current share price. Then, those shareholders who are interested in selling their stocks submit the number of shares for sale to the company.

3. Dutch auction tender offer

In a Dutch auction tender offer method, a company makes a tender offer to the shareholders of the company to buy back shares and provides them a range of possible prices, with setting the minimum bid price. Then, the shareholders make their bids by specifying the number of shares and the minimum price at which they are willing to sell their shares.

4. Direct negotiation

Under this method of buyback, a company directly approaches to one or more shareholders of a company to buyback of shares from them. For that company offers them purchase price including premium. The important benefit of the method is that a company can negotiate the purchase price directly with the shareholders.

Reasons for buyback of shares / why company buy back its shares or stocks?

• to improve the earnings per share
• to improve return on capital, return on net worth and to enhance the long-term shareholder's value
• to provide an additional exit route to shareholders when shares are undervalued or thinly traded
• to enhance consolidation of a stake in the company
• to prevent unwelcome takeover bids
• to return surplus cash to shareholders
• to achieve optimum capital structure
• to support share price during periods of sluggish market condition
• to serve the equity more efficiently.

According to the Annual report of ITC Limited, company total CSR expenditure for the financial year 2018-19 stood at Rs. 306.95 crores. Prescribed CSR expenditure is Rs. 306.55 crores for FY 2018-19.

company mainly focus on following CSR areas enhancing environmental and natural capital; supporting rural development; promoting education and vocational skills; providing preventive healthcare; providing sanitation and drinking water; creating livelihoods for people, especially those from disadvantaged sections of society, in rural and urban India; preserving and promoting traditional art and culture and promoting sports.

ITC Limited contribution towards COVID-19

Recently ITC limited contributed Rs. 150 Cr. towards COVID-19. 

About ITC Limited Company

• ITC has a diversified presence in the following business areas - Fast Moving Consumer Goods, Hotels, Paperboards and Packaging, Agri-Business, and Information Technology. 
• The Company is acknowledged as one of India's most valuable business corporations with a market capitalization of nearly US $ 27.90 billion and a gross sales value of USS 10.74 billion (figures as on 31.03.2020).
• ITC is the country's leading FMCG marketer, the clear market leader in the Indian Paperboard and Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-reaching Agri-Business, a pre-eminent hotel chain in India that is a trailblazer in 'Responsible Luxury'. 
• ITC's new Consumer Goods Businesses have established a vibrant portfolio of 25 world-class Indian brands that create and retain value in India. 
• ITC's world-class FMCG brands including Aashirvaad, Sunfeast, Yippee!, Bingo!, B Natural, ITC Master Chef, Fabelle, Sunbean, Fiama, Engage, Vivel, Savlon, Classmate, Papercraft, Mangaldeep, Aim, and others have garnered encouraging consumer franchise within a short period. 

ITC CSR ACTIVITIES 2020

1. Promoting Preventive Healthcare, Sanitation & Poverty Alleviation - Eradicating hunger, poverty, and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swachh Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.

2. Livelihood Enhancement - Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently-abled and livelihood enhancement projects.

3. Economic Empowerment of Women - Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centers, and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.

4. Ensuring Environmental Sustainability - Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

5. Protection of National Heritage, Art & Culture - Protection of national heritage, art and culture, including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts

6. Rural Development - Rural Development projects.

Last 5 years Details of CSR expenditure of ITC Limited

In financial year 2018-19

• Average Net Profit of the company for the last three financial years:  Rs. 15327.74 crores
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 306.55 crores for FY 2018-19
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2018-19 stood at  Rs. 306.95 crores.

In financial year 2017-18

• Average Net Profit of the company for the last three financial years: Rs. 14523.40 crores
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 290.47 crores for FY 2017-18
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2017-18 stood at Rs. 290.98 crores. 

In financial year 2016-17

• Average Net Profit of the Company for the last three financial years: Rs. 13763.29 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 275.27 crores for FY 2016-17.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2016-17 stood at Rs. 275.96 crores. 

In financial year 2015-16

• Average Net Profit of the Company for the last three financial years: Rs. 12338.22 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 246.76 crores for FY 2015-16.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2015-16 stood at Rs. 247.50 crores. 

In financial year 2014-15

• Average Net Profit of the Company for the last three financial years: Rs. 10,646.11 crores.
• Prescribed CSR Expenditure (two percent of the amount as in item above): Rs. 212.92 crores for FY 2014-15.
• Details of CSR Spent during the financial year: The total CSR expenditure for the financial year 2014-15 stood at Rs. 214.06 crores.

CSR of Reliance

During the year 2019-2020, the Company spent Rs. 909 crore (around 2.08% of the average net profits of last three financial years) on CSR activities. As per the CSR policy of the Company, Rural Transformation, Health, Education, Environment, Arts, Heritage & Culture and Disaster Response, are the focus areas for CSR engagement. CSR initiatives of the Company under the leadership of Smt. Nita M. Ambani, Founder and Chairperson, Reliance Foundation, have touched the lives of around 3.6 crore people across India covering more than 37,000 villages and several urban locations across India.

The Reliance group supported major national campaigns like Swachhata hi Seva and Jal Shakti Abhiyan. It responded fast to national emergencies and disasters including floods and more recently, COVID-19 pandemic which has earned accolades from one and all. CSR initiatives of the Company have won several awards including Mahatma Award 2019 for Excellence in Corporate Social Responsibility. The Company was conferred with the Golden Peacock Award

The key philosophy of all CSR initiatives of RIL is guided by three core commitments of SIS:

a) S - SCALE

b) I - IMPACT

c) S - SUSTAINABILITY

Reliance has identified 6 focus areas for their CSR policy: 

1. Rural Transformation

To work towards bridging the developmental gap between rural 'Bharat' and urban India by improving livelihood, addressing poverty, hunger and malnutrition. Key initiatives include:

• Supporting Farm and non-farm livelihoods
• Improving water conservation and rain-water harvesting
• Developing community based initiatives like VFAs and producer companies towards building capacity of the community and ensuring sustainability.
• Using technology towards delivering need based information for improving quality of life.
• Improving food security and enhancing nutrition
• Developing Community infrastructure

2. Healthcare

To address issues around affordability and accessibility of quality healthcare and bring about improvement in awareness and health seeking behavior in various parts of India, enabling a better living, through initiatives such as:

• Primary, secondary and tertiary care facilities
• Conducting need based health camps and providing consultation, medicines etc.
• Working on maternal and child health
• Behavioral change for improved mother and child health
• Improving healthcare delivery through innovative outreach programmes
• Working for the visually impaired
• Working in the areas of Communicable and non-communicable diseases
• Using technology for training, competency evaluation and clinical decision support for medical professionals with a view to improve quality of healthcare

3. Education

To work on several educational initiatives to provide quality education, training, skill enhancement for improving the quality of living and livelihood. Initiatives are aimed at:

• Promoting primary and secondary education
• Enabling higher education through merit cum means scholarships, including for differently abled across the country.
• Using sports as a tool for development of students in both urban and rural settings
• Promoting higher education including setting up and supporting universities
• Skill development and vocational training

4. Environment

To enable enhanced livelihood and quality of life, promote environment sustainability through various initiatives for:

• Ecological sustainability
• Promoting biodiversity
• Conservation of natural resources
• Maintaining quality of soil, air and water
• Promoting renewable energy
• Developing gardens and river fronts

5. Protection of national heritage, art and culture

To work towards preserving the rich heritage, arts and culture of India for its future generation and make conscious efforts to ensure its continuity and enhance avenues for livelihoods of traditional artisans and craftsmen. Key initiatives include:

• Working towards protecting and promoting India's art, culture and heritage through various promotional and developmental projects and programmes.
• Support and promotion of artists and craftsman
• Promotion and preservation of traditional art and handicraft
• Documenting India's rich heritage for the benefit of future generations

6. Disaster Response

RIL has a track record of organizing timely relief and rehabilitation of communities affected by natural calamities. To strengthen efforts in the area of Disaster Response towards establishing RIL as one of the leading organizations with the capacity to respond in a timely and impactful manner in the affected areas. Key initiatives include:

• Building capacities of local communities to respond to disasters
• Developing expertise and resources to respond to disaster

Reliance CSR expenditure:

• The Board of RIL to ensure that minimum of 2% of average net profit of the last 3 years is spent on CSR initiatives undertaken by RIL
• All expenditure towards the programs to be diligently documented
• In case at least 2% of average net profit of the last 3 years is not spent in a financial year, reasons for the same to be specified in the CSR report
• Any surplus generated out of the CSR activities not to be added to the normal business profits of RIL.

• Goods & Services Tax is prevalent in almost 160 countries around the world and France was the first country to introduce the same in 1954. 
• GST is one of the biggest taxation reforms of independent India.  
• It aims at creating a single, unified Indian market throughout the Nation.  
• It is an indirect tax levy on goods as well as services at the national level. 
• GST is a consumption based tax which is levied on the basis of “Destination principle.”
• Here burdon born by final consumer.
• It offers comprehensive & continous chain of tax credit.   
• Its main objective is to consolidate multiple indirect tax levies into a single tax.

Constitution (101st Amendment) Act, 2016

The Constitution of India has been amended by the Constitution (One Hundred and First Amendment) Act, 2016 for the purpose on GST on 8^th september 2016 on desent of president. Following Articles inserted in constitution : 

1. Article 246A Inserted -

• Oversides Article 246.
• Give power to parliament and each state legislature to levy GST on goods & services. 
• Only parliament can levy GST on inter state supplies.

2. Article 269A Inserted -

• Give power to parliament to levy and collect IGST on inter-state supplies.
• Such IGST shall be distributed between center and states.
• Parliament has power to determine place of supply and time of supply.
• Import and export of goods, services or both shall be deemed to be inter-state supply.

3. Article 279A Inserted -

​The President shall, within 60 days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the GST Council. 

4. Article 254 -

Any difference arises between law made by parliment and law made by state, than law made by parliament prevail.

The following subject matters kept outside the purview of GST. As such these are taxed under the existing laws of centre and states as the case may be -

i) Alcohol for human consumption

ii) Entertainment tax collected by local bodies

iii) Property taxes, such as stamp duty

iv) Electricity 

v) Petroleum Products -

• petroleum crude,
• motor spirit (petrol),
• high speed diesel,
• natural gas and aviation turbine fuel

Note - Tabacco and tabacco products would be subject to GST in addition the center would have power to levy Central Excise duty on  tabacco and tabacco products.

Sole Proprietorship

Meaning : Sole proprietorship is a form of organization in which there is only single owner of business. He himself manages and control the business.

Features of Sole-Proprietorship 

1) Single ownership - He is sole owner of all the assets and resources of business.

2) No separate Legal Entity - Sole proprietorship has no separate existence like company. owner and business are not separate.

3) No Legal Formalities - No Legal Formalities are required to start, manage and dissolve such business organization. because registration of  Sole proprietorship is not mandatory.

4) Control and management - In sole proprietary organisation, all the decisions relating to business operations are taken by one person, which makes functioning of business simple and easy.

5) Unlimited liability - The liability of owner is unlimited. In case, the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts.

6) Undivided Risk - The sole proprietor is the only person to whom the profits belong. There is a direct relationship between effort and reward. This motivates him to work hard and bear the risks of business

8) Secrecy - All the important informations concerning the business rests only with the owner so that no outside party can take any under advantage of it.

Advantages of Sole-Proprietorship

1) Easy Formation - It can be easily started and closed as there is no need to observe any legal formalities. It is not governed by any specific law. It is simply required that the business activity should be lawful and should comply with the rules and regulations laid down by local authorities.

2) Quick Decision - A Sole proprietor takes the decision quickly as he is not required to consult anybody about his decisions.

3) Secrecy - All the secrets are confined with the owner. They are not shared with any body, so there has full secrecy.

4) Direct motivation - There is a direct relationship between effort and reward. This motivates him to work hard and bear the risks of business

5) Personal touch - Sole proprietor can maintain personal contacts with his customers and employees. In this way, good work is possible at less cost and time.

Limitations of Sole-Proprietorship

1) Limited financial resources - Funds are limited to the owner's personal savings (i.e. his capital) and his personal assets may also be insufficient for raising loans against their security, which reduces his borrowing capacity.

2) Limited managerial ability - A sole proprietor may not be able to manage the business efficiently as he is not likely to have necessary skills regarding all aspects of the business and also due to limited financial resources sole proprietor may not afford qualified managers.

3) Unlimited liability - As the sole trader has to face the entire risk of business, so he compels him to avoid risky and bold decisions. Unlimited Liability It refers that if the business gets into difficulty and can't pay its debts, the owner of the business is hold personally liable for those debts. 

4) Uncertainty - Because sole proprietor is a natural person and their has no separate entity death, insolvency, lunacy or illness of a proprietor may leads to its closure.

5) Limited scope for expansion - Due to limited capital and managerial skills, it can't expand to a large scale.

Doctrine of constructive notice says -

• As per section 2(35) of the companies Act, 2013 Dividend includes any interim dividend
• In simple words dividend is a portion of profit available for distribution among its shareholders by the company.
• Profits available for dividend to shareholders are known as divisible profits. 
• Dividend payable to preference shareholders are called preference dividend and Dividend payable to equity shareholders are called equity dividend.

Types Of Dividend 

1. Final Dividend :

2. Interim Dividend : 

• Recommend and declared by board of directors in board meeting.
• SS-3 defines interim dividend so as to mean the Dividend declared by the Board of Directors.
•  it is declared by the Board of Directors between two annual general meetings of the company, if board of directors believes that company has surplus profit.
• All the provisions relating to the payment of dividend shall be applicable on the interim dividend also.

Important Provisions Related to Declaration of Dividend (Section 123)

1. Declaration of dividend shall be authorized by AOA.

2. Sources of declaration of dividend: 

(i) Out of current year profit, or

(ii) Out of any previous year profit or accumulated profit arrived after providing depreciation

(iii) Or both (i) and (ii) , or

(iv) Out of money provided by the Central Government or a State Government for the payment of dividend;

3. Before the declaration of any dividend in any financial year, transfer such percentage of profits for that financial year as it may consider appropriate to the reserves of the company;

4. Before the declaration of dividend company shall provide depreciation to its all depreciable assets.

5. Dividend to be paid to registered shareholder only.

6. Dividend to be declared from free reserves only.

7. A company shall also not declare Dividend in following situations :