KABIRWALA POWER COMPANY LIMITED (FKPCL

)

ACCOUNTING MANUAL

Revision February 2011
Revised By AFZAL AHMED CHEEMA
DMF

Reviewed By ATTIQ UR REHMAN
GMF

[

FAUJI KABIRWALA POWER COMPANY LIMITED

ACCOUNTING MANUAL

TABLE OF CONTENTS
1
1.1 1.2 1.3 1.4 1.5

GUIDELINES FOR PROPER ADMINISTRATION OF ACCOUNTING MANUAL............................................................................. MANUAL............................................................................. 3
SCOPE AND OBJECTIVES OF THIS MANUAL..................................................3 ..................................................3 APPLICABILITY........................................................................................... 3 CLARIFICATION OF ANY MATTER IN THIS MANUAL.................................................3 .................................................3 CUSTODY OF THE MANUAL ........................................................................... 4 APPROVAL AND REVISION PROCEDURE............................................................. 4

2
2.1 2.2 2.3 2.4 2.5 2.6

OVERVIEW OF FINANCIAL ACCOUNTING SYSTEM..................... 7 SYSTEM.....................7
GENERAL SCHEME OF ACCOUNTING SYSTEM....................................................... 7 ACCOUNTING RECORDS................................................................................ 7 MAINTENANCE OF THE GENERAL LEDGER........................................................... 8 MAINTENANCE OF THE SUBSIDIARY LEDGERS..................................................... 8 PREPARATION OF MONTHLY TRIAL BALANCE, BALANCE SHEET AND PROFIT/ LOSS.....9 .....9 CHANGE IN ACCOUNTING POLICIES AND PROCEDURES...........................................9 ...........................................9

3 4
4.1

OVERVIEW OF FINANCE DEPT FUNCTIONS............................. 11 FUNCTIONS.............................11 FINANCE DEPARTMENT STRUCTURE..................................... 14 STRUCTURE.....................................14
FINANCE DEPARTMENT............................................................................... 14

5
5.1 5.2

COMPLIANCE WITH THIS MANUAL........................................ 15 MANUAL........................................15
POLICY.................................................................................................. 15 INTERNAL CONTROL TECHNIQUE.................................................................... 16

6
6.1

FINANCIAL YEAR................................................................. YEAR................................................................. 17
POLICY.................................................................................................. 17

7
7.1 7.2

CHART OF ACCOUNTS.......................................................... ACCOUNTS.......................................................... 18
POLICY.................................................................................................. 18 INTERNAL CONTROL TECHNIQUE.................................................................... 18

8
8.1

SET OF FINANCIAL STATEMENTS.......................................... 19 STATEMENTS..........................................19
POLICY.................................................................................................. 19

9
9.1

ACCOUNTING PRINCIPLES.................................................... PRINCIPLES.................................................... 20
POLICY.................................................................................................. 20

10
10.1

RESPONSIBILITY FOR FINANCIAL STATEMENTS.................... 22 STATEMENTS....................22
POLICY................................................................................................ 22

Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. 01.00.02.11, Issue: February 2011

Page 2 of 225

Each involved in these operations and instructions contained in 1. and Provides means for the constant review and improvement of policies and procedures. this Manual: ♦ ♦ ♦ instructions.1 SCOPE AND OBJECTIVES OF THIS MANUAL This Manual has an objective to provide complete guidelines on all areas of the accounting processes with an aim to guide the employees of the company in achieving the company’s objective of providing meaningful and accurate information as well as complying with the applicable laws and regulations. Provides uniformity in interpretation and of policies & procedures for Finance Clarifies Finance department structure and responsibilities of Provides an on job reference guide for existing and new employees in finance department. procedures this Manual. Relieves the management of repetitive ♦ Facilitates co-ordination and communication among the several departments/ persons of Fauji Kabirwala Power Company Limited (FKPCL).3 CLARIFICATION OF ANY MATTER IN THIS MANUAL Requests for clarification or explanation of the material presented in this Manual should be addressed to the GMF/DMF at Corporate Office (CO). ♦ administration department. ♦ 1.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 1 GUIDELINES FOR PROPER ACCOUNTING MANUAL ADMINISTRATION OF 1. 01.11. Issue: February 2011 Page 3 of225 .02. In summary.2 APPLICABILITY The Manual is applicable operations of FKPCL. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. to all Financing and Accounting and every staff member of FKPCL should follow all policies.00.

e. First decimal point from left hand side denotes release of entire manual whereas second represents revision of sections and pages. ♦ The release of the manual will be controlled through “Release number” which will be mentioned at the bottom of each page (release-number. the Manual should be reviewed periodically to ensure that it is up to date and reflects current strategy in terms of practices and procedures. Third and fourth parts of the release number represent month and year of last release. however.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 1. Issue: December 2010). Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. issue.11. the business processes and procedures need to be updated to keep in line and support the changing environment. The Manual.12. policies will not change very often. 01.10. 01.00. PROPERTY RIGHTS This manual is the property of Fauji Kabirwala Power Company Ltd (FKPCL) and should not be provided to any other company/ unauthorized person. therefore. Issue: February 2011 Page 4 of225 .02. must be kept under constant review and would require to be updated from time to time. mm: yy) i.00. No changes will be made in the Manual unless duly approved and authorized by the MD.5 APPROVAL AND REVISION PROCEDURE Organizations continue to evolve to comply with business and regulatory requirements. For the most part. A copy of the approved amendments will be sent to each Manual holder by the General Manager Finance. ♦ Manual holders are responsible to identify the need for revision when it is indicated that current instructions will be impracticable due to changing environment and business objectives.4 CUSTODY OF THE MANUAL The following will be provided with a copy of this Manual: ♦ (CEO) ♦ ♦ Secretary ♦ ♦ Deputy Manager Finance Assistant Manager Internal Audit General Manager .(Finance) General Manager -(Technical)/Company Managing Director/ Chief Executive Officer 1. Rel. As a result.

[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL It will be treated as a confidential document and access would be granted to the staff of FKPCL who needs to refer to it during the performance of their duties.00. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.11. 01. Issue: February 2011 Page 5 of225 .02.

1.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL DOCUMENT CHANGE CONTROL S. No.11. Rel. 01.00. Prepared By SHMA Date October 2006 Approved By Date Activity Accounting Policies & Procedures Manual. Rel. 01. Afzal Ahmed Cheema February 2011 Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. Issue: February 2011 Page 6 of225 .09.06 Accounting Policies & Procedures Manual.10 1 1.00.12.0.02.

The transactions are recorded and maintained in Accounting System software called CIS. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. At month end after the transactions have been posted. All financial transactions of the Company are recorded in the books of account in accordance with the chart of accounts. 2.1 GENERAL SCHEME OF ACCOUNTING SYSTEM FKPCL follows the double entry system of book keeping for accounting purposes. Cash / Bank Payment Voucher System generated Cash/ Bank Payment Voucher (BPV) is used to record payment made against different liabilities and expenses.11. All general and subsidiary ledgers will be maintained in the software at the CO.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 2 OVERVIEW OF FINANCIAL ACCOUNTING SYSTEM 2. reversal and adjustment are recorded through Journal Voucher (JV) in the system. The trial balance and subsidiary ledgers will then be used for the preparation of the financial statements on a monthly basis which are sent to sponsors.00. a trial balance and subsidiary accounts will be extracted from the software.2 ACCOUNTING RECORDS The following accounting records are being maintained by the company: ♦ ♦ ♦ Journal Voucher Cash/ Bank Payment Voucher Cash/ Bank Receipt Voucher Brief descriptions of the above mentioned voucher records are described in the succeeding paragraphs.02. 01. Issue: February 2011 Page 7 of225 . Journal Voucher All accruals.

credit advises. and proceeds from sale/disposal of assets.11.4 MAINTENANCE OF THE SUBSIDIARY LEDGERS The Company will maintain subsidiary ledger for the following Accounts: Fixed Asset Register (FAR) Fixed Assets Register (FAR) will be maintained in MS Excel. The GL will be supported by a number of subsidiary ledgers (called sub-ledgers) for items such as cash. The GL system is maintained by the IT Department of FKPCL. These transactions may include items such as capital contributions. loan repayments (principal only). cost. 01. debtors.00. The GL also helps in keeping an internal trail of transactions. date of acquisition. showing all fixed assets with descriptions. All transactions will be recorded in a sub-ledger through the GL account. and creditors. This will help in: ♦ ♦ Ascertainment of book value of an asset at the time of its disposal. Some transactions will be posted directly to the GL without any sub-ledger posting. book value. location. through source document reference. Page 8 of225 Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.) can be traced down to its origin.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL Cash/ Bank Receipt voucher System generated Cash/ Bank Receipt Voucher (BRV) is used to record cheques and in case of direct deposit or transfer. rate of depreciation. Finding age of an asset with the view of its replacement or overhauling. accumulated depreciation.3 MAINTENANCE OF THE GENERAL LEDGER The General Ledger (GL) will constitute the main repository of all transactions of the Company. FAR is a detailed record.02. DMF will review and the GM Finance will approve/ authorize it. 2. Issue: February 2011 . so that any discrepancy (such as double billing or an unrecorded payment etc. code. 2. Vouchers are entered by the Accountant/AMF/ Accounts executive. These records will remain as a permanent track of the history of all financial transactions during a given period. loan proceeds. The Assistant Manager Finance (AMF) will check each voucher.

00. 1984. 2. Reconcile books Make an adjustment. Stock Entries will be made in the Inventory Control System.5 PREPARATION OF MONTHLY TRIAL BALANCE. the GL will be reconciled by the AMF with FAR. relevant vouchers will be received at the CO and will be entered in the relevant account heads at month end.6 CHANGE IN ACCOUNTING POLICIES AND PROCEDURES Updating any accounting policies will be the responsibility of the GMF/DMF. 01. 2. the transactions will be entered in the respective systems as and when they occur. The GL will be updated through JV. in case of transactions occurring at the power plant. At month end. The AMF will provide the Balance Sheet and Profit and Loss Account to the DMF for review. if required the accounts are properly subsidiary balances with On the basis of figures arrived. disposals and depreciation with the books of account. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. At the end of each month a trial balance will be generated from the computer system by the AMF and following activities will be done: ♦ ♦ ♦ Ensure that all reflected in the Trial Balance. However. GL system will be updated through JV. Issue: February 2011 Page 9 of225 .11. BALANCE SHEET AND PROFIT/ LOSS At CO. PBIB and WAPDA. The GM Finance will review the Balance Sheet and Profit and Loss Account and forwarded to the directors. Payroll Payroll records will be maintained in the isolated Payroll application. who will forward it to GMF. the Balance Sheet and Profit and Loss Account will be prepared by the AMF. NEPRA. Annual audited accounts are submitted to Security and Exchange Commission (SECP) of Pakistan as per requirements of Companies Ordinance.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL ♦ ♦ Reconciling addition. and Controlling of physical stock of fixed assets At month end.02.

The GM Finance will ensure that all changes in policies and procedures are also incorporated in this Manual.02.11. 01. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.00. the impacts of the change will be reviewed by the GM Finance and if found justifiable. the approval will be obtained from the MD. The BOD will approve/disapprove the change. In case of any change in the accounting procedure. the same will be proposed by the GM Finance to the BOD through AC together with the relevant details and the justification for change.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL Where a change in the accounting policy is needed. Issue: February 2011 Page 10 of225 .

Issue: February 2011 . Maintain accounting records and to prepare Financial Statements in accordance with the Company’s law. Comply with the Page 11 of225 Core Function s ♦ ♦ ♦ ♦ ♦ ♦ Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) and best practices.00. Provide management reports when required by the management. to utilise the available financial resources in most effective and efficient manner.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 3 OVERVIEW OF FINANCE DEPT FUNCTIONS FINANCE DEPARTMENT FUNCTIONS AT FKPCL Overall Objectives The department has an overall responsibility to establish and maintain standard accounting procedures in order to ensure consistency and uniformity in the financial management of the power plant and of the CO.02. Comply with the covenants agreed to the sponsors.11. Keep up to date record to help management in taking the adequate course of action in any instance. add value to the accounting system as well as compliance with internal control procedures. Establish and maintain standardised accounting procedures for both Power Plant and the CO. which would help to achieve the business objective and to conduct smooth and efficient business operations. ♦ To be the primary source of financial information and to ensure the integrity of financial management information. 01. lenders and the financial institutions.

01. and utilise Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.02. ♦ Manage the available funds efficiently. Issue: February 2011 Page 12 of225 .00.e. and Sales Tax etc. Companies Ordinance.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL FINANCE DEPARTMENT FUNCTIONS AT FKPCL applicable laws i. Income Tax.11.

Preparation payment of salaries to the staff. Issue: February 2011 Page 13 of225 . Maintain Fixed Assets Register and provide depreciation as per Company’s policy. 01.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL FINANCE DEPARTMENT FUNCTIONS ♦ ♦ AT FKPCL and Prepare Budgets monitor Variances with actual results.00. Carryout the best accounting practices and assures the quality in the procedures in order to keep an ongoing business relation with all stake holders.11.02. and Auxiliary Function s ♦ ♦ ♦ Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. Provide support services to the concerned departments at the Power Plant for its Inventory and Fixed Assets procurement. management and disposal.

00.11. treasury & assets)  Accountant’s (Sales tax. invoicing.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 4 FINANCE DEPARTMENT STRUCTURE 4.1 FINANCE DEPARTMENT GMF  DMF  AMF  AE’s (Import & salaries) / (Budget. cash and stores)/ (Plant)  Junior clerk Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. 01.02. Issue: February 2011 Page 14 of225 .

updated or amended only after approval from the Managing Director (MD). The Company’s financial information accessible/ available to them shall only be used for official purpose. updated or amended from time to time.1. 1. deceit. 1. Not misuse or/ and distribute confidential information. Not engage in any official conduct involving dishonesty.6 The personnel of the Finance Department shall: ♦ ♦ Comply with all the provisions applicable laws and regulations at all times.5 The GM Finance shall ensure that the Department fulfills all the regulatory requirements in accordance with the current local laws and provide adequate guidance regarding permissible conduct under the law. 01. directives or bylaws. 1. rules.00.3 These Policies and Procedures may be revised. fraud.4 The Policies and Procedures prescribed in this Manual can be revised.11.1. 1.1. in which case all the concerned employees will be required to comply with the latest version of the Policies and Procedures Manual.1.1. described in this Manual.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 5 COMPLIANCE WITH THIS MANUAL 5. Issue: February 2011 Page 15 of225 . ♦ ♦ Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. or misrepresentation. of the Not knowingly participate or assist in any violation of such laws.1 All the concerned employees of FKPCL working at the Power Plant and CO shall require compliance with the Policies and Procedures.1. regulations.2 Violation of these Policies and Procedures may require the management to take appropriate action against the concerned personnel. 1.02.1 POLICY 1.

11.00. Authorize proposed changes in the Accounting Procedures.2 INTERNAL CONTROL TECHNIQUE PROCESS DOCUMENTS INVOLVED INTERNAL CONTROL RESPONSIBILITY General Accounting Manual Prepare relevant details and justification for the proposed changes in the Accounting Policies or Procedures. Authorize proposed changes in the Accounting Policies.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 5.02. Issue: February 2011 Page 16 of225 . 01. Check the department’s compliance with the regulatory requirements. GMF/ DMF Audit Committee and BOD Managing Director (MD) GM Finance Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.

Local regulations also require the Company to present. 01. Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. quarterly. half yearly and annual accounts for the said period. to its shareholders.02.1.1 POLICY 1.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 6 FINANCIAL YEAR 6.11.00.7 The financial year of the Company shall commence on 1st July and end on 30th June each year. Issue: February 2011 Page 17 of225 .

[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 7 CHART OF ACCOUNTS 7.15) shall be used to classify.1 POLICY 1. Every transaction must be properly coded to be a valid posting to the GL/ Ledger.1. on a semiannual basis under the direct supervision of the GMF and DMF.9 Proper description and unique numbers shall be assigned to all the accounts indicating specific ledger accounts. deletion or amendment in the COA.11 It is to be ensured that access to the COA and any resulting changes shall be restricted to authorized personnel of the Finance Department only. 1.02.11.1.1. record. 7. 1. Issue: February 2011 Page 18 of225 .1. 1.1. 01. 1. budget and report financial transactions.12 It shall be the responsibility of the AMF at the Finance Department to conduct periodic reviews of the COA.2 INTERNAL CONTROL TECHNIQUE PROCESS DOCUMENTS INVOLVED INTERNAL CONTROL RESPONSIBILITY Chart of Accounts (COA) COA Review COA on annual basis and recommend any required changes.8 The Chart of Accounts (COA) (Annexure 46.00. Assistant Finance Manager (AMF) GMF / DMF Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. amendments or deletions in the Chart of Accounts will be approved by GMF & DMF and shall be done only by AMF. Approve any recommendation for addition.10 All additions.

Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.1 POLICY Financial statement shall provide information about an entity’s financial position. performance and cash flows that is useful to a wide range of users for economic decision making.02.00. Issue: February 2011 Page 19 of225 . As per IAS1 (“Presentation of Financial statements).[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 8 SET OF FINANCIAL STATEMENTS 8.11. a complete set of financial statement comprises the following and shall be prepared at FKPCL accordingly: ♦ ♦ ♦ ♦ ♦ Balance Sheet Profit and Loss Account Cash Flow Statements Statement of Changes in Equity Accounting policies and Explanatory notes. 01.

it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.11. 01. if so. Cost/ Benefit Concept: is based on the assumption that the costs of providing information must be ♦ ♦ ♦ ♦ ♦ Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.1 POLICY 1. if such an intention or need exists. materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful. Issue: February 2011 Page 20 of225 .00.1.13 In compliance with the IFRS (International Financial Reporting Standard) and Companies Ordinance 1984. Going Concern Concept: The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Materiality Concept: Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. ♦ Matching Concept: is based on the assumption that costs should be expensed and matched against revenue in the period that revenue is recognized.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 9 ACCOUNTING PRINCIPLES 9. Thus. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. the following concepts must be reflected in the preparation of financial statements. the basis used is disclosed. Recognition Concept: is based on the assumption that revenue is generally recognized when the earnings process is virtually complete and an exchange transaction has occurred. Historical Cost Concept: is based on the assumption that most assets and liabilities are to be accounted for and reported on the basis of acquisition price. the financial statements may have to be prepared on a different basis and.02. Hence.

not have the quality of reliability. Issue: February 2011 Page 21 of225 . Prudence Concept: The preparers of financial statements do. the creation of hidden reserves or excessive provisions. such that assets or income are not overstated and liabilities or expenses are not understated.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL weighted against the benefits that can be derived from using that information. however. ♦ Accrual Concept: In order to meet their objectives. Hence. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty. ♦ Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel. such as the collectability of doubtful receivables. they provide the type of information about past transactions and other events that is most useful to users in making economic decisions. the probable useful life of plant and equipment and the number of warranty claims that may occur. the effects of transactions and other events are recognised when they occur (and not as cash or its equivalent are received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. therefore. Such uncertainties are recognised by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. However. 01.02. the exercise of prudence does not allow.00. financial statements are prepared on the accrual basis of accounting.11. because the financial statements would not be neutral and. Under this basis. have to contend with the uncertainties that inevitably surround many events and circumstances. or the deliberate overstatement of liabilities or expenses. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. for example. the deliberate understatement of assets or income.

00.15 The responsibility for the preparation and review of the Financial Statements shall be as per following order: Action Preparation of Financial Statements 1st Review 2nd Review 3rd Review 4th Review Overall Review and final approval Responsibility AMF DMF GM Finance GMF.11.14 Mainly GM Finance shall be responsible for complying with accounting policies and procedures in line with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) in the preparation of financial statements. GM Tech and MD Audit Committee BOD Revised by Afzal Ahmed Cheema Confidential and Proprietary Rel.1.02. 01. 1.1. Issue: February 2011 Page 22 of225 .1 POLICY 1.[ FAUJI KABIRWALA POWER COMPANY LIMITED ACCOUNTING MANUAL 10 RESPONSIBILITY FOR FINANCIAL STATEMENTS 10.

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