Shree Chanakya Education

Society’s Indira Institute of

Management, Pune

Master of Business Administration,

Semester – III Batch: 2020-2022
Course Name & Code: ENTERPRISE PERFORMANCE MANAGEMENT
GC5T303
TEA (Group Assignment)

BIOCON LTD

Submitted By –
Sumedh Malkunaik(22)
Tanuj Barai (24)
Tejas Sukale (25)
Vishal Chaudhari (26)
Contents
Company overview................................................................................................................................2
Business units....................................................................................................................................3
Generics.........................................................................................................................................4
Novel biologics..............................................................................................................................4
Biosimilars (Biocon Biologics Limited)........................................................................................4
Research services (Under Syngene International Limited)............................................................4
Business Unit Revenue 2021.................................................................................................................5
What is Agile Manufacturing?...........................................................................................................5
Why is Agile Manufacturing effective?.............................................................................................5
4 Key Agile manufacturing elements.................................................................................................6
Lean Vs Agile Manufacturing...........................................................................................................6
Is Agile manufacturing for me?.........................................................................................................7
Agile Manufacturing Example...........................................................................................................7
ADDITIVE MANUFACTURING........................................................................................................7
What is Additive manufacturing?......................................................................................................7
How Does Additive Manufacturing Work?.......................................................................................7
Additive Manufacturing Processes....................................................................................................7
Additive Manufacturing Technologies..............................................................................................9
What are the Advantages of using Additive Manufacturing?............................................................9
How Long Does the Process Take?.................................................................................................10
What Materials can be used in Additive Manufacturing?................................................................10
Where is AM used?.........................................................................................................................11
Miscellaneous......................................................................................................................................11
Conclusion...........................................................................................................................................13

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Company overview

Biocon Limited, publicly listed in 2004, is India's largest and fully integrated, innovation-led
biopharmaceutical company. It is an emerging global biopharmaceutical enterprise serving
customers in over 120 countries. Driven by a vision to enhance global healthcare through
innovative and affordable biopharmaceuticals, it have enabled access to advanced therapies
for diseases that are chronic, where medical needs are largely unmet and treatment costs are
high.

The early anticipation of the increasing dominance of biologics in global development

pipelines helped the company to be ahead of the curve in crafting a differentiated product
portfolio based on fermentation and recombinant technologies, which straddles fermentation-
derived small molecules and biologics, both novel as well as biosimilars.

The significant brand equity that it has built worldwide for its small molecule APIs across
statins, immunosuppresants and other specialty products has made it a leading global supplier
of these products.

It have also built one of the largest and most diverse biosimilar pipelines, spanning insulins,
monoclonal antibodies and other recombinant proteins that address critical chronic diseases
such as diabetes, cancer and autoimmune disorders.

Ranked among the Top 3 biosimilar players globally for rh-insulin and insulin glargine in
volume terms, Biocon is the first Indian company to launch a biosimilar in Japan with Insulin
Glargine, which also has been approved for sale in EU and Australia. Its insulin products
have made a difference to the lives of millions of people with diabetes across the globe. It
now aims to provide its insulin products to ‘one in five’ people with diabetes in need of
insulin-based therapy anywhere in the world within the next 10 years.

It is also making a huge impact in the area of cancer care. Its biosimilar Trastuzumab, which
was the first to be approved anywhere in the world and launched in India in 2014, has helped
treat several thousand HER2-positive metastatic breast cancer patients. They are also the first
company from India to get its biosimilar approved by the USFDA; Ogivri, co-developed by
Biocon and Mylan, is the first biosimilar Trastuzumab to be approved in the US. In addition

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to Trastuzumab, several of its biosimilar assets are on track for anticipated regulatory
approvals in developed markets.

They are also developing a pipeline of patented biologics to address global unmet medical
needs. It has successfully launched a couple of novel biologics in India: Nimotuzumab for the
treatment of head and neck cancer and Itolizumab to tackle psoriasis. Besides these, they
have a basket of novel assets are under various stages of clinical development, including a
high potential oral insulin.

Through its subsidiary, Syngene, it offers a suite of integrated, end-to-end discovery and
development services for novel molecular entities (NMEs) to the global life sciences sector.

Ranked by the prestigious Science magazine among the Top 10 Best employers in the biotech
industry, Biocon is passionately pursuing a mission to rationalize healthcare spends, enhance
access to life-saving therapies and make a significant impact to global healthcare through
‘blockbuster’ drugs with the potential to benefit a billion patients.

Business units

At Biocon, its strategy revolves around four pillars: accessibility, affordability, availability,
and assurance. It aims to use its expertise and scale to address the underserved or the
unserved markets by enhancing access to essential drugs. With an increased focus on generics
and biosimilars, it continuously innovates to offer affordable medicines and quality
alternatives to expensive drugs to patients globally. Its continuous focus on building strategic
partnerships and simultaneously creating a diverse portfolio of drugs help us increase
medicine availability to a great extent.

Furthermore, it exhibits the highest standards of ethics and are committed to providing high-
quality products in compliance with international regulatory standards. As a global
innovation-led company, its strength lies in its technical & scientific expertise, vertical
integration, a skilled team, quality culture, and a vast network of global partners and
customers.

Biocon has four distinct business segments:

a. Generics

b. Novel biologics

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c. Biosimilars (Under Biocon Biologics Limited)

d. Research services (Under Syngene International Limited).

Generics

The Generics business has been a key pillar of success for Biocon. Over the past couple of
years, it has sharpened its focus on the generics segment and identified strategic priorities,
which will enable it to realize significant growth opportunities globally. Its strategy is to
continue building a differentiated Active Pharmaceutical Ingredients (APIs) portfolio and
vertically integrate it where possible to manufacture and supply generic formulations for the
global markets. It also continues to explore asset acquisition, external development, and
select in-licensing opportunities to bolster our formulation portfolio.

Novel biologics

The Novel Biologics business of Biocon is a combination of in-house, partnered, and in-
licensed products, targeting therapeutic areas such as diabetes, immunology inflammation,
and oncology, including immuno-oncology.

Biosimilars (Biocon Biologics Limited)

Biocon operates its biosimilar business through a subsidiary, Biocon Biologics Limited
(Biocon Biologics). It is engaged in developing high quality, affordable biosimilars that can
expand access to cutting-edge therapeutics for patients globally. The R&D, manufacturing,
commercial, and essential business functions for Biocon’s biosimilars business are housed
under Biocon Biologics. Besides, the Branded Formulation India (BFI) business is also a part
of Biocon Biologics.

Research services (Under Syngene International Limited).

Established in 1993, Syngene International Limited (Syngene) is India-based integrated

research, development, and manufacturing organization providing scientific services. Driven
by an experienced leadership team, expertise of a highly qualified team of 5000 employees,
supported by market-leading technology and world-class infrastructure, Syngene provides
end-to-end services spanning a wide section of modalities, including small and large
molecules, antibody-drug conjugates (ADCs), and oligonucleotides.

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The scientific services are accessed mainly by the global pharmaceutical and biotechnology
industry. Nutrition, consumer goods, animal health, and specialty chemicals are among the
other sectors being served by the Company. During the past year, the Company engaged with
over 360 clients from multiple industry verticals.

Business Unit and Regional Revenue, in 2021

Business Segments

3%
30% Generics
30%
Biosimilars
Research Services
Novel Biologics
37%

Regional Distribution

19%

Domestic
International

81%

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Financial Data

Assets turnover ratio 0.446537504

Return on Capital
Employed (ROCE) 8.32
Return on Equity
(ROE) 3.68 %
Enterprise value 51,477.10*
Total Expense 62,260.00*
*All Figures in ₹ million.

Significance of non-financial performance measures

The non-financial performance measures give you the information on a company’s

performance in non-monetary or non-money terms. Though one cannot express non-financial
measures in money terms, these measures can be qualitative and quantitative. These
measures help to understand the quality of the product or service that a company offers.
These measures support the financial measures or KPI (key performance indicators).
Most financial measures are lagging indicators, which means they reflect what has already
happened. Management also needs non-financial measures because it is easy to link them to
the company’s strategy.

Companies do not have their vision or mission statement in money terms. Third, many
believe that “intangible assets” such as customer loyalty and patents play a bigger role
in the success of a company than the tangible assets. It often gets difficult to quantify the
intangible assets in monetary terms. Thus, a company can use non-financial measures
to get quantitative and qualitative data on intangible assets. Financial indicators do not give
the full picture. For instance, they do not tell why the sales are dropping, or why the cash
flow is reducing. To get answers to such questions, management turns to non-financial
measures.

Concept of Balance Score Card (BSC)

The Balanced scorecard is an integrated approach to assesses performance of business strategy and

how changes can be made in the areas such as – financial objectives and goals, customer

preferences and choice architecture, operations management and supply chain bottleneck

resolutions, and organizations learning ability and capacity building Balanced Scorecard is a

resource focused strategic analysis tool. Leaders at Colgate Palmolive can use Balanced Scorecard

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strategic tool to build sustainable competitive advantage by better understanding the relationship

among - financial resources, internal processes, customer preferences, and operations management

in Colgate Palmolive’s overall strategy.

The Balance Scorecard of each company varies based on the nature, size of the firm and industry

it operates in. Broadly there are four main components / features of Balance Scorecard. These four

perspectives / components of Balance Scorecard are –

• Financial Perspective

• Customer Perspective

• Internal Business Perspective

• Innovation and Learning Perspective

Revenue - 73,603 ₹ Million Sales - 73,603 ₹ Million +14%

Expense - 62,260 ₹ Million
ROI - 7360.3 ₹ Million
Other Income - 2,545 ₹ Million

Financial Customer

Innovation Internal
The Syngene team did a great job in
& business
completing all projects on schedule helping it
business Quality control - SQC

launch new products despite the COVID-19

situation. Thanks to Syngene, company
launched fivenew products this year: Skin
Booster, ShakeMate, F1 Banana Caramel,
Brain health & Immune Health.

Value Chain Analysis of Biocon

Porter’s Value Chain Analysis of Biocon

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Competition in the Industry
Technological innovation becomes the major separating component. It is likewise helpful for helping
you to customize your method to fit your competitive environment, and to increase your possible
earnings. The trick to establishing a competitive technique is to recognize the sources of the
competitive forces. If the present market growth is sluggish and the industry is filled, product
advancement strategy ought to be used. As quickly as your analysis is ended up, it's time to carry out
a strategy to broaden your competitive advantage. Worth Chain analysis will help the company
pursue a competitive benefits.

Customers have power whenever there aren't a variety of them, but lots of sellers, in addition to
when it is easy to switch from 1 business's services or products to another. They are most likely to
keep using your services if they get rewards. They remain in a far much better position to bargain
than ever in the past. Purchaser PowerLow Customers have actually limited power over console
developers, because the range of potential customers is substantial, the firm isn't too concerned
about losing clients. An increasing market and the capability for high earnings induces new
companies to go into a marketplace and incumbent companies to improve production. Don't forget
that 5 forces affect numerous industries differently and therefore do not utilize specifically the very
same results of analysis for even comparable industries!

Potential of New Entrants Into an Industry

Level of competition
 Biocon Ltd Building a Biotech Powerhouse faces moderate to high industry
competition
 There are a large number pf players and market is generally fragmented
 The players vary in their size of operations but compete for the same share of the pie
with respect to consumer segments
 There are a number of different local as well as international players in the industry,
which has also led to the transfer of new skills and knowledge for local players
 Industry players continually work towards improving their business processes and
offerings to maintain profits and manage costs effectively
 Industry players offer similar products and services

2.3. Building Competitive advantage

 Biocon Ltd Building a Biotech Powerhouse has tried to build a distinctive competitive
advantage through investment in research and development, and thereby works
towards creating unique and strategic marketing communications.
 High industry rivalry has also led to higher rate of innovation for players
 Biocon Ltd Building a Biotech Powerhouse has also introduced a number of different
innovations to make its business processes more effective and efficient
 Players strive to operate with economies of scale, and have also started to use
modern brand management techniques to appeal to consumers
 Biocon Ltd Building a Biotech Powerhouse has made distinctive and marked
changes to its product by inducing aspects of label designs and marketing
campaigns to enhance its product development
 Industry players have also led to overall industry growth through investment in
distribution channels and development if e-commerce for respective industry

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2.4. Implications of industry rivalry
 The higher competitive rivalry has therefore led to an overall growth of the industry,
and fuelled development as well internally
 Biocon Ltd Building a Biotech Powerhouse focuses on technological advancements
and brand management and brand development as key aspects for building
sustainable competitive advantage and experiencing growth.

Buyer bargaining power

or Biocon Ltd Building a Biotech Powerhouse, the bargaining power of buyer

has different aspects:

3.2. Market fragmentation

 Biocon Ltd Building a Biotech Powerhouse has a wide array of consumers as it
produces and sells its products locally as well as across borders
 As a result, the higher number of consumers lowers the overall bargaining power of
the buyers, and strengthens the position of Biocon Ltd Building a Biotech
Powerhouse with respect to sales and profit maintenance

3.3. Industry competitiveness with respect to buyer

bargaining power
 Activities within the sector are largely manufacturing activities, and as a result these
activities are important for the buyers
 With respect to each individual industry player, this increases buyer power
considerably
 Consequently, the competition and rivalry in the industry increases as each player
tries to increase his share of the pie by targeting similar segments of consumers

3.4. Distribution channels and buyer bargaining

power
 The higher channels for distribution of goods produced and marketed in the industry
makes them more accessible for consumers
 As a result, it increases the consumer base for the players, and also leads to higher
market fragmentation
 This is true for local as well as international markets
 Consequently, this decreases the buyer bargaining power for the industry

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3.5. Switching costs
 The issue is however complicated by the high number of players in the industry
offering similar products or services, which reduces switching costs for consumers
 Switching costs however may also vary according to the needs and wants of the
consumers, and the types and variants of the products that they prefer
 The price competitiveness is especially an important factor for determining the
switching costs for the consumers, in addition to product quality
 Industry players focus on brand development and marketing communications to
appeal to consumers, and generate trials.
 As a result, the overall bargaining power in the industry is considered to be moderate

Supplier bargaining power

The bargaining power of suppliers for Biocon Ltd Building a Biotech

Powerhouse is assessed below:

4.2. Supplier strength

 Biocon Ltd Building a Biotech Powerhouse has a limited number of suppliers from
local and international markets
 The lower number of supplier makes switching costs high for the business, and as a
result, gives more power to the suppliers because of the higher demand they face
 Biocon Ltd Building a Biotech Powerhouse has a restricted number of suppliers also
because of the quality checks and contractual agreements they carry out

4.3. Industry competitiveness and supplier

bargaining power
 The higher bargaining power of the supplier increases competitiveness in the
industry
 Players, including Biocon Ltd Building a Biotech Powerhouse, compete using pricing
strategies
 Players also control other processes and business operations to ensure that the cost
of doing business is controlled, and not passed to the consumer
 Low ability to change supplier to maintain quality pressures the business to achieve
economies of scale
 Players in the industry compete for supplier contracts as well, and this may lead to a
higher cost of doing business altogether.
 However, players must ensure that this higher cost does not lead to higher prices for
the consumer, as the high rivalry in the industry maintains competitive pricing for all
players

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4.4. Substitutes
 Players like Biocon Ltd Building a Biotech Powerhouse in the industry are dependent
on manufacturing for producing and marketing their offerings and products
 With a manufacturing focused company, the suppliers maintain a higher power
 Businesses do not have substitutes and must contract with suppliers for ensuring
quality production and sale of their products
 Lower number of substitutes makes switching costs higher, and also increases the
supplier bargaining power

 Threat of new entrants

The threat of new entrants for Biocon Ltd Building a Biotech Powerhouse
stands as:

5.2. Barriers to entry

 The industry has moderate to high barriers to entry
 This lowers the threat of new entrants as new businesses and companies will not
easily be able to enter the industry and compete amongst and with existing players
for the same share of consumers
 The industry is regulated by government policies and institutions which offer tough
entrance based on their criteria
 There is no easy access to suppliers as well s distribution channels, which decreases
the chances of new entrants becoming part of the industry
 The higher growth potential and profit promise also appeals to new players, who
however, find it difficult to enter the growing industry

5.3. Financial cushioning

 Biocon Ltd Building a Biotech Powerhouse competes in an industry that requires high
financial investment
 The capital requirements of the industry cannot easily be met with by new players
 Bank loans may also not be easily acquired for meeting the financial requirements
and capital needs of entering the industry
 The higher financial risk and investment associated with the industry discourages
new entrants and players from trying to compete in the industry
 The added advantage of cost that existing players enjoy further decreases the
chance of new players trying to enter the market.

5.4. Technological investment

 The industry in which Biocon Ltd Building a Biotech Powerhouse competes is highly
dependent on the technological infrastructure
 Technological advancements and innovations are introduced and adapted frequently
for easing the business operations and processes, as well as for smoothing
processes for consumers

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  The technological advancements require high expertise and capital investments
 This may not be afforded by new entrants which lowers their threat of entry into the
industry

5.5. Investment in R&D

 Existing players have strategized their business decisions and goals with respect to
high investment in research relating to consumer behaviour and market trends
 This information and research may not easily be available to the new entrants
 Gaining this information and data, and correlating it with the past data and
information to predict future trends will further be time taking as well as cost intensive
 This further dissuades new entrants and lowers their threat of entry into the industry

5.6. Size of operations

 Exiting players have a larger size of operations
 This players also have sustainable economies of scale into their business processes
– especially manufacturing
 As a result, existing players manufacture using cost effective means and methods
 Existing players also have controlled expenses, and deliver high quality products
owing to their operations management
 New players in the industry will not be able to compete immediately and directly with
existing players given the large size of operations and economies of scale – without a
high financial investment
 The high financial investment will run a risk as well, since the existing players have
also invested in brand building activities, and have developed a string relationship
with the consumers.
 As a result, the threat of new entrants to the industry is considerably lowered

Threat of substitutes

For Biocon Ltd Building a Biotech Powerhouse, the threat of substitutes is

observed to be low. This is largely because substitutes are not present in the
home country, and are offered to a niche consumer segment in international
markets as well. As such, these substitutes are costly.

6.2. Switching costs

 There are high switching costs associated with using substitute products
 Substitute products may be imported, with additional custom duties and costs
attached – which will increase the price of the product

6.3. Availability
 Substitute products for Biocon Ltd Building a Biotech Powerhouse are not easily
available in the market

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  The substitute products are made available only at select outlets, through select
channels – given their low demand, and exclusivity
 The substitute products are made available only at select outlets, through select
channels – given their low demand, and exclusivity

6.4. Accessibility
 Substitute product are not easily accessible
 They are produced offshore, and internally distributed and managed by the company
 As such, no mass marketing tools are used
 Consumers cannot easily locate their stocking
 As a result, they are not widely accessible
 This lowers the threat of substitutes for Biocon Ltd Building a Biotech Powerhouse

Strategies
Despite a national lockdown, Biocon Biologics was able to sustain operations at all our plants to
meet committed supplies to partners and ensure patients were unaffected. During the nationwide
lockdown in India, we faced many challenges and had to adopt innovative planning and
implementation strategies to run our manufacturing facilities without compromising on the safety
and wellbeing of our employees. We progressed well on new projects to expand our mAbs
manufacturing capacities to address projected volume growth from increased market shares and to
support the development of our biosimilars pipeline. We also augmented our existing Drug
Substance and Drug Product capabilities, which enabled us to expand our capacities multi-fold. We
also tied up additional capacity to meet demand for our insulin and insulin analogs. The
Manufacturing teams successfully managed to scale up production of Itolizumab through effective
planning and execution to ensure timely supplies of ALZUMAb-L for treating COVID-19 patients. In
FY21, Biocon Biologics for the first time completed the tech transfer and scale up of a high cell
density process using alternating tangential flow (ATF) technology.

New mAbs Facilities in Bengaluru

We completed the qualification process for the first phase of our new mAbs Drug Substance (B3)
facility in Biocon Park. At 350,000- ANNUAL REPORT 2021 Biocon Limited ANNUAL REPORT 2021
UNWAVERING PURPOSE 83 sq. ft., this is one of the largest mAbs manufacturing facilities in India in
terms of the built up area of a single building/site. Built at an investment of ~USD 120 million, this is
India’s first biopharma facility awarded by the International Society for Pharmaceutical Engineering
(ISPE) and is on track for commercialization in FY22. When completed the B3 facility would boost our
mAbs production capacity substantially. We also completed qualification of our first single-use mAbs
facility (B5) in Bengaluru. Scale-up and manufacturing of our pipeline molecules is ongoing at this
150,000 sq. ft. facility. Both B3 and B5 facilities will support our future growth and drug
development pipeline.

Malaysia: Center of Excellence (CoE) for Insulins

In Malaysia, our focus has been to create a Center of Excellence (CoE) for insulins. This CoE achieved
two key milestones this year, with the commercialization of bGlargine in the U.S. and the approval of
bAspart in EU. Enabling this CoE is a strong team spanning personnel from the R&D, Manufacturing,
Quality, Regulatory and Commercial functions. With the EU approval for bAspart, we are now
manufacturing a broad portfolio of regular, basal and rapid insulins end to end at our state-ofthe-art
insulins facility in Malaysia. Through our scientifically validated, high quality products manufactured

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at Malaysia, we are providing affordable access to life-saving insulins to patients in developed
markets as well as many emerging markets, including Malaysia. Through our biosimilar insulin analog
portfolio we have enabled the local healthcare system to save over 50% of its spending on diabetes
in Malaysia. The Ministry of Health, Malaysia is deploying these savings to expand insulin access to a
larger patient population. Over time, we expect to enable substantial savings for people with
diabetes across the globe.

Performance measure
Performance management and performance measurement are two key processes that cannot be

separated from one another, as they both proceed and follow each other.

Performance measurement is a sub process of performance management that focuses on the

identification, tracking and communication of performance results using performance indicators.

It deals with the evaluation of results, while performance management deals with acting based on

the results of the evaluation and ensuring the target results are achieved.

Performance measures quantitatively tell us something important about our products, services and

the processes that produce them. They are a tool to help us understand, manage, and improve the

performance of the organization. So, performance measurement is necessary, and it is imperiously

required to support the performance management system.

Performance management
Performance management is a ubiquitous term in today’s business environment, being embedded

in the body of knowledge of various disciplines and being used at all organizational levels. It

reflects the approach one entity has towards performance and it includes sub processes such as:

strategy definition (planning / goal setting), strategy implementation, initiatives design and

performance measurement.

Performance management is a strategic and integrated process that delivers sustained success to

organizations by improving the performance of the people who work in them and by developing

the capabilities of individual contributors and teams.

While performance measurement is a sub process dealing with tracking and evaluation,

performance management creates the larger context to plan, organize, coordinate, communicate

and control performance. It applies at three distinct levels: strategic, operational, and individual

performance management.

Basic concepts of Financial Audit

An audit is when an auditor examines or inspects various books of accounts, followed by a physical

14 | P a g e
inventory check, to ensure that all departments are using a defined system of recording

transactions. It is done to ensure that the financial statements presented by the organisation are

accurate.

Internal auditing can be done by employees or department heads, and external auditing can be done

by a firm or an independent auditor. The goal is for an independent body to audit and verify the

accounts to ensure that the books of accounts are completed fairly, and that no misrepresentation

or fraud is taking place.

Basic Principles Governing an Audit

The basic principles of auditing are confidentiality, integrity, objectivity, independence, skills and

competence, work performed by others, documentation, planning, audit evidence, accounting

system and internal control, and audit reporting.

1) A thorough examination of all systems

The assessment of all systems and procedures related to accounting and financial operations is the

primary goal of any audit. Before beginning the audit of the final statements of accounts, the

auditor must first comprehend the system and its functionality. It will serve as the foundation for

the entire auditing process.

2) Internal Controls Assessment

The extent of the audit will be determined by the efficacy of the organization's internal control

system. The auditor can rely on the system if the company's internal controls are in place and very

effective. Then he will not have to go over the accounting in detail.

If the internal controls, on the other hand, are ineffective, the auditor must go over the accounts

with a fine-tooth comb. The auditor must also assess the internal control system, according to

CARO 2003.

3)Arithmetic Precision
The auditor must also check the accuracy of the books of accounts regularly. This includes double-

checking the books' arithmetical accuracy and verifying that the entries are properly posted.

4) Principles of Accounting
The auditor must check that the capital and income transactions are properly distinguished. All

financial transactions must fall into one of two categories: revenue or capital. The auditor must

also verify the accuracy of both income and expenditure items.

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5) Assets Verification
All the company's assets must be physically verified by the auditor. As a result, he must examine

all legal documents, certifications, official statements, and other documents to determine the

ownership of all assets. The auditor must also make certain that no assets are missing from the

balance sheet.

6) Liabilities Verification
The auditor must also verify the organization's liabilities. He will go over all the documents, letters,

and certificates once again. He can also seek confirmation from outside parties if necessary.

7) Attestation
A paper trail is left behind by every financial transaction. These supporting documentation must

be examined by the auditor to ensure that the transactions are valid and accurate. Vouching is the

term for this. The organisation, for example, has a 12,000/- electrical expense. The auditor must

then examine the electrical bill to double-check the transaction.

8) Statutory Obligations
The auditor's job is to ensure that the company's financial records conform with all laws, rules, and

regulations in effect now. As a result, he must ensure that the accounts are compliant with the

Companies Act 2003, the Income Tax Act 1961, and other relevant laws.

Need for financial Audit

An audit is important as it provides credibility to a set of financial statements and gives the

shareholders confidence that the accounts are true and fair. It can also help to improve a company's

internal controls and systems. Companies produce financial statements that provide information

about their financial position and performance. This information is used by a wide range of

stakeholders (e.g., investors) in making economic decisions. Typically, those that own a company,

the shareholders, are not those that manage it. Therefore, the owners of these companies (as well

as other stakeholders, such as banks, suppliers, and customers) take comfort from independent

assurance that the financial statements present, in all material respects, the company’s financial

position and performance. To enhance the degree of confidence in the financial statements, a

qualified external party (an auditor) is engaged to examine the financial statements, including

related disclosures produced by management, to give their professional opinion on whether they

fairly reflect, in all material respects, the company’s financial performance over a given period(s)

(an income statement) and financial position as of a particular date(s) (a balance sheet) in

accordance with relevant GAAP. In many cases this is required by law.

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Elements of financial audit
1. Planning—Initial planning activities include formal acceptance of the client by the audit firm,

verifying compliance with independence requirements, building the audit team, and performing

other procedures to determine the nature, timing, and extent of procedures to be performed to

conduct the audit in an effective manner.

2. Risk assessment—Auditors use their knowledge of the business, the industry, and the
environment

in which the company operates to identify and assess the risks that could lead to a material

misstatement in the financial statements. Those risks often involve a high degree of judgement and

require a significant level of knowledge and experience by the auditor, particularly on large and

complex engagements. This requires a good understanding of the business and its risks, which is

typically built up over a number of years as part of the audit firm’s and auditor's knowledge. It also

means that the auditors need to be well informed about the industry and wider environment in

which the company operates, and about what its competitors, customers, suppliers and—where

relevant—regulators are doing.

3. Audit strategy and plan—Once the risks have been assessed, auditors develop an overall audit

strategy and a detailed audit plan to address the risks of material misstatement in the financial

statements. Among other things, this includes designing a testing approach to various financial

statement items, deciding whether and how much to rely on the company’s internal controls,

developing a detailed timetable, and allocating tasks to the audit team members. The audit strategy

and plan are continually reassessed throughout the audit and adjusted to respond to new

information obtained about the business and its environment.

4. Gathering evidence—Auditors apply professional skepticism and judgement when gathering and

evaluating evidence through a combination of testing the company’s internal controls, tracing the

amounts and disclosures included in the financial statements to the company’s supporting books

and records, and obtaining external third-party documentation. This includes testing

management’s material representations and the assumptions they used in preparing their financial

statements. Independent confirmation may be sought for certain material balances such as cash

5. Finalization—Finally, the auditors exercise professional judgement and form their overall
conclusion,

based on the tests they have carried out, the evidence they have obtained and the other work they
have done.

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This conclusion forms the basis of the audit opinion.

Reference –

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