SCOPE OF STOCK AUDIT

1 NAME OF THE BRANCH Habsiguda Branch

2 DIVISION Hyderabad

3 Name and address of the Auditor Mahesh Virender & Sriram,

Charted Accountants,
6-3-788/36 & 37A, Ameerpet,
Hyderabad - 500016

4 Our Assignment Letter Ref : Letter No. CMG/SA/158/2016-17, dt

15.12.2016

5 Name of the Branch Head Since Mr.B.Venkata Srinivasa Raju, since 21.04.2015

6 Name of the Branch Head at the time of

execution of document (if there is a
change since the date of execution of
documents).
7 Name of the Borrower M/s. K R Enterprises

8 Constitution Firm

9 Registered Office 3-215/A , Uppal Main Road ,Opp: Asian Cinimas,

Hyderabad 500 039

10 Date of establishment/ Incorporation 01.04.2015

11 Factory/Branch address NIL

12 Nature of Business Wholesale trading of wooden goods, Carpentry ,

Joinery

13 Group (if any) Not Applicable

14 Dealing with the bank since 23/08/2016

15 Account status (As on11.01.2017) Standard

16 Credit Risk Rating - Current year KVB BBB 69

- Previous year Not Applicable

17 Financing Pattern:
A) SOLE Sole Banking
B) MULTIPLE BANKING Nil
ARRANGEMENT
(i) Our share
(ii) Name of other banks & their shares
C) CONSORTIUM
 Name of consortium member bank’s Nil

18 Nature/Type of goods WOODEN GOODS.

19 Steps involved in manufacture/Process -N.A-

together with major inputs/outputs at every
stages

20 Installed Capacity -N.A-

21 a).Capacity utilization as on the date of the -N.A-

visit. Wholesale Trading in Logs, Wood, Timber cut into
various sizes.
b) Average capacity utilization during last N.A
year.
c) Auditor’s comments if any N.A

22 Date of commencement of stock audit & 11.01.2017

Date of completion of stock audit
11.01.2017

23 Date of unit visit 11.01.2017

24 Audit based on the stocks/book debts (Rs in Lakhs)

declared by the borrower in their statement
as at 10.01.2017. Total Stock - 271.45
Less: SundryCreditors
- 34.78
Paid Stock
236.67
Less: Margin@25%
- 59.16
(A)
177.51
Sundry Debtors
235.74
Less: Margin @40%
94.30
(B)
141.44

DP (A) + (B)
318.95
Restricted to Limit
350.00
OCC Balance O/s :
 311.06

(Rs in Lakhs)

Bal O/S
Nature
Serial Sanction Amount Drawing As on Overdue Limits Valid
of Dt Of Sanction
No. Reference Power 10.01.2017 If Any Up to
Facility

1 OCC CENTRA 23.08.2016 350.00 350.00 311.06 Nill 31.08.2017

L
OFFICE /
CBG/GM/
CCCI/148
3/S-
165/14830
000137/20
16-2017

DETAILS OF CREDIT FACILITIES ENJOYED BY THE FIRM/ COMPANY: (Rs. In Lacs)

SCOPE OF THE ASSIGNMENT:

[THE AUDIOR IS REQUESTED TO COVER ALL THE ITEMS AND NOTE THAT NO COLUMN /
item SHOULD BE LEFT BLANK, UNLESS AND OTHERWISE THE SAME IS NOT APPLICABLE .]
1) CALCULATION OF DP: As on date of visit – 11.01.2017 and based on stock statement
as on 10.01.2017 submitted by the borrower firm.
OCC : (Rs in Lacs)

Particulars Amount Margin Margin DP

(in Rs) (%) Amount (in Rs)

Total Stock 271.45

Less:Sundry creditors 34.78

Total Paid stock 236.67 25% 59.16 177.51

Sundry Debtors 235.74 40% 94.30 141.44

Total 318.95 Restricted

to Limit:
Rs.350.00
 OCC Limit 350.00

Balance Outstanding 311.06

2) Physical verification of stocks:-

i) Ascertain the composition of stocks - item- We have conducted the physical verification of the
wise and the places of their storage. Physical stocks on 11.01.2017 in the unit/godown. The stock
verification of stocks item-wise should be statement is given in Annexure - I
undertaken and findings thereof should be
reported in the stock audit report. The detailed
stock statement containing particulars of various
items of stock (quantity/rate/value) of raw
materials, WIP, finished goods, stores & spares
as on the date of stock audit, should be submitted
along with the stock audit report.(Unit
wise/Godown wise separately)

ii) Compare the quantity and value of book We have verified the quantity and value of physical
stocks and physical stocks available. Reference stocks available at Unit/godown with Book Stocks on
to excise records shall also be made. a random basis and found the same in order.

iii) Check of stock statements submitted to the We have verified the stock statements submitted to the
Bank for last two-three months with book figures Bank for last 3 months with Book figures and found
with reference to raw materials, WIP and the same in order.
finished goods

3) Utilization of LC:

i) The utilization of the LC for the genuine Not Applicable

purpose of procurement of approved
goods/materials shall be verified. Movement of
goods/materials to be cross checked with bills and
invoices. Physical availability of materials shall
also be verified.
ii) Whether goods received under LCs are Not Applicable
deducted from the value of stocks for arrival of
DP?
4) Details of obsolete slow moving and non-moving stocks:

Whether the borrowing unit has any system of It is observed that there is no system of
maintaining / recording obsolete, slow moving monitoring/recording of obsolete slow moving
and non-moving stocks. Are they including such and non moving stocks.
stocks in the stock statements submitted to the
bank? Details regarding quantity and value of
such stocks as on the date of auditing shall be
furnished.

5) Classification of stocks :- (Rs. in Lacs)

Stocks of high / medium / low value in terms of value
Item Amount

high No such Classification

medium

low

High value stock - More than 60% of aggregate value

Medium value stock - Items comprising next 25% of the aggregate value -
Low value stock - Other items - Balance 15% of the aggregate value –

6) Basis of valuation of stocks:

i) Whether the valuation has been done as per the
accepted accounting principles / ICAI guidelines.
Cross check the valuation with the help of
invoices / bills and comment upon the method of
valuation adopted by the borrower. Any variance
observed shall be reported.
The valuation has been done as per the accepted
accounting principles. We have cross checked the
valuation with invoices/bills on a random basis
and found the same in order.

ii) A confirmation by the auditor to the effect The basis of valuation is the same as used in the
that” The basis/bases of valuation are the same as previous year.
the used in the previous except as set out below:”
7) Verification of consignment stocks and stocks held in depots:

Bills/invoices regarding movement of We have verified the bills/invoices on a random

consignment stocks and stocks held in depots
shall be verified and shall be cross verified
with the stock statement being submitted by the
company .whether proper Insurance cover is
available? Whether agreed Bank clause is
available?
basis and cross verified with stock statement
submitted and found the same in order. Stocks are
under insured. Insurance cover of Rs.268.00 lacs
is available for the stocks as against Rs.271.45
lacs of stocks held as on 10.01.2017

8) Physical verification of stocks by the management :

i)Whether any system / procedure is being adopted Yes

by the management for verification of stocks of
raw materials, stock-in-process and finished
goods. Comment upon the adequacy of the
existing system and periodicity.
ii) Comment upon the procedure and treatment of We have been informed that there are no such
rejected goods instances.

iii) Specific comments on the maintenance of The maintenance of records/registers of the

proper records / registers as required for the nature borrower is satisfactory.
of the activity as well as statutory requirement.
Whether the records are updated regularly.
iv) Whether Bincard system is maintained/ No
Applicable?
V)Utilization of stock i.e. FIFO , LIFO etc FIFO

vi)No of units available as on date Only one Unit /Godown located at :

Mention location and address 3-215/A , Uppal Main Road ,Opp: Asian
Cinimas, Hyderabad 500 039

vii) Whether any stocks sent for job works? No

If so, records are being maintained at the firm?
N.A

viii) Whether license is available? N.A

ix) Whether stocks are highly inflammable in No

nature?
x) Whether there is any cash transaction? If so Yes. Purpose of cash transactions :
what is the purpose? For payment of transportation charges of Logs,
Wood and Timber and for meeting petty expenses
like conveyance, staff welfare etc.

xi) Any standby due are pending for payment? No

xii) Observation of market condition, demand
supply position, future prospects marketing
arrangements, marketability/salability of the
stocks.
xiii) Whether consumption of Raw material is
commensurate with production activity and other
production expenses.
xiv) Comments on holding level of inventory.
xv) Furnish the status of reconciliation between:
1) Ground balance and book balance.
2) Ground balance and latest stock statement.
xvi) Internal control system and procedure of
tendering and procurement of orders, receipts,
payments and accounting thereof. Procedures
regarding receipts and issues of raw materials,
finished goods and stores.
xvii)Risk perception and suggestion for Risk Nil
Management
9) Details of periodical inspections/unit visit
done by the branch officials for the last six
months (i.e. Name of the official, Date of visit
and their observations)
10) Whether name board of the company and Name Board of the Firm and Bank name board
bank name board are displayed in the are displayed in the borrower business premises.
borrower business premises?
11) Details of inter firm movement of goods No such instances
(both purchases and sales)
We have been informed that the market
conditions are satisfactory and the supplies are
mainly on whole sale basis.
Yes
Satisfactory
Reconciled
The main activity of the borrower is procurement
of logs of wood from various places and cutting
the same into various sizes as per the requirement
of the customers and selling the same on whole
sale basis. We are informed that the procurement
of orders is looked after by the managing partner
who is having considerable experience in this line
of activity .
Receipts,payments and accounting functions are
attended by finance manager under the super
vision of the Managing partner.
The prevalent internal control systems were
found to be satisfactory.
1. Mr. BV Srinivasa Raju, Sr. Manager
2. Mrs. B Prashanti, Dy. Manager
Visited the unit / godowns on 24.11.2016,
27.12.2016 and 25.01.2017.
Their observations : Progressive
12) Utilization of bank finance:

Utilization of working capital finance for the Working capital Finance is being generally
purpose for which it is intended to shall be utilized for which it is intended.
verified, and diversion of funds, if any, shall be
reported.

13) Scrutiny of receivables:

i) Total book debts declared as on As on date of visit : 11.012017

Rs 235.74 lacs as per Annexure II

ii) Of which bill discounted with the bank Nil

iii) Quality of receivables - with specific Sound-100% realizable

reference to realisability i.e. sound and
unsound. (Sound - 100% realisable
Unsound - Not 100% realisable)
iv) Age-wise receivables with the details As per Annexure - II
of name of the debtors, date, credit
period, due date, amount etc.,
v) Whether branch is obtaining quarterly Book debts statement obtained .
book debts statement (with age wise Not certified by the Auditor.
break up) duly certified by the auditor
of the borrower?
(Enclose a copy of the latest auditor
certified statement)

vi) Credit policy of the borrower 90 days credit

vii) Specific comments on recovery Satisfactory

management
viii) Any discrepancy is observed on No
verification of the books of accounts.
ix) Receivables from group concerns - age- Nil
wise dues from sister/group concerns.
x) A statement of receivables based on Yes
point (i) & (ii) above shall be submitted
along with the report.
xi) Whether eligible receivables as per Yes
sanction terms are being included in the
monthly book debt statements. Special
emphasis shall be laid on the book-debt
statements for the last three months.
xii) Book debts identified as recoverable All Book debts are identified as recoverable
Doubtful recovery
 Bad debts
(% age of such doubtful and bad debts
should be specifically commented)

xiii) Other details

i)collection machinery put in place Yes
ii)whether the borrower has provided
for doubtful of recovery book debts Not Applicable
iii)whether there are any disputes in
respect of Book debts
No

xiv) Observation as to quality of book debts

i) Any discrepancy observed on
verification of the books of No
accounts
ii) Whether there are inter
firms/intra firm debtors
iii) Whether all the debtors arising No
out of commercial transactions.
Yes

14) Sundry Creditors for purchases:

i) List of sundry creditors for purchase of As on date of visit :11.01.2017

raw materials stores etc, with name of Rs 34.78 lacs
the creditors, date, credit period, due As per Annexure - III
date.
ii) List of overdue sundry creditors for Nil
purchases.
iii) Details of dues to sister/group concerns - Nil
age-wise classification of sister concern
dues.
iv) Whether goods received on credit and/or Yes
under LC are included in the stock Sundry Creditors are deducted from total stock
statement, and if so, whether such value to arrive at paid stock.
creditors (including LC creditors) are
deducted from the total stock value to
arrive at the paid stock.

15) INSURANCE FOR STOCKS:

i) Availability of adequate and valid Stocks are under insured.

comprehensive insurance policies in the joint Stocks insured for Rs 268.00 only as against
names of bank and the borrower. Stocks of Rs 271.45 lacs as per stock statement as
on 10.01.2017 submitted on the date of
inspection.

ii) Insurance Policy No, Date of insurance and Policy No : OG-17-1801-4001-00002107dated

Due date. 21.09.2016.from M/s Bajaj Allianz General
Insurance Company Ltd. for Rs 268.00 lacs –
Valid from 18.09.2016 to 17.09.2017

iv) Whether insurance is available for full value Refer 15 (i) and (ii) above
of stock (stock value or limit whichever is Value of Stock : Rs.271.45 Lacs.
higher?) Value of Insurance cover : Rs.268.00 Lacs
(Mention value of stocks as on date of visit and
value of insurance cover)

iv) Whether all risks are covered? Risks covered are Fire, Burglary

v) Whether our bank name is included in the bank Yes

clause. If not, clarify?

vi) Whether address mentioned in the policy is Yes

tallied with the current address of the
unit/Godown/Office.

16). Rectification of Inspection / concurrent audit / statutory audit observations

SL. PARTICULARS COMMENTS Whether Rectified

NO

A Internal inspection
(Dated: )

B Concurrent audit:
No earlier reports are available
C Statutory audit Report
(Dated )

D RBI Inspection
(Dated )

E Credit Audit
(if previously conducted) Report Dt:
F Stock Audit Report- Earlier Report

17) Any other area: [ALL POINTS ARE TO BE COVERED INVARIABLY]

Comments on

i) General conditions / maintenance of the Yes. Maintenance of the business premises is

business premises. Whether the unit is
functioning? Is there any industrial
unrest?
ii) Availability of storage facility and its
adequacy. Maintenance / arrangement of
stocks for accessibility.
satisfactory. The business is functioning.
Adequate storage facility is available.
Maintenance /arrangement of stocks for
accessibility is satisfactory.

iii) Segregation of stocks of the company Not Applicable

from those belonging to the Group /
sister concerns/job works (if so whether
it is so declared and deducted from the
total stock.
iv) Any other aspects which the auditors No such cases.
may deem fit to bring to the notice of the
Bank.
v) Whether the Branch has submitted Post Yes
sanction follow up to the sanctioning
authorities?
vi) Whether the Branch has obtained FCC / Documents submitted for FCC Certificate yet to
FEC OF DOCUMENTS /? be received.

vii) Details relating to Consortium / Multiple Not Applicable

Banking Meet and the critical issues
discussed in the meeting.
viii) Whether Charge creation is complete in Not Applicable
all respects? If not, the reasons for the
same.
ix) Whether the Stock statements are Stock statements are received from the party in
received from the party in time time periodically and as such no penal interest is
periodically and whether penal interest is charged.
charged in case of delayed receipt of
stock statement.
x) In case of exceeding beyond MDP, NA
whether prior permission has been
obtained from the sanctioning authorities
[Please note that such exceedings
allowed under MDP, do not exceed 12
times in a year, as per credit policy. Also
please comment on the availability DP /
Insurance cover for such exceedings]
xi) Whether sales and purchase proceeds are Yes
routed in the account.(if not routed the
reasons are to furnished)
xii) Whether the turnover in the account is Yes
brisk, comparable with past
 levels/operating levels.
xiii) Whether stocks turnover is satisfactory? Yes

xiv) Whether purchase /sale invoices are Yes

verified.
xv) Whether details of stocks as per stock Yes
register and stock statement tally.
xvi) Whether value of stock declared in the Stocks as per statement dt: 24.08.2016 submitted
stock statement tallies with the stock by the Firm Rs.257.35 lakhs
declared in the balance sheet.

Audit Observations :

1. Due to the nature , size and volume of the stocks which cannot be
counted & weighed, we have verified the stocks on random basis with the help of stock
registers/records maintained at the unit.
2. Adequate storage facility is available and the stocks are effectively secured in the unit.
3. Stock register, sales register and purchase register have been maintained up to date online.

Place : Hyderabad for Mahesh, Virender & Sriram

Date : 08.02.2017 Charted Accountants

(S.Sriram Gopal)
Partner
M.No. 25484
 Certificate

We hereby certify that we have discussed all the above mentioned remarks with the Manager of the
branch on 11.01.2017.

Signature of the Manager for Mahesh, Virender & Sriram

Charted Accountants

Place : Hyderabad, (S.Sriram Gopal)

Date : 08.02.2017 Partner

M.No. 25484