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A Study of Internal Audit for Sales of Mercedes Pvt Ltd

A Project Report Submitted to

University of Mumbai for partial completion of the Degree of
MASTER OF COMMERCE
Under faculty of commerce
By
SAI SUNIL THOKAL
M.COM –
Under the Guidance of
PROF.ROSHAN HARMALKAR
D.G. RUPAREL COLLEGE, MAHIM
(Affiliated to University of Mumbai)
Mumbai – 400016
MAHARASHTRA
2022-2023

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CERTIFICATE

This is to certify that Miss. Sai Sunil Thokal has worked and duly completed her Project Work
for the degree of Master in Commerce under the Faculty of Commerce in the subject of
Advanced Auditing and his project is entitled, “A Study of Internal Audit for Sale of Mercedes
Pvt Ltd” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of any University.

It is her own work and facts reported by his personal findings and investigations.

Project Guide:

PROF.ROSHAN HARMALKAR

Date of submission:

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DECLARATION

I the undersigned Miss. Sai Sunil Thokal hereby declare that the work embodied in this
project work titled “A Study of Internal Audit for Sale of Mercedes”, forms my own
contribution to the research work carried out under the guidance of PROF. ROSHAN
HARMALKAR is a result of my own research work and has not been previously submitted
to any other University for any other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

SAI SUNIL THOKAL

Certified By

______________________________

( Prof. Roshan Harmalkar )

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ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous. I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.

I would like to thank my Principal, “Prof. Dilip Maske’’ Sir for providing the necessary
facilities required for completion of this project. I take this opportunity to thank our
Teachers’’ for moral support and guidance.

I would also like to express my sincere gratitude towards my project guide “Prof. Roshan
Harmalkar” Sir whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.

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Serial no. Title Page No.

Chapter 1 Introduction 9

Chapter 2 Review of Literature 69

Chapter 3 Research Methodology 76

Chapter 4 Data Analysis & 80

Interpretation

Chapter 5 Conclusion & Suggestions 93

Chapter 6 Bibliography 102

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“A STUDY OF INTERNAL
AUDIT FOR SALE OF
MERCEDES PVT LTD”

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CHAPTER -1

INTRODUCTION

Auditing originates from the Latin term “ Audire ”, which means “to hear,” - just as in ancient times
auditors used to listen to officers and people of authority to confirm the validity of their words.
Over the years, the role of auditing evolved to verifying written reports: specifically, the financial
records of individuals and businesses.

By definition, auditing is an official inspection and verification of the credibility of financial

reports. Audits can be conducted by either a business’s management as an internal control process
or by the government, in case they notice suspicious financial activity.

Auditing, or a financial audit, is an official examination and verification of a business’s financial

records.

The main goal of auditing is to make sure that a company’s financial accounting are accurate and
are following regulatory guidelines. Auditing also gives investors, creditors, and other stakeholders
reasonable assurance that they can rely on a company and its integrity.

Now, it’s important to note that auditing doesn’t provide a complete guarantee that every digit
recorded in a company’s financial reports is accurate. Auditors work within a specific, reasonable
margin of error known as materiality. The volume of materiality depends on the size of the company
and its reported revenue and expenses.

For small businesses, an accounting error of a few thousand dollars might be significant, but for a
large corporation like Apple or Amazon, such a material mistake may be considered as a
conventional mistake and not a cause for concern.

An audit can also be considered as an examination of the financial report of an organisation - as

presented in the annual report - by someone independent of that organisation. The financial report
includes a balance sheet, an income statement, a statement of changes in equity, a cash flow
statement, and notes comprising a summary of significant accounting policies and other explanatory
notes.

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The purpose of an audit is to form a view on whether the information presented in the financial
report, taken as a whole, reflects the financial position of the organisation at a given date, for
example:

• Are details of what is owned and what the organisation owes properly recorded in the
balance sheet?

• Are profits or losses properly assessed?

When examining the financial report, auditors must follow auditing standards which are set by a
government body. Once auditors have completed their work, they write an audit report, explaining
what they have done and giving an opinion drawn from their work. Generally, all listed companies
and limited liability companies are subject to an audit each year. Other organisations may require or
request an audit depending on their structure and ownership.

The one important thing to remember is that an audit is a close inspection of the books of accounts,
but it does not absolutely guarantee error-free books. The auditor only expresses his opinion on the
accuracy of the books, he does not give his opinion on the financial status of the company or predict
its future.

If he is satisfied with the examination then he will state that the financial accounts are true and fair,
which means they are absent of any material misstatement. But this is not an opinion about the
financial status of the company.

Audits provide third-party assurance to various stakeholders that the subject matter is free from
material misstatement. The term is most frequently applied to audits of the financial information
relating to a legal person. Other commonly audited areas include: secretarial and compliance,
internal controls, quality management, project management, water management, and energy
conservation. As a result of an audit, stakeholders may evaluate and improve the effectiveness of
risk management, control, and governance over the subject matter.

Types of Audit -

Depending on who performs financial audits, we categorize audits into two main categories:
internal and external audits.

1. Internal Audit

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An internal audit is typically done in-house, focusing on process assessments, control assessments,
the safety of assets, and legal compliance. It is designed to improve an organisation’s operations and
add value to the company. The business leader initiates the exercise, which is then performed by an
audit team. The audit’s scope is determined by directors with equivalence authorization or the audit
committee.

An internal audit report is issued to the management teams. The results facilitate improvements in
internal controls and trigger managerial changes. Suppose a company does not have in-house
auditors. In that case, it is necessary to bring in consultant auditors who conduct internal audits
based on the specific company’s standards rather than separate procedures and standards. It is
generally performed by a qualified auditor or accountant who is part of the company. This audit
helps assure that the business is in compliance with laws and regulations and is accurately recording
financial information. Regularly performing these internal audits also ensures risk management and
guards against possible issues such as fraud, waste, or financial abuse.

These audits can be done on a weekly, monthly, or annual basis, depending on the circumstances
and the agenda which best suits the business demands.

2. External Audit

An external audit is carried out by an independent party, such as a tax agency or the IRS, following
standards that differ from the company’s. Using a third-party to do a financial audit eliminates
certain biases, providing an honest and candid assessment of different situations within a company
without affecting colleagues’ relationships and the work environment.

Similar to internal audits, an external audit’s main objective is to gauge the accounting records’
accuracy. Lenders and investors usually need external audits to confirm that the company’s data and
financial data and information are fair and accurate.An external audit is an audit of financial
statements made by an independent, third-party professional. These types of audits can be
extremely helpful as they’re more unbiased and reliable than internal audits.

External auditors can be candid and honest about the issues found during the audit, without
affecting daily work relationships within the business. Key responsibilities of an external auditor
include planning and implementing audit procedures, examining accounts and financial statements,
analyzing business risks, preparing an audit report, and discussing the end conclusion with the
management department of their client.

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Meaning of Internal Audit

Internal auditing is an independent, objective assurance and consulting activity designed to add
value and improve an organisation’s operations.
At its simplest, internal auditing involves identifying the risks that could keep an organization from
achieving its goals, making sure the organisation’s leaders know about these risks, and proactively
recommending improvements to help reduce the risks.

For internal auditing to be effective, the organisation’s leaders must

be open to discussing tough issues and seizing opportunities to make necessary changes for
improvement. And the internal auditors must have an independent reporting line to the highest
governing body (e.g., the audit committee of the board of directors), ensuring them the requisite
authority to access all areas of the organisation and know that they will be supported if and when
their views differ from those of management.

Internal auditors’ independence and broad perspective of the organization make them a valuable
resource to executive management and the board of directors. They ensure that the organization is
held accountable to its stakeholders, whether those stakeholders are investors (as in the case of a
publicly traded company) or the general public, served by a government organization.

Ultimately, internal auditors add value to their organizations by providing assurance, insight, and
objectivity.

Internal auditors can save their organization substantial amounts of money and protect its reputation
in the marketplace by identifying operating inefficiencies, wasteful spending, employee theft, fraud,
and cases of noncompliance with laws or regulations, for example.
They keep an eye on the corporate climate and perform a variety of activities such as assessing
risks, analyzing opportunities, suggesting improvements, promoting ethics, ensuring accuracy of
records and financial statements, educating senior management and the board on critical issues,
investigating fraud, detecting wasteful spending, raising red flags, recommending stronger controls,
monitoring compliance with rules and regulations, and much more.

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Definition of Internal Auditing

“Internal auditing is an independent, objective assurance and consulting activity designed to add
value and improve an organizations's operations. It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance processes.”

Background of Internal Audit

The establishment, growth, and evolution of the contemporary internal auditing profession is
closely intertwined with the history of The Institute of Internal Auditors (IIA), an organization
founded in the United States in 1941. In the recently released edition of 60 Years of Progress
Through Sharing, chronicling the history of The IIA, internal auditing historian Dale L. Flesher
notes:

“The IIA’s 60-year history is illustrious and each of the highlights featured in this 10- year narration
[supplementing the 50-year history of The IIA] have contributed to the organization that The IIA is
today:

• The primary international professional association dedicated to the promotion and development of
the practice of internal auditing.
• The recognized authority, chief educator, and acknowledged leader in standards, certification,
research, and technological guidance for the profession worldwide.
• Global headquarters for 76,400 members in 141 countries.” (Flesher & McIntosh,
2002, ix)

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Considering The IIA’s rather humble origins — a small band of 24 charter members who held the
inaugural IIA meeting in New York City1 on December 9, 1941 — this worldwide expansion,
continuing relevance, and increasing influence and recognition of The IIA and the internal auditing
profession over the last 60 years constitutes remarkable growth and progress. Indeed, the internal
auditing profession certainly appears poised for continued dynamic growth and promises to become
“a profession for the 21st century.”

History of Internal Audit

Internal audit has traditionally been focused on identifying policy violations and encouraging
compliance with regulations. Internal audit departments, on the other hand, have recently shifted
their focus to an integrated approach to risk management. Internal audit evolved as a result of both
the changing nature of the market and industry regulations. The new perspective also includes a
shift from a document-centric to a data-centric approach, allowing internal audit to leverage
technology that can improve enterprise risk management (ERM).

Internal audit evolved because of senior management’s need to have a helping hand. Internal audit
provides senior management with independent assurance the organizational objectives are being
followed. On a global level, the history of internal auditing is closely connected with The Institute
of Internal Auditors (IIA). This is an organization that started in the United States in 1941. IIA is
leading the internal audit practice. It is the global body that issues internal auditing standards.

It was well-understood by the early 1990s that internal auditors, depending on their particular
organization’s needs and preferences, worked in several areas: compliance audits, audits of
transaction cycles, investigating fraud and other irregularities, evaluating operational efficiency,
analysis, measurement and reporting of operational and organization-wide risks, and other
assurance and consulting activities. They performed a combination of financial reviews and audits,
operational reviews and audits (sometimes called program audits, performance audits,
comprehensive audits, and other similar descriptive labels), management audits, and compliance
audits. In performing many of these activities, internal auditors made their approach risk-based and
controls-focused. They also made extensive use of sophisticated technology applications in carrying
out audits.

Gradually, internal auditors also began to exhibit “industry specialization” in terms of their domain
knowledge of specific industries such as health care, oil, gas, and energy, defense, financial
services, transportation, wholesale and retail, technology, telecommunications, media and
entertainment, government and nonprofits, education, etc. Internal audit staff began to come from
diverse backgrounds, including a large proportion of non-accounting majors, and women gained
prominence within the profession. Internal auditors also became much more internationally
oriented. In many cases, internal auditing became rather opportunistic, and internal auditors began
to participate in and contribute to “special projects” on a contingency basis, whether performing the
role of risk officers, ethics officers, or compliance officers, as the situation demanded.

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Internal auditing has evolved over the years, gaining recognition from executives and organization
leaders. Internal auditing must respond to the changing needs of the global environment and adapt.
The profession has advanced from focusing on financial information, compliance reviews,
information technology, operational processes, and risk and controls.

The fundamental principles of establishing internal audit in a business concern are as follows:

• Independence: The internal audit department should be autonomous within the organization.
The internal auditor must hold a position of sufficient authority within the organization. He
may be required to report directly to the board of directors.

• Objectives: The internal audit function’s objectives should be clarified and conclusive.
Internal audit should be properly communicated so that it is not viewed as a “over the
shoulder check” by other departments.

• Clarity in Scope: The scope of the internal audit department must be specified in detail.
Under any circumstances, the department must have the authority to conduct every phase of
organizational activity from a financial standpoint at all times.

• Reporting: The internal audit program should be time-bound. There should be protections for
integrated reporting on various functions and other aspects.

Importance of Internal Auditing

The need to carry out an internal audit is evident in companies, to the extent that they increase in
volume, geographical extension, and complexity, making direct control of operations by
management impossible. In this way, the administration, finance, accounting, and operations
processes can be regulated frequently by personnel specialized in the accounting area. It optimizes
processes in the administrative, financial, and accounting areas.

Performing an internal audit allows plans, company policies, internal control and processes to be
carried out satisfactorily. If there were any difficulties or problems in these processes, they would be
revealed to be resolved later. It protects companies from fraud and unnecessary expenses that may
arise when unprofitable business is carried out. In this way, the audit anticipates, as if it were a
danger alert, the financial risks that could come from poorly executed projects or poorly carried-out
actions, providing viable guidelines to counteract their effects.

It favours that the internal means of registration, control, and communication transmit reliable,
adequate, and timely information at the different levels of the company, responsible for its proper
functioning. Internal audit also supervises the individual tasks of each employee so that they are
carried out on time. Part of the correct functioning of a company, in addition to the clarity with
which the objectives and strategies are defined by the executives, is the daily performance of the

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employees in the different tasks of each area, since the level of productivity that they achieve also
depends on them.

Internal auditing is an activity that cannot be dispensed within organizations, due to the benefits it
can bring to their administrators, by preventing inconsistencies in procedures, policies, and controls,
allowing them to optimize the protection of their assets, operations, and, consequently,
development, growth, and financial results.

With an internal auditing system, your business can create accurate and reliable financial reports
through which you can gain insights on which segments or product lines are performing best and
how to properly allocate resources. Additionally, regular auditing will make your shareholders trust
that your accounts are true and fair and that it’s safe to invest in your business.

If the government audits your financial statements and finds that your business has been
manipulating its financial health, or hiding revenue and losses, you’ll likely deal with severe fees
and legal punishments. Your business will also acquire a bad reputation, and you will most likely
lose reliability in the eyes of your customers and stakeholders.

Recurring internal audits by a professional auditor or accountant of the company play an important
role in detecting these fraud cases before they become substantial and problematic. Having a
rigorous auditing system set in place alone prevents and scares employees or vendors from
attempting a scheme to defraud your business in the first place.

Small businesses lose millions every year to employee theft. Types of fraud committed by
employees include skimming payments from customers, check tampering, cash theft, misuse of
company credit cards and improper payroll transactions.You may believe your business lacks the
staff to create an internal audit policy or carry out audits to combat these problems. However, even
with a small staff, you can create a program for monitoring work and their behaviour. In fact,
announcing a policy of internally auditing financial transactions may keep an employee from
misusing company resources.

A formal internal audit includes tasks besides detecting fraud. Examining policies and procedures
on a regular basis ensures your business minimizes its exposure to fraud and other losses.
Examining credit lines extended to customers is one such area of loss prevention. If you have
formulated a policy regarding extension of credit, internal audits test compliance with that policy.
Designing a credit policy with the intention of reducing bad debt does no good if not followed.

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Objectives of Internal Auditing

• Proper Control: Conducting an internal audit would keep adequate control over all the
business activities. This, in turn, would result in maximum efficiency. Internal control would
be able to determine the degree of control overwork.

• Accounting System: It would evaluate the accounting system of the organisation. Internal
audits include checking the proper authority for transactions such as purchase, retirement and
disposal of fixed assets. It checks against the result against entries in order to determine the
actual facts and figures.

• Help Management: It helps management in significant ways. An internal auditor would be

able to point out the weaknesses of an organisation. Internal audits may be used as a tool to
make the necessary corrections. This would enable the management to perform correctly.

• Working Review: Internal audits comes with the purpose to review the working of a
business. The functioning of the current year could be examined in detail. With the help of

• internal auditing, weak points could be located, and the corrective measures could be taken to
ensure proper functioning.
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• Asset Protection: The protection of assets is ensured with the conduction of an internal audit.
With the proper record of assets, an internal auditor would be able to examine the valuation,
verification and possession of assets belonging to the company. It would confirm that the
purchase or sale of assets would be made under proper authority.

• Internal Check: Internal audits can evaluate the internal check system. With the division of
duties amongst employees and when every member of the organisation works appropriately,
an effective internal check

• system would exist, and the auditor’s work is decreased. The internal auditor is then only
required to apply test checks in order to complete audit duty.

• Fair Statements & Error Scrutiny: An internal audit detects the errors in the accounting
records. This would help the management to access the accounting record in order. This
would also minimise the chances of errors occurring in the records. The accounting team of
an organisation would be able to rectify mistakes to prepare accounts at the end of the year to
help the external auditor.

• Detection of Fraud: Conducting an internal audit can detect frauds in the books of
accounting. Internal audits begin when the work of the accounting team is done. The
accounts team often remains alert as there is not enough time between recording and
checking. Therefore, the detection of fraud is possible with internal audits.

• Determine Liability: Conducting an internal audit could determine the liabilities of

employees. As the duties in an organisation are divided amongst the employees, it is easier to
notice the negligence on the part of employees. An internal audit can put a pin on the
individual responsible for the error.

• Help in Independent Audit: An internal audit can help an independent audit. The external
auditor has the option to rely on an internal auditor instead of conducting another cent per
cent check, saving both money and time.

• Performance Appraisal: An internal audit can check performance appraisal. It can be used as
a tool to evaluate the working of each management function in order for the organisation to
achieve the targets fixed in budgets and plans.

• Provide Suggestions: Conducting an internal audit would provide suggestions for the
improvement of the business activities. The internal audit staff would be able to suggest ways
and means by which the difficulties could be overcome. However, an internal auditor cannot
compel the management to implement the suggestions.

• New Ideas: Internal audits can bring about new ideas concerning the procedures, marketing,
financing and other matters of the business.

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• The auditors would be able to offer new insights about various business matters which could
be implemented for the betterment of the business.

• Use of Resources: The purpose of an internal audit is to determine the right use of resources.
Misusing resources would naturally increase the cost of doing a particular business. The
proper use of resources goes hand in hand with the efficiency on the part of the management.

• Accounting Policies: An internal audit would be able to examine the accounting policies of
an organisation. The understanding of the accounting system and its procedures would be
helpful to formulate effective audit plans and procedures. The internal auditor would be able
to find weaknesses in the internal control and help fix the accounting policies.

• Special Investigation: The purpose of an internal audit may be to conduct a special

investigation concerning any business matter. An internal audit may be used as a tool to find
the effectiveness of the function of the management.

Characteristics of Internal Audit

• An internal audit is an audit which is performed to ensure that the system of internal controls
instituted by the management of a company is functioning in the manner intended by the key
managerial personnel of the company and also for the welfare of the members of the
company.

• An internal audit takes into consideration the question of whether the business practices
deployed by the officers of the company are helpful in prudently managing the business and
meeting the strategic objective of the organisation.

• An internal audit can cover both operational as well as financial issues. However, the process
of internal audit is generally understood to be a limited one and managed by any qualified
person who can audit the governance of an organisation and the methodology by which it
assesses and manages the risks faced by it in the dynamic business environment. The internal
auditor by means of the internal audit process is responsible for reporting to the management
or audit committee of the company.

• Internal audit is a function that, even though operating independently from other departments
and involves reporting directly to the audit committee, remains within an organisation, i.e.
the company’s employees.

• Internal audits involve performing audits of both financial and non-financial nature within a
wide of areas of operation in business, including those that are directed by the annual audit
plan.

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• Internal audit deals with the main risks facing the business and the action being taken to
manage those risks in an effective manner so that the organisation can achieve its various
objectives. For example, the internal audit process evaluates the risks threatening a
company’s reputation such as the employment of cheap labour in foreign countries, or the
strategic risks such as producing too many products in comparison to available resources.

• The internal audit is limited to the governance of an organisation, management controls over
the operations of an organisation and risk management.

• The internal audit is conducted based on the personal resolve of the business owners to
measure the operation’ efficiency as conducted by the business.

Functions of Internal Audit

The functions of internal audit and its role is to verify the existence of assets and recommend
appropriate safeguards for their protection. Evaluating the adequacy of the internal control system
and recommending control improvements.

In addition, the functions of Internal Audit is to evaluate compliance with policies and procedures,
as well as sound business practices. Examine its adherence to state and federal laws, as well as
contractual obligations. Examining operations/programs to determine whether results are consistent
with established objectives and whether operations/programs are being carried out as planned, as
well as investigating reported instances of fraud, embezzlement, theft, waste, and so on. The
functions of internal audit to educate management and employees on how to improve business
operations and efficiency.

International auditing standards define the internal audit activity assessment as an entity organized
as a service to it.
Internal audit functions are among others:
- examination
- evaluation
- monitoring the adequacy and effectiveness of internal control.

Internal audit review the entity's activities and services, primarily to improve them. It leads to strict
policies and procedures established by that entity and it is not limited to financial matters.
Internal audit is:
- a permanent review of the entity's economic activity ;
- an independent appraisal activity for the economic entity's management, by
examining the financial operations, accounting and other services on all;
- an evaluation of conformity assessment tasks and accounting records,
reports, assets, capital and results ;

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- a certificate or certification of financial accounting documents .

Internal audit is a function of the entity's control structure. It should not be
confused with the entity's internal control structure. The two departments are separate and
independent, not being in the relationship of subordination.

Those responsible for carrying out internal audits, coordination of work or commitments, the
signing of internal audit reports must be of Internal auditing.

Internal auditors are permanent employees of the entity and are directly responsible to the entity's
management or the General Assembly of Shareholders.Internal Auditor: advise, assist, recommend,
but not decide, his obligation is to provide a means to improve the control that each manager has on
his activities and those in coordination to achieve goals.

Internal Audit Process

An internal audit should have four general phases of activities—Planning, Fieldwork, Reporting,
and Follow-up. The following provides a brief synopsis of each phase.

I. Planning

How do you start an internal audit? Each internal audit should start with a plan. During the planning
process, the internal audit team will define the scope and objectives. This helps you determine what
should the internal audit focus on. Once the scope is determined, the following steps should be
implemented:

• The internal audit team should set internal audit requirement(s).

• Review guidance relevant to the audit (e.g., laws, regulations, industry standards, company
policies, procedures, etc.).
• Review the results from previous audits.
• Set a timeline and budget for the audit.
• Create an audit plan and internal audit checklist(s) to be executed.
• Identify the process owners to involve.
• Schedule a kick-off meeting to commence the audit.

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II. Fieldwork

How do you do an internal audit? Fieldwork is the actual act of auditing. Throughout this phase, the
audit team will execute the audit plan. This usually includes:

• Interviewing key personnel to confirm an understanding of the process and controls.

• Reviewing relevant documents and artifacts for an example of the execution of controls.
• Testing the controls for a sample over a period of time.
• Documenting the work performed.
• Identifying exceptions and recommendations.

III. Reporting

As you might guess, an internal audit will draft the audit report during the reporting phase. The
report should be written clearly and succinctly to avoid misinterpretation and to encourage the
intended audience to actually read and understand the report. Findings should be accompanied by
recommendations that are actionable and lead directly to process improvements. The process of
issuing an internal audit report should include:

• Drafting the report.

• Reviewing the draft with management to ensure the accuracy of findings.
• Issuing and distributing the final report.

IV. Follow-up

The final stage is an important one that is often overlooked and neglected. Following up is critical
to ensure that the recommendations have been implemented to address the findings identified. This
process should include appropriate follow-up with process owners needing to implement the
recommendations as well as Board oversight of the company’s overall status in addressing findings
identified by the internal audit. If an organization fails to follow up on the implementation of
recommendations, it is unlikely that the changes will be made.

Internal audit assignments are made based on plan. The draft audit plan is prepared by the internal
audit department, based on risk assessment and by taking suggestions from the head entity, in
consultation with higher-level government entities, taking into account the recommendations of the
Court of Auditors. The head of the public entity approves the draft internal audit plan. The internal
auditor carries out ad hoc audits, internal audit assignments that exceptional, not included in the
annual internal audit plan.

In carrying out audits, internal auditors carry out their activities based on work order issued by the
Head of Public Internal Audit Department, which explicitly states the goals, objectives, type and
duration of the internal audit, nominating and audit team.

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Internal audit assignments may be the main objectives:

- procedures and operations to ensure compliance with rules, regulations and laws -

a regular audit (an audit of this type is exemplified in this seminar notebook);

- assessing the depth of management and internal control in order to remove any

irregularities and shortcomings of the public entity - the audit system;

- examining the impact of the set objectives and desired quality of the public in terms

of the criteria of economy, efficiency and economy - performance audit.

Mission objectives are statements prepared by auditors that define what they

have set out to achieve during the mission.

Public Internal Audit Department shall notify the structure that will be audited,

15 days before the onset of engagement and it will include the purpose, key objectives and duration
of the mission.

Public Internal Audit Department shall also notify, topic in detail, joint cooperation program, and
the periods in which the interventions on the spot, according to methodological norms.

The internal auditors have access to all data and information, including electronic ones, which it
considers relevant for the purpose and objectives specified in the order of service.

Management and executive staff of the auditee is required to provide documents and information
required within the timescales, and all the support needed to carry out properly the public internal
audit.

Internal auditors may request data, information and copies of documents certified by natural and
legal persons in connection with the auditee, and they have the obligation to provide the requested
date.

The authorized representatives of the European Commission and European Court of Auditors shall
have the rights equivalent to those provided for internal auditors in order to protect the financial
interests of the European Union; they must be authorized to that effect by a written authorization, to
prove their identity and position, and a document indicating the object and purpose of inspection or
spot inspection.

Whenever the public internal audit narrowly specialized knowledge is required, the head of internal
audit department can decide whether to contract for expert services / advice outside the public
entity.

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Benefits of Internal Audit

The following are the benefits of conducting an internal audit in an organisation -

• Proper Accounting Systems: Internal audits introduce an appropriate system of accounting.

An accounting system comprises of a chain of activities in a company by which transactions
are processed in order to maintain financial records. To achieve desirable results, a need for
orderly devices is required, and that can be achieved through internal auditing.

• Better Management: Internal audit ensures that there is better management of the business in
the organisation. An auditor would be able to point out the areas of weakness in the
management. The objectives of the business can be achieved if there is a proper internal
control, internal check and internal audit. It should be noted that the management has the
option to rely on internal audit for the best results completely.

• Progressive Review: The progress of the business can be reviewed with the help of an
internal audit. The figures from the previous years are compared to those of the present year.
The performance result of various other similar companies can be considered and compared
to in order to determine the progress of the entity. An internal audit helps the management to
review the growth of the entity.

• Effective Control: An internal audit is essential in order to retain effective control over
business activities. Control comes under the functions of management and is related to the
supervision and direction of ongoing operations. The concerned manager can make the
necessary changes according to the internal audit and remove the difficulties for the smooth
working of a business.

• Assets Protection: The protection of assets is possible through an internal audit. The
management has the option to only use the assets for the benefit of the business and not for
private purposes. Internal auditing keeps an eye on embezzlement of cash, misappropriate
use of stock and misuse of other assets from ever occurring.

• Division of Work: An internal audit can be conducted to apply the division of labour. This is
necessary in order to watch the activities of every employee, including the members of the
management. The auditor may choose to suggest a way and means on how to improve the
performance of the business.

• No Error and Fraud: Internal audits can be conducted to protect the accounting records from
errors and fraud. Accounting and auditing in a company go hand in hand as the latter begins
when the former is done. In such situations, the mistakes and deceptions committed by
accounting personnel would be detected and rectified easily.

• Fixing Responsibility: Internal audits would be able to set the responsibilities of employees
having poor performances. The management would establish performance standards, and the

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internal auditor can evaluate the result of all the employees. This way, the concerned
individuals can be held responsible for their work that does not meet the standards of the
company, and appropriate changes could be taken.

• Helps External Auditing: The work performed by an internal auditor would be a great help to
an external auditor in conducting the audit. The audit procedure of the internal and external
audit is very similar. However, an external auditor would be responsible for an external audit
even if they choose to go through the internal audit report.

• Improved of Performances: An internal auditor would be helpful in improving the

performance of the organisation. The company’s achievements in the previous year would be
the basis of the budget preparations for the present year by drawing up income statements
and balance sheets. Therefore, an internal audit improves the performance of a business and
its employees.

• Proper Use of Resources: The check on the appropriate use of resources is maintained
through an internal audit. The misuse of resources would undoubtedly lead to an increase in
costs for the organisation. The optimum use of resources in a company could be determined
with the control of the cost of output. Internal audits can be considered as a tool to use the
resources of a company in the best interests of the business.

• Investigation: Internal audits help to investigate various matters of the business. In situations
that bring doubts, the internal auditor can be given the responsibility to examine the facts and
figures to confirm. Such investigations can be conducted at the request of the management of
the company.

Limitations of Internal Audit

The following are the limitations of an internal audit -

• Staff Shortage: One of the few limitations of an internal audit is the shortage of staff. A
reasonable audit staff is required to examine the records and conduct a proper internal audit.
The lack in the team would restrict the organisation from reaping the benefits of the internal
audit.

• Time Lag: As internal audits begin when accounting end, there is a significant time lag
between the recording and the checking of the entries.

• Error: The limitation of an internal audit is that there may be undetected errors that remain in
the books of accounts as it depends upon the expertise of the internal audit staff. If an audit
staff is experienced and competent, the chances for an error to go undetected would be very
less. In the case of poor audit staff, there would be no guarantee if the audited accounts are
free from errors.

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• Responsibility: The limitation of an internal audit is that management does not feel that it is
their responsibility to complete the formalities of the audit. The audit staff could offer

suggestions for the proper functioning of a business. However, the top-level management
would not necessarily pay attention to the suggestions offered, which would be of no help or
a loss to the company.

• Duties: The whole purpose of an internal audit may fail if the duties of the audit staff are not
adequately divided and implemented by using a method that would ensure the optimum
utilisation of organisational resources.

Internal Control

A system of internal control is a set of policies and procedures that an organization can use to
provide reasonable assurance that the organization achieves its objectives and goals. Generally,
these controls include segregation of duties, limiting access to cash or sensitive data, management
reviews and approval, and reconciliations.

A company’s internal audit function assesses the effectiveness of its internal control system through
internal audits. The board’s audit committee assesses whether the controls are appropriately
designed, implemented, and working as intended. Typically the ultimate objective of an internal
audit is to prepare for an external audit.

External auditors have an independent perspective when evaluating an organization’s control

environment and control processes. The auditor’s report states an opinion about the strength of
internal controls and makes recommendations for improving any substandard controls. The
organization should then resolve the findings and implement corrective actions within a timely
manner.

Effective internal controls and periodic auditing are crucial to verify the reliability of financial
reporting and confirm compliance with laws and regulations. In addition, organizations can leverage
a robust system of internal controls to improve operational efficiency and reinforce ethical values.

The auditing profession generally uses the Committee of Sponsoring Organizations (COSO)
framework known as the Internal Control-Integrated Framework (COSO framework) to provide a
definition of internal control.

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According to the COSO internal controls framework, the internal control system is driven by an
organization’s board of directors and senior management, designed to provide reasonable assurance
for the achievement of objectives in:

• Effectiveness and efficiency of operations;

• Reliability of financial reporting;
• Compliance with applicable laws and regulations.

Internal controls are important for preventing and mitigating risk events. They protect your
company’s ability to maintain operations should an event occur. There are three kinds of internal
controls: preventive controls, detective controls, and corrective controls.

Preventive internal controls are ideal because they stop errors and problems from happening in the
first place. Segregation of duties reduces fraud risk by assuring that no single person has too much
power in an organization. Many applications have preventative controls built into forms, such as
only allowing numeric values in a field for phone numbers.

Detective controls identify errors and problems after those issues have occurred but before they
have caused severe damage. Internal audits, reviews, reconciliations, financial reporting, financial
statements, and physical inventory counts are all examples of detective controls.

Corrective controls are implemented to fix problems found by detective controls. Potential
corrective actions include employee discipline, software patches, updated policies, and new
preventative controls. A short-term corrective action may resolve the immediate issue, and then
another long-term corrective action may be put in place to avoid future occurrences.

As described in the COSO framework, an internal controls system consists of five components.

i. Control Environment

The board of directors and top management build the culture and set the tone from the top for the
company, which other employees are then expected to follow. The control environment is vital
because it supports the other components of internal control.

ii. Risk Assessment

Periodic risk assessments identify and analyze relevant risks that affect an organization’s ability to
achieve its goals and objectives. The assessment’s results form the basis for determining where
internal controls must be prioritized and implemented.

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iii. Information and Communication

Systems and processes must effectively support identifying, capturing, and exchanging information
in a manner and time horizon that enables people to do their jobs. If information does not flow
smoothly, employees may try to avert internal controls to simplify workflows.

iv. Control Activities

These are policies and procedures enforced to assure management’s directives are carried out.

v. Monitoring

Continuous monitoring and audits verify that internal controls are performing as expected over
time.

Internal Audit Responsibilities

Internal auditors have a very important job to do — one with varied roles and responsibilities.

The internal audit function itself can vary greatly depending on the organization’s size and industry.
Some departments have hundreds of staff members working around the globe. Others have just one
or two internal auditors. And some organizations outsource or co-source the internal audit function.

Depending on the structure, maturity, and resources of the function, internal auditors may perform
some or all of the following tasks.

OFFER INSIGHT AND ADVICE – There are times when internal auditors’ expertise, knowledge
of controls, and broad perspective of the organization make them ideal candidates for consulting on
a project to ensure that risks are considered and controls are built into a process on the front-end
(e.g., mergers and acquisitions, new technology implementation).

Internal auditors may offer insight regarding strategic risks and advice, though management must
maintain ultimate responsibility for the processes in their area.

EVALUATE RISKS – Risks are everywhere (natural disasters, loss of key suppliers, reputation
damage, inefficient operations, fraud, lawsuits, policy violations, regulatory compliance, theft, etc.).
It’s the internal auditor’s job to assess the significance of the organization’s many risks and the

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effectiveness of risk management efforts, communicate these to management and the board, and
develop recommendations to improve risk management.

ASSESS CONTROLS – Internal auditors evaluate control efficiency and effectiveness and provide
management and the board assurance that the controls in place are adequate to respond to the risks
that threaten the organization.

ENSURE ACCURACY – Internal auditors ensure financial statement accuracy. They examine the
reliability and integrity of financial and operational information.

IMPROVE OPERATIONS – With a solid understanding of the organization’s objectives, internal

auditors examine operations to determine whether they are efficient and effective.

PROMOTE ETHICS – Professional internal auditors agree to abide by a Code of Ethics that
upholds the principles of integrity, objectivity, confidentiality, and competency. They raise red flags
when they discover improper conduct.

REVIEW PROCESSES AND PROCEDURES – Internal auditors review operations closely

and assess whether existing processes are well designed to help the organization achieve its goals.

MONITOR COMPLIANCE – Internal auditors assess the organization’s compliance with

applicable laws, regulations, and contracts to ensure that management is addressing these
requirements adequately. They also offer insight into the impact that noncompliance would have on
an organization and inform senior management and the board of noncompliance.

ASSURE SAFEGUARDS – The organization’s tangible property, human resources, and

intellectual property are valuable and must be guarded against potential damage. Internal auditors
evaluate the procedures used to safeguard assets from theft, fire, illegal activities, or other types of
loss. They bring deficiencies to light and make recommendations for enhanced protection.

INVESTIGATE FRAUD – Because fraud can affect any level of the organization, it’s
important that the board of directors grants the internal audit function access to all records and
authority to conduct audits and investigate possible fraudulent behaviour throughout the
organization.

COMMUNICATE RESULTS – After auditing a particular area, internal auditors report their
findings and recommend appropriate courses of action.

Some other responsibilities of internal auditors also include

• The internal audit shall attend the meetings with an understanding to develop the business
process.

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• Shall Travel to the different sites to get all information from various staff members.

• Shall provide ad hoc advice and guidance to managers and staff at all levels.

• Shall provide support and guidance to management on how to handle new opportunities.

• Shall manage a variety of stakeholders and their expectations through regular

communications.

• Shall assess how well the business is complying with rules and regulations and informing
management whether any issues need addressing

• Possess strong analytical and problem solving abilities

• Manage a team of internal quality auditors
• Evaluate production processes for compliance with quality requirements
• Periodically inspect and calibrate auditing tools (e.g., scales, calipers)
• Assist in development of audit plans, audit schedules
• Participate in quality audits (and lead a team of quality auditors, when needed)
• Identify processes, situations, etc., where organization is meeting requirements, as well as
identify opportunities for improvement
• Assist audit team in developing audit reports; present audit reports to top management, as
needed
• Assist with follow-up audits, as required
• May be required to develop internal auditing/testing parameters
• Prepare the plan of audit activities
• Identify and establish the criteria, scope, and objects of the audit to be held.
• Check and report the audit requirements that are yet to be met.
• Concludes the audit planning phase by conveying the entire plan to the concerned client as
well as the audit team comprising internal auditors.
• Assign different roles amongst internal auditors.
• Facilitates clear communication with the auditee from the initial planning stage to final
execution.
• Ensures that the auditee understands and approves the management’s requirements.
• Plays the role of chairperson in an audit’s opening meeting.
• Planning a meeting before the audit closure is also executed by a lead auditor.
• Perform the task of reaching a conclusion derived from audit findings and their discrepancies.

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• Chairs the closing meeting and produces the audit findings to the auditee in the form of a
presentation.

This designation is accompanied by an array of significant duties that calls for appropriate respect
and remuneration. Lead Auditor is the most lucrative and prestigious job to opt for if an individual
is proficient in handling the aforementioned tasks.

What is a sales audit?

A sales audit is your opportunity to evaluate your sales process and identify ways to fine-tune your
approach to help your business hit its revenue goals.

While the word “audit” makes the task sound a little intimidating, in reality, it’s relatively
straightforward. While carrying out your sales audit, you’ll scrutinise the various elements of your
process – from initial prospecting to product demos and pitch meetings – to discover the bottlenecks
or missing parts that are preventing you from closing more deals.

Despite its name, the sales audit shouldn’t solely involve the sales function. Marketing needs to be
involved, too. While your marketing strategy isn’t part of the sales audit, input from both teams can
help to build stronger bonds and encourage more effective collaboration, which in turn can improve
sales performance.

By design, much of the sales audit is based on quantitative data. You want to use cold, hard
numbers to understand exactly where prospects are dropping out of your sales funnel. But many
organizations also introduce a qualitative element to the sales audit, speaking to customers and
prospects who’ve been through the sales process (either successfully or unsuccessfully) to gain an
outside perspective.

Steps to conduct a sales audit

There’s no one-size-fits-all approach to sales audits. Rather, they should be tailored to fit the
specific goals and requirements of your business. However, the following steps should be included
in every sales audit:

1. Evaluating your existing sales process

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No matter how detailed your sales process is, there will almost certainly be gaps between the
moment you first identify a prospect and the point when they sign on the dotted line. Actively look
for problems at every step. For instance:

• Are you doing enough follow up with prospects who don’t respond to your initial cold
outreach?

• Are you sharing the right content assets to nurture prospects through the buyer journey?

• Are you getting the right people involved in your product demos?

2. Reviewing your sales stack

Today, virtually every sales team relies on a wide range of tools to perform essential sales tasks. An
average sales team might use:

• A CRM to track progress, manage lead information, and display sales analytics

• Email automation software and a sales dialer for cold outreach

• A list-building and segmentation tool to ensure the right content reaches the right prospects

• A project management tool to enable effective collaboration with marketing

• A video-conferencing tool for product demonstrations

3. Examining your sales collateral

Content plays a crucial role in the sales process. Consider the following statistics:

• The average B2B decision-maker spends at least one hour a week reading thought leadership
content

• 73% of B2B marketers and sales leaders say webinars are an effective way to generate high-
quality leads

• 92% of B2B buyers are more likely to purchase after reading a trusted review

In other words, without high-quality case studies, testimonials, ebooks, and webinars – and various
other content types, too – it becomes much harder for your sales reps to convert prospects into
paying customers.

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Examine your sales content as part of the sales audit. Is it of a high enough standard? Are you
missing any key assets? Is it effectively personalized toward your buyer personas?

4. Rating your lead quality

In an ideal world, your reps would spend the vast majority of their time and effort speaking to the
leads who are most likely to buy.

However, in reality, this might not be the case. Plenty of sales teams waste a lot of resource
answering questions and dealing with objections from prospects who just aren’t a good fit for their
product. They might not have the budget, they may have an overly complex buying process, or they
might not have an immediate need for a solution.

Rate your current lead quality. If it’s missing the mark, consider introducing a lead-scoring system
(or if you already have one, consider tightening it up).

5. Generating customer feedback

Don’t rely solely on your own analysis and opinions – listen to people who’ve actually been
through your sales process, whether or not they ultimately bought. Find out how the process looked
from their perspective, and where they feel it could be improved.

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Automotive Industry

The automotive industry comprises a wide range of companies and organizations involved in the
design, development, manufacturing, marketing, and selling of motor vehicles. It is one of the
world's largest industries by revenue (from 16 % such as in France up to 40 % to countries like
Slovakia). It is also the industry with the highest spending on research & development per firm.

The Indian automobile industry has historically been a good indicator of how well the economy is
doing, as the automobile sector plays a key role in both macroeconomic expansion and
technological advancement. The two wheelers segment dominates the market in terms of volume,
owing to a growing middle class and a huge percentage of India’s population being young.
Moreover, the growing interest of companies in exploring the rural markets further aided the growth
of the sector. The rising logistics and passenger transportation industries are driving up demand for
commercial vehicles. Future market growth is anticipated to be fuelled by new trends including the
electrification of vehicles, particularly three-wheelers and small passenger automobiles.

Automotive industry in India is one of the main pillars of the economy. With strong backward and
forward linkages, it is a key driver of growth. Liberalization and conscious policy interventions over
the past few years created a vibrant, competitive market, and brought several new players, resulting
in capacity expansion in automobile industry and generation of huge employment. Aptly, the sector
was christened as the ‘Sunrise Sector’ of the economy. The contribution of this sector to the
National GDP, rose from 2.77% in 1992-93 to about 7.1% now. It provides direct and indirect
employment to over 19 million people. India is fast turning into a global automotive hub. However,
the sector displays an uneven growth trajectory, at first taking a hit in 2007-08, then showing
marginal recovery, both in terms of sales as well as in production next year, that led to a dramatic
increase of 25-27% in 2009-10 and 2010-3.5.

However, for the last two financial years in continuation, the industry has gone into recession.
Barring the scooter segment, each and every other vehicle segment showed negative growth in the
year 2013-14, commercial vehicles being the most effected with (-)21% growth in production and
passenger vehicles showing a growth of (-) 4.6% indicating reduced demand among the common
people who would have aspired to buy a passenger car. Even commercial passenger carriers have
shown negative growth in production to the tune of (-)19.86% directly impacting the growth of
public transportation. After a capacity creation of Rs 2200 cr in 2011-12, the automotive industry is
now suffering from excess capacity and suppressed demand leading to lay-offs. Some of the areas
causing distress in the automotive sector are: slowdown in economic growth, high cost of vehicle
finance, high interest rates, high fuel prices, high inflation and negative market sentiments, increase
in the commodity prices, high customs duty on Alloy Steel, Aluminium Alloy and Secondary

Aluminium Alloy, high rate of service tax and excise duty, high and varied rate of road taxes in the
States, low growth of export markets etc.
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Ministry of Heavy Industries and Public Enterprises has been consistently taking up the matter of
providing some kind of stimulus package with prompt fiscal and other measures to put the industry
back on track. As a result, in the interim budget for the year 2014-15, reduction in excise duty in
case of cars, two wheelers and truck chassis was announced. Further, some other measures are
urgently required to be taken, such as, removal of customs duty of raw materials such as steel.
Aluminium etc. revisit of CENVAT rules, review of import policy, duty draw back schemes, excise
and customs rules, direct tax benefit to promote automotive R&D, and , above all, containing
inflation and control of interest rates to make loans more affordable to the people etc. Immediate
steps are required so that the Indian Auto Industry once again becomes the engine of growth of the
Indian manufacturing sector.

World Motor Vehicle Production

Production volume (1000 vehicles)

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Global Luxury Cars Market

Luxury cars are gaining immense popularity among consumers due to the features such as
entertainment systems, integrated seat massagers and automatic safety features. Luxury vehicles are
known to possess high-end material and finishes of the car.

The global luxury car market size reached US$ 424.5 Billion in 2022. Looking forward, IMARC
Group expects the market to reach US$ 565.6 Billion by 2028, exhibiting a growth rate (CAGR) of
4.9% during 2023-2028.

Luxury cars are premium, technologically advanced motor vehicles that provide high-quality
interiors, better performance, and several safety features. They also offer superior quality, improved
comfort and innovative services at a higher price compared to economy and mid-sized cars. They
are usually equipped with leather seats, maps, cameras, and upgraded suspension and engines.
Besides this, they include anti-kidnapping heartbeat monitor, top speed key, jump seat, trunk hinges,
starlight headliner, gear selector, pop-up tweeters, air vent slats and other features. As a result,
luxury cars are gaining traction around the world.

Significant increase in tangible luxury offerings within a vehicle and rising disposable incomes of
individuals are shifting consumer preferences towards luxury car brands. This represents one of the
key factors propelling market growth. Apart from this, due to growing environmental concerns,
governing agencies and environmental associations of several countries are reinforcing emission
norms. Consequently, there is a rise in the demand for sustainable and eco-friendly transportation,
such as electric luxury vehicles across the globe. The market is also driven by the rising adoption of
pre-owned luxury cars on account of the easy access to financing, lower entry prices, and annual
maintenance contracts. Furthermore, leading manufacturers are coming up with next-generation
smart mobility technologies, such as personal voice assistance, autonomous driving, and retina
recognition. They are also extensively investing in research and development (R&D) activities to
integrate artificial intelligence (AI) and machine learning (ML) technologies, which is creating a
favourable market outlook.

Passenger Car accounts for the largest ICE vehicle type segment owing to the increasing consumer
preference for economic options. In addition to the market insights such as market value, growth
rate, market segments, geographical coverage, market players, and market scenario, the market
report curated by the Data Bridge Market Research team also includes in-depth expert analysis,
import/export analysis, pricing analysis, production consumption analysis, and pestle analysis.

Luxury vehicles can be defined as the type of vehicles that have the most amounts of features
available in the vehicle at a high amount of price. They help in providing the drivers and passengers
with a high amount of ease and also have the highest quality of materials in the vehicle production.
The production process of these vehicles is carried out with the utmost quality.

The luxury car market is analyzed and market size insights and trends are provided by country,
vehicle type, drive type and fuel type.

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The countries covered in the luxury car market report are the U.S., Canada and Mexico in North
America, Brazil, Argentina and Rest of South America as part of South America, Germany, Italy,
U.K., France, Spain, Netherlands, Belgium, Switzerland, Turkey, Russia, Rest of Europe in Europe,
Japan, China, India, South Korea, Australia, Singapore, Malaysia, Thailand, Indonesia, Philippines,
Rest of Asia-Pacific (APAC) in the Asia-Pacific (APAC), Saudi Arabia, U.A.E, South Africa,
Egypt, Israel, Rest of Middle East and Africa (MEA) as a part of Middle East and Africa (MEA).

North America dominates the luxury car market because of the introduction of advanced technology
along with rising number of research and development activities within the region.

Asia-Pacific (APAC) is expected to witness significant growth during the forecast period of 2022 to
2029 due to the prevalence of incentives in the form of subsidies from the government for the
adoption of electric vehicle in the region.

The country section of the report also provides individual market impacting factors and changes in
market regulation that impact the current and future trends of the market. Data points such as down-
stream and upstream value chain analysis, technical trends and porter's five forces analysis, case
studies are some of the pointers used to forecast the market scenario for individual countries. Also,
the presence and availability of global brands and their challenges faced due to large or scarce
competition from local and domestic brands, impact of domestic tariffs and trade routes are
considered while providing forecast analysis of the country data.

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COMPANY PROFILE OF MERCEDES

Mercedes-Benz commonly referred to as Mercedes and sometimes as Benz, is a German luxury

and commercial vehicle automotive brand established in 1926. Mercedes-Benz AG (a Mercedes
Benz Group subsidiary established in 2019) is headquartered in Stuttgart, Baden-Württemberg ,
Germany. Mercedes-Benz AG produces consumer luxury vehicles and commercial vehicles badged

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as Mercedes-Benz. From November 2019 onwards, Mercedes-Benz-badged heavy commercial

vehicles (trucks and buses) are managed by Daimler Truck, a former part of the Mercedes-Benz
Group turned into an independent company in late 2021. In 2018, Mercedes-Benz was the largest
brand of premium vehicles in the world, having sold 2.31 million passenger cars.

Germany is the hometown of many luxury automakers and Mercedes-Benz is one out of it. Models
built by Mercedes-Benz are built with the motive of ‘The Best Or Nothing.’ It is a fact that
Mercedes-Benz is the most sold premium car across the world in 2018. In India, Mercedes-Benz
has huge demand, where buyers like you wait for the right moment. The Mercedes-Benz is not only
a transport vehicle but art that automakers and its drivers can feel into.

Mercedes-Benz has all the fancy dream cars you can ask for. Take the S-Class model, which is
formerly known as SonderKlasse (Special Class). The product line of the S-Class consists of full-
size luxury sedans, limousines, and armored sedans. Hence, You get a wide range of options such as
rear-wheel and all-wheel drive with 449hp 4.7-liter twin-turbo V8 engine and 523hp 6.0-liter twin-
turbo V12 for both. It offers diesel and 3 petrol engines with plug-in Hybrid. The mileage varies
based on the model and fuel type, also you get an automatic transmission. The body of the S-class
looks stylish and big for a comfortable room inside.

Moreover, the A-Class started in 1997 with a hatchback and is now in its fourth generation. It is the
first time that the A-Class has been offered as a hatchback and sedan. Also, it is a subcompact
executive range of cars with a front-mounted engine and front-wheel drive. The design is very
detailed and it has a diamond grille on the front which makes it look aesthetic. You get dual variants
of petrol and diesel with decent mileage. The A-Class is the complete family luxury, and best
suitable for long drives.

History of the Company

‘It’s not the idea, it’s the implementation that counts.’

Mercedes-Benz traces its origins to Karl Benz's creation of the first internal combustion engine in a
car, seen in the Benz Patent Motorwagen – financed by Bertha Benz's dowry and patented in
January 1886 – and Gottlieb Daimler and their engineer Wilhelm Maybach's conversion of a
stagecoach, with the addition of a petrol engine, introduced later that year. The Mercedes
automobile was first marketed in 1901 by Daimler Motoren Gesellschaft (DMG).

Emil Jellinek, a European automobile entrepreneur who worked with DMG, registered the
trademark in 1902, naming the 1901 Mercedes 35 hp after his daughter Mercedes Jellinek. Jellinek
was a businessman and marketing strategist who promoted "horseless" Daimler automobiles among
the highest circles of society in his adopted home. At the time, it was a meeting place for the haute
volée of France and Europe, especially in winter. His customers included the Rothschild family and
other well-known people, but Jellinek's plans went further, and as early as 1901, he was selling

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Mercedes cars in the "New World", as well, including United States billionaires Rockefeller, Astor,
Morgan, and Taylor. At the Nice race he attended in 1899, Jellinek drove under the pseudonym
"Monsieur Mercédès" as a way of concealing his less fancy real name. Many consider that race the
birth of Mercedes-Benz as a brand. In 1901, the name "Mercedes" was re-registered by DMG
worldwide as a protected trademark. The first Mercedes-Benz branded vehicles were produced in
1926, following the merger of Karl Benz and Gottlieb Daimler's companies into the Daimler-Benz
company on 28 June of the same year.

Gottlieb Daimler was born on 17 March 1834 in Schorndorf. After training as a gunsmith and
working in France, he attended the Polytechnic School in Stuttgart from 1857 to 1859. After
completing various technical activities in France and England, he started working as a draftsman in
Geislingen in 1862. At the end of 1863, he was appointed workshop inspector at a machine-tool
factory in Reutlingen, where he met Wilhelm Maybach in 1865.

Throughout the 1930s, Mercedes-Benz produced the 770 model, a car that was notably popular
throughout Germany's Nazi period. Adolf Hitler was known to have driven in a model of this car
during his time in power, with modified custom bulletproof windshields. Most of the currently
surviving 770 models were sold at auctions to private buyers. One of the cars is currently on display
at the War Museum in Ottawa, Ontario. The pontiff's Popemobile has often been sourced from
Mercedes-Benz.

From 1937 onward, Daimler Benz focused increasingly on military products such as the LG3000
lorry and the DB600 and the DB601 aero engines. To build the latter, in 1936, it built a factory
hidden in the forest at Genshagen around 10 km south of Berlin. By 1942, the company had mostly
stopped producing cars, and was now devoted to war production. According to its statement, in
1944, almost half of its 63,610 employees were forced labourers, prisoners of war, or concentration-
camp detainees. Another source quotes this figure at 46,000. The company later paid $12 million in
reparations to the labourers' families.

In 1958, the two companies began a partnership to sell their cars in the United States with
Studebaker. A few American-based Daimler Benz dealerships were converted into Mercedes-Benz
dealerships when Daimler's non-Mercedes-partnered company closed in 1966.

Over the decades, Mercedes-Benz has introduced many electronic and mechanical innovations and
safety features that later became common. Currently, Mercedes-Benz is one of the best-known and
longest-standing automotive brands in the world.

In November 2019, Daimler AG announced that Mercedes-Benz, until that point a company
marque, would be spun off into a separate, wholly owned subsidiary called Mercedes-Benz AG. The
new subsidiary would manage the Mercedes-Benz car and van business. Mercedes-Benz-badged
trucks and buses would be part of the Daimler Truck AG subsidiary.

For information relating to the three-pointed star symbol of the brand, see under the title Daimler-
Motoren-Gesellschaft, including the merger into Daimler-Benz.

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In May 2022, Mercedes-Benz announced that it has recently sold the most expensive car at the price
of $142 million. The car is a very rare 1955 Mercedes-Benz SLR that has been kept in the German
automaker's collection and bought by a private owner. Mercedes in an announcement said that the
sale will be used to establish the Mercedes-Benz Fund.

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Subsidiaries & Brands

Classical brand: Mercedes-Benz

The Mercedes-Benz brand came into being in 1926 as a result of the merger of Daimler-Motoren-
Gesellschaft and Benz & Cie.

The first vehicles were sold by the Daimler-Motoren-Gesellschaft (DMG), which had been founded
in 1890, but not under the name Mercedes. This brand name only came into being around the turn
of the century, when the businessman Emil Jellinek, who starting dealing in Daimler vehicles in
1898, took part in the Nice Race Week in 1899 under the pseudonym Mercedes. This was based on
the name of his daughter Mercédès Adrienne Manuela Ramona Jellinek. The driver’s name became
known in connection with DMG, and in 1900 Jellinek signed an agreement on the development of a
new, powerful engine model for the ‘ Daimler-Mercedes’ – the first time the name Mercedes had
been used as a product name.

Following the racing success of several of these ‘Mercedes’ vehicles in 1901, the name became so
well known that DMG had it protected as a brand name in 1902. On 24 June 1909, the company
applied for protection of the familiar Mercedes star as a registered design. And on 6 August 1909
Benz & Cie gained legal protection of the logo ‘Benz’ surrounded by a laurel wreath.
Looking back, the fact that both manufacturers registered their new brand logo in the summer of
1909 has a certain symmetry with the year 1886, when Gottlieb Daimler and Carl Benz, without
being aware of each other, both invented an automobile powered by a high-speed combustion
engine. 23 years on, the two – still competing – companies each set an example by creating new
logos for their respective vehicles.

The project to develop a special type of compact car was born of the oil crisis, which had even led
to the introduction of driving bans in Eurosope. It was this experience and an assessment of future
trends in traffic growth that made the engineers and designers in the Mercedes-Benz project team
realise the need to develop a particularly low-consumption, environmentally friendly and compact
vehicle for the urban centres of the future – but without making any concessions in terms of drive
comfort and safety. In 1981, nine years later, the NAFA (short distance vehicle) study was
presented. Based on the original idea from 1972, the vehicle represented a response to the problems
of crowded streets, scarce parking places and long tailbacks. After going through countless design
studies on paper and in modelling clay, a functioning 1:1 prototype was finally built. New features
included the lightweight construction with a high degree of rigidity, the vehicle’s dimensions – 2.5
m long, 1.5 m wide and high – and the fact that it weighed in at a mere 550 kg. Ideas developed for
the NAFA would be incorporated in the four-seater A-Class and the two-seater smart.

With the MCC (Mercedes City Car), as it was called during the development phase, the team solved
one of the biggest challenges in Mercedes-Benz vehicle development: how to design a micro-
compact electric vehicle a mere 2.5 m in length that had all the virtues and qualities of a genuine

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Mercedes-Benz, including passenger protection and a full range of innovations. The basic problem
of how to get the City Car to comply with the high Mercedes-Benz crash safety standards was
solved with a unique safety construction – later patented – developed in conjunction with the
Sindelfingen safety specialist Karl-Heinz Baumann.
The company smart was set up in 1994 under the title of Micro Compact Car AG in Biel,
Switzerland, as a joint subsidiary of Daimler-Benz, SMH SA (Société Suisse de Microélectronique
et d’Horlogerie) and Swiss entrepreneurs Nicolas G. Hayek – inventor of the Swatch watch. During
the development of the smart fortwo, which at the time was still called the ‘City Coupé’, Hayek left
the project and on 1 November sold his share to Daimler-Benz. In September 2002, Micro Compact
Car Smart GmbH was renamed smart GmbH. The administrative headquarters of smart were in
Böblingen, and production was in Hambach, France, near the border with the Saarland, and for a
while in Born in the Netherlands. On 1 October 2006 the workforce was integrated into the Stuttgart
company, and smart GmbH was disbanded on 31 December 2006.
The two-seater became increasingly popular, and by 2008, a mere 10 years later, the one million
threshhold for annual production was reached. During the course of 2009 the smart fortwo was also
launched in China, Brazil, Denmark, and Serbia, bringing to 41 the number of countries all over the
world in which it is sold. In September 2008, the second-generation smart fortwo electric drive was
introduced, and since late 2009, a small series of the electric car has been equipped with an
innovative lithium-ion battery.

Automobile luxury has a name: Maybach

The product strategy developed in Stuttgart aimed not only to satisfy the new austerity but also the
need for luxury: at the 1997 Tokyo Motor Show Mercedes-Benz presented its study for a
chauffeurs-driven Maybach limousine that offered all the luxury imaginable in a mobile
environment – right down to a reclining seat and state-of-the-art in-car entertainment and
communication system for the rear passengers. The vehicle was a tribute to Wilhelm Maybach, the
technical wizard and partner of Gottlieb Daimler in the early days of the automobile and his no less
talented son Karl Maybach, who built luxury saloons with a reputation for exquisiteness in the
1920s and 1930s. From 2002 onwards, the first saloons were delivered to customers from the
factory in Sindelfingen. Instead of the well-known star they bore a double M. on the radiator:
Mercedes-Benz had decided to revive the brand as a separate entity.

At the end of 2007, 10 years after the Maybach had first been presented in public, the landaulet
version was presented as a study. The reaction was so positive that from early 2008 onwards it was
built exclusively to order. The first vehicle was delivered to its new owner in November 2008.

From engine tuner to partner: Mercedes-AMG

In 1967, former Daimler-Benz employees Hans-Werner Aufrecht and Erhard Melcher set up a
tuning business for Mercedes-Benz vehicles in Burgstall near Stuttgart. They called it AMG – A
standing for Aufrecht, M for Melcher, and G for Großaspach, Aufrecht’s birthplace. From the very
outset they concentrated on tuning Mercedes-Benz models. In October 1990, Daimler-Benz and
AMG signed a contract of cooperation for the development, production, marketing and servicing of
cars and car components. And in 1993, the first jointly developed AMG high-performance car was
presented – the Mercedes-Benz C 36 AMG.

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In 1999, AMG Motorenbau und Entwicklungsgesellschaft mbH became Mercedes-AMG GmbH,

with Daimler holding a majority 51 per cent of the shares. And since 2005, Mercedes-AMG has
been a wholly owned subsidiary of the Stuttgart company. For the C-Class and above, AMGs
represent the top models in the Mercedes-Benz portfolio and can be ordered directly from
Mercedes-Benz dealers.

The AMG concept no longer just involves engine tuning and minor modification of the bodywork –
comprehensive alterations to the entire vehicle are now undertaken. ‘AMG — throughout the world,
these three letters embody cutting-edge technology, dynamism and exclusivity. The experience of
driving an AMG cannot be compared to anything else. After four successful decades, the brand now
more than ever symbolizes a unique driving experience,’ said Volker Mornhinweg, head of
Mercedes-AMG GmbH on the occasion of the 40th anniversary of the Daimler subsidiary in 2007.

Heavy-duty vehicles: Daimler trucks

On 1 October 1896, an entry in the records of Daimler-Motoren-Gesellschaft (DMG) in Cannstatt

reads as follows: ‘Motor truck order no. 81, vehicle no. 42, 4-hp 2-cylinder engine, overall weight
1,200 kg for 1,500 kg payload, Factura British Motor Syndicate Ltd. London.’ This laconic entry
represented a historic moment: ten years after the birth of the motor car, Gottlieb Daimler had built
the world’s first truck.

In 1896, Benz and Daimler were once again working on similar ideas. In the year of Daimler’s first
truck Benz also presented a ‘combination delivery car’ – the precursor of today’s delivery van. The
payload of the four-wheeled vehicle was 300 kg including the driver. At the end of 1897, Daimler
got back with his own version of a light truck. The ‘Daimler Business Car’ would today also be
classified as a van. And in 1900, Benz produced an entire family of what at the time would have
been regarded as heavy trucks, the heaviest model having a 5-tonne payload.

Today, the products manufactured by Daimler Trucks range from light, medium and heavy trucks
for long-distance freight, local delivery operations and construction site use to special vehicles for
local authority operations. The brand names are Mercedes-Benz, Freightliner, Western Star, and
Mitsubishi Fuso. Daimler Diesel and the North American school buses from ‘Thomas Built Buses’
also belong to Daimler Trucks, whereas Mercedes-Benz, Setra and Orion buses form a separate
segment and are listed in the financial report under ‘Vans, Buses, Other’. With revenues in 2008 of
almost 28.6 billion Euros and a workforce of some 80,000, this division represents a major
company within the company. In 2008, Daimler Trucks sold 472,074 vehicles and retained its
position as the world’s biggest manufacturer in the heavy and medium weight truck segment.

Go west: trucks in America

Daimler-Benz had been delivering trucks to North America since 1956, but only sporadically and in
small quantities. It was not until 1969 that exports began to increase and in 1971 as many as 532
medium-duty trucks were sent cross the Atlantic. However this all ended in 1973, when devaluation
of the US dollar against the deutschmark meant that every truck sold would make a loss. Despite the
fact that the Mercedes-Benz plant in Brazil stepped into the breach, this could not offer a permanent

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solution to the problem. In January 1979, a plant was therefore built in Hampton, Virginia/USA,
with a potential annual output of 6,000 trucks weighing between 9 and 15 tonnes.

In 1977, Daimler-Benz started by acquiring Euclid, a manufacturer of heavy trucks especially for
ore and coal mining as well as for large-scale construction sites ad quarries. But the company sold it
again in 1984 as it was making a loss.

Finally Daimler-Benz found its dream partner in the heavy truck category. In 1981, it acquired truck
builder Freightliner, which had a similar reputation in the USA as Mercedes-Benz brand trucks in
Eurosope and was especially strong in the long-distance segment. The company’s headquarters are
in Portland, Oregon, with further production facilities elsewhere in the USA and in Mexico. Today,
Freightliner is North America’s biggest heavy truck manufacturer.

In addition to this, Daimler Trucks North America also includes Thomas Built Buses in its portfolio.
With these school buses, Daimler – as before in the German truck market – was putting its faith in a
classic vehicle, and one that perfectly complemented the Freightliner chassis. The roots of the
school bus manufacturer go back to the year 1916 in High Point, North Carolina/USA, when
engineer Perley A. Thomas lost his job and was commissioned by the Southern Public Utilities
Company to service various vehicles. In 1918, he set up Perley A. Thomas Car Works, Inc., and
over the years this developed from a repair shop into a leading manufacturer of bodies for buses as
well as commercial bus bodies. In October 1998, Daimler acquired Thomas Built Buses (TBB),
which by then was producing almost 12,000 school buses per year and had a market share of 33 per
cent. Sales revenues were US$350 million.

Asia is a market with considerable potential – and high growth rates require strong support systems.
In 2001, DaimlerChrysler took over the ailing Japanese manufacturer Mitsubishi, and in 2005 sold
its share again. However Daimler AG retained the commercial vehicle subsidiary Mitsubishi Fuso –
hived off from the parent company Mitsubishi Motors Corporation in 2003 – and now owns 85 per
cent of the shares. In the wake of the Asian crisis at the end of the 1990s, the Japanese market had
been shrinking, but the location provided a good base from which the Eurosopean company could
operate in the Asia region. With appropriate restructuring measures, Fuso was able to increase its
export share from 52 per cent in the year 2003 to 78 per cent in 2008. The German importer of
Mitsubishi Fuso Brand commercial vehicles is Mitsubishi Motors Deutschland GmbH. In Germany
only the Canter model series has been marketed since 1981. Mitsubishi Fuso Truck and Bus
Corporation (MFTBC), based in the Japanese city of Kawasaki, sold a total of 197,700 light,
medium and heavy trucks and buses in 2008.

Detroit Diesel Corporation

Founded in 1938 as the diesel division of General Motors, Detroit Diesel Corporation is a US
manufacturer of diesel engines based in Detroit, Michigan. In those days Detroit Diesel was divided
into two divisions: Off-Highway and On-Highway. The Off-Highway division bore the name MTU
Detroit Diesel and has belonged to Tognum AG since 2006. The On-Highway division belongs to
Daimler AG. In 1988, Penske Corporation acquired a share of Detroit Diesel and hived it off from
the GM Group as Detroit Diesel Corporation (DDC). In 2000, Daimler acquired DDC and merged it
with MTU Friedrichshafen to form a company called MTU Detroit Diesel. Today, the Daimler

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subsidiary Detroit Diesel is responsible for the design, manufacture, sales and servicing of medium
and heavy diesel engines as well as alternative drive systems for the commercial vehicle industry. It
has 800 authorised distributors.

Mercedes-Benz Vans

The van division operates as a separate business unit – and can look back on a varied history. In
1977, Daimler-Benz launched a small van on the market which it named ‘TN’ (‘Transporter neu’).
Weighing in at between 2.5 and 3.5 tonnes – and soon also with a 4.6 tonne version – this new,
extremely versatile model series was intended to offer the levels of driving comfort and ease of
handling associated with a passenger car. It was available as a panel van, minibus or platform truck.
After 18 years of production, the TN was replaced in 1995 by a completely new design – the
Sprinter –, a second generation of which has been available since 2006. In the USA and Canada the
Sprinter is marketed under the brand names Dodge and Freightliner for legal reasons.
Today, the Mercedes-Benz van segment, which can be found in the annual report under ‘Vans,
Buses, Others’, also includes the Vario, Viano and Vito. The versatility of these vehicles meant that
in 2008 Mercedes-Benz Vans was able to virtually maintain the record sales levels achieved the
previous year despite the difficult market conditions in the wake of the financial crisis. Global sales
amounted to 287,200 vehicles – the second highest volume of sales of this vehicle type in the
company’s history. High demand in the early months of 2008 meant that the plants in Düsseldorf,
Ludwigsfelde and Vitoria/Spain were operating at the limits of their capacity.

Passenger transportation in style: the bus

Since 1894, Benz had offered a landau version of his motorcar, with room for a total of eight
people. The vehicle either had a removable hood or a glazed upper part with a solid roof. It was
used mainly by hotels to bring guests to and from the train station. The first regular motorised
passenger service was set up by Netphen and Siegen in order to link their two towns, and Benz was
requested to build two motorised buses, which he delivered in March 1895. The buses took one
hour 20 minutes to cover the 15 km route between Siegen, Netphen and Deuz, with its five stops
and 80 m height difference. In 1898, Gottlieb Daimler also started to build buses.

In the years that followed, large numbers of bus services were set up at home and abroad. The
biggest breakthrough in Germany happens when the Württemberg and Bavarian postal services
ordered a number of automobiles for carrying packages and (shortly afterwards) also passengers.
Daimler-Motoren-Gesellschaft delivered some 350 buses up to the start of the First World War,
mainly to the Royal Bavarian Postal Administration, which bought a total of 250 vehicles. Daimler
dominated the market with a share of 43 per cent, followed by Benz with 18 per cent and Büssing
with 12 per cent. Daimler-Benz subsequently pioneered the use of diesel engines in buses.
From 1935 onwards, when the first autobahns (motorways) started to be built, extravagant futuristic
plans were drawn up for overland coaches of hitherto undreamed of dimensions. However the
outbreak of the Second World War quickly destroyed these ambitious dreams. Nevertheless, as early
as March 1948, Daimler-Benz was able to introduce the new O 4500 omnibus – a vehicle with

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bodywork that no longer bore the mark of an age of wartime austerity. Between 1949 and 1954, the
O 3500 dominated the market in its class. The O 6600, which appeared in 1951, was the first
Mercedes-Benz bus with forward control and a rear engine, and a precursor of the highly successful
O 321 H. The latter was launched in 1954 and by the end of its 16 year career had sold almost
30,000 – more than any other bus in history.

In 1995, 100 years after the invention of the omnibus by Carl Benz, Daimler-Benz AG took over the
Setra Brand, hived off Mercedes-Benz Omnibusse and merged both brands into a new subsidiary
called EvoBus GmbH. Both brands, with their long traditions, were able to contribute their
particular strengths, and the new concept was a huge success, with EvoBus becoming profitable
within a relatively short time. The vehicle shells for both brands are put together in the Mannheim
plant and then transferred by rail directly to a new facility built in the early 1990s in Neu-Ulm,
where they are assembled and painted.

New divisions: Financial Services

In the latter half of the 20th century, many vehicle manufacturers discovered the marketing potential
offered by the provision of financing options. In 1967, Daimler-Benz AG also launched its first
leasing activities, in 1979 the company set up Mercedes Leasing GmbH, and in 1987 Mercedes-
Benz Finanz GmbH was founded. It was integrated into Daimler-Benz InterServices AG – now
Daimler Financial Services AG – in 1990.

In 1992, the Group also set up Mercedes-Benz CharterWay GmbH and became involved in the field
of commercial vehicle fleet management. In 1997, it added cross-brand passenger car fleet
management as well. In 2000, the value of contracts signed by its subsidiaries for leasing and
finance reached the 10 billion Euros threshold for the first time. In 2002, Mercedes-Benz Bank AG
also became involved in deposit banking, offering a range of products including savings accounts,
savings plans, fixed interest deposits, investment funds, certificates, and credit cards.
Today, Daimler Financial Services is one of the world’s leading captive financial services providers
and the biggest global supplier of financial services for commercial vehicles. More than a third of
corporate vehicles around the world are now financed or leased by Daimler Financial Services.
With a broad range of services that includes financing, leasing, insurance, and fleet management,
Daimler Financial Services handled a total contract volume worth 63.4 Euros in 2008 and employed
a global workforce of some 7,100.

The sales partners for vehicle-related financial services are the dealerships for the various Daimler
AG vehicle brands. In 2008, the value of leasing and financial services provided by the Mercedes-
Benz Bank rose 6 per cent to 9 billion Euros and the balance sheet total was 18.8 billion Euros. The
volume of deposits grew some 50 per cent to 6 billion Euros, and by the end of February 2009 had
reached 10 billion Euros.

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Objectives and Strategy

The automotive industry is currently in the middle of its biggest ever trans- formation. Moreover,
the world as a whole is changing at an increasingly dynamic rate. Sustainability and, in particular,
environmental and climate protection are among the most urgent issues of our time. Digitalisation
and shifts in global trade are changing our business and our company. We firmly believe that
individual mobility will remain a basic human need, and it will have to be provided in an energy-
saving, low-emission and environmentally compatible manner. As a company, we also bear social

responsibility. Not only do we face up to the challenges of the future; as the inventor of the
automobile, we also want to set benchmarks for tomorrow’s sustainable mobility.

New corporate structure

New competitors have entered the automotive market with alternative drive technologies, and some
of them are highly valued by the capital market. Consumers and governments are increasingly
focusing on sustainability and the reduction of CO2 emissions. The associated switch to new
technologies has triggered strong demand for capital and requires lean organisational structures and
short decision-making paths. In addition, the covid-19 pandemic has accelerated the steadily
growing process of digitalisation. Most recently, it became apparent that there were fewer industrial
over- laps between the car and commercial vehicle businesses than previously expected. Corporate
functions generated only limited synergies.

In view of this situation, the Board of Management and the Supervisory Board of Daimler AG
decided in 2021 to spin off and hive down the commercial vehicle business in the context of Project

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Focus. The implementation of these measures resulted in a historic realignment of the Company.
The separation aims to improve conditions for the implementation of the respective strategies of the
remaining Mercedes-Benz Group and the new Daimler Truck Group. Each company will develop
and pursue its own independent strategy. Independently, the business activities of the two groups
can be even more strongly diversified in line with their customers, technologies, risks and markets,
and the necessary processes can be adapted to the competitive environment and changing market
conditions in an even more agile and targeted manner. Moreover, the separation provides the
Daimler Truck Group with direct access to the capital market and thus to additional sources of
funding. The spin-off and hive-down of the Daimler commercial vehicle business was approved by
an overwhelming majority of 99.90% of the shareholders at the Extraordinary General Meeting on 1
October 2021.

In 2020, we presented our Mercedes-Benz Cars strategy, which consists of six strategic pillars. Our
goal is to build the world’s most desirable cars. We want to further increase our structural
profitability and take the lead in shaping the successful transformation to an emission-free and
software-driven future. We want to focus on our core business and in doing so to highlight the
customer experience even more strongly than before and utilise the potential of digitalisation.
Sustain- ability, integrity and diversity serve as the foundation of our strategy. Everyone’s actions
are becoming increasingly important with regard to climate change. We are addressing this change
and shaping the path towards sustainable mobility.Building on the strategy we adopted for
Mercedes-Benz Cars in 2020, we took an important strategic step in 2021 by switching from
“Electric first” to “Electric only”. In this way, we are clearly committed to all-electric drive systems
during the development of our vehicles and also accelerating the transformation towards an
emission-free and software-driven future.

Think and act like a luxury brand

Luxury has always been part of our DNA, but we will focus our thoughts and actions even more
strongly on it in the future. Our claim as a luxury brand is to offer the most desirable vehicles in all
segments and throughout all brands. Our understanding of luxury is shaped by a harmony between
pioneering technologies, extraordinary aesthetics and integrated sustainability.

We want to create an intuitive and individualised experience for our customers at every touchpoint
with our brand — a holistic luxury experience that fascinates, offers out- standing moments, goes
beyond people’s expectations and sparks desires. To this end, we are working hard on strategically
realigning our products and services across all brands. For example, we are reorienting our
campaign language and working closely with cooperation partners in order to jointly make
tomorrow’s individual mobility visionary in scope. This includes experience platforms that
showcase contemporary topics from the lives of our fans and customers and thus create
approachable and unique moments. We have the complete customer journey in view here — from
the first contact with our brands to the purchase and driving of our vehicles and the use of our range
of services, we want to offer our customers a comfortable, individual and highly emotional
experience.

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Focus on profitable growth

We want to make the accelerated transformation towards an all-electric future profitable and to
continue our growth in the lucrative market segments. Important ways in which this can be achieved
are focusing and further developing our portfolios by allocating funds to the most profitable models,
and good pricing. We want to also employ these means for the systematic electrification of our
models, with appealing electric vehicles throughout the entire Mercedes-Benz brand portfolio. By
optimising our mix of sales channels, we also plan to target our customers even more effectively.
One of the focal points here is the expansion of online commerce.

Expand customer base by growing sub-brands

According to brand consultant Inter-brand’s “Best Global Brands 2021” report, Mercedes-Benz has
strengthened its leading position as the only European brand among the world’s Top 10. As a result,
we have remained the most valuable and only luxury automotive brand among the world’s Top 10
for the sixth year in a row. Not only our outstanding S-Class luxury saloon car but also Mercedes-
Benz’s entire attractive brand portfolio — in particular our exceptional Mercedes-AMG, Mercedes-
Maybach and Mercedes-EQ brands, as well as our iconic G-Class product brand — contribute to
this success. Our Mercedes-Benz Cars strategy is raising these brands to the next level and
accelerating their development so they can unfold their full potential and achieve additional EBIT
growth. To accomplish this, we will create an even stronger interrelationship between the brands
Mercedes-AMG, Mercedes-Maybach and the G-Class in order to exploit synergies and address our
customers even more effectively. This particularly includes the adequate care of these special
customer groups online and in retail. We want our Mercedes-EQ vehicles to position us as a leading
tech brand not only in the upper-range segment but also in all other vehicle classes. This has already
been highlighted by the successful world premieres of the EQA, EQB, EQE and EQS in 2021.

Embrace customers and grow recurrent revenues

In order to intensify and further boost customer loyalty, we are systematically creating unique
customer experiences along our entire customer journey and addressing customers in an
individualised and data-driven manner.
The basic precondition for this is the availability of thoroughly digitalised sales processes. In this
way, we can flexibly adapt and enhance all channels — online and offline, and from consulting to
service to the dynamic customer requirements.
Two of the many examples of how we are already successfully implementing this vision are the first
pilot mar- kets where our new vehicles can be bought online and the data-based campaign for the
EQS. Moreover, we can provide our customers with tailored offers that enthuse them about more
than just the purchase of vehicles.
These include such things as after-sales services and spare parts as well as the increasing demand
for over- the-air (OTA) updates and subscriptions to digital services. This enables us not only to
continuously enhance the attractiveness of our products throughout their life cycles but also boost
our profitability through recurring revenues.

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Lower cost base and improve industrial footprint

Our accelerated transformation requires us to consistently forge ahead with the pursuit of our
profitability and cash-flow objectives. We want to lower our break- even point and take additional
steps towards reducing the cost base and improving our industrial footprint. To this end, we are also
working on further reducing fixed and variable costs as well as on lowering investment in property,
plant and equipment in relation to total investment. By 2025, we want to reduce our fixed costs by
more than 20% relative to the comparable actual figures for Mercedes-Benz AG in 2019. Among
other things, we plan to achieve this by consistently reducing complexity along the entire value
chain. By 2025, we also plan to reduce capital expenditure and investment in research and
development by more than 20% compared to 2019. With its strategic step from “Electric first” to

“Electric only”, Mercedes-Benz is also shifting its capital allocation. We plan to achieve further cost
reductions by standardising battery platforms and creating scalable vehicle architectures. In
combination with improved battery technology, we expect this to greatly reduce the battery’s share
of a vehicle’s total cost. We are therefore sticking to our profitability targets even in an increasingly
battery electric world.

Sustainability

Sustainability, integrity and diversity are the basis of our conduct

As a company, we assume responsibility for the economic, ecological and social effects of our
business activity. As a founding member of the UN Global Com- pact, we are committed to the
Compact’s ten universal principles, the United Nations’ Sustainable Development Goals and the
Paris Agreement on climate change.

Sustainability is part of the foundation of our Mercedes- Benz strategy and thus an integral part of
our corporate strategy. We want to create permanent value for our stakeholders: our customers,
employees, investors, business partners and society as a whole. This requires a culture of integrity
and future-oriented cooperation with our workforce and our partners in industry, government and
society at large. Diversity is our driving force for ideas, renewal and inventiveness, all of which we
actively strive to achieve. A central sustainability management system enables the effective
planning of ambitious goals and their implementation.

For example, we have set ourselves an ambitious cli- mate protection goal along the value chain: to
make our entire new vehicle fleet CO2-neutral by 2039. It encompasses climate neutrality at our
suppliers, CO2-neutral production in our production facilities worldwide and the CO2-neutrality of
our vehicles during the use phase. We also want to drive forward the implementation of our climate
neutrality objective at our suppliers and partners. Among other things, we are working together with
all of the steel suppliers to create a green steel supply chain. Our Factory 56 is the benchmark with
regard to flexibility, efficiency, digitalisation and green production for our global production

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network. In addition to climate protection, we take on responsibility for air quality. By 2025, we
want our new car fleet to no longer have any relevant impact on nitrogen-dioxide pollution in urban
areas. Another important aim is to increasingly decouple the consumption of resources per vehicle
from the growth in vehicle sales. We are working to close mate- rial cycles and increase the
proportion of secondary raw materials in our vehicles, as well as further improving the efficiency of
our processes.

We are firmly convinced that we can only be successful over the long term if we fulfil not only our
economic and environmental responsibilities but also our responsibility to society. Especially in
times of change and upheaval, we need to have values that provide us with orientation. For the
Mercedes-Benz Group, integrity means doing the right thing. For us, this includes adhering to

external and internal rules, aligning our activities with shared values, and following our moral
compass. New technologies and business models offer tremendous opportunities, but at the same
time, they pose ethical and legal questions. That’s why we provide our technical Compliance
Management System, or tCMS for short, to help our engineers address challenging questions and
unclear legal situations during the entire product development and certification process. We use our
Human Rights Respect System (HRRS) to make a risk-based and systematic assessment of respect
for human rights at our Group companies and in the supply chains. We summarise our many years
of commitment to human rights in our Principles of Social Responsibility and Human Rights. These
Principles serve as the bind- ing foundation for the implementation of human rights standards at the
Mercedes-Benz Group.

All of the divisions have formulated strategies or intensified existing ones on the basis of their
earnings and growth targets, our commitment to sustainability, and CO2-neutral mobility and
integrity as guiding principles.

Audits

Each year, the Company checks the processes and measures of the CMS and conducts analyses to
find out whether the measures are appropriate and effective.

This is accomplished using information about the Group companies as well as other locally
collected data. We also monitor our processes regularly on the basis of key performance indicators
such as the duration and quality of individual processes. To determine these indicators, we check,
among other things, whether formal requirements are being met and whether the content is
complete. The knowledge gained through both internal and independent external assessments is also
taken into account.

If changed risks or new legal requirements call for adjustments, we adapt our CMS accordingly. The
Group companies implement the respective improvement measures on their own authority. They
also regularly monitor these measures to determine their effective- ness and continually inform the
responsible management committees about the results of their monitoring process.

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In order to ensure an independent external assessment of our compliance programme, KPMG AG

Wirtschafts - prüfungsgesellschaft audited the Compliance Management Systems (CMS) for
corruption prevention, antitrust and technical compliance in accordance with Standard 980 of the
Institute of Public Auditors in Germany. This audit, which was based on the principles of
appropriateness, implementation and effectiveness, was successfully completed for our CMS
Corruption Prevention at the end of 2019, for our tCMS (focus on emissions) at the end of 2020 and
for our CMS Antitrust at the end of 2021. The latter was the second such audit, with the first having
been conducted in 2016.

Report on the Audit of the Consolidated Financial Statements and of the Combined
Management Report

Opinions

We have audited the consolidated financial statements of Mercedes-Benz Group AG, Stuttgart, and
its subsidiaries (the Group), which comprise the consolidated statement of financial position as of
December 31, 2021, and the consolidated statement of income, consolidated statement of
comprehensive income/loss, consolidated statement of changes in equity and consolidated statement
of cash flows for the financial year from January 1 to December 31, 2021, as well as notes to the
consolidated financial statements, including a summary of significant accounting policies. In
addition, we have audited the group management report, which is combined with the management
report of Mercedes- Benz Group AG (combined management report), including the combined non-
financial declaration pursuant to Sections 289b paragraph 1, 289c, 315b paragraph 1 and 315c HGB
( Handelsgesetzbuch : German Commercial Code) for the financial year from January 1 to
December 31, 2021. In accordance with the German legal regulations, we have not audited the
content of the elements of the combined management report referred to in the “Other information”
section of our auditor’s report.

The combined management report includes cross-references not foreseen by law that are marked as
unaudited. In accordance with the German legal regulations, we have not audited the content of
these cross-references and the information to which these cross-references relate.

In our opinion, on the basis of the knowledge obtained in the audit – the accompanying
consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the
EU, and the additional requirements of German commercial law pursuant to Section 315e paragraph
1 HGB and, in compliance with these requirements, give a true and fair view of the assets, liabilities
and financial position of the Group as of December 31, 2021, and of its financial performance for
the financial year from January 1 to December 31, 2021 and the accompanying combined
management report as a whole provides an appropriate view of the Group’s position. In all material
respects, the combined management report is consistent with the consolidated financial statements,
complies with German legal requirements and appropriately presents the opportunities and risks of
future development. Our opinion on the combined management report does not cover the elements

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of the combined management report referred to in the “Other information” section of our auditor’s
report. The combined management report includes cross-references not foreseen by law that are
marked as unaudited. Our opinion does not cover these cross-references and the information to
which these cross-references relate.

Pursuant to Section 322 paragraph 3 sentence 1 HGB, we declare that our audit has not led to any
reservations relating to the legal compliance of the consolidated financial statements and of the
combined management report.

Bases for the opinions

We conducted our audit of the consolidated financial statements and of the combined management
report in accordance with Section 317 HGB and the EU Audit Regulation (No. 537/2014; referred
to subsequently as the “EU Audit Regulation”) and in compliance with German Generally Accepted
Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer
(Institute of Public Auditors in Germany) (IDW). We per- formed the audit of the consolidated
financial statements in supplementary compliance with the International Standards on Auditing
(ISAs). Our responsibilities under those requirements, principles and standards are further described
in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the
Combined Management Report” section of our auditor’s report. We are independent of the group
entities in accordance with the requirements of European law and German commercial and
professional law, and we have fulfilled our other German professional responsibilities in accordance
with these requirements. In addition, in accordance with Article 10 paragraph 2 letter f) of the EU
Audit Regulation, we declare that we have not provided non-audit services prohibited under Article
5 paragraph 1 of the EU Audit Regulation. We believe that the evidence we have obtained is
sufficient and appropriate to provide a basis for our opinions on the consolidated financial
statements and on the combined management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the consolidated financial statements for the financial year from January 1 to December
31, 2021. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and, in forming our opinion thereon, we do not provide a separate opinion on
these matters.

Our Audit Approach

We first of all assessed the arrangements made in the Spin-off Agreement, especially their treatment
by the transferor legal entity and obtained an understanding of the individual transactions and the
reflection in the financial statements of the transaction as a whole.

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In the course of the audit, we obtained an understand- ing of the effects on the financial statements
of the standardized measures in the Spin-off Agreement. In this context, we also evaluated the legal
execution of the hive-down and spin-off with regard to whether the criteria under corporate
transformation and company law were fulfilled.

We furthermore evaluated whether the classification of significant parts of the former Daimler
Trucks & Buses segment as discontinued operations in accordance with IFRS 5 was carried out
appropriately. To this end, we interrogated the legal representatives and evaluated the internal and
external reporting in the context of the classification criteria under IFRS 5. In addition, we assessed
whether the allocation of the income and expenses to the discontinued operations was carried out
correctly.

Moreover, we evaluated with the help of our valuation specialists the appropriateness of the initial
recognition of the at-equity measurement as of the transaction date at fair value, the appropriateness
of the purchase price allocation in the course of first time at-equity-measurement and the principal
assumptions and data and the valuation methods of the external appraiser, whose expertise provided
the basis for the recording.

We assessed the professional competence, capabilities, impartiality and the working results of the
appraiser engaged by Mercedes-Benz Group AG.

For the assessment of the appropriateness of the valuation of the first-time recording of the at-equity
participation and the purchase price allocation, we first of all analyzed whether the measurement
methods applied are consistent with the accounting regulations. We then assessed, with the help of
our valuation specialists, the principal measurement assumptions applied. To this end, we discussed
the expected cash flows and the assumed long-term growth rates with those responsible for the
planning. In addition, we carried out reconciliations with other forecasts available internally for
instance for tax purposes and with the budget prepared by the legal representatives and approved by
the Supervisory Board. We furthermore evaluated the consistency of the assumptions with external
industry-specific and general market estimations.

We compared the royalty rates referred to for the measurement of the intangible assets with
reference amounts from relevant databases.

We compared the assumptions and parameters providing the basis for the costs of capital, especially
the risk- free interest rate, the market risk premium and the Beta factor, with our own assumptions
and publicly available data. To take account of the existing forecast uncertainty, we in addition
investigated the impact of possible changes in the capitalization interest rate, the expected cash
flows and the long-term growth rates on the fair value, by calculating alternative scenarios and
compared them with the company’s measurement results (sensitivity analysis). To ensure the
arithmetical correctness of the valuation method applied, we obtained an understanding of the
company’s calculations on the basis of selected risk-oriented elements.

In addition, we obtained an understanding of the presentation of the discontinued operations in the

income statement. Finally, we evaluated whether the disclosures in the notes to the consolidated
financial statements on the spin-off and hive-down, including the presentation as discontinued

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operations, and the further measures foreseen by the Spin-off Agreement, in the notes to the
consolidated financial statements of Mercedes-Benz Group AG are sufficiently detailed and correct.

We audited the recoverability of the Mercedes-Benz passenger cars purchased externally in the
statement of financial position caption “Equipment on operating leases”. We investigated and
appraised the indications assumed by the Group for any need for an impairment loss and where
necessary obtained an understanding of the write-downs calculated by the Mercedes-Benz Group.
We have assessed the Mercedes-Benz Group’s evaluation with regard to the residual values
achievable by the end of the terms of the leases. In this connection, we in particular critically

reviewed the main influencing factors, such as the expected number of returns from leasing, the
current marketing results in order to assess the accuracy of the estimates and future vehicle model
changes. For significant markets we furthermore also audited the consistency of the assumptions
made by the Mercedes-Benz Group with residual value forecasts by independent expert third
parties.

We obtained a comprehensive understanding of the development of the portfolios, the associated

counter- party default risks and the processes for identifying, managing, monitoring and measuring
credit risks by inspecting analyses and risk reports, interrogations, review of guidelines and working
instructions, checking the defined methods and their implementation and checking and walking
through the validation process and the individual validation reports.

We audited the appropriateness and effectiveness of the internal control system with regard to the
risk classification process and risk models and the identification of the factors determining the value
and the loss allowances, also by rechecking the calculations. To this end, we also evaluated the
relevant IT systems and internal procedures. In addition to the audit by our IT specialists of the
propriety of the IT systems affected and related interfaces to ensure the completeness and
correctness of the data, the audit also included the audit of automatic controls for data entry and
data processing. The main focus of our audit was the evaluation of the methodical approach in the
definition of risk categories and the determination of default probabilities and loss rates that are
derived from historical data. We took into account the impact of Covid-19 in conjunction with the
audit of the macroeconomic scenarios and the down- stream adjustments. We obtained an
understanding of this based on a risk-oriented selection of credit portfolios. We satisfied ourselves
with regard to the appropriateness of significant risk parameters based on the results of a validation
performed by Mercedes-Benz Mobility and evaluated the adjustments of the parameters to the
current market situation. In this connection, we audited the data supporting the validations on the
basis of a conscious sample.

Our audit procedures included among other things the evaluation of the process to calculate the
provision for product warranties and the evaluation of the relevant assumptions and their derivation
for the measurement of the provision. These include primarily assumptions on expected
susceptibility to and the course of damage, and in addition the monetary value of the damage per
vehicle based on actual warranty, guarantee and good- will losses. Based on historical analyses, we
assessed the accuracy of the forecasts of past warranty, guarantee and goodwill costs. We also
checked that updated assessments of the future repair costs and procedures were taken into account.
We obtained an understanding for the underlying numbers of vehicles through the actual unit sales.

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Our audit procedures comprised firstly an evaluation of the process established by the Company to
ensure the recording of the risks, the estimation of the outcome of the proceedings and the reflection
in the financial statements of the legal proceedings. Secondly, we held discussions with the internal
legal department and with further departments familiar with the matters under dispute, and with the
Company’s external advisors and attorneys, in order to obtain explanations on the developments and
the reasons that had led to the respective estimations. In addition, we evaluated the underlying
documents and minutes and the calculations for the respective provisions. The assessments of the
legal representatives regarding the developments in the areas referred to were made available to us
by the Company in writing. In addition, we interviewed the Company’s legal representatives. As of

the reporting date, assessments were available from external attorneys on the relevant proceedings,
which support the assessment of the risks by the legal representatives.

Where agreement has been reached in the meantime regarding individual matters, we compared the
amounts originally estimated with the final obligations and in this way obtained an impression of
the quality of the estimates.

Finally, we evaluated the appropriateness of the description of the aforementioned legal proceedings
in the notes to the consolidated financial statements.

Internal control system

The internal control system with regard to the accounting process has the objective of ensuring the
correctness and effectiveness of accounting and financial reporting. It is designed in line with the
internationally recognised framework for internal control systems of the Committee of Sponsoring
Organisations of the Treadway Commission (COSO Internal Control – Integrated Framework), is
continually developed further, and is an integral part of the accounting and financial reporting
processes in the segments, corporate functions, organisational units and companies. The system
includes principles and procedures as well as preventive and detective controls.

The effectiveness of the internal control system is systematically assessed with regard to the
corporate accounting process. The first step consists of risk analysis and a definition of control with
the objective of identifying significant control weaknesses relating to the processes of corporate
accounting and financial report- ing in the main companies, organisational entities and corporate
functions. The controls required are then defined and documented in accordance with Group- wide
guidelines. Random samples are regularly tested to assess the effectiveness of the controls. Those
tests constitute the basis for self-assessment of the appropriate magnitude and effectiveness of the
controls. The results of this self-assessment are documented and reported in a Group-wide IT
system; identified control weaknesses are eliminated. At the end of the annual cycle, the companies,
organisational entities and corporate functions under consideration confirm the suitability and
effectiveness of the internal control system with regard to the corporate accounting process.

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Non-accounting related controls are documented in var- ious systems. The Group Risk Management
Committee (GRMC) is responsible for the assessment of the suitability and effectiveness of the
Group-wide internal control system with regard to the scope of business operations and the Group’s
risk situation. The Board of Management, Audit Committee and Supervisory Board are regularly
informed about potential significant control weaknesses and the effectiveness of the control
mechanisms installed.

The Audit Committee and the Supervisory Board of Mercedes-Benz Group AG and the Supervisory
Boards of Mercedes-Benz AG and Mercedes-Benz Mobility AG are responsible for monitoring the
internal control and risk management system. The Internal Auditing department monitors whether

the statutory conditions and the Group’s internal guidelines concerning the internal control and risk
management system of the Group are adhered to. If required, measures are initiated in cooperation
with the respective management. External auditors audit the system for the early identification of
risks, which is integrated in the risk management system, for its general suitability to identify risks
threaten- ing the existence of the Group; in addition, in the con- text of the audit of the consolidated
financial statements, they report to the Audit Committee and the Supervisory Board on any
significant weaknesses that have been recognised in the accounting-related internal control and risk
management system.

Sales partners and suppliers

We expect not only our employees to comply with laws and regulations. We also require our sales
partners and suppliers to adhere to clear compliance requirements, because we regard integrity and
conformity with regulations as a precondition for trust-based cooperation. Our Business Partner
Standards, which we revised in the reporting year, describe in detail exactly what we expect of our
business partners.

In the selection of our direct sales partners and in our existing sales partnerships, we ensure that our
business partners comply with laws and observe ethical principles. In order to monitor this, we use a
globally standardised, risk-based Sales Business Partner Due Diligence Process. During the
reporting year, we subjected all of the new sales partners to a due diligence audit. In addition, we
audit the existing sales partners as part of the monitoring process. Our monitoring in this area is
designed to ensure that we can identify possible integrity violations by our sales partners. We also
reserve the right to terminate cooperation with, or terminate the selection process for, any sales
partner that fails to comply with our standards. In addition, we work with our procurement units to
continuously improve our processes for selecting and cooperating with suppliers.

Our Supplier Sustainability Standards also apply to our suppliers. On the basis of these standards
and our Integrity Code, we make available to each of our suppliers and sales partners a specific
Compliance Awareness Module developed with their activities in mind.

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These modules are intended to sensitise them to current integrity and compliance requirements such
as those related to anti-corruption measures and technical compliance. Through these measures, we
also offer our sup- pliers and sales partners assistance for dealing with possible compliance risks.

Revenues & Revenue Recognition

Revenue from contracts with customers (revenue according to IFRS 15) is disaggregated by the two
categories – type of products and services and geographical region. The category type of products
and services corresponds to the reportable segments.

Revenue disclosed in the Consolidated Statement of Income includes revenue from contracts with
customers and other revenue not in the scope of IFRS 15.

Other revenue primarily comprises revenue from the rental and leasing business of €11,915 million
(2020: €12,157 million), interest from the financial services business at Mercedes-Benz Mobility in
an amount of €5,171 million (2020: €5,240 million) and effects from currency hedging. Interest
from the financial services business includes financial income on the net investment in leases of
€914 million (2020: €1,518 million).

Revenue according to IFRS 15 includes revenue that was included in contract liabilities at 31
December 2020 in an amount of €2,434 million (2020: €2,295 million) and revenue from
performance obligations fully (or partially) satisfied in previous periods in an amount of €339 mil-
lion (2020: €347 million).

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Revenue that is expected to be recognised within three years related to performance obligations that
are unsatisfied (or partially unsatisfied) amounted to €6,170 mil- lion at 31 December 2021 (2020:
€5,653 million). This revenue is mainly derived from long-term service and maintenance contracts
and extended warranties. It does not include performance obligations from customer contracts that
have initial expected durations of one year or less. Long-term performance obligations of minor
importance to the overall contract value of a bundled contract are not considered in assessing the
initial duration of the bundled contract.

The revenue of the Mercedes-Benz Group increased due in particular to a significantly improved
sales structure at the Mercedes-Benz Cars & Vans segment.

Revenue from sales of vehicles, service parts and other related products is recognised when control
of the goods is transferred to the customer. This generally occurs at the time the customer takes
possession of the products.

Generally, payment from sales of vehicles, service parts and other related products is made when
the customer obtains control of these products.

Dealers may finance their vehicle inventory by means of dealer inventory financing provided by
Mercedes-Benz Mobility. Furthermore, end-customers may be credit financed by Mercedes-Benz
Mobility. Receivables from sales financing with end-customers and dealers are presented in
receivables from financial services.

Revenue recognition from the sale of vehicles for which the Group enters into a repurchase
obligation is dependent on the form of the repurchase agreement:

− Sales of vehicles by which the Mercedes-Benz Group is obliged to repurchase the vehicles in the
future are accounted for as operating leases. This also applies to a call option that grants the
Mercedes-Benz Group the right to repurchase.

− Sales of vehicles including a put option (an entity’s obligation to repurchase the asset at the
customer’s request) are reported as operating leases if the customer has a significant economic
incentive to exercise that right at contract inception. Otherwise, a sale with a right of return is
reported. The Mercedes-Benz Group considers several factors when assessing whether the customer
has a significant economic incentive to exercise his or her right. Among others, these are the
relation between the agreed repurchase price and the expected future market value (at the time of
repurchase) of the asset, or historical return rates.

Arrangements such as when the Mercedes-Benz Group provides customers with a guaranteed
minimum resale value that they receive on resale (residual-value guarantee) do not constraint the
customers in their ability to direct the use of, and obtain substantially all of the benefits from, the
asset. At contract inception of a sale with a residual-value guarantee, revenue therefore has to be
recognised, reduced by a potential compensation payment to the customer (revenue deferral).

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Under a contract manufacturing agreement, the Mercedes-Benz Group sells assets to a third-party
manufacturer from which the Mercedes-Benz Group buys back the manufactured products after
completion of the commissioned work.

If the sale of the assets is not accompanied by the transfer of control to the third- party
manufacturer, no revenue is recognised under IFRS 15.

The Group offers extended, separately priced warranties for certain products as well as service and
maintenance contracts. Usual for such contracts is an advance payment or the payment of constant
instalments over the term of the contract. Revenue from these contracts is deferred insofar as a

customer has made an advance payment and is generally recognised over the contract period in
proportion to the costs expected to be incurred based on historical information. A future loss on
these contracts is recognised in the current period if the expected costs for outstanding services
under the contract exceed unearned revenue.

For multiple-element arrangements, such as when vehicles are sold with free or reduced-in-price
maintenance programmes or with free online services, the Group generally allocates revenue to the
various elements based on their estimated relative stand-alone selling prices. To determine stand-
alone selling prices, the Mercedes-Benz Group primarily uses price lists with consideration of
average price reductions granted to its customers.

Depending on the sales model, vehicles may be initially sold to non-Group dealers. Subsequently a
customer decides to enter into a leasing contract with Mercedes- Benz Mobility regarding such a
vehicle. The vehicle is therefore sold by the non-Group dealer to Mercedes- Benz Mobility and a
leasing contract is entered into with the customer. When control of the vehicle is transferred to the
non-Group dealer, the Mercedes-Benz Group recognises revenue from the sale of the vehicle.
The incremental cost of obtaining contracts is recognised as an expense when incurred if the
amortisation period would be no longer than one year.

The Mercedes-Benz Group does not adjust the promised amount of consideration for the effects of a
significant financing component if at contract inception it is expected that the period between the
transfer of a promised asset or service to a customer and payment by the customer will be no longer
than one year.

Revenue also includes revenue from the rental and leas- ing business as well as interest from the
financial ser- vices business at Mercedes-Benz Mobility. Revenue generated from operating leases
is recognised on a straight-line basis over the periods of the contracts. In addition, sales revenue is
generated at the end of lease contracts from the subsequent sale of the vehicles. Revenue from
receivables from financial services is recognised using the effective-interest method.

The Mercedes-Benz Group uses a variety of sales pro- motion programmes dependent on various
market conditions in individual countries as well as the respective product life cycles and product-
related factors (such as amounts of discounts offered by competitors, excess industry production
capacity, the intensity of market competition, and consumer demand for the products).

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These programmes comprise cash offers to dealers and customers as well as lease subsidies or loans
at reduced interest rates which are reported as follows:
− Revenue is recognised net of sales reductions such as cash discounts and sales incentives granted.

− When loans are issued below market rates, related receivables are recognised at present value
(using market rates) and revenue is reduced for the interest incentive granted.

− If subsidised leasing fees are agreed upon in connection with finance leases, revenue from the sale
of a vehicle is reduced by the amount of the interest incentive granted.

Leasing

Leases include all contracts that transfer the right to use a specified asset for a stated period of time
in exchange for consideration, even if the right to use such asset is not explicitly described in the
contract. The Group is a lessee mainly of real-estate properties and a lessor of its products.

The Mercedes-Benz Group as lessee

The Mercedes-Benz Group as a lessee recognises for generally all lease contracts right-of-use assets
as well as leasing liabilities for the outstanding lease payments.

According to IFRS 16, a lessee may elect, for leases with a lease term of twelve months or less
(short-term leases) and for leases for which the underlying asset is of low value, not to recognise a
right-of-use asset and a lease liability. The Mercedes-Benz Group applies both recognition
exemptions. The lease payments associated with those leases are generally recognised as an expense
on a straight-line basis over the lease term or another systematic basis if appropriate.

Right-of-use assets, which are included under property, plant and equipment, are initially measured
at cost. The cost of a right-of-use asset comprises the amount of the initial measurement of the lease
liability, any lease payments made at or before the commencement date less any lease incentives
received from the lessor, any initial direct costs and an estimate of costs to be incurred in
dismantling or removing the underlying asset. All leasing incentives already received from the
lessor are deducted.

Lease liabilities, which are assigned to financing liabilities, are measured initially at the present
value of the lease payments still to be made. The lease liabilities include the following lease
payments:

− fixed payments including de facto fixed payments, less lease incentives receivables from the
lessor;

− variable lease payments linked to an index or interest rate;

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− amounts expected to be payable under residual-value guarantees;

− the exercise price of purchase options, when exercise is estimated to be reasonably certain, and

− contractual penalties for the termination of a lease if the lease term reflects the exercise of a
termination option.

The Mercedes-Benz Group generally also applies the option for contracts comprising lease
components as well as non-lease components not to split these components.

Lease payments are discounted at the rate implicit in the lease if that rate can readily be determined.
Otherwise, discounting is at the incremental borrowing rate.

The incremental borrowing rate, which is mainly applied at the Mercedes-Benz Group, is based on
risk-adjusted interest rates and determined for the respective lease terms and currencies. As the
cash-flow pattern of the reference interest rates (bullet bonds) does not correspond to the cash-flow
pattern of a lease contract (annuity), we use a duration adjustment in order to account for that
difference.

A right-of-use asset is subsequently measured at cost less any accumulated depreciation and, if
necessary, any accumulated impairment. If the lease transfers ownership of the underlying asset to
the lessee at the end of the lease term or if the cost of the right-of-use asset reflects that the lessee
will exercise a purchase option, the right-of-use asset is depreciated to the end of the useful life of
the underlying asset. Otherwise, the right-of-use asset is depreciated to the end of the lease term.
In the subsequent measurement of a lease liability, the carrying amount is increased to reflect
interest on the lease liability and reduced to reflect the lease payments made.

According to IFRS 16, the depreciation of right-of-use assets is recognised within functional costs.
The interest due on the lease liability is a component of interest expense.

Extension and termination options are part of a number of leases particularly of real estate. Such
contract terms offer the Mercedes-Benz Group the greatest possible flexibility. In determining the
lease term, all facts and circumstances offering economic incentives for exercising extension
options or not exercising termination options are taken into account. In determining the lease term,
those options are only considered if their exercise is reasonably certain.

Sale and leaseback

In a sale and leaseback transaction, the requirements of IFRS 15 are applied to ascertain whether the
transfer of an asset has to be accounted for as a sale.
If the transfer of an asset does not satisfy the requirements of IFRS 15 to be accounted for as a sale
of the asset, the transferred asset is still recognised and a financial liability is recognised equal to the
transfer proceeds in accordance with IFRS 9.

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If the transfer of an asset is accounted for as a sale, the lessee accounting principles described above
apply to those sold assets if the Mercedes-Benz Group leases them back from the buyer.
Accordingly, only the amount of any gain or loss that relates to the rights transferred to the buyer-
lessor is recognised.

The Mercedes-Benz Group as lessor

Based on the risk and rewards associated with a leased asset, it is assessed whether economic
ownership of the leased asset is transferred to the lessee (so-called finance leases) or remains with
the lessor (so-called operating leases).

Operating leases, i.e., by which economic ownership of the vehicle remains at the Mercedes-Benz
Group, relate to vehicles that the Group produces itself and leases to third parties. Additionally, an
operating lease may have to be reported with sales of vehicles for which the Group enters into a
repurchase obligation:

− Sales of vehicles by which the Mercedes-Benz Group is obliged to repurchase the vehicles in the
future are accounted for as operating leases. This also applies to a call option that only grants the
Mercedes-Benz Group the right to repurchase.

− Sales of vehicles including a put option (an entity’s obligation to repurchase the asset at the
customer’s request) are reported as operating leases if the customer has a significant economic
incentive to exercise that right. Otherwise, a sale with a right of return is reported. The Mercedes-
Benz Group considers several factors when assessing whether a customer has a significant
economic incentive to exercise his or her right at contract inception. Among others, these are the
relation between repurchase price and the expected future market value (at the time of repurchase)
of the asset or historical return rates.

As part of the residual-value management process, especially for operating lease contracts, certain
assumptions are regularly made at local and corporate levels regarding the expected level of prices,
based upon which the cars to be returned in the leasing business are evaluated. If changing market
developments lead to a negative deviation from assumptions, there is a risk of lower residual values
of used cars. Depending on the region and the current market situation, the risk-mitigation measures
taken generally include continuous market monitoring as well as, if required, price-setting strategies
or sales-promotion measures designed to regulate vehicle inventories. The quality of market
forecasts is verified by regular comparisons of internal and external sources, and, if required, the
determination of residual values is adjusted and further developed with regard to methods,
processes and systems.

In the case of accounting as an operating lease, these vehicles are capitalised at (depreciated) cost of
production under leased equipment and are depreciated over the contract term on a straight-line
basis with consideration of the expected residual values. Changes in the expected residual values
lead either to prospective adjustments of the scheduled depreciation or, if necessary, to an
impairment loss. The vehicles are allocated to the segment which bears substantially all of the
residual-value risk.

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Operating leases also relate to vehicles, primarily Group products that Mercedes-Benz Mobility
acquires from non-Group dealers or other third parties and leases to end customers. These vehicles
are presented at (amortised) cost of acquisition under leased equipment in the Mercedes-Benz
Mobility segment. If these vehicles are Group products and are subsidised, the subsidies are
deducted from the cost of acquisition. After revenue is received from the sale to independent
dealers, these Group products generate revenue from lease payments and subsequent resale on the
basis of the separate leasing contracts. The revenue received from the sale of Group products to
dealers is estimated by the Group as being of the magnitude of the respective addition to leased
equipment at Mercedes-Benz Mobility. In 2021, additions to leased equipment from these vehicles
at Mercedes-Benz Mobility amounted to approximately €10 billion (2020: approximately €11
billion).

In the case of finance leases, the Group presents the receivables under receivables from financial
services in an amount corresponding to the net investment of the lease agreements. The net
investment of a lease agreement is the gross investment (future lease payments and non-guaranteed
residual value) discounted at the rate upon which the lease agreement is based.
The leased equipment of the Mercedes-Benz Mobility segment includes commercial vehicles and
buses (produced by Daimler Truck) which have been acquired from external dealers or other third
parties not related to the Mercedes-Benz Group. Mercedes-Benz Mobility usually receives a
residual-value guarantee from Daimler Truck for this leased equipment in connection with the
obligation to return the respective commercial vehicles and buses to Daimler Truck. Such leased
equipment is depreciated over the contractual term on a straight-line basis to the guaranteed residual
value. The residual-value guarantee does not affect classification as an operating lease as Daimler
Truck is a related party to Mercedes-Benz Mobility after the spin-off.

Additionally, the Mercedes-Benz Group will continue the leasing and sales-financing business for
Daimler Truck’s commercial vehicles and buses in some markets. These vehicles are directly
acquired from Daimler Truck and leased to the end customer. Insofar as a mandatory vehicle return
has been agreed, there is a rental con- tract (head lease) between Mercedes-Benz Mobility and
Daimler Truck. The contract between Mercedes-Benz Mobility and the end customer constitutes a
sublease in this respect.

Accounting for and classification of a sublease depend on whether the contracts were concluded
before or after the legal spin-off and hive-down of Daimler’s commercial vehicle business. The
leases that were concluded before the legal spin-off and hive-down are continued as operating
leases. The head lease is presented under leased equipment as a right of use, which was recognised
at fair value at the spin-off date and subsequently depreciated on a straight-line basis. In addition, a
residual-value receivable from the companies of the Daimler Truck Group is recognised. However,
the leasing contracts concluded after the legal spin-off and hive- down are classified and accounted
for as finance leases.

The net investment in the lease corresponds to the right-of-use asset from the head lease. In addition
to the finance lease, Mercedes-Benz Mobility recognises a residual-value receivable from the
Daimler Truck Group in the amount of the guaranteed residual value. The head lease is not recorded
separately.

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Assets and liabilities held for sale

In particular, parts of the financial services business in connection with the commercial vehicle
business will not be transferred to Daimler Truck Holding AG or its subsidiaries until 2022 or
subsequent years. In addition, in some countries, investments in operating entities or business
operations of the former Daimler Trucks & Buses segment will not be transferred to Daimler Truck
Holding AG or its subsidiaries or sold to external third parties until 2022. These business operations
are reported as assets and liabilities held for sale from 30 July 2021 onwards, provided that for each

transaction the criteria of IFRS 5 are met. The assets and liabilities held for sale shown in the
Consolidated Statement of Financial Position at 31 December 2021 are shown in the table.

Scheduled depreciation and amortisation and the equity-method measurement of the non-current
assets classified as held for sale since 30 July 2021 are discontinued as of the date of classification.

Profit of discontinued operations

Profit after taxes of discontinued operations comprises the profit/loss of the ongoing business of the
discontinued operations and the gain from the spin-off and hive - down of the discontinued
operations after directly related transaction costs.

Profit of the ongoing business of discontinued operations includes income and expenses in
connection with the assets and liabilities of the former Daimler Trucks & Buses segment that have
been spun off or are classified as held for sale. Expenses also include costs of €132 million

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attributable to profit from the ongoing business of discontinued operations in connection with the
spin-off and hive-down and expenses of €110 million from the recycling of currency translation
losses. No amounts of other segments are included – in particular of Mercedes-Benz Mobility – as
these operations do not constitute a separate significant business unit.

Income taxes are allocated to the taxable entity or in accordance with the applicable tax
apportionment system. Income taxes of the ongoing business of discontinued operations essentially
comprise the tax expenses on the pre-tax earnings of the foreign companies. Due to the applicable
income-tax group, the domestic companies largely do not recognise any tax expense or benefit.

The profit/loss on the disposal of discontinued operations includes the gain of €9,998 million in
connection with the spin-off and hive-down of the assets and liabilities of the former Daimler

Trucks & Buses segment, which is reduced by directly allocable transaction costs of €100 million
and by the recycling of an other comprehensive loss of €150 million. The loss from the spin-off and
hive-down of the assets and liabilities of the Mercedes-Benz Mobility segment is reported in the
other operating expense of continuing operations.

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CHAPTER - 2

REVIEW OF LITERATURE

Review of related literature is an important research effort as it provides comprehensive

understanding of what is already known about the topic. Familiarity with research work of others
provides up-to-date knowledge of the latest developments, findings, recommendations, tools and
loop holes of researches. It helps to avoid duplication of what has already been done, and
provides useful directions and helpful suggestions for research work.

• Shinde Govind P. & Dubey Manisha (2011) :

the study has been conducted considering the segments such as passenger vehicle, commercial
vehicle, utility vehicle, two and three wheeler vehicle of key players performance and also analyze
SWOT analysis and key factors influencing growth of automobile industry.

• Sharma Nishi (2011)

studied the financial performance of passenger and commercial vehicle segment of the automobile
industry in the terms of four financial parameters namely liquidity, profitability, leverage and
managerial efficiency analysis for the period of decade from 2001-02 to 2010-11. The study
concludes that profitability and managerial efficiency of Tata motors as well as Mahindra &
Mahindra ltd are satisfactory but their liquidity position is not satisfactory. The liquidity position of
commercial vehicle is much better than passenger vehicle segment.

• Singh Amarjit & Gupta Vinod (2012)

explored an overview of automobile industry. Indian automobile industry itself as a manufacturing
hub and many joint ventures have been setup in India with foreign collaboration. SWOT analysis
done there are some challenges by the virtue of witch automobile industry faces lot of problems and
some innovative key features are keyless entry, electrically controlled mechanisms enhanced
driving control, soft feel interiors and also need to focus in future on like fuel efficiency, emission
reduction safety and durability.

• Zafar S.M.Tariq & Khalid S.M (2012)

the study explored that ratios are calculated from financial statements which are prepared as
desired policies adopted on depreciation and stock valuation by the management. Ratio is simple

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comparison of numerator and a denominator that cannot produce complete and authentic picture of
business. Results are manipulated and also may not highlight other factors which affect
performance of firm by promoters.

• Ray Sabapriya (2012)

studied the sample of automobile companies to evaluate the performance of industry through
indicators namely sales, production and export trend etc for period of 2003-04 to 2009-10. The
study finds that automobile industry has been passing through disruptive phases by over debt
burden, under utilization of assets and liquidity instability. The researcher suggested to improving
the labour productivity, labour flexibility and capital efficiency for success of industry in future.

• Dawar Varun (2012)

Study to analyze the effect of various fundamental corporate policy variables like dividend, debit,
capital expenditure on stock prices of automobile companies of India. The study tends that dividend
& investment policy are relevant and capital structure irrelevant to stock prices.

• Mistry Dharmendra S. (2012)

understood a study to analyze the effect of various determinants on the profitability of the selected
companies. It concluded that debt equity ratio, inventory ratio, total assets were important
determinants which effect positive or negative effect on the profitability. It suggested to improve
solvency as to reduce fixed financial burden on the company profit & give the benefit of trading on
equity to the shareholders.

• Murlidhar, A. Lok Hande & Rana Vishal S. (2013)

the author tries to evaluate the performance of Hyundai Motors Company with respect to export,
Domestic Sales, productions and profit after tax. For this purpose, the pie chart and bar graph are
used to show the performance of company various years.

• Dharmaraj, A.and Kathirvel N. (2013)

explored an overview of new industrial policy act 1991, which allow 100 percent foreign direct
investment. An attempt is made to find out the effect of FDI on financial performance of automobile
industry. It is concluded that the liquidity ratios shows minor changes and profitability shows an
increasing trend during post FDI when compared to pre FDI. Post FDI efficiency ratio shows that
companies are efficiently utilizing the available resources.

• Rapheal Nisha (2013)

the author tries to evaluate the financial performance of Indian tyre industry. The study was
conducted for period 2003-04 to 2011-12 to analyze the performance with financial indicators, sales
trend, export trend, production trend etc. The result suggests the key to success in industry is to
improve labour productivity and flexibility and capital efficiency.

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• Hotwani Rakhi (2013)

the author examines the profitability position and growth of company in light of sales and
profitability of Tata Motors for past ten years. Data is analyzed through rations, standard deviations
and coefficient of variance. The study reveals that there not exists a strong relationship between
sales & profitability of company.

• Sharma Rashmi, Pande Neeraj & Singh Avinash (2013)

for understanding how social media monitoring can help diving the consumer decision & also
study. The functions of social media i.e. monitor, responses amplify and lead at maruti Suzuki India
ltd. The researcher had discussion with social media team median managers for collecting data &
also visited the official social media sites of MSIL.

• Daniel A. Moses Joshunar (2013)

the study has been conducted to identify the financial strength and weakness of the Tata motors Ltd.
using past 5 year financial statements. Trend analysis & ratio analysis used to comment of financial
status of company. Financial performance of company is satisfactory and also suggested to increase
the loan levels of company for the better performance.

• Dhole Madhavi (2013)

Investing the impact of price movement of share on selected company performance. It advise due
investors consider various factors before choosing the better portfolio. Sentimental factors do play a
role in price movement only in short term but in long run annual performance is sole factor
responsible for price movement.

• Shende Vikram (2014)

this research will be helpful for the new entrants and existing car manufacturing companies in India
to find out the customer expectations and their market offerings. The objective of study is the
identification of factors influencing customers performance for particular segment of cars.

• Azhagaiah R. & Gounasegaran (2014)

recognized India’s per capita real GDP growth as one of key drivers of growth for country’s
automobile industry. The central government would be set up various task forces on issue related to
taxation, land acquisitions, labour reform and skill development for auto industry.

• Buvaneswari .R & Kanimozhip (2014)

to study the credit worthiness of selected firms in Indian car industry, tiruchy. Professor Edward
Altman of New York University developed method Z score analysis to predict the company failure
or bankruptcy. To measure the fiscal fitness of a company combined a set of five financial ratios.

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• Idhayajothi, R et al (2014)
the main idea behind this study is to analyze the financial performance of Ashoka Leyland ltd. at
Chennai. The result shows that financial performance is sound and also suggested to improve
financial performance by reducing the various expenses.

• Huda Salhe Meften & Manish Roy Tirkey (2014)

have studied the financial analysis of Hindustan petroleum corporation ltd. The study is based on
secondary data. The company has got excellent gross profit ratio and trend is rising in with is
appreciable indicating efficiency in production cost. The net profit for the year 2010-11 is excellent
& it is 8 times past year indicating reduction in operating reduction in operating expenses and large
proportion of net sales available to the shareholders of company.

• Srivastava Anubha (2014)

Data analysis has been done using the top down approach ,i.e. Economic analysis, industry
analysis, company and technical analysis to find relationship between automobile sector index with
market index. Mahindra and Mahindra have a great position on the stock market and will attract
investor and this could lead to expansion and growth. Thus Tata motors and Maruti Suzuki need to
take care of their stock and expansion.

• Sarangi Pradeepta K et al (2014)

undertook a study to forecast the future trend of automobile industry. The study highlighted the six
different experiments have been carried out for period of 12 years data to estimate values for next 3
years. In each experiment graph has been plotted using spreadsheet and then linear trend has been
drawn and expanded to calculate future values.

• Kumar Sumesh & Kaur Gurbachan (2014)

Automobile sector is the dominant player in economy of world. After liberalization Indian
automobile industry has emerged as a major contributor to India’s GDP. The study identified that
there is no significant in the means score of various financial ratios of Maruti Suzuki and Tata
motors but in meeting their long term obligations and efficacy of utilizing the assets show the
significant difference in the efficiency of both the firms.

• Krishnaveni, M. & Vidya, R. (2015)

find that Indian automobile industry is a high flying sector these days and emerging as an export
hub in wake of liberalisation and globalization. This paper revises the category wise production,
sales and exports of automobile industry in India. Industry growth can be viewed in term of pre and
post liberalization. As government allows 100 percent FDI, increase 15% in customs duty on cars

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and MUVs to encourage local manufacturer and concessional import duty on specified parts of
hybrid vehicles.

• Sarwade Walmik Kachru (2015)

analyzed the effects of liberalization, government de- licensing and liberal trade policies on the
growth of Indian auto mobile industry .The study recommends that investing four- wheeler is going
to be smart potion not only in India but all around the world.

• Becker Dieter (2015)

the report shows about the current state and future prospects of the worldwide automobile industry.
This survey report the manufacturer, executive and consumer views about four aspects, mobility
culture, technological fit, business model readiness and market share.

• Surekha B. & Krishnalal K.Rama (2015)

this study reveals the prosperity of Tata motors company. It can be concluded that inner strength of
company is remarkable. Company can further improve its profitability by optimum capital gearing,
reduction in administration and financial expenses for the growth of company.

• Anu B. (2015)
made an attempt to examine the relationship between capital structure indicators, market price per
shares and also to test relationship between debt-equity and market price per share of selected
companies in industry. The study concludes that all three companies support the hypothesis that
there is relation between debt-equity and MPS.

• Maheswari, V. (2015)
made an attempt to analyze the financial soundness of the Hero Honda motors limited have
identified three factors, namely liquidity position, solvency position and profitability position based
on the study of period 2002 to 2010 using ratio analysis.

• Agarwal, Nidhi (2015)

the study focus on the comparative financial performance of Maruti Suzuki and Tata motors ltd. The
financial data and information required for the study are drawn from the various annual reports of
companies. The liquidity and leverage analysis of both the firms are done. To analyze the leverage
position four ratios are considered namely, capital gearing, debt-equity, total debt and proprietary
ratio. The result shows that Tata motors ltd has to increase the portion of proprietor’s fund in
business to improve long term solvency position.

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• Nandhini, M. & Sivasalthi, V.(2015)

have studied the impact of both financial leverage as well as operating language on the profitability
of TVS motor company. The result shows that company suffers from certain weakness & suggested
to control fixed cost as well as variable cost to gain adequate profits.

• Jothi, K. & Kalaivani, P. (2015)

studied the comparative performance of Honda Motors and Toyota Motor that both companies have
satisfactory short term liquidity position. As for as cash ratio concerned Honda company has upper
hand upper hand in sound cash management practice during the study period. In case of profitability
it is rising from the both of companies but remained much higher earning potential in Honda motor
ltd.

• Krishnaveni , M. & Vidya, R (2015)

author has selected 87 companies out of 242 companies in capital line database to discuss the
standard current ratio of automobile industry is matched with tractor and four sectors like engine
parts, lamps, gears and ancillaries with standard norms. The study concludes that current and
liquidity ratio of automobile industry is matched with tractor and the four sectors but other sectors
have to improve the repaying capacity to strengthen the financial aspects.

• Takeh Ata & Navaprabha Jubiliy (2015)

Author has made conceptual model to outline the impact of capital structure on the financial
performance i.e. capital structure is independent variable that value is measured by using four ratios
namely, financial debt, total debt equity, total asset debt and interest coverage ratio where as
financial performance is dependent variable that value is measured by using four ratios as return on
assets, return on equity , operating profit margin and return on capital employed. Researcher has
selected 13 major steel industries and applied various statistical tools like standard deviation,
correlation matrix, anova etc are employed for testing hypothesis with help of SPSS22.

• Kumar Rakesh Rasiklalajani & Bhatt Satyaki J. (2015)

the proposed research is intended to examine the trend and pattern of financing the capital structure
of Indian companies. The study is to analyze the determinants of total debt ratios as well as
determinants of short term and long term ratios.

• Kumar Neeraj & Kaur Kuldip (2016)

made an attempt to test the size and profitability relationship in the Indian automobile industry. To
analyze the relationship linear regression model as well as cross-sectional has been employed for
the year 1998to 2014. For profitability analysis two different measures have been used (i) ratio of
net profit to total sales turnover (ii) ratio of net income to net assets plus working capital and for
form size two indicators used namely, total sales turn over and net assets. The time series analysis

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showed the positive relationship between firm size and profitability but cross- sectional show no
relationship between firm size and profitability.

• Ravichandran, M. & Subramanium M Venkata (2016)

the main idea behind this study is to assessment of viability, stability and profitability of Force
motors limited. Operating position of the company can be measured by using various financial tools
such as profitability ratio, solvency ratio, comparative statement & graphs etc. This study finds that
company has got enough funds to meet its debts & liabilities. Company can further improve
financial performance by reducing the administrative, selling & operating expenses.

• Mathur Shivam & Agarwal Krati (2016)

Ratio’s are an excellent and scientific way to analyze the financial performance of any firm. The
company has received many awards and achievements due to its new innovations and technological
advancement. These indicators help the investors to invest the right company for expected profits.
The study shows that Maruti Suzuki limited is better than Tata motors limited.

• Jothi, K. & Geethalakshmi, A. (2016)

this study tries to evaluate the profitability & financial position of selected companies of Indian
automobile industry using statistical tools like, ratio analysis, mean, standard deviation, correlation.
The study reveals the positive relationship between profitability, short term and long term capital.

• Kumar Mohan M.S, Vasu. V. and Narayana T. (2016)

the study has been made through using different ratios , mean, standard deviation and Altman’s Z
score approach to study the financial health of the company. The study reveals there is a positive
correlation between liquidity and profitability ratios except return on total assets as well as Z score
value indicate good health of the company.

• Kaur Harpreet (2016)

the author tries to examine the qualities & quantities performer of Maruti Suzuki co. & how had
both impact on its market share in India, For this study secondary data has been collected from
annual reports, journals, report automobile sites. Result shows that MSL has been successfully
leading automobile sector in India for last few years.

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CHAPTER - 3

RESEARCH METHODOLOGY

Scope of Study

The most useful advice for the business comes at the time the controls are being designed. Internal
Audit weighs in with only a review of control design after implementation. Internal auditors should
observe those projects and provide real-time feedback. Safeguards to preserve independence can
and should be established, by the business units or committees in question and by Internal Audit,
but Internal Audit should be at the table and provide its control expertise during the design phase.
Internal Audit should also have a seat at the table on strategic projects and transformation
initiatives, not only to provide assurance on change projects but to contribute to the quality of
discussion by calling out concerns, challenging management’s approach to risk management and
advising on ways to enhance and provide assurance .

30% of the participants indicated that globalization process has shown major impact on the
automobile companies, 50% of the other participants indicated that globalization process has shown
negative impact on Indian automobile industry and finally 20% of the other participants stated that
they cannot specify their answer for this question. Finally, around half of the participants stated that
globalization process has impacted automobile companies of India.

The method used in this project is descriptive-evaluative method. The study is mainly review based.
It is purely supported by secondary source of data, i.e. books, journals, papers and articles and
internet.

The collapse of the economy, rise in prices, and the all-around dire state of public health and
financials brought about a considerable change in the buying patterns of consumers. To begin with
though, during a critical time like the pandemic, purchasing a car was the least of everyone’s
worries. Scarce finances and uncertainly about the future led to consumers backing out of making
vehicle purchases, that emerged as one of the key challenges of the automotive industry.

In Indian context, due to the change in Foreign Direct Investment policy across the industries and
difficulty in obtaining the specific car industries data for a longer time period, it is recommended
that there is need to study the trend of automobile companies.

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Objectives of the study

The objective of this study is to research a methodology and audit model that contributes to the
effective design of an audit program applicable to performance auditing. The objectives are
summarised as follows:

- To determine whether the proposed methodology and model can be applied in practice.

- To understand the workings of the automotive industry.

- To make sure that accurate use of relevant concepts and principles are being implemented.

- To explore the underlying factors that caused emergence of any scandal.

- To evaluate employee motivation at Mercedes Pvt Ltd.

- To formulate recommendations to Mercedes management team in terms of increasing employee

motivation if needed.

- To examine the system of internal check.

- To check arithmetical accuracy of books of accounts, verify it.

- To verify the authenticity and validity of transactions.

- To check the proper distinction of capital & revenue of transactions.

- To Confirm existence and value of assets & liabilities.

Sources of Data

Data can be defined as the quantitative or qualitative values of a variable. Data is plural of datum
which literally means to give or something given. Data is thought to be the lowest unit of
information from which other measurements and analysis can be done. Data can be numbers,
images, words, figures, facts or ideas. Data in itself cannot be understood and to get information

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from the data one must interpret it into meaningful information. There are various methods of
interpreting data. Data sources are broadly classified into primary and secondary data.

Primary research entails the use of immediate data in determining the survival of the market. The
popular ways to collect primary data consist of surveys, interviews and focus groups, which shows
that direct relationship between potential customers and the companies. Whereas secondary
research is a means to reprocess and reuse collected information as an indication for betterments of
the service or product.

The study is based on Qualitative method. The primary data is collected by personal interviews
through structured questionnaires to knowing the views, comments and confidence regarding the
performance of Internal Audit functions in Mercedes Co.

The secondary data is collected from the books, magazines/ journals, websites and including
Mercedes Audit Department office. The researcher study undertaken by the researcher includes the
collection of both primary and secondary data. The primary data is collected with the help of
observation, questionnaires of selected respondents. The secondary data is collected from
Government websites, Libraries, Journals, Magazines, Report on Internal Audit, Departmental

Manual and Audit Reports, Economic Survey of India and Maharashtra and related websites, etc.
Secondary data from selected respondent is also obtained. No Primary Data is Involved as project is
based on company . Thus, only information gathered through Secondary Sources i.e Secondary
Data is included.

Data Collection Period :

The secondary data is collected for the last twenty – one years from the back of the year 2021; the
survey was conducted during financial year 2022-2023.

Limitations of Study :

• Research will be based on secondary data since finding primary data needs personal visits
and connections.

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• Research will focus only on automobile industry. This will also have some disadvantages
since it only covers one industry.

• Time is the constraint of the study. A detailed project will require a long duration of time
which is a major limitation

• External environment and government policies remain constant. This proves to be a

restriction while collecting preferred information.

• One more major constraint is the limitation of costs. Without any funding retrieving data on a
large scale is difficult.

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CHAPTER - 4

DATA ANALYSIS & INTERPRETATION

Unit sales

The Mercedes-Benz Group sold a total of 2.75 million vehicles in the reporting year (2020: 2.84
million). On the one hand, the sales development was boosted by the recovery of key markets from
the coronavirus-re- lated effects of the previous year. On the other hand, it was impacted by
worsening supply bottlenecks for semiconductors. On balance, our automotive divisions, including
Trucks & Buses until the spin-off and hive- down of Daimler’s commercial vehicle business, posted
unit sales that were slightly lower than in the previous year. At the beginning of 2021, we had
expected sales to increase significantly. In the interim report for the third quarter, we had already
adjusted the Group’s forecast for total unit sales to a level slightly lower than the figure recorded in
the prior year.

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In 2021, Mercedes-Benz Cars sold a total of 1,943,900 units, which is slightly lower than in the
previous year (2020: 2,087,200). We remain number one in the premium segment in Germany and
some other key Euro- pean markets, as well as in South Korea and Japan, measured by the number
of new vehicle registrations. At the beginning of 2021, Mercedes-Benz Cars had still expected its
unit sales to increase significantly.

The A-Class and B-Class models, including the CLA and CLA Shooting Brake, which were affected
by the global supply bottlenecks for semiconductors, achieved unit sales of 322,800 vehicles
(-28%). Sales of C-Class vehicles decreased by 23% to 239,000 saloons, estates, coupés and
cabriolets. A total of 295,100 vehicles of the E-Class were delivered to customers (-11%). Unit sales
of our sports cars (SL, SLC and AMG GT) amounted to 10,900 vehicles and were thus 39% lower
than in the previous year. The growth of the SUV segment provided a boost, which caused our unit
sales there to rise to 946,600 vehicles (+7%). This was partly due to electrified models such as the
EQA, of which we sold 24,800 units. Global sales of the S-Class, including the top models from the
Mercedes-Maybach and AMG brands, rose to 91,100 units in 2021 (+63%). We sold 38,400 fortwo
and for-four vehicles of the smart brand world- wide, thus surpassing the prior year’s level (2020:
35,200).

Mercedes-Benz Vans finished the 2021 financial year with unit sales of 386,200 vehicles worldwide
(2020: 374,700). Although 2021 was impacted by a scarcity of semiconductors, unit sales were
nevertheless slightly higher than in the previous year. This corresponds to the forecast that was
made at the beginning of 2021. At 246,000 units, sales in the EU30 core region remained at the
previous year’s level (2020: 245,200). We sold 98,200 vehicles in Germany during this period
(2020: 109,500). At 55,300 units, sales in North America were at the same level as in the previous
year (2020: 54,400).

The unit sales figures for Mercedes-Benz Cars provided above include our top brands: Mercedes-
AMG sold 135,100 units (+12%), while sales of the G-Class increased to 40,500 units (+18%) and
unit sales of Mercedes-Maybach brand vehicles rose to 16,600 (+68%).

In Europe, Mercedes-Benz Cars sold 662,300 vehicles, or 16% fewer units than in 2020. Among
other things, we registered decreases in the core markets of Germany (-23%), the United Kingdom
(-21%) and Spain (-21%). In China, the single largest market for Mercedes-Benz Cars, unit sales of
734,700 vehicles were achieved (2020:758,100). At 290,600 vehicles, our unit sales in North
America surpassed the previous year’s level (2020: 286,800). In the region’s main market, the
United States, our sales rose by 1% to 251,400 units.

Profitability

Consolidated statement of income of the Mercedes- Benz Group Revenue from continuing
operations of €133.9 billion in 2021 was significantly above the prior-year figure (2020: €121.8
billion). Also adjusted for negative exchange-rate effects, it was significantly higher than in 2020.
The increase in revenue was primarily due to the significantly improved sales structure at the
Mercedes-Benz Cars & Vans division.

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Revenue and EBIT

The revenue of the Mercedes-Benz

Cars & Vans segment increased due to
a significantly improved sales
structure by 11% to €109,648 million
in 2021 (2020: €98,576 million). The
segment’s revenue was thus
significantly above the level of the
previous year and met the forecast for
2021. EBIT amounted to €13,626
million (2020: €5,172 million) and
adjusted EBIT amounted to €13,914
million (2020: €6,802 million). The
adjusted return on sales of 12.7% was
significantly higher than the adjusted
prior-year figure of 6.9% and thus
exceeded the forecast of an adjusted
return on sales between 8% and 10%
made in the 2020 Management
Report. This also exceeded the
changed forecast in the capital market
reports of an adjusted return on sales
of 10% to 12% due to the strong
profitability.

A greatly improved sales structure,

significantly improved net pricing and
a favourable product mix as well as
the positive development of the used-
car business had a very positive
impact on gross profit. On the other
hand, there was a decline in unit sales,
especially in the second half of 2021,
caused by the worldwide shortage of semiconductor components. In addition, higher raw-material
prices and negative exchange-rate effects reduced gross profit. Overall, gross profit in
relation to revenue increased from 17.6% to 23.7%. Functional costs increased in 2021, mainly due
to advance expenditure for future technologies and vehicles. In the previous year, the measures
introduced as a consequence of the covid-19 pandemic and adjustments to a pension and healthcare
plan in the United States led to an improvement in the cost position. The increased income from the
equity-method investment in Beijing Benz Automotive Co., Ltd. (BBAC) had a positive impact on

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earnings. There were positive effects from the dis- counting of non-current provisions in other
financial income/expense.

Restructuring expenses of €463 million (2020:€1,476 million) had a negative impact on earnings.
They included personnel-cost optimisation programmes of €463 million (2020: €605 million). In
the prior-year, expenses for the adjustment and realignment of capacities within the global
production network of €871 million were also included. Effects from ongoing governmental and
court proceedings and measures taken relating to Mercedes-Benz diesel vehicles resulted in a
negative impact on earnings of €333 million (2020: €154 million). The M&A items include
expenses in connection with the change in the investment structure of the motorsport business of
€96 million. On the other hand, income of €604 million in connection with the establishment of the
joint venture for fuel cells, cell centric, resulted in a positive contribution to earnings.
EBIT of the Mercedes-Benz Mobility segment amounted to €3,493 million in 2021 (2020: €1,436
mil- lion) and adjusted EBIT amounted to €3,449 million (2020: €1,595 million). Adjusted return
on equity of 22.0% was above the adjusted prior-year figure of 10.9%.

The Mercedes-Benz Mobility segment thus exceeded the forecast made in the 2020 Management
Report for 2021 of an adjusted return on sales of 12% to 13%. It was even able to meet the forecast
that was changed in the course of the year in the context of the capital mar- ket reports to an
adjusted return on equity of 20% to 22%.

EBIT of the Mercedes-Benz Mobility segment amounted to €3,493 million in 2021 (2020: €1,436
mil- lion) and adjusted EBIT amounted to €3,449 million (2020: €1,595 million). Adjusted return
on equity of 22.0% was above the adjusted prior-year figure of 10.9%.

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The Mercedes-Benz Mobility segment thus exceeded the forecast made in the 2020 Management
Report for 2021 of an adjusted return on sales of 12% to 13%. It was even able to meet the forecast
that was changed in the course of the year in the context of the capital mar- ket reports to an
adjusted return on equity of 20% to 22%.

One of the main reasons for the positive development of gross profit in relation to revenue in 2021
was primarily lower credit-risk provisions, as the previous year’s figure was impacted by cost
adjustments in response to the covid-19 pandemic. Further positive effects were achieved due to
lower refinancing costs, the improved development of mobility and fleet services business, and
lower functional costs in connection with personnel cost optimisation programmes of €45 million
(2020: €67 million). Furthermore, positive effects on earnings resulted from the reversal of a
provision for legal disputes and the sale of all shares in Via Transportation Inc. of €89 million.
Another positive effect resulted from the impairment of capitalised software development costs in
the previous year. On the other hand, the measures introduced due to the covid-19 pandemic,
including the use of short-time work in Germany, led to an improvement in the cost position in the
previous year.

Cost of Sales

Cost of sales amounted to €103.2 billion in 2021, increasing by 1.6% compared with the previous
year. Prior-year cost of sales were impacted by production and cost adjustments in response to the
covid-19 pandemic. On the other hand, expenses in connection with the adjustment and realignment
of capacities within the global production network at the Mercedes-Benz Cars & Vans segment
adversely affected cost of sales in the previous year. At the Mercedes-Benz Mobility segment higher
expenses for credit-risk provisions and the impairment of software in the context of optimising the
IT architecture had a negative
impact on cost of sales in the
previous year. Overall, gross
profit in relation to revenue
increased from 16.6% to
22.9%.

In the prior-year period, the

cost of sales was primarily
affected by production and cost
adjustments in response to the
covid-19 pandemic.

Amortisation expense of
capitalised development costs
in the amount of €1,945
million (2020: €1,696 million)

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is presented in expense of goods sold.

The expense of goods sold includes, among other expenses, expenses in connection with
restructuring measures. Furthermore, it also includes cost optimisation programmes to reduce fixed
costs. In 2020, the expense of goods sold was affected by expenses of €871 million in connection
with the adjustment and realignment of capacities within the global production network in the
Mercedes-Benz Cars & Vans segment. At the Mercedes-Benz Mobility segment, cost of sales in the
previous year was affected by increased expenses for credit-risk provisions and the impairment of
software in the context of streamlining the IT architecture.

Other Income

Income from costs recharged

to third parties includes
income from licenses and
patents, as well as shipping
costs and other costs charged
to third parties, with related
expenses primarily within
functional costs.

In 2021 and 2020, the use of

short-time-work in Germany
led to claims for
reimbursement, which are
included in other operating
income from government
grants.

In 2021, income from the

fuel-cell joint venture cell-centric GmbH & Co. KG (cell-centric) had a positive effect on earnings
of €604 million at the Mercedes-Benz Cars & Vans segment, which is presented in the income from
company transactions. See Note 4 for further information.
In 2020, the other miscellaneous income includes income of €154 million from the contribution of
the smart brand to the joint venture smart Automobile Co., Ltd., which is attributed to the
Mercedes-Benz Cars & Vans segment.

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Research Questions for Automotive Industry

Gender Specification of the participants involved in the survey

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The above statistics report revealed that among the total number of the respondents participated in
the research process, 90% of them are male participants and the rest 10% are female participants.
Finally, male participation is high when compared with female participation.

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How to identify and analyze the buying behaviour of customers and what type of strategies
should they follow in order to satisfy the buying preferences of customers?

For the above question, 30% of the participants answered that they will analyze the buying
behaviour of the customers by using marketing strategies, 30% of the participants stated that they
will use customer relationship strategies and finally 40% of the participants stated that they will be
both strategies in order to analyze the buying behaviour of the customers. Finally, maximum
percentage of participants stated that they will use both marketing as well as customer relationship
strategies.

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What type of impact does globalization process is shown on buying behaviour of Indian
automobile industry?

For the above question, 30% of the participants indicated that globalization process has shown
major impact on the automobile companies, 50% of the other participants indicated that
globalization process has shown negative impact on Indian automobile industry and finally 20% of
the other participants stated that they cannot specify their answer for this question. Finally, around
half of the participants stated that globalization process has impacted automobile companies of
India.

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Why Indian automobile companies are facing challenges in the international markets?

For the above question, 40% of the participants answered that globalization process is the major
reason for the problems within automobile industry of India, alternately other 40% of the
participants answered that competition among the companies is the major reason for the problems
within auto industry and finally 20% of the participants stated that both globalization as well as
competition are the reasons for the problems. Finally, all the participants supported both aspects
equally.

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What is the buying behaviour of consumers when they purchase cars?

For the above question, 20% of the participants answered that buying behaviour of the customers
allows them to buy the products, 20% of the participants stated that the changing behaviour of the
customers will allow them not to buy the products and finally 60% of the participants stated that
customers will always think that they should make the decisions to buy the products later. Finally,
maximum percentage of the participants stated that customers will think a lot while buying the
products.

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How do the companies assess the buying behaviour of customers towards their
company cars?

For the above question, 60% of the participants answered that companies will asses the buying
behaviour of customers by identifying the wants and needs of the customers and alternately 40% of
the participants stated that they asses the buying behaviour of the customers by reviewing their
feedbacks. Finally maximum numbers of the participants are specifying that companies will asses
the buying behaviour of the customers by fulfilling their wants and needs.

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CHAPTER - 5

CONCLUSION & SUGGESTIONS

Some common findings of InternalAudit include -

1. Segregation of Duties

A fundamental element of internal control is the separation of duties so that one individual cannot
perpetuate and conceal errors and irregularities in the normal course of his/her duties. Strong
internal controls require the segregation of responsibilities for authorising transactions, physical
custody of assets and the related record keeping. For example:

• One individual should not have the ability to order, receive, approve for payment, and verify
charges to the monthly accounting report.

• One individual should not have the ability to receive payments through the mail, prepare the
deposits, reconcile the bank statements, and post payments to the receivable system.

• Ensure tasks and process flows have a check and balance. Eg. A person who is responsible for
collecting payments should not be responsible for creating the deposit and reconciling to
source documents.

2. Lack of Written Policies and Procedures (Departmental)

All aspects of a department's operations should be clearly documented in an up-to-date procedures

manual. The lack of complete written procedures increases the risk of loss of funds, theft of
University assets, and disruption of the operation. Written procedures are also beneficial for the
training of current and new employees, and are a valuable resource in the event that an employee
leaves the department. The procedures should include sufficient information to permit an individual
who is unfamiliar with the operations to perform the necessary financial activities.Major business
transactions and related internal controls of a department's operations should be clearly
documented, periodically reviewed and updated.

3. Lack of Awareness of Centralized University Policies

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4. Lack of Formally Documented Approvals

• Evidence should be maintained to document independent approvals (e.g. reconciliations,

departmental financial statements, etc.)

5. Absence of Supporting Documentation

All transactions should be supported by adequate documentation. This documentation should

include proper authorization and enough detail to provide a trail for future reviews/audits.

• Transactions should be appropriately supported by documentation. For example:

• Manual Journal Entries: Purpose, related source documents, approvals

• Purchases: Requisition, competitive bidding, purchase order, invoice, approvals

6. Lack of Properly Safeguarding University Assets

• In more than one department we have noted cash/checks that were not properly safeguarded.

7. Inappropriate Information Security Access

• Critical or sensitive information should be appropriately restricted based on job duties.

8. Inaccurate Financial Reporting

• Examples include:

• Expenses

• Invoices – Not recorded as a liability upon commitment

• Overtime – Not approved timely

• Revenue

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• Receivables – Not recorded in PeopleSoft (booked when cash is received)

• Income – Recorded as an offset to an expense account rather than to an income account

By analyzing the current trend of Automobile production and export trend, we can say that the
future of automobile industry is bright. To use e-commerce and technology automotive industry
would be higher. Automotive industry depends on new technology and skilled labours. India needs
to enhance the skill-sets that are required for the industry in order to become a global automotive
hub and bringing more and more FDI in the country. So the Government and industry need to come
together and address the challenges related to skill development and workforce shortages, both in
terms of quantity and quality. Poor road infrastructure traffic congestion can be a bottleneck in the
growth of vehicle industry. A balanced approach should be undertaken for proper maintenance,
upgradation and development of roads by encouraging private sector participation besides public
investment and incorporating latest technologies and management practices to take care of increase
in vehicular traffic.

Improve penetration — introduce stronger recruitment processes, training program-mes, improving

policy implementation including a very strong analysis of all information received and immediate
feedback for any corrective action, monitoring visit and travel reports, introducing stock levels for
distributors and stockists with proper MIS to be received from the distributors/stockists and surprise
verification of the MIS with actual situation, introduction of the MIS for secondary sales
monitoring, scheme audits on a regular basis by internal audit, policy of not accepting cash, Palm-
tops (hand held computers) for registering orders and receipts with customer acknowledgments
noted in the Palm-tops.

Lack of Reconciliation Procedures - The monthly accounting reports represent the official records
of the University. All transactions recorded in the accounting reports should be reviewed and
verified on a monthly basis by the Department Chair, Director or Office Manager. This review
represents the final detective control in the accounting system.

Noncompliance with State, System, University, or Departmental Policies and Procedures - All
employees should be familiar with applicable policies, procedures and laws, etc., and should strive
to conduct University business in accordance with them.

A significant amount of time is committed to any internal audit. Scheduling, planning, information
requests, questionnaires, walk-throughs, interviewing, testing and documenting are all part of the
audit process. Yet, even though 90 percent of the hours are allocated to these aspects of the audit,
the main thing, and sometimes the only thing, the stakeholders will remember is the communication
of the results. The way findings and observations are communicated written and verbally by the
auditor will impact the perceived quality and value of the audit.

Effective communication of audit results helps foster a constructive relationship between

management and internal audit, increases the rate of resolution of observations and

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recommendations, and improves efficiency of the internal audit department. For management,
reports serve as a window into daily operations, a means to evaluate operating performance, a
source of objective information about controls and operations, and as a facilitator for gaining
support of upper management for issues requiring attention. For internal auditors, reports enable
audit follow-up, provide a means to teach and train audit staff, summarise results of audit work and
support the auditor’s performance evaluation.

The goal of effective reporting is to help ensure stakeholders’ understanding of the issues, the risk
and impact to operations and to share practical solutions. This can be achieved by implementing
simple best practices.

Have discussions with the auditee – The auditee can provide insight on matters auditors would not
have otherwise known about, helping to improve report quality. Remember, the auditee works in
that area every day and are the experts. Leverage the auditee’s knowledge to enhance your audits. In
these situations, patience and the use of critical listening skills are beneficial. Because listening
skills are so critical to an auditor, consider your own effectiveness, which may include asking for
input from others who will be honest. Only upon acknowledging reality can you devise a plan to
improve this or any skill. When it comes to reporting audit results, surprises are rarely welcomed. It
is critical to discuss the cause, impact and recommendations with the auditee before the report is
released.

Report on facts – Facts should be confirmed throughout the audit and reported matters should be
based on well-documented facts and certain logic. Only what was observed and validated to be
factual based on specific audit evidence should be reported. Avoid the use of phrases that don’t
indicate that, such as “it seems that”, “our impression is” or “there appears to be.”

Provide precision – Words like “sometimes”, “many”, “a few” and “several” leave report readers
with more questions than answers. Instead, provide specific data which allows them to have a better
understanding of the issues to determine how to best resolve them. However, aggressive words like
“everything”, “nothing”, “never” or “always” should also be avoided.

Write with clarity – Have a clear understanding of the issue before writing the audit report. Be
cognizant of the reader’s point of view and understanding of the subject matter. Use simple words
when possible. Yes, some technical jargon may be needed, however excessive use of complex
terminology may lead to confusion, causing the reader to check out mid-way through the report.
This can be a challenge when writing to different levels of readers, such as senior management and
Supervisory Committee members. The use of a glossary to define more technical terms can be very
helpful, especially in the credit union world which loves acronyms. When using these terms assume
the reader does not know what they mean. Spell it out when first introducing it in a report. If further
explanation is necessary, expand the description to help ensure understanding.

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Share background insight on the scope and objectives – Set the stage for how the audit was
initiated, what it strives to achieve and the scope of procedures. Without providing adequate
information regarding the scope, one may conclude the scope was not significant and discount the
efforts of internal audit.

Use a constructive tone – Avoid the “F” word – “failed.” Do not put emphasis on mistakes, instead
focus on improvements. When communicating, filter findings based on risks, and current or
potential impact to the organization. If your findings are a big deal, then communicate them as such,
but if they are insignificant be careful not to make them bigger than they are. If everything is
important, then nothing is. Audit reports with a constructive tone are more likely to get the buy-in
from management. Most audit reports are by nature focused on the negative. Although 97 percent of
the audit procedures and testing may be found to be accurate, the report will address the findings
from 3 percent of the procedures. If the auditee deserves to be complimented for positive
performance, be sure to do so.

However, when communicating the positive in an audit report, be cautious not to issue an opinion.
Be careful to only communicate the positive based on what procedures you completed at that time.
While detail testing 50 loans may identify a systemic underwriting issue, it does not mean
fraudulent or loans outside of the policy have not have been granted. Most audits are designed to
test the effectiveness of internal controls, not identify fraud.

Review your report – It may seem silly, but simple mistakes can divert the attention of the reader
from the content to questioning the content of the report or competency of you as an auditor. After
staring at a computer screen for most of the day, it may be difficult to spot errors in your own
writing. Try printing the report on paper to review it. This can help identify errors that may not be
caught on screen. Always use grammar and spell check, and review numbers and math. The auditor
should re-read the report from management’s perspective and make sure the report takes into
consideration the suggestions noted previously.

A common hurdle in the review process is disagreements between the auditor and their supervisor.
These can range from grammar and spelling, to logic or formatting. Supervisors should develop
templates and consistent report-style formats to ensure consistency and help improve efficiency.
Eliminating time spent on formatting and style allows auditors to focus on the content of their
reports. Most young auditors are not effective writers, so development of writing skills through
training should be part of their development and performance plan.

Be timely – Timely communication allows management to take appropriate corrective action.

Evaluate the significance of the issue when determining the timeliness of the communication.
Critical systemic issues require immediate communication to management, allowing real-time
process and procedural changes to be made, and halt destructive activities. For instance, if a
systemic underwriting issue is identified with a specific dealer while conducting a loan audit, the
severity of the underwriting and fraudulent activity may require immediate communication to allow

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management to shut down the dealer and start investigating. On the opposite side, there may be
isolated items uncovered during the audit not requiring systemic documentation exceptions. In this
situation, communication of results could wait until completion of the loan review.

While verbal communication, and even written bullet-point finding documents, may be prompt,
completion and delivery of the final written report in a timely fashion is a common hurdle of
internal audit departments. Auditors often wait until after fieldwork to begin the formation and
documentation of formal written comments. Starting the findings development process and
documentation during fieldwork results in faster turn-around times on deliverables. In addition,
writing audit report comments during fieldwork is easier because the information is fresh and if
further information is needed it can be more easily obtained. Contacting an auditee for additional
information a month or more after completing the audit fieldwork not only irritates the auditee, but
it can also negatively impact the perception of internal audit. Other common reasons for untimely
report delivery can include not setting clear timing expectations for the audit team in advance,
disagreements with management on findings and lack of timeliness by management in providing
written responses, if required.

Setting and communicating written targets for each phase of the reporting process will vastly
improve achievement of desired timelines. For example, a reasonable timeline is providing a draft
to management within two weeks, management responses within one to two weeks after receiving
the draft and then issuing the final report within a week from receiving management responses. The
overall goal should be to issue the final report with management responses within 30 days from the
last day of fieldwork. Although most internal audit departments do not set and track timelines for
report completion and delivery, they should as it can help drive accountability. Consider Peter
Drucker’s quote, “if you can’t measure it, you can’t improve it.”

Provide reasonable audit recommendations – Auditor recommendations should only be

considered as an option to management, as they may be willing to accept the risk of the deficiency
or have a different solution. It is important to establish and utilize business acumen in developing
recommendations. Adding four people to a process to create perfect internal controls is not
reasonable, nor valuable to the organization. While this may be an extreme example, it is critical
auditors take into consideration the organization’s available resources, business environment and
organizational goals when suggesting practical recommendations to address the deficiency
identified.

Sum it up in an executive summary – Internal audit reports must contain adequate detail to
explain the issue, risk and recommendations to the reader. However, with this requirement there can
be considerable volume to the report content. To highlight the results of the audit and allow the
reader to “cut to the chase,” use an executive summary. This opening section of the report should
highlight the scope and objectives of the audit, provide a summarization of critical findings, key
management actions and overall evaluation statement.As an auditor, you already know the critical
nature of effective communication. Over the years, many internal auditors have been discounted or
not given the respect they deserve in an organization. While this type of treatment can be caused by

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the organizational tone at the top, or the lack of support and respect for internal audit by the senior
management team, quite frequently it is self-inflicted. Poor communication skills can destroy
credibility and create animosity between auditor and auditee.

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Conclusion

The automobile industry is one of the high performing industries of Indian economy.This has
contributed largely in making India a prime destination for many international players in the
automobile industry who wish to set up their businesses in India. This paper tries to examine the
FDI inflows in automobile industry and production of automobile industry. This paper result shows
that the Inflow of FDI in automobile industry is in increasing mode. Growing middle class
population with increased purchasing power along with the economic growth during past decade,
have attracted multinational corporations to Indian market.

To attract Foreign investments, the government is taking several steps, including improving ease of
doing business in the country and relaxing FDI policy. FDI inflows to automobile industry have at
an increasing rate as India has witnessed a major economic liberalization over the years in terms of
the country is growing rapidly from last decade. FDI could benefit both the domestic industry as
well as the consumers, by providing opportunities for technological transfer and up gradation access
to global managerial skills and practices, optimal utilization of human capabilities and natural
resources, making industry internationally competitive, opening up export markets, providing
backward and forward linkages and access to international quality goods and services and
increasing employment opportunities.

Automobile manufacturing industry serves as the single source of customer legitimacy, providing a
complete history of customer interactions across channels one interface for agents to utilize
regardless of communication platform and a dependable, complete source of the voice of the
customer insights. The internal barriers in the country and constraints a international level had
sluggish down the industry growth, these barriers predominantly are hindrances like – Tax structure
especially the disparity in custom and excise duties on the raw material of automobile, and
automobiles. The unavailability of resources at reasonable cost for example- Power, Skilled Labour,
Technology etc is also a major constraint. The challenges are mainly to overcome with these
hindrances and sustain into international competition with other low cost countries. Adding up the
extra values to the products and seeking government active participation in the meager resources
may help to break the barriers. The active participation is also needed in making the goods cost
effective by considering various parameters like providing extended help to bring overall sector
under organized platform and liberalized policies.

Since internal audit plays an important role in decision-making process with the people
involved in corporate governance, the investigation of the effects of internal auditing on
corporate governance needs a clear understanding of activities of an internal auditor and the
collaboration of ACs with internal auditors. This investigation will need an interpretive and
functionalist approaches.

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The goal of an audit is to form and express an opinion on financial statements. The audit is
performed to get reasonable assurance on whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used and the significant
estimates made by the management. Audit conclusions and reporting are one of the principles
governing an audit. Reporting is the last procedure of the process of an audit.

Auditing is mandatory for the companies and it is necessary to get its books of accounts , debit
note , credit note , bill invoice , sales bill , sales invoices , whether sales are conducted via cash or
cheque are compulsorily need to be Audited . An internal audit ensures that a company follows the
law and rules in a timely manner. The audit provides a level of security and aids in the management
of risk arising from fraud, power abuse, or other scenarios .The research questions and the paradigm
used required the application of quantitative methods to give conclusions important for improving
internal audit activities through the structure of the data collection instruments. The Internal Audit
function of governance provides objective and independent assurance to add value and improve the
companies sustainable performance in the areas of operations , risk management , internal controls ,
etc. The company operational performance should become the aims of company while performing
activities such as internal audit of quality. Internal audits evaluate a company's internal controls,
including its corporate governance and accounting processes. These types of audits ensure
compliance with laws and regulations and help to maintain accurate and timely financial reporting
and data collection. After conducting this study we can be well identified that the organization has
adopted a well and distinguish Internal Audit functions. The Internal Audit department working
independently and reporting to the Audit Committee in a regular basis. We have felt that the
company has come forward to apply new skills and techniques in order to improve the Functions of
Internal Audit. An internal auditor educates senior management about staying in compliance with
current legislation and regulations. They also make them implement strategies to follow the
procedures correctly. They represent the instances and signs when the organisational processes are
non-compliant. Recommend ways to improve the process. Implement controls to safeguard against
theft of assets and fraud in the organisation. Internal auditors find problems in the documentation
and suggest effective and appropriate solutions. This field of work demands the auditors to
thoroughly examine the documentation and analyse the process, identify issues that can cause
liabilities and suggest ways measures to improve. Internal controls help companies to comply with
laws and regulations, and prevent fraud. They also can help improve operational efficiency by
ensuring that budgets are adhered to, policies are followed, capital shortages are identified, and
accurate reports are generated for leadership.They also can help improve operational efficiency by
improving the accuracy and timeliness of financial reporting. Internal audits play a critical role in a
company’s internal controls and corporate governance.

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CHAPTER - 6

BIBLIOGRAPHY

1. Articles / Publications -

1) Contemporary Auditing : Kamal Gupta, Tata Mc-Graw Hill, New Delhi.

2) A Hand-Book of Practical Auditing: B.N. Tandon, S.Chand and Company, New Delhi.

3) Fundamentals of Auditing : Kamal Gupta and Ashok Arora, Tata McGraw Hill.

4) GUIDANCE NOTES ISSUED BY ICAI .

5) Standard on Internal Audit (SIA) 330, Internal Audit Documentation.

6) Mercedes Annual Report.

7) ICAI . (2008). SA-300: Planning an Audit of Financial Statements.

8) ICAI . (2008). SA-500: Audit Evidence.

9) Mercedes Official Website.

10) The Institute of Internal Auditors

11) Guidance notes by ICMAI

2. Websites –

1) WWW.ICAI.ORG .

2) WWW.GOOGLE.COM .

3) WWW.WIKIPEDIA.COM .

4) WWW.RESEARCHGATE.IN .

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5) WWW.SHODHGANGA.IN .

6) WWW.PWC.COM

7) WWW.DESKERA.COM

8) WWW.TOPPR.COM

9) WWW.RECIPROCITY.COM

10) WWW.INDIAFILINGS.COM

11) https://heavyindustries.gov.in/UserView/index?mid=1319

12) https://www.theiia.org

13) WWW.YAHOO.COM

14) WWW.ASK.COM

15) WWW.BING.IN

16) WWW.AQL.IN

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