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An EDC undertakes their operations through various segments these segments may be divided according to the area of operation, location advantage, serving of particular customer segments, Service area, the convenience of operations and profit center. These segments are connected either in Pyramid structure or Horizontal structure for the reporting and management of the segments.

The basics of the EDC are to purchase power and distribute the same to the ultimate user for consumption. The difference between rate of purchase and sale is the main earning source of the EDC. The selling rate many a times is controlled by the Govt or by the controlling authority, however the maintenance and cost of distribution, wastage and being basic need of the people in large the concessional supply to the needy is included in the selling cost.

The first and foremost internal audit requirement is to understand the nature, object and need of the specific segment created by the EDC.The functions the segment performed ,its effectiveness & whether the laid down procedures, and guidelines of the EDC is followed by a particular segment. It is also required to be seen whether the segment is serving the objects for which the same is created.

In many cases it may be possible that, the functions of the segments are dependent, connected or interlinked with the other segments, in such case the segregations of the functions of the segment you are auditing is the basic starting point.

Internal Audit of Sections(Segments) of Electric Distrubution Co.(EDC)

The activity of the EDC is on a very huge scale, as such the activities of the segments are also have a very huge scale, this requires auditing by samples and the selection of the sample size of the particular segments based on its functions is very essential to become internal audit effective.

Being the distribution is the spine of the EDC, there is always a tendency to give value and high importance to the distribution activity than other activities, this also may be due to the distribution is earning activity of EDC.

Being internal audit function is very widely divided in to segments, their consolidation and conclusion will be a huge task as such the internal audit of a particular segment should be independent by itself which left very little work of consolidation and compilation.

Generally, the reporting formats of the internal audit are devised for a particular line of segment, which serve and cover the main functions of the said segment. An Internal auditor has to study the formats very carefully to understand the inputs in to the format and their ultimate result. As advised, the information should be filled in should be very specific, complete and is related to the segment only.


Since this is a huge exercise, the timeline of the assignment is very important as this will help in early and better consolidation, rectification and compliance at the main segment or at the center. The timeline have to be followed for the internal audit of each segment every time all the time as we follow while doing the statutory audit of the bank branches at the end of the year.

Being the core and majority of the workforce are always busy in distribution and collection of the EDC. It is advisable to do the maximum work of the internal audit assignment at our office only like understanding of functions of the segment, selection of the sample, informing in advance the time schedule of the internal audit so that, the workforce of the EDC will require to devote less time with maximum information for the internal audit. If we are well prepared, an effective audit is possible in the initial four to five days only; the workforce though willing may not be able to give attention for a longer time.

The internal audit has the following basics:


A: Work at our office:

  1. Basic work like NOC from earlier auditor, reading and understanding the letter of the appointment, ascertain the expectations of the EDC from the audit of a particular segment, reading and understanding the formats of the report and letter of acceptance with the letter of engagement.
  2. Ascertain the data, information which will be available at the segment, you may ask for the information about the data, functions of the segment and details , this will help us to decide the sample size, audit techniques, specific questions to be asked and expected answers for our satisfaction and forming of judgment.
  3. Decide the time line, schedule of completion of the assignment, manpower to be deployed, specific work allotment to our staff and it is advisable to inform the segment well in advance about our program as well as the details, data, files, information to be kept ready at the time of visit.
  4. We can also ascertain the required information for inputs of the particular format of the internal audit report, make a list of the same and also give thought the alternative to get the information if the same is not available as per our desired thought.
  5. Study and understand whether after filling the information in the formats whether the said information serve or draw a conclusion which is required by filling the said format. It is the conclusion or result which is important than the filling of the formats.
  6. Decide or make note of the importance to be given on the points of audit program as must, very important, important, and necessary or otherwise assign the due weight to this so that when we begin the actual audit at auditee place we may not end with spending our time on the unimportant issues. The allotment of the time will be according the objects of the audit.
  7. Being the audit is internal audit it is advisable to include the auditee staff more effectively in to the process of the audit be giving them, time, requirement, formats if any, and information required from them well in advance. This also helps in better rectification and compliance by them after the audit is completed.
  8. Prepare all soft copies, of circulars, formats, previous audit report its compliance, notes on the discussion with previous auditor if any, and hard copies , printout of the schedule program etc may be required during the course of audit.

B: Work at Segments:

  1. Obtain all the information, files, details, and data at once for the days checking. The details of the staff who handle a particular function should also be obtained. Discuss with each of them about the completion of the details and information required. Assure them that they will be always keeping in loop during the course of the audit and they are the first to be discussed on the audit issues, points, observations noted.
  2. Carry out the audit for the day as per the program, make the list of observations to be discussed at the day end with the concern staff, start filling the inputs in to the formats and see whether they serve the purpose.
  3. Prepare the discussion note for each day having columns as Sr. No. Particulars of observation. Audi-tee Comments and Remark for details, whether the observation is closed. After discussion give the list of requirements for the subsequent day to the concern staff.
  4. Since the same function may be looking after by various staff at different stage we have to call all of them and discuss the observations with them.
  5. Give proper weight to the information given by the staff being internal audit they should be considered at every stage with due weight. In case you have no or less information on the particular topic or point of audit they are the best persons to provide the same.
  6. Prepare work completion chart and see that the time schedule is strictly followed. The audit program may sometime vary on the basis of the issues, and observations noticed during the audit.
  7. It always better to be specific instead of general in comments as providing information, we should have either information or no information, the same is available or not available, with the segment or not with the segment. Provide no scope for answers in between the same to the auditee otherwise it may to be turnout that they will develop a tendency to provide all the information in between.
  8. Prepare the draft report and discuss with them also provide sufficient time to them to submit their information, or view on the draft report.
  9. Prepare the Final report considering the submissions given by them on draft report; it is advisable not to wait if specific time is not given for the submission on the draft report.
  10. Discuss the Final report, with main issues and observations, in many cases we have to obtain the attendance sheet etc as we do at the statutory audit of the bank branches see that all such documents are obtained. Have a final look and plain reading of the information in the report and see that the same is correctly filled, given, and as per the requirement and draw the conclusion as required in the specific formats.

The basic points of the internal audit of EDC for all type of segment are given as above, however each segment needs specific points depend on the functions and object of the particular segment as their nature, are different. We have to add such specific points in our audit program. However, the note will help to understand the activity of the internal audit of EDC.


Published by

CA Satish Badve
(Professional Practice)
Category Audit   Report

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