17 November 2007
THE MONTHLY INCOME STATEMENT IS BASED ON MONTHLY TARGETS SET COMPARED TO ACTUALS ACHIEVED BY THE CLIENT . A BUDGETARY EXERCISE INFACT.OR A VARIANCE ANALYSIS. ANALYSE REASONS FOR VARIANCE FROM TARGETES AND PLAN TO ADHERE IN FUTURE TO AVOID SHORT FALLS IN INCOME OR EXCESS IN EXP. COMPARED TO WHAT WAS ENVISAGED. ENSURE TO MAKE SUITABLE PROVISINS FOR BILLS NOT RECEIVED .PREPAID AND O/S EXP. MAY BE MADE. COMPARE RAW MATERIAL CONSUMPTION WITH SALES . SUBJECT TO INDUSTRY PECULIARITIES, USUALLY 50% TO 70% OF SALES FORMS RAW MATERIAL COST. MONTH ON MONTH VARIATIONS HAVE TO BE PROPERLY ANALYSED. MATERIAL BALANCING HAS TO BE WATCHED. FOR eg; RAW MATERIAL CONSUMED AND FINISHED GOODS PRODUCED . PROCESS LOSS IF NORMAL OR ABNORMAL. VERIFY. CLOSING STOCKS VALUATIONS AS PER ICAI GUIDELINES TO BE FOLLOWED. NON-OPERATIONAL INCOME AND EXP. TO BE ACCOUNTED WHICH HAS NO BEARING ON THE NORMAL OPERATIONS. PROVIDE DEPRECIATION ON MONTHLUY BASIS. ,CONSIDERING ADDITIONS OR DELETIONS IN ASSETS. VERIFY WHETHER ANY CAP. EXP./WORKIN PROGRESS TO CAPITALISE. VERIFY RATIOS LIKE CURRENT RATIO. PROFIT TO SALES AND GROSS PROFIT RATIO ,ASSETS TO SALES ETC... ABNORMALITIES IN RATIOS CAN LEAD TO SIGNIFICANT FINDINGS. MIS IS ALWAYS DONE FOR THE MONTH AND UPTO THE MONTH(CUMULATIVE). WE CAN CLEARLY SEE VARIATIONS IF ANY FROM THOSE FIGURES . NORMALLY MANAGEMENTS WISH TO KNOW PROFITABILITY WHETHER CONSISTENT OR IF THERE IS A DROP,AND REASONS FOR SAME. BANKS AND INSTITUTIONS LIKE TO SEE SECURITY OF LENDER IS INTACT AND NETWORTH NOT ERODED.RETURN ON INVESTMENT IF NORMAL ETC... ANY VARIATIONS IN ANY RAIO CAN LEAD TO CONCLUSION THAT EITHER WRONG INPUTS ARE FEEDED IN INCOME STATEMENT OR SOME THING IS GOING WRONG IN BUSINESS. COMPARE WITH INDUSTRY AVERAGES OR COMPETRETORS. YOU WILL AT ONCE KNOW WHAT IS WRONG . SITUATIONS WHEN MIS GO WRONG: ANY MIS IS ONLY RIGHT IF ALL INPUTS ARE PROPERLY CONSIDERED AND REAL OPERATIONAL RESULTS BROUGHT OUT INSTEAD OF PLEASING RESULTS (EVEN IF ACTUALS ARE OTHERWISE). SEASONALITY OF BUSINESS /INDUSTRY SEGEMENT AND BUSINESS CYCLES IF NOT CONSIDERED , RESULTS CAN BE WRONG. FOR eg SUGAR INDUSTRY PEAK SEASON AND NON PEAK SEASON STOCKS AND PROFITS COULD SIGNIFICANTLY MIS MATCH . SO IT I IDEAL TO HIGHLIGHT SEASON AND NON SEASON RESULTS . IN GLASS INDUSTRY SAND IS A CURRENT ASSET AND HIGH STOCK OF THE SAME MAY BOOST CURRENT RATIO. BUT THE REALL WORTH OF THE SAND IS WHAT MAKES OUT THE REAL COLOR OF THE RATIO. AT BEST RATIOS ARE INDICATORS NOT CONCLUSIONS IN SUCH CASES. SOME TIMES IT IS NOT UNUSUAL THAT COLORFUL INCOME STATEMENTS ARE MADE TO APPEASE LENDERS FOR ANY PROJECT LOANS OR WORKING CAPITAL RENEWALS OR ENHANCEMENTS.it is here that mis may go wrong. R.V.RAO
CAclubindia
