MOC - Memorandum of Changes

MEMORANDUM OF CHANGES, more often referred to as MOC is an important document enclosed with the Bank Audit Report whenever the Auditor observes significant issues effecting the Financial Statements of the Bank.

Usually, in case of other entities, first the accounts are audited and then the financial statements are drawn up adhering to all the regulatory principles as formulated by the laws of the land. Whereas in case of Banks, audit report is sent after the internal authorities have drawn up the final accounts which are already sent for compilation at Zonal levels. Hence, the term Memorandum of Changes, which incorporates in itself all the material changes effecting such final accounts.

MOC can be of following natures

1. Relating to suggested changes in Balance Sheet
2. Relating to suggested changes in Profit and Loss Account
3. Relating to suggested changes in advances portfolio of the bank
4. Relating to outstanding balances of the advances
5. Yearly return of provisions
6. Details of accounts for various changes
7. Reconciliation balances in interest not collected account
8. Summary of advance return
9. MOC for fixed assets

Even in case there are no such issues observed by the Auditor, NIL MOC is required to be enclosed with the report. All the facts and figures given in the MOC are also given a reference in the Main Audit Report.

The following points have to be noted about MOC:

1. There should be clear justification for every change suggested by auditor i.e. the nature of change as well as the quantification of suggested change and it impact otherwise.
2. The format of MOC in most banks will have both sides like a trial balance. It should be ensured that total of changes suggested in balance sheet and profit and loss account is tallied on both accounts.
3. The total of reclassification of the advances suggested in secured , unsecured ,guaranteed advance and sector wise advance should be correctly brought out in the MOC and total of both sides should tally.
4. In case of change suggested as per prudential norms on income recognition, the impact, if any on the provisioning of the assets is also to be looked into.
5. It is to be ensured that a NIL MOC is invariably forwarded, even if there are no change to report.
6. Branch manager are required to report on each item reported in MOC.

The format of MOC is provided along with other supporting material sent by Banks to the respective auditors. Usually, MOC is considered in reference to Bank Statutory Audit though MOC can also be given while conducting Concurrent Audits. 

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SNOWBALL

"A method of efficient debt repayment in which the debtholder initially devotes only enough funds to cover the minimum payments on each debt, after which any remaining available funds from the debt repayment budget are spent on an additional payment to the debt bearing the highest interest rate. Once the debt with the highest interest rate is completely paid for, subsequent extra debt payments go toward the next highest interest-bearing debt. This process continues until all the debts are paid off."

Consider the following example

Let's say an individual decides to spend Rs.500 every month on retiring his three sources of debt: Rs. 1,000 worth of credit card debt (annual rate of 20% interest), Rs. 1,250 of car loan repayments (annual rate of 6% interest) and a Rs. 5,000 line of credit (annual rate of 8%). Each has a minimum payment of Rs. 50.

If the person decides to use the snowball method of debt repayment, he will spend a total of Rs. 150 on paying each debt's minimum payment (Rs.50 x 3). The remaining Rs. 350 will be spent on a payment toward the highest interest-bearing debt - in this case, the credit card debt. Once the credit card debt has been completely paid for, the extra payment will go toward retiring the second-highest interest bearing debt (the line of credit), and the loan with the lowest rate of interest (the car loan).

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FIAT MONEY

Money on wheels..!!! the first thought came to my mind after hearing the term..:-).

Fiat Money = Money

Confused ? have a look on the literal definition

" Money which has no Intrinsic value and cannot be redeemed for specie or any commodity but is made a legal tender through government decree."

So, at present, all currency notes and coins are Fiat Money, isn't it.

P.S. Specie: Money with intrinsic value e.g. Gold and Silver coins.

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SIX SIGMA - An Overview

The main objective of a BUSINESS is profit maximization. Profits can be generated only if the business is able to sell its product in the market at a surplus. To have a sustained business growth it is very necessary that the market size of the business is large enough to yield the maximum revenues. In view of the above objectives, various management tools such as TQM, Value Engineering, MBO (Management by Objectives) etc have been formulated taking in conjunction the other supporting objectives of Corporate Responsibility, Shareholders’ wealth maximization, employee satisfaction etc.

“Customers are the revenue generators”.

Why only customers? Of course, they are. Since a business is set up to sell something and it is only by selling a product to the customer that revenue can be generated.

Hence, Customer Satisfaction is of utmost importance in any business concern.

Now, the question arises is, what is Customer Satisfaction?

A customer is satisfied only if a product can provide him with a sufficient reason to sacrifice his hard earned money in its exchange. So customer satisfaction can be measured in terms of price, quality, quantity i.e. uninterrupted supply of the product.

SIX SIGMA, is also such a Management Tool which emphasizes on CUSTOMER SATISFACTION and QUALITY PERFORMANCE and works on the identification and removal of all such hurdles coming on the way.

In other words,

Six Sigma is a systematical process of “quality improvement through the disciplined data-analyzing approach, and by improving the organizational process by eliminating the defects or the obstacles which prevents the organizations to reach the perfection”.

The term "six sigma process" comes from the notion that if one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications. This is based on the calculation method employed in process capability studies.

HISTORY

At present, SIX SIGMA is the federally registered trademark of Motorola Inc. owing to one of its engineers Bill Smith who first formulated its methodologies in 1986. However, along with, the credit of giving SIX SIGMA a stage as a Management Strategy also goes to Shewhart, Deming, Juran, Ishikawa, Taguchi and others. Now a days, SIX SIGMA is widely accepted as a way of doing business since it is much more than the general quality management principles i.e. TQM, Value Engineering etc.

As Geoff Tennant describes in his book Six Sigma: SPC and TQM in Manufacturing and Services: "Six Sigma is many things, and it would perhaps be easier to list all the things that Six Sigma quality is not. Six Sigma can be seen as: a vision; a philosophy; a symbol; a metric; a goal; a methodology."

METHODOLOGIES

In order to work on SIX SIGMA principles and achieve its fundamental objectives the following methodologies are required to be adopted:

1. DMAIC

2. DMADV

DMAIC is used for the process improvement of existing businesses whereas DMADV has been formulated to cope up with the requirements of new product or processes. Both of the methodologies have five phases, on which lines the implementation proceeds. There are various other quality management tools used in SIX SIGMA while moving through DMAIC and DMADV viz. ANOVA (Analysis of Variance), Correlation, Measure of Dispersion and Central Tendency, Run Charts, Pareto Charts, Monte Carlo Simulation and many other related statistical and operational techniques and methods.

APPLICATION:

SIX SIGMA is usually found beneficial to large businesses owing to their complexities and large size of operations. According to industry consultants like Thomas Pyzdek and John Kullmann, companies with less than 500 employees are less suited to Six Sigma implementation, or need to adapt the standard approach to make it work for them. This is due both to the infrastructure of Black Belts that Six Sigma requires, and to the fact that large organizations present more opportunities for the kinds of improvements Six Sigma is suited to bringing about.

CONCLUSION:

SIX SIGMA is a very productive and beneficial approach for the growth and development of today’s business due to increasing number of new opportunities and technicalities involved. Also, in case of competitive environment, it can make a business survive even in the stiffest of the cases by cutting down its huge costs. However, while adopting this approach, Industry experts should be involved and consulted upon so as to ripe maximum benefits.

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Bank Statutory Audit - An Overview

Auditing in Banking sector is one of the most booming sectors owing to increasing number of complexities involved in their operational structure and the directions issued by the regulator RBI. Bank Audit is itself a large branch of auditing involving audits of varying scope and objectives. Audits of Banks are generally assigned as per the nature and size of Bank Branch to Chartered Accountant Firms, where the size of Branch itself depends upon the Size of Advances made by the respective Branch.

Statutory Audit is also one of such audits which is of significant value to the Bank as well as Auditors comprising of the reporting of entire year operations and future viability of the respective Bank.

Statutory Audit: The name itself describes the nature of audit i.e. as mandated by a Statute. The audit in accordance with the provision of statute governing it

-u/s. 30 of The Banking Regulation Act, 1949.

-u/s. 10 of The Banking Companies Act, 1970/1980.

-u/s. 41 of The State Bank of India(Subsidiaries Bank) Act, 1959

-u/s. 19 of The Regional Rural Bank Act, 1976.

-u/s. 224 of The Companies Act, 1956.

Provides for the audit of the accounts of the bank.

Generally Statutory Audits are assigned at the year start i.e. 1^st April to be carried out for the previous year ended on 31^st March. The assignments are made to the firms which are duly empanelled with the Board as per the regulation of ICAI. Audits of different branches are assigned as per the size and exposure of the firm keeping in view of the nature and size of the Branch to be assigned.

The scope of Statutory Audit includes the opinion of the auditor on several concerns ranging from the areas of risk and return to the general operation attributes viz. time-norms etc.

The various reports prepared in Statutory Audits are

1. Independent Auditor’s Report.

2. LFAR i.e. Long Form Audit Report

3. Tax Audit Report as required u/s 44AB of the Income Tax Act.

4. MOC i.e. Memorandum of Changes

5.There are various other Special Purpose Reports i.e. Report on Ghos and Jilani Committee, Report on Capital Adequacy, Report on Advances etc which are also annexed as per Bank’s guidelines.

It is to be noted that statement of companies (Auditors Report) order 2003 is not applicable to banking company as defined in clause c of section 5 of Banking Regulation Act,1949.

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SAWBUCK

When I first time read this term, wondered if its the sibling of a duck ..!!..:-)

But surprisingly, its a financial term. Lets see what does it mean..

SAWBUCK = SAW + BUCK

Where BUCK is a slang commonly used for currency in US and SAW itself associates to a carpenter. So, can you guess..?

Ok, check out the answer:-

Sawbuck is a Slang term for the US ten dollar paper currency. The slang is derived from the Roman numeral for ten. "X". The "X" looks like the shape of a Sawbuck; a device used to hold wood in place for sawing it into pieces and so the slang formed SAW + BUCK = SAWBUCK.

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CORPORATE STOCK - A Layman's view

CORPORATE STOCK: It can trigger in anybody's mind that stock held in a corporate is Corporate Stock. Yes, its right.

Lets check out the definition:-

An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim on its proportionate share in the corporation's assets and profits. However, the claim to a company's assets and earnings of most stockholders is subordinated to the claim that the company's debtors have on its assets and earnings.

Two inferences can be drawn from the above definition-

- There must be an Ownership Position.

AND

- It must represent a claim in the Corporation's assets and profits.

The above inferences conclude that Debt i.e. Debentures and Bonds do not constitute Corporate Stock, Since there is a Claim but no ownership position.

So, Corporate Stock includes Common Stock i.e. equities and Preferred Stock i.e. Preference Shares but not the Debt Instruments.

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DURABLE POWER OF ATTORNEY

A legal document that an individual to designate another person, called the Attorney-in-fact, to act on his/her behalf, even in the event the individual becomes disabled or incapacitated. An advanced directive (sometimes called a 'healthcare directive' ) combines a Living will and 'durable power of attorney' either in one document or two separate ones.

The above definition includes two new terms i.e.

Attorney-in-fact

Living will

Lets see what these two terms tell us:-

Attorney-in-fact: A person who holds power of attorney and therefore is legally designated to transact business and execute documents on behalf of other person.

Living will: A document in which one specifies which life-prolonging measure one does and does not want to be taken if one becomes terminally ill or incapacitated.

So, I guess the above two terms though appeared bit complex are quite simple to understand.

NOW, the question arises what is difference between a Regular Power-of-attorney and a Durable Power-of-attorney..!!

The definition of Power of Attorney: A legal document that enables an individual to designate another person, called the attorney in fact to act on his/her behalf as long as the individual does not become disable or incapacitated.

Difference: So, the explicit difference between a regular and durable power of attorney is that the regular power of attorney ceases to be effective if you become disabled, whereas the "durable" power of attorney continues to be effective despite your subsequent disability. The reason for this difference comes from the old English common law where there was no such thing as a "durable" power of attorney. At common law, if you signed a power of attorney naming someone to act on your behalf, they would have this authority only for as long as you remained competent. If you later became disabled or incompetent, the power of attorney was automatically revoked---they were not "durable".

Recognizing that it would be extremely beneficial if the power of attorney would remain effective even if you later became physically or mentally incapacitated. The creation of a "durable" power of attorney is quite simple by adding special language designed to make it clear that the powers are not be effected by your subsequent disability.

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VAT

VAT- Value Added Tax

Persons liable to pay tax under the VAT Acts of their respective States are required to register under the Act. On registration, a VAT number, known as VRN (VAT Registration Number) in common parlance is allotted to the applicant.

The following provisions are with reference to Punjab VAT Act, 2005:-

In addition to the regular registration, the Act allows a person to take voluntary registration for VAT, provided his turnover is above the specified threshold. However, Casual traders and persons dealing exclusively in tax-free goods are exempted from registration.

TOT: TURNOVER TAX

There is a composition scheme for small traders if they are doing business within the state only and are not registered under the Central Sales Tax Act. They can get registered for TOT (Turnover Tax).

A person registered under VAT is referred to as “Taxable Person” and a person registered under TOT is referred to as “Registered Person”. The registration number granted to person registered for VAT is referred to as “VRN/TIN ” and registration number granted to person registered for TOT is referred to as “TRN”.

LIABILITY TO VAT

Liability to VAT arises when gross turnover exceeds following:

1. Imports taxable goods for sale or use in manufacture or processing any goods in the State- Rs. 1

2. Receives goods on consignment/branch transfer from within or outside the State on which no tax is paid under the Act.-Rs. 1.

3. Is liable to pay purchase tax - Rs. 1

4. Is a manufacturer -Rs. 1,00,000
5. Is a person running a hotel / restaurant - Rs. 5,00,000
6. Is person running a bakery -Rs. 10,00,000
7. Desires voluntary registration -Rs. 5,00,000
8. Is not covered above -Rs. 50,00,000
9. Is registered under the Central Sales Tax Act -Zero

Note: A person is required to get himself registered within 30 days from the date he becomes liable to VAT under the Act.

TAXABLE QUANTUM TO TOT LIABLITY

Liability to TOT arises when gross turnover of a person in the preceding year is more than Rs. 5,00,000 but less than Rs. 50,00,000.

PROCEDURE FOR REGISTRATION

The procedure for registration is as follows:

An application for registration in Form VAT-1 is required to be filed with the designated officer in charge of the area, where business of the person seeking to obtain registration is located. The said application is to be filed within 30 days from the date when such person becomes liable to pay tax. Detailed instructions for filling up the form are contained in the form itself.

The application for registration is to be accompanied by the following:

1. Deposit receipt of Rs. 500/- towards fees for registration. Such deposit receipt (in Form VAT-2) is to be obtained from the appropriate treasury after payment of the fee amount

2. Security in the form of:

- Bank guarantee from a local scheduled commercial bank for the amount of security

                                                         Or

- Personal Bond with two solvent sureties to the satisfaction of the designated officer for the amount of security/additional security in Form VAT-3.

Note: Rs. 100000 (50000 for tax under PVAT Act and Rs 50000 for tax under  CST Act)). The security furnished by a person can be enhanced enhanced by the designated officer for proper realization of tax while the certificate is in force. Such additional security can be demanded upto a sum of Rs. 2 lacs.

3. Copy of the constitution document e.g. partnership deed for a partnership firm, Memorandum and Articles of Association for a company.

4. Board Resolution authorizing the signatory to sign the application in case of company.

5. Proof of identification of the authorized signatory e.g. voter identity card, passport, driving license.

6. Proof of principal place of business e.g. rent receipt, lease agreement, electricity bill.

7. Two photographs for VAT and Centre —

In case of proprietorship Concern – Two Photo of Proprietor.

In case of Partnership firm :-Two Photo of all the partners,

In case of Company – Two Photo of managing director.

8. List of following categories of goods:-

-Goods to be traded.

-Goods to be manufactured.

-Goods to be purchased for use in manufacture.

Note: Every Photostat copy should be attested to be a true copy by the proprietor./partner/director as the case may be.

On satisfaction about the accuracy and completion of the application for registration, the designated officer will issue a registration certificate in Form VAT- 4 within 30 days of the date of receipt of completed application. The registration certificate will be issued for the principal place of business and a copy each for additional place/s of business

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TAN- TAX DEDUCTION ACCOUNT NUMBER

Tax Deduction Account Number is an alphanumeric number issued to individuals who are required to deduct tax on payments made by them under the Indian Income Tax Act, 1961.

The Tax deducted at Source on payments made by assessees has to be deposited with Central Government under the following number.

Application for TAN

An application for allotment of TAN is to be filed in Form 49B and submitted to any TIN-FC. Addresses of TIN-FCs are available at www.tin-nsdl.com. Alternatively, you can apply for TAN online at the NSDL-TIN website.

No documents are required to be submitted along with the application for allotment of TAN. However, where the application is being made online, the signed acknowledgment which is generated after filling up the form should be forwarded to NSDL. Detailed guidelines for submission of application are available on NSDL-TIN website.

** TAN can be applied only if the assessee is holding a PAN, so before applying for TAN, PAN is required to be obtained from the Income Tax Department.

** TAN is also used for Tax collected at source purposes, so in case of TCS also one has to apply for TAN.

Structure and validation of TAN

•TAN structure is, e.g.: AAAA99999A: First four characters are letters, next 5 numerals, last character letter.

•Each tax deductor is uniquely identified by his TAN.

•If the TAN does not follow the above structure, then the TAN will be shown invalid.

•The first three characters represent the city or state where the TAN was issued.

•The fourth character of the TAN is the initial letter of the tax deductor:

Tracking TAN

TAN of an entity can be easily tracked by visiting the following link:

https://incometaxindiaefiling.gov.in/knowtan/knowtan.jsp

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All About PAN

PAN - PERMANENT ACCOUNT NUMBER

As per the common perception PAN is only a pre-requisite to file Income Tax Return. However, now a days, as per the guidelines of Reserve Bank of India and Income Tax Department, a number of financial transactions requires one to quote PAN.

Application for PAN

PAN can be applied at any of the authorised centers of UTITSL and NSDL, by filling up Form 49A. The form is available at all the centers of UTITSL and NSDL or can be downloaded from www.incometaxindia.gov.in.

Alternatively, PAN can be applied by filling up an online form by visiting the website of UTITSL (www.utitsl.co.in).

An identity proof and address proof of the applicant is also required to be submitted along with the duly signed form.

Know your PAN

PAN is generally a 10 digit alphanumeric number.

For example;

ABSPC1234X

where, first five digits are alphabets, next four are numeric digits and the last one is also an alphabet.

The fourth alphabet shows the Status of the assessees i.e.

P-Individual

F-Firm

C-Company

H-HUF

T-Trust

The fifth digit shows the First alphabet of Surname in case of an individual and of Name in case of other assessees.

For ex:

ABCPA1234X

An individual Sh. Raman Aggarwal

ABCFC1234A

A firm M/s Creative Ideas.

For more info, visit www.incometaxindia.gov.in.

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