KABIRWALA POWER COMPANY LIMITED (FKPCL)

ACCOUNTING MANUAL

Revision February 2011

Revised By AFZAL AHMED CHEEMA
DMF

Reviewed By ATTIQ UR REHMAN

GMF

FAUJI KABIRWALA POWER COMPANY LIMITED

ACCOUNTING MANUAL

TABLE OF CONTENTS
1
1.1 1.2 1.3 1.4 1.5

GUIDELINES FOR PROPER ADMINISTRATION OF ACCOUNTING MANUAL............................................................................. MANUAL............................................................................. 3

SCOPE AND OBJECTIVES OF THIS MANUAL..................................................3 ..................................................3 APPLICABILITY........................................................................................... 3 CLARIFICATION OF ANY MATTER IN THIS MANUAL.................................................3 .................................................3 CUSTODY OF THE MANUAL ........................................................................... 4 APPROVAL AND REVISION PROCEDURE............................................................. 4

2
2.1 2.2 2.3 2.4 2.5 2.6

OVERVIEW OF FINANCIAL ACCOUNTING SYSTEM..................... 7 SYSTEM.....................7

GENERAL SCHEME OF ACCOUNTING SYSTEM....................................................... 7 ACCOUNTING RECORDS................................................................................ 7 MAINTENANCE OF THE GENERAL LEDGER........................................................... 8 MAINTENANCE OF THE SUBSIDIARY LEDGERS..................................................... 8 PREPARATION OF MONTHLY TRIAL BALANCE, BALANCE SHEET AND PROFIT/ LOSS.....9 .....9 CHANGE IN ACCOUNTING POLICIES AND PROCEDURES...........................................9 ...........................................9

3 4
4.1

OVERVIEW OF FINANCE DEPT FUNCTIONS............................. 11 FUNCTIONS.............................11 FINANCE DEPARTMENT STRUCTURE..................................... 14 STRUCTURE.....................................14

FINANCE DEPARTMENT............................................................................... 14

5
5.1 5.2

COMPLIANCE WITH THIS MANUAL........................................ 15 MANUAL........................................15

POLICY.................................................................................................. 15 INTERNAL CONTROL TECHNIQUE.................................................................... 16

6
6.1

FINANCIAL YEAR................................................................. YEAR................................................................. 17

POLICY.................................................................................................. 17

7
7.1 7.2

CHART OF ACCOUNTS.......................................................... ACCOUNTS.......................................................... 18

POLICY.................................................................................................. 18 INTERNAL CONTROL TECHNIQUE.................................................................... 18

8
8.1

SET OF FINANCIAL STATEMENTS.......................................... 19 STATEMENTS..........................................19

POLICY.................................................................................................. 19

9
9.1

ACCOUNTING PRINCIPLES.................................................... PRINCIPLES.................................................... 20

POLICY.................................................................................................. 20

10
10.1

RESPONSIBILITY FOR FINANCIAL STATEMENTS.................... 22 STATEMENTS....................22

POLICY................................................................................................ 22

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ACCOUNTING MANUAL

1 GUIDELINES FOR PROPER ACCOUNTING MANUAL

ADMINISTRATION

OF

1.1 SCOPE AND OBJECTIVES OF THIS MANUAL

This Manual has an objective to provide complete guidelines on all areas of the accounting processes with an aim to guide the employees of the company in achieving the companys objective of providing meaningful and accurate information as well as complying with the applicable laws and regulations. In summary, this Manual: instructions, administration department, Provides uniformity in interpretation and of policies & procedures for Finance Clarifies Finance department structure and responsibilities of

Provides an on job reference guide for existing and new employees in finance department, Relieves the management of repetitive

Facilitates co-ordination and communication among the several departments/ persons of Fauji Kabirwala Power Company Limited (FKPCL), and Provides means for the constant review and improvement of policies and procedures. to all Financing and Accounting and every staff member of FKPCL should follow all policies, procedures this Manual.

1.2 APPLICABILITY

The Manual is applicable operations of FKPCL. Each involved in these operations and instructions contained in

1.3 CLARIFICATION OF ANY MATTER IN THIS MANUAL

Requests for clarification or explanation of the material presented in this Manual should be addressed to the GMF/DMF at Corporate Office (CO).

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1.4 CUSTODY OF THE MANUAL

The following will be provided with a copy of this Manual: (CEO) Secretary Deputy Manager Finance Assistant Manager Internal Audit General Manager - (Finance) General Manager -(Technical)/Company Managing Director/ Chief Executive Officer

1.5 APPROVAL AND REVISION PROCEDURE

Organizations continue to evolve to comply with business and regulatory requirements. As a result, the business processes and procedures need to be updated to keep in line and support the changing environment. The Manual, therefore, must be kept under constant review and would require to be updated from time to time. For the most part, policies will not change very often; however, the Manual should be reviewed periodically to ensure that it is up to date and reflects current strategy in terms of practices and procedures. Manual holders are responsible to identify the need for revision when it is indicated that current instructions will be impracticable due to changing environment and business objectives. No changes will be made in the Manual unless duly approved and authorized by the MD. A copy of the approved amendments will be sent to each Manual holder by the General Manager Finance.

The release of the manual will be controlled through Release number which will be mentioned at the bottom of each page (release-number, issue, mm: yy) i.e. Rel. 01.00.12.10, Issue: December 2010). First decimal point from left hand side denotes release of entire manual whereas second represents revision of sections and pages. Third and fourth parts of the release number represent month and year of last release. PROPERTY
RIGHTS

This manual is the property of Fauji Kabirwala Power Company Ltd (FKPCL) and should not be provided to any other company/ unauthorized person.

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It will be treated as a confidential document and access would be granted to the staff of FKPCL who needs to refer to it during the performance of their duties.

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DOCUMENT CHANGE CONTROL

S. No. Prepared By SHMA Date October 2006 Approved By Date

Activity Accounting Policies & Procedures Manual, Rel. 1.0.09.06 Accounting Policies & Procedures Manual, Rel. 01.00.12.10

1.

Afzal Ahmed Cheema

February 2011

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2 OVERVIEW OF FINANCIAL ACCOUNTING SYSTEM

2.1 GENERAL SCHEME OF ACCOUNTING SYSTEM

FKPCL follows the double entry system of book keeping for accounting purposes. All financial transactions of the Company are recorded in the books of account in accordance with the chart of accounts. The transactions are recorded and maintained in Accounting System software called CIS. All general and subsidiary ledgers will be maintained in the software at the CO. At month end after the transactions have been posted, a trial balance and subsidiary accounts will be extracted from the software. The trial balance and subsidiary ledgers will then be used for the preparation of the financial statements on a monthly basis which are sent to sponsors.
2.2 ACCOUNTING RECORDS

The following accounting records are being maintained by the company: Journal Voucher Cash/ Bank Payment Voucher Cash/ Bank Receipt Voucher

Brief descriptions of the above mentioned voucher records are described in the succeeding paragraphs. Journal Voucher All accruals, reversal and adjustment are recorded through Journal Voucher (JV) in the system. Cash / Bank Payment Voucher System generated Cash/ Bank Payment Voucher (BPV) is used to record payment made against different liabilities and expenses.

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Cash/ Bank Receipt voucher System generated Cash/ Bank Receipt Voucher (BRV) is used to record cheques and in case of direct deposit or transfer, credit advises.
2.3 MAINTENANCE OF THE GENERAL LEDGER

The General Ledger (GL) will constitute the main repository of all transactions of the Company. These records will remain as a permanent track of the history of all financial transactions during a given period. The GL will be supported by a number of subsidiary ledgers (called sub-ledgers) for items such as cash, debtors, and creditors. All transactions will be recorded in a sub-ledger through the GL account. Some transactions will be posted directly to the GL without any sub-ledger posting. These transactions may include items such as capital contributions, loan proceeds, loan repayments (principal only), and proceeds from sale/disposal of assets. The GL also helps in keeping an internal trail of transactions, through source document reference, so that any discrepancy (such as double billing or an unrecorded payment etc.) can be traced down to its origin. The GL system is maintained by the IT Department of FKPCL. Vouchers are entered by the Accountant/AMF/ Accounts executive. The Assistant Manager Finance (AMF) will check each voucher, DMF will review and the GM Finance will approve/ authorize it.
2.4 MAINTENANCE OF THE SUBSIDIARY LEDGERS

The Company will maintain subsidiary ledger for the following Accounts: Fixed Asset Register (FAR) Fixed Assets Register (FAR) will be maintained in MS Excel. FAR is a detailed record, showing all fixed assets with descriptions, code, location, date of acquisition, cost, rate of depreciation, accumulated depreciation, book value. This will help in: Ascertainment of book value of an asset at the time of its disposal, Finding age of an asset with the view of its replacement or overhauling,
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Reconciling addition, disposals and depreciation with the books of account, and Controlling of physical stock of fixed assets

At month end, the GL will be reconciled by the AMF with FAR. Stock Entries will be made in the Inventory Control System. At month end, GL system will be updated through JV. Payroll Payroll records will be maintained in the isolated Payroll application. The GL will be updated through JV.
2.5 PREPARATION OF MONTHLY TRIAL BALANCE, BALANCE SHEET AND PROFIT/ LOSS

At CO, the transactions will be entered in the respective systems as and when they occur. However, in case of transactions occurring at the power plant, relevant vouchers will be received at the CO and will be entered in the relevant account heads at month end. At the end of each month a trial balance will be generated from the computer system by the AMF and following activities will be done: Ensure that all reflected in the Trial Balance, Reconcile books Make an adjustment, if required the accounts are properly subsidiary

balances

with

On the basis of figures arrived, the Balance Sheet and Profit and Loss Account will be prepared by the AMF. The AMF will provide the Balance Sheet and Profit and Loss Account to the DMF for review, who will forward it to GMF. The GM Finance will review the Balance Sheet and Profit and Loss Account and forwarded to the directors. Annual audited accounts are submitted to Security and Exchange Commission (SECP) of Pakistan as per requirements of Companies Ordinance, 1984, NEPRA, PBIB and WAPDA.
2.6 CHANGE IN ACCOUNTING POLICIES AND PROCEDURES

Updating any accounting policies will be the responsibility of the GMF/DMF.

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Where a change in the accounting policy is needed, the same will be proposed by the GM Finance to the BOD through AC together with the relevant details and the justification for change. The BOD will approve/disapprove the change. In case of any change in the accounting procedure, the impacts of the change will be reviewed by the GM Finance and if found justifiable, the approval will be obtained from the MD. The GM Finance will ensure that all changes in policies and procedures are also incorporated in this Manual.

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3 OVERVIEW OF FINANCE DEPT FUNCTIONS

FINANCE DEPARTMENT FUNCTIONS
AT

FKPCL

Overall Objectives

The department has an overall responsibility to establish and maintain standard accounting procedures in order to ensure consistency and uniformity in the financial management of the power plant and of the CO, add value to the accounting system as well as compliance with internal control procedures, which would help to achieve the business objective and to conduct smooth and efficient business operations. To be the primary source of financial information and to ensure the integrity of financial management information. Establish and maintain standardised accounting procedures for both Power Plant and the CO, to utilise the available financial resources in most effective and efficient manner. Maintain accounting records and to prepare Financial Statements in accordance with the Companys law, International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) and best practices. Keep up to date record to help management in taking the adequate course of action in any instance. Provide management reports when required by the management. Comply with the covenants agreed to the sponsors, lenders and the financial institutions. Comply with the
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Core Function s

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FINANCE DEPARTMENT FUNCTIONS

AT

FKPCL

applicable laws i.e. Companies Ordinance, Income Tax, and Sales Tax etc. Manage the available funds efficiently. and utilise

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FINANCE DEPARTMENT FUNCTIONS

AT

FKPCL and

Prepare Budgets monitor Variances with actual results.

Maintain Fixed Assets Register and provide depreciation as per Companys policy. Provide support services to the concerned departments at the Power Plant for its Inventory and Fixed Assets procurement, management and disposal. Carryout the best accounting practices and assures the quality in the procedures in order to keep an ongoing business relation with all stake holders. Preparation payment of salaries to the staff. and

Auxiliary Function s

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4 FINANCE DEPARTMENT STRUCTURE

4.1 FINANCE DEPARTMENT

GMF

DMF

AMF
AEs (Import & salaries) / (Budget, invoicing, treasury & assets)
Accountants (Sales tax, cash and stores)/ (Plant)

Junior clerk

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5 COMPLIANCE WITH THIS MANUAL

5.1 POLICY

1.1.1 All the concerned employees of FKPCL working at the Power Plant and CO shall require compliance with the Policies and Procedures, described in this Manual. 1.1.2 Violation of these Policies and Procedures may require the management to take appropriate action against the concerned personnel. 1.1.3 These Policies and Procedures may be revised, updated or amended from time to time, in which case all the concerned employees will be required to comply with the latest version of the Policies and Procedures Manual. 1.1.4 The Policies and Procedures prescribed in this Manual can be revised, updated or amended only after approval from the Managing Director (MD). 1.1.5 The GM Finance shall ensure that the Department fulfills all the regulatory requirements in accordance with the current local laws and provide adequate guidance regarding permissible conduct under the law. 1.1.6 The personnel of the Finance Department shall: Comply with all the provisions applicable laws and regulations at all times. of the

Not knowingly participate or assist in any violation of such laws, rules, regulations, directives or bylaws. Not engage in any official conduct involving dishonesty, fraud, deceit, or misrepresentation. Not misuse or/ and distribute confidential information. The Companys financial information accessible/ available to them shall only be used for official purpose.

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5.2 INTERNAL CONTROL TECHNIQUE

PROCESS DOCUMENTS INVOLVED INTERNAL CONTROL RESPONSIBILITY

General

Accounting Manual

Prepare relevant details and justification for the proposed changes in the Accounting Policies or Procedures. Authorize proposed changes in the Accounting Policies. Authorize proposed changes in the Accounting Procedures. Check the departments compliance with the regulatory requirements.

GMF/ DMF

Audit Committee and BOD Managing Director (MD) GM Finance

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6 FINANCIAL YEAR
6.1 POLICY

1.1.7 The financial year of the Company shall commence on 1st July and end on 30th June each year. Local regulations also require the Company to present, to its shareholders, quarterly, half yearly and annual accounts for the said period.

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7 CHART OF ACCOUNTS
7.1 POLICY

1.1.8 The Chart of Accounts (COA) (Annexure 46.15) shall be used to classify, record, budget and report financial transactions. Every transaction must be properly coded to be a valid posting to the GL/ Ledger. 1.1.9 Proper description and unique numbers shall be assigned to all the accounts indicating specific ledger accounts. 1.1.10 All additions, amendments or deletions in the Chart of Accounts will be approved by GMF & DMF and shall be done only by AMF. 1.1.11 It is to be ensured that access to the COA and any resulting changes shall be restricted to authorized personnel of the Finance Department only. 1.1.12 It shall be the responsibility of the AMF at the Finance Department to conduct periodic reviews of the COA, on a semiannual basis under the direct supervision of the GMF and DMF.
7.2 INTERNAL CONTROL TECHNIQUE
PROCESS DOCUMENTS INVOLVED INTERNAL CONTROL RESPONSIBILITY

Chart of Accounts (COA)

COA

Review COA on annual basis and recommend any required changes. Approve any recommendation for addition, deletion or amendment in the COA.

Assistant Finance Manager (AMF) GMF / DMF

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8 SET OF FINANCIAL STATEMENTS

8.1 POLICY

Financial statement shall provide information about an entitys financial position, performance and cash flows that is useful to a wide range of users for economic decision making. As per IAS1 (Presentation of Financial statements), a complete set of financial statement comprises the following and shall be prepared at FKPCL accordingly: Balance Sheet Profit and Loss Account Cash Flow Statements Statement of Changes in Equity Accounting policies and Explanatory notes.

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9 ACCOUNTING PRINCIPLES
9.1 POLICY

1.1.13 In compliance with the IFRS (International Financial Reporting Standard) and Companies Ordinance 1984, the following concepts must be reflected in the preparation of financial statements. Matching Concept: is based on the assumption that costs should be expensed and matched against revenue in the period that revenue is recognized. Recognition Concept: is based on the assumption that revenue is generally recognized when the earnings process is virtually complete and an exchange transaction has occurred. Historical Cost Concept: is based on the assumption that most assets and liabilities are to be accounted for and reported on the basis of acquisition price. Going Concern Concept: The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed. Materiality Concept: Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful. Cost/ Benefit Concept: is based on the assumption that the costs of providing information must be

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weighted against the benefits that can be derived from using that information. Accrual Concept: In order to meet their objectives, financial statements are prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognised when they occur (and not as cash or its equivalent are received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past transactions involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future. Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions. Prudence Concept: The preparers of financial statements do, however, have to contend with the uncertainties that inevitably surround many events and circumstances, such as the collectability of doubtful receivables, the probable useful life of plant and equipment and the number of warranty claims that may occur. Such uncertainties are recognised by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow, for example, the creation of hidden reserves or excessive provisions, the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and, therefore, not have the quality of reliability.

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10 RESPONSIBILITY FOR FINANCIAL STATEMENTS

10.1 POLICY

1.1.14 Mainly GM Finance shall be responsible for complying with accounting policies and procedures in line with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) in the preparation of financial statements. 1.1.15 The responsibility for the preparation and review of the Financial Statements shall be as per following order: Action Preparation of Financial Statements 1st Review 2nd Review 3rd Review 4th Review Overall Review and final approval Responsibility AMF DMF GM Finance GMF, GM Tech and MD Audit Committee BOD

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