finance Project

A STUDY ON PROVISIONING PROCESS OF ACCOUNTS PAYABLE

Submitted for the partial fulfillment of the requirement for awarding the Degree of

Master of Business Administration (MBA)

ByRina Gupta

Reg No. 2011123043

Prepared For

Bharti Airtel Ltd. Gurgaon

Under the esteemed guidance of

Dr. Ajeya Jha Mr. Sanjay Rampal Head Manager Department of Management Studies Bharti Airtel Ltd. SMIT

Department of Management Studies Sikkim Manipal Institute of Technology Majitar, Rangpoo, East Sikkim – 737132 2012

ACKNOWLEDGEMENT

There are many things in life which are offered only once. As in I will never be a child

again, nor will I get to relive those heady teenage days. I consider this Final Year Project

to be a similar Once in a Lifetime Opportunity. Never again in my life will I be asked

to repeat such a thing. And therefore never again will I get a chance to thank all those

great and beautiful people without whom this project would be an almost imposable feat.

Hence without losing much time let me acknowledge the efforts of all those people

whose continuing support has made this mountainous task achievable. Starting with my

teacher and supervisor, Dr. Ajeya Jha; Thank You Sir, you have been an inspiration in

true sense. Your untiring efforts and relentless support has made this possible. In the

same breath, I thank my Project Guide Mr. Jitendra Kumar, whose critical evaluation and

excellent advices helped me stay focused and firmly on my path. I would also like to

express my gratitude for “Mr. Sanjay Rampal”, manager at BHARTI AIRTEL, Gurgaon

who spent hours guiding me on issues ranging from documentation, referencing to

compiling all the information in a better way. I thank all staff of the head office for

cooperating with me during my internship for their timely help and providing all those

information and patiently answering all my queries.

It is my gratitude pleasure to have done my project at Bharti Airtel on ACCOUNTS

PAYABLE AND PROVISIONING PROCESS

I feel greatly obliged and take the pleasure to thanks Bharti Airtel for giving me such a

huge opportunity to build my career.

CONTENTS

Introduction

Objectives

Methodology

COMPANY STUDY

Industry Study

Company profile of Bharti Airtel - Organization Structure: Company history;

ownership patterns, Divisions, number of People; Department workers etc.

Financial profile of the company

Product and services

Competitors

PROVISIONS

I. What are accounts payable provisions?

II. Why are provisions created?

III. Provisioning process at Bharti Airtel

Types of provisions at Airtel

Evaluation of compliance of provision accounting at Airtel with generally accepted

journal principles- analysis 15

19

20

10.Future growth and suggestions

11.Conclusion 29

12. Bibliography 30

INTRODUCTION

Managing Accounts Payable is a common practice in every commercial establishment. Whether

you deal with goods or provide services, materials and supplies have to be purchased to conduct

ordinary business.

“An account payable is normally an unsecured, non-interest bearing current liability, owed by

company to a vendor for the purchase of trade goods or services.”

“Accounts Payable" is used in accrual-based accounting to record debts that have been

incurred but not yet paid. Accounts payable are obligations (debt, liabilities) that will be settled at

a future time. They are considered "current liabilities” which means that the debt will be settled

with current assets during the current operating cycle.

A Provision takes into account an expected expense, showing it as a liability on the balance

sheet. A company will create a provision in the current period when the likely liability becomes

apparent, thus reducing the reported profit.

Bharti Airtel follows accrual method of accounting, and therefore record expenses which have

been incurred but not yet paid, for these it creates provisions in the books which are reversed

when the transactions actualise. Thus there is an elaborate provision process which is followed for

account payables, which I have tried to cover in this project.

My project topic being “PROVISIONING PROCESS OF ACCOUNTS PAYABLE” at

Bharti Airtel basically deals with provisioning of expenses. The entire provision process under

accounts payable has been discussed in detail

BHARTI AIRTEL -- INDUSTRY STUDY

Bharti Enterprises

Bharti Enterprises is one of India’s leading business groups with interests in telecom, agri business, insurance and retail.

Bharti Airtel, India’s leading integrated telecom company has been at the forefront of the telecom revolution and has transformed the telecom sector with its world-class services built on leading edge technologies.  Bharti has been a pioneering force in the telecom sector and today enjoys a strong nationwide presence.

Bharti has grown successfully in partnership with various leading companies of the world - Singapore Telecom, Vodafone, Warburg Pincus, and British Telecom, to name a few.

The other businesses in the group are Beetel, communication and media devices, Bharti AXA, a financial services JV with AXA of France, and Field Fresh, a joint venture with Del Monte to offer fresh and processed fruits and vegetables in the domestic as well as international markets.

Bharti has recently forayed into the retail sector with its subsidiary Bharti Retail. It has also entered into a joint venture with Wal-Mart for setting up the supply chain, logistics and cash and carry to support the burgeoning retail market in India.

INDUSTRY PROFILEThe telecom industry is one of the fastest growing industries in India. India has nearly 200

million telephone lines making it the third largest network in the world after China and USA.

With a growth rate of 45%, Indian telecom industry has the highest growth rate in the world.

History of Indian Telecommunications started in 1851 when the first operational landlines

were laid by the government near Calcutta (seat of British power). Telephone services were

introduced in India in 1881. In 1883 telephone services were merged with the postal system.

Indian Radio Telegraph Company (IRT) was formed in 1923.

After independence in 1947, all the foreign telecommunication companies were nationalized

to form the Posts, Telephone and Telegraph (PTT), a monopoly run by the governments

Ministry of Communications. Telecom sector was considered as a strategic service and the

government considered it best to bring under states control.

The first wind of reforms in telecommunications sector began to flow in 1980s when the

private sector was allowed in telecommunications equipment manufacturing. In 1985,

Department of Telecommunications (DOT) was established. It was an exclusive provider of

domestic and long-distance service that would be its own regulator (separate from the postal

system).

In 1986, two wholly government-owned companies were created: the Vides Sanchar Nigam

Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam

Limited (MTNL) for service in metropolitan areas. In 1990s, telecommunications sector

benefited from the general opening up of the economy. Also, examples of telecom revolution

in many other countries, which resulted in better quality of service and lower tariffs, led

Indian policy makers to initiate a change process finally resulting in opening up of telecom

services sector for the private sector. National Telecom Policy (NTP) 1994 was the first

attempt to give a comprehensive roadmap for the Indian telecommunications sector.

In 1997, Telecom Regulatory Authority of India (TRAI) was created. TRAI was formed to

act as a regulator to facilitate the growth of the telecom sector. New National Telecom Policy

was adopted in1999 and cellular services were also launched in the same year.

Telecommunication sector in India can be divided into two segments: Fixed Service Provider

(FSPs), and Cellular Services. Fixed line services consist of basic services, national or

domestic long distance and international long distance services. The state operators (BSNL

and MTNL), account for almost 90 per cent of revenues from basic services.

Private sector services are presently available in selective urban areas, and collectively

account for less than 5 per cent of subscriptions. However, private services focus on the

business/corporate sector, and offer reliable, high- end services, such as leased lines, ISDN,

closed user group and video conferencing. Cellular services can be further divided into two

categories: Global System for Mobile Communications (GSM) and Code Division Multiple

Access (CDMA). The GSM sector is dominated by Airtel, Vodafone-Hutch, and Idea

Cellular, while the CDMA sector is dominated by Reliance and Tata Indicom. Opening up of

international and domestic long distance telephony services are the major growth drivers for

cellular industry. Cellular operators get substantial revenue from these services, and

compensate them for reduction in tariffs on airtime, which along with rental was the main

source of revenue. The reduction in tariffs for airtime, national long distance, international

long distance, and handset prices has driven demand.

Bharti Airtel Limited, a group company of Bharti Enterprises, is Asia’s leading integrated

telecom services provider with operations in India, Africa and Sri Lanka and an aggregate of

over 96.6 million customers as of end of March 2009, consisting of 93.92 million mobile

customers. Bharti Airtel Limited has been voted as India’s most innovative company, in a

survey conducted by The Wall Street Journal.

COMPANY PROFILE

(Bharti Airtel Ltd.)

Type Public company

Trades as BSE: 532454NSE: BHARTIARTL

BSE SENSEX Constituent

Industry Telecom industry

Founded July 7, 1995

Founder’s Sunil Bharti Mittal

Area served South Asia , Africa and Channel Islands

ProductsFixedline Telephony

Mobile Telephony

Broadband Internet

Digital Television

IT services

Bharti Airtel Limited (formerly known as Bharti Telecom Venture Limited- BTVL) was

incorporated on July 7th 1995; it is a leading integrated telecommunications company with

operations in 20 countries across Asia and Africa. Headquartered in New Delhi, India, the

company ranks amongst the top 5 mobile service providers globally in terms of subscribers. In

India, the company's product offerings include 2G, 3G and 4G services, fixed line, high speed

broadband through DSL, IPTV, DTH, enterprise services including national & international long

distance services to carriers. In the rest of the geographies, it offers 2G, 3G mobile services.

Bharti Airtel had over 246 million customers across its operations at the end of February 2012.

BUSINESS DIVISIONS

Mobile services

Bharti Airtel offers GSM mobile services in all the 22-telecom circles of India and is the largest

mobile service provider in the country, based on the number of customers.

Telemedia services

The group offers high-speed broadband with the best in class network. With fixed line services in

87 cities, we help you stay in touch with your friends & family and keep you updated round the

clock

Airtel Broadband provides broadband and IPTV services. Airtel provides both capped as well as

unlimited download plans (reduced speeds at unlimited data are implied). The maximum speed

available for home users is 16Mbit/s.

Enterprise services

Enterprise Services provides a broad portfolio of services to large Enterprise and Carrier

customers. This division comprises of the Carrier and Corporate business unit. Enterprise

Services is regarded as the trusted communications partner to India's leading organizations,

helping them to meet the challenges of growth.

Digital TV services

Airtel provides the magical experience of digital entertainment. From DVD quality picture and

sound, the best and widest variety of channels and programs to the best on-demand content on

Airtel Live, your TV viewing experience change forever with digital TV from Airtel!

The Digital TV business provides Direct-to-Home (DTH) TV services across India under the

brand name Airtel digital TV. It started services on 9 October 2008 and has about 32.44 million

customers as of August 2010.

WORLDWIDE PRESENCE

Coverage map of Bharti Airtel across 20 countries

ORGANIZATIONAL STRUCTURE

PROVISION PROCESS:

Airtel

finance

accounts payable

it deals with

provisioning of

expenses

fixed assets

it deals with

provisioning of fixed

assets (prov for dep, etc)

taxation

provisioning of

service tax, tds

etc

revenue

Account payables

Process overview:

Objective To establish well defined, well defined, effective

and efficient provisioning process to ensure that

the provisions are accurate and optimal

Scope Provision process an its sub processes will

encompass all the activities directly and

indirectly related to provisioning of expenses

for all businesses

Provisions for Expenses under Account Payables, at Airtel can be categorized under

the following heads:

Activities

Monthly closing by user departments

Analysis and review done by finance

Final provision entered by finance

Review of aging schedule

Human resource

CTC ReimbursementNon-CTC reimbursement

Doubtful advances

Administration

Legal and professional expenses Car hire

Network

RM Patrol Rider on NMT KitNetwork & admin rent

AMC- Annual maintenance chargesLease line

BSNL InterconnectFreight and transportNetwork vehicle hire

Network diesel Repairs

Network vehicle provision

Marketing

PromotionsBranding

Banners and hoardingsNews paper advertisements

Sales & Distribution

ARC- Airtel relationship Centres New subscriptions Manufacture of SIM

Process details:

Process flow Steps Timeline Responsibility Control rules

Monthly closing by user

departments

Month end inputs for expected expense for the month is sent to finance from user departments through circle AP Spoc duly

reviewed by PFO and respective department head in standard

format attached

Against all line item PO/ approved Pr no is mandatory. Without PO/ approved PR number, provision input will not be considered except cost which is agreement based.

Every month PFO sign off is required to confirm that the PO/PR has been raised for all the expense during the month Certified list of PO/PR along with exception of activities for which PO/PR has not been made.

PO/PR Report to be signed in attached format on monthly basis by 25th of every month. Circle payable will provide YTD PO & PR report to payable reporting lead by 26th of every month

24th of every month

User departments

Confirmation from other functions for month end inputs to be reviewed by circle AP SpocAnd PFO regarding completeness of provision

Analysis and review done by

finance

Circle AP Spoc makes the following checks

Basis of calculation of provision

Annual trend analysis &

By 26th of every month

Circle AP Spoc

Trend analysis

Variance analysis

Ageing of provisions

Monitoring of

justification

Provision must be backed by the PO/ NFA/agreement/Approved PR

Variance with the last month provided and actual expenses

Considers the ageing of provisions

Analysis of open PO Vs provision available

provision to be done as per the threshold defined in the key validation

Indicators manual released by APO

Inadequate or excessive

provisions?

Final provision entered by finance

CSS AP makes the following checks

Goes back to the user departments for further enquiry and discussion

Checks the genuineness of the expense by verifying it with the past trend, agreement/ PO raised/open PO/NFA

The entire provision data summary should be linked/ backed by the source data & line item wise descriptions along with the ageing details

All provision entry will be uploaded through Reversible Journal Voucher

Reverse the entry passed in the

By 29th of every month

By last day of the month

Circle AP lead

CSS AP Reporting head/ Taxation Team

Trend analysis

Variance analysis

Ageing of provisions

Monitoring of provisions

previous month

Calculate the difference between total expenses incurred during month and the expenses booked by finance in Oracle Add/ less with opening provision for the month

Check the adequacy with open PO/ outstanding as appearing in vendor SOA/ Communication received from user department

Arrive at final provision and upload the same

(All expense provision JVs for the month need to be reviewed and signed by the AP Reporting head)

Actualization of Current Year

Provision

Actualization needs to be carried out every month. Any amount tied up in the

25th of next month

Reconciliation with open PO

Payable team to perform reconciliation of provision with open PO every month after book closure. Any shortage/ excess needs to be accounted based on approval from respective PFO and Circle FR head, PCG segment head.

15th of the next month

CSS AP Lead/AP

reporting Head

All provision code duly mapped with vendor wise, year wise, mapped with Open PO, NFA & Agreements

Aging and monitoring of

provisionsExpense provision

schedule aging should be reviewed every month and all provisions aged more than 180 days should be traced for vendor confirmation

15th of next month

CSS AP Lead/ AP reporting

head

Trigger for reversal of old

provision

Provision should be reversed on first trigger

Vendor provision can be reversed only after proper NDCProvision reversal NFA will be

recommended by Payable