CHAPTER 1

INTRODUCTION

DEFINITION OF 'AUDIT'

1. An unbiased examination and evaluation of the financial statements of an organization. It can

be done internally (by employees of the organization) or externally (by an outside firm).

2. An IRS examination of a taxpayer's return or other transactions. The IRS performs this

examination to verify the accuracy of these filings.

The word audit is derived from a Latin word "audire" which means "to hear". During the

medieval times when manual book-keeping was prevalent, auditors in Britain used to hear the

accounts read out for them and checked that the organization's personnel were not negligent or

fraudulent.

The Indian hospitality(hotels) industry has emerged as one of the key industries driving growth

of the services sector in India. It has evolved into an industry that is sensitive to the needs and

desires of people. The fortunes of the hospitality industry have always been linked to the

prospects of the tourism industry and tourism is the foremost demand driver of the industry. The

Indian hospitality industry has recorded healthy growth fuelled by robust inflow of foreign

tourists as well as increased tourist movement within the country and it has become one of the

leading players in the global industry. Foreign tourist arrivals (FTAs) into the country increased

steadily from 2002 to 2008. FTAs dipped in 2009, due to the global economic slowdown;

however, the impact on the Indian industry was much lower than that on the global counterparts.

FTAs are expected to increase in 2010. On the other hand, domestic tourist movement within the

country was the highest in 2009.

Industry characteristics

Major characteristics of the Indian hospitality industry are:

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High seasonality

The Indian hotel industry normally experiences high demand during October–April, followed

which the monsoon months entail low demand. Usually the December andMarch quarters bring

in 60% of the year’s turnover for India’s hoteliers. However, this trend is seeing a change over

the recent few years. Hotels have introduced various offerings to improve performance

(occupancy) during the lean months. These include targeting the conferencing segment and

offering lucrative packages during the lean period.

Labour intensive

Quality of manpower is important in the hospitality industry. The industry provides employment

to skilled, semi-skilled, and unskilled labour directly and indirectly. In India, the average

employee-to-room ratio at 1.6 (2008-09), is much higher than that for hotels across the world.

The ratio stands at 1.7 for five-star hotels and at 1.9 and 1.6 for

the four-star and three-star categories respectively. Hotel owners in India tend to “over-spec”

their hotels, leading to higher manpower requirement. With the entry of branded international

hotels in the Indian industry across different categories, Indian hotel companies need to become

more manpower efficient and reconsider their staffing requirements.

Classification of hotels

The Ministry of Tourism has formulated a voluntary scheme for classification of operational

hotels into different categories, to provide contemporary standards of facilities and services at

hotels. Based on the approval from the Ministry of Tourism, hotels in India can divided into two

categories:

DoT (Department of Tourism) classified hotels & DoT (Department of Tourism) unclassified

hotels

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Classified hotels

Hotels are classified based on the number of facilities and services provided by them. Hotels

classified under the Ministry of Tourism enjoy different kinds of benefits such as tax incentives,

interest subsidies, and import benefits. Due to lengthy and complex processes for such

classification, a significant portion of the hotels in India still remain unclassified. The Ministry

of Tourism classifies hotels as follows:

Star category hotels

Heritage hotels

Licensed units

Star category hotels

Within this category, hotels are classified as five-star deluxe, five-star, four-star, three-star, two-

star and one-star.

Heritage hotels

These hotels operate from forts, palaces, castles, jungles, river lodges and heritage buildings.

The categories within heritage classification include heritage grand, heritage classic and heritage

basic.

Licensed units

Hotels/establishments, which have acquired approval/license from the Ministry of Tourism to

provide boarding and lodging facilities and are not classified as heritage or star hotels, fall in this

category. These include government-approved service apartments, timesharing resorts, and bed

and breakfast establishments.

Branded players

This segment mainly represents the branded budget hotels in the country, which bridge the gap

between expensive luxury hotels and inexpensive lodges across the country. Budget hotels are

reasonably priced and offer limited luxury and decent services. Increased demand and healthy

occupancy have fuelled growth of budget hotels. These hotels use various cost control measures

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to maintain lower average room rates without compromising on service quality. Ginger Hotels,

ITC Fortune, Hometel, and Ibis are some of the popular budget hotels.

Other smaller players

These are small hotels, motels and lodges that are spread across the country. This segment is

highly unorganized and low prices are their unique selling

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Growth drivers

The fortunes of the hospitality industry are closely linked to the tourism industry and hence

tourism is one of the most important growth drivers. In addition, all factors that aid growth in

the tourism industry also apply to the hospitality industry. The Indian hospitality industry has

recorded healthy growth in recent years owing to a number of factors:

TYPES OF AUDIT:

1. Statutory Audit : any audit carried on as per the requirement of law is called as a statutory

audit. eg: all companies have to get their accounts audited as per the provision of the

company’s Act of 1956.

2. Periodical/ Annual Audit : it is a kind of audit where the auditor verifies the account at the

end of the financial year. He starts the audit work after the closure of financial year. This is a

common audit and is mostly used by small organizations.

3. Interium audit :Its an audit conducted in the middle of the accounting year before the

accounts are closed. In other words any audit conducted between two financial audit is

known sinterium audit. The objective is to get periodical results, to declare interium

dividend.

4. Partial Audit : when an auditor is asked to audit only a part of the account system. Its called

partial audit. Eg: he may be asked to audit only the payment side of cash book.

5. Balance sheet audit: it’s a kind of partial audit and is concerned with the verification of only

those items appearing in the Balance Sheet. It is more popular in the USA. Infact while

verifying BS items the auditor verifies/ checks all related items/accounts.

6. Cost audit : cost audit is defined as the verification of cost accounting records. Data and

techniques for its accuracy and authenticity. It gets as effective managerial tool for the

detection of errors and frauds in cost accounting records. The companies act implies the

central government to order cost audit incase of specifies companies.

7. Management audit : Management audit may be defined as a comprehensive examination of

an organizational structure of a company, institution/government and its plans and objectives

it means of operations and use of human and physical facilities. The main objective of mgt

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audit is to see how far the objectives of mgt are fulfilled. It aims to ascertain whether sound

mgt prevails throughout the organisation and evaluates its efficiency in the system of its

operation.

8. Continuous audit : a continuous audit is one in which the auditor visits his clients office at

regular intervals through out the year to verify the account. The objective of CA may be-

a. To get final account audited immediately after the closure of accounting year.

b. When the business is very large.

c. When interval control system is into effective.

d. When regular final accounts are required.

ADVANTAGES:

1. Errors and frauds are discovered and rectified quickly.

2. The chances of fraud are reduced.

3. The workers will be careful in their work.

4. Continuous audit acts as a valuable morale check on the staff.

5. Final audit becomes easier and faster.

6. If the company wants to declare interium dividend its easier to prepare interium account.

7. It increases the efficiency and accuracy in the accounts.

DISADVANTAGES:

1. After the auditor’s visit is over, alternative may be made.

2. It affects the regular work.

3. Its not suitable for small organizations.

4. The auditor may loose the line of work if he does not complete his work in a visit.

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Scope of Study:

This study deals with the auditing procedure and conduct of audit in ITC Hotel . The Study in

this Paper is confined to the information collected from secondary sources.

Limitation of Study:

All the information in this study is limited to the auditing of Hotel Industry and the respective

information for the same is limited to the information collected from the secondary sources.

Research & Methodology:

All the information in this study is collected from the secondary sources. The respective

information is collected from internet and some auditing books of ICAI

Chapterisation:

The study of the auditing in ITC HOTELS is arranged in the following Sequences:

Chapter I : It focus on the introduction of the overall study in this project paper

Chapter II : It concentrate on the brief explanation of the company profile of ITC HOTEL

Chapter III : It explains the various auditing procedure followed by the auditor in the ITC

HOTEL

Chapter IV : This Chapter deals with the FINDING,SUGGESTION& CONCLUSION of the

project study.

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CHAPTER 2

PROFILE OF THE HOTEL

ITC Hotels is India's second largest hotel chain with over 100 hotels.Based in the Hotels

Division Headquarters at the ITC Green Centre in Gurgaon, New Delhi, ITC Hotels is also the

exclusive franchisee of The Luxury Collection brand of Starwood Hotels and Resorts in India. It

is part of the ITC Limited (formerly India Tobacco Company) group of companies. ITC Hotels

is regularly voted amongst the best employers in Asia in the hospitality sector.

ITC Limited entered the hotel business on 18 October 1975 with the opening of a hotel in

Chennai, which was renamed Hotel Chola. In 2006, ITC hotels owned and operated 100 hotels in

75 locations. ITC Hotels have a reputation of playing host to visiting royalty and world leaders

time and again. ITC Restaurants Bukhara, Peshawari, Dakshin, DumPukht and Kebabs &Kurries

are well known cuisine brands today. They market a line of food products, Kitchens of India.

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ITC Hotels has one of the most extensive art collections in India. A museum of their collection is

being planned in Kolkata. ITC Grand Bharat is their latest hotel established in Manesar,

Gurgaon.

ITC BRAND

The group today operates under several distinct brands:

Luxury Collection Hotels

Sheraton Hotels

Fortune Hotels, which has 54 hotels with 4,446 rooms in 41 cities across India[12]

Welcome Heritage Hotels

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India

Limited. As the Company's ownership progressively Indianised, the name of the Company was

changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited

in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business

portfolio encompassing a wide range of businesses - Fast Moving Consumer Goods comprising

Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery

Products, Incense Sticks and Safety Matches, Hotels, Paperboards & Specialty Papers,

Packaging, Agri-Business and Information Technology - the full stops in the Company's name

were removed effective September 18, 2001. The Company now stands rechristened 'ITC

Limited'.

The Company's beginnings were humble. A leased office on Radha Bazar Lane, Kolkata, was the

centre of the Company's existence. The Company celebrated its 16th birthday on August 24,

1926, by purchasing the plot of land situated at 37, Chowringhee, (now renamed J.L. Nehru

Road) Kolkata, for the sum of Rs 310,000. This decision of the Company was historic in more

ways than one. It was to mark the beginning of a long and eventful journey into India's future.

The Company's headquarter building, 'Virginia House', which came up on that plot of land two

years later, would go on to become one of Kolkata's most venerated landmarks.

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Though the first six decades of the Company's existence were primarily devoted to the growth

and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies witnessed the

beginnings of a corporate transformation that would usher in momentous changes in the life of

the Company.

ITC's Packaging & Printing Business was set up in 1925 as a strategic backward integration for

ITC's Cigarettes business. It is today India's most sophisticated packaging house.

In 1975, the Company launched its Hotels business with the acquisition of a hotel in Chennai

which was rechristened 'ITC-Welcome group Hotel Chola' (now renamed My Fortune, Chennai).

The objective of ITC's entry into the hotels business was rooted in the concept of creating value

for the nation. ITC chose the Hotels business for its potential to earn high levels of foreign

exchange, create tourism infrastructure and generate large scale direct and indirect employment.

Since then ITC's Hotels business has grown to occupy a position of leadership, with over 100

owned and managed properties spread across India under four brands namely, ITC Hotels -

Luxury Collection, Welcome Hotels, Fortune Hotels and Welcome Heritage.

In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards

Limited. Bhadrachalam Paperboards amalgamated with the Company effective March 13, 2002

and became a Division of the Company, Bhadrachalam Paperboards Division. In November

2002, this division merged with the Company's Tribeni Tissues Division to form the Paperboards

& Specialty Papers Division. ITC's paperboards' technology, productivity, quality and

manufacturing processes are comparable to the best in the world. It has also made an immense

Andhra Pradesh. It is directly involved in education, environmental protection and community

development. In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial

Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. The Kovai Unit allows ITC to

improve customer service with reduced lead time and a wider product range.

Launched in 1975, ITC Hotels, India's premier chain of luxury hotels, has become synonymous

with Indian hospitality. ITC Hotels pioneered the concept of 'Responsible Luxury' in the

hospitality industry, drawing on the strengths of the ITC groups exemplary sustainability

practices. Responsible Luxury personifies an ethos that integrates world-class green practices

with contemporary design elements to deliver the best of luxury in the greenest possible manner.

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Fortune Hotels are the brainchildren of ITC ltd which is a large commercial conglomerate.

Fortune Hotels have done a splendid job of establishing its brand as a premium hotel brand.

Their chain of 3-4 star hotels across 18 locations in India are mostly business hotels situated in

metropolitan areas.

Branded Accommodation

ITC Hotels has set standards for excellence in the hotel industry by pioneering the concept of

branded accommodation. The chain has developed three brands of accommodation ITC One',

'Towers' and the 'Executive Club' to differentiate between the needs of various travellers and

provide the highest levels of service.

Branded Cuisine

ITC Hotels is one of the first to introduce branded cuisine Welcome Cuisine - in India. The

Bukhara and Peshawri restaurants give epicures the rugged, outdoor cuisine of the Northwest

Frontier Province. Dakshin has brought together the highly evolved cuisines of the four southern

states- Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. Dum Pukht is a unique restaurant

dedicated to a 200-year old culinary tradition of slow cooking food, in sealed deghs. The

fragrance of the meal becomes an invitation befitting royalty. Today the connoisseur can

savourthese delicacies across the country. The sumptuous fare at Kebabs and Kurries comprises

a mouth-watering array of kebabs and a wide range of dishes from all over India. These dishes

can be categorized as Qualms, Qaliyas or Salans.

Rated high by food connoisseurs all over the world, ITC Hotels takes exceptional pride in

showcasing its internationally renowned cuisine. West View brings a careful selection of western

cuisine s from the remote France chateaux, grill houses on the East and West coasts of America,

rosy kitchens of English manors, leisurely Mediterranean villas and bustling German

marketplaces.

ITC’s corporate strategies are:

Create multiple drivers of growth by developing a portfolio of world class businesses that best

matches organizational capability with opportunities in domestic and export markets.Continue to

focus on the chosen portfolio of FMCG, Hotels, Paper, Paperboards & Packaging, Agri Business

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and Information Technology.Benchmark the health of each business comprehensively across the

criteria of Market Standing, Profitability and Internal Vitality.Ensure that each of its businesses

is world class and internationally competitive.Enhance the competitive power of the portfolio

through synergies derived by blending the diverse skills and a capability residing in ITC’s

various businesses.Create distributed leadership within the organization by nurturing talented

and focused top management teams for each of the businesses.

Continuously strengthen and refine Corporate Governance processes and systems to catalyze the

entrepreneurial energies of management by striking the golden balance between executive

freedom and the need for effective control and accountability.

Company Facilities:

No director, senior management and employee shall misuseCompany facilities. In the use of

Company facilities, care shall be exercised to ensure that costs are reasonable and there is no

wastage.

ITC Hotels

ITC Hotel Luxury Collection

ITC Maurya, New Delhi

ITC Mughal, Agra

ITC Maratha, Mumbai

ITC Grand Central,

Mumbai

ITC Sonar, Kolkata

ITC Windsor, Bengaluru

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CHAPTER 3

AUDITING IN ITC HOTELS

Audit Of Hotel Introduction

Your Hotel Audit will uncover hidden revenue potentials and cost saving for your hotel. Through

our in depth evaluation we identify strengths and weaknesses in your financial and operational

structure. We provide a basis for your action plan to strengthen your hotel against your

competition. With many years of Hotel audit experience our skills will be one of the most

valuable investments you will make this year.

ITC Hotel Audit Work Program

This tool is a comprehensive work program to use as a guideline for auditing a hotel. It covers

many processes related to hotel management, and can also be modified for other hospitality and

service operations such as restaurants.

Proper hotel accounting procedures provide the foundation on which all financial decisions are

based. That's why ITC provides an experienced hotel accounting team coupled with a centralized

hotel accounting system, which together ensure comprehensive accounting services that are

efficient, organized and straightforward, and result in reduced operating costs for your property.

Hotel Accounting Services

Daily Operations Reports

Daily labour, revenue, purchasing and operating statistics, all compared to forecasts or budget,

are prepared at your property under corporate review and supervision.

Cash Flow Reports

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Cash flow reports are provided weekly, monthly or on an as-needed basis at the corporate level

with input on revenue and expenses from your property

Accounts Payable

A key area in accounting, accounts payable ensures that all bills are paid on time and all

discounts are taken minimizing the costs of the hotel. Accounts payable clerks work closely with

the purchasing department to verify that all invoices to be paid are indeed invoices of the hotel.

Assistant Controller

In a big hotel, you may see one, or a few, assistant controllers. In smaller hotels, there may not

be any. The controller divides the various functions to be performed so that the workload will be

even. For example, one assistant might be responsible for daily transactions while another works

on special projects, budgets, analyses, and the like.

Guest and City Ledgers

A hotel keeps two ledgers: the guest ledger is associated with the guests staying at the hotel

while the city ledger contains all other billings. It is important that the accounting department has

a person in accounts receivable working with the city ledger so the hotel is able to bill and collect

revenues due.

Night Audit

Night auditors get their name because of the hours they work. At the end of the day after most

hotel guests have retired, these auditors begin recording charges to guests’ accounts and

verifying the revenue for the hotel. However, with computers and various technologies, the hotel

industry can post charges instantaneously. Some hotels have actually changed the night auditors

to become day auditors.

Banquet Auditor

Besides revenues charged to guest rooms, a large hotel earns the bulk of its food and beverage

revenues through banquets. The banquet auditor’s function is to verify the correct revenue for

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billing. This individual works closely with the banquet staff, the sales office staff, and the

accounts receivable clerks.

Credit

A big hotel may have its own credit manager whose function is to check and grant credit. In

today’s business world, many transactions are done on credit rather than cash or cashier checks.

It is, therefore, the credit manager’s responsibility to conduct such investigations to be sure that a

person or company is creditworthy.

Food and Beverage Controller

This is a fun and challenging position, as it has both accounting and food and beverage

components. While performing all analyses of food cost percentage, yields on meat, and menu

costing, the food and beverage controller also works with the chef to design new menu items,

taste new products, and even be a mystery diner to taste-test the menus in other foodservice

establishments.

Front-Office Cashiers

The duties of a front-office cashier are often incorporated with the front-office personnel. When

guests check out, it is the duty of these cashiers to charge the guests the correct amount and

secure a form of payment.

General Cashier

Pause for a minute and think how many cash banks there are in a large hotel: a few at the front

office, at least one in the restaurant, at least one in the gift shop, and so on. The general cashier is

the person who is in charge of all the cash banks in the hotel. He or she also makes all deposits of

checks and credit card receipts.

Operations Analyst

This is a nice position to have in a hotel. An operation analyst performs analyses to help

managers operate the hotel more effectively. From guests’ statistics to revenue trends, the

operations analyst does it all. However, not all hotels are able to afford an analyst on the payroll.

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If this is the case, an assistant controller often performs these duties. For smaller hotels where

there is not an accounting office on the property, this function is done at the regional level

General Ledger Maintenance

ITC uses the chart of accounts conforming to the Uniform System of Accounts for the Lodging

Industry.

Tax Reporting

ITCsubmits state and local sales and occupancy tax forms as well as assistance with income tax

information..

AUDIT OF FIXED ASSETS

Audit Objectives

1. Fixed assets, recorded in books, are actually in existence, owned by the entity and are

used in operations.

2. No unrecorded fixed asset is in existence.

3. Fixed assets sold, abandoned, or otherwise disposed of have been eliminated from the

financial statements. Fixed assets, retired from active use and held for disposal, have been stated

at the lower of their net book value and net realisable value and are shown separately in the

financial statements.

4. Subsequent amount spent on existing fixed assets have been capitalised only in a case

where it increases the future benefits from the asset beyond its previously assessed standard of

performance, e.g., where it increases the capacity.

5. Valuation of fixed assets is appropriate keeping in view the generally accepted

accounting principles and these principles have been consistently applied.

6. All the assets obtained on finance lease, on or after 1st April, 2000, are recognised as

assets in the financial statements as per Accounting Standard (AS) 19, Leases, issued by the

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Institute of the Chartered Accountants of India. Operating lease rentals have been appropriately

charged as an expense over the life of lease.

7. Any impairment in the value of fixed assets has been appropriately recognised in the

financial statements.

Audit Procedures

1. Trace and verify opening balances of fixed assets from previous year audited financial

statements.

2. Review significant expenditure related to fixed assets incurred during the year to ensure

that the expenditure incurred on purchase of new fixed assets has been properly capitalised.

3. Obtain a list of fixed assets disposed of during the period and verify computation of

profit/loss, if any, on the same on sample basis.

4. Verify that the items of fixed assets, retired from active use and held for disposal, have

been stated at the lower of their net book value and net realisable value and are shown separately

in the financial statements. Also verify that any expected loss has been recognised immediately

in the statement of profit and loss.

5. Ensure that depreciation on fixed assets has been charged at the rates which are not lower

than the rates prescribed in applicable statute, if any, to the enterprise, e.g., rates prescribed in

Schedule XIV to the Companies Act, 1956, would be relevant for the companies registered under

the Act.

6. In case depreciation on fixed assets has been charged at rates higher than those prescribed

in the applicable statute on the grounds of lower useful life, the report of the technical expert

must be verified.

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7. Perform analytical review procedures on computation of depreciation on major fixed

assets as also on useful life of the assets.

8. Verify that the fixed assets register has been duly maintained and updated on regular

basis. Further, various balances appearing in the fixed asset register should be reconciled with

the books of account.

9. Physical verification of various fixed assets should be carried out and discrepancies

noticed, if any, should be properly analysed and reconciled.

PROFIT AND LOSS ACCOUNT

Audit Objectives

1. All the items of revenue and expenses have been properly recorded and recognised.

2. Proper adjustments have been made for expenses accrued / outstanding at the year-end

and for the prepaid expenses.

3. Proper adjustments have been made for income accrued at the year-end and for the

income received in advance.

4. Adequate provision has been created for expected un-collectable portion of debtors and

the individual items have been charged off on becoming un-collectable.

5. Recognition, measurement and disclosure requirements laid down in various

pronouncements of the Institute of the Chartered Accountants of India have been duly complied

with.

Audit Procedures

Sales and Purchase Accounting

1. Perform walk-through tests to examine the system of accounting and internal control with

regard to sales and purchases.

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2. Identify and test controls on which reliance is to be placed.

3. In case accounting and/or internal control system has undergone a change during the

year, re-perform tests as stated in (1) and (2) above to the extent required and document the

same.

4. Apply necessary tests on the systems and controls, designed to prevent errors and frauds,

to obtain the desired level of confidence. In case the desired level of confidence cannot be

obtained by applying these tests, its impact on the accounts and audit must be ascertained and the

auditor should consider applying the additional tests.

5. Determine significant variances for major heads of revenue and expenditure vis-à-vis the

budget figures and the corresponding figures for the previous year.

6. Identify unusual items of revenue and expenditure in the profit and loss account.

7. Ascertain/obtain reasons from the management for such variances and unusual items and

these reasons should be properly documented.

8. Obtain corroborative evidence for management’s explanations of significant matters.

Analytical Review of Individual Items

9. Compare monthly room rent revenue with the budgeted amount and with the revenue for

the corresponding month of the previous year/period.

10. Compare monthly room rent revenue with the revenue computed on the basis of industry

trends and occupancy rates for the month.

11. Carry out a global check on the room rent revenue by considering industry occupancy

rates (particularly in that market segment) and the room rates charged by the hotel.

12. Obtain necessary information and explanations from the management for major

variances, if any, and ensure that all information and explanations for variances are consistent

with the relevant available information.

13. Compare and analyse monthly relationship of food and beverages revenue with room rent

revenue besides comparing actual food and beverage revenue with budgeted revenue and

revenue for the corresponding month in previous year.

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14. Verify reasonableness of banqueting income by comparing the same with the income for

the corresponding previous period and the budgeted income. Any material variances should be

properly analysed and investigated.

15. Assess reasonableness of interest received and interest paid by comparing the same with

the interest computed on the basis of the average balance outstanding and applicable rates of

interest. Further, ensure on test basis that interest has been received and paid at rates contracted

and computation of interest should also be checked on sample basis.

PAYROLL

Audit Objectives

1. Amounts outstanding at the year-end as also the amounts paid in advance have been

recorded and properly adjusted in the financial statements for the period.

2. Amounts recorded as payroll expenses accurately represent the value of services received

by the entity.

3. Allocation of various expenses to assets, expenses, and other accounts has been done

correctly on reasonable and equitable basis and applied consistently.

4. Accounting principles applied to various employee benefit costs including health care,

pension and other post-retirement benefit costs are appropriate keeping in view various

pronouncements of the Institute of the Chartered Accountants of India such as Accounting

Standard (AS) 15, Accounting for Retirement Benefits in the Financial Statements of the

Employers. It should also be ensured that the accounting principles have been appropriately

disclosed in the notes to the financial statements.

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Audit Procedures

Accounting System and Internal Control

1. Perform walk-through test to examine accounting system and internal control with regard

to payroll.

2. Identify and test controls on which reliance is to be placed.

3. In case accounting and/or internal control system has undergone a change during the

year, re-perform tests as stated in (1) and (2) above to the extent required and document the

same.

4. Apply necessary tests on the systems and controls, designed to prevent errors and frauds,

to obtain the desired level of confidence. In case the desired level of confidence cannot be

obtained by applying these tests, its impact on the accounts and audit must be ascertained and the

auditor should consider applying the additional tests.

5. Examine and review the segregation of duties within the payroll department and EDP

department.

6. Carry out analytical review of payroll costs using key performance indicators.

7. Make comparison of current year payroll cost with the budgeted cost as also with the cost

for the previous year.

8. Apply trend analysis on payroll cost incurred and benefit received by the department.

9. Compute a ratio of profit as a percentage of payroll costs for each department and

compare the same with the prior years as also with the industry standards.

10. Obtain necessary information and explanations from the management for major

variances, if any, noticed at steps 7 to 9 and ensure that all information and explanations for

variances are consistent with the relevant available information.

11. Check relevant documents relating to fresh appointments and for resignations.

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12. Review payroll sheets to identify unusual items and significant variances and obtain

explanations from the management for such unusual items and variances.

13. Analyse relationship between casual labour cost and monthly occupancy rate, compare

the same with previous year figures and industry standards and obtain explanations from

management for significant variances.

14. Verify that timely payment of payroll related statutory dues such as tax deducted at

source, provident fund, ESIC, etc., has been made.

15. Review the correctness of various calculations done by actuaries with regard to

retirement benefits and ascertain reasonableness of assumptions used.

16. Examine the following documents for their relevance to the period under audit:

• Contracts with unions

• Other employment contracts

• Employee benefit plans

• Post retirement benefits.

STOCK VERIFICATION

1. Obtain a copy of the stocktaking instructions to ensure that these instructions are

adequate from the control viewpoint and also ensure that these instructions have been duly

complied with.

2. Identify all stock locations to ensure the coverage of all locations in the stocktaking

process.

3. Identify important items from the stock sheets and physically verify them. Discrepancies

noticed, if any, should be properly documented.

4. Select certain items of inventory on random basis and ensure that these appear properly in

the stock sheets.

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5. Identify important items of inventory from the stock ledger and confirm their balances in

the stock sheets.

6. Select certain items of inventory from the stock sheets (other than those covered referred

in 5 above) and trace their balances in the stock ledger.

7. Ensure that the stock sheets are referenced / numbered in a manner which ensures their

completeness.

8. Obtain details of cut-off procedures used on inventories from all documents pertaining to

movement of stocks.

9. Identify any damaged or slow / non-moving stock, as also stocks in excess of current

requirements.

STOCK VALUATION

1. Ensure that the principles relating to valuation of inventories stated in Accounting

Standard (AS) 2, Valuation of Inventories, issued by the Institute of the Chartered Accountants

of India, have been duly complied with.

2. Verify that the principles relating to valuation of inventories have been followed

consistently from year to year, i.e., the valuation principles followed in the current year are the

same as those followed in previous year.

3. Independently determine lower of net realisable value and cost for certain important

items of inventory and ensure that their valuation is correct.

4. Carry out an analytical review on the value of stock by comparing the same with the

budgeted value as also with the value of inventories at the end of the previous year.

5. In case significant variances are found in the valuation of inventories, category-wise

analytical review must be carried out and reasons for variances in value of each category must be

ascertained from the management and properly documented.

6. Verify that appropriate provision has been created on damaged or slow/ non-moving

stock, as also on stocks in excess of current requirements.

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DEBTORS

1. Examine the relevant records to ensure validity, accuracy and recoverability of debtor

balances.

2. The balances of debtors shown in the schedules must be tallied with those shown in the

ledger accounts. Further, the total of schedules must be tallied with the control account of

debtors as appearing in the ledger accounts. Any differences in this regard should be clearly

examined and analysed.

3. In case of significant debtors, the correspondence and other documentary evidence must

also be verified to ensure their validity and accuracy.

4. For larger balances, subsequent realisations might also be verified.

5. Bad debts written off or excessive discounts or unusual allowances should be verified

from the relevant correspondence.

6. Review city ledger and front office reconciliation for the year and investigate any unusual

or significant items in the reconciliation.

7. Ensure that year-end charges made to guests have been adjusted for credit

notes/allowances given in the next accounting year.

8. Examine credit balances in Sundry Debtors Account and after verifying correctness

thereof ensure that these are grouped under creditors.

9. Obtain explanations from the management with regard to doubtful debts and verify the

same with the corroborative evidence available. Further, it should be ensured that provision for

doubtful debts is adequate.

10. Obtain an aging analysis of guest balances to identify old debts in respect of which

provision has not been made, check all correspondence in relation thereto, and obtain

explanations from the management before deciding upon whether a provision ought to be made.

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11. Assess the effectiveness of credit control; the measures taken to ensure credit-worthiness

of the significant debtor groups such as corporates, travel agents and long-staying guests before

extending credits.

ROOMS

2.13 Rooms generally constitute the biggest source of revenue for a hotel. Approximately,

60% - 62% of the gross revenue of a hotel comes from room rent. Normally, contribution from

this source of revenue comes out to be more than 70% due to the low variable costs. The various

operations relating to rooms normally are as follows :

• Front Office, including reservations

• Bell-desk

• Housekeeping

• General Administration

Front Office

Reservations

Normally, a separate person from the front office is made responsible for making all advance

bookings/reservations. Reservations may be made based on direct inquires from the guests or

through other diverse sources such as travel agents, reservation networks ( in the case of an

enterprise operating a chain of hotels), secretaries of executives and through sales and marketing

department. The person responsible for making reservations normally prepares a list of bookings

for the next day, inter alia, stating room rate to be charged, discount to be allowed on the

standard rate, billing instructions, airport pick-up status and expected date and time of departure,

etc. the list so prepared is sent to other departments for taking necessary action at their end.

Filling of Registration Card

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Each guest is required to fill-up a registration card at the front office. The registration card

normally records the name and address of the guest, the nationality, passport number (in case of

a foreign national), the arrival date and time as also the expected departure date and time. The

registration card is required to be signed by the guest and a responsible office of the hotel. After

the guest has filled-in and signed the registration card, the room number allotted to the guest as

also tariff to be charged is filled-in. The discount allowed to the customer on the standard rate is

also recorded on the registration card. The discount granted to the customer can be either

contractual or based on the negotiations made across the counter. The arrival of customer is also

recorded in the guest folio of the guest ledger.

Intimation to other operating departments

At the time a room is sold, the front office intimates the relevant details to the housekeeping and

other operating departments. The basic objective of intimation is to inform the other operating

departments about the sale of room so that they gear up to provide the required services. While

intimating, rooms with scanty baggage, if known, are highlighted.

Reconciliation of Guest Count as per the housekeeping department with Guest Folio.

The housekeeping department, which is responsible for the proper upkeep of the guest areas,

more particularly rooms, prepares a guest count report atleast once a day and sends a copy of the

same to the Front Office. The Front Office is required to compare the report with the guest folio.

The discrepancies noticed, if any, between the two counts are required to be duly reconciled,

with a view to ensure that there is no leakage of revenue. For example, an extra bed

requisitioned after check-in might get recorded from the housekeeping report.

Report of Guests Checking Out

It is a practice in most of the medium and large hotels to circulate a report of guest check-outs

for the next day to all operating departments. Such a practice is useful in ensuring that all the

charges have been posted to the guest folio before raising the final bill on the customer and,

therefore, reduces the chances of leakage of revenue.

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ROOM REVENUE

As stated earlier, rooms are the largest source of revenue for a hotel both in terms of gross

revenue and in terms of contribution. The method of checking/analysing room revenue,

therefore, assumes greater significance.

Letting out of room is usually recorded in more than one record, for example in the guest folio,

housekeeping department report, etc. Normally, more than one person is involved in the

preparation of these records. In view of this, the possibility of manipulating room sales is

normally less since in order to omit a sale from the records it would be necessary to omit the

entry of the guest from all records. In large hotels, many persons are involved in maintenance of

records relating to room sales and, therefore, intentional omissions become practically

impossible, and unintentional errors or omissions can be detected quickly.

Food and beverages income generally moves in tandem with room rent revenue, since the

resident guests usually consume food and/or take drinks at the restaurant/bar of the hotel during

their stay. For instance, a large proportion of resident guests have their breakfast at the hotel.

This relationship between room rent revenue and food and beverages income would be stronger

in case of resorts that are situated at places away from the city. City based hotels normally also

try to attract customers who are not staying at the hotel for food and beverages. Thus, the

relationship between food and beverages income and room rent revenue may vary depending

upon the type of the hotel.

The most important aspect of verification of food and beverages income would be the

examination of serial control on paid and unused bills. Control on cash bills can be exercised

through review of the cash summary sheets containing details of the sales for a particular

day/shift. The auditor could also apply surprise on-line checks on the serial control. The said

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check might be applied either during the day or while carrying out audit on the sale of the day

that does not fall within the audit period.

The other core areas of its consideration are as follows

Conduct a market Audit.

Analysis of market competition.

Market place analysis.

Formulation of new schemes and niche offerings.

Selection of profitable market segments.

Positioning the property.

Establishing the objectives and the action plan

HIERARCHY OF SALES & MARKETING

Head of sales Associate Head of Sales Sales Executives Sales coordinators

Purchase Department

While operating a hotel is supposed to be a difficult task, managing the entire procurement

process (for such a unit) is even more so. The purchase department handles the task of

procurement yet all departments play a crucial role in it. That said technology ensures that inter-

departmental activities takes place flawlessly. Although purchase has now become dependent on

technology for managing inventories and order status, it was originally a manual job. From

selection of products to deciding on a vendor, this department rests on the human ability of In

most modern hotels, the installation and service of elevator systems is generally the province of

the elevator manufacturer, and hotels typically have extended maintenance agreements for the

elevators. Most engineering departments, however, closely monitor the operation of the elevator

systems. In modern high-rise hotels with high speed elevator service, the slightest problem with

that service should be quickly and easily identified and reported to the contractors. It is generally

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the responsibility of the engineering department to monitor these services and their contracts

closely and carefully.

SECURITY DEPARTMENT

The security of guests, employees, personal property and the hotel itself is an overriding concern

for today’s hoteliers. In the past, most security precautions concentrated on the prevention of

theft from guests and the hotel. However, today such violent crimes as murder and rape have

become a problem for some hotels. Unfortunately, crime rates in most major’s cities are rising.

Hence today security department also concentrate on these additional criminal activities too. The

main position in the security department is of the Assistant Security Manager. The department

includes the fire and safety officer and the duty guards. The primary function of the security

department is to provide property surveillance and protection to the guest. The latter is more

important for the security department. In the hotel there are two variants of security staff working

round the clock indifferent shifts. First is the direct security staff of the hotel working in three

different shift of 8 hour duration? Considering flawless security to the guests, all the guest rooms

of the hotel are installed with spring glass and smoke detectors and automatic alarm system.

There is a central security office working inside the hotel with all the modern fire Fighting

equipments such as fire extinguishers, dry powder, and other fire dousing facilities. As a part of

the security provision both to the hotel’s property and the guests the entire geographical area of

the hotel is divided in to 3 portions such as Beach Viewpoint, Tide point and the Club – these

three points are all together known as the ‘assembly point’ . The most common methods adopted

by the fire and safety wing of the hotel (it came under the security department) are liquid carbon

dioxide, dry powder etc. The security control post of the hotel will be functioning on 24 x 7with

office secretary, night and day supervisor, and security officer. The security setup at the hotel is

faultless since the hotel cannot compromise on the safety of its valuable guests. All the activities

of the security department is controlled and supervised by the main security officer. He is also

responsible for conducting training programmes on security and fire fighting to the security staff

of the hotel.

29

Balance Sheet

------------------- in Rs. Cr. -------------------

ITC

India Tourism D Indian Hotels EIH Mahindra Holida

Hotels

Mar

Mar '12 Mar '12 Mar '13 Mar '13

'04

Sources Of Funds

Total Share Capital 30.21 85.77 75.95 114.31 83.88

Equity Share Capital 30.21 85.77 75.95 114.31 83.88

Share Application Money 0.00 0.00 124.37 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 194.22 223.09 3,167.49 2,510.61 550.43

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 224.43 308.86 3,367.81 2,624.92 634.31

Secured Loans 0.08 0.00 971.18 339.68 1.95

Unsecured Loans 0.00 0.00 1,191.33 0.00 0.00

Total Debt 0.08 0.00 2,162.51 339.68 1.95

Total Liabilities 224.51 308.86 5,530.32 2,964.60 636.26

Application Of Funds

Gross Block 206.40 142.32 2,814.49 2,825.83 612.51

30

Less: Accum. Depreciation 71.17 80.93 971.56 709.15 139.14

Net Block 135.23 61.39 1,842.93 2,116.68 473.37

Capital Work in Progress 4.14 3.11 235.02 39.98 231.42

Investments 68.20 8.14 3,622.19 705.73 185.91

Inventories 1.87 11.25 39.79 34.12 6.38

Sundry Debtors 12.05 114.72 124.83 173.56 625.98

Cash and Bank Balance 9.96 258.20 35.76 20.36 33.84

Total Current Assets 23.88 384.17 200.38 228.04 666.20

Loans and Advances 56.80 130.18 1,633.62 350.44 687.42

Fixed Deposits 7.00 0.00 2.65 0.00 0.00

Total CA, Loans & Advances 87.68 514.35 1,836.65 578.48 1,353.62

Deferred Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 59.30 209.82 1,290.61 401.68 1,562.07

Provisions 11.45 68.29 715.86 74.59 45.99

Total CL & Provisions 70.75 278.11 2,006.47 476.27 1,608.06

Net Current Assets 16.93 236.24 -169.82 102.21 -254.44

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 224.50 308.88 5,530.32 2,964.60 636.26

Contingent Liabilities 24.04 476.29 974.34 190.61 119.95

Book Value (Rs) 74.27 36.01 42.71 45.92 75.62

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CHAPTER 4

FINDINGS, SUGGESTIONS & CONCLUSION

FINDINGS

The employees are satisfied with the nature of work

The supervisor consider the decisions or viewpoints given by the employees The

relationship between the superior and the subordinate is good

The relationship of the with peers is good

The recognition for the contribution to the job is satisfactory The working environment is

encouraging for the employees

The employees are happy with the communication flow followed in the organization

The company will encourage quality of work life in the organization The rating given to

the employees on their performance is satisfactory The employees satisfied with the shifts

The company will encourage work life balance

The training program given to the employees is good.

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AWARD AND RECOGNITIONS

o Bukhara awarded with " Restaurant of the Year" at NDTV Lifestyle Awards,

March 2013 Dum Pukht awarded with 'Best in Country' recognition at the

S.Pellegrino Asia's 50 Best

o Restaurants, Singapore, February 25, 2013

o Bukhara recognised amongst S. Pellegrino Asia's 50 Best Restaurants at No. 26,

from close to 900 restaurants in Asia, February 25, 2013

o ITC Grand Chola receives green rating for integrated habitat assessment by The

Energy Resource Institute (TERI), Ministry of New & Renewable Energy

(MNRE), Government Of India – February 2013

o ITC Grand Central awarded with The Golden Peacock - Corporate Excellence

Recognition for national training by Institute of Directors – January 2013

o ITC Grand Chola recognized by HIFI as development of the year in the luxury

and upscale category – January 2013

Kaya Kalp recognized as Best Hotel Spa by CondeNast Traveler, India – December 2012

o Bukhara and Dakshin listed amongst Asia’s Top 20 Restaurants – Miele Guide

Asia, January 2013

o ITC Grand Chola receives green rating for integrated habitat assessment by The

Energy Resource Institute (TERI), Ministry of New & Renewable Energy

(MNRE), Government Of India – February 2013

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o ITC Grand Central awarded with The Golden Peacock - Corporate Excellence

Recognition for national training by Institute of Directors – January 2013

o ITC Grand Chola recognized by HIFI as development of the year in the luxury

and upscale category – January 2013

o Bukhara and Dakshin listed amongst Asia’s Top 20 Restaurants – Miele Guide

Asia, January 2013

o Kaya Kalp recognized as Best Hotel Spa by CondeNast Traveler, India –

December 2012 ITC Hotels - The Standout Winner for Sustainability , Global

Vision Awards –October2012

SUGGESTIONS

It is suggested to have the workers participation in the management

Training program can be improved for the future prospective employees to the meet the

challenges

The preference of the employees can be evaluated by adopting suitable techniques and

methods

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Transport facilities is suggested to be given to the employees for their easy movement

Emphasis should be given on the career development aspects of potential employees

which in turns help in organization growth and development

Space for subordinate comments should be provided which results in deeper analysis of

the problem, proper evaluation and effective solution for the same.

Hotel should consider local restaurants as their competitors too and try to attract people

visiting these restaurants as well.

As they are constructing new halls and restaurants, they must consider their pricing

strategy to attract new customers and provide them better quality food at competitive

rates.

They should issue News Letter to let its customers know what are their future plans.

Their existing policy emphasizes on existing customers. They should broaden their

customer base.

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CONCLUSION

Tourism is a phenomenon, which has now become a powerful in its own right. It has now

become a vital part in any country’s economy. This is by virtue of the being the highest foreign

exchange earner and an employment in time industry.

The hotel is undergoing a tremendous regarding management, which prefers analyzing

innovative thinking in the administration hotel.

India today has a very strong computerized system making the work easy. Budget hotels cater to

the needs of the budget conscious travellers

Lot of private airlines is coming up with open off polices of government of India.

ITC is renowned because of its excellence in providing customer satisfaction. They were

enjoying the status of market leadership rather monopoly since their existence,. ITC should work

to cope with this competition. Whatever the conditions will be, ITC loyal and permanent

customers will always prefer them. As is not up to the expectations so far, therefore, It has an

opportunity to maintain and improve their quality service and retain their customers. It never

compromises on quality.

ITC is aware of the fact that hospitality industry exists in rapidly changing environment, where

new products and innovations are introduced quite frequently. It is one of the biggest names in

the industry and they always keep abreast of their competitors. It relies on its international brand

name and is quite sure that will not be that big a threat.

We conclude that ITC is better than any other hotel located in Bangalore at present and it is

always the first preference for its customers.

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BIBLIOGRAPHY

The information provided in this project is collected from various sources like;

ITC website(www.itcportal.com www.wikipedia.com

www.Wikipedia.org

India Today magazines

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