FA

ASSIGNMENT-1

1. GOOD KNOWLEDGE OF ACCOUNTING NECESSARY FOR A MANAGER:

Accounting provides management with data needed to determine whether a business is at a loss or a profit, how much debtors owe, how much a business owes others, and other financial information. Accounting measures business transactions and as such can help steer managers in the right direction with solid information, not gut-feelings. Basically accounting is a tool for management to employ to help make sound business decisions on a timely manner. For instance, if by using accounting information, managers notice that the trend is for sales to decrease, then they can take measures to stop this trend. Maybe they need to change prices or decrease expenses to handle the down-trend. The key is that accounting gave them the clue that something may not be going according to plan, playing an important role in business management.

2. ECONOMIC DECISIONS BASED ON ACCOUNTING INFORMATION:

The requirements specific to the accounting information users

Obtaining accounting information takes place after processing and interpreting

the data based on certain accounting principles and concepts, using a variety of methods

and accounting policies to reflect an entity’s economic reality. The accounting

information is produced by expert accountants based on the rules and regulations in force.

3. TYPICAL USERS OF FINANCIAL REPORT:

Financial statements are intended to be understandable by readers who have “a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently.”

There are different kinds of users of financial statements. The users of financial statements may be inside or outside the business.

The users of financial statements use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to succeed in the business world.

Classification of Users of Financial Statements:

The financial statements are used by different categories of people for different purposes. The various users of financial statements are classified and detailed as follows:

Internal Users:

The internal users of financial statements are individuals who have direct bearing with the organization. They may include:

Managers and Owners:

 For the smooth operation of the ,Organization the managers and owners need the financial reports essential to make business decisions. So as to provide a more comprehensive view of the financial position of an organization, financial analysis is performed with the information supplied in the financial statements. The financial statement is used to formulate contractual terms between the company and other organizations.

A variable of the financial statement like the current debt to equity ratio is important in deciding the amount of long term capital that would be required to be raised. The financial statements of other companies can also provide investment solutions to different companies. Sometimes it becomes difficult to decide the right field in which financial resources may be channelised. In such situations the financial statements of other companies provide the appropriate guideline.

Employees: 

The financial reports or the financial statements are of immense use to the employees of the company for making collective bargaining agreements. Such statements are used for discussing matters of promotion, rankings and salary hike.

External Users:

The external users comprise of:

Institutional Investors:

 The external users of financial statements are basically the investors who use the financial statements to assess the financial strength of a company. This would help them to make logical investment decisions

.

Financial Institutions:

The users of financial statements are also the different financial institutions like banks and other lending institutions who decide whether to help the company with working capital or to issue debt security to it.

Government:

 The financial statements of different companies are also used by the government to analyze whether the tax paid by them is accurate and is in line with their financial strength.

Vendors: 

The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.

General Mass and Media:

 The common people as well as media also make part of the users of financial statements.

4. COMPARISON OF FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING:

	Financial Accounting	Management Accounting
Audience	Financial accounting produces information that is used by external parties, such as shareholders and lenders.	Managerial accounting produces information that is used within an organization, by managers and employees.
Objectives	The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date.	The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals.
Optional	It is legally required to prepare financial accounting reports and share them with investors.	Managerial accounting reports are not legally required.
Segment reporting	Pertains to the entire organization. Certain figures may be broken out for materially significant business units.	Pertains to individual departments in addition to the entire organization.
Focus	Financial accounting focuses on history; reports on the prior quarter or year.	Managerial accounting focuses on the present and forecasts for the future.
Format	Financial accounts are reported in a specific format, so that different organizations can be easily compared.	Format is informal and is on a per department/company basis as needed.
Rules	Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards.	Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are.
Reporting frequency and duration	Defined - annually, semi-annually, quarterly, yearly.	4As needed - daily, weekly, monthly.
Information	Monetary, verifiable information.	Monetary and company goal driven information.

5. SIGNIFICANCE OF ACCOUNTING ENTITY ASSUMPTION:

 Accounting have established group of assumptions, those assumptions are the basics of financial accounting. At the same time, assumptions are not accounting principles, as they are more of agreed upon rules.

Assumptions:

v  The economic entity concept

v  The Monetary unit assumption

v  Going concern concept

v  The time period concept

The Economic Entity Concept : as the name indicated, The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities.

Monetary unit assumption: meaning that the business should have one money  unit to record its transactions

Going concern assumption: meaning that the business is going to be operated for non predefined period, in other words, there is no ending date for business life. This accounting principle requires companies to use the accrual basis of accounting. The matching principle requires that expenses be matched with revenues. For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid. If a company agrees to give its employees 1% of its 2012 revenues as a bonus on January 15, 2013, the company should report the bonus as an expense in 2012 and the amount unpaid at December 31, 2012 as a liability. (The expense is occurring as the sales are occurring.) Because we cannot measure the future economic benefit of things such as advertisements (and thereby we cannot match the ad expense with related future revenues), the accountant charges the ad amount to expense in the period that the ad is run.

Time period assumption: This accounting principle assumes that it is possible to report the complex and ongoing activities of a business in relatively short, distinct time intervals such as the five months ended May 31, 2012, or the 5 weeks ended May 1, 2012. The shorter the time interval, the more likely the need for the accountant to estimate amounts relevant to that period . For example, the property tax bill is received on December 15 of each year. On the income statement for the year ended December 31, 2011, the amount is known; but for the income statement for the three months ended March 31, 2012, the amount was not known and an estimate had to be used. It is imperative that the time interval (or period of time) be shown in the heading of each income statement, statement of stockholders' equity, and statement of cash flows. Labeling one of these financial statements with "December 31" is not good enough—the reader needs to know if the statement covers the one week ended December 31, 2011 the month ended December 31, 2011 the three months ended December 31, 2011 or the year ended December 31, 2011.

6. MONEY MEASUREMENT ASSUMPTION:

The money measurement concept  underlines the fact that in accounting and economics generally, every recorded event or transaction is measured in terms of money, i.e., the local currency monetary unit of measure. Using this principle, a fact or a happening or event which cannot be expressed in terms of money is not recorded in the accounting books. Thus, it is not acceptable to record such non-quantifiable items as employee skill levels or the quality of customer service.

One of the basic principles in historical cost accounting is "The Measuring Unit principle" (or stable measuring unit assumption): The unit of measure in accounting shall be the base money unit of the most relevant currency.

This principle also assumes the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements. The inflation which occurs over the passage of time is not considered

Monetary policy and the measurement of inflation: prices, wages and expectation  Inflation measurement is fundamental to the conduct of monetary policy. Price indices form the foundation of central bank policy frameworks around the world. They serve as guides to decision-making, as well as providing the primary mechanism for holding independent policy makers accountable. The purpose of the annual meeting of Deputy Governors of emerging market economies, held in Basel on 5–6 February 2009, was to explore three issues: price indices used by central banks; the role of wages and productivity in inflation policy; and the measurement and assessment of inflation expectations. In this brief introductory essay, I will introduce each of these topics.

7. GAAP:

Generally accepted accounting principles (GAAP) are the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements.

Many country and city governments in the United States choose to "opt out" of GAAP practices as they operate on a cash basis, as opposed to an accrual basis. A comparison would be the way that most people balance their checkbook: when a check is written, its amount is deducted from the total balance even though the funds have not yet left the account. Financial decisions made after the check is written are based on the balance after the check is deducted.

8. LIABILITY OF A SHAREHOLDER:

Separating the owners from the business:

Many individuals do business in the corporate form.  While the individuals think of themselves as the "owners" of the business, in reality they are the owners of the stock in the corporation that owns the business.  They are probably also its officers and directors.  

When it is necessary to consider bankruptcy, it becomes important to know just which debts of the corporation, if any, the shareholders may be personally liable for.

Simply owning the stock in a corporation does not make the individuals liable for the corporation's debt.  The shareholders may, however, become liable for the debts of the corporation either by agreement or by operation of law.

Liability by agreement:

The most common way that a shareholder becomes liable for the corporation's debts is by guaranteeing the debt.  That guarantee is a contractual agreement that makes the guarantor personally liable to the corporation's creditor on that debt. 

Sometimes that liability may arise by the mistake of the shareholder, who signs a contract or lease for the corporation in his own name, rather than in his capacity as an officer or employee of the corporation.  Under state law, signing as "John Shareholder" may make John personally liable.  The correct way to execute a document for a corporation is by signing "John Shareholder, President, Smallcorp, Inc."

A bankruptcy filing by the corporation does not discharge the liability of a guarantor or another entity or individual who is liable for the bankrupt corporation's debts.  Neither does a corporate bankruptcy stay action against others who are liable.

Liability by operation of law:

Trade creditors:

Creditors may sometimes "pierce the corporate veil" to impose liability on the shareholders where the shareholders have neglected  corporate formalities, such as corporate meetings and required filings, or, more often,  where they have ignored the legal separateness of the corporation and treated the corporation as an extension of themselves.  This can occur if the shareholders intermingle their money with that of the corporation or identify themselves as the business owner, suggesting that the business is a proprietorship.

Governmental entities:

Another way that individuals become liable for the corporation's debts is where state or federal law makes the shareholders liable for the corporation's employment taxes, sales taxes or for uninsured worker's compensation claims.  More on trust fund tax claims in personal bankruptcy.

Planning where liability is shared:

When a small business corporation fails, the shareholders need to examine the debts of the corporation and its history to determine whether they have some liability for the corporation's debts.  It may be appropriate to see that the corporation pays first those debts for which the individuals may be liable ahead of other corporate debts.

9. RESPONSIBILITIES OF TREASURER, COMPANY SECRETARY AND CONTROLLER:

Treasurer:

It is important that all trustees play their part in financial decisions and financial monitoring. Most boards have at least one trustee who is strong financially and they can be appointed treasurer. They will be responsible for overseeing the finances, even if the organisation has paid staff who deal with much of the day-to-day financial business. Some of the tasks associated with this can include:

• advising the committee on financial matters, both positive and negative
• controlling and accounting for the organisation’s finances
• issuing receipts for all cash received and keeping records of that paid out
• being a counter signatory to any major banking transaction
• overseeing bookkeeping
• preparing the Treasurer’s report for the annual general meeting
• liaising with the appointed Auditor or Independent Examiner for the annual review of accounts
• advising the management committee of its financial requirements for the year ahead.

Secretary:

The Secretary of a voluntary organisation can be responsible for many specific tasks, some of which will be regular practical administrative duties of paid staff in larger organisations. These can include:

• convening meetings and booking rooms
• dealing with correspondence
• preparing agendas for meetings (in consultation with the Chairperson)
• taking the minutes of meetings
• ensuring back-up information is available at meetings where required

Company Secretary:

The position of a ‘company secretary’ has a specific legal meaning. A voluntary organisation that is a charitable company and chooses to have a ‘company secretary’, does not need a ‘secretary’ as well.

The company secretary doesn’t have to be a board member, a staff member or anyone directly connected to the organisation. The organisation can choose anyone it believes is suitable for the task. If a board member is the company secretary they retain all the normal rights and responsibilities of a director – including the right to make decisions and vote at board meetings. If a member of the company is the company secretary they retain the normal rights and responsibilities of membership including the right to vote at general meetings. If the secretary is someone else, eg a staff member, the position does not automatically make them a member of the board, or a member of the organisation, and they have none of the rights or responsibilities of either.

Note that under the Companies Act 2006 it is no longer compulsory to have a company secretary.

The term Secretary has a specific meaning as the person responsible for various administrative matters under company or IPS law. A company or IPS secretary may be a member of the governing body, but could be an employee or someone such as a solicitor or accountant who is not directly connected with the organisation or its governing body

 Controller:

 A financial controller is responsible for ensuring that all accounting allocations are appropriately made and documented. In smaller companies, the controller may also perform cash management functions and oversee accounts payable, accounts receivable, cash disbursements, payroll and bank reconciliation functions. Every company should maintain a separation of duties with regards to accounting functions to insure that there are checks and balances in the system. For instance, if the controller is responsible for preparing cash disbursements, he should not be a signatory on the account; the owner, chief executive or chief financial officer should be required to sign all checks.

Internal Controls:

A financial controller is responsible for establishing and executing internal controls over the company’s accounting and financial procedures. This includes reviewing and approving all invoices to be paid, as well as reviewing accounts receivable aging reports. In smaller companies, the controller will often handle collections on invoices, especially ones that are 45 days to 60 days overdue. A financial controller is also responsible for coordinating with external tax accountants for income tax preparation and auditors who prepare internal audits of the company. This includes keeping company records organized and readily available for examination.

10. ACCOUNTING EQUATION:

The basic accounting equation, also called the balance sheet equation, represents the relationship between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. It can be expressed as

 ASSET = CAPITAL + LIABILITY

     

     a = c + l

In a corporation, capital represents the stockholders' equity. Since every business transaction affects at least two of a company’s accounts, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its assets) is purchased by either what it owes (its liabilities) or by what its owners invest (its shareholders equity or capital).

For example: A student buys a computer for $945. This student borrowed $500 from his friend and spent another $445 earned from his part-time job. Now his assets are worth $945, liabilities are $500, and equity $445.

The formula can be rewritten:

Assets - Liabilities = (Shareholders' or Owners' Equity)

11.  FUNCTION OF FINANCIAL STATEMENT:

The general purpose of the financial statements is to provide information about the results of operations, financial position, and cash flows of an organization. This information is used by the readers of financial statements to make decisions regarding the allocation of resources.

At a more refined level, there is a different purpose associated with each of the financial statements. The income statement informs the reader about the ability of a business to generate a profit. In addition, it reveals the volume of sales, and the nature of the various types of expenses, depending upon how expense information is aggregated. When reviewed over multiple time periods, the income statement can also be used to analyze trends in the results of company operations.

The purpose of the balance sheet is to inform the reader about the current status of the business as of the date listed on the balance sheet. This information is used to estimate the liquidity, funding, and debt position of an entity, and is the basis for a number of liquidity ratios.

Finally, the purpose of the statement of cash flows is to show the nature of cash receipts and disbursements, by a variety of categories. This information is of considerable use, since cash flows do not always match the revenues and expenses shown in the income statement.

As a group, the entire set of financial statements can also be assigned several additional purposes, which are:

• Credit decisions. Lenders use the entire set of information in the financials to determine whether they should extend credit to a business, or restrict the amount of credit already extended.
• Investment decisions. Investors use the information to decide whether to invest, and the price per share at which they want to invest. An acquirer uses the information to develop a price at which to offer to buy a business.
• Taxation decisions. Government entities may tax a business based on its assets or income, and can derive this information from the financials.
• Union bargaining decisions. A union can base its bargaining positions on the perceived ability of a business to pay; this information can be gleaned from the financial statements.

In addition, financial statements can be presented for individual subsidiaries or business segments, to determine their results at a more refined level of detail.

In short, the financial statements have a number of purposes, depending upon who is reading the information and which financial statements are being perused.

13. DIFFERENCE BETWEEN ACCOUNTING AND BOOK KEEPING:

	ACCOUNTING                                    BOOK KEEPING
Definition	Preparation of accounting records.	Recording daily activities of revenue and expenditure.
Purpose	Measuring, preparation, analyzing, and interpretation of financial statements. To collect and present financial information.	Keeping an account of all receipts, revenues, expenditure in order to create accounting ledgers.
Goal	To see how the company is performing, to monitor day to day accounting operations, and for taxing.	To see how the company is performing daily and where the money is being earned from and utilized.
Tools	Balance sheets, profit and loss ledgers, positional declarations, and cash flow statements.	Supplier ledger, customer ledger and general ledger and cash book.
Determination of funds	Revenue is acknowledged at the point of sale and not when it was collected. Expenses are acknowledged when they are incurred than when they are paid.	Revenue is acknowledge when it received by a customer on sale of a product or service. Expenses are recorded the moment they occur, including all receipts.

14. TO BECOME A CA:

Registration for CPT:

The candidate needs to register with the Institute of Chartered Accountants of India (ICAI) for the Common Proficiency Test (CPT) after passing the Standard X examination.

Passing the CPT examination:

The CPT examination is held twice in a year - in June, and in December. The candidate can appear for the CPT examination after appearing for the standard XII examination, and after the completion of a period of a minimum of 60 days from the date of registration for CPT with the ICAI, as on the first day of the month in which examination is to be held, i.e. candidates registered on or before 1st April / 1st October are eligible to appear in June / December examination respectively.

Registration for IPCC:

In order to register for the Integrated Professional Competence Course (IPCC), the candidate should pass both CPT and 10+2. Registration for the IPCC should be done 9 months prior to the first day of the month in which examination is held. IPCC comprises of a total of 7 papers. Group I consists of 4 papers and Group II consists of 3 papers. For pursuing Articleship, passing Group I is essential.

Orientation and ITT:

The orientation course is one week long, spanning 35 hours and covers topics such as communication skills, personality development, office procedure general commercial knowledge etc. Information Technology Training (ITT) orientation is spans 100 hours and must be completed in order to register for Articleship.

Appearing and passing IPCC Group I Exam:

The candidate can appear and pass Group I or both groups of Integrated Professional Competence Examination (IPCE).

Registration for Articleship:

After passing either Group I or both IPCE Groups, the candidate can register as Articled Assistant for a period of 3 years Practicing Chartered Accountant.

Appearing and passing IPCC Group II Exam:

If the candidate has not already passed Group II of the Integrated Professional Competence Examination (IPCE), this can be done during the Articleship.

Registration for CA Final Course:

The candidate may register for the CA Final Course on passing the two groups of IPCC.

Appearing and Passing CA Final Course:

The candidate can appear for the CA final examination during the last 6 months of 3 years of articled training.

Complete Articleship:

Complete 3 years period of articled training.

GMCS:

Successfully complete the course on General Management and Communication Skills over a period of 15 days.

Membership:

Enroll as a member of ICAI and designate as "Chartered Accountant".

16. SERVICES PROVIDED BY ACCOUNTING FIRMS:

 Bookkeeping:

Many accounting firms employ full-charge bookkeepers or junior accountants to handle basic bookkeeping services for clients. These include accounts payable and receivable, billing, payroll, monthly and quarterly taxes, bank reconciliations, general ledger entries, and monthly trial balances. The bookkeepers might also generate financial statements, but the statements are typically reviewed by a CPA in the firm before being presented to a client.

Accounting:

High-level accounting services are typically offered by CPAs employed by accounting firms. These services often include helping clients create budgets, perfecting financial statements, and preparing local, state and federal tax returns. Accounting firms offer audit and business valuation services, monitor depreciation of assets, and help clients determine cash flow needs. Some firms offer forensic accounting services for companies facing fraud issues. Others specialize in setting up computer accounting systems and auditing information systems.

17. INTERNAL AUDITING / EXTERNAL AUDITING

                                   INTERNAL AUDITING                            EXTERNAL AUDINTING

1	What's the purpose of the audit?	§  To consider if business practices are helping the business manage its risks and meet its strategic objectives- it can cover operational as well as financial matters .	§  To consider whether the annual accounts give a "true and fair view" and are in accordance with legal requirements
2	Who are the auditors?	§  Internal auditors can be employed by the business or outsourced. While an accounting background is common, they can also come from other relevant backgrounds.	§  An outside firm of accountants who are Registered Auditors (not all accountancy firms are).
3	How is the audit agenda set?	§  Internally in the light of business's risks and objectives.	§  By the audit firm based on their assessment of the risks of the accounts being materially misstated.
4	Who does the auditor report to?	§  Management, the audit committee (if there is one) or the Board.	§  Primarily the shareholders* (but also see 5 re management letters) * In an unincorporated charity it will be the trustees.
5	What sort of report will they receive?	§  Tailored report about how the risks and objectives (of the business area being audited) are being managed. §  There is a focus on helping the business move forward - so expect there to be recommendations for improvement.	§  The main report is in a format required by Auditing Standards and focuses on whether the accounts give a true and fair view and comply with legal requirements §  If other things come to light which the auditors think should be brought to management's attention they will be reported in a management letter.
6	What happens after the audit?	This will be agreed internally, but can include: §  Follow up to see whether recommendations have been implemented.  §  Consultative help to guide management's implementation of recommendations..	§  There is no follow up requirement, until next year's audit; when in planning the audit, past issues should be considered.
7	Are the auditor's reports publicly available?	§  No (at least not in the UK private or charity sectors).	§  Yes. The main report on the accounts is publicly available. §  Management letters are not publicly available
8	Do we have to have an audit?	§  No, internal audit is discretionary.	§  It depends. Legal requirements vary; although the trend has been towards more organisations being exempted from statutory audit. However stakeholders such as the bank or investors may require you to have your accounts audited.

18. HOW MIGHT AN ACCOUNTANT GO ABOUT RESOLVING THE ETHICAL DILEMMA:

Individuals in the accounting profession have a considerable responsibility to the general public. Accountants provide information about companies that allow the public to make investment decisions for retirement, a child’s education and major purchases such as a home. For the public to rely on the information provided, there must be a level of confidence in the knowledge and behavior of accountants. Ethical behavior is necessary in the accounting profession to prevent fraudulent activities and to gain public trust.

Facts:

In an article entitled "Business Accounting Ethics," Katherine Smith and L. Murphy Smith explain that the main reason for ethical guidelines is not to provide an exact solution to every problem, but to aid in the decision-making process. An established set of guidelines provides an accounting professional with a compass to direct him toward ethical behavior. Specific responsibilities of the accounting profession are expressed in the various codes of ethics established by the major organizations such as the American Institute of CPAs. The AICPA Code of Professional Conduct outlines an accountant’s responsibilities towards the public interest and emphasizes integrity, objectivity and due care.

Significance:

The effects of ethical behavior in accounting are far reaching in the economy. Every business entity has an accounting professional provide information at some point in the organization’s life cycle. Many accounting professionals are tempted to alter financial results and often rationalize the behavior by calling it creative or aggressive accounting. Aggressive accounting is the process of employing questionable accounting methods to boost results. An accountant may record revenues and expenses in an incorrect manner or omit expenses altogether. Repeated incidences of aggressive accounting are a result of the lack of ethical behavior.

Example:

A common example of an ethical dilemma involves management instructing a subordinate employee to record a transaction in an incorrect manner. For instance, a company with a Dec. 31 year-end calendar year, signs contracts with consumers to perform services. The contracts are usually signed Dec. 1 and are a year in length. Accounting principles require the company to record the revenue for the contract for one month only, the month of December. The remainder of the revenue is recognized on next year’s financial statements. However, management instructs an employee to record the entire amount of the contract in December to boost revenues for the current year end. Management receives a bonus for the boosted revenue and the subordinate receives recognition in an upcoming performance review.

Solutions:

Unfortunately, ethical dilemmas, such as the example provided, are common. To help curb the desire to practice aggressive accounting and ignore ethical behavior, a number of organizations require accounting professionals to complete continuing professional education courses on ethics. In addition, a number of companies establish whistleblower hotlines to encourage employees to demonstrate honesty and integrity in the workplace.

Considerations:

Many accounting professionals do not encourage ethics courses and argue that ethical behavior is not taught, but it is inherent in an individual’s personality. In addition, Faculty Director J. Edward Ketz notes that accounting professors do not like to research or study ethics because of its unscientific approach. The results are difficult to examine and it is hard to gauge the level of success from teaching ethics courses.

SOCIAL SECURITY SCHEMES

Why Do We Need Social Security
Social Security protects not just the subscriber but also his/her entire family by giving benefit packages in financial security and health care. Social Security schemes are designed to guarantee at least long-term sustenance to families when the earning member retires, dies or suffers a disability. Thus the main strength of the Social Security system is that it acts as a facilitator - it helps people to plan their own future through insurance and assistance. The success of Social Security schemes however requires the active support and involvement of employees and employers.
As a worker/employee, you are a source of Social Security protection for yourself and your family. As an employer you are responsible for providing adequate social security coverage to all your workers.
Background information on Social Security
India has always had a Joint Family system that took care of the social security needs of all the members provided it had access/ownership of material assets like land. In keeping with its cultural traditions, family members and relatives have always discharged a sense of shared responsibility towards one another. To the extent that the family has resources to draw upon, this is often the best relief for the special needs and care required by the aged and those in poor health.

However with increasing migration, urbanization and demographic changes there has been a decrease in large family units. This is where the formal system of social security gains importance. However, information and awareness are the vital factors in widening the coverage of Social Security schemes. Social Security Benefits in India are Need-based i.e. the component of social assistance is more important in the publicly-managed schemes- In the Indian context, Social Security is a comprehensive approach designed to prevent deprivation, assure the individual of a basic minimum income for himself and his dependents and to protect the individual from any uncertainties. The State bears the primary responsibility for developing appropriate system for providing protection and assistance to its workforce. Social Security is increasingly viewed as an integral part of the development process.  It helps to create a more positive attitude to the challenge of globalization and the consequent structural and technological changes.

Workforce In India
The dimensions and complexities of the problem in India can be better appreciated by taking into consideration the extent of the labour force in the organized and unorganized sectors. The NSSO survey of 2004-05 has brought out the vast dichotomy between these two sectors into sharp focus.  While as per the 1991 census, the total workforce was about 314 million and the organized sector accounted for only 27 million out of this workforce, according to the survey conducted by the National Sample Survey Organization (NSSO) in 2004-05, the total number of workforce was 459 million of which About 433 million (about 94%) of the total workforce is engaged in unorganized sector and 26 million on organized sector. The organized sector is already covered through social security legislations like the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees State Insurance Act, 1948. The Government has also enacted Unorganised Workers’ Social Security Act to create a framework for providing social security to unorganized workers.  Thus, it can be concluded from these findings that there has been a negative growth  in the organized sector in comparison the growth in the unorganized sector.

Organized and Unorganized Sectors
The organized sector includes primarily those establishments which are covered by the Factories Act, 1948, the Shops and Commercial Establishments Acts of State Governments, the Industrial Employment Standing Orders Act, 1946 etc.  This sector already has a structure through which social security benefits are extended to workers covered under these legislations.

The unorganized sector on the other hand, is characterized by the lack of labour law coverage, seasonal and temporary nature of occupations, high labour mobility, dispersed functioning of operations, casualization of labour, lack of organizational support, low bargaining power, etc. all of which make it vulnerable to socio-economic hardships.    The nature of work in the unorganized sector varies between regions and also between the rural areas and the urban areas, which may include the remote rural areas as well as sometimes the most inhospitable urban concentrations. In the rural areas it comprises of landless agricultural labourers, small and marginal farmers, share croppers, persons engaged in animal husbandry, fishing, horticulture, bee-keeping, toddy tapping, forest workers, rural artisans, etc. where as in the urban areas, it comprises mainly of manual labourers in construction, carpentry, trade, transport, communication etc. and also includes street vendors, hawkers, head load workers, cobblers, tin smiths, garment makers, etc.

Synopsis Of Social Security Laws
The principal social security laws enacted in India are the following:
1.    The Employees’ State Insurance Act, 1948 (ESI Act) which covers factories and establishments with 10 or more employees and provides for comprehensive medical care to the employees and their families as well as cash benefits during sickness and maternity, and monthly payments in case of death or disablement.
2.    The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF & MP Act) which applies to specific scheduled factories and establishments employing 20 or more employees and ensures terminal benefits to provident fund, superannuation pension, and family pension in case of death during service. Separate laws exist for similar benefits for the workers in the coal mines and tea plantations.
3.    The Employees' Compensation Act, 1923 (WC Act), which requires payment of compensation to the workman or his family in cases of employment related injuries resulting in death or disability.
4.    The Maternity Benefit Act, 1961 (M.B. Act), which provides for 12 weeks wages during maternity as well as paid leave in certain other related contingencies.
5.    The Payment of Gratuity Act, 1972 (P.G. Act), which provides 15 days wages for each year of service to employees who have worked for five years or more in establishments having a minimum of 10 workers.
Separate Provident fund legislation exists for workers employed in Coal Mines and Tea Plantations in the State of Assam and for seamen.

New Initiatives –
·         The various Central Acts on Social Security have been examined in the light of the recommendations of the 2nd National Commission on Labour. Relevant amendments have been carried out in ESIC Act whereas comprehensive review of the EPF and MP Act is under way. The consultation process is on with reference to the amendment suggestions received in case of the Maternity Benefit Act and the Workmen’s Compensation Act.
·         Innovative measures are proposed in the running of the Social Security Schemes of EPFO and ESIC. This includes flexible benefit schemes tailored to the specific requirements of different segments of the population.

Summary Of Present Initiatives In Working Of EPFO & ESIC
The profiles of the Employees’ Provident Fund Organization and the Employees’ State Insurance Corporation are being changed towards greater accessibility and client satisfaction.

The EPFO extends to the entire country covering over 393824 establishments. At present, over 11.80 crore EPF Members and their families get benefits under the social security schemes administered by the EPFO.  The total corpus of the EPF Scheme 1952, EDLI Scheme, 1976 and Employees Pension Scheme 1995 together amounts to about Rs. 5,36,993 crores as on 31-3-2014.  Over the years, the volume of service rendered to subscribers as well as investments made, etc. by EPFO have grown manifold.  With a view to provide better services to subscribers and employers, the organization has launched the Project RE-INVENTING EPF, INDIA since June, 2001.  The prime objectives of this Project are to provide the subscribers better and efficient services, to help the employers by reducing the cost of compliance and to benefit the organization to register geometric growth in all fields.  An important part of this Project is the allotment of the UNIQUE IDENTIFICATION NUMBER-the SOCIAL SECURITY NUMBER to the EPF subscribers, issuing of BUSINESS NUMBERS to the employers and Business Process Re-engineering.

The strategy for implementation has been evolved and the allotment of the Social Security Number has begun with the entire activity being carried out in smaller phases for effective data collection.  The criteria considered for the allotment of SSN include the centralized control of Uniqueness, ensuring the least manual intervention during allotment and near 100% Uniqueness accuracy levels.  The Social Security Number in a nutshell is a big effort towards solving the problem of providing social protection to migrant labour and to make the data base of EPFO adaptable to the present trend of high job mobility among workers.        
Social security is essential for the well being of people and society.  It is the basic human right and its fulfillment will contribute to achieving various developmental goals of nation.  Social Security measures have far reaching benefits in the form of improving and bringing sense of pride and self respect amongst the citizens.  Such measures also help in providing the minimal level  of providing protection against health and life hazards in work situations. It can progressively   pay standard to social security welfare measures involving provisions of better Health Care, Maternity Care, and Old Age Pension etc.

Social Security of the formal sector workers is provided through the instrumentality of Employees’ Provident Fund Organisation and Employees’ State Insurance Corporation.

Employees’ Provident Fund Organization (EPFO)
The EPFO expends to the entire country, except in the State of Jammu and Kashmir covering over 7.98 lac establishments as on 31^st March 2014. Further, over 11.80 crore EPF members and their families get benefits under Social Security Schemes administered by EPFO as on 31^st March 2014. The total investment corpus as on 31^st March, 2014 amounts to ₹ 7,30,393/- crores (₹ 5,36,993/- crore, Unexempted funds and ₹  1,93,400/- crore – exempted funds). Over the years, the volume of service rendered to subscribers as well as investments made etc. by EPFO have grown many folds. EPFO has focused its effort on automation of the work processes to achieve better efficiency and improved service delivery to its members. The work done in this direction by EPFO is given below:-
v  All 120 offices of EPFO have been computerized.
v  With effect from the financial Year 2012-2013 a facility for electronic submission of statutory EPF return (ECR- Electronic Challan cum Return) has been introduced. This is a mandatory mode of filing of the return with the remittance and facilitated the employers to file a single return each month (instead of 4 every month and two annual returns) online from anywhere.
v  Employers can also remit their EPF dues electronically if they have a corporate internet bank account with the State Bank of India.
v  Employers not having a corporate internet bank account with SBI shall have to pay EPF dues through cheque/DD
v  Once the above returns are received electronically and payment is confirmed member accounts are being updated on monthly basis. Thus the members do not have to wait to know their balances in the PF Account till the end of the financial year.
v  Establishments can also view and print the annual PF account slips of its employees.
v  Facility has been provided to the individual employees to register and view his/her EPF account details online as member passbook. The passbook has month wise details of credits and withdrawals as compared to erstwhile F-23 having one line annual summary.
v  For facilitating the employers to comply with statutory provisions of EPF and file necessary returns, an E-Return Tool has been made available.
v  The members can also get their PF balances on their mobile phones through a link “Know Your P F Balance” on www.epfindia.gov.in 
v  Members can also track their claims and payment status online through “Know Your Claim Status Link” as well as receive SMS for the same.
v  EPF amounts are being remitted electronically through NEFT to beneficiaries bank accounts. This results in faster credit of the amount in their accounts after the claim is authorised.
v  The facility to file Transfer Claims online has been provided through launch of Online Transfer Claim Portal ‘OTCP’. This has facilitated faster transfer of amounts of member across their employment under different establishment. This facility for the first time facilitated the filing of claim with digital signature of the employer.
v  For the exempted establishments, the monthly return in Appendix A has been made online. Thus the employment, contribution and the investment details of the exempted establishments are available through the said return in digital format.
v  For the EPF members, going to countries with which India has entered into Social Security Agreement, centralized software for generation of Certificate of Coverage benefiting such member to continue their PF remittances on India.
v  The organization has also launched internal software for compliance and legal case tracking and all the legal cases across India can be monitored on-line through its dashboard.
A proposal for comprehensive amendment of EPF & MP ACT, 1952 is under examination in Ministry of Labour and Employment under consultation with EPFO for improving scale of benefits to the beneficiaries. During 2013-14, special emphasis was laid on issue of Annual Accounts Slip. 13.57 crore Annual Accounts were updated during the year against the corresponding figure of 12.91 crore during 2012-13. The Annual Accounts for and upto the year 2013-14 are likely to be liquidated by 30^th September, 2014. During 2013-14, 123.34 lakhs claims were settled, this being 10.70 percent more than the corresponding figure last year. More than 43.63 lakhs pensioners are being paid monthly pensions by EPFO.


Employees’ State Insurance Corporation (ESIC)
The Employees’ State Insurance Scheme provides need based social security benefits to insured workers in the organized sector. As in the case of the EPFO, the ESIC has also taken up the daunting task of tailoring different benefit schemes for the needs of different  groups. The Employees State Insurance Act, 1948 applies to the factories and establishment viz. Road Motor Transport undertaking, Hotel, Restaurants, Cinemas, Newspaper establishment, Shop, Educational and Medical Institution wherein 10 or more person are employed.  However, in 8 States threshold limit for coverage of establishment is still 20. Employees drawing wages up to Rs. 15000/- a month are covered under the Act whereas for permanently disabled employees wage ceiling is Rs. 25000/- per month. At present scheme is covering about 1.86 crores Insured Persons at 810 Centers in 30 States/UTs.  The total number of beneficiaries availing medical care is about 7.21 crores including family members of IPs.
            The Employees’ State Insurance Scheme provides comprehensive medical care in the form of medical attendance, treatment, drugs and injections, specialist consultation and hospitalization to Insured Persons, their family and also to their dependants. The ESI Scheme provides following benefits to the Insured Persons:-
i)             Medical Benefit: The Scheme provides for full and comprehensive medical treatment to the IPs and their families including hospitalization, referral treatment and supply of artificial limbs, dentures etc. This benefit is available to the IPs from the date they enters insurable employment and is continued thereafter subject to fulfillment of condition of contribution for 78 days in a contribution period of 6 months.
ii)            Sickness Benefit: Under the Scheme the IP is entitled to sickness Benefit for 91 days in a year to the extent of 70% of his wages. This is extended up to 2 years in the case of chronic illness and rate of payment of benefit is about 80% of his wages. For this benefit the IPs is required to have contributed to the Scheme at least for 78 days in a 6 monthly contribution period.
iii)           Maternity Benefit: The Scheme provides for payment of maternity benefit equal to full wages for 12 weeks plus additional one month in the case of illness arising out of pregnancy, delivery etc. The insured woman is required to have contributed for 70 days in proceeding two contribution periods for entitlement to maternity benefit.
iv)           Disablement Benefit: In the case of disablement due to employment injury including occupational diseases the IP is entitled to payment of periodical benefit at about 90% of his wages during the period the IP abstains from work for treatment. There is no contributory condition for this benefit. After the treatment is over, if there is any residuary permanent disablement, a Medical Board decides the daily rate of compensation as a percentage of the full rate.
v)            Dependant Benefit: In the case of death due to employment injury the family is entitled to payment of dependant benefit at the rate about 90% of his wages. There is no contributory condition for this benefit.
vi)           Funeral Expenses: In the case of the death of the IP a sum of Rs. 10.000/- is paid for meeting the funeral expenses.
vii)         Rajiv Gandhi Shramik Kalyan Yojana ( Unemployment Allowance Scheme): The Rajiv Gandhi Shramik Kalyan Yojana was introduced w.e.f. 01.04.2005, Under the Scheme, employees covered under the Scheme who lose their employment due to closure of factories/ establishments, retrenchment or permanent invalidity are entitled to Unemployment Allowance equal to 50% of their wage for up to one year.

            An Insured Person, his family and his dependants are entitled to medical benefits from the day of entry into insurable employment. The range of medical services provided covers promotive, preventive, curative and rehabilitative services which includes outpatient care/ inpatient care, specialized medical care and super specialty medical care as per requirement of the patient. Medical facilities under AYUSH i.e. Ayurveda, Yoga, Unani, Siddha and Homeopathy are also provided.
         Medical services are provided through a large infrastructure comprising Hospitals, Dispensaries, annexes, Specialist centers, Model Dispensaries- cum- Diagnostic Centers (MDDC), IMP clinics and arrangements with other health institutions. The out-patients service is provided through ESI dispensaries, IMP Clinics and Employer Utilization Dispensaries (EUD) In-patient services are provided through ESIC/ESIS Hospitals and through empanelment with tie up private hospitals. There are 1384 service dispensaries under ESI scheme all over the country and 1224 IMPs.  In patient services are provided through a chain of 151 ESI hospitals spread across the country which includes 36 directly run ESIC hospitals & 115 State ESI hospitals with total bed strength of around 19000 excluding beds reserved in State  Govts. Hospitals and Annexes.   The provision for Super specialty services is mainly through tie-up arrangements with private hospitals numbering more than 1000 across India.
      Expenditure on medical care is shared between ESI Corporation and the State Government in the ratio of 7:1 within the prescribed ceiling which is revised from time to time. In order to improve the standard of medical care in the States, the amount reimbursable to the State Governments for running the medical care scheme has been increased from Rs.1200/- to Rs. 1500/- Per IP family unit per annum w.e.f. 01.04.2012. The ESIC has formulated action plans for improving medical services under the ESI Scheme with focus on modernization of hospitals by upgrading their emergency and diagnostic facilities, development of departments as per disease profiles, waste management, provision of intensive care services, revamping of grievance handling services, continuing education programme, computerization and up-gradation of laboratories etc.  The ESIC has also taken new initiatives to promote and popularize AYUSH systems of treatment in ESIC Hospitals and Dispensaries in a phased manner.
ESIC IT Project Panchdeep, one of the largest e-governance projects is under implementation at present. All ESI Institutions are being networked under this project for enabling IPs and their family members to avail ESI benefits anywhere anytime.Two smart cards christened as “Pehchan Cards”, one for insured person and other for the family are being issued. Also, the ESI Act, 1948 has been amended w.e.f. 01.06.2010 for enhancing the Social Security coverage, streamlining the procedure for assessment of dues and for better services to the beneficiaries. The present ESIC  Contribution Rates are Employees-  1.75% of wages Employers-  4.75% of wages.

Extension Of Coverage  
Currently, social security policy makers and administrators are engaged in a wide-ranging debate to redress the problems in providing social security in the country.  This debate has thrown up various arguments on the efficacy of publicly managed social security schemes as opposed to privately managed schemes.  There is no standard model that can be adopted on this issue.  In the Indian context the privately managed schemes can at best be considered as supplementary schemes after the mandatory schemes managed publicly.  It is only the publicly managed scheme, which will extend to all the sectors of the workforce.  The challenge of closing the coverage gap in social security provisions has to be developed at two levels.  The first level involves the re-engineering of the institutional arrangements to increase efficiency.  The second level is to create an appropriate legislative and administrative framework for significant increase in the social security coverage especially in the unorganized sector.
 In India currently only about 35 million out of a workforce of 400 million have access to formal social security in the form of old-age income protection.  This includes private sector workers, civil servants, military personnel and employees of State Public Sector Undertakings.  Out of these 35 million, 26 million workers are members of the Employees’ Provident Fund Organization.  As such the current publicly managed system in India is more or less entirely anchored by the Employees’ Provident Fund Organisation. It may be noted that in the last 50 years, the Employees’ Provident Fund Organisation has been in existence, there has been no instance of any scam or a situation where the Fund has been exposed to speculation and risk. Another important contribution of EPF is now proposed to extend to the critical life benefit of providing shelter.  The Shramik Awas Yojana aims at providing a cost effective Housing Scheme specific for EPF numbers.  This involves cooperation between organizations such as HUDCO, Housing Agencies, State Governments, Employers and EPF Members with the EPFO playing the role of facilitator.