Ali - Internship Report

SIEMENS
Global network of innovation

SIEMENS Pakistan Engineering Company Limited
SIEMENS
PAKISTAN ENG. CO. LTD.
Internship Report
Department : Finance &
Controlling
Internship Period : 25th May – 6th July
2009
Prepared for : Mr. MUHAMMAD

RAFI
Prepared by : SYED ALI AHMED

(INSTITUTE OF BUSINESS
ADMINISTRATION)
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Report Prepared by: Syed Ali Ahmed
PREFACE
As per the requirement of the internship program at Siemens, this report outlines
the details of the training received during the internship period. The internship
program lasted six weeks in which the dynamics of the Finance and Controlling
Department were fully exposed to and assimilated. This report includes all the
major aspects covered during my internship, propounding thorough knowledge of
procedures being followed to complete individual tasks and the policies being
complied. The report comprises of group wise description.
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ACKNOWLEDGEMENT
I am highly indebted to you for providing me this priceless opportunity to gain

experience and insight of the workings of finance and accounting of such a huge
business setting.
I would like to thank the following persons and their colleagues for their co-
operation and invaluable support in making this report possible.
 Mr. Mehtabuddin (DGM General Ledger Management Group)
 Mr. Imran Siddqui (Manager FC and Deputy SOA Officer)
 Mr. Wajahat Ahmad (Manager FC and Deputy ICS Officer)
 Mr. Danish Noorani (Manager Policies and Guidelines)
 Mr. Faisal Mushtaq (Manager Local Accounts & Tax)
 Mr. Asghar Sheriff (Manager Cash / Corporate Matters)
 Mr. Zafer Javed (Manager Accounts Receivable)
 Mr. Rashid Sheikh (DGM Taxation)
 Mr. Shakir Hussein (Manager Accounts Payable)
 Mr. Imran Saeed (GM Treasury)
 Mr. S. M. Iqbal Ali (DGM Corporate Reporting)
 Mr. Burhan Yousuf (GM Finance & Controlling)
This report reflects the knowledge attained by the continuous support and
mentoring of the very cooperative and team-working individuals of the
Department of Finance and Controlling. On the spot feedback provided by them
alongside task assignments was instrumental in the learning process.
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SIEMENS IN PAKISTAN
SIEMENS was first known in this sub-continent in 1870, with the construction of
the Indo-European Telegraph Line, almost 11,000 km long, from London to
Calcutta by Siemens, United Kingdom. Siemens UK' was headed at the time by
William Siemens, brother of Werner who was one of the pioneers of the industrial
revolution and the guiding spirit of the Siemens company in its formative years. In
the part of the subcontinent that is now Pakistan, the first Siemens office was
established in 1922 in Lahore. Siemens Pakistan Engineering Company Ltd. was
founded in 1953 as a private limited company. In 1963, the Company was
converted into a public limited company and in 1978 it enlisted itself with Karachi
and Lahore stock exchanges.
For 85 years, Siemens has been active in Pakistan, where it holds leading
positions in the three application fields: Energy and Environmental Care, Industry
& Public Infrastructures and Healthcare. The Siemens IT Solutions and Services
Group functions across all three fields. Siemens is the country’s No. 1 supplier of
high-voltage grid stations, switchgear products and systems, power distribution
and power transformers, and network consultancy. The company has also built a
new 220kV Power Transformer factory, and is poised to meet the demand in this
sector nationally and in the region. In fiscal 2007 (October 1, 2006 – September
30, 2007), sales to customers in Pakistan amounted to EUR 230 million. New
orders totaled EUR 280 million. With a workforce of 1,400 employees, Siemens
is one of the most important employers in the country and the largest employer of
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engineering graduates in the country. Directly and indirectly Siemens provides

employment to more than 4000 persons across the country.
The Company manages its business and manufacturing activities through its
head office in Karachi and two regional branches at Lahore and Islamabad.
The Department of Finance & Controlling
The Finance and Controlling department is the backbone of Siemens. It handles

the entire finance of the company. It provides necessary information and reports
to all the business units, management, clients, employees, trade creditors and
Siemens AG. These reports help business units to assist them to know the exact
position of their orders, receivables, advances, and their turnover. It also helps
the management to decide on sensitive matters with the help of these reports
and information. Management Information System and journalization are two
major activities of the department of Finance & Controlling.
Overall the Finance & Controlling department is divided into several groups
which are as follows:
 Policies and Guidelines Group

 General Ledger Management Group
 Accounts Payable group
 Accounts Receivable group
 Cash Management Group
 Treasury Department
 Taxation Group
 Sarbanes – Oxley Act Group
 Financial Reporting Group
 Foreign and Local Management Reporting Group
 Corporate Controlling Group
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Each group has been assigned a specific task. The respective group leaders are
responsible for the group activities that they have been assigned to. Information
for various groups is compiled for reporting purposes and continuous interaction
among the groups keeps the smooth workflow. Processed Information from
various business units are verified (which has been parked with the SAP
system), from the evidences send by them to Finance & Controlling Department,
and then is posted or booked into the system for integration.
Policies and Guidelines Group
International Financial Reporting Standards (IFRS) and International Accounting

Standards (IAS) are used as a basis for rules and regulations used in Siemens
around the globe. However, since these standards leave room for assumptions
and discretion at some instances it can lead to different reporting methodologies
and data can be rendered inconsistent. To overcome such issues SiemensAG
has developed its own Financial Reporting Guidelines, in which they have
defined the parameters for procedures and guidelines. These Financial Reporting
Guidelines are used in Offices, Business Constructions and Contractual
Businesses working under Siemens AG around the globe. It governs internal
regulations, any change in the policies by Siemens AG is sent to all its offices
through circulars notifying the change. Each office insures it as being justified
and practically implemented according to its working conditions. In case of
default in any Office, the justification has to be given for the same and has to be
notified to Siemens AG.
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General Ledger Management Group:
General ledger forms the basis of the business accounting end product, the
financial statements. It is the prime accounting journal, which summarizes and
presents each individual accounting head and makes it possible for the
management to keep track of the performance and activities. General Ledger in
Siemens is maintained in the SAP computerized environment. Each individual
head and record is given a system-generated code by which that is identified and
integrated or normalized.
Responsibilities of the General Ledger group include:
• Maintaining General Ledger
• Keeping records for Valuation of Reserves & Reconciliation
• Keeping records for orders
• Keeping records and pooling Common expenses
• Keeping records for accrued expenses
• Keeping records for foreign currency valuation
Maintenance of General Ledger:
General ledger is central to all accounting activities in the business; any

information that the company accounts for becomes the part of General Ledger
before finally released on financial statements. Maintaining General Ledger is
very important and is carried out through the use of control procedures over
computerized inputs. Records are updated, reports are generated and balances
are tallied. Closing procedures are closely monitored, it carried out on the last
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day of the closing month closing month, after which entries into the closing month
are locked for postings. Balances from different groups for information entering in
the general ledger are confirmed and reconciliation is demanded from various
groups for differences. In the department of Finance & Controlling various
information are posted to the system including cash and bank transactions, sales
invoices, suppliers’ bills. Any correction, amendment or transfer is done through
journal vouchers called the booking vouchers. At the end of the each month,
allocation of common expenses to various BU’s are charged from the common
expenses pool according to the Strict control procedures are being followed, BU
sends respective documents to the department of FC for journalization and
authorization, and then documents are being checked with the parked
information pertaining to that individual transaction or activity, after verifying the
transaction it is posted into the live SAP system for integration. Every effort is
made to ensure that any error is not made, but if there is an error in the BU’s
provided information or error made by the FC, than booking vouchers are used
for reversal, transfers, and correction of errors and for special natured
transactions.
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Accounts Receivable Group
The basic working of the Receivables Department can be categorized under the
following three heads:
1. Trade Receivables
2. Taxes
3. Reports
1. Trade Receivables
There are four types of receivables in which the Receivable Department deals in:
• Accounts Receivable
• Commission Receivable
• Earnest Money/ Security Deposits
• Debit Notes
Accounts Receivable:
Sales by Siemens Pakistan are made in cash as well as on credit. So for the
credit sales, the amount has to be received from the clients. This amount is
termed as receivables.
Commission Receivable:
Commission income is another source of income for Siemens Pakistan.
Those materials which are not available in Pakistan are imported and
provided to clients. Siemens Pakistan acts as a communication and
coordinating bridge. As a result of this service, Siemens Pakistan gets
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commission income. All that record is maintained by the Receivables

Department.
Earnest Money/Security Deposits:

When Siemens Pakistan works for a particular client, it deposits
security/earnest money as guarantee that it will complete the job in hand by
keeping in view all the terms and specifications mentioned in the contract. If
that isn’t the case then that security would be seized by the client. On job
completion, the security deposited needs to be collected. This is the
responsibility of the receivables Department.
Debit Notes:
Debit notes are those expenses on which both the parties agree at the time of
entering into the contract. For example, if Siemens Pakistan is carrying out a
job, then expenses like travelling, food, accommodation, etc. would be the
responsibility of the client. These expenses would be reimbursed from the
client. The collection of these debit notes is the responsibility of the
Receivables Department.
2. Taxes
Taxes are also collected by the receivables department.
Sales Tax
The receivable of sale tax is a process in which the company has to collect tax
from the clients to whom sales are made on behalf of the government. There are
a few companies which pay tax on their own and deposit a certificate to Siemens
for the record.
There are two requirements for sales tax:

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Services
Job completion Certificate is a must which is a proof that Siemens has
rendered services as per to the requirements of the client.
Supply of Goods
When the goods are supplied to the client and gets his approval in this
regard, sales tax can be collected from that particular client.
3. REPORTS
The Receivable Department prepares the following reports:
(a) Age Analysis

(b) Advances
(c) Sales Report
(d) Export Sales
(a) Age Analysis:
The age analysis report shows after how much time a specific payment from
a particular customer is expected to be received.
Specific Allowance:
In specific allowance, the delay in the payment by the client is checked. The
management creates provision for bed debts against each receivable. If the
receivable amount isn’t collected within 1080 days overdue, it is usually
written off.
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Discounting
In this procedure the management decides to apply different factors on
receivables falling in different time period category. Mostly 1-1.5 years, 2-2.5
years, etc. This is applied on those receivables which aren’t due right now.
General Allowance
In general allowance the management decides the provision of bad debts. A
fixed percentage is applied to the overall sales.
(b) Advance Report:

If the company receives advances for sales from the clients, then these
advances are adjusted in the receivable account.
(c) Sales Report:

The sales report is the report through which the company gets to know the
receivables related to the sales.
(d) Export Sales Report:

Through export sales report, the company gets to know the foreign currency
receivable.
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Accounts Payable Group
The payables section deals in the following types of payments
• Payment to vendors
• Payment for custom duties
• Payment for utility bills
• Salaries & facilities of employees
TYPES OF PURCHASES
• General Purchase
• Material Purchase
General Purchase:
The items that fall under this head are like stationary etc.
Material Purchase:
The major purchases made by the company fall under this category, items include
purchase of machinery, spares, tools etc.
FOREIGN PAYABLE
The BU gives the specifications of the material it needs to the commercial department.
The commercial department after finalizing all the specifications regarding that purchase
issues a purchase order. A liability is generated in case of Usance LC. The Payment has
to be made according to the terms and conditions of the agreement.
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Siemens Pakistan deals with various foreign suppliers including Siemens AG,
from where standard products are being purchased for production.
There is a need of a middle party to ensure the safety of transaction, as there is a

number of steps involved before the consignment finally reaches Siemens stores,
and that party is Siemens’ bank, and that of vendor’s.
Cash Management Group

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The functioning of cash department can be classified into two categories:
• Corporate
• Cash Transactions
Corporate:
Share transactions (issuing, transferring, etc) are the major area of corporate
section.
In 1978, the shares of Siemens were floated in the market for the first time. From
1978, Siemens was listed in Karachi Stock Exchange (KSE).
The distribution of shares of Siemens Pakistan can be categorized in the

following two heads:
• Siemens Germany
• Local Shareholders
Since Siemens Pakistan is a public company, therefore filing of returns is a

compulsion as required by the Companies Ordinance and any major change
needs to be reported immediately. It is mandatory.
Cash Transactions:
Siemens Pakistan does not encourage cash transactions of large amounts.
Transaction of Rs. 5,000 or more needs to be done through cheque. There are
also some restrictions from the Income Tax authorities.
Payments like electricity bill, telephone bill and other utility bills etc. are however
done through cash. All expenses which fall under the category of cost of goods
manufactured need to be paid in cash.
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There are 4 cash outlets of Siemens Pakistan i.e. in Karachi, Lahore, Islamabad
and Quetta.
Cash voucher indicates:
(a) Nature of expense

(b) Amount of expense
(c) Name of the client
(d) Signature of the issuer
(e) Signature of the payee
(f) Signature of the authorized person who calls for the payment
The cash vouchers are both filed in manually as well as kept in company’s
computer system. Thus the company possesses both the hard copy as well as
the soft copy of the vouchers.
The cash vouchers of transactions carried out in Lahore and Islamabad are being
send to Karachi on a daily basis. Since cash transactions in Quetta are
comparatively less so they send it weekly.
The following two audit requirements regarding cash vouchers are essential:
(a) It should be properly filled like account no., amount, signature of the
concerned persons, etc.
(b) Accounting codes must be properly allocated.
The major stress is laid on accounting codes. This is due to the fact that if code
isn’t right, then financial reports will carry some sort of discrepancy. Financial
reports will no doubt be balanced but the figures in the respective accounts will
not tally with the figures in actual. By employing accounting codes, everything fits
into its place in the most appropriate and smooth manner.
Since Siemens Pakistan is working on different projects, site cash transactions’

also take place. There is a project leader for every project. Only the project
leader can withdraw cash for site expenses on behalf of the whole team that is
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working on a particular project. The site expenses are reported to the Company
for the reimbursement of cash. However necessary documentary proof like
purchase receipt, etc. needs to be attached.
Following are the common types of site expenses:
• Transportation/Fuel
• Toiletries
• Accommodation/Hotel
• Electricity, gas bills
• Telephone/Mobile
• Food
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Treasury Group
The primary function of the treasury is to assist the company in:
i. Maintaining an effective level of liquidity and efficient utilization of resources;
ii. Complying with the regulations of the SBP for foreign exchange transactions.
Coordination and dealing with banks is the most important area of concern for the
Treasury Section. Arrangement of guarantees and running finance, opening of LCs, etc
are some of the areas in which Siemens Pakistan consistently deals with banks. So a
healthy relationship with banks is a must.
Currently, Siemens Pakistan deals with a lot of banks, some of them are
• Standard Chartered Bank

• Muslim Commercial Bank
• Union Bank Limited
• Deutsche Bank
• ABN Amro Bank
• Citibank
• Hong Kong and Shanghai Banking Corporation Limited
Letter of Credit
Letter of Credit (LC) is a bank’s written guarantee made on behalf of buyer to pay to the
seller a given some of money provided that the documents presented meet the terms of
the letter of credit and are presented within a specified time and at a specified place.
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Issuing a Documentary Credit
Contract
SELLER BUYER
Advice of Documentary
Documentary Credit
Credit Application
ADVISING Documentary Credit ISSUING
BANK BANK
The buyer and seller enter into a sales contract providing payment for documentary
credit. The buyer gives instructions to his bank i.e., the Issuing Bank, to issue a credit in
favor of the seller i.e. the Beneficiary. The Issuing Bank asks another bank, usually in the
country of the seller, to advise and perhaps also to add its confirmation to the
documentary credit. Finally, the advising or confirming Bank informs the seller that the
credit has been issued.
Parties to the Letter of Credit
1. Buyer (Applicant)
2. Seller (Beneficiary)
3. Issuing Bank
4. Advising Bank
Other parties, if any, which facilitate the documentary credit are:

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(a) Negotiating Bank

(b) Reimbursing Bank
(c) Second Beneficiary
The Documentary Credit is a facility provided by banks to facilitate international trade

transactions. It guarantees payment and assures all the contracting parties that the Issuing
Bank or the Confirming Bank, if any, will honor its obligations provided that the terms
and conditions of the documentary credit are met in the desired and most appropriate
manner.
Benefits of Documentary Credit
It satisfies the financing needs of the seller and the buyer by providing the bank’s
credit standing. In case of documentary credit, the seller no longer needs to rely on
the willingness and capability of the buyer to make the payment.
Documentary Credit Application requires the full name and address of the seller, the
amount of the documentary credit, a brief description of the goods, details of
documents required, etc.
Arrangement of Loans
Loans are taken from banks so that the business units can cover all their costs which are
incurred in the production of goods demanded by the clients.
Types of Loans
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1. Short-Term Loans
The loans which are taken for a period of 1 year or less are termed as short-term
loans.
2. Mid-Term Loans
The loans which are taken for a period of 1-10 years can be classified as mid-term
loans.
3. Long-Term Loans
The loans which are taken for a period of more than 10 years are called long-term
loans. This type of loan is usually taken for capital expenditures like land, equipment,
building, machinery, etc. and for investment purposes.
Siemens Pakistan generally takes short-term loans for running finance.
Forward Cover
Forward Hedging is a tool through which the company minimizes the possible losses
from exchange rate fluctuations. Since Siemens Pak is involved in trade internationally, it
has to deal with a lot of foreign currency transactions. Exchange Rates keep fluctuating
everyday and the company has to take account of that. The Company negotiates a fixed
exchange rate with the bank that deals with that currency and than payments are made
and receivables are converted through that exchange rate.
For example, if a company enters into a contract now but the payment is to be made after
6 months, then by forward hedging, it will come to know the amount it has to pay after 6
months because no matter what the prevalent exchange rate is, the company will always
trade with the agreed upon rate.
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Thus by employing forward cover, the company comes on the safe side and then sets
prices accordingly as it will come to know the exact cost. Hence it is less risky as it
covers the risks of devaluation, inflation, etc.
Bank Guarantees
Bank guarantee is the irrevocable undertaking of a bank to pay to the beneficiary a

certain amount of money if the expected result of a transaction doesn’t occur or the third
party doesn’t conform to the specifications of the contract.
Guarantees are subject to the laws of the country in which the bank issuing the guarantee
is located.
One of the responsibilities of the treasury department is to arrange bank guarantees for
business units.
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TAXATION GROUP
The Taxation group at siemens looks after the taxation issues of the company. They
calculate the annual Taxation liability, tax expense, tax returns and related
matters.
They functions provided by the taxation department are:
Preparation of Sales Allocation for final tax computation
The total sales of Siemens Pak are first classified under different heads on the basis of
profit centers to identify normal sales and sales falling under FTR. The
working is prepared on a quarterly basis to facilitate the preparation of
quarterly computation of the income tax liability and the annual income tax
return and the amount of provision to be made in quarterly, half yearly and
annual financial statements. This report shall be reviewed by the authorized
personnel.
• Computation and Payment of advance tax liability and filing of

quarterly advance tax return
• Provision for Taxation/Deferred Taxation

Income tax liability shall be calculated / booked on monthly basis through the Sitax
package available on Siemens Intranet. Sitax calculates the effective tax rate for the
company based on the budgeted figures. The monthly provisions are made by applying
their effective tax rate to profit before tax figures. However, a detailed computation of
taxable income, tax liability and deferred taxation shall be prepared in accordance with
the ITO 2001 on a quarterly basis which shall be approved by the authorized personnel
and figures in Sitax shall also be updated on the basis of this working.
• Preparation of Annual Tax Return

The taxation department also calculates the annual tax return of SPAK. For that
computation and supporting information are forwarded to the tax consultants for review.
The consultants shall prepare the annual tax return on the prescribed format and the same
shall be approved in accordance with the signature mandate.
• Monthly and annual tax reporting package to SAG

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• Preparation of quarterly/annual statements under the income tax

law
• Consulting and advising on matters pertaining to income tax

The Taxation Department also advises the top management of Siemens Pakistan on issues
pertaining to income tax regulations of Pakistan. It provides consulting and advising
services to them as well as to SAG for tax issues.
FINANCIAL REPORTING GROUP

Local Financial Statements
Quarterly and Yearly Financial Statements
This group is responsible for the Preparation of Quarterly and Yearly Financial
Statements of Siemens PAK. For this purpose, a trial balance, grouped according to the
local presentation requirements, shall be obtained from the ‘general ledger’ group.
Financial statements are prepared in accordance with the recognized accounting
framework including disclosure and presentation requirements of International
Accounting Standards, the Fourth Schedule to the Companies Ordinance, 1984 (the
Ordinance) and other applicable regulations and guidelines.
Coordination in annual audit and second quarter (half yearly) review

A letter signed by the authorized personnel shall be sent to the auditors usually including
the following:
a. Dates of pre audit meetings.
b. Dates of furnishing schedules.
c. Target dates for completion of audit fieldwork.
d. Dates of initialling the financial statements and rendering the initialled auditors’ report.
Deliverables relating to annual financial statements shall include the following:
a. Auditors’ report to the members.

b. Auditors’ review report to the members on the company’s statement of compliance
with the best practices of the code of corporate governance.
c. Balance sheet.
d. Profit and loss account.
e. Statement of changes in equity.
f. Cash flow statement.
g. Notes to the financial statements.
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The second quarter condensed financial statements shall be subject to a limited scope
review in accordance with the requirements of the Companies Ordinance, 1984 and other
corporate law requirements.
The deliverables relating to the second quarter condensed financial statements shall
include the following:
a. Auditors’ review report to the members.
b. Balance sheet.
c. Profit and loss account.
d. Statement of changes in equity.
e. Cash flow statement.
f. Notes to the condensed financial statements.
Approval of financial statements by the Board of Directors
The financial statements are forwarded to the Company Secretary for onward submission
to the Chief Financial Officer, the Chief Executive, the Audit Committee and the Board
of Directors along with the following documents:
a. Reasons for significant variations.
b. Ratio analysis.
c. Comparison of investments made with the budgeted and last year’s figures.
d. Capital expenditure or sale of fixed assets.
e. Provision for obsolescence in stock and for doubtful accounts receivable.
f. Number of employees of the company.
g. Any other information required or considered appropriate.
The financial statements shall be signed by the CEO and CFO before being placed before
the audit committee.
Credit Management
The group is also involved in credit management, or more specifically in Employees

Funds Management. They maintain three kinds of funds:
• Provident Fund and Special Assistance Fund
• Gratuity
• Workers Profit Participation Fund
Signature Mandate
Signature Mandate comprises of the following:

• Signature Mandate Regulations
• Activity Catalogue (Annexure A) – This annexure lists all the activities of
different BU’s for which an authorization would be required.
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• List of Persons authorized to sign as per signature mandate (Annexure B) – This

annexure lists down the specific persons who are authorized as signatories for
various activities.
• Limits of individuals to sign offer / contract, LoAs and related documents
(Annexure C) -
• List of fixed deputies (Annexure D) – The signature mandate has also defined
who would deputize for a signatory at times when that signatory is on leave.
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FOREIGN AND LOCAL MANAGEMENT

REPORTING GROUP
Corporate reporting section develops the financial reports of the company. The
reporting is done in two forms:
• Local Reporting
• Report to the Principle company i.e. Siemens AG
The above two reports are made on monthly basis and presented to the
management. The report that is sent to Germany is first transferred into a
program known as esprit. This program gives Siemens Pakistan a front end only
as the data base server is in Munich, Germany. In this way Siemens AG can
consolidate the accounts worldwide and report it to NYSE every quarter as
required by the Security Exchange Commission New York.
There are two segments in reporting:

• Legal Consolidation
• Management Reporting
Legal Consolidation
This part of the reporting section deals with the Trial balance as well as all the
annexure supporting the trial balance.
Management Reporting
The management part of the reporting section deals with the segmental
reporting. This report is made independently on different products or a single
industry etc.
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The Flow of Data
The data is picked up from the general ledger in the trial balance format. The
reporting department presents the Financial Statements according to the
required format and then finally it is posted in the esprit to report it to Siemens
AG.
Contents of the Monthly Report
Following are the some contents of the report
• Business Results
• Major new orders & Turn Over
• Exports
• Ratio and Graphical Analysis
• Balance sheet
• Fund Flow Analysis
• Investment
• Accounts Receivable age analysis & advance record summary
• Inventory
• Employees
The Corporate Reporting Group of Finance & Controlling Department is a major

group. It provides company wide information to both the local management and
to the parent management, and thus forms a bridge between Siemens Pakistan
and Siemens AG to convey the performance of the company on monthly,
quarterly and on annual basis.
On the other hand individual business units and divisions report their
performances to the business units and divisions of the parent company.
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In the monthly report, which is also called reporting folders; there is a summary
and analysis of each and every activity of the business. These reports contain
details of the business results, major new orders and turnovers, exports, ratio
analyses, balance sheet, funds flow analyses, investment, account receivable
age analyses, advances received, inventory, valuation reserves, employees,
comments on business figures, comments on overheads etc.
Corporate Reporting group facilitates, coordinates and provides guidelines in

budget preparation activity to business units who prepare these budgets.
Management reviews all the budgets of various business units and approves
them, and foresees that whether the targets set by the business units are
realistic.
The various tasks performed by the Corporate Reporting Group include:
 Budget Compilation and analysis of business figures

 Forecast compilation & Analysis of business figures
 Monthly, Quarterly and Annual Results Preparation
 Reporting to Local And parent management
 Transmission to Siemens AG
Balance sheet and income statement and their annexure, with other reports on
company’s performance and others such as employees’ report etc. become the
part of both forms of reports. Same format is followed for monthly, quarterly and
annual results.
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SERBANES OXLEY ACT GROUP
In 2001, the corporate world was hit by unprecedented financial scandals. Two major
companies Enron and Worldcom were found to be involved in frauds related to financial
reporting. It was found that management of these two firms fraudulently overstated their
companies’ profits leading to fraudulent financial reporting. The top executives were
convicted of fraud and the companies were heavily fined and subsequently dissolved. The
failure of Enron and Worldcom shook investors’ confidence and lead to grave concerns
regarding Internal Controls over Financial Reporting.
The Sarbanes-Oxley Act (SOA) was enacted in the US in 2002 to address the issue of
internal controls over financial reporting. Every company listed on the New York Stock
Exchange (NYSE) has to follow the SOA. Since Siemens AG is listed on the NYSE and
Siemens Pakistan’s accounts are consolidated with SAG, the law indirectly applies to
SPAK as well. The two main sections of the SOA are section 302 and section 404.
Section 302 requires that the principal officer of the company issues an External
certification that the financial statements are complete, correct & sound based on the
control procedures practiced by the company. Section 404 (a) states that the company
should establish and maintain an adequate internal control over financial reporting. The
company should also do an assessment of the effectiveness of its internal controls over
financial reporting. Section 404 (b) states that the company’s independent auditors are
required to attest to, and report on, such internal control assessment accomplished by the
management.
To comply with the requirements of the SOA, Siemens AG has devised a global strategy
to ensure that it has a sound system of internal controls and is compliant with the
requirement of the SOA with respect to internal controls over financial reporting. For this
purpose Siemens AG has issued an ICFR Manual which binding on all Category 1
Siemens companies. The ICFR Manual states 8 steps for implementation of internal
controls over financial reporting which, being a Category 1 company, are binding for
SPAK.
The 8 Steps are briefly discussed as below:
• Identification of Significant Accounts, disclosures and Locations
Siemens AG determines significant account and disclosures for SOA. SPAK reviews
it and finalizes the same. Significant locations are identified based on materiality.
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• Identifying and Mapping of Significant Classes of Transactions (SCOTS) and

related Processes
The company makes a chart where it identifies the processes and links it with
SCOTS.
• Documentation of relevant processes
Based on the step above, the company documents all the relevant processes in the
form of flowcharts.
• Identification and documentation of Risks, related Assertion and Controls
After documenting all the related processes, the company needs to identify and
document all the points where there are considerable chances of malpractices. The
company document all related processes showing the risk points, the risks involved
and the controls that should be there.
• Evaluation of Design & Operating Effectiveness of Controls
After the controls have been designed, they must be tested to ensure that they are
fulfilling their objectives. Design Effectiveness of controls means that the controls
are designed in a manner that it is devoid of any loopholes and that it would be
effective. Operating Effectiveness of controls measures whether the controls have
been implemented or not. It basically means that the controls designed by the
company are put into operation.
To test the design and operating effectiveness of SOA controls, SOA Testers are
employed at every significant Location. The job of a SOA Tester is to ensure that the
Sarbanes Oxley Act is being implemented in both substance and form, and that the
controls deployed by the company are designed adequately and working effectively in
producing reliable financial information.
• Evaluation of ICFR at the Company Level
Company level controls are documented and evaluated to ensure that they are in
accordance with the requirements of the ICFR Manual.
• Evaluation of Internal Control Deficiencies
After controls have been tested, they should be evaluated at a specified date to
ascertain any deficiencies in those controls. If deficiency is reported, the SOA team is
responsible to remediate and eliminate the same.
32
• Final Management Assessment and Internal Certification
At the year end, the management assesses if there are any uneliminated deficiencies
and the implementation of ICFR. The management reports is assessment to SAG.
33
CORPORATE CONTROLLING GROUP
The primary function of the Corporate Controlling Group (CCG) is to assist the
company’s management in execution of its control over fiduciary and financial
reporting duties. CCG focuses on the financial reporting lines of different BUs of
the company to ensure their fair presentation and review their status of
compliance with financial reporting guidelines.
The group carries out the following functions.
[
Order Cost Controlling (OCC) Review

On a monthly basis, OCC reports shall be extracted from Spiridon prior to the
month end. These reports reflect all the orders of Siemens Pakistan. There are
three forms of OCC Reports. Percentage of Completion (POC), Complete
Contract Manufacturing (CCM) and Standard Products (SDI). The monthly report
is reviewed for any discrepancies. Following are the discrepancies that are
generally identified during the review of OCC report.
• Cost Discrepancy – the sum of actual and committed cost is greater than
plan cost;
• Cost of Sales Discrepancy – cost of sales is not appearing correctly in
proportion to the revenue recognized;
• Cost of sales should not exceed plan cost;
• Progress Billing – Billing should not exceed order value;
• Order Value and Plan Cost Discrepancy – Order is opened but order
value or plan cost is not there;
• Excessive Accruals – Accrual is the difference between cost of sales and
actual cost. Accruals should not exceed 5% of the plan cost. If it does
exceeds 5% then either the actual cost should be increased or the accrual
should be reversed;
34
• Loss Orders – When the plan cost or sum of actual and committed cost is
greater than the order value, there exists a loss order. Whenever a loss
order is identified, an accrual has to be made for that loss;
• High irrelevant cost appearing in the order.
The discrepancies, if any, identified is forwarded to BA heads of relevant BUs for
required action.
Liquidity Damages (LD) Provisioning
Liquidity damages are the penalties paid for failing to honor contractual
commitments. These provisions are based on the terms and conditions of the
contract. The company makes a LD provision at the start of the contract. If the
Liquidity Damage is utilized then a utilized reversal is made and if the Liquidity
Damage is not utilized then an Unutilized Reversal is made. Unutilized reversal is
made in two cases. Firstly, if the supplier doesn’t charge any LD even though the
company has made late shipments. Secondly, if the company makes timely
delivery to the customer the provisioned amount is reversed.
Inventory Valuation Reserve
If inventory in hand exceeds a certain amount, then a reserve (provision) needs

to be created to account for risks associated with holding that amount of
inventory.
There are 3 kinds of risks associated with inventory.
i. Quantity – holding a large quantity of inventory has its own risks. There
are increased storage and maintenance costs. Provisioning on Quantity
risk is based on the depletion span of inventory. Depletion Span is
calculated by dividing last year’s quantity consumed by the value of the
closing stock. If the depletion span is between 0.5 and 1, a reserve of 20%
of the inventory amount is created. If it’s between 1 and 1.5, a reserve of
40% is created and if it’s 1.5 or above a reserve of 60% is created.
35
ii. Price – Price differentials during the time inventory is at hand is a risky
proposition. Provision for price risk is based on the Net Realizable Value.
iii. Technical – There are also technical risks associated with keeping a large
inventory at hand like security. A 90% provisioning is done for this risk.
Hedging
Siemens Pakistan is involved in a lot of hedging activities. All its transactions are
hedged. The Corporate Controlling Group makes a provision for gain and loss for
that forward cover. The provision is based on the mark-to-market method which
is “Booking Rate – Market Rate”.
Excess Cost Provisioning
When sales are greater than billing there is excess cost and when sales are less
than billing there is excess billing. A Provision of 1% is made for excess cost.
Transfer Pricing
Transfer pricing refers to the pricing of contributions (assets, tangible and
intangible, services, and funds) transferred within an organization. For example,
goods from the production division may be sold to the marketing division, or
goods from a parent company may be sold to a foreign subsidiary. Since the
prices are set within an organization (i.e. controlled), the typical market
mechanisms that establish prices for such transactions between third parties may
not apply. The choice of the transfer price will affect the allocation of the total
profit among the parts of the company. This is a major concern for fiscal
authorities who worry that multi-national entities may set transfer prices on cross-
border transactions to reduce taxable profits in their jurisdiction. This has led to
the rise of transfer pricing regulations and enforcement, making transfer pricing a
major tax compliance issue for multi-national companies.
36
Summary
The workings of Finance and Controlling Department are among the necessities,
for the business of Siemens Pakistan. Being the most important central
department of the organization, Finance and Controlling Department is
supporting all the business activities and is helping in maintaining smooth
workflow.
I experienced a very good and disciplined business atmosphere, where no one

exceeds his limits and tries to give his best within the constraints where every
individual works in a team to achieve the corporate goal.
37

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SIEMENS

Global network of innovation

Prepared for : Mr. MUHAMMAD

Prepared by : SYED ALI AHMED

I am highly indebted to you for providing me this priceless opportunity to gain

engineering graduates in the country. Directly and indirectly Siemens provides

The Department of Finance & Controlling

The Finance and Controlling department is the backbone of Siemens. It handles

 Policies and Guidelines Group

Policies and Guidelines Group

International Financial Reporting Standards (IFRS) and International Accounting

General Ledger Management Group:

Responsibilities of the General Ledger group include:

• Maintaining General Ledger

• Keeping records for Valuation of Reserves & Reconciliation

• Keeping records for orders

• Keeping records and pooling Common expenses

• Keeping records for accrued expenses

• Keeping records for foreign currency valuation

Maintenance of General Ledger:

General ledger is central to all accounting activities in the business; any

Accounts Receivable Group

commission income. All that record is maintained by the Receivables

Earnest Money/Security Deposits:

Taxes are also collected by the receivables department.

There are two requirements for sales tax:

The Receivable Department prepares the following reports:

(a) Age Analysis

(a) Age Analysis:

(b) Advance Report:

(c) Sales Report:

(d) Export Sales Report:

Accounts Payable Group

The payables section deals in the following types of payments

There is a need of a middle party to ensure the safety of transaction, as there is a

Cash Management Group

The functioning of cash department can be classified into two categories:

The distribution of shares of Siemens Pakistan can be categorized in the

Since Siemens Pakistan is a public company, therefore filing of returns is a

Cash voucher indicates:

(a) Nature of expense

Since Siemens Pakistan is working on different projects, site cash transactions’

Following are the common types of site expenses:

The primary function of the treasury is to assist the company in:

i. Maintaining an effective level of liquidity and efficient utilization of resources;

• Standard Chartered Bank

Issuing a Documentary Credit

Parties to the Letter of Credit

Other parties, if any, which facilitate the documentary credit are:

(a) Negotiating Bank

The Documentary Credit is a facility provided by banks to facilitate international trade

Benefits of Documentary Credit

Siemens Pakistan generally takes short-term loans for running finance.

Bank guarantee is the irrevocable undertaking of a bank to pay to the beneficiary a

Preparation of Sales Allocation for final tax computation

• Computation and Payment of advance tax liability and filing of

• Provision for Taxation/Deferred Taxation

• Preparation of Annual Tax Return

• Monthly and annual tax reporting package to SAG

• Preparation of quarterly/annual statements under the income tax

• Consulting and advising on matters pertaining to income tax

FINANCIAL REPORTING GROUP