Jan 29, 2019 in Finance

Acknowledgement

I am much thankful to everyone who assisted me in completing this task. I would like to present a token of thanks for the staff members of Glow Communication, Head Office, Saudi Arabia, who assisted me in the completion of this report and provided me their complete guidance. Even though advertising companies are very much sensitive about their secrecy, they let me handle their delicate operations. My special thanks to my supervisor Mr. XYZ (Head Accounting Department) without whom the completion of this report wouldn’t have been possible. I would also like to thank Ms. X, Mr. Y, Mr. Z, and Mr. S who gave me a lot of useful information and guided me throughout the course of my internship and the compilation of this report.

Overview of Industry

Saudi Arabia is the largest advertising market in the Gulf region with over 1 Billion Saudi Riyals being the advertising budget of organizations in 2013. It accounts for around half of the total regional expenditure. Over the last decade (2003-2013), the country was a major focus of retailers, food manufacturers, communication and network companies and fast moving consumer good companies. This is attributable to the fact that the country is expanding as a market-oriented economy and also with an increasing income per capita. Due to the gradually wealthy and expanding Saudi middle class, the Kingdom of Saudi Arabia has become one of the biggest targets of many international advertising agencies. The revenue of the advertising industry in the country grew by around 10% over the period of 2003-2013. The advertising industry is categoried as highly profitable with EBITDA ranging at around 40%-50% for the period stated above. However, the industry is greatly fragmented and competitive in nature with numerous firms that are operating at a more micro and regional level.

Internship Objectives

The objective behind doing an internship was to gain from the experience of working in an organization. I wanted to learn and have a new challenge in order to develop and improve a new set of skills. During the course of my internship there were four major competencies

Scope of Work

During the course of my internship, I performed various tasks, but the most recurring and important ones were as follows:

Settlement (Vendor’s Payments)

The settlement includes all the events that take place from the time a commitment is done for a particular transaction to the time it is cleared. Settlement of payments is important in order to turn the promise of payment (such as, in the form of electronic payment request or in the form of a cheque) into an actual movement of money from a particular vendor to another one. It is important in trading for settlement to take place as the speed of trades is much faster compared to the cycle period required to finish a transaction. There is an involvement of pre-credit settlement, post-trading exposures in order to ensure that the trades are netted in compliance with the rules of the market, even though a seller or a buyer becomes bankrupt before the settlement. The procedures involved in clearing include netting trades to single position, monitoring and reporting, handling of tax (sales tax and income tax withholding). The settlement may seem like a simple job but it is one of the most tedious and time consuming tasks that the accounting department has to do. This is because transactions of all branches of Glow Communication have to be approved and processed on a daily basis. They range from purchases to employee reimbursements and vendor payments and pretty much cover all the cash outflows of the organization. It can be said that this is the most important function that the finance department performs and all other activities revolve around this.

There are many types of settlements that the department does. The payments are allocated on the basis of branches, with each branch having its own individual code, for example ‘Head’ denotes the Head Office located in XYZ, ‘L’ denotes the XYZ branch situated in XYZ etc. The general ledger is more commonly known as g/l. A g/l contains the accounts needed to record transactions, which are related to a company's assets, owners' equity, liabilities, expenses and revenues. Glow Communication has a total of 192 g/l in which transactions are recorded.

The cost revenue center (CRC) is basically all the departments to which payments are allocated. A narration is a description of the journal entry which shows the reason behind a transaction. After all the data in excel is compiled it is thoroughly reviewed for any errors. Afterwards, all these transactions are verified and allocated to their respective branches/departments. This is then uploaded to the company’s software. This software handles all balance sheet and off balance sheet accounting. The software provides for different organizations, numerous currencies, branches, manifold profit and cost centers. It provides a user with a possibility to access and process different kinds of transaction at both levels, on and off the levels of balance sheet which include normal journal processing of vouchers, allocations, reversals, payments of cheque, reconciliations of bank statements, forecasting and budgeting of expenses and adjustments.

Reimbursement

Sometimes it is important for an employee to undertake certain expenses which help him or her in conducting the business on a regular basis. It may include expenses such as driving a personal vehicle in order to complete company tasks or in making sales calls when needed which can become a costly expense if the member of staff pays for the expense out of his or her own pocket. Sometimes, employees also require purchasing of offices supplies or other materials required for a particular project or campaign and they may use personal money in order to pay for the items. The organization offers the reimbursements to employees. Along with the tangible purchases of business, travelling costs in local areas are also added in the expense report for the reimbursement to an employee. Moreover, there is compensation for parking fees, fuel costs and other similar expenses. Additionally, expenses for foreign trips related to business activities are also usually reimbursed. Incidental expenses that include taxicab rides, gratuities, hotel accomodations, dining out at restarurants, airfare and rental car costs also are covered by an organsiation`s compensation plan. However, employees of a firm need to understand the policy of employee reimbursement before making any expenses out of their own pockets. Glow Communication has specific criteria in place that outlines what expenditures the firm will cover. Some particular expenses need to be approved in advance so that people do not incur unauthorized expenses that may include a new office desk and then expect the organization to reimburse them for the cost. Items that are expensive and can put a huge burden on the finances of the firm are usually not authorized. Those employees who don’t follow the procedures of the employee reimbursement policy most likely do not get reimbursements of expenses made out of their own pockets.It may also be true if related to extra charges or other expences are higher than the allowance. At each month’s end, the employees are generally required to submit a completed report of their expenses to the finance department.

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This is a standardized form in which an employee lists all the expenses related to business that he or she has made during the course of a month. An employee has to include the reason for the expense along with the associated numbers of the job or a different indicator that helps in identifying a specific client or project expense. All the corresponding receipts need to be attached to an employee reimbursement request. Moreover, written authorizations taken if any also need to be submitted for verification of legitimate, pre-approved expenses. Before the submission of receipts and reports, it is advisable for the employees to have a copy of them to themselves in case the paperwork of the employee gets lost or misplaced in the process. After the individual claims along with proof of transaction (receipts etc.) are sent to the finance department, an excel sheet is created containing an employee`s name, account number, net payment and transfer/pay order. The branch then transfers all the amounts to each employee’s respective accounts. Afterwards a settlement is created containing details of branch, g/l, narration and a total amount and is uploaded to the company’s software.

Tax Calculation

This is a relatively simple and straight forward task as compared to the previous two albeit tedious. In tax calculation, one has to go through all vendors of a firm`s branches and classify them on the basis of:

  • Nature of transaction
  • GST
  • Supplies
  • Advertisement
  • Services
  • whether it is an individual vendor or a company

Before the announcement of the budget for fiscal year 2013-2014 by the Saudi government, the organization used to charge 3.5% and 6% for supplies and services respectively. But now, as per the new budget, these rates have been increased to 4% for supplies and 7% for services respectively whereas for the company (Pvt Ltd & Ltd) tax rate on supplies and services remains the same. After tax is calculated, the net amount, i.e. the amount after the respective tax has been deducted, is used for settlement.

Petty Cash

It is a small cash fund that is kept on hand in order to pay for purchases and reimbursements that are too small in order to be worth submitting compared with the more expenseive purchases, reimbursements and other procedures of the finance department. These funds of cash are documented and protected in order to ensure that no theft occurs. In order to prevent any theft, a strict documentation is required for any use of the funds. Such as, any use of petty cash fund requires an employee to fill a form that checks out the funds and also to submit a purchase receipt and to return change that is left if any. Sometimes, employees may also be asked to make some purchases out of their own pockets and they would be reimbursed from the petty cash fund after the submittion of an expense report. After a petty cash of each branch is filled up, they are checked and the amount is reimbursed to the petty cash account of the branches through settlement.

Conclusion

The advertising industry, as a whole, remains healthy despite a period of economic difficulties. The advertising sector absorbed the build-up of non-performing loans in the system while maintaining profitability and robust balance sheets. Much of the credit for this must go to the government and the policies it has pursued over the last decade to ensure that advertising agencies are adequately looked after and adhere to prudent risk management. The objectives were targeted towards customers, improved management policies, strong policy framework, improved governance structure, strategic investment initiatives and implementation of cost effective measure across the organization. The group structure of the firm worked hard in reaching the milestones under continuous monitoring and supervision of the senior management and the company`s Board of Directors.

Glow Communication is a mature organization with many challenges ahead in this highly competitive market. It has already managed to achieve much and its future seems bright. As an intern, I have learnt a lot of new things which I am sure will help me in my future endeavors.

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