The Reliance Industries India Group Accounting Essay

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The Reliance Industries India group (RIL), started by the Late Dhirubhai H. Ambaniin in 1970s as a textile company, is presently Indias largest private sector conglomerate with revenues in excess of USD 44 billion and exports products worth USD 7 billion to more than 100 countries. RIL also features in the 'Fortune Global 500 companies' with an employee base of more than 25,000 professionals across the world.

Reliance enjoys a preeminent position in terms of its contribution to the Indian economy with revenues equal to 2.6% of India's GDP. It also contributes 7.7% of India's total exports, 7.9% of the Government of India's indirect tax revenues.

RIL has resorted to 'backward vertical integration' for the evolution and growth of the group. Starting with textiles in the late seventies, Reliance pursued a strategy of backward vertical integration - in polyester, fiber intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production - to be fully integrated along the materials and energy value chain. Reliance is a global leader polyester yarn and fiber production in the world and among the top five producers in the world in major petrochemical products.

Reliance Industries India has been a pioneer in the equity culture cult and is highly respected for its corporate transparency, deep market penetration ability, innovations and above all for its ability to generate 'products & services' for all sections of the society. Its guardianship for India Inc. stupendous growth has been felicitated with no of awards in areas like Quality, Energy Management, Health Safety & Environment, Exports and Retail & Franchising. It also bagged 'Golden Peacock Award' for Corporate Management in 2005-2006 and enjoys high corporate ranking in Fortune Global 500 Company.

RIL - Major Subsidiaries

Reliance Petroleum Limited (RPL), a subsidiary of Reliance Industries Limited (RIL), was created to exploit the emerging opportunities, creating value in the refining sector worldwide. Currently, RPL stands amalgamated with RIL.

Reliance Logistics Limited is a single window solutions provider for transportation, distribution, warehousing, logistics, and supply chain needs, supported by in house state of art telemeters and telemetry solutions.

Reliance Life Sciences - a research-driven, biotechnology-led, life sciences organization contributing in the fields of medical, plant and industrial biotechnology. These specifically relate to Biopharmaceuticals, Pharmaceuticals, Clinical Research Services, Regenerative Medicine, Molecular Medicine, Novel Therapeutics, Biofuels, Plant Biotechnology and Industrial Biotechnology.

Reliance Clinical Research Services (RCRS), a contract research organization (CRO) and wholly owned subsidiary of Reliance Life Sciences, has been set up to provide clinical research services to pharmaceutical, biotechnology and medical device companies.

Reliance Industrial Infrastructure Limited (RIIL) is engaged in the business of setting up / operating Industrial Infrastructure that also involves leasing and providing services connected with computer software and data processing.

Balanced Vertical Integration at RIL

Backward Vertical Integration is process by which a firm takes ownership or increased control of its supply systems. It serves to streamline the organization, to provide better cost controls, and to eliminate the middleman. Because of efficiency and lowered costs of production it is possible for the firm to become more competitive in the marketplace.

Vertical integration is concerned with how much control a company has over its upstream supplier and downstream buyers.

There are three different varieties of Vertical Integration, backward vertical integration which is upstream, forward vertical integration which is downstream and balanced vertical integration which is a combination of both.


In the matters of its board composition, RIL is strictly following suggestions given by Kumar Mangalam Birla committee regarding corporate governance. The board at RIL consists of 8 Non executive directors and four executive directors.

RIL follows a functional organizational structure. Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with production engineers. This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.

As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could start making the components it requires for production of its products instead of procuring it from an external organization. Hence, Reliance has the highest Operational efficiency as compared to competitors.


Internal Control

RIL has a comprehensive system of internal controls to safeguard the Company's assets against loss from unauthorized use and ensure proper authorization of financial transactions. The Company has an exhaustive budgetary control system to monitor all expenditures against approved budgets on an ongoing basis. The Company's accounting process is based on uniform accounting guideline that sets out accounting policies and significant processes and deadlines on a company wide basis. There are binding directives for internal reconciliations and other accounting operations. The Company maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, the reliability of financial controls, and compliance with laws and regulations.

RIL has well established policy towards maintaining the highest standards of health, safety and environmental norms while maintaining operational integrity. This policy is strictly adhered to all RIL manufacturing facilities.

The Company has an internal audit function, which is empowered to examine the adequacy and compliance with policies, plans and statutory requirements. It is also responsible for assessing and improving the effectiveness of risk management, control and governance process.

The management duly considers and takes appropriate action on the recommendations made by the statutory auditors, internal auditors and the independent Audit Committee of the Board of Directors.

Internal Checks and Balances

At the heart of our processes is the wide use of technology that ensures robustness and integrity of financial reporting. Reliance deploys a robust system of internal controls to allow optimal use and protection of assets, facilitate accurate and timely compilation of financial statements and management reports and ensure compliance with statutory laws, regulations and company policies.

Audit committee

Powers of the Audit Committee:

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

4. To secure attendance of outsiders with relevant expertise, if it considers necessary

The role of the Audit Committee includes:

1. Oversight of the Company's financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible.

2. Recommending to the Board, the appointment, reappointment and, if required, the replacement or removal of Statutory Auditors and fixation of audit fees.

3. Approval of payment to Statutory Auditors for any other services rendered by the Statutory Auditors.

4. Reviewing with the management, the annual financial statements before submission to the Board for approval, with particular reference to:

Matters required to be included in the Directors' Responsibility Statement to be included in the Directors' Report in terms of sub- section (2AA) of Section 217 of the Companies Act, 1956.

Changes, if any, in accounting policies and practices and reasons for the same. ยท Major accounting entries involving estimates based on the exercise of judgement by the management.

Significant adjustments made in the financial statements arising out of audit findings.

Compliance with listing and other legal requirements relating to financial statements.

Disclosure of related party transactions.

Qualifications in draft audit report.

5. Reviewing with the management, the quarterly financial statements before submission to the Board for approval.

6. Reviewing with the management, the performance of Statutory and Internal Auditors, adequacy of internal control systems.

7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit.

8. Discussion with Internal Auditors any significant findings and follow up thereon.

9. Reviewing the findings of any internal investigations by the Internal Auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.

10. Discussion with Statutory Auditors before the audit commences, about the nature and scope of audit as well as post audit discussion to ascertain any area of concern.

11. To look into the reasons for substantial defaults, if any, in the payment to the depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors.

12. To review the functioning of the Whistle Blower Mechanism.

13. Carrying out such other functions as may be specifically referred to the Committee by the Board of Directors and / or other Committees of Directors of the Company.

14. To review the following information :

The management discussion and analysis of financial condition and results of operations;

Statement of significant related party transactions (as defined by the Audit Committee), submitted by management;

Management letters / letters of internal control weaknesses issued by the Statutory Auditors;

Internal audit reports relating to internal control weaknesses; and

The appointment, removal and terms of remuneration of Internal Auditors.

15. Reviewing the financial statements and in particular the investments made by the unlisted subsidiaries of Company.

16. Review of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.)


Reliance Industries is well known for its petro-chemical products business. For this, the company has an ecosystem of agents and channel partners through which it gets all its orders. Recently, Reliance also ventured into the petrol retail business. Orders for this business come through regional hubs, depots, and retail outlets.

The company faced issues servicing customers as the volume of business grew, resulting in delays in servicing orders leading to customer dissatisfaction and an increase in the cost of order fulfillment due to rework. An order management system was, therefore, the need of the hour to eliminate manual processes and minimize delays in order execution.


The B2B portal was created to allow customers to place orders online for any product from Reliance's various business divisions. This was tightly integrated with the backend ERP system running on SAP, so that orders would directly get updated after checking, and be moved online to various Reliance plants. Customers would also get updates on their order status through the ERP system itself. The portal has been integrated with Reliance's GPS tracking system.

This helps customers track their orders. The portal also provides proof of delivery for the Petrol retail business, order history and MIS. It even has a facility for rate negotiations for export orders. The benefit of having a Web-based interface is that there's no management required at the customer end. Reliance expects to integrate more lines of business to this portal, and even has plans to do supply side automation and materials management. Reliance is also a buyer as it is a seller, a huge thrust is planned for automating these processes as well.


Reducing energy intensity in our manufactured products is the surest way of reducing the adverse impact of our operations on the environment; in addition, this also has an advantageous effect of improving the bottom line. In order to accelerate our drive in this direction, we have established the Reliance Energy Management System and have collaborated with a leading consultant in the field of energy management for developing a master plan for reduction in the energy consumption at all our manufacturing sites to the standards of "Best in Technology" plants.

Initiatives Taken

Several best practices manuals have been prepared on critical energy intensive systems and are being implemented to achieve significant reduction in energy consumption.

Installation of a real time optimizer at two of our bigger sites to track the fuel consumption and identify corrective actions to minimize fuel consumption.

Secured energy resources by backward integration into exploration and protection business, and identifying and harnessing cleaner fuels to put us as a vital energy player in the Indian sub-continent in the future.


Reliance works on the principle of "Growth is Life"- for the company as well as its people. To enable a sustained and accelerated growth, Reliance ensures a workplace where each employ can maximize his professional output as well as balance it with his personal fulfillment.

The entrepreneurial spirit has been the hallmark of Reliance and also one of its fundamental competitive strength. The organization continues to nurture this as it grows exponentially.

Many types of rewards and recognitions are given by Reliance to its employees:

Monetary rewards

Cash bonuses

Stock awards

Company paid perks (vehicle allowances, gift certificates, etc.)

Non-monetary awards

Informal acknowledgement

Training opportunities

Increased role in decision-making process

Reliance offers its employees more freedom and responsibility to chart their own course within the company. The organization offers networking, coaching, and mentoring opportunities to people to broaden their horizon in their personal as well as professional lives.

The reward and recognition program is aimed at aligning the employees' objectives with the goals of the company and motivating the individuals to go beyond their scope of work, and learn, innovate and create value for the company.

The company has been following a Key Result Area performance appraisal system and is now looking to move towards performance linked incentive schemes where the employees will enjoy the risks and rewards that are directly related to the company's performance, heir team performance and their individual actions as well.