Audit It Ing

8/9/2019 Audit It Ing

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AUDITITINGVERIFICATION AND VALUATION OF

CURRENT ASSET


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-PRESENTED BY-NAME ROLL NO

SWATI GALA 212

AARTI CHAMANKAR 205

HEMALI NANDU 223 SHILPA KULAYE 218

SONALRAMSINGH 247

APARNA DEOGHARE 210 KUNAL TAYAL 251

HARDIKA VAYANTA 254


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INTRODUCTION

Verification is a process by which an auditorsatisfies himself about the accuracy of the

assets and liabilities appearing in the balancesheet by inspection by the documentaryevidence available.

Verification means providing the truth orconfirmation of the assets and liabilitiesappearing in the balance sheet.


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AUDITORS DUTIES

They exist

They belong to the client

They are in the possession of the client or person

authorised by him They are not subject to undisclosed encumbrances

or lien

They are stated in the balance sheet at properamounts in accounts with sound accountingprinciples and

They are recorded in the account


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INVENTORIES / STOCK

The raw materials, work-in-processgoods and completely finished goods that areconsidered to be the portion of a business's

assets which are ready or will be ready forsale. Inventory represents one of themost important assets that most businessespossess, because the turnover of

inventory represents one of the primarysources of revenue generation and subsequentearnings for the company'sshareholders/owners.


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Verification of stock can be done byadopting the following procedure:

EXAMINATION OF RECORDS

ATTENDING PHYSICAL STOCK TAKING

PROGRAM

OBTAINING DIRECT CONFIRMATIONS

APPLYING ANALYTICAL REVIEW

PROCEDURES

VALUATION OF INVENTORY


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AUDITORS DUTIES

Proper Valuation Test check calculation Proper provision Consistency Signed by responsible officer Stock with others

Comparison with previous year Cut off transactions Disclosure

Report under CARO, 2003


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DEBTORS

Debtors are people or other firms whoowe money to the firm. This will usually

happen where the firm has sold goodswith a period of credit. The firm sellsthe good or service but allows thepurchaser a period of credit to pay -

usually a month. During this month thepurchaser owes the firm the money andis therefore a debtor.


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Verification of debtors can be done by

employing following procedures:INTERNAL CONTROLS

EXAMINATION OF RECORDS

DIRECT CONFIRMATION FROM DEBTORS

ANALYTICAL REVIEW PROCEDURES

OBSERVING DISCLOSURE REQUIREMENTS


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While scrutinizing debtors ledger,auditor should check the following:

1. Realisation from debtors as per the credit policy of the concern.

2. Long overdue balances so as to ascertain the possibility offictitious sales being recorded.

3. Accounting of allowances and discounts and relevantcorrespondence.

4. Proper authorization and relevant correspondence for writing offany debts as irrecoverable.

5. If payments are been received but balance is continuously

increasing, auditor should ascertain the reasons.6. Where cheques received from debtors have been repeatedlydishonoured.

7. Whether any debt is under dispute.

8. In case of debts in foreign currency, auditor should ensure that

they have been properly converted into Indian rupees


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CASH IN HANDCash In Hand Includes The Following

CASH BALANCE IN HAND

PETTY CASH BALANCE IN HAND

BALANCE OF STAMPS IN HANDS

CASH IN TRANSIT

CASH AT BRANCHES

CASH WITH AGENTS


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Verification of cash balance includesconsidering the following points:

Auditor should obtain a certificate from the concern aboutthe actual cash balance in hand at the date of balance sheet.

The auditor should verify the cash in hand by actually countingit on the close of the business on the date of the balancesheet.

In certain cases, if the client is maintaining an unduly largebalance of cash in hand consistently, the auditor should make asurprise check to ascertain whether the actual cash in handagrees with the balances as shown by the books.

If there are more than one cash balances like for e.g. whenthere is cashier, a petty cashier, a branch cashier andimperest balances, the auditor should check all of themsimultaneously, as far as practicable so that shortage in onebalance is not made good by transfer of amount from others.


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As far as cash in transit is concerned, the auditor shouldverify this balance with the help of proper documentaryevidences and correspondence.

If the cash in hand is not with agreement with the balanceas shown in the books, it should be the duty of the auditorto call for an explanation.

Often postage and other stamps are taken with the cash in

the balance sheet. The auditor should confirm the balanceof postage and stamps by physical counting only.

He should also check the system of making payments andsafety arrangements provided for the protection of thecash balance.

In case cash is maintained at the local branches and auditoris unable to pay visit to the branch, he may ask the branchmanager to deposit the balance of cash in the bank on thebalance sheet date.


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PETTY CASH

The small amount of cash and coins thatan organization uses for minor

purchases and providing change tocustomers. Petty cash is typically usedby merchandising companies or smallstores that are required to make change

for customer purchases


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AUDITORS DUTIES

Petty cash in hand should be verified with petty cash book.

Verify the balance of petty cash account in general ledger.

Review internal control system regarding receipts and

utilisation of petty cash. Ensure that there no possibilities of misappropriation of

petty cash.

Ensure that no fictitious payments are recorded.

Verify the petty cash in hand by actual counting it on theclose of the business on the date of balance sheet.

Auditor should also carry out surprise visits to clientsplace and physically count petty cash balance at regular

intervals during the year.


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CASH AT BANK

The total amount of money held at the bank by an individualor company

The auditor should compare the balances as shown in thepass book with the balances as shown in the cash book.

The auditor should prepare a bank reconciliation statementor should check the statement prepared by the client inorder to ascertain the correct bank balance.

If bank reconciliation statement includes a large number ofunclear items on the balance sheet date, auditor should

verify that these were subsequently cleared. Auditor should note that where a cheque issued for more

than six months before the close of the year is shown in thebank reconciliation statement, the fact is to be disclosed.


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He should obtain a bank confirmation certificate from thebank at the close of the year.

He should also obtain separate certificate for fixed deposit

account, current account and saving bank account fromdifferent banks to confirm total deposits in differentbanks.

Where amounts are deposited in foreign banks under

exchange control regulations, the fact is to be disclosed. The auditor should also ensure that the bank balances are

properly disclosed in the balance sheet according toschedule VI of companies act. Schedule VI requires thatthe bank balance should be segregated as follows: With scheduled banks With others

Auditor should ensure that the following items are notincluded in cash and bank balances:

Temporary advances.


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LOANS GIVEN Its meaning can be defined as:

Something lent for temporary use. A sum of money lent at interest.

Auditor should schedule of loans given by the concernand trace the entries in loan account.

Auditor should examine the loan agreement and otherdocumentary evidence in connection with loans.

AUDITORS

DUTIES


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If loan is given against any security, auditor shouldphysically verify the security. Also relevantdocuments should be scrutinised and it should be

ensured that the loan is adequately secured. Auditor should ensure that the loan is given under

proper authorization and is permitted by Articles

of Association of the company. Auditor should verify the rate of interest and

ensure that interest is recovered regularly.

Auditor should obtain year end balance

confirmations directly from the concerned parties. Auditor should ensure that loans given are properly

disclosed in the balance sheet as per therequirements of schedule VI of companies act,

1956.


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PREPAID EXPENSES A type of asset that arises on a balance sheet as a result

of business making payment. Due to the nature of certaingoods and services, they must be prepaid expenses. Forexample, insurance is a prepaid expense, because thepurpose of purchasing insurance is to buy proactive

protection in case something unfortunate happens. Clearly,no insurance company would sell insurance that covers theoccurrence of an unfortunate event, after the fact, soinsurance expenses must be pre-paid. For goods andservices to be received in the near future. While prepaid

expenses are initially recorded as assets, their valueis expensed over time as the benefit is received onto theincome statement, because unlike conventional expenses,the business will receive something of value in the near

future.


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AUDITORS DUTIES The auditor should verify the receipt and the other

documentary evidence for pre-payments made during theyear.

Prepaid expenses for the last accounting period shouldbe properly adjusted. The auditor should see the

expenses paid in the last year pertaining to the currentaccounting year have been properly changed to revenue.

The auditor should also check the adjustment made inthe next year, if possible, against the prepaid expenses

made during the year. The auditor should check the calculations for

ascertaining the portion of expenses belonging to thenext period by reference to the contract or other

documents.


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In respect of rent, rates and taxes, theauditor should check the payment voucher

and satisfy that allocation to carry forwardhas been made on time basis.

In respect of insurance premium, the auditorshould also confirm that the carry forwardallocation has been made on the basis of theterms of policy and the premium paid.

Prepaid expense is a current asset. The

auditor should assure that it has been shownseparately in the balance sheet.


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GOODS IN TRANSITGoods that have departed from the dispatch loading orshipping but not have arrived at the receipt, offloading ordelivery point. Also called in transit inventory or stock in

transit Auditor should check whether the goods in transit are on

sale account or purchase account. In case of sale as it isbuyers property, no asset exists in form of stock. If it is onpurchase account, then it must be taken as goods in transitif it is accounted as purchased goods.

Auditor should verify goods in transit by reference toinvoice and transporters receipt. Also he should trace thisitem in stock book of subsequent period to establish thatthey were in transit.


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If goods sent by HO to branch or by branch to HOmay be in transit. In such cases, auditor should

examine outward note of sending unit and confirmthe same with subsequent entries in the stockbook.

Auditor should obtain certificate from management

stating that there are no undisclosed items ofgoods in transit.


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BRANCH TRANSFERSBranch transfers means transfer of goods from one branch to

another. When such transfers are made they have to be at costprice as it is just a transfer within the business itself and notsales.

VERIFICATION OF INVOICE: Auditor should check

invoices made at the time of such transfers. QUANTITY AND RATE: Auditor should also check the

quantity and rate at which such transfer are made.

PERIODIC RETURNS: Auditor should see that periodic

returns are received from the concerned branches forthe purpose of sales.

COSTPRICE: if the goods are transferred at invoiceprice, auditor should see that proper accounting is done

for loads.


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LOOSE TOOLS Auditor should obtain physical verification sheet duly

certified by authorised persons of the concern and compareit with the balance as per books.

In case of material discrepancies between balance as perbooks and balance on physical verification, auditor should

ascertain the reasons and should ensure that suchdiscrepancies have been properly accounted in the books.

Auditor should, if possible, observe physical stock taking atconstruction site.

Auditor should ensure that loose tools are valued at cost(taking into account damage, obsolescence etc.)

Auditor should ensure that loose tools are disclosedseparately in the balance sheet as an item of current asset.


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WORK IN PROGRESS

Work that has not been completedbut has already incurred a capital investmentfrom the company.

This is usually recorded as an asseton the balance sheet. Work in progressindicates any good that is not considered tobe a final product, but must still be

accounted for because funds have beeninvested toward its production.


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AUDITORS DUTIES

Auditor should verify the duly attested cost sheet toensure that the work in progress is properly valued.

Auditor should verify the direct expenses (likematerial cost, wages etc.) included in the cost sheet

with reference to the documentary evidenceavailable.

Auditor should confirm that allocation of overheadsto work in progress valuation is made on reasonable

basis. Auditor should compare cost sheet of current year

with that of previous year and if there are anymaterial deviations, auditor should investigate the

reasons thereof.


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BILLS RECEIVABLEBills receivable is an current asset to the business, when we sell to

any customer if he can`t pay the amount we give him a documentasking him to paying within a specified time.

The auditor should examine the system of internal controlsrelating to drawing, acceptance and collection of billsreceivables.

Auditor should scrutinize the ledger accounts of bills

receivables. He should verify the bill receivable book andprepare a schedule of all those bill receivable, which havenot yet matured before the date of the preparation of thebalance sheet.

Auditor should physically verify the bills receivables on the

last date of the accounting year.

AUDITORS DUTIES


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Where the number of bills is large and are kept with thebankers for collection, the auditor should obtain a detailed

certificate from the bank to ascertain the clear positionsabout the bills.

The auditor should see that the bills are properly drawn,stamped and duly accepted and are not overdue. In case ofrenewals of bills, the auditor should compare the new bill

with the old bill. Any contingent liability in respect of the bills that are

discounted or endorsed but remain outstanding at the timeof audit should be shown as a note to the balance sheet.

The bills which have been dishonoured before the due dateof the balance sheet should not be included in the balancesheet as bill receivable in hand.


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Sometimes the bill might have matures and honouredsubsequent to the date of the balance sheet, but prior to

the date of the audit.thr auditor should check whether thecash received as shown in the cash book of the next year.

If the bills have been retired before the date of thebalance sheet, the proceeds thereof should be checked byreference to the cash book.

For the bills discounted prior to the date of maturity whenthe date of maturity is to fall after the date of balancesheet, the discount on such bills must be apportionedbetween periods covered by two separate financial years.

Auditor should ascertain whether the bills are subject toany lien, hypothecation, or encumbrances. He should checkthe register of charges, loan agreement and other relevantdocuments.


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BIBLOGRAPHY

AUDITING T.Y.BCOM L.N.CHOPDE

AUDITING T.Y.BAF VIPULPRAKASHAN

GOOGLE.COM


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THANK YOU

Audit It Ing

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