Vouching and Verification
-
Upload
sonicshare -
Category
Education
-
view
223 -
download
1
Transcript of Vouching and Verification
VOUCHING & VERIFICATION
Ms. Fleur DsouzaAsst. Prof., BMS
SIES College
VOUCHERO A voucher is evidence to any
expenses done. It is a written record against any expenditure or completed transaction.
O Sales invoice, cash memo, purchase invoice, bank pay-in slips are examples.
DEFINITION OF VOUCHING
According to Spicer and Pegler,
“Vouching is the examination by the auditor of all documentary evidences, which are available to support the authenticity of the transaction entered in the client’s record.”
AUDIT OF EXPENSES
PAYMENT OF TAXESO Check copy of assessment order,
assessment form, notice of demand, receipted challan
O Payment of tax to be verified by acknowledgement receipt
O Interest earned on advance income tax to be recorded as income
O Any interest or penalty due to non-payment of tax should be debited
CUSTOMS DUTYO Check Bill of Entry and Payment ReceiptsO If duty is paid by agent, then bills issued
by clearing agent for his charges should also be checked
O In case of dispute regarding duty amount, a provisional amount is paid. Later, additional amount payable or refund of excess amount should be accounted for.
O If imported goods are exported, verify whether duty has been refunded.
EXCISE DUTYO Amount of duty paid should be
according to quantity of goods allowed under the permit
O Check triplicate copy of the TR-61GAR-7 challan for excise duty paid
O Current account with excise authorities – check advance permit quantity with quantity of excisable goods actually issued
TRAVELLING EXPENSES
O To be approved as per rules formed by directors or partners
O If no such rules, reimbursement as per amounts actually incurred
O Travelling expenses should be incurred for business benefit, not personal reasons
O All travel voucher must contain name of traveller, journey details, amount of fare, boarding and lodging expenses, daily allowances
O Foreign travelling expenses should be approved first and then spent
O Supporting proof to be provided for each expense incurred
PRELIMINARY EXPENSESO Stamp duty, legal costs, printing costs, registration fees
paid during creation of the firmO Reimbursement to promoters should be verified
through resolution passed by BoD and power of Articles of Association
O Each expense should be verified with supporting attachments and contracts
O Excess amount paid under any head compared to amount disclosed in prospectus should have approval of shareholders
O Part of preliminary expenses not written off to be disclosed separately
O No other expenses should be recorded under this head.
SALARIES AND WAGESO Verify salary and wage bill with attendance
registers, schedules of rate, class and position of workers, and employees and payment sanctions.
O No payment to dummy workersO Proper deductions like leave pay, PF, ESI, TDS has
been consideredO Mode of payment to be verified – ESOP,
cash ,cheque, etc.O Disbursement – confirm that payment is made
and entered into account. Undisbursed amount should be recorded as unpaid salary and wages.
O Tax liability to be checkedO Loan and advances given to employees – verify
recovery and outstanding
PETTY CASHO Verify amount sanctioned to petty
cashier O Expenses should be supported by
expense vouchers, receipts or documents
O All expenses to be allocated according to their heads eg. Travelling, stationery,
O Total of heads should match with total expense amount
O Verify the cash balance in hand
RESEARCH AND DEVELOPMENT EXPENSES
O Verify nature of R&D expensesO Routine expenses of R&D to be written off
to P&L A/cO Verify that the research is relevant to the
objective and it is authorised by the BoardO Any asset purchased for R&D purpose,
depreciation should be debited to R&D A/cO Tax benefits to be taken into account in
creating tax provision
ADVERTISEMENT EXPENSES
O Verify whether capital, revenue or deferred
O Verify if regular contract with ad agencyO If advertisement is done, verify by
checking newspapers, hoarding, magazines, TV ad and radio showing the date and exact location
O Check receipts for amounts paid for adsO Outstanding expenses to be disclosed in
liability side of balance sheet
AUDIT OF INCOMES
CASH BOOKO Only indirect evidence can be
obtained for incomesO Guard against omission of cash
receiptsO Compare opening balance of cash
book with closing balance shown in audited balance sheet of previous year
CASH SALESO Check carbon copies of cash memos
with salesmen’s summaries and cashier’s abstracts.
O Trace total of daily cash sales in the cash sales book
O If paid by cheque, check pass book
CASH RECEIVED FROM DEBTORS
O Persons handling receipts should not take part in preparation and sending out of statements to debtors
O Receipts issued and entries in Cash Book should match
O Auditor can ask for the payment statement from debtors
O Bank statement can also be vouched
CAPITAL RECEIPTSO Sale of plant, machinery,
investmentsO Vouch sale proceeds with contracts
of sale, correspondence, other documents
O Proceeds less any expense incurred should be fairly accounted for
PROCEEDS OF BILLS RECEIVABLE
O Check cash received from bills discounted or matured with the Bills Receivable book
O If any bill is dishonoured, see that reverse entry is made
O Drawee to be charged with dishonour charges and original balance
INCOME FROM INTEREST AND DIVIDENDS
O Interest received from FD or RD in bank should be vouched with Bank Passbook
O Genuineness of Pass Book to be ascertained
O Dividends received checked from counterfoils of dividend warrants or letters covering cheques
O Interest received on securities vouched from securities or from the investment ledger
COMMISSIONO Vouched with the account of the
parties from whom commission is or is to be received.
O Agreements regarding rate of commission can be inspected
SALE OF SCRAPO Auditor to confirm that the life of the
assets is finished and it has become total scrap
O Use assets register and fixed assets schedule for vouching
MISCELLANEOUS RECEIPTS
O Rents,O Income from hire purchase agreements,O Bad debts recovered,O Insurance claim money,O Subscriptions,O ContributionsO Share capital, etc.Relevant evidence like leases, receipts, correspondence, agreements, etc.
VERIFICATION
MEANINGPhysically examining assets and liabilities to check –O ValueO OwnershipO TitleO ExistenceO Possession O Free from any charge
PLANT & MACHINERYO Obtain detailed list of all P&M and asset-wise accummulated
depreciationO Check Opening Balance with last year’s annual reportO For purchase of P&M, verify quotations, invoices, etc. Related
expenses should be duly capitalised.O For sale, verify relevant invoice. Check authorisation of sale
and value report. Proper accounting of profit or loss due to sale of P&M
O Verify resolution regarding purchase and sales of P&MO Self-constructed – verify amount of material, labour and other
expenses are capitalised. O Check rate and calculation of depreciation, as per Section 123
of Companies Act, 2013O Physical verification by obtaining register and personal visit to
workplaceO Check whether all disclosures made in balance sheet as per
Companies ActO P&M kept abroad – obtain certificate from a local auditor
O IMPORTED PLANT AND MACHINERYO Verify RBI’s permission and import licenseO Check entries in books of accountsO Examine Directors’ Minute Book for
resolution regd authorising the purchasesO Vouch the bills related to purchase, custom
duty payment, clearing and shipping charge, insurance premium, etc.
O If asset purchased on credit, check credit terms
FREEHOLD LAND & BUILDING
O Keep freehold separate from leaseholdO Balances shown in balance sheet should be easily
traceable from those ledgersO Title deed should be genuine, in name of the client
and has free and fair possession of the clientO Building is constructed – Builder’s certificate,
contractor’s certificate, architect’s certificate, local authority certficate should be verified
O In case of sale – verify documents of saleO Property under mortgage – obtain Certificate of
MortgageO Land is not to be depreciatedO Building to b depreciated at proper rateO Check physical existence of the asset
FURNITURE, FIXTURES AND FITTINGS
O Funriture – movable –chairs, tables, etc.O Fixtures - fixed to the groundO Fittings – fitted on the wallO Check if register properly maintainedO Balances of register properly posted to balance
sheetO Depreciation charged as per Companies Act, 2013O New purchase – verify quotations, orders, invoices,
authorisation, physical verification of assetO Sales – verify authorisation and entriesO Accounting treatment of profit or loss on saleO Assets on lease – verify lease agreement
MOTOR VEHICLESO Verify the chedule of vehiclesO Verify registration book of each vehicle. Check
insurance paid on vehicleO Valued at cost less depreciationO Rate of depreciationO Sale as scrap – verify auctioneer’s statement,
valuer’s report. Profit or loss on sale properly accounted
O Physical verification of each vehicle by inspecting registration numbers,
O In case R/C book is lying with lender, verify the certificate from lender
GOODWILLO Method of goodwill creationO Verify opening balance from last year’s
audited balance sheetO If there was no opening balance, verify
the value from the agreement of purchasers of business, minute books, etc.
O Physical verification not possibleO Not to be depreciated, if any amount
written off then find out the reason
INVESTMENTSO Obtain schedule of investments –
purchase date, book value, market price, rate and date of interest, tax deducted, etc.
O Dividends received – check counterfoils of dividend warrants
O Long term investment – valued at cost price, short term investment – cost price or market price, whichever is less
O Check investments in balance sheet
O Investment certificate not received – examine transfer deed, broker’s contract note
O Investment given to bank for safe custody – obtain certificate from bank
O Held by trust – verify trust deedO Investment in subsidiaries – Disclosure
requirements of Section 133 of Companies Act to be complied
O Investments should be in name of clientO Investments made should not be contrary to
provisions of Section 186 of Indian Companies Act, 2013
PATENTSO Check Certificate granting the patentO If patent is purchased, check assignment deed.
Deed should be registered in name of the clientO Verify voucher, pass book, agreement,
authorisation, etc.O Fees paid to purchase patents to be treated as
capital expenditure. Renewal fees are revenue expenditure.
O If several patents, obtain list of patents with date of acquisition, cost, etc.
O Depreciation as per Companies Act– show in Balance sheet as cost minus written off amount
TRADEMARKSO Right to own the brand and protect it
from imitationO Points similar to Patents
COPYRIGHTSO Rights to produce or reproduce any
creative workO Points similar to Patents
SUNDRY DEBTORSDebtors to be classified as per Companies Act, 2013 – Debtors outstanding more than 6 months Other Debtors –
•Debtors good and secured•Debtors good but only personal security•Bad or doubtful debts•Debts due by directors or other officers of the
Company•Debts due by firms or private companies in which
any director is a partner or director or member•Debts due from other companies under same
management
O Obtain Sundry Debtors list and compare with ledger accounts
O Verify opening balance from last year’s balance sheetO Verify Provision for Bad Debts, Provision for Discount
to Debtors, are properly madeO Verify vouchers, minutes book to verify bad debts
written off are correct or notO Credit balance in debtor’s account not to be deducted
from debit balance. Show credit balance as liability.O Verify any dispute regarding balance from debtorsO Send letters to debtors to confirm their balance
outstanding. Replies should be sent to auditor’s office directly.
O Check if any unrecorded debtors – check cut-off date for transactions for deciding whether debtor is of current year or next year
STOCK IN TRADEO Consists of stores and spares, raw materials,
WIP and finished goodsO IF stock is overvalued, profit is inflated; if
undervalued it creates secret reservesO Check gatekeeper’s outward register to find
out any fictitious sale entered in Sales BookO Verify balance of Stock Register with the
Stock sheetsO Verify same principle of valuation of stock is
followed every year (eg. LIFO, FIFO, etc.)O Verify obsolete, slow-moving, non-moving and
damaged items and their treatment in accounts
CASH IN HANDO Count the cash on date of Balance Sheet in front of
cashierO Cashier should deposit all cash, except petty cash, into
bank accountO In case of temporary advances, verify the delaysO If physical cash does not tally with Balance sheet
amount, CA to issue qualified reportO If cash could not be counted on last day of the year, CA
may count on another day .Check cash book entries from last day of accounting year till cash counting date.
O Get certificates from branch auditors regd. Cash balance in hand and their correctness
O Ensure quantum of mutilated notes/coins is not very large and that they are exchanged at the earliest.
CASH AT BANKO Compare Cash Book and Pass BookO Prepare Bank Reconciliation
StatementO Obtain letter of confirmation from
bankO Verify that ‘charges not yet collected’
are genuine and not made up in order to conceal the deficiency
CREDITORSO Check accounts of creditors and
compare with the Purchase LedgerO Compare the accounts with the
invoices, receipts, credit notes and statements
O Check entries in Goods Inward Book and compare with Purchase Ledger
LOANS TAKENO Verify Memorandum of Association and
Articles of Association to verify borrowing power of the company
O Check Resolution of directors for obtaining loan
O Verify if loan is secured or unsecuredO Verify assets mortgaged against loanO Obtain confirmation from lending
institution regd. Amount of loan, security, interest, etc.
O Verify interest and principal paid and payable
The above slides are for reference only. For full content, please refer text book.
Students have to read up on all the incomes, expenses, assets and liabilities given in text book. Only some heads have been covered in this ppt.