3. 09/27/15 3
Vouching
“Examination of all documentary evidence in
support of a transaction and includes
identification of any document that should be
available to the auditor to carry out that
examination”
4. 09/27/15 4
Objects of vouching
●Authenticity of transaction.
●To check transaction are genuinely connected with
the business.
●To ascertain that transaction are supported by
documentary evidence.
●To check vouchers pertain to the financial year under
audit.
●Approval by competent authority.
●Proper identification of expenditure as capital or
revenue.
●To verify arithmetical accuracy
5.
6. 09/27/15 6
Common points in vouching
●
●
●
●
●
●
●
Serial number of vouchers and they are
properly
file
d
Date of voucher
Addressed to the client and relate to business of
client
Amount shown in figure should match with words
Signature of official authorizing officer
Revenue stamp if amount is rupees 5000 and
above
Vouchers originating from outside the business are
genuine
7. Common points in vouching
09/27/15 9
● Vouchers inspected should be cancelled or
stamped
● Proper allocation between capital and
revenue expenditure
● Clarification regarding missing voucher
● Should not seek help of the clients staff
● Pre-receipt vouchers should not be accepted
● Over writing or cancellation on a voucher
should not be accepted.
● Alteration of any kind should be supported
by the signatu
sar
nja
e
ydes
o
sai@
fgm
ta
h
il.ce
om authority
8. 09/27/15 8
Vouching procedure
• Check General consideration
• Check Internal control
• Check Cash book
• Check Bank statements
• Check Documentary evidence
• Check Authority
• Check Acknowledgements
• Check type of expenditure( Capital / revenue )
• Routine checking
9. Vouching procedure for
salaries and wages
Examining the internal control procedure
Before proceeding to verify payment made on account of
salaries and wages the auditor should examine the internal
control procedure as regard the following
Appointment, promotion and transfer of employees.
Records of attendance.
Arrangement for the preparation bill and there analysis.
Sanctioning and disbursement of wages and salaries.
Custody of the wages record.
09/27/15 9
10. Vouching procedure for
salaries and wages
Examine the payment shown in the cash book.
Check the bill details.
By reference to the record of attendance, schedule of
rates and sanction of management.
Check computation of wages and salaries. With regard to
Absence
Leave
Increments
Fines and penalties
Loans and advances
Deduction on account of provident fund, insurance, tax etc
Check for Receipts of payments
Check for arithmetical accuracy of pay
roll Compare signature sample of
employee Check for dummy employees
09/27/15 10
11. sanjaydessai@gmail.com
Vouching and varificaton
09/27/15 11
Verification of Assets and liabilities
• Meaning of verification
• Definition of verification
• Object
• Auditors duty in verification
• Points to be considered in verification
12. 09/27/15 12
VERIFICATION OF ASSETS AND
LIABILITIES
Verification of assets
Definition
Spicer and pegler “ The verification of assets
implies an inquiry in to the value, ownership
and title, existence and possession, and the
presence of any charge on the asset”
13. 09/27/15 13
Verification of Assets
Verification is an important audit process of inspection and
collection of information and examination of
documentary evidence to confirm that
1. Assets were in existence on the balance sheet date.
2. Assets have been acquired for the purpose of the business
and under a proper authority.
3. Right of ownership of the asset vested in or belonged to the
undertaking.
4. Assets are free from any lien or charge not disclosed in the
balance sheet.
5. Assets have been correctly valued having regard to their
physical condition.
6. And assets values are correctly disclosed in the balance
sheet.
14. 09/27/15 14
Auditors duty
• Verification of asset is primarily the
reasonability of management.
• Auditor’s duty is limited only to an appraisal
of the evidence, their inspection and reporting
on matters affecting there valuation,
existence and title, observed in the course of
such an examination.
15. 09/27/15 15
Valuation of fixed assets
Following points should be considered
while valuation of fixed assets
1. Cost less depreciation
2. Cost include all expenditure necessary to
bring asset in to existence and put them in
working condition
3. Fluctuation in market values are ignored
16. 09/27/15 16
Verification of plant and machinery
While verifying the plant and machinery auditor should
follow the following procedure.
1. Check plant and machinery register
Auditor has to verify the plant and machinery register to
see the following
➢
➢
➢
➢
➢
Name of the machinery
Make of Machinery
Date of purchase
Cost of machinery
Location of machinery
17. 09/27/15 17
Verification of plant and machinery
2. Depreciation
Verify that adequate depreciation at appropriate rate is
charged on all types of plant and machinery
3.Capitalistion of expenses
Satisfy that only capital expenditure is shown under
asset and expenses on repairs and maintenance are
not capitalized.
4.Valuation and disclosure
See that plant and machinery is properly valued and
disclosed in the balance sheet. And the movement of
plant and machinery due to purchase and sale is
properly reflected.
18. 09/27/15 18
Verification of plant and machinery
5.Physical verification
Carry out a physical inspection of the plant and
machinery on test basis to see that they really exist
and are in good working condition.
6.Consistency in method of depreciation
7.Check for lien or charge not disclosed in the balance
sheet.
8.Board resolutions verify board resolutions related to
sale and purchase of a plant and machinery.
19. 09/27/15 19
Verification of preliminary expenses
•
•
Introduction
Preliminary expenses are all expenses relating to the formation of an
enterprise such as
Registration fees
Cost of printing document like memorandum of association and
Article of association
•
•
•
The audit procedure for verification of preliminary expenses is given below
•
•
1.Documantery evidence
Verify the amount of preliminary expenses shown in the balance sheet
with reference to documents such us agreement, bills, receipts etc.
2.Compare the amount with that disclosed in statutory report
•
20. 09/27/15 20
•
•
3. Disclosure requirement
Examine whether as per disclosure requirement
expenses on issue of share and debentures are being
shown separately and are not included in preliminary
expenses.
4.Check for reimbursement of
preliminary expenses incurred by
promoters
5. Check for amortization of expenses
Preliminary expenses are to be amortized over
period of ten years on a straight-line basis as per
income tax act 1961
•
•
•
21. 09/27/15 21
Verification of sundry creditors
• Obtain the schedule of creditors and examine it with
reference to individual creditors account to verify
– Discount earned
– Rebates
– Returns
–Outstanding beyond normal credit period
Inspect document underlying purchases to verify
– Invoices
– Goods received note
•
22. 09/27/15 22
Sundry creditors
• Vouch payments to creditors with reference to
–
–
–
Cash book/pass book
Vouchers
Cheque book
• Verify the cut-of procedure adopted by business at the year end
To see unrecorded liability if any
Confirmation from Creditors
Auditor may communicate directly with creditor so as to confirm the
amount on balance sheet date.
Check for bills payable accepted during the year
7. Examine valuation and disclosure
•
•
•
Ensure that creditors have been disclosed properly in financial
statements as per recognized accounting principal.
23. 09/27/15 23
Audit of contingent
liabilities
•
•
Introduction
Contingent liabilities refers to obligation relating to
past consequences or other events or conditions,
that may arise in consequences of one or more
further events which are presently deemed possible
but not probable.
Examples of contingent liability
Guarantees of third party obligation
Discounted bills receivable
Pending or threatened litigation against the entity
•
•
•
•
24. 09/27/15 24
•
•
Audit procedure
The primary objective in case of contingent liability is to verify the
existence.
1. Representation from management
Obtain a letter of representation from client containing a statement that
management is aware of no undisclosed contingent liability.
2. Review minutes of board meeting
Review the minutes of meetings of board of directors and their
committees to discover contingency commitments if any.
3.Review contracts, loan agreement for evidence of
liabilities 4. Review list of pending legal cases and
documentation
This analysis is directed towards the discovery of possible lawsuits and tax
assessment associate with legal fees paid by client.
•
•
•
•
•
•
•
25. 09/27/15 25
• Review terms and conditions of grants and
subsidies under various schemes
To see contingent liability due to non-compliance
with scheme
Check records relating to bills receivable
discounted
Ensure that contingent liabilities do not include
items such as
product warranties, service contracts, etc.
•
•
•
•
26. VALUATION AND
VERIFICATION OF
INVENTORIES (STOCK)
What is inventory
1. Goods purchased for resale
2. Finished goods for sale
3. Raw materials
4. Work in progress
5. Spare parts and consumable stores
6. Packing materials and returnable containers
27. 09/27/15 27
Why Inventory
Valuation
• To know true and fair financial position
• Overvaluation or under valuation of inventory
will have direct impact on profit/loss
28. 09/27/15 28
Methods of inventory valuation
•
•
•
•
•
First in first out
Last in first out
Weighted average method
Base stock method
Latest purchase price
29. 09/27/15 29
Valuation on Inventories
• As per Accounting Standard 2 inventories are
to be valued at cost or market price whichever
is less
• As per AS2 inventories are to be valued at first
in first out method or weighted average
method
30. 09/27/15 30
Valuation and verification of inventory
• The responsibility for properly determining the quantity
and value of inventory rests with the management of the
entity.
It is the responsibility of management to ensure that
inventory included in financial statement is physically
existent and represent all inventories owned by the entity.
•
31. 09/27/15 31
Value of inventory
•
•
•
•
Raw material = purchase price + carriage inward
Work in progress = prime cost + factory overheads
Finished goods = works cost + administrative overheads
Overheads= indirect material + indirect Labour + Indirect
expensed
Prime cost = direct material + direct labour + direct
expenses
•
32. 09/27/15 32
Auditors Duty
Auditor is particularly concerned with
• Existence - that all recorded inventories exist
as at the year end
• Ownership- all inventories owned are recorded
and all recorded inventories are owned
• Valuation- basis of valuation is appropriate
and properly applied and the condition of
inventoried is recognized in their valuation
33. 09/27/15 33
Auditors Duty
Following procedure should be followed for
Verification of inventories
• Internal control evaluation
• Examination of records
• Attendance at stocktaking
• Obtaining confirmation from third parties
• Examination of valuation and disclosure
• Analytical review procedure
34. 09/27/15 34
Examination of Records
Books of accounts
1. Store/stock register
2. Purchase book
3. Sales book
4. Purchase return and sales return book.
Documents
1. Purchase order
2. Vendor’s invoices
3. Goods received note
4. Inspection report,
5. Material Issue note
6. Bin card etc.
