Audit

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Audit

  1. 1. Audit<br />
  2. 2. Audit<br />Definition = evaluation of a person, organization, system, process, enterprise, project or product. <br />The term commonly refers to audits in accounting - similar concepts exist in project management, quality management, and energy conservation.<br />
  3. 3. Auditing Is Based On<br />Verification <br />Vouching<br />
  4. 4. Verification<br />Inspection, Observation, Enquiry, Computation, Analysis<br />Final audit stage - verification of the assets and liabilities appearing in the balance sheet. <br />Well established techniques for verifying specific assets and liabilities. <br />
  5. 5.  <br />Verification<br />Quality control process<br />Evaluate product, service, or system complies with regulations, imposed at the start of a development phase.<br />Development, scale-up, or production<br />Internal process.<br />
  6. 6. Verification of Assets<br />Auditor dutyverify assets appearing in balance sheet verify no other assets which ought to appear on the balance sheet. <br />Following aspects of assets must be verified:<br /><ul><li>Cost 
  7. 7. Authorization 
  8. 8. Value 
  9. 9. Existence 
  10. 10. Beneficial Ownership 
  11. 11. Presentation in the accounts</li></li></ul><li>General principles regarding verification<br /><ul><li>Confirm that the assets were in existence on the date of the balance sheet.
  12. 12. Ascertain that the assets had been acquired for the purpose of the business and under proper authority
  13. 13. Confirm owner ship of the asset
  14. 14. Ascertain that no charge has been created on the asset
  15. 15. Ensure that the current book value of the asset is determined after providing correct amount of depreciation for various years
  16. 16. Ensure that values reflect current physical condition of the asset
  17. 17. Ensure that disclosures regarding assets are adequate.</li></li></ul><li>Procedures - Verification of Assets<br />Verify the records (accounting books)<br />Physical verification of fixed assets<br />Capital assets built inside (self-constructed fixed assets) and capital work-in-progress should be verified<br />For fixed assets fully depreciated during the year of acquisition,  the auditor has to examine whether they were recorded in the fixed assets register.<br />In the case fixed assets registered, the auditor should examine <br /> (i) the authorization procedure <br /> (ii) sales process (calling for quotations etc.) <br /> (iii) adjustments to the account of the asset <br /> (iv) accounting for the proceeds of the sale <br /> (v) adjustment for the gain or loss on the sale<br />
  18. 18. Procedures - Verification of Assets<br />Ownership of assets such as land and buildings should be verified by examining the title deeds. <br />Physical verification is the responsibility of the management <br />Ensure that it is carried out at appropriate intervals in order to ensure assets are in existence. <br />Examine the instructions given by the management for physical verification and working papers of physical verification. <br />The opening balance is to be verified from schedule of fixed assets<br /> Assets acquired during the year or improvements done during the year <br />
  19. 19. Verification of Liabilities<br />A balance sheet contain liabilities grouped under various headings<br /><ul><li>The headings may include: Non Current Liabilities 􀂃 Debenture 􀂃 Bank loans </li></ul>Current Liabilities 􀂃 Trade creditors 􀂃 Accrued expenses 􀂃 Unearned incomes 􀂃 Taxation payable 􀂃 Provision for losses <br />
  20. 20. Procedures - Verification of Liabilities<br />Verify existence of liabilities shown in the balance sheet <br />Verify the correctness of the money amount of such liabilities <br />Verify the appropriateness of the description given in the accounts and the adequacy of disclosure<br />Verify that all existing liabilities are actually included in the accounts <br />
  21. 21. Objects of Verification<br /><ul><li>Certify the Ownership 
  22. 22. Position of Assets 
  23. 23. Existence of Assets 
  24. 24. Detect Fraud 
  25. 25. Verify Possession 
  26. 26. True and Fair View 
  27. 27. Depreciation Plans 
  28. 28. Valuation of Assets 
  29. 29. Valuation of Liabilities 
  30. 30. Evaluation Methods 
  31. 31. Recording Methods 
  32. 32. Internal Control 
  33. 33. Arithmetic Accuracy 
  34. 34. Treatment of Items 
  35. 35. Current Period</li></li></ul><li>Advantages of Verification<br /><ul><li>Use of Assets
  36. 36. True and Fair View
  37. 37. Protection of Lenders 
  38. 38. Risk for Creditors 
  39. 39. Location of Assets 
  40. 40. Performance of Management 
  41. 41. Loan Arranged 
  42. 42. Manipulation of Accounts 
  43. 43. Embezzlement 
  44. 44. Recording of Assets 
  45. 45. Valuation of Assets 
  46. 46. Stability of Business 
  47. 47. Liabilities Valuation 
  48. 48. Proper Disclosure 
  49. 49. Business Resources</li></li></ul><li>Vouching<br />A careful examination of all original evidence such as invoice receipt of correspondence minutes, contracts etc.<br />Useful in proving the accuracy of the entries in the books of accounts. <br />Also indicates about that transaction, which is omitted from the books of account.<br />Also called the essence of auditing.<br />Not possible without vouching. <br />
  50. 50. Principles of Vouching<br /><ul><li>Arranged Voucher
  51. 51. Checking of Date
  52. 52. Checking of Authority
  53. 53. Cutting or Change
  54. 54. Compare the Words and Figures
  55. 55. Transaction Must Relate to Business
  56. 56. Case of Personal Vouchers
  57. 57. Checking of Account Head
  58. 58. Revenue Stamps
  59. 59. Case of Cancelled Voucher
  60. 60. Important Notes
  61. 61. Minutes Book
  62. 62. By Laws
  63. 63. Agreements
  64. 64. Deed of Mortgage</li></li></ul><li>Procedures of Vouching<br /><ul><li>Reading Out
  65. 65. Comparison
  66. 66. Ticking
  67. 67. Stamping
  68. 68. Signatures
  69. 69. Query
  70. 70. Management
  71. 71. Reply
  72. 72. Clearance
  73. 73. No Satisfactory
  74. 74. Objections</li></li></ul><li>Techniques of Vouching<br /><ul><li>Correct Accounts
  75. 75. Agreements
  76. 76. By-Laws
  77. 77. Mortgage Deeds
  78. 78. Minutes Book</li></li></ul><li>Objectives of Vouching<br /><ul><li>Proper Evidence
  79. 79. Proper Authority
  80. 80. Right Period
  81. 81. Correct Amount
  82. 82. Capitals and Revenue Analysis
  83. 83. Purchase for Business
  84. 84. Arithmetical Accuracy
  85. 85. Postings
  86. 86. No Error
  87. 87. No Fraud
  88. 88. Castings
  89. 89. Cast at Bank
  90. 90. Cash Balance
  91. 91. Reporting</li></li></ul><li>Asset & Liabilities accounts to Verify<br />
  92. 92.
  93. 93. Difference<br />Verification<br />Establish truth<br />End of the year<br />Based on personal & documentary evidence<br />Includes Valuation<br />Certifies correctness<br />Done by AUDITOR<br />Vouching<br />Examines the entries<br />During whole year<br />Based on only documentary evidence only<br />Not Concerned with Valuation<br />Certifies correction of records<br />Done by ACCOUNTING DEPARTMENT<br />
  94. 94. CREDITS<br />Murtaza Abbas Bhanpurawala = 02<br />Dilip Kumar = 07<br />Kshitij Vinayak Gokhale = 09<br />NaveenSadanandPandey = 24<br />TayyebKamruddinPenwala = 28<br />RaschmitpookieKohli = 37<br />
  95. 95. Thank You<br />Prof. Iyangar<br />

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