Audit

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CHAPTER – 1
INTRODUCTION OF AUDIT
1.1 Introduction
The word audit is derived from the Latin word audire which means to hear. It is an
important tool of management. It is concerned with making an analytical and critical
analysis of the books of accounts, checking and verification of evidence in support
of entries appearing in the books of accounts, and ascertaining the authenticity of the
financial statements. It is also concerned with the examination of accounting data to
determine the extent of an audit examination is too made on the basis of evidential
document such as invoice, money receipts and other records by the authorized
representative of the client. Auditor has used to send for the accountants and
hear whatever they had to say in connection with the accounts. The auditor has to look
into the facts behind figures and he must certify their accuracy. Auditing is to ascertain
the balance sheet and profit and loss account that they show a true and fair view of the
financial state of affairs of a concern. The Institute of Charted Accountants of India has
issued a number of statements of standard auditing practices and accounting standards for
guidance of Auditor of India.
According to DICKSEE, An audit may be said to be such an examination of the books,
accounts and vouchers of a business, as will enable the auditor to satisfy himself that the
balance sheet is properly drawn up, so as to exhibit a true and fair value of the state of the
affairs of the business, whether the profit and loss account gives a true and fair value of
the profit and loss for the financial year. According to the best of his information and
explanations given to him and as shown by the books, and if not, in what respect heist not
satisfy.
Auditing has its origin in the necessity in the development of some system tout a check
on the persons whose duties were to record receipts and disbursements of money on the
behalf of owners. In the ancient days auditing was confined to public accounts only. With
the development of trade and commerce, the need for recording transactions was felt by

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businessman. This had necessitated the development of some system of check upon the
persons who recorded such transactions on the behalf of businessman.
The Audit in its present shape of the result of large- 18th century. With the development
of banking facilities communication and transport means, the concept of corporate
management has taken birth. It is necessitated the investor to know whether
to know whether their investment is safe or not. Shareholders need an independent person
having expert knowledge of accounts to report on the working of the company
and truthfulness of the profit or loss and financial position disclosed by the management.
Both accounting and auditing are closely related with each other as auditing reviews the
financial statements which are nothing but a result of the overall accounting process. It
naturally calls on the part of the auditor to have a thorough and sound knowledge
of GAAP before he can review the financial statements. In fact, auditing as a discipline is
also closely related with various other disciplines as there is lot of linkages in the work
which is done by an auditor in his day-to-day activities. To begin with, it may be noted
that the discipline of auditing itself is a logical construct and everything done in auditing
must be bound by the rules of logic. The knowledge of language is also considered
essential in the field of auditing as the auditor shall be required to communicate, both in
writing as well as orally, in day-to-day work .For example if the business has really
earned a profit but because of wrong accounting, the annual accounts show a loss, the
proprietor may take the decision to sell the business ate loss.
Thus from the point of view of the management itself, authenticity of financial statements
is essential. It is more essential for those who have invested their money in the business
but cannot take part in its management, for example shareholders in accompany, such
persons certainly need an assurance that the annual statements of accounts sent to them
are fully reliable. It is auditing which ensures that the accounting
statements are authentic. In today’s economic environment, information andaccountabilit
y have assumed a larger role than ever before. As a result, the independent audit of an
entity’s financial statements is a vital service to investors, creditors, and other participants
in economic exchange.

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1.2 Aspect to be covered in Auditing
The principal aspects to be covered in an audit concerning final statements of accounts
are as follows:-
1. An examination of the system of accounting and integral controls to ascertain
whether it is appropriate for the business and helps in properly recording all
transactions.
2. Reviewing the systems and procedures to find out whether they are adequate and
comprehensive.
3. Check the arithmetical accuracy of books of accounts by the verification of
postings, balances etc.
4. Examine the documentary evidence to establish the accuracy, authenticity and
validity of transactions recorded.
5. Verifying that a proper distinction is made between capital and revenue items.
6. Verification of the title, existence and valuation of assets appearing in the balance
sheet.
7. Examination that the statutory requirements are complied with.
8. Verifications of the liabilities stated in the balance sheet.
9. Comparison of balance sheet and profit and loss account and other statements
with underlying records in order to see that they are in accordance there with.
10. Checking the results shown by the balance sheet and profit and loss account to
see whether the results shown are true and fair.
11. Reporting to the proper person as to what extent, accounts reveal a true and fair
view of the state of affairs and of the profit and loss account of the organization.
1.3 Function of Auditing
Important functions of auditing can be summed up as follows:
1. Reviewing systems and procedures of business.
2. Examining documentary evidence to establish the accuracy of recorded
transactions.

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3. Reviewing the system of accounting and Internal Controls.
4. To verify the valuation and existence of assets.
5. To examine the mathematical accuracy of accounting statements.
6. To see whether the statutory requirements have been complied with.
7. Reporting as to what extent, accounts exhibit true and fairness.
8. To make recommendations for improvement in Internal Control and Accounting
System.
9. To verify the distinction between capital and revenue items.
1.4 Objectives of Auditing
A. Verification of Account of Financial Statement :-
The main objective of an audit is to verify and establish that at a given date balance sheet
presents true and fair view of financial position of the business and the profit and loss
account gives the true and fair value of the profit or loss for the accounting period
The auditor must:-
Verify the accuracy of posting, balancing etc
Confirm the validity of transactions with supporting documents
Confirm existence of assets and liabilities
Assess the system of internal control
Ascertain whether distinction has been made between capital and revenue items.

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B. Fraud:-
Fraud is the word used to mean intentional error. This is done deliberately which implies
that there is intent to deceive, to mislead. These are more serious than intentional errors.
A great variety of intentional errors may be found. Intentional errors are the most difficult
to detect and auditors generally devote greater attention to this type.
Auditors while studying the possibility and nature of fraud must keep this always in mind
and should not take any exception for those who held high offices. These things generally
start in a non-consequential way after a subordinate staff member first borrow small
amounts from the cash box to meet his temporary difficulty and gradually it becomes his
habit to borrow in such a manner. Fraud also takes place in forms other than cash
defalcations
Frauds may be divided into the following categories:-Misappropriation of goods
in these types the businessman appropriates the goods to wrong accounts for committing
frauds and escaping from tax liabilities. Misappropriation of goods can be detected by
thorough checking of records and physical verification of stock as well as purchase and
sale.
Misappropriation of cash this system can be done by theft of cash receipts, petty cash
cheques, creditors, purchases etc. The transaction relating to the receipt of cash are
omitted from the records or recorded with lesser amount in the cash book.
Some of the examples are as follows:-
 Cash sale may not be recorded at all omitting credit not received from supplier
and discount allowed to them.

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1.5 Principles governing an Audit Principle of Independence
The audit work should be independent from accountancy and the auditor shouldexamine
the books of accounts indifferently and independently. He should be free from any such
interests who may affect his integrity and objectivity.
Principle of Objectivity
The audit work should be based on evidence and should be done impartially and in an
unbiased way.
Principle of Materiality
The principle of materiality is and has always been fundamental to the whole process
of counting. An auditor has also to be quiet concerned regarding the concept of
materiality. The auditor has to analyze and take decisions regarding various items
whether they are material or not during the course of audit. In case the auditor finds that
an item is quiet material in nature he would have to give careful consideration to its
checking and would care for more evidence in support.
Confidentiality
The auditor should maintain the confidentiality of the client’s information. It is well said
that an auditor keeps his ears and eyes open, but his mouth shut. He should disclose the
information only when:-He has obtained permission of his client. There is legal or
professional duty to do so.
Work performed by others
The auditor can delegate work to assistants or can use work performed by others, auditors
or experts. But he will continue to be responsible for expressing an opinion
of financial statements. The auditor should obtain reasonable assurance that workperform
ed by other auditors or experts are adequate for his purpose. ICAI has issued AAS-7,
AAS-9, AAS-10, AAS-12 andAAS-17 in regard to this issue.

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Documentation
Documentation is an important aspect of any audit. An auditor should maintain sufficient
working papers for each audit assignment. Such documentation is very important in
providing evidence that the audit was carried out in accordance with the basic principles.
Planning
The Auditor should plan his work to enable him to conduct an effective audit in
inefficient and timely manner. Plans should be based on knowledge of business client.
Plans should be revised as necessary during the course of audit. AAS-8 issued by ICAI
deals with aspects of planning.
Audit Evidence
The information which may be oral or written, obtained for the purpose of the audit is
known as audit evidence. Auditor should obtain sufficient and appropriate evidence to
enable him to draw conclusions so as to make an opinion on financial statements. Audit
evidence can be obtained with the help of following:-Compliance Procedures Substantial
Procedures Tests of Details Analytical Procedures
Accounting System and Internal Control
Management is responsible for maintaining an auditable adequate accounting system
incorporating various internal controls to the extent appropriate to the size and nature
of the business. The internal controls contribute to audit assurance that the accounting
system is adequate and that all the accounting information has been duly recorded. AAS-
6 has established standards for obtaining an understanding of accounting and internal
control system.
Audit Conclusion and Reporting
Auditor should review and assess the conclusions drawn from the audit evidenceobtaine.
He should assess whether the financial information complies with recognized accounting

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principles. He should also assess the disclosure requirements. The audit report should
contain a clear and written expression of opinion on financial information. AAS-28
describes the elements and types of audit report
1.6 Advantages and Limitations of Auditing:-
A) Advantages:-
The fact that audit is compulsory by law, in certain cases by itself should show that there
must be some positive utility in it. The chief utility of audit lies in reliable financial
statements on the basis of which the state of affairs may be easy to understand. Apart
from this obvious utility, there are other advantages of audit. Some or all of these are
of considerable value even to those enterprises and organizations where audit is notcomp
ulsory, these
Are given below:-
(a) It safeguards the financial interest of persons who are not associated with the
management of the entity, whether they are partners or shareholders.
(b) It acts as a moral check on the employees from committing defalcations or embezzle
ment.
(c) Audited statements of account are helpful in settling liability for taxes, negotiating
loans and for determining the purchase consideration for a business.
(d) These are also useful for settling trade disputes for higher wages or bonus as well
acclaims in respect of damage suffered by property, by fire or some other calamity.
(e) An audit can also help in the detection of wastages and losses to show the different
ways by which these might be checked, especially those that occur due to the absence
of inadequacy of internal checks or internal control measures.
(f) Audit ascertains whether the necessary books of account and allied records have been
properly kept and helps the client in making good deficiencies or inadequacies in this
respect

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(g) As an appraisal function, audit reviews the existence and operations of various
controls in the organizations and reports weaknesses, inadequacies, etc., in them.
B) Limitations of Audit
At this stage, it must be clear that the objective of an audit of financial statements into
enable an auditor to express an opinion on such financial statements. In fact, it is the
auditor’s opinion which helps determination of the true and fair view of the
financial position and operating results of an enterprise. It is very significant to note that
the AAS-2 makes it a subtle point that such an opinion expressed by the auditor is neither
an assurance as to the future viability of the enterprise nor the efficiency or effectiveness
with which management has conducted affairs of the enterprise. Further, the process of
auditing is such that it suffers
fromcertaininherentlimitations,thelimitation which cannot be overcome irrespective of th
e nature and extent of audit procedures. It is very important to understand these inherent
limitations of an audit since understanding of the same would only provide clarity as to
the overall objectives of an audit. The inherent limitations are:-
(I) First of all, auditors work involves exercise of judgment, for example, in deciding the
extent of audit procedures and in assessing the reasonableness of the judgment and
estimates made by the management in preparing the financial statements. Further
muchof the evidence available to the auditor can enable him to draw only reasonableconc
lusions there from. The audit evidence obtained by an auditor is generallypersuasive in
nature rather than conclusive in nature. Because of these factors, the auditor can only
express an opinion. Therefore, absolute certainty in auditing is rarely attainable. There is
also likelihood that some material misstatements of the financial information resulting
from fraud or error, if either exists, may not be detected

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CHAPTER – 2
STATUTORY AUDIT
2.1 Meaning Statutory Audit
A statutory audit is a legally required review of the accuracy of a company's or
government's financial records. The purpose of a statutory audit is the same as the
purpose of any other type of audit: to determine whether an organization is providing a
fair and accurate representation of its financial position by examining information such as
bank balances, bookkeeping records and financial transactions.
The term statutory is used to denote the audit is required by statute. A statute is a law or
regulation enacted by the legislative branch of the organization’s associated government.
Statutes can be enacted at multiple levels, including federal, state or other municipality.
In business, statute can also refer to any rule set forth by the organization’s leadership
team.
An audit is an examination of records held by an organization, business, government
entity or individual. Generally, this involves the analysis of various financial records but
can also be applied to other areas. During a financial audit, an organization’s records
regarding income or profit, investment returns, expenses and other items may all be
included as part of the audit process.
The purpose of a financial audit is often to determine if funds were handled properly and
that all required records and filings are accurate. At the beginning of an audit, the
auditing entity makes known what records will be required as part of the examination.
The information is gathered and supplied as requested, allowing the auditing entity to
perform its analysis. If inaccuracies are found, appropriate consequences may be levied.

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Important Thinks to be remember
1. Statutory audit is covered under section 224.
2. Statutory auditor is appointed by shareholders.
3. Statutory audit is compulsory for every company under section 224.
4. Statutory auditor submit his report to the shareholders.
By the meaning of word the statutory audit in India is the audit which is prescribed by
statute. There is many audit in India which is prescribed by the different statute like
Income Tax Act require audit as per him similarly VAT Act require audit as per him so a
CA need to conduct many audit as per different statute requirement. But known and
popular terms used as a statutory audit is not an audit as required under Income Tax Act
or VAT Act. It is similar different thing and it is required under the law of incorporating
act like if company then audit required under Companies Act and if other body then body
incorporated under that act. In India mainly statutory audit means audit under Companies
Act in which auditor reports to the member of the company i.e. shareholders.
2.2 Advantages of Statutory Audit
An statutory audit offers the following benefits:
 It enhances the trustworthiness of published financial statements.
 It ensures the management that they have performed their statutory duties
appropriately.
 It gives assurance to management that they have complied with non-statutory
requirements, such as corporate governance requirements .
 It gives view on the efficacy of internal controls. Where internal

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controls are weak or inadequate, the auditor will provide recommendations for
improvement. This will help management in reducing risk and improving the
performance of the company. Even where a statutory audit is not required, for example
due to small company statutory exemption limits, an audit will boost the trustworthiness
of published financial statements. This may be important for potential investors to the
company. Potential investors, such as banks, may insist on the company having an audit
as a precondition for lending money.
2.3 Limitations of Statutory Audits
The main limitations of an audit are as follows:
(1) The expenditure of an audit can be very high. However, if the audit firm is already
hired to carry out non-audit work such as accounts preparation oradvisory work, the
additional cost of an audit may be fairly small.
(2) The disruption caused to a company’s staff during the audit. The company’s staff may
be required to support the auditors by answering questions, providing documents and
other information, and so on.
2.4 Objective of Statutory Audit:

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How we do? Statutory Audit Execution General Process Our firm is well equipped and
well experienced in Statutory Audit and we perform it as per the Audit Program designed
for the company after assessment of their Internal Control.
2.5 Types of Statutory Audit
For any foreign executive operating in India it is beneficial to have a basic understanding
of audit procedures in India. We have previously introduced audit in India for non-
auditors. In this article, we will provide an overview of the different types of audit and
audit reporting in India.
Audits are generally classified into two types:
 Statutory Audits
 Internal Audits
Statutory audits are conducted in order to report the state of a company’s finances and
accounts to the Indian government. Such audits are performed by qualified auditors who
are working as external and independent parties. The audit report of a statutory audit is
made in the form prescribed by the government agency.
Internal audits are conducted at the bequest of internal management in order to check the
health of a company’s finances, and analyze operational efficiency of the organization.
Internal audits may be performed by an independent party or by the company’s own
internal staff.
In India, every company whose shares are registered on the stock exchange must have an
internal auditing system in place. For a company whose shares are not listed on the stock
exchange, but whose average turnover during the previous three years exceeds INR5
crore, or whose share capital and reserves at the beginning of the financial year exceeds
INR50 lakh, must have an internal auditing system in place. The statutory auditor of the
company must report on the internal auditing system of the company in the audit report.

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Types of Statutory Audits in India
In India, statutory audits are conducted for each fiscal year (April 1 to March 31) and not
the calendar year. The two most common types of statutory audits in India are:
 Tax Audits
 Company Audits
A) Tax Audits
Tax audits are required under Section 44AB of India’s Income Tax Act 1961. This
section mandates that every person whose business turnover exceeds INR1 crore and
every person working in a profession with gross receipts exceeding INR25 lakh must
have their accounts audited by an independent chartered accountant.
It should be noted that the provision of tax audits are applicable to everyone, be it an
individual, a partnership firm, a company or any other entity. The tax audit report is to be
obtained by September 30 after the end of the previous fiscal year. Non-compliance with
the tax audit provisions may attract a penalty of 0.5 percent of turnover or INR1 lakh,
whichever is lower.
There are no specific rules regarding the appointment or removal of a tax auditor.
B) Company Audits
The provisions for a company audit are contained in the Companies Act 1956. Every
company, irrespective of its nature of business or turnover, must have its annual accounts
audited each financial year. For this purpose, the company and its directors have to first
appoint an auditor at the outset. Thereafter, at each annual general meeting (AGM), an
auditor is appointed by the shareholders of the company who will hold the position from
one AGM to the conclusion of the next AGM.

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The new Companies Bill 2012 provides that an auditor shall be appointed for a term of
five consecutive AGMs. Individuals and partnership firms, auditors cannot be appointed
for more than one or two terms, respectively. After the completion of the term, the
auditor must be changed.
Only an independent chartered accountant or a partnership firm of chartered accountants
can be appointed as the auditor of a company. The following persons are specifically
disqualified from becoming an auditor per the Companies Act:
 A body corporate;
 An officer or employee of the company;
 A person who is partner with an employee of the company or employee of an
employee of the company;
 Any person who is indebted to a company for a sum exceeding INR1,000 or who
have guaranteed to the company on behalf of another person a sum exceeding
INR1,000; or
 A person who has held any securities in the company after one year from the date of
commencement of the Companies (Amendment) Act, 2000.
The auditor is required to prepare the audit report in accordance with the Company
Auditor’s Report Order (CARO) 2003. CARO requires an auditor to report on various
aspects of the company, such as fixed assets, inventories, internal audit standards, internal
controls, statutory dues, among others.
The audit report must be obtained before holding the AGM, which itself should be held
within six months from the end of the financial year.

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2.6 Statutory Compliances of Statutory Audit
A) Under Companies Act, 1956:-
Sr. No. Particular of Register Section
1 Register of investments not held in
company’s name
49(7)
2 Register of Deposits 58A
3 Creation/modification/satisfaction of charge
& keeping a record of the charges
125, 135, 136, 138
4 Register of charges 143
5 Register of Members 150
6 Index of members where their number is
more than 50
151
7 Register and index of debenture holders 152
8 Foreign register (and a duplicate) of
members and debenture holders, if any
157
9 Copies of all returns u/s 159 & 160 163
10 Minute books containing minutes of the
proceedings of general meetings, board
meeting & committees of the board
193
11 Books of accounts 209(1)(a) to (c)
12 Register of contracts, with companies and
firms, in which directors are interested giving
details
297 & 299
13 Register of contracts with companies and
firms in which directors are interested
directly or indirectly
301
14 Register of directors, managing directors,
managers and secretary
303
15 Register of directors shareholding 307
16 Register of appointment of directors or an 356 & 357

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associate as a selling agent outside India of
goods produced by the company, and for
supply of or rendering of service
17 Register of loans to companies ‘under the
same management’
370
18 Register of loans made, guarantees given or
securities provided to companies and
investments in shares and debentures of
other companies
372A (5) & (6)
B) Under Factory Act, 1948:-
Sr. No. Particular of Register Form Number
1 Register of Compensatory Holidays 8
2 Register of Adult Workers 11
3 Register of Leave with Wage Register 14
4 Muster Roll 22
5 Register of Accident & Dangerous
Occurrences
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6 Notice of Adult workers 10
7 Accident & Dangerous Occurrences 23
8 Combined Annual Returns 20
9 Half yearly Returns 21
C) Under the Payment of Wages Act, 1936:-
Please provide us following register and forms for verification
(1) Register of Fines
(2) Register of Advance
(3) Register of Deductions

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(4) Register of Wages
(5) Payment of Wages Abstract - Form – V
(6) Notice of rates of wages - Form – VI
(7) Notice of Date of Payment
D) Under the Contract Labour (Regulation & Abolition), Act. 1970 :-
(1) Registration Certificate (Before appointing contractor) - Form-1
(2) Register of Contractor - Form-XII
(3) Register of Employees employed by Contractor - Form-XIII
(4) Muster Roll, Wage Register, Over Time Register, Fine Register Deduction
Register, Advance Register
(5) Notice regarding rates of wages
(6) Half yearly return by contractor - Form – XXIV
E) Under the Employee State Insurance Corporation Act, 1948:-
(1) Muster Roll
(2) Wage Register
(3) Inspection Book
(4) Accident Register
(5) Cash Books, Vouchers & Ledgers
(6) Paid Challans, RDF and Declarations
(7) Register of Employees - Form - 7

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2.7 Comprehensive check list for company statutory audit
I) Statutory Requirements:-
A) Balance Sheet:-
(1) Share Capital
Please Confirm that is there any change in Shareholders pattern. If so, provide a certified
copy of list of shareholders and their shareholding position as on 1-4-2007 & 31-3-2008.
(2) Share Application Money
Please Confirm that is there any receipt of Share Application Money during the year, if
Yes, Please Produce copies of Share Application Forms evidencing the receipt of Share
Application Money if any.
(3) Secured Loans Please produce the following documents:
(a) Bank Statements and Bank Reconciliation Statements (BRS) for the loans availed
for full year.
(b) Produce Balance confirmations from the Bankers/Financial institutions.
(c) Produce copies of sanction letters evidencing rate of interest being charged and the
rate of interest as per sanction letters.
(d) Produce interest workings/Reconciliations.
(e) If any bank accounts have been closed during the year then please confirm, are
there any charges created, if so please produce the relevant forms for satisfaction
of charge filed with ROC.
(4) Unsecured Loans
Please produce the following documents:
(a) Statement showing loans accepted and squared off during the year.
(b) Please produce copies of documentation such as agreements with the parties
evidencing the particulars of receipt of loans.

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(c) Rate of interest and other terms and conditions.
(d) Produce interest Working/Reconciliations.
(e) If payment is to be made in installments, then state whether there is any default in
payment, or any penalties are born by in form of extra charges.
(f) Produce ledger copies in the books of provider of loan, if there are any deviations
then also produce Reconciliations for such deviations.
(5) Current Liabilities and Provisions:-
(a) Please produce the break-up of Sundry Creditors as â€˜Creditors for Expenses and
Creditors for Goods.
(b) Produce the confirmation copies from the parties for which closing balance
exceeds Rs. 50000.00
(c) Produce ledger copies in the party books, if there are any deviations then also
produce Reconciliations for such deviations.
(d) Produce ledger copies and balance confirmations of related party transactions
irrespective of the outstanding balance as on 31-3-2008
(e) Please produce a detailed note on the nature of relationship with such related
parties in the day to day business operations and agreements if any evidencing the
price at which the transactions are settled.
(f) Produces a detail note on the Creditors Written- off during the year, and confirm
was there any need to write-off?
(g) Produce a list of parties to be written-off and reasons for such long outstanding.
(h) Produces a detail note on the Provision standing in the Books along with ledger
copy, also confirm the nature of such provisions.
(6) Statutory Payments/ Dues and Returns:-
(a) Please produce the ledger copies for the Statutory dues such as TDS Payable TCS
Payable Professional Tax Payable Provident Fund Payable Sales Tax Payable
VAT Payable Excise Duty Service Tax Provision for Fringe Benefit Tax
Provision for Income Tax and any other applicable Statutory Dues

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(b) Produce copies of challans evidencing the payment of the above statutory dues.
(c) Produce detailed statements for the above statutory dues having details of Month-
wise credits/payable, Due date for the payment, Date of actual payment, delay if
any etc.
(d) Produce copies of Quarterly TDS Returns, Sales tax returns, produce Sales Tax
and Excise Duty Reconciliation statements, also produce the copy of VAT return
along with Statement of Credit taken.
(e) Workings for Provision for Income tax/MAT calculations.
(f) Produce quarter-wise workings for Fringe Benefit Tax (FBT).
(g) Produce payment of advance tax challans for income tax and FBT.
(7) Fixed Assets :-
(a) Please confirm are there any additions to fixed assets, if so produce copies of
invoices along with workings for capitalization of assets
(b) Produce depreciation workings, both book purposes and I.T. purposes.
(c) Produces a detail note on the assets disposed off during the year, whether the
management consent was taken before the disposal and also state the reason for
disposal.
(d) Produce the list of assets not accounted in books along with value and state
location of such assets.
(e) Whether the certificate has been obtained from the vendor regarding life and
warranty of assets.
(8) Inventories:-
(a) Produce closing stock valuation statements along with the details of cost and
market value of inventories
(b) Produce Reconciliation statements with Excise Records.
(c) Produce copies of Quantitative details of daily production and sales.
(d) Show the input and output ratio of raw materials
(e) State the position of WIP on 31.0.2008

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(f) Produces a detail note on the raw material purchased and used. Whether the raw
material was returned during the year, if yes show in % of total inward and cost
incurred in the return of raw material.
(g) Whether the physical inventory was taken during the year, list out the
discrepancies found, and what action was taken in this regard.
(h) Whether the register is maintained at gate point for the proper control of
inventory.
(9) Investments:-
(a) List of investments made during the year and amount invested.
(b) Nature of investments whether it is a long term or short term, please provide
management consent on nature of investments.
(c) List of investments sold during the year.
(d) Whether provisions are made in relation to interest receivable or dividend
income?
(e) Provide the list in respect of date of investments made and date of maturity.
(10) Current Assets:-
(a) Sundry Debtors:-
Produce break-up of Debtors as more than Produce Age-Wise analysis of Debtors.
Produce confirmation copies and account copies in the other parties ledger
accounts for amounts exceeding Rs. 50000/- Produce reconciliation statements if
there are any differences, state the reason for same. Produce copies of agreements
with the parties. Confirm is there any need to write-off any balances outstanding
if so the reasons for such provision.
(b) Cash and Bank Balance:-
Produce a list of payments made in cash for more than Rs. 20,000/- Produce
Bank statements and Bank Reconciliation Statements for the whole period. Also

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produce bank statements and details of subsequent dates of clearance of cheques
pending in BRS at the year end. Produce copies of FDRs and statements of
interest workings. Also confirm that are there any new bank accounts opened
during the period if so produce copies of Board Resolution authorizing the same.
If any Petty cash account is maintained than provide reconciliation statement for
it, if there is any deviation than state the reason for same. Provide the list of stale
cheques standing in books. Whether the unsigned cheques books is crossed or
kept in the lock by taking proper consent from management.
(c) Deposits:-
Produce copies of deposit receipts. Produce corresponding agreements for such
deposits. Produce confirmation copies.
B) Profit and Loss Account:-
(1) Sales and other income:-
(a) Produce break-up for Sales & Other income.
(b) Produce relevant agreements with the parties which are not covered above.
(c) Produce Sales Reconciliation with Sales Tax/VAT Returns.
(d) Produce interest workings and copies of dividend warrants if any included in
other income along with workings for Dividend received.
(e) Produce break-up of miscellaneous income along with detailed workings if any.
(f) Provide detail note on sales return, stating reasons, amount of sales return and
reason for the same.
(g) Are there any discrepancies in issuing the invoice, state the reason for same?
(h) Sales order pending in hand from more than 1 month.

24
(2) Purchase and other Direct Expenses:-
(a) Produce break-up for Manufacturing Expenses.
(b) Produce relevant agreements with the parties which are not covered above.
(c) Provide the list of Purchase orders which are pending from more than 1 month.
(d) Whether the allocation for raw material is properly made in respective heads
under purchase.
(e) Whether the budget was prepared by the company for the year 2007-08, provide
the details of deviations.
(f) Whether the emergency purchases were made during the year, provide the detail
for the same.
(g) What is the mode for selection of suppliers, whether the new suppliers are added
in preceding year, name of the person who makes purchases for the company?
(h) Whether the company has made the contract for supply of goods, if yes, provide
the agreement for the same, is there any change in terms of contract in preceding
year?
(i) Please provide a detailed note on the procedure followed by the Company for
making purchase.
(3) Manufacturing Expenses:-
(a) Produce break-up for Manufacturing Expenses.
(b) Provide the Trial balance of manufacturing Expenses.
(c) Produce relevant agreements with the parties which are not covered above.
(d) Provide the detail note on the Expenses incurred in 2007-08 as well as in
preceding financial year under the head Manufacturing Expenses.
(e) Provide the budget prepared for the financial year 2007-08 for manufacturing
expenses.
(f) Whether the manufacturing work is on contract, if yes, please provide the copy
of agreement.
(g) Provide the number of workers working in factory premises, whether they are on
contract, if yes, provide the contact note.

25
(4) Administrative Expenses:-
(a) Provide the Trial balance of Administrative Expenses.
(b) Produce Rental agreements and ledger copy.
(c) Produce donation receipts if any which are eligible for deduction U/s. 80G of
Income Tax Act, 1961.
(d) Provide the detail note on the Expenses incurred in 2007-08 as well as in
preceding financial year under the head Administrative Expenses.
(e) Provide the list of assets placed in office premises.
(f) Please provide the break up of expenses incurred in cash and threw bank.
(5) Finance Charges:-
(a) Produce break-up of Finance Charges along with detailed workings for interest
charged.
(b) Whether there is any default in making the payment of interest or other dues?
C) Statutory Records:-
(a) Produce copies of board & general body minutes.
(b) Please confirm, are there any new charges created if so produce copies of relevant
forms filed with the ROC.
(c) Please confirm whether the statutory records are updated and also furnish the
same for verification.
(d) Please provide us the following Statutory Register for our verification.
2.8 Statutory Audit required following basic steps
Statutory Audit required following basic steps, however it needs to be planned based on
the company and business.
(1) Know the Business and understand company profile.

26
(2) Make out an Audit Plan and Audit Programme. Obtain Management representation
letters.
(3) Compile the Previous year working paper for reference.
(4) Approach the Audit based on the Internal Control Assessment and adopt test or
details method as required.
(5) Ensure that all processes are covered and links are established to the final TB number.
(6) Complete mandatory statutory verification like cash book, stock, Statutory Registered
etc.
(7) Prepare Points for discussion with Management.
(8) Obtain the satisfactory explanations and arrange for finalization.
(9) Finally Reporting and Working Paper.
2.9 Following Documentary Evidences are require to be verify for A Statutory Audit
(1) First you examine Documentary Evidences regarding appointment/reappointment of
an Auditor.
(2) Examine Last Year’s copy of Audited Balance sheet, profit & loss account ,
schedules, notes on accounts along with 3CA/3CB, 3CD & Audit Report.
(3) Carefully Examine the internal control system of the company..
(4) Purchase bill File.
(5) Sale bill File.
(6) Quaterly VAT Return According to Vat Input Output Register.
(7) Bank Reconciliation Statement.
(8) Salary and wages register.
(9) Bills of Various Assets Purchased during the Year.
(10) Telephone bill, Electricity Bill for the relevant year.
(11) Rent bill (if any).
(12) Verify Vat payment challan.
(13) Verify CST payment challan.
(14) Verify P.F paid challan for the last year outstanding.
(15) Verify E.S.I paid challan for the last year outstanding.

27
(16) Verify Employees P.TAX paid challan.
(17) Verify P.TAX (FOR COMPANY) paid challan .
(18) Trade License for the company.
(19) Payment of Advance Tax challan.
(20) Verify TDS Certificates with Form 26AS Annual Tax credit statement.
(21) Verify Investments papers i.e, FD.
(22) Physical verification of stock-in trade.
(23) Therefore each and every aspect of accounts are require to be verify with their
relevant documentary evidences by the Auditor himself.
(24) TDS Challan
(25) TDS return
(26) Bank reconciliation statement
(27) Investment papers
(28) Confirmation of Account
The audit team may put a company’s controls to test not only to see their effectiveness
but also to verify that everything is actually present and not just on paper. Effectively,
every asset and transaction will go through an audit trail to prove its legitimacy.

28
CHAPTER – 3
FINDING & SUGGESTION
Finding & Suggestion :-
(a) In Internal Bank Audit checking all the account & other details in Company.
(b) Audit is performed in accordance with standards.
(c) Reports should involve the presentation of work results in a complete form.
(d) Management is the main client of an audit function.
(e) Another major mistake made in reporting is that audit is built on revealing problems.
This situation can be discussed in terms of two main aspects. The first one is about
the expectations of management and the positioning of audit function. The second
reason I observe is that audit reports are finding oriented, in other words,
recommendation part for the solution of identified findings is missing or weak.

29
CHAPTER – 4
CONCLUSION
The project concluded that, given the complexity and development of Company, the
overall level of compliances with the standards and codes is of high order. This project
gives the correct ideas about how the major areas can be found by way of effective
auditing system i.e. errors, frauds, manipulations etc. form this auditor get the clear idea
show to recommend on the position.
Project also contain that how to conduct of audit of the company, what are the various
procedure through which audit of company should be done. Form auditing point of view,
there is proper follow up of work done in every organization there no misconduct of
transactions is taken places for that purpose the auditing is very important aspect in
today’s scenario form company and point of view.

30
CHAPTER – 5
BIBLIOGRAPHY & WEBLIOGRAPHY
Advance Auditing M.com Part II
Auditing Book of ICAI
http://resource.cdn.icai.org/19367sm_aape_finalnew_cp11.pdf
www.managementstudyguide.com
www.icai.org.in
www.slidshare.net
www.scribd.com
www.caknowledge.in

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