Explain the functions of audit or auditing

FUNCTIONS OF AUDIT :Following are the important functions of audit : 1. Study The Accounting System :It is the basic function of auditing. In order to determine the nature, timing and extent of the audit procedures auditor should study the accounting system. 2. Internal Control System :It is a process which determines that management policies are carried out according the accounting principles. This system is very useful to safeguard the interest of the enterprise. The auditor determines the effectiveness of this system. 3. Vouching :This function is essential to determine the accuracy of accounting record. Through audit those documents can be checked which support and prove the business transactions. All entries in books of accounts are made on the basis of relevant vouchers. 4. Verification Of Assets :It is the function of auditing that it should verify the assets of the business. It is concerned with the determination of value, ownership and possession of business asset. The auditor can check the existence of asset. 5. Legal Requirement :It is the function of auditing to verify that statements are prepared under the legal requirements or not. There are various laws like company andincome tax ordinance which are introduced by the govt. 6. Liabilities Verification :The liabilities of the business can be verified from the books of accounts. The auditor can write a letter to the creditors for the verification of liabilities. The auditor must receive the certificate from the management in this regard. 7. Capital And Revenue :Auditing should make difference between capital and revenue items. The capital items are compared to note the financial position of the business. The revenue items are compared to determine the income. The income and expenses related to many years can be divided in current and coming year. 8. Valuation Of Liabilities :Through auditing value of liabilities can be checked from the books of accounts and other papers. The auditor can also confirm the value from outside sources. The value of liabilities is given in the balance sheet by the management but it is the function of auditing which confirms this value. 9. Valuation Of Assets :The management gives the value of assets and auditor can apply the accounting principles to assess the value of assets. The auditor critically examines and takes help from the expert. 10. Reporting :Auditing important function is reporting. Auditor is an independent person and it is his duty to submit his report in writing. If he is satisfied he can present clean report otherwise he can give qualified report.

Discuss those points which an auditor should kept in mind while auditing the sugar mill

AUDIT OF TEXTILE MILL :Auditor should keep in mind the following points while auditing the accounts of a Textile Mill : 1. Checking Of Internal Control :While auditing the textile mill, auditor should examine the internal control system to find that it is working efficiently or not. 2. Verify The Legal Documents :Auditor should verify all the legal document likes articles and memorandum of the company. he should see that all the decisions are made according the documents. 3. Examine The Minutes :Auditor should also examine the minutes of the meetings carefully to know the real position. 4. Balance Sheet Examination :Auditor should verify the balance sheet and check that all assets and liabilities shown are correct. These are actually owned by the business or not. 5. Examination the Outstanding Balance :Auditor should verify that outstanding assets and liabilities in the books of accounts have been recorded or not. 6. Cash And Bank Balance :Auditor should verify the cash in hand with the cash book. He should also confirm the bank balance directly from the bank. He should also see that pass book entries are compared with the cash book or not. 7. Verified The Fixed Assets :Auditor should check the schedule of fixed assets and previously audited working papers. 8. Damage Stock Checking :Auditor should verify that damage stock items are written down to their realizable value or not. 9. Stock Valuation :Auditor should obtain the schedule of all types of stock in hand. He should see that stock in hand has been properly valued as shown in the balance sheet. 10. Physical Test Check :Auditor should apply the physical test to check the various items of the store for their physical verification. 11. Adequate Depreciation :Auditor should examine that a sufficient depreciation is provided for the fixed assets. 12. Vouching :Receipts and payments vouching should be carefully examined. In this regard auditor should check all the documentary evidences. 13. Proper Allocation :Auditor should verify that proper allocation between capital and revenue has been made. 14. Checking Of Raw Material :Auditor should obtain all types of raw material inventory and compare it with the ledger and check figures of raw material schedule are correct.

Explain the procedure of verification in the following cases 1. Profit and loss account 2. Balance sheet
VERIFICATION OF PROFIT AND LOSS ACCOUNT :The auditor should keep in view the following points, while verifying the profit and loss account : 1. Verify Transfer Of Profit :In the trade account gross profit must be checked by the auditor. This profit must be transferred to the credit side profit and loss account. If there is a loss then the same amount should be transferred to debit side of profit and loss account. The figures on both side should remain the same. 2. Verify Expenses :There are two types of expenses, current year and coming year expenses. The current year expenses should be treated as revenue and coming year should be treated as liability. 3. Matching Of Revenue :Those items appearing in profit and loss account should be verified as revenue nature. To determine the net profit revenue expenses must match with the revenue income. 4. Items Disclosed :The auditor should verify all the record and check that all the items have been properly disclosed for the shareholders or not. 5. Income Not Received :Sometimes income becomes due but it is not yet received. The auditor should verify such income. It should be also credited to profit and loss account. 6. Advance Received :Sometimes advance amount is received but it is not earned. The auditor must verify that is should be deducted from income in P/L account. 7. Previous Year Adjustment :It should be verified by the auditor that previous year adjustment has been made or not. Those items which were not recorded in previous year can be stated in current year P/L account. 8. Income On Investment :It should be verified by the auditor. It must be in recorded P/L account. The sale of securities at increased prices and interest due can be recorded as income. 9. Expected Loss :The fall in the value of investment and stock are called expected losses. The auditor should verify that these have been recorded in P/L account or not. 10. Expected Profit :The market price of assets may go up and expected profit may increase. The auditor should verify that such income may not be recorded as actual income unless it is realized.

VERIFICATION OF BALANCE SHEET :Following items must be verified by the auditor : 1. Assets :The assets shown in the trial balance can be verified by the auditor. In the balance sheet same value assets should be shifted. The differences in two balances should be verified.

2. Liabilities :The liabilities shown in the trial balance must be shifted to the balance sheet. Auditor should check that same amount has been shifted or not. 3. Purchase Of Fixed Assets :All the fixed assets purchased by the management must be stated in the balance sheet. The auditor should verify the value and price of such assets from the agent certificate or bill of vendors. 4. Closing Stock :At the end of the year stock in trade is given in the balance sheet. It should be confirmed by the auditor that this stock is not inflated. The cost or net realizable value which is lowest should be considered. 5. Assets Placement :The auditor should verify that assets have been placed in the balance sheet or not. He should also check that requirements of law have been followed or not. 6. Liabilities Placement :It should be also verified by the auditor that liabilities have been placed in the balance sheet or not. 7. Lease Agreement :Under the lease agreement assets are purchased by the owners. Finance lease asset is recorded in the balance sheet. The auditor should verify the lease agreement to know the type of asset. 8. Verify Cash :There are two types of cash. Cash in bank and cash in hand. The auditor can check the cash at bank by checking the cash book. He should also verify the cash in hand and it should tally with the cash book. 9. Security For Loan :The auditor can verify the security given against the loan. He can confirm from the lender about such assets. He can also confirm the assets physically. 10. Outstanding Liabilities :These should be verified by the auditor. The exact amount should be placed in the balance sheet. He should also verify the contingent liabilities. 11. Unsecured Loans :The auditor should verify these loans which are obtained without security. These are obtained on personal security. These are stated separately in the balance sheet. 12. Secured Loans :In the balance sheet these loans are stated as liability. The agreement may be mortgage deed or pledge. 13. Report :In case of complete satisfaction auditor submits the report.

How would you verify the following items, 1. Work in progress 2. Commission on shares 3. Underwriting commission 4. Contingent liabilities
VERIFICATION OF CAPITAL WORK IN PROGRESS :Auditor should take the following steps while verifying it : 1. Auditor should verify the valuation of work with invoices job cards and work orders.

2. He should check the basis of charging the labour and over heads. 3. He should obtain the progress report from the work incharge or engineer. 4. He should also verify the subsequent installation and completion with the certificate of architect.

VERIFICATION OF COMMISSION ON SHARES :Following steps should be taken by the auditor while verifying it : 1. Auditor should examine that legal requirement were compiled if the commission was paid from the capital money. 2. Legal documents of (MSA) should be examined by the auditor carefully to know about any restriction in this regard. 3. He should check die underwriting agreements. 4. He should vouch the amount of commission with the underwriters receipt. 5. Auditor should also examine the minutes of the directors. 6. If commission was given in the shape of shares auditor should see that contract was filed with the register or not. 7. Auditor should also check that amount of commission should be shown as a separate item on the balance sheet.

VERIFICATION OF UNDERWRITING COMMISSION :It can be verified by the auditor kept in view the following topics : 1. Auditor should verify the terms of understanding commission from the prospectus articles of association and the agreement with the underwriters. 2. He should check that paid commission is shown separately on the balance sheet. 3. Auditor should check the calculation of amount and receipts of commission paid. 4. If shares are allotted in the shape of commission then auditor should verify the relevant entries. 5. He should examine that commission of the underwriters should remain within the limits laid down by the controller of capital issues.

VERIFICATION OF CONTINGENT LIABILITIES :The above liabilities can be verified by the auditor keeping in view the following points : 1. Auditor should see that unknown and known such liabilities are brought into account on the dale of balance sheet. 2. He should verify that such liabilities are shown on the balance sheet have of fool notes. 3. Auditor should obtain certificate from the responsible officer that all known liabilities been taken into account.

4. He should also check that sufficiently reserve has been allocated for such liability which is likely to result in a loss being sustained.

How would you verify the following items, 1. Trade creditors 2. Loans 3. Debtors 4. Stock in trade
VERIFICATION OF TRADE CREDITORS :Auditor shall verify the trade creditors of the following way : 1. The auditor will check the accounts of the creditors and will compare the it with the purchase ledger. 2. He will compare the accounts with the invoices, receipts, credit notes and the statements. 3. He will verify their balances and will trace them to the list of creditors. 4. Auditor will check the addition in list. 5. He will find the differences if any between figures of the creditors statement and the balance of ledger. 6. For the confirmation of balances auditor may send the balance statements to the creditors. 7. Auditor will also check the entries of the goods inward book and compare it with the purchase ledger.

VERIFICATION OF LOANS :Auditor should check the agreement documents for getting loan. In case of bank loans and over draft auditor should examine the agreement with bank. Following procedure should be followed by the auditor : 1. To find out the borrowing powers of the firm auditor should examine the legal documents of the company. 2. Auditor should check the resolution of directors of the company for obtaining the loan. 3. Examine the rate of interest, repayment plan and duration. 4. Confirmation of loan should also be checked by the auditor. 5. He should prepare the movement of accounts during the year. 6. He should also verify the interest paid and payable.

VERIFICATION OF TRADE DEBTORS or DEBTORS or BOOK DEBTOR :Auditor will adopt the following procedure for the verification of debtors : 1. Postings in debtor's ledger should be verified by the auditor from the other records. 2. While auditing the book debts auditor should ask the debtors to send the debt statements directly to him. 3. Auditor should obtain a certificate directly from the bank regarding the balances. 4. He may examine the bank ledger by himself.

5. The object of the auditor should be to satisfy himself about the bonafied debts shown in the balance sheet. 6. He should also verify that all bad debts are written off by the authorized person. 7. He should obtain the list over due accounts. 8. Auditor should compare the ledger accounts with the list of sundry debtors balances. 9. Auditor should note down all the undue advances and allowances given and enquire about them.

VERIFICATION OF STOCK IN TRADE :Auditor can verify the stock by taking the following steps : 1. Auditor should ensure that issue of stock sheets has been properly controlled. 2. He should verify that all the stock sheets have been signed and counter signed. 3. Auditor should test the stock sheets with the record if continuous stock records are maintained. 4. Auditor should take the copy of those instructions which are given to the staff about the method of stock taking. 5. Auditor should demand the originals if final stock shares are supplied. These can be tested by the auditor to find the differences. 6. Auditor should also ensure that a physical check has been made at least once during the year. 7. He should verify that stock in transit is received before the closing date. 8. Cut off should also be checked by the auditor.

How would you verify the following items, 1 Goodwill 2. Motor vehicles 3. Preliminary expenses 4. Work in process
VERIFICATION OF GOODWILL :Goodwill is also an asset of the company. When any firm or company is purchased good will is also included in the purchase. To verify the value of goodwill auditor has to examine the purchase agreement. Auditor should find out from the purchase agreement that the amount of this asst is correct. Good will usually appear in the balance sheet at cost. There is no legal compulsion to write it. If company likes to write off then auditor should see that the amount written off is according the resolution of the board. Important point about goodwill is that it does not depreciate by use.

VERIFICATION OF MOTOR VEHICLES :While verifying the motor vehicles auditor will see the following items : 1. Auditor should check the cost of motor vehicles by the purchase documents.

2. He should examine the registration book of the motor vehicle. 3. He should verify the insurance policy of the vehicle. 4. He should make the physical checking of the vehicles. 5. He should compare the registration number with the motor vehicles. 6. He should also see that asset is fully depreciated.

VERIFICATION OF PRELIMINARY EXPENSES :Auditor should examine all the legal documents before verifying these expenses. He should also verify that all those items which are included in these expenses should have concern with the promotion of the company. Following items must be checked by the auditor : 1. Auditor should check the preparation cost of legal documents. 2. Auditor should check those legal and professional charges which are spent on the formation and promotion of the company. 3. Auditor should verify the cost of preparation of all the basic agreements. 4. He should also check the amount of stamp duty and fees paid on the authorized capital. 5. Auditor should also check that cost of registration is according the legal requirements.

VERIFICATION OF WORK IN PROCESS :First of all auditor should inquire various information's about the whole system. He should ask about the system of stock checking and price entering. It will be very helpful for the auditor in finding out the exact basis upon which the work in process has been valued. At the beginning auditor should find out the basis of valuation and at the end of the year it should also check that the work in progress is supervised by the responsible officer and it is also checked at each step by the independent person.

How would you verify the following items, 1. Land and building 2. Freehold land and building 3. Leasehold and land building 4. Investment
LAND AND BUILDING VERIFICATION :In case of land and building auditor should verify the title deeds. If the auditor is doubtful about it then may refer the matter to the solicitors of the company. If the property is mortgaged then he should take the certificate from the mortgagee to that effect. To verify the value of land cost price should be considered by the auditor. To know the original cost of the property auditor should verify the deed of transfer. In case of building valuation builders receipts and depreciation should be considered.

VERIFICATION OF FREEHOLD LAND AND BUILDING :Auditor should verify the title deeds first of all. He should check that building is in the name of the client. He should vouch the addition made during the year in the building or land. If any land or building is sold during the year auditor should vouch such sales. He should also verify that profit or loss on such sale is recorded correctly. He should also check the depreciation of the property.

VERIFICATION OF LEASEHOLD AND LAND BUILDING :Auditor should verify the the leasehold property by verifying the lease terms. Auditor should note down the conditions of lease and check the property physically if possible. He should also verify the amount of debt received against the mortgage property and the duration period. Lease rental should be debited to the revenue account. Auditor must verify the last receipt of the rent payment. In case of lease building repair depreciation etc. Should be debited to revenue account.

INVESTMENT VERIFICATION :Shares, bonds, debentures, certificates, allotment letters, scrip and government securities are included in investment. Auditor should verify the shares and debentures that these are made on the names of the clients. He should examine all the securities with the investment register to know that these are in order. Auditor must pay proper attention on all the allocation between revenue and expenditure if the shares are purchased cum dividend. If the shares are newly issued then auditor should examine the allotment letter and receipts payments. In case of certificates auditor should check that these are made in the name of the client. These are properly signed and sealed. Auditor should check that the investments have been correctly valued. He should also vouch the interest and dividend on investment.

Explain the term verification and discuss the main techniques and objects of verification and Difference between vouching and verification
VERIFICATION :It means confirmation or proving the truth about the assets and liabilities appearing in the balance sheet. Auditor has not only to check the arithmetical accuracy of the account by vouching only. H has also to verify the assets and liabilities appearing in the balance sheet to satisfy himself that these are correct. Auditor will also check that the existence of actual items and their actual possession held by the company concern. VOUCHING :It means a careful examination of all original evidences to prove the accuracy of the entries in the books of account and to assure that no transaction has been omitted from the books. So vouching means to verify the transaction recorded in the book. Any how vouching refers to transaction and verification of the statement of an asset or liability.

OBJECTS OF VERIFICATION :The object of verification of asset is the satisfaction by the auditor as to its existence, proper disclosure, proper valuation, correct ownership on the balance sheet.

TECHNIQUES OF VERIFICATION :In the process of verification following techniques are used : 1. Existence Of Assets :The auditor should satisfy himself that such assets and liabilities which are shown on the balance sheet really exist on that date or not. 2. Proper Disclosure :The auditor should also satisfy himself that each item of assets and liability is being properly disclosed as required by the law.

3. Ownership Of Assets :This technique is used for establishing the ownership of assets and liabilities. Those assets which are shown on the balance sheet must be properly of the client. 4. Assets In Possession :The auditor should satisfy himself that such assets which are shown on the balance sheet were in the possession of the client at the date of the balance sheet. 5. Valuation Of Assets :Auditor should also satisfy himself that all those assets which are shown in the balance sheet are properly valued. There are different factors which determine the basic of valuation like, nature of business, object for which the assets are held and the nature of assets. 6. Valuation Of Liabilities :Auditor should also satisfy himself about the liabilities that these are properly valued which are shown on the balance sheet. Overstated or understand liabilities do not give a true picture about the financial position. 7. Correct Valuation :Auditor should pay special attention to this point. Because profit and loss account also depends upon the accuracy of valuation of assets and liabilities. Valuation upto object is that balance sheet should show a true and correct view about the financial position of a client firm. 8. Purchase By Proper Authority :The auditor should also satisfy himself that the purchase of any particular asset was made by the orders of empowered person. In this respect, auditor may check the legal document or resolutions of the directors and shareholders. 9. Business Motive :Auditor should also satisfy himself that all the assets were obtained for the business motive of the firm. 10. Checking Of Charges :Auditor should also examine that assets of the firm are free from mortgage and pledge

Discuss the main advantages of verification or Discuss the role of verification to the business
. ADVANTAGES OF VERIFICATION :Following are the important advantages of verification : 1. Check On Fraud :The chances of fraud reduces due to the verification. It saves the business from embezzlement. Due to this management is not allowed to misuse the assets foe their personal benefit.It is the also a moral pressure on employee. 2. Performance Evaluation :Verification is very useful in evaluation the performance of management. Auditor can give his remarks about the performance of management through verification and valuation. Keeping in view the remarks of the auditor management can improve its work.

3. Proper Use Of Assets :The assets are properly used for the business because due to the fear of verification,officer never misuse the assets. They know that verification will disclose the misuse. 4. Safety For Creditors :Verification is very useful for the creditors. The audited accounts provide satisfaction to the creditors and they supply the goods and services to the business on credit. In other words guidance and safety creditors. 5. Protection To The Lender :Proper verification removes the risk of loss. The lender can rely on the audit report of the auditor determines the ownership, value and possession. 6. Proper Valuation Of Assets :Verification is very useful for the assessment of assets value. There are two types of assets, fixed and floating. Both the assets are verified in different ways. The correct valuation is made by the auditor. 7. Proper Recording :Verification is very useful for the proper maintenance of record. Management knows that all the accounting information's will be verified by the auditor, so they keep the record properly. 8. Benefit For Public :The people can understand the exact financial position of business by the verification of the auditor. The auditor discloses the assets and liabilities in the general public which provides guidance to them. 9. Guidance For Management :Verification is very useful for the management. It provides guidance to themanagement for the improvement of the business. It also indicates the financial requirements of business. The timely arrangement of finance protects the business. 10. Safety Of Assets :The auditor can inspect the rite of assets verify that these are existing or not. Due to verification these can not be destroyed. Auditor verifies that these are in safe hands or not. 11. Verification Of Profit :It is very helpful determining the true profit on business resources. The reasonable profit attracts the investors. 12. Liabilities Verification :The auditor verification of liabilities is very useful for the business owners. They must know the real value of their liabilities. If these are small then it is a good indicator for the business. 13. Business Position :Verification of assets and liabilities disclose the real position of the business. If assets value is greater than the liabilities then business will be stable otherwise not. 14. True Picture :After verification auditor gives the true picture of the business condition through financial statement. It is not possible for the auditor to give his opinion about the assets without verification.

Define the term verification and explain the procedure of verification or Explain those points which should be kept in view by the auditor in case of

VERIFICATION :Verification means confirmation or proving the truth about the assets and liabilities appearing in the balance sheet.

PROCEDURE OF VERIFICATION :Following points are important in the procedure of verification : 1. Verify Assets Register :The assets register should be collected by the auditor from the company. It can be used to verify the sale and purchase assets. The entries in the register should be approved by officer of the company. 2. Schedule Of Assets :The auditor can collect the schedule if assets and can verify the various things like opening balance, addition and other information's relating to assets. The schedule must be signed by the officer. 3. Physical Verification :The auditor can go to that place and verify the asset where that is lying. Management helps the auditor for verification. 4. Verify The Custody :The custody of the assets can be verified by the auditor that these are the hands of relating incharge or not. 5. Addition Of Asset :The new assets purchase by the company must be recorded in the books of accounts. This addition must be verified by the auditor. 6. Disposal Of Assets :The auditor can verify the entry of asset which is sold during the year. It may be sold on profit or loss. 7. Transaction Approval :The auditor must verify that every transaction is made by the order of the competent authority or not. He should verify the signatures on every document. 8. Verify The Cost :The cost of asset should be verified by the auditor by checking the documents like vouchers and journal entries. 9. Verify The Internal Control :The auditor should verify that internal control system is applied or not. If it is applied then auditor should verify the effectiveness of this system. 10. Loan On Asset :The amount of loan taken against any asset as security must be verified by the auditor. It can be also verified from the lender. 11. Verify Disclosure :In case of disclosure auditor should verify that all disclosure requirements have been followed by the govt. laws or not. 12. Verify Title Deed :Auditor can verify the title deed to determine the real ownership of a business. In this regard various other papers like agreements and vouchers may be checked. 13. Verify Depreciation :-

The auditor can verify the depreciation amount of each asset re partly. The fixed asset depreciation is determined according to its working file. 14. External Verification :The auditor can verify the assets from lenders borrowers, banks and from the other parties related to the business. 15. Capital & Revenue :The auditor can distinguish the capital and revenue expenditure. The capital expenditure becomes the parts of asset with the revenue expenditure is transferred to profit and loss account. 16. Stock Valuation Certificate :It is duty of the management to provide this certificate. For the preparation of report the auditor may obtain this certificate from the officer incharge. 17. Verify Correspondence :The auditor can verify the correspondence made between the lawyers, borrowers and lenders. It is very useful for understanding the facts related to business activities. 18. Reply Of Management Raises :Auditor sometimes raises objection and asks to reply some questions in this regard. For the removal of these objections management submits its reply. This reply letter is very useful and becomes the past of the working paper.

How will you vouch the following, 1. Commission paid 2. Commission received 3. Payments to creditors 4. Bank account
1. VOUCHING OF COMMISSION PAID :It can be vouched by the auditor in the following way : 1. Checking Of Commission Book :Auditor can vouch the commission paid by checking the commission book. It will be initialed by those people who had received the amount. 2. Inspection Of Agreement :If the commission is paid according to percentage on sale then auditor will examine the agreement. It will explain the exact terms of calculation. 3. Calculation Of Commission :Auditor will check dial percentages is calculated on net sale after deducting the allowance bad debts and returns. 4. Checking Of Unusual Increase :Auditor will also examine that is there any unusual increase. If there is any increase then it is authorized or not.

2. VOUCHING OF COMMISSION RECEIVED :It is vouched by the auditor keeping in view the following points : 1. Checking Of Account :Auditor should check the commission account with the account of parties from whom commission is received.

2. Inspection Of Agreement :Regarding the rate of commission auditor should examine the agreement with parties. 3. Checking Of Counter Foil Receipts :Auditor should verify the counter foils of the receipts with the cash book. 4. General Checking :Auditor should make all types of calculations to check the accuracy of the amount.

3. VOUCHING OF PAYMENTS TO CREDITORS :Auditor should check the following things while vouching the payments to the creditors : 1. Checking Of Invoice :All the invoices should be checked by the auditor. 2. Checking Of Receipts :Auditor should also verify the receipts given by the payee. 3. Checking Of Account Statements :All the accounts statements of creditors must be verified. He can send these statements to the creditor for confirmation with the permission of his client. 4. Checking Of Creditors Name :Auditor should also verify the names of the creditors. 5. Checking Of Account Posting :Auditor should check that posting to the relevant account is correct or not.

4. VOUCHING OF BANK ACCOUNT :While vouching the bank account following steps should be taken by an auditor : 1. Comparison :Auditor should compare the bank statement with the cash book. 2. Checking Of Date And Other Particulars :Auditor should check the date of each entry and other particulars like figures for proper vouching. 3. Checking Of Credit Side Items :The items on the credit of cash book should appear on the debit side of the bank statement. It should be verified by the auditor. 4. Checking Of Statements :Auditor should examine the reconciliation statement and entries of a few weeks of the succeeding period.

How will you vouch the bill receivable book and bills payable book
VOUCHING OF BILL RECEIVABLE BOOK :While vouching the bill receivable book auditor should take the following steps : 1. Verification Of Balance :Auditor should verify the balance of the bills receivable with the bills in hand and the bills not over due.

2. Verify The Posting :Auditor should verify the posting of bills receivable in the book. 3. Check The Proceeds :Auditor should trace the proceeds of matured and discounted bills which have been paid or discounted through cash book. 4. Checking Of Bank Certificate :Auditor should check the certificate obtained from the bank for the collections of bills sent to the bank. 5. General Checking :Auditor should check the casts, cross casts and carry forwards. 6. Tracing Of Contingent Liability :In respect of discounted receivable bills auditor should trace contingent liability.

VOUCHING OF BILLS PAYABLE BOOK :Following work will be performed by the auditor while vouching the bills payable book : 1. Checking Against Cash Book :Auditor should check the bills paid during the period and compare to with the cash book and bill returned. 2. Checking Of Bills Not Matured :Auditor should check the total bills not matured and should see also these should agree with the credit balance on the bills payable account in the ledger. 3. General Checking :Auditor should check the postings of the bill payable. He should also check the casts, cross casts and carry forwards.

How you will vouch the cash sales and cash purchases
1. VOUCHING OF CASH SALES :Cash sales can be vouched by the auditor in the following way : 1. Internal Check :Auditor should evaluate the internal check and if it is proper system then he should rely on it. 2. Checking Of Memos :Auditor should check the cash sales memos and compare it with the daily summaries of salesman and cashier. 3. Entry In Cash Book :Auditor should also check the figures of the salesman and cashier summaries entry in the cash book. 4. Checking Of Cash Register :If cash register is used, auditor should check the total daily rolls with the entries in the cash book. 5. Checking Of Cash Book :Auditor should compare the cash book with the general ledger. 6. Checking Of Price Lists :-

Auditor should obtain and verify it price lists and other instructions by the authorize persons regarding the cash sales. 7. Guidance To Client :If internal check system is not effective than auditor should inform the client about the dangers of frauds. He should also suggest some measures.

2. VOUCHING OF CASH PURCHASES :While vouching the cash purchases auditor should take the following steps : 1. Auditor should compare the cash memos with goods received notes. 2. Cash memos should also be compared with the goods inward book. 3. Head of the account should also be checked.

How you will vouch the salaries and wages

1. VOUCHING OF SALARIES :While die salaries auditor should pay attention to the following points : 1. The auditor should check the salary book. 2. He should check the salaries actually paid during the year. 3. He should compare the salary book and cheque drawn for a particular month. 4. He should compare salary book with the cash book. 5. Auditor should see that sign of each employee are available on the book. 6. Auditor should also examine, terms and conditions of the officers employment. 7. Revenue receipts should also be checked by the auditor. 8. Auditor should also verify that all the deductions like income tax, and other funds have been credited in the irrespective accounts. 9. He should also check that unpaid salaries are taken into account for that period. 10. Auditor should also check that increment given to the employee was due or not.

2. VOUCHING OF WAGES :To vouch the wages following points must be considered : 1. Checking Of Internal System :Auditor should satisfy himself testing the system of internal check that internal control system is sufficient to provide a reasonable protection against errors. 2. Checking Of Calculations :Auditor should apply the test check to see that all the calculations are correct.

3. Checking Of Wages Sheet :Auditor should examine the time work wages and piece work wages thoroughly. 4. Computing System :Auditor should check that wages computing paying system is sound or not. 5. Nature Of Payment :The nature of payment in both the cases (time and piece of work) must be checked by the auditor that it is actually in practice or not. 6. Same Cash Paid And Drawn :It should be also checked by the auditor that amount paid should be same which is drawn. 7. Checking Of Names :Auditor should check that payment has been made to those, employees whose names are given. He should check that there should be no dummy worker in them. 8. Proper Signature :He should check that wages sheets should be properly authorized and signed by the reasonable officer. 9. Signature Verification :Auditor should verify, signature and thumb impressions of workers by using the test check. He can compare with previous month. 10. Unpaid Wages :He should check that all unpaid wages are taken into account or not. 11. Deductions :Auditor should also check that deductions like income tax are properly made in their relative heads.

How you will vouch the 1. Entertainment expenses 2. Telephone expenses 3. Custom duties 4. Income tax
1. VOUCHING OF ENTERTAINMENT EXPENSES :To entertain the customers manager spends the amount which is called entertainment expenditure. Following points must be considered by the auditor : 1. While vouching such expenditure auditor should responsible officer. 2. He should also examine the resolution and minutes books for this purpose. 3. Some times fixed allowance is sanctioned to the manager. Such permission should also be verified by the auditor.

2. VOUCHING OF TELEPHONE EXPENSES :To vouch the telephone expenses auditor should keep in view the following points : 1. Telephone Bill Checking :Telephone expenses can be compared with the telephone bill by the auditor. He should also check that telephone bills relate to the telephone number of client. 2. Checking Of Receipt :Auditor should check the period and receipt of the telephone bill also.

3. Trunk Calls Checking :Auditor should compare the amount of trunk calls against the trunk call register. It will ensure him that trunk bills were official or private. 4. Payment Of Private Calls :Auditor should check that the amount of private trunk calls has been recovered from the official or not.

3. VOUCHING OF CUSTOM DUTIES :Following steps must be taken by the auditor to vouch the custom duties : 1. Checking Of Receipt Bill :If custom duty is paid directly, in this case auditor should check the receipt bill of entry. 2. Checking Of Monthly Accounts :If any forwarding agent is engaged by the company then auditor should check the following documents : a. Monthly accounts. b. Bill of entry. c. Wharfage receipts. 3. Checking Of Charges :It should also be checked by the auditor that all the charges have been treated correctly as capital or revenue expenditure.

4. VOUCHING OF INCOME TAX :While vouching income tax auditor should keep in view the following points : 1. Verify The Calculation :Auditor should check the calculations and amount of income tax paid. He should compare them with challans receipts. He should also check the assessment orders and demand notices. 2. Checking Of Names :Auditor should also verify the names of officers and their names of challan. He should also check the certificate given by the income tax advisor.

During the audit of balance sheet and journals what steps will be taken by the auditor or How balance sheet and journals are audited
TRIAL BALANCE :The statement of balance extracted from ledger accounts is called trial balance. Its object is to see the arithmetical accuracy of the transaction and to check the comprehensive balance of all the accounts ledgers. The auditor should check the following things in the trial balance : 1. Check that both sides of trial balance are equal in the trial balance. 2. Verify that all balance have been accurately recorded in the trial balance. 3. Examine that all the amount has been recorded in proper head. 4. Check that all the adjustment entries have been properly included in the trial balance.

5. Verify that all the balance of ledger account is have been transferred.

JOURNALS :Those transactions which could not be recorded in any other book of prime entry are passed through the journals. Journal is basically used for recording, opening adjusting and closing. Following journal entries could be vouched : 1. Closing entries. 2. Opening entries. 3. Entries relating to the dishonour of bills. 4. Entries relating to the consignments. 5. Adjusting entries. 6. Liabilities taken over from the vendor. 7. The acquisition of different assets.

Explain the main or various objects of vouching

VOUCHING :Vouching refers to the inspection of documentary evidence supporting the transactions. OBJECTS OF VOUCHING 1. Proper Evidence :The object of vouching is to see that proper evidence is signatures and stamps show that documents has been checked properly. 2. Accurate Amount :The object of vouching is to check that correct amount has been recorded in the entry or not. Vouching is very useful in this regard. 3. Checking Of Date :The date of vouchers should relate to the accounting period. The object of vouching is the checking of the right period. 4. Proper Authority :The object of vouching is to note that every transaction is made on behalf of the proper authority. No any transaction is acceptable without the signatures of the relevant officer. 5. Business Purchase :The purpose of vouching is to check that purchases relate to the business or not. If purchases are made for private purpose, these cannot be recovered as business purchase. 6. Proper Posting :Auditor can check the vouchers that postings of totals from journals to ledger are properly made or not. These are complete and correct.

7. Accuracy :The checking of arithmetical accuracy of books of accounts. The basic purpose of vouching to confirm the accuracy of books accounts. Auditor checks the totals, sub totals and posting. 8. Checking Of Fraud :The purpose of vouching to check that any payment is made by fraud. By vouching the entries frauds can be disclosed. 9. Checking Of Cash Book :The object of vouching is to check the correct receipts and payments. Auditor can check and determine that cash book is correct or not. 10. Casting Or Totals :The object of vouching is to check totals. Auditor calculate the totals and compares them with the books of accounts. 11. Cash In Hand :The object of vouching is to check that the cash shown in hand figures are correct or not. Auditor can count the cash and compare it with the cash book. To determine the accuracy test checking can be applied. 12. Capital And Revenue :The object of vouching is to examine the difference between revenue and capital expenses. The expenses related to one year are as revenue while others are called capital. 13. Checking Of Error :The purpose of vouching is to check that there is error in the books of accounts or not. The error can be detected by vouching. These can be due to negligence or over work. 14. Preparation Of Report :The object of vouching is to form an opinion for the issuance of report. After the examination auditor issues the report. It may be good or qualified.

Define or what is vouching and discuss the objects, techniques and principles of vouching
VOUCHING :Meaning :It means to test the truth of items appearing in the books of original entry. Definition :- "A careful examination of all original evidence such as invoice receipt of correspondence minutes contracts etc." Vouching is very useful in proving the accuracy of the entries in the books of accounts. It also indicates about that transaction which is omitted from the books of account. VOUCHER :A voucher is a documentary evidence in support of a transaction in the books of account.

OBJECT or IMPORTANCE OF VOUCHING :Vouching is called the essence of auditing, so audit is not possible without vouching. The object of vouching is to find out the accuracy of the entries appearing in die books of accounts and detect that no entry has been omitted from the books of account.

PRINCIPLES or TECHNIQUES OF VOUCHING :At the time of vouching auditor should keep in view the following important principles in his mind : 1. Arranged Vouchers :First of all auditor should check all the vouchers provided by the client are properly arranged. These are in the same order as the entries are made in the books. 2. Checking Of Date :The auditor should compare the date of the voucher with he date recorded in the cash book. 3. Compare The Words And Figures :The auditor should satisfy himself amount written numbered consecutively. All the vouchers should be properly filed. On the vouchers, its figures and words are same or not. 4. Checking Of Authority :The auditor should examine that all the vouchers are passed by the authorized officer. If the voucher is passed by unauthorized person it will not be correct. 5. Cutting Or Change :If there is any cutting or change on the receipts and vouchers figures it should be signed by the authorized officer. The auditor should satisfy himself by inquiring about it. 6. Transaction Must Relate To Business :The auditor should carefully examine that the entries must relate to the business. 7. Case Of Personal Vouchers :The auditor should not accept the voucher in personal name. There is a chance that an officer of the company has purchased any item in his personal capacity. 8. Checking Of Account Head :Auditor must be satisfied about the head of account on which cash is deposited and drawn. He should examine the documentary evidence in this regard. 9. Revenue Stamp :The auditor should also check that voucher bears a required revenue stamp or not? 10. Case Of Cancelled Voucher :The auditor should not accept the cancelled voucher. Because it has already served the purpose of payment. There will be a danger of double payment if it is accepted. 11. Important Notes :The auditor should take some important notes about those items which need further evidence or explanation. 12. Payment :The auditor should check that whether payment is described partially or for complete transaction of sale. 13. Agreements :These provide the basic information to the auditor. He should check the agreements, correspondence and other relevant papers. 14. Printer Vouchers :Printer vouchers are considered true and these are legally acceptable. If these are not printed then these are useless. 15. List Of Missing Vouchers :-

Auditor should prepare the list of missing vouchers. This list will be helpful in detecting the fraud and errors.

What do you know about the commercial frauds? how these are committed and how these are detected by the auditor or Discuss the various kinds of fraud
FRAUD :It means false representation making wrong entry intentionally believing to be wrong. Following are the important kinds of fraud which are connected with the accounts. 1. Misappropriation of cash. 2. Misappropriation of goods. 3. Manipulation.

MISAPPROPRIATION OF CASH :Meaning :It means to take money dishonestly for oneself. These are two methods by which misappropriation of money may be concealed by the dishonest employees. 1. Entering fictitious or excess payments. 2. Omitting to enter receipts Principal ways of misappropriation of cash. 3. Fictitious purchase is recorded for the purpose of misappropriating the corresponding cash payments. 4. Fictitious expenses are recorded for the purpose of misappropriation. 5. By putting the dummy names on the wages cash is misappropriated. 6. Theft of unusual receipts of cash like the sale of waste. 7. Sales cash may not be entered in the books and cash may be misappropriated. 8. By over casting the wages sheet, wages cash is misappropriated. 9. Misappropriation of the proceeds of bill discounted the bill being shown in hand. 10. For the purpose of stealing an equivalent cash receipt, false credits are passed in the customer's account in receipt of discounts and returns. 11. Cash received on account of goods sent for sale is a misappropriated by showing that goods are return back can not sold. 12. By tempering in the cash receipts and disbursement records cash is misappropriated.. 13. Cash received from the customer is misappropriated by omitting the sale. 14. Approved and paid vouchers may also used for further payment.

MISAPPROPRIATION OF GOODS :-

Meaning :It means to take the goods dishonestly. Theft of goods is found very common among the employees where inter control system over the stock is very poor.

MANIPULATION OF ACCOUNTS :False representation of accounts is another kind of fraud. This type of fraud is usually committed by the directors and management of the business. The object of such fraud is to show more profits or less profits than they actually are some times to maintain the confidence of the share holders they show more profit then the real. Some times directors show less profit in order to purchased the share at less rate. This fraud may take place in the following way. 1. Over valuation or under valuation of stock. 2. Over valuation or under valuation of assets and liabilities. 3. Recording of fictitious purchase. 4. Recording of less purchase than original. 5. Use of secret reserves without disclosing to the share holders during the period. 6. Depreciation not provided. 7. Depreciation provided but more or less than the real. 8. Recording fictitious expenses or omission of expenses. 9. Revenue and expenditure charged to capital and vice verse. 10. Credit taking for accrued income not likely to be received or omission of income.

DETECTION OF MISAPPROPRIATION OF CASH :Detection of frauds is the main responsibility of the auditor. An auditor can detect his fraud if he conducts the complete vouching of cash. Second helpful thing in detecting this fraud is the effective internal control system. If this system is efficient then it will be very easy for the auditor to locate this fraud.

DETECTION OF MISAPPROPRIATION OF GOODS :If the stock registers are properly maintained. Purchase, consumption and stock taking record is available. Physically stock can be checked auditor can be compared with record and misappropriation may be detected.

DETECTION OF MANIPULATION OF ACCOUNTS :Vouching, routine checking, verification and intelligent inquiries of an auditor may detect such type frauds. If an auditor exercises his intelligent check while examining and accepting the evidence he may discover the frauds.

Describe the various kinds of errors and discuss their effect on trial balance sheet and as an auditor how you will locate and detect these errors
Generally in the books of accounts we find the following types of errors. Detection of error is the main advantage of auditing.

1. ERRORS OF OMISSION :When any transaction is not recorded in the books of accounts, it is called an error of omission. So transaction is absolutely omitted from the record. Effect On Trail Balance :- Now this error will not be detected by the trial balance. The trial balance will agree even this error is committed. So the error willing to be disclosed by the trial balance. It will be very difficult to locate the error. Example :- Suppose some purchase was not recorded in the books. The total purchase recorded in the books will be less than actual purchase. This error will not be disclosed by the trial balance. Detection Of Error :- An auditor may detect the error by comparing the data of previous with this item. We may say that critical analysis of the auditor locate such type of errors.

2. ERRORS OF COMMISSION :When the transaction is recorded but incorrectly we say that error of commission is committed. (i). Wrong posting from original books to ledger. (ii). Incorrect entries in the original records. Effect On Trial Balance :- (a). In the invoice if transaction is recorded incorrectly, the effect on the trial balance will be nil. (b). If a part of transaction is recorded incorrectly then the trial balance will be not balanced. Detection Of Errors :- Such errors can be detected by checking the arithmetical accuracy of the original books. It can also be discovered when somebody challenges the transaction.

3. ERRORS OF PRINCIPLE :When the entries are not recorded according the fundamental principles of accounting, such errors may arise which are called errors of principle. Such errors may be committed intentionally or unintentionally. Example :- (i). Ignoring the outstanding assets. (ii). Wrong allocation between revenue and capital. (iii). Valuation of assets on wrong principles. Effects :- Errors of principle effect the profit and loss account and balance sheet. Detection Of Errors :- Such errors can be detected by independent checking and searching inquiry. Because such error is not found by the trial balance or routine checking.

4. COMPENSATING ERRORS :When one error is counter balanced by another error or errors is called compensating errors. Example :- Suppose an over casting of an account by Rs. 1000 may be counter balanced by under casting of another account to same extent. Effect :- Such errors will not effect the trial balance. Location Or Detection :- Such errors may be detected by intelligent and arithmetical checking of books.

5. TRIAL BALANCE ERRORS :While preparing the trial balance some errors may happen, these are called trial balance errors. These may consists of :

(i). Entering an amount incorrectly. (ii). Casting of errors in the trial balance. (iii). Wrong addition of the trial balance column. (iv). Omission of cash and bank balance. (v). Omission of a balance from the trial balance. Detection Of Errors :- Trial balance errors can be detected by routine checking.

LOCATION OF DIFFERENCE IN TRIAL BALANCE :An auditor will locate the difference in the trial balance keeping in view the following points : 1. Checking Of Total :It is the first point, that auditor should check the total of the trial balance. 2. Compare The Names :Auditor should compare the names of the accounts in trial balance with the ledger. Some times in case of cash book balance of some accounts may not be transferred to the trial balance. 3. Compare Debtors And Creditor :Third point is that auditor should compare the list of creditors and debtors with trial balance. 4. Locate The Ledger :Auditor should try to locate the errors in a particular ledger. 5. Divide The Difference By Two :Auditor should divide the difference of trial balance by two and check that is there any time of this value. 6. Checking Of Posting :Auditor should check all those amounts of posting which are corresponding to the difference or half of the difference. 7. Checking Of Exact Amount :Auditor should check the exact corresponding amounts which are equal to the difference amount. 8. Importance To The Totaling :Auditor should pay special attend on the checking of total. If the difference of the trial balance is divisible by the error then it will be due to misplacement or figure transposition. For instance 98 for 89. If all the above tests are applied and error is not located then all the accounts should be checked thoroughly.

In case of workers wages which system of internal check you would suggest to avoid errors and frauds
Following steps should be taken to prevent error and frauds in case of workers wages : 1. Recording Of Work :In some factories wages are paid according the amount of work done by the worker. In this case card should be given to the worker and the amount of work should recorded on the card daily. This card should be signed by the worker and head incharge of the department. If goods are produced by the worker then these should be delivered to the store keeper. He should also sign on the card. 2. Recording Of Time :In some factories wages are paid according the working hours. In this case also each worker is given a card. When he enters in the factory, Lime keeper enters the date and time of entry in the factory on the

card. When worker leaves the factory the time is again recorded on it. So keeping in view the total working hours he will be paid. There will be no chance of error. 3. Allocation Of Duties :The internal check system should be operative at all stages in employees remuneration. The duties of the workers should be clearly defined so that each worker may be held responsible for his job. 4. Wages Sheet Preparation :While preparing the wages sheet it should be sub divided to ensure that work is checked properly. Wages sheet should be prepared in such a way that it should provide various information's like name, trade, rate of wages, time, deduction, gross and net wages of the workers. All the officials who provide the information's should also sign on the wages sheet. It will make the internal control very effective. 5. Separate Staff For Sheet Preparation :Cashier should not prepare the wages sheet separate staff should prepare the wages sheet and handed over it to the cashier. 6. Exact Amount :According the wages sheet exact amount of wages sheet should be drawn by the cashier. 7. Payment Under Proper Supervision :The payment of wages to the worker should be made under the proper supervision of responsible official. So that the chance of misappropriation may be reduced. 8. Case Of Absent Workers Wages :Special arrangements should be made for the payment of absent workers. The wages of absent workers on their behalf. 9. Temporary Workers Payment :Casual workers payment may not be mixed with the payment of other workers. The officer who will empire such labour will certify and then it will make the payment. It will remove the chances of fictitious payment. 10. Sign On Wages Sheet :All the officers should sign and certify the wages sheet that payments are made correct. 11. Record Of Unpaid Wages :Cashier should prepare the list of unpaid wages. All the concerned officers like foreman, and works manager should sign the list.

Suggest a suitable system of internal check and internal control regarding the sale
CHECK OVER SALE :Following are the important points which must be kept in view in case of internal control over sales : 1. Receipt Of Purchase Order :A ll the orders from the customers should be received in written. All the particular about the goods like name, date, and made of transport should be written in the order receive book. One copy of the order should be sent to dispatch department. 2. Checking Of Order :Before the dispatch of goods each order should be checked with its correspondence. 3. Sales Invoices Preparation :Sales invoices should be prepared in triplicate when the order is executed.

4. Invoices Checking :A responsible officer should check the calculations and prices charged will also initial that he has checked that work. 5. Copies Of Invoice :One copy of invoice will be sent to the buyer. Second copy to the invoice clerk to debit the account of the customer. Third copy is sent to the gate keeper. 6. Properly Numbered :Consecutively each invoice should be numbered and before dispatch responsible officer should sign on it. 7. Dispatching Of Goods :An official should check the goods before packing and compare them with order. 8. Entries In Book :At the gate all the packages should be entered in the good out ward book by the gate keeper. Against each entry the number of sales invoice must be shown in the goods outward book. 9. Entry Of Returned Goods :Some times goods are being returned by the customer due to any reason. Gate keeper must enter such returns in the goods inward book. Such record must be checked with the debit notes sent by the customer. In this way proper control should be maintained. 10. Entries From The Credit Notes :From the credit notes entries must be made in the returns inward book from which the customers accounts concerned will be credited. 11. Collection Of Receipt :In this regard there should be a strict control on the collections of customers accounts. Customers should be immediately in form of about the difference in the balance founded any time. 12. Proper Record :In the process of sale all the officers and officials initials must be recorded.

Suggest a suitable system of internal check and internal control over purchases
INTERNAL CHECK OVER PURCHASES :Following suggestions are given for a proper control over the purchases : 1. Supply Of Requisition :When ever goods are needed in any department of the company, the head of the department should send the purchase requisition to the purchase department. He should mention the quality, quantity of the item and the time by which the goods must be supplied. 2. Purchase Order :It should be given in writing. It should be given on a printed and numbered forms. It should be recorded in the purchase book. 3. Copies Of Purchase Order :There should be three copies of each purchase order. One copy should be sent to the suppliers. One copy to the store clerk and one should remain with purchase department. 4. Writing Note :When goods will be received the store department will make an actual inspection. After counting or

weighing receiving person will write the particulars on the good received note in duplicate. 5. Comparisons :One copy of the received good note will be sent to the purchase department. Purchase department will compare the quality and quantity with the invoice. 6. Invoice Checking :Each invoice on receipt should be checked by responsible officer with the purchase order that price and quantity is correct. 7. Inspection :Before storing the goods, these should he inspected and quality should be tested. 8. Purchase Return :In case of any defect it should be immediately reported the purchase department. Purchase department may take up the case. All returns out wards should be duly authenticated as toils correctness. 9. Invoice Recording :Each invoice should be consecutively numbered and properly filed. 10. Payment :A responsible officer should pass on the payment of invoices. Before signing the cheque he should assure himself about the correctness of the account. 11. Proper Record :Proper record of purchase should be maintained in writing. All the officials and officers who are involved in the purchase their initials must be taken.

Explain the important steps or special points that an auditor should take into consideration while examining the accounts of manufacturing concern
MANUFACTURING CONCERN :Following are important points which an auditor should keep in view while auditing the manufacturing concern : 1. Adequate Staff :For the effective and good system of internal check in a large business there is a need of sufficient staff. 2. Use Of Printed Receipts :Printed receipts should be used for the cash received from the customer. Receipts should be prenumbered. Each receipt should be signed by the one or more than one officials. Unused books should b kept by the reasonable official. 3. Daily Deposit Of Cash :All the received cash should be deposited daily in the bank. Pass book should be reconciled with the cash book time to time. 4. Record Of Receipt :All the crossed cheques, drafts and money received should recorded daily. 5. Books In Proper Hand :Books of accounts and ledgers should be in the proper hands. Thecashier and ledger clerk have no access to these books. 6. Personal Ledgers :By means of total accounts the personal ledgers should be proved and these should be kept under the

control of reasonable officer. 7. Checking At Regular Intervals :There should be a surprise checking of stock cash and other balances at regular intervals by the responsible officer. 8. Payments :Cash for payment purpose should never be taken out of cash received. All payments should be made by cheque and these should be properly authorized. 9. Payment To The Employees :The payment made to the officials and officers should be supervised properly. 10. Cash Sale :Cash sale is also an important problem. There should be proper supervision that sales are made at correct price. 11. Instruction About Cash :To the staff member, specific instructions should be given for handling the cash receipts, payments, recording and checking. 12. Purchase :It is very important section for internal control. While checking the purchase all the inward invoices should be checked. 13. Protection Of Assets :Security measures must be adopted to protect the assets and property of the company. 14. Allocation Of Duties :The internal control system should prove that all the duties are performed by the employees which were allocated to them. 15. Dispatch Of Goods :Authority for dispatch of goods and evidence should be fixed there should be proper record and examination of the dispatched goods. 16. Separate Staff :There should be a separate staff on the duties of recording sales and sales return. 17. Checking Of Customer's Account :A responsible officer should examine the accounts sent to the customers. He should also collect the over due accounts. 18. Petty Cash Book :A man who is responsible for petty cash he must take a properly authorized voucher for the amount disbursed. So imprest system must be maintained. 19. Use Of Mechanical Instruments :To keep the accurate record various mechanical instruments like computers and other instruments should be used if possible.

Describe a suitable control system over cash receipts and payment

In the business there is a greater risk of cash misappropriation. So there is a need of safety measures. Following system may be adopted to control over cash receipts.

1. Writing Of Ledger :The cashier should not write the ledger. It should be written by other person. Cashier should not have control over the ledger. 2. Presence Of Officer :All incoming letters should be opened under the supervision of a reasonable officer. 3. Cheques Should Be Crossed :All the crews and coins in the post must be crossed and noted in the diary and then delivered to the cashier. 4. Comparison :The cash book must be compared with the diary. Cash book and pass book entries should be reconciled. 5. Issuance Of Receipt :A printed serially numbered receipt should be issued for the amount received. 6. Counter Foil :Receipt of money should be in duplicate or its counter foil must be prepared and kept for reference unused receipt books must be kept safely. 7. Daily Deposit :All the receipts of cash and cheque must be deposited on the same day or next morning. 8. Use Of Cheque :For the payment received cash may not be used. Always cheques should be used for payment. 9. Sound System Of Cash Sale :There should be a sound system of cash sale. Recording method of cash sales should be well organized. 10. Collection Of Cash By Agents :Three copies of cash receipts should be prepared by the agent. One should be given to the pay. Second should be sent to office and third should be kept by the agent. Agent should also be paid by the cheque. 11. Statement Should Be Sent For Confirmation :For the confirmation balance statements of accounts should be sent with regular intervals to the debtors. It will also reduce the chances of frauds.

CASH PAYMENTS 1. Use Of Cheque :Cheques should be used for all the payments except the petty cash. It is the first measure for internal control in case of payments. 2. Use Of Crossed Cheque :Before dispatching the cheques these should be crossed. So any other person may not draw the amount. 3. Safety Of Cheque Books :Blank cheque books should be under the safe custody of the responsible official. So that these may not be misused for payment by any fraud. 4. Entry In Cash Book :Payment should be recorded in the cash book as the payment is made. 5. Authorized Signature :-

Those persons should sign on the quiches who are authorized to sign. 6. Verification Before Signature :Before signing the cheque one should verify the documentary evidence for the payment like voucher, invoice or bill. 7. Special Nature Payment :Director of the company may sanction the payment special nature. Cashier has no authority to do so. 8. Vouchers Importance May Not Be Ignored :For every payment voucher should be obtained. Vouchers should b numbered and filed. Their number should be noted in the cash book against the payment entry. 9. Reconciliation :A responsible officer should reconcile the cash book with the bank statement time to time. 10. Wages Sheet Preparation :While preparing the wages sheet, internal control system should be applied to prevent fraud.

What system of internal control over stores of the large manufacturing concern would be suggested
Following steps are considered the most important in case of internal control over store : 1. Maintenance Of Record :For the strong control over stores it is necessary that record of the goods in the store should be maintained properly. Quality and quantity of the goods should be recorded in detail. 2. Checking Of Record :There should be proper checking of such record. This record should be kept in those hand who do not handle the stores. 3. Continuous Stock Taking :Continuously independent stock taking by actual must be carried out. It should be done by any other person who is not store keeper. It will be very useful in detecting the fraud and errors. 4. Use Of Separate Bin :Store room should be arranged systematically and each item should be kept in separate bin. It will become very easy for the store keeper to find the particular item. 5. Quantity Fixation Limit :Each item of the store minimum and maximum quantity limit should be fixed by the management. This limit should be entered in Bin Cards. If the quantity of any item reduces then the fixed limit, store keeper should report to the purchase department. 6. Entrance Not Allowed :No any person should be allowed to enter in the stock room except the store keeper and his assistance. 7. Use Of Bin Cards :Bin Cards should be attached with each Bin. Store keeper should write to the issuance or receipt of item to the bin card. The record of the store room should consist of only a bin cards. 8. Issuance Without Requisition Not Allowed :Any item may not be issued by the store keeper upon verbal request. Without presenting the requisition duly signed by the incharge of the needed department no any material should be issued by the store keeper.

9. Entry In Store Cards :After entering the items on the bin card store keeper sends the store issue requisitions to the "Store Record Office". The office will enter the issues in dependently in the store cards. These would contain the record of items quantity and their price. 10. Return Of Any Item :Some times any item is not used and returned to store. It should be accompanied by "Store Resumed Notes" in duplicates. Its entry in the bin card and stores record cards will be just like the requisition entry. 11. Verification Of Items :Inspection department should make a surprised checking of the store time to time. Some items of the stores should be verified by actual count and these should be balanced by bin cards and stores cards. INTERNAL CONTROL :The whole system or control financial or otherwise employed to carry on the business is called internal control. Internal audit, internal check and other such forms of control are also included in it. Objects Of Internal Control :To achieve the following objects internal control system is employed : 1. The errors and frauds of clerk may be prevented. 2. To prevent the goods and cash misappropriation by keeping check on the receipts and delivery. 3. To keep an accurate record of all the business transactions. 2. INTERNAL CHECK :Internal check means that checks imposed in such a way on a day to day transactions that work of one person is checked by the other person automatically in this way chance of fraud and error minimizes. Because the error mistake made by one person is detected by the other. Following matters are included in the internal check. 1. Matters relating to allocation of powers. 2. Division of work. 3. Methods of recording transactions.

Write a note on the following 1. Auditor is a watch dog not a blood hound 2. Audit note book 3. Audit working papers 4. Test check 5. Routine Checking
1. AUDITOR IS WATCH DOG NOT A BLOOD HOUND :"Auditor is watch dog and not a blood hound" is a phrase which is given by Justice Lopes. According to the above phrase it is explained that like a watch dog auditor should protect the interest of those who appointed. But he will assume the servants of the company honest and he will rely on their statements. Further he can take a reasonable care. He should perform his duties with normal skill. The attitude of watch dog will not reduce his responsibilities. In doubtful cases he should investigate the matters thoroughly. But he is also not expected that he should become suspicious mind. Any how, an auditor is a watching dog but not a sleeping watching dog.

2. AUDIT NOTE BOOK DURING THE COURSE OF AUDIT :The auditor writes down the important notes on a book during the course of audit for his record. He notes

down that he may not forget them. Some times he is not satisfied with some entries recorded in the books, so he makes inquires about them. So the audit note book is maintained by the auditor for particular business to make his job more easy. Importance Of Audit Note Book :Justice William throws light on the importance of audit note book in the following words, "The audit note book which contained detailed information proved to be very helpful to the auditor in every critical moment." For preparing the audit report it is very useful for the auditor. 1. In case of negligence charge against the auditor, audit note book as a good evidence can be presented. 2. It may be also used for future guidance and reference. 3. It also enables to auditor to know that what work has been done by his assistant at each audit. Contents Of The Book :Following are the important contents of this book : 1.All the important points which require further explanation. 2. A record of all the missing vouchers duplicates and invoices. 3. All mistakes and errors discovered. 4. Important balances of cash book. 5. Those queries which might be required at a subsequent audit. 6. All those points which have to be included in the audit report. 7. Those points which need discussion with client or seniors. 8. A record of exact work done on audit list of books of account and names of officers with their duties and powers. 9. Beginning and completion of audit dates.

3. AUDIT WORKING PAPERS :Important documents and papers regarding the business are collected which are needed by the auditor during the course of audit. These papers are called working papers. These working papers contain essential facts about the accounts. So accounts can not be examined properly by the auditor without the working papers. Audit working papers consists of schedules statements, analysis and other statements essential for the preparation of final accounts and find report of the auditor. Note :- Audit working papers are prepared from the clients record but these are the property of the auditor. Objects or Importance Of Working Papers :Importance of working papers can be judged by the following facts : 1. These papers are very useful in framing the opinion about the efficiency of the audit team. 2. These papers also throw light on the weak points of the client business.

3. Working papers are the permanent record of the data examined. 4. These are very useful for defending the auditor in case of negligence. 5. Working papers are also very helpful for the auditor in preparing the audit report. 6. Working paper are also very useful for the future audit. 7. Shifting of work from one clerk to another is also easy in the presence of working papers.

4. TEST CHECK or TEST CHECKING :Prof. Weigh defines, "Test checking means to select and examine a representative sampler from a large number of similar items". In a big business there are a large numbers of transactions and auditor has not so much time to check each and every entry. In this so auditor draws some samples representing the number of entries of each class of transaction. In this way he saves his time. In the test checking auditor checks only samples instead of thorough checking. Precautions Of Test Checking :1. Selected period for the test check should not be disclosed to the client by himself. 2. First and last month of the audit large number of entries should be checked. 3. Each entry of the cash book should be checked and test check should not be applied to the cash book. 4. Test check should be framed in such a way that each audit clerk work may be checked. 5. Entries of each class should be represented. 6. At each audit, entries and periods should be different. 7. Auditor should apply test check and some errors or frauds remains undetected auditor will be responsible.

5. ROUTINE CHECKING :It means the following checking : Checking of totals subtotals, additions subtraction and other calculations in the books of original entry. 1. Checking of postings into ledgers. 2. Checking of complete ledger accounts. 3. The above work is too mechanical so auditor should perform his job very carefully. Objects And Importance Of Routine Checking :Routine checking is very useful to verify the arithmetical accuracy of the entries. 1. Special ticks are employed to ensure that no figures are alternated after checking. 2. To verify that postings from the books original entries have been made to the correct accounts in the ledgers. 3. To verify that ledgers accounts have been correctly balanced.

6. AUDIT IN DEPTH :When the books of account are checked in detail about the particular item, it is called auditing in depth. Such type of auditing is applied in large business concerns where all the entries detailed examination is not possible. This technique is based on test checking. Auditor selects some items on the basis of random sampling and then he makes the detailed checking of the record.

7. OVER ALL CHECKS :Overall checks means detailed checking of whole accounting records. All those activities which are useful for the auditor indicating the errors and frauds are included in over all checks. Those errors which can not be detected by routine checking these can be detected by over all checking. Account of books and information of employees are the base for over all checks. It is the duty of the auditor that he should examine the reliability such information's. ADVANTAGES OF AUDIT PROGRAMME 1. Supervision Of Work :The auditor can judge the efficiency of his audit team by holding of an audit programme. He is in a position to know the progress of the work. He can see at any time that what part of the work has been completed and what remains to be done. 2. Distribution Of Work :Audit programme is very useful in distributing the audit work properly among the members f the audit team according to their talent. 3. Uniformity Of Work :Audit programme helps in settling all the things in advance, so the uniformity of work can be achieved. 4. Basic Instrument For Training :Audit programme is very useful for the new auditor. It provides training and guidance to him. So it is rightly called the basic instrument for training. 5. Legal Evidence :Audit programme is a legal evidence of work done by every assistant of the audit team. It can be presented in the court of law if any client is taken against the auditor for negligence. 6. Fixation Of Responsibility :If any error or fraud remains undetected the responsibility of negligence will fall on the particular assistant who has performed that job. 7. Several Audits may Be Controlled :The auditor controls the audit of various companies at the same time. In the absence of audit programme he can not supervise them effectively. 8. Easy Transfer :If one assistant is unable to continue the work given to him, it can be given to another person. Audit programme guides him that what is done and what is remaining. 9. Final Review :Before signing the report, final review is made and for this purpose also auditing programme is very useful. 10. Useful For Future :On completion of an audit, it serves the purpose of audit record which may be useful for future reference.

ADVANTAGES OF AUDIT PROGRAMME 1. Supervision Of Work :The auditor can judge the efficiency of his audit team by holding of an audit programme. He is in a position to know the progress of the work. He can see at any time that what part of the work has been completed and what remains to be done. 2. Distribution Of Work :Audit programme is very useful in distributing the audit work properly among the members f the audit team according to their talent. 3. Uniformity Of Work :Audit programme helps in settling all the things in advance, so the uniformity of work can be achieved. 4. Basic Instrument For Training :Audit programme is very useful for the new auditor. It provides training and guidance to him. So it is rightly called the basic instrument for training. 5. Legal Evidence :Audit programme is a legal evidence of work done by every assistant of the audit team. It can be presented in the court of law if any client is taken against the auditor for negligence. 6. Fixation Of Responsibility :If any error or fraud remains undetected the responsibility of negligence will fall on the particular assistant who has performed that job. 7. Several Audits may Be Controlled :The auditor controls the audit of various companies at the same time. In the absence of audit programme he can not supervise them effectively. 8. Easy Transfer :If one assistant is unable to continue the work given to him, it can be given to another person. Audit programme guides him that what is done and what is remaining. 9. Final Review :Before signing the report, final review is made and for this purpose also auditing programme is very useful. 10. Useful For Future :On completion of an audit, it serves the purpose of audit record which may be useful for future reference.

Explain the procedure which the auditor should adopt before commencing the new audit and also discuss those instructions which must be given by the au
An auditor should pay proper attention to the following points before taking up a new audit : 1. Appointment Letter :An auditor should confirm his appointment letter first of all. In this regard he should get and examine the copy of resolution passed by the shareholders in the general meeting. 2. Nature Of Audit :Auditor should know about the nature of audit. If he does not know the nature of audit then he can not prepare himself for that audit. 3. List Of Books :He should obtain a list of all the books of account which are in the use of business.

4. Names Of Officers :The auditor should take the list of all the officers with their names duties and powers. He should also get their specimen signatures. 5. Documents :He should also get the copy of memorandum and articles of association. He should study them carefully and check that company is running the business according to them or not. 6. Prospectus :The auditor should examine the prospectus to know the relevant matters affecting the accounts. 7. Accountancy System :The system of accounting which is employed by client must be examined by the auditor before taking the new audit. 8. Minute Book :The auditor should get the minute book and read it carefully. He should also take the notes of important decision made by the directors and shareholders in the various meetings. 9. Internal Control System :Internal control system prevailing in the business must be studied by the auditor. He should examine the record and observe the actual procedure in operation. 10. Personal Visit Of Site :The auditor should visit the site of the business personally and he should know maximum about the technical nature of the business. 11. Study Of Contracts :The auditor should study all those contracts which are made by the company with the outsiders and with employees. He should note down the important mailers. 12. Case Of Joint Auditors :If there are more than one auditors and they have decided to audit the company jointly in that situation they should divide the work among themselves and then start the auditing. 13. Previous Report Inspection In Case Of Old Company :If the company not a new but old, in this situation auditor should also inspect the report of previous auditor. 14. Audit Programme :The auditor may chalk out the audit programme keeping in view above points. 15. Timing :Auditor should fix the time of audit before starting the new audit. He should also decide the time for the completion of audit work. 16. Legal Formalities :Auditor should also check that legal formalities have been completed by the management or not. 17. Historical Background :Auditor must know business history like nature of business, number of products, year of establishment. He should also keep himself in touch with the operation of the company.

INSTRUCTION GIVEN BY THE AUDITOR TO HIS CLIENT:-

Following instructions must be given to the client by the auditors before commencing the audit : 1. A list of books with the list f employees should be provided to the auditor. 2. A system of book keeping and internal connect should be provided. 3. Final trial balance and draft of final account should be ready for audit examination. 4. All supporting vouchers should be ready. 5. All types of schedules supporting the accounts should be prepared and kept in original form. TECHNIQUES OF AUDITING or AUDIT TECHNIQUES :Techniques of auditing means the procedure and method which is adopted by the auditor in checking the accounts. Following are the important techniques of audit : 1. Examination Of Record :This technique is commonly used by the auditors, The inspection of books and documents is made to verity the validity of data. 2. Inquiry :The auditor can also use the technique of inquiry. He can get the information from resource persons inside or outside the enterprise. 3. Sampling :Auditor can select few items from whole accounting information. This technique enables the auditor to obtain and evaluate the evidence of some characteristics of the whole class. It is helpful in forming the conclusion. 4. Confirmation :To ensure the accuracy of the data auditor can collect the information from the debtor. Confirmation is response to an inquiry to prove certain data recorded in the books. 5. Compliance :To check the arithmetical accuracy of accounting record, the balancing accounts can be compared with the vouchers to test the reliability of data. 6. Compliance Test :These tests are designed to check the effectiveness and compliance of internal control. In obtaining the audit evidence, auditor is concerned with the existence of effective internal control. 7. Use Of Computer Techniques :There are large number of audit techniques like audit software, test packs and mapping which can be used by the auditor to test the accuracy of the data. 8. Substantive Test :There are designed to obtain evidence that data produced by accounting system is accurate or not. It has two kinds : a) Test of detail transaction. b) Test of significant ratios and trends. 9. Dependence On Experts And Auditors :The auditor has to rely on the internal and other auditors to complete his work. He has also to rely on other experts like lawyers, engineers and doctors for their expert opinion about the business.

10. Analytical Review :It consists of studying significant ratios, trends and investigating different changes. This review procedure is based on the expectations of relationship among the past and present data.

DIFFERENCE BETWEEN PRINCIPLE AND TECHNIQUE OF AUDITING :Techniques of auditing may b changed by the auditor but principles of auditing will remain same. Following are the kinds of audit : 1. Continuous Audit. 2. Interim Audit. 3. Final Audit. CONTINUOUS AUDIT or RUNNING AUDIT :The audit which continues throughout the financial year with regular or irregular intervals is called continuous audit.

INTERIM AUDIT :Such type of audit takes place between the two annual audits to find out interim dividend is called interim audit.

FINAL AUDIT or COMPLETE AUDIT or BALANCE SHEET AUDIT :Definition :- According to W.W.Bigg "Final audit is not commenced until after the end of the financial period and is then carried on until completed." An audit which is started at the end of financial year when financial statements are finalized and it is carried out until completion. In case of joint stock company it is compulsory by law. It is also known as "Balance Sheet Audit."