1. Preliminary Works:
Obtain The Last Year’s Balance Sheet, Profit & Loss Account & Tax Audit Report.
Study and Evaluate The Accounting System/ Policies & Internal Controls.
Ensure Opening Balances C/F Correctly (If Manual : Obtain Trial Balance)
Check the Recasting, Grouping & Summarizing Of Transactions In The Financial Statements
Carryout the Scrutiny Of Accounts
Compare the Profitability i.e GP and NP of the Preceding Three Years
If Computerized: Check The Recasting, Grouping & Summarizing Of Transactions In The Financial Statements And Ledger Scrutiny Of The Accounts On Computer.
2. Information To Be Document/Checked:
A. Share Capital Opening Addition Closing:
Authorised
Issued & Subscribed
If Further Issued
Enclose The Details Showing
Name, Address, Amount, Mode Of Payment, Date Etc.
Copy Of Allotment Filed With ROC
Cross Check With The Shareholder’s Register.
B. Loans & Advances Taken Sanctioned Limit:
From Banks (Nature Of Security)
From Others (Nature Of Security)
Vehicle Loans
Obtain The Statement Of Accounts From The Financier Bank/ Institution.Obtain Interest Certificate As To Compare With The Balance In The Books.
If The Loans Are Interest Free, Obtain Certificate To That Effect.
If The Loans Are Obtained From Directors/ Shareholders, Obtain Certificate That The Same Is Not Given Out Of Borrowed Funds.
Check The Compliance Of The Provision U/S 269 SS & U/S269 T Of The Income Tax Act
Check The Compliance Of The Provisions Of Section 292/293 Of The Companies Act
Check The Charges on Assets w.r.t Loans Are Filed with the ROC.
3. FIXED ASSETS:
Check The Additions / Deletions During The Year With Supporting Bills.
Ensure That All The Related Expenses Are Capitalised.
Proper Accounting And Income Tax Treatment Of Assets Sold During The Year.
Check The Depreciation Calculated And The Rates Consistently Applied.
Prepare The Depreciation Chart Under Companies Act And IT Act.
Check The Titles & Documents In The Possession Of The Client To Ensure The Existence And Right Of The Assets.
Check That Fixed Assets Register Is Maintained.
4. INVESTMENTS:
Details Of Investments At The Year End
Check The Income Accrued On The Investments
Disclosure Requirements Under Schedule VI.
5. INVENTORY
Check The Method Of Valuation Of The Closing Stock.
Reconcile The Physical / Book Items Of Inventory Showing Opening Balances, Purchases, Issued For Consumption/Sales, Short & Excess And Closing Stock With The Excise Records.
Check The Compliance Of The Accounting Standard -2 “Valuation Of Inventories."
The Sock Statement Submitted To Bank To Be Obtained.
Sheet Of Physical Verification Conducted By The Management To Be Obtained.
6. CASH & BANK BALANCES
Obtain The Bank Reconciliation Statement From The Client Along With The Bank Statement Balance At The Year End.
Check Any Items Of Reconciliation Pending For A Long Time And Their Impact On The Financial Statements. Verify Subsequent Clearance Of Items Pending As On 31st March In The Month Of April, May Etc.
Check Daily Cash Balance For Negative Balance.
Verify Cash Payment Of April To Verify The Expenses Related To Audit Period.
Verify Heavy Cash Balance In Hand And Subsequent Withdrawal From Bank To Be Enquired.
Verify Contra Entries In Cash Book, Bank Book And Bank Statement Simultaneously To Identify Bearer Cheque Payments.
7. CUSTOMER’S DUES
Carry Out The Ledger Scrutiny Of Customers.
Obtain The Confirmations From The Customers Possibly.
Test Check The Subsequent Recoveries In The Following Year.
Obtain the Outstanding More Than 6 Months.
Dues from Directors to Be Disclosed Separately.
Check Provision/ Write off of Time Barred Debts i.e Outstanding For A Period Exceeding Three Years.
Scrutinize Sales To Sister Concern, Ensure That Same Are At Market Rate/ At Rate Charged To Other Parties.
Obtain Information As To Legal Cases Going On With The Customer.
8. LOANS & ADVANCES GIVEN
Prepare The Chart Of Loans And Advances Given Showing The Opening Balance, Additions, Repayment, Interest Charged, TDS Deducted And Other Adjustments Made During The Year.
List out The Deviations If Any.
Obtain The Details Of Due From Directors With Maximum Outstanding During The Year
Obtain Ledger Copy Of Interest Free Loans Given To Any Party.
Ensure Proper Disclosure Is Made w.r.t Security Aspects.
9. SUPPLIER’S DUES
Carry Out The Ledger Scrutiny Of Suppliers
Obtain The Confirmations From The Suppliers Possibly
Test Check The Subsequent Payments In The Following Year
Test Check The Posting Of Bills Of Suppliers Especially At The Ear End Scrutinize Transaction With Sister Concern For Rates And Other Terms. Check Whether Old Dues No Longer Payable Are Required To Be Written Back.
10. PROVISIONS FOR TAXATION
Ensure The Taxation Provided According To The Taxation Laws Applicable At The Date Of Balance Sheet
Check The Adequacy Or Deficiency Of The Provisions For Taxation.
Ensure That Provision For Tax Is Made In Accordance With The AS-22. “Deferred Tax"
Impact Of Latest Assessment On The Accounts.
11. OTHER LIABILITIES & CONTINGENCIES:
Ensure That All Losses And Laibilities Provided For
If Possible Discuss With The Management.
Take Management Representation Of All Legal Cases Going On.
12. MISC. EXPENDITURES
List Out The Expenditures Covered Under This Head And Its Amortization During The Year.
13. REVENUE ITEMS (SALE)
Verify The Sales With Monthly/Quarterly Return Submitted With The GST, Differences If Any To Be Checked
Check the Usual Trade Discounts E.G. Quantity Dis, Cash Dis, Rate Dis Etc. And Their Treatments in the Accounts.
Treatment of GST on Sales In The Accounts
Check Sale for April Month to Ensure That It Does Not Include Sales effected In The Year Under Audit.
14. OTHER INCOME
A. Interest Income :
Correlate The Same With TDS Receivable For The Year.
B. Export Incentives:
Obtain The Invoice Wise Details Of Duty Drawbacks, Import Licencee Premiums & Other Entitlements Etc. Check Any Such Claims Received Up To The Date Of Audit.
C. Escalation Of Prices.
D. Sale of Non-Current Assets.
E. Commission Income:
Obtain The Documentary Evidence, Agreements, And Calculation Of Commission And Their Recognition In The Accounts.
F. Insurance Claims.
15. PURCHASE
Check The Purchases With Supporting Invoices/ GRN Date/ Date Of Receipt.
Check The Cut Off Procedures At The Year End.
Carry Out The Test Checks With Suppliers Accounts.
Treatment of GST Input Tax Credit In The Accounts.
Check Purchases of April To Ensure That There Are No Goods In Transit.
Accounting Treatment of Discounts Availed On Purchase.
16. EXPENDITURE
Obtain The Monthly Details Of Following Major Expenditures Such As:
Salary ( Employee-wise).
Wages (labor-wise).
Directors Remuneration (Person Wise).
Rent.
Telephone Expenses.
Repair & Maintenance : Determination Of Revenue/Capital Expenditure.
Interest Paid.
Commission Paid.
Discount Allowed.
Amortization of Expenses.
Depreciation
Note:- Ensure That The Extraordinary & Prior Period Items Are Disclosed In The Financial Statements And Also Obtain The Details.+
17. ANALYTICAL REVIEW PROCEDURES
Calculate The Following Ratio:
G/P Ratio
N/P Ratio
Inventory Turnover Ratio
Also Calculate The Following Ratios To Sales:
Selling & Distribution Expenses.
Staff Welfare Expenses.
18. MISCELLANEOUS POINTS.
Whether The Personal Expenses Have Been Charged To The Revenue Accounts
Any Taxes, Duty and Cess outstanding For A Period Exceeding Six Months.
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