Assignment on

Typical Audit Programmes & Auditors Report (Insurance company)

Course Code: ACC 1105

SUBMITTED TO

Md. Azim

Lecturer

Department Of Business Administration

World University of Bangladesh

SUBMITTED BY

Md. Billal Hossain-3111

Md. Hanif Miah-3120

Shakib Ahammed-3131

Batch: 48- D

Department Of Business Administration

Date of submission: 06-12-2017

WORLD UNIVERSITY OF BANGLADESH

 TABLE OF CONTENTS

Contexts Page No

Auditors Report of Insurance Company

 Auditors report to the shareholders of Green Delta Insurance Company ltd.- 1-3

Typical Audit Programmes

 Preliminary Work----------------------------------------------------------------------4
 Cashbook & Petty Cash Book ------------------------------------------------------4-5
 Purchases Book & Purchases Return-----------------------------------------------5-6
 Sales Books & Sales Return ----------------------------------------------------------6
 Wages Book----------------------------------------------------------------------------6-7
 Bills Receivable, Bills Payable Book------------------------------------------------7
 Journal Paper----------------------------------------------------------------------------7
 Purchases, Sales & Nominal Ledger ------------------------------------------------8
 Audit Programme for the Statutory Report----------------------------------------9-10
 General Audit Programme of a Limited Company-------------------------------10-11
 Special features of the Audit of Non- Trading Concerns------------------------11-14
 Special features of the Audit of Trading Concerns-----------------------------14-24
Auditors Report to the shareholders of Green Delta Insurance company
Limited
We have audited the accompanying consolidated financial statements of Green Delta Insurance
Company Limited and its subsidiaries (together referred to as the “Group”) as well as the
separate financial statements of Green Delta Insurance Company Limited (the “Company”)
which comprise the consolidated and separate Balance Sheets as at December 31, 2016,
consolidated and separate profit and loss account, consolidated profit and loss appropriation
account, consolidated statement of changes in equity and consolidated statement of cash flows
for the year then ended, and a summary of significant accounting policies and other explanatory
information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated
financial statements of the Group and also separate financial statements of the Company that
give a true and fair view in accordance with Bangladesh Financial Reporting Standards (BFRSs)
and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements of the Group and also separate financial statements of the
Company that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements of the Group and the
separate financial statements of the Company based on our audit. We conducted our audit in
accordance with Bangladesh Standards on Auditing (BSAs). Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements of the Group and the separate financial
statements of the Company are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements of the Group and separate financial
statements of the Company. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements of the
Group and the separate financial statements of the Company, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of consolidated financial statements of the Group and separate financial
statements of the Company that give a true and fair view in order to design audit procedures that
are appropriate in the circumstances. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements of the
Group and the separate financial statements of the Company.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements of the Group and also separate financial
statements of the Company give a true and fair view of the consolidated financial position of the
Group and the separate financial position of the Company as at December 31, 2016 and of its
consolidated and separate financial performance and cash flows for the year then ended in
accordance with Bangladesh Financial Reporting Standards (BFRSs), give a true and fair view of
the state of the company’s affairs as at December 31, 2016 and of the results of its operations and
cash flows for the year then ended and complies with the Companies Act 1994, the Insurance
Act 2010, Insurance Rules 1958, the Securities and Exchange Rules 1987 and other applicable
laws and regulations with the exception of the mandatory compliance with the Insurance Act
1938 mentioned in Note 2.20.

Report on Other Legal and Regulatory Requirements

a) We have obtained all the information and explanations which to the best of our knowledge and
belief were necessary for the purpose of our audit and made due verification thereof;

b) In our opinion, proper books of accountants required by law have been kept by the Group and
the company so far as it appeared from our examinations of those books;

c) the company management has followed relevant provisions of laws and rules in managing the
affairs of the company and proper books of accounts, records and other statutory books have
been properly maintained and (where applicable) proper returns adequate for the purposes of our
audit have been received from branches not visited by us;

d) As per section 63 (2) of the Insurance Act 2010, we report that to best of our knowledge and
belief and according to the information and explanation given to us, all expenses of management
wherever incurred and whether incurred directly or indirectly, in respect of insurance business of
the Company transacted in Bangladesh during the year under report have been duly debited to
the related Revenue Accounts and Profit and Loss Accounts of the Company;

e) We report that to the best of our information and as shown by its books, the company during
the year under report has not paid any person any commission in any form outside Bangladesh in
respect of any of its business re-insured abroad;

f) The financial statements as at December 31, 2016 of the subsidiaries, namely Green Delta
Capital Limited, Green Delta Securities Limited, Professional Advancement Bangladesh Limited
and GD Assist LTD were not audited by us. Financial statements of those subsidiaries have been
audited by other auditors and have been properly reflected in the consolidated financial
statements.

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g) The consolidated balance sheet, consolidated profit and loss account and consolidated
statement of cash flows of the Group and the separate balance sheet, separate profit and loss
account and separate statement of cash flows of the Company together with the annexed notes
dealt with by the report are in agreement with the books of account and returns; and

h) The expenditure incurred was for the purpose of the Company’s business.

Dated: Dhaka February 11, 2017 A. Qasem & Co. Chartered Accountants

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Typical Audit Programmes

There are certain common features with all types of audits. The auditor should have the
following programme:

Preliminary Work

 See that your appointment is in order and examine the relevant resolution about your
appointment.
 Ascertain the accounting year.
 Enquire into the system of book-keeping followed by the business concern.
 Get a list of the books of accounts maintained by the concern.
 Find out the names of the directors and their powers.
 Enquire the names of the persons who write those books of account and also obtain the
specimen signatures of these officers.
 Enquire into the system of internal check and see whether it is efficient. If it is not, be
more cautious.
 If it is a partnership audit, examine the Partnership Deed
 If it is the audit of a limited company; examine its Memorandum and Articles of
Association, and Prospectus, if any.
 Enquire into the nature of the business of the concern.
 Examine the profit and loss account, balance-sheet, auditors' and directors' reports of the
previous year. If the business is of a technical nature, acquaint yourself with the technical
side of the business.

Cash Book

 See whether the opening balance agrees with the cash balance as shown by the balance-
sheet of the previous year.
 Compare the cash sales with National Cash; Register if that is in use. If it is not in use,
enquire into the internal check system regarding the cash sales and compare the copies of
cash memos with the cash sales.
 Check a few transactions regarding receipt of cash from debtors with the counterfoils of
the receipt book and with any other documentary evidence available.
 If any asset has been sold out examine any documentary evidence which may be
available and see that the sale has not been treated as sale of goods.
 Check the discounts in the nominal ledger and enquire the system of granting loans.
 Check the cash purchases with the cash memos received.
 Check cash payments to the creditors with the receipts received from the payees.

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  Check the payments into the bank with the Pass Book and the counterfoils of the paying-
in-book.
 Prepare a bank-reconciliation statement to agree the balance as per the Cash Book and
Bank Book.
 Check carefully the receipts and payments just before the close of the year to ascertain
any fictitious receipts or payment.
 Ask the banker to send statements of balances on different accounts, if necessary.
 Total both the sides of the cash book in order to find out whether the balance as shown
by the cash book is correct.
 Verify the cash in hand by actually counting it and see whether it agrees with the balance
as shown by the cash book.
 If there are many cash books in use, verify all the cash in hand at the same time.
 Pay attention to cash-in-transit.
 Carefully examine the I.O.Us.

Petty Cash Book

 Vouch the debit side of the petty cash book with the credit side of the cash book paying
particular attention to the dates on which the receipt and payments were recorded.
 Check the petty cash book with postage book.
 Check the total of the different columns and cross-additions.
 Verify the cash balance of the petty cash book by actually counting the cash.

Purchases Book or Purchases Journal

 Enquire into the internal check system regarding purchases and see that they are made by
a responsible officer.
 Vouch the purchases books with the invoices.
 See that the goods which have been entered in the stock book have also been entered in
the purchases book and vice versa.
 If a columnar purchases book is used, see that the invoices are properly entered into.
 See that the discount is deducted from the invoice before it is posted.
 Test the purchases order book with the goods inward book and the godown-keeper's
book.
 See that the entries in the purchases book have been correctly posted to the ledger.
 Check the additions of the purchases book and see that the total loss has been correctly
carried to the trading account.
 See that the purchases do not include the purchase of fixed assets.

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Purchases Returns (Returns Outwards)

 Enquire into the internal check system regarding the returns outwards.
 Check the returns outward book with the godown-keeper's book and gate-keeper's book,
if any.
 Compare the returns outward book with the credit notes and examine correspondence.
 Check the additions of this book and find out whether the amount has been correctly
posted to the ledger.

Sales Books or Sales Journal

 Enquire into the internal check system regarding sales.

 Compare the entries in the sales book with the orders received book, carbon copies of the
invoices, the godown-keeper's book and gate-keeper's book, if any.
 Check the additions of the sales book.
 See that the total of the sales book has been correctly posted to the ledger.
 See that the sales do not include sales of assets.
 See that sales do not include goods sold on 'sale or return' basis or consignment outwards.

Sales Returns (Returns Inwards)

 Enquire into the internal check system regarding the returns inwards.
 Check the returns inward book with the godown-keeper's book and gate-keeper's book, if
any.
 Compare the returns inwards book with the counterfoils or the carbon copies of the credit
notes and goods outward book.
 Check the additions of this book.
 Check the postings to the ledger.
 Examine the correspondence regarding the goods returned.

Wages Book

 Enquire into the system of preparation of the wages sheets or wages books..
 Find out the method of employment of casual workers.
 Ascertain the system of payment of wages.
 Test the additions and extensions of the wages book or wages sheets.
 Check the deductions made on account of fines, sickness, insurance, provident fund, etc.

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  Compare the wages book or sheets with the time and piece work records maintained by
the gate-keeper or time-keeper, foreman and the godown-keeper or the Time Recording
Clock, if in use.
 Check the wages book with the Cost Sheets.
 Check the wages sheets with the Employees State Insurance cards.
 Compare the amount of wages payable as per the wages sheets and the amount of cheque
drawn for payment of wages.
 See that there is no loophole in the method of unpaid wages.

Bills Receivable Book

 Compare the opening balance in the ledger with the balance-sheet of the previous year.
 Check the entries in the bills receivable book with correspondence and any other
documentary evidence available.
 See that the proceeds of the bills are properly accounted for and the account of the
acceptor is credited with the amount.
 If any bill is dishonored, see that the account of the individual is debited with the amount
of the bill together with the noting charges, etc. and examine the returned dishonored bill.
 Check the additions in the Bills Receivable Book and verify the bills in hand.
 Check the postings to the accounts concerned.

Bills Payable Book

 Compare the opening balance in the ledger with the balance-sheet of the previous year.
 Check the entries in the bills payable book with correspondence and any other
documentary evidence available.
 Compare the bills payable book with the cash book for the bills which have been honored
and see the returned bill.
 Check the additions of the Bills Payable Book and verify the bills in hand.
 Check the postings to the accounts concerned.
 Check the balance with the ledger.

Journal Proper

 Check the opening entries with the balance-sheet of the previous year.
 Vouch the entries with the documentary evidence, e.g. correspondence, agreement,
memorandum and articles of association, minute books of the Board of Directors and
shareholders' meetings, etc.
 Check the additions of the book.
 Check the postings to the purchases, sales and nominal accounts or ledgers, etc.
 Check the closing entries with the Trading 'and Profit and Loss Account.

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Purchases Ledger (Ledger containing the accounts of Creditors)

 Check the opening balance with the balance-sheet of the previous year.
 Vouch the entries passed in the individual accounts with correspondence, cash book,
purchases book, journal, returns outward book, bills payable book and other books of
original entry.
 Compare the individual balances with the schedule of creditors supplied by the
management.
 Test a few balances by getting statements of account from a few creditors, of course, with
the permission of the client.
 Check the balances in the ledger and see whether the totals of all these balances agree
with the total of the schedule of the creditors.

Sales Ledger (Ledger containing the accounts of debtors)

 Check the opening balance with balance-sheet of the previous year.

 Vouch the entries passed in the individual accounts with correspondence, cash book,
sales book, journal, returns inward book, bills receivable book and other books of
original entry.
 Compare the individual balances, with the schedule of the debtors supplied by the
management.
 Test a few balances by getting statements o account from a few debtors, with the
permission of the client.
 Check the balances in the ledger and see whether the totals of all these balances agree
with the total of the schedule of the debtors.
 Scrutinize the list of the debtors duly certified by a responsible official of the concern to
find out the doubtful and bad debts.
 See that sufficient provision is made for bad and doubtful debts.
 If the debtors include Directors, Managing Agents, etc., see that such debtors are shown
in the balance-sheet according to the Companies Act.

Nominal Ledger

 Check the different accounts from the cash book, journal, etc.
 Check the balances of the accounts in the ledgers.
 Ascertain that necessary adjustments have been made for the following:
(a) Expenses incurred but not yet paid.
(b) Expenses paid in advance.
(c) Income receivable but not yet received.
(d) Income received in advance. 4.
 Verify the entries with the subsidiary books.

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  See that the balances are correctly carried accounts.

Audit Programme for the Statutory Report

 Examine the memorandum and Articles of Association, prospectus, or a statement in lieu

of prospectus in regard to authorized capital, its division into different classes of shares,
etc.
 Check the applications and allotment letters with the application and allotment books and
share ledgers.
 See whether the allotment is in order by referring to the minute book of the Board of
Directors.
 See that the minimum subscription had been subscribed before the allotment was made.
 Check the share applications to find out the brokerage payable on the sale of shares.
 Vouch the cash received on application with the application forms and see that entries
have been made in the share ledger when the shares have been allotted.
 Vouch the cash received on allotment with letters of allotment and see that entries have
been made in the share ledger.
 If shares have been issued to the promoters or vendors of the business taken over by the
company for consideration other than cash, examine the contract and see the letters of
authority nominating the allottees. See that the entries have been made in the share ledger
in regard to such shares.
 If the shares have been allotted to the vendors for consideration other than cash, whether
the contract with the vendors has been filed with the Registrar of the Joint Stock
Companies.
 See that the directors have taxen up and paid for their qualification shares.
 If the debentures have been issued, see that according to the prospectus and Articles of
Association.
 Vouch the receipt of cash pertaining to the debentures in the cash book or bank passbook.
 See that the money received in respect of shares and debentures, etc., has been banked in
a scheduled bank and that it has not been utilized till the grant of Certificate of
Commencement of business.
 Check the cash book with the pass nook a prepare bank a bank reconciliation statement.
Get a certificate of the balance is any suspicion.
 If any shares have been forfeited, see that it has been done according to the articles and a
resolution to that effect had been passed by the directors
 Whether the necessary returns have been sent to the Re according to the Companies Act.
 If redeemable preference shares have been issued, see that the articles permit such an
issue.

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  Vouch the underwriting commission with the agreement with the vendors and see that it
does not exceed the amount permitted by the Companies Act.
 Vouch the preliminary expenses and see if any of them had to be paid by the vendors. If
so, see that the vendor's account is debited with such amounts. See that the revenue
expenditure is not debited to Preliminary Expenses account.
 Scrutinize the capital expenditure.
 Examine the register of mortgages and charges and vouch the receipts of loans against
mortgages and debentures, if any. See that mortgages have been registered with the
Registrar of Companies and examine the Certificate of Registration issued by the
Registrar.
 Ascertain the borrowing powers of the company from the ani and see that such powers
are not exceeded.
 Vouch all the receipts and payments up to and within seven days of the report. The
receipts should be shown under distinctive headlining such as receipt from shares,
debentures and other sources and payment thereout and the balance in hand.

The certificate should be worded: "I hereby certify that the annexed statutory report of the . .
Co. Ltd. so far as it relates to the shares allotted by the company and to the cash received in
respect of such shares and to the receipt and payment of the company is correct."

General Audit Programme of a Limited Company

We have already considered in detail the steps in general to be taken by an auditor while
conducting an audit of a limited company. We have also considered the audit programme in
connection with the Statutory Report. In addition to these steps, the auditor of .a joint-stock
company should proceed on the following lines:

 Examine the memorandum and Articles of Association, prospectus or a statement in lieu

of prospectus, etc., with a view to find out the following:
(a) Qualification and remuneration of the directors;
(b) Purchase price to be paid to the vendors of business, if any, and the form in which the
payment is to be made;
(c) The powers of the directors or managing director to delegate their powers;
(d) The borrowing powers of the company and how they can be exercised.
 Examine previous year's auditor's and director's report. 3.
 Examine the minute books of the Board of Directors. and the shareholders to see the
following:
(a) The remuneration of directors and other officers;
(b) The dividend recommended by the directors;
(c) The appointment of auditors;
(d) Issue and transfer of shares and debentures;

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 (e) The treatment of underwriting commission and brokerage for placing the shares in the
market;
(f) Whether shares have been issued at a premium and if so, how is that premium treated
in the books of accounts;
(g) If the shares have been forfeited and reissued, how is the balance of the forfeited
shares account treated.
 See that the necessary returns, etc., have been filed with the Registrar of Joint-Stock
Companies.
 Compare the total issued capital with the shareholders accounts total issued capital with
the shareholders accounts in the share ledger.
 Examine the share transfer and see that there is no mistake.
 See whether the loans to the directors of the company are authorised according to the
articles and whether they have been shown separately in the balance-sheet according to
the Companies Act.
 See that the balance-sheet is drawn up in conformity with law.
 Examine the preliminary expenses, discount on debenture, discount on issue of shares,
heavy expenses on advertising, etc., and see whether they are shown separately in the
balance-sheet.
 See that the dividends have been paid according to Section 205 and the memorandum and
Articles of Association.

Special features of the Audit of Non-Trading Concerns

Charitable Institutions

 Examine the constitution, rules and regulations of the charitable institution or the Trust
Deed, if any.
 See that the funds for specific purposes have been dealt with according to the rules.
 Vouch the receipts of donations, and subscriptions as shown on the debit side of the cash
book with the counterfoils of the receipt book, register of the subscribers, list of the
donors notified in the newspapers from time to time, correspondence and any other
documentary evidence available.
 Vouch the income from investments from the Investment Register and see that income
tax deducted from dividends received 13 recovered from the income tax authorities, if the
charitable institution is not liable to income tax.
 Vouch the receipt of rents from the properties belonging to the charitable institution, with
the rent roll, agreements with the tenants. etc.
 Vouch the payment with the minute book of the trustees or the managing committee
regarding important payments.

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  Verify the purchase of investments by referring to the Bought Notes and physically
examine such investments. In case such investments are lodged with the bank, get a
certificate from the bank.
 Verify the cash and bank balance.
 See" that the accounts are drawn up in accordance with the regulations.
 If any special Act has been passed by any State relating to the Charitable Institution, e.g.;
the Bombay Trust, Waqf, etc., see that the form of accounts and the auditors report are
drawn up according to the special laws.

Clubs

 Study the constitution and bye-laws of the club particularly regard to the powers of the
officials, operation of the bank account, etc.
 Examine the minute books of the club.
 Vouch the receipt of cash on account of admission fees and subscriptions with the
counterfoils in the receipt books and list of the members.
 See that the life membership fee is carried to Income and Expenditure account over a
number of years or is treated as capital income according to rules of the club.
 See that the subscription received in advance or in arrears are properly appropriated.
 Enquire into the system of supplying meals, refreshments, drinks, etc., to the members
and vouch the receipt of cash.
 Vouch the payments on account of purchase of crockery, furniture, provisions, etc.
 See that expenditure is properly allocated between capital and revenue.
 Verify the assets, particularly stock in hand in the usual manner

Educational Institutions (Schools, Colleges or Universities)

 Examine the University Act, the rules and regulations, trust deeds, charters, etc., to
ascertain the management of the institution and especially the rules, etc., which affect the
accounts.
 Study the minute books of the Board of Management, Governing Body or Managing
Committee of the educational institution or the Senate of the University as the case may
be.
 Check the cash receipts on account of fees, etc., by referring to the counterfoils of the fee
receipt books and the register of the students.
 Irrecoverable fees should be written off by the person authorized by the Managing
Committee.
 Fee outstanding or paid in accounted for.
 Ascertain the system of the recovery of fines and extras such as examination fees, fees for
duplicate copies of diplomas, hostel rent, electricity charges, building fund, etc., and their
recovery and treatment in accounts.

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  Receipt from admission fee should be compared with the Application Forms for
Admission duly signed by the Head of the Institution.
 See that the free studentship has been granted by a responsible officer.
 Vouch the income from the landed property, endowrnents and securities, etc.
 Vouch the grant from the government or the local authorities by examining
correspondence Receipts on account of caution moneys or securities is shown on the
liability side of the balance-sheet.
 Vouch the payment of salaries to the members of the staff by reference to the salary
register, the cash book, the receipts, the counterfoils of the cheque book and the pass
book. Particular attention should be paid to any increment earned by the members of the
staff and see whether they have been sanctioned by the Managing Committee. Reference
may also be made to the copies of letters of appointment or agreements.
 Capital expenditure should be vouched as usual but see that the necessary sanction is
there.
 See that the internal check system regarding the purchase of provisions, linen, etc., for
the boarders is efficient.
 See that a donation for a particular purpose is spent accordingly.
 Distinction should clearly be made between capital and revenue income and
expenditure.
 Verify the balance at bank and cash in hand as usual.
 Verify the stock of provisions, linen, furniture, stationery etc., as usual. See that proper
record has been maintained for such articles.
 See that the outstanding assets and liabilities are taken into account.
 See that investments representing prize endowment funds are kept apart and that they are
lot mixed up with ordinary investments.
 Moneys relating to Provident Funds should be invested in securities and should be shown
separately as liabilities. Investments representing Provident Fund should be shown
separately on the assets side.
 See that refund of Income tax deducted from the dividends or interests on securities has
been claimed as educational institutions are usually exempted from the payment of
income tax on such income.

Hospitals

 Examine the internal Check System.

 Vouch the receipts with counterfoils of the receipt books.
 Subscriptions and donations, if any, must be vouched with correspondence, counterfoils
of receipt books, register of the subscribers and other documentary evidence and the cash
book.
 Receipt of rent, dividends, etc., may be vouched as usual.

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  See that the grants from local authorities are properly spent according to rules. Vouch the
grant by referring to the correspondence.
 Vouch the payment of salaries to the members of the staff and other expenses as usual.
 See that income tax paid on interest and dividends received on and shares at the source, is
reclaimed if the hospital is exempt
 See that income tax paid on interest and dividends receives on securities and shares at the
source, is reclaimed if the hospital is exempt from the payment of such income tax, etc.
 Payments should be vouched with vouchers.
 Vouch the Bill Register 9f patients with the carbon copies of the bills sent to patients.
 Compare the bills with the attendance register of the patients.
 Collections from patients should be compared with the copies of the bills, cash book and
patients account.
 See that legacies, donations, etc., made for a particular purpose are applied accordingly.
 Examine the system of receipt and issue of stores, drugs, linen, clothes, and instruments
from the suppliers and to the different wards operation theatre, etc.
 See that adequate depreciation has been provided for on fixed assets.
 Verify the closing stock.
 See that the expenditure under different heads does not exceed the budgeted amounts.

Special features of the Audit of Trading Concerns

Branches

 Examine the system of accounting maintained by the branches and if there are more
branches, he should see that a uniform system of accountancy is employed by all the
branches.
 See whether the returns from the branches are duly certified by the branch managers or
the local auditor. If he has accepted such returns, he must mention that fact in his report.
 See that the goods and cash in transit are incorporated in the books of accounts.
 See that such returns are properly incorporated in the head office books.
 If it is a foreign branch, see that the returns are converted into home currency according
to the set rules.
 Pay proper attention to the question of depreciation, reserves for bad and doubtful debts,
repairs and renewals, outstanding assets and liabilities, etc.
 If the goods are supplied to the branches at market price, see that proper adjustments are
made to arrive at the correct profit or loss.
 See that the assets and liabilities are grouped according its Schedule VI, Parts I and II of
the Companies Act,
 See that the bank balance at the branch has been confirmed.
 See that the cash in hand at the branch has been confirmed.

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Bus Companies

 Study the method of collection of fares from passengers.

 Compare the conductors' way bills with the traffic book and check a few entries with the
passengers' receipts.
 Vouch the receipts frorn advertisement in the busses with the returns from the agents and
contracts.
 Check the purchases of buses with the agreement with the sellers' invoices, Stock
Register, etc.
 If the busses have been purchased on hire-purchase system see that the interest payable
along with the installment is debited to the revenue account.
 See that if free service was to be given by the company from which busses and motors,
etc., had been purchased, full advantage is taken of that free service.
 See that expenses of repairs, etc., are debited to revenue account and that they are duly
certified by the engineer
 If repairs and renewals are of variable nature, see that repairs and renewals reserve
account is maintained.
 See that a proper system in regard to the purchase and issue of petrol, tyres, tubes, parts,
etc., exists. W. Examine the system of the payment of salaries and wages to the
engineers, clerks, drivers, conductors, etc.
 See that proper provision is made for depreciation of motors and buses.
 Verify the stock of stores, spare parts, petrol, tyres, tubes, etc.
 Vouch capital and revenue expenditure.

Cinemas, Theatres, Circuses, etc.

 Check the daily receipts as shown in the cash book with the Daily Returns of the tickets
sold and the counterfoils of the tickets. See whether there is a good internal check
regarding the sale of tickets of different classes.
 Money received on account. of advance booking should be carried over.
 Check the receipts on 'account of the sale of tickets with the amount of entertainment tax
paid.
 Check the receipts from the sale of drinks, refreshments, programme books, etc., and see
that the sales are supervised by a responsible official. These accounts should be
separately maintained to see what profit is made on account of these items.
 Enquire whether the unused tickets are kept under lock and key by a responsible official.
 Vouch the receipts on account reference to correspondence, contracts, etc.
 Check the payments on account of salaries, wages, electricity, purchases, etc.
 See that distinction has been made between capital and revenue expenditure.

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  Vouch the payments on account of advertisements with the agreements entered into with
the advertising agents.
 See that proper depreciation is provided for on assets like films, scenery, machines,
dresses, furniture and other equipments.
 Check the entertainment tax account with the counterfoils of the tickets sold.
 Verify the closing stocks.
 In the case of a theatre, all expenses incurred in connection with a production, such as
dresses, scenery, etc., should be spread over a period till the show lasts and all the
receipts by sale of tickets should not be credited to profit and loss account till the
expenses are recouped.

Collieries

 Enquire into the system of preparation of wages sheets and the payment of wages.
 Enquire into the capital expenditure are such as sinking of pits, construction of
tramways & railways construction of workmen's cottages, purchase of machinery and
plant and other fixed assets.
 If the wagons have been purchased on hire-purchase system see that proper allocation is
made between capital and revenue (interest).
 Inspect the arrangements in regard to leases, royalties, dead rent, short-workings, etc.
 Verify the sales with the accounts of the agents.
 Verify the income (rent) from workmen's cottages, etc.
 See that proper provision is made for depreciation on fixed assets such as rolling stock,
machinery, etc.
 Refer to the articles of the company in regard to provision for depreciation on leases and
concessions.
 Any development expenses should be treated as capital expenditure and written off over
a number of years.
 Compare the cost of production per ton with the previous year If there is any difference,
enquire into its causes.
 Enquire into the basis of the valuation of the closing stock. If the cost of production is
more than the selling price, it should be valued at the lower price.

Contractors and Builders

 Enquire into the system of recruitment of labour, fixing their wages, account of wages
payable to the labourers and the method of payment of such wages.
 Enquire into the system of purchases of materials, etc.
 Enquire into the system of the issue of materials of different jobs direct or through the
Central Stores Department.

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  What is the system of allocating establishment expenses such as manager's salary, rent of
godown, carriage, etc, to different jobs and contracts.
 The method of depreciation of fixed assets and the allocation of such depreciation to
different jobs and contracts should be enquired into.
 See that separate record is maintained for each contract or job and that a proper record is
maintained for the transfer of plant from one job to another.
 Ascertain the mode of valuation of stock and work-in-progress.
 Enquire into the method of the ascertainment of profits on incomplete contracts. For this
purpose inspect building agreements, architect’s certificate, etc. See that the profit
ascertained is on very conservative basis, taking into consideration any future
contingency, higher wages, cost of materials going up, etc.
 Enquire into the method of the valuation of the closing stock of materials and incomplete
contracts. See that all the purchases have been debited to the work-in-progress.
 Examine the costing system and compare it with the financial mcords.
 Vouch the receipts on account of contracts.

Co-operative Societies

 The auditor of a Co-operative Society is appointed by the Registrar of Go-operative

Societies.
 Study the Co-operative Societies Act, 1912, and rules and regulations as far as they
concern the accounts. In case such an Act has been replaced by state legislation, examine
the provisions of such a special legislation.
 See that n member does not hold more than 10 per cent of the share capital of the society.
 Vouch the receipt of cash on account of share capital with the register of the
shareholders, counterfoils of the receipts, etc.
 Vouch the receipts on account of deposits with the cash book and the counterfoils of the
receipts and compare the relative accounts. Deposits from non-members can be accepted
only according to the terms and conditions of the Society.
 Vouch any money borrowed from the central co-operative bank with cash book,
correspondence and any other documentary evidence available.
 Vouch the receipt of interest and return of loans from the 4 borrowers with the
agreements for the grant of loans and the relative rules and regulations of the Society.
 Vouch the loans granted with agreements. Loans can be granted only to the members but
in special cases they may be granted to non-members with the general or special sanction
of the Registrar.
 Vouch other expenses as usual.
 See that at least 25 per cent of the profit is carried to the Reserve Fund and 10 per cent is
carried to Welfare Fund.

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  Verify the cash in hand and investments. The surplus funds of Co-operative Society can
be invested only in Government Savings Banks or ar4io bank which is on the approved
list of the Registrar. It can also invest its funds in the securities specified in Section 20 of
the Indian Trust Act, 1882, or in the shares and securities of other Co-operative Societies
with limited liability.
 If the Society is consumers' society, check the sales with the summaries and the sales
account.
 Check the purchases with the order book, purchases book, stock book, etc.
 Verify the stock and examine the method of the valuation of stock.
 See that the dividends are paid to members according to the rules and regulations of the
society and the Co-operative Societies Act. The rate should not exceed 61 per cent.
 See that the accounts are prepared according to the Co-operative Societies Act. The
special provisions in the Income Tax. Act concerning the Co-operative Societies should
be noted.

Electric and Gas Companies

 Study the special Acts concerning such companies and particularly the provisions of the
Electricity (Supply) Act, 1948, and the Indian Electricity Act, 1910, relating to the
accounts of the company.
 Enquire into the internal check system regarding the records of the consumption of
electric current by the consumers—whether individuals or municipality, etc.
 Compare the consumers' tabular ledger with the original records.
 Examine the receipt of cash from consumers with the bills and counterfoils of the
receipts.
 See whether the consumers have taken advantages of the cash discount by paying the
bins within the prescribed period.
 See whether arrears have been recovered in the subsequent period.
 Whether bad debts have been written off on the advice of a responsible official and
whether the connections of such delinquent consumers have been cut off.
 Inspect the contracts for the supply of current to the municipality and whether any
special rate is to be charged from it.
 See whether the allocation of wages between capital and revenue has been done on the
advice of the chief engineer.
 See that the salaries of the engineers, managers, accountants, etc., are allocated between
generation, distribution and management departments on proper basis.
 When assets are replaced, see that the cost of replacement is properly allocated between
capital and revenue.
 See that repairs and renewals are charged to revenue account.

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  See that proper depreciation is provided on plant and machinery, mains, meters, stores,
etc.
 Check the stores book.
 See that the accounts and balance-sheet are prepared according to the prescribed forms,
given in the Electricity (Supply) Act, Indian Electricity Act and the Companies Act as is
applicable.
 The auditor should see whether the annual accounts of the company have been submitted
to the State Government or such authority as is appointed by the State Government in the
prescribed manner and on or before the prescribed date.

Executors and Trustees

 Before the commencement of the audit obtain the following documents:

(a) Copy of the Trust Deed.
(b) List of the books of account.
(c) A schedule of the Investments.
(d) A Statement of Account.
 Examine the system of Internal Check in operation.
 Examine the will and codicils, or the Trust Deed as the case may be, paying particular
attention to the points affecting the accounts, the powers of the executors and trustees,
the instructions regarding the carrying on of the business, treatment of the annuities,
creation of trusts for the minors and others, beneficiaries, etc.
 Examine the Estate Duty Account and the Affidavits in order to see what assets and
liabilities were left by the deceased. If possible, examine the private books of accounts of
the deceased and see whether the Estate Duty Account is correct.
 Examine the minute books of the trustees in regard to any transactions affecting
accounts.
 See whether rents from estates, income from investments, etc. have been duly accounted
for. Vouch such receipts in the usual manner.
 See whether trustees have committed any breach of duty and whether they have made the
necessary amendment to the default.
 Verify- the assets and see that the income and rents, etc. which had accrued on the date
of the death of the deceased have been brought into account and capitalized.
 See that the debts of the deceased have been paid off and vouch such payments.
 Vouch the purchase of investments with the bought notes sent by the brokers.
 Vouch the purchase of estates, etc., with the title deeds, etc.
 Payments to the beneficiaries should be vouched with vouchers and see that the
payments are according to the trust deed or the will.
 If the estate of the deceased consists of several buildings which have been let out, see
that proper rent rolls are maintained.

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Finance and Trust Companies

 Study the Memorandum and Articles of Association of the company in order to know the
aims, objects and limitations of the company.
 Vouch the purchase and sale of securities, stocks, shares, etc-, with the brokers' bought
and sold notes, correspondence and any other documentary evidence available.
 If shares, etc., have been allotted to the company for consideration other than cash,
examine the agreement or correspondence, etc.
 If shares, etc., have been purchased and sold "cum-dividend" see that dividend is
subsequently received and see that the net value of the investment is treated as the cost of
the investment concerned.
 See that the interest, dividends, etc., accrued but not paid at the date of the balance-sheet
is credited to the revenue account at the date of the balance-sheet.
 Vouch the receipt of dividends and interest.
 Verify the cash in hand, at bank and investments.
 Verify the valuation of the investments at the close of the period. It must be noted that for
a trust company, though the investments arc to be treated as fixed assets, there is no
necessity to provide any depreciation on such investment for the purpose of the balance-
sheet unless the articles of the company so provide.
 If there is a loss on the sale of investments, such a loss need not be met out of profits of
the current year, for such a loss is to be treated as a capital loss. Similarly if there is a
profit on the sale of investments, it is a capital profit. However, such a profit may be
distributed amongst the shareholders
(a) If the Articles of Association permit this;
(b) Such a profit has been realised in cash; and
(c) Other assets have been revalued.
 If there is any liability in regard to partly-paid shares held by the company, make a note
on the face of the balance-sheet to that effect.
 Examine the minute book of the directors.
 If certain investments are held for the purpose of resale, any profit or loss on such resale
must be carried to revenue account.

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Hotels

 Ascertain the system of book-keeping in vogue in the hotel.

 Enquire into the internal check system regarding the following:
(a) Purchase and issue of provisions, stores, wines, linen, crockery, etc.
(b) payment for provisions, stores, wines, etc.
(c) Receipt of cash on account of daily sales; room, rent, meals, wines, billiards, etc.
 Verify the stocks.
 Check the cash book with the window ledger.
 Visitors' Ledger should be carefully examined to see whether 84 charges against them
are entered in their accounts.
 Check the postings from the window ledger into the personal ledger.
 Vouch wages and salaries, etc.
 See that proper distinction is made between capital and revenue expenditure.
 Ascertain whether proper provision has been made for depreciation on crockery,
furniture, linen, etc. The method for depreciation should be applied consistently.
Sometimes these articles are revalued. In some hotels, expenditure on these items is
capitalised and a Renewal Account is created with an amount based on previous
experience by debiting the Revenue Account.

Newspapers and Periodicals

 Enquire into the system of issue of the paper to newspaper agents and subscribers.
 Enquire into the system of returned newspapers if the system of unsold copies to be
returned prevails.
 Vouch the receipts on account of subscription and advertisement charges and see that the
unexpired subscription or advertisement charges paid in advance is taken into
consideration on the balance-sheet date.
 Payments made to contributors should be vouched with vouchers.
 See that provision is made for damages, for defamation, if any payable for any article
published in the. paper.
 See that the advertisement journal showing advertising booking for each edition is
properly maintained.
 See that the advertising revenue has been received in advance for a number of editions
and whether provision has been made for revenue received in advance at the time of
closing the books of account.
 Check the advertisement journal with the advertisement accounts.
 See that the outstanding amounts due to contributors are brought into account.

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Publishers

 Agreement with authors and royalties payable to them should be examined.

 Examine the cost amounts of each book. The unsold books at the date of the balance-
sheet should be valued at cost price, and if the book has not been popular, it may be
valued even at below the cost price.
 See that proper provision is made for libel or infringement o copyrights in case a suit
against the company is still pending at the date of the balance-sheet.
 Copyrights should be revalued from time to time.
 If heavy expenses have been incurred in advertising a book, suet expenses should be
treated as deferred revenue expenditure. 6. If the sale of the book is very slow, see that
sufficient provision has been made for the unsold stock of that book.

Railway Companies

 Examine the internal check system and study the Act according to which the railway
company has been established.
 Vouch the cash receipts with the monthly summaries sent by the station masters and
agents in regard to the sale of tickets, freight, etc.
 Examine the railway clearing house statements and check them with ledger.
 See that proper distinction is made between capital and revenue expenditure.
 See that proper provision is made for depreciation on loco-motives, rolling stock,
buildings, permanent ways, etc., and examine the chief engineer's certificate in this
respect.
 Test a few items of expenditure with vouchers, etc.
 Verify the investments.
 See that the stocks of stores, responsible officer and check a few items.
 Examine the outstanding assets and liabilities.
 See that interest payable on loans and debentures is debited to the revenue account.
 See that the final accounts are prepared in accordance with the Statute etc., are duly
certified by a

Retailers

 Examine the internal check system regarding the cash and credit sales.
 See whether National Cash Register sales.
 Enquire into the system of credit sales.
 Check the summaries of the salesmen cashier and the gate-keeper, if any.
 Vouch the debit side of the cash book Register or the automatic till.
 Vouch the payments in the usual way.
 Check the credit sales with invoices, received book, godown-keeper's book, etc.

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  If there are several departments, see that establishrnent expenses are allocated to
different departments according to a set principle.
 Verify the closing stock.

Rubber, Tea and Coffee Plantations

 If it is the first audit of the plantation, verify the purchase of .estates by examining the
title deeds and study the terms on which the estates are held. See that the estates are free
from any encumbrance.
 Scrutinize the expenditure and see that expenses such as purchase of property, buildings,
plant, machinery, rubber or the plantations not bearing, clearing expenses, etc., are
charged to capital account while expenses such as upkeep of the plant and machinery,
cultivation, picking of 'caves, manufacturing expenses are debited to revenue account.
 See that the general expenses have been allocated in proportion to the acreage of the area
which is bearing and which is not bearing the total area.
 Vouch the payment of wages.
 Vouch the total production with the production sold as per the returns of the agents and
the stock in hand as per the certificate of the Estate Manager
 See that the returns are properly incorporated in the Head Office books. If the estates are
in a foreign country, see that the figures are converted into home currency according to
the set rules.
 Verify the stock and see that it is properly valued.

Shipping Companies

 See that a separate account is maintained for each voyage.

 See that a separate ledger account is maintained for each ship.
 Compare the money received on account of freight and passage with the certified
summaries and the journal or cash book.
 See that each voyage account is debited with the expenses and proportionate insurance
premium. If any provisions, coal and stores are in hand at the conclusion of the voyage,
such expenses should be adjusted and carried to the next voyage account.
 Outstanding liabilities should also be adjusted.
 If return tickets have been issued, see that each voyage account is not credited with the
full price of the return ticket but necessary adjustment is made.
 Examine the insurance policies in regard to the insurance premium and the period for
which the policy is taken.
 See that proper provision is made for depreciation on ships, linen, crockery, etc.
 Pay particular attention to the foreign currencies.
 Verify the stores and examine the method of their valuation.
 See that proper distinction is made between capital and revenue expenditure.

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  See that the usual repairs and renewals are debited to revenue account while heavy
expenses such as overhauling expenses are spread over a number of years.

Solicitors

 See that a separate bank account is maintained in respect of cash received or paid on
behalf of the clients.
 Examine the payments made out of the client's banking account and see that only moneys
payable by the client is withdrawn except
(a) Any money payable by the client to pay off the money borrowed by him from the
'solicitor;
(b) Any money which might have been deposited in the client's account by mistake; and-
(c) Any money which- might have been paid by the solicitor to open the client's bank
account.
 Compare the balance shown by the client's bank account with the client's account in the
ledger.
 Examine the bills of costs sent to the clients and see that the amounts have been debited
to the client's accounts in the ledger. See that the amount of the bills of costs is also
recorded in the client's ledger.
 See that outstanding costs are taken into consideration while preparing the final
accounts.
 Similarly see that any money paid in advance by the client is shown as a liability.
 See that premiums received from articled clerks are spread over the duration of their
articles.

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