Incentive Exam for Sr Auditor-2021

S.No. Question Repeat

1 Central Audit (important source documents to be checked) 9
The systems of Central audit is confined to the offices of Accountant General (Audit) located in
the State Capital. Central Audit is based on the Accounts, vouchers schedules and other documents
submitted to him by various disbursing authorities like the Treasuries, PW Divisions, Forest Divisions
as also the copies of sanction endorsed to the AG's by the various sanctioning authorities. The
following are the duties and functions carried out in Central Audit.
a) Audit of sanction and agreements
b) Audit of vouchers and monthly accounts
c) Recording of the objections in the objection book and issue of the objection memos and
pursuance with the concerned departments
d) Scrutiny and certification of finance and appropriation accounts
Central Audit is by and large regularity and propriety.
The primary objectives of Central Audit are to:
(i) check whether vouchers are in the prescribed form and have been prepared according to
extant rules;
(ii) scrutinize whether the rules and orders issued by Government themselves are intra vires;
(iii) examine whether the contract agreements are definite and precise and are based on
standard practices;
(iv) examine whether the sanctions have been issued by the competent authority;
(v) check the monthly accounts and related schedules received from the Public Works and
Forest divisions; and
(vi) check whether Travelling allowance, medical, establishment and other bills are
arithmetically correct and conform to the relevant rules and regulations.
Some important source documents to be checked in Central Audit are the following:
(i) Contingent Vouchers.
(ii) List of payments.
(iii) Monthly accounts of Public Works and Forest Divisions.
(iv) Schedules and Schedule Dockets accompanying monthly accounts.
(v) Contract agreements.
(vi) Sanctions to expenditure.
(vii) Financial Rules and Orders affecting expenditure and other transactions issued by
Government.
(viii) Establishment bills and other bills relating to entitlements of government servants, such as
travelling allowance, reimbursement of expenses on medical treatment, advances, etc.
(ix) Certificates of payments.
(x) Proforma invoices.
2 Public Accounts Committee, Scope and Functions 7
The Public Accounts Committee (PAC) is a committee of selected members of parliament, constituted
by the Parliament of India, for the purpose of auditing the revenue and the expenditure of the
Government of India. They check that parliament exercises over the executive stems from the basic
principle that parliament embodies the will of the people. This committee along with the Estimates
committee (EC) and Committee on Public Undertakings (COPU) are the three financial standing
committees of the Parliament of India.
It serves as a check on the government especially with respect to its expenditure bill and its
primary function is to examine the audit report of CAG (CAG) after it is laid in the Parliament.
CAG assists the committee during the course of investigation. None of its members are allowed to be
ministers in the government. The main function of the committee is to ascertain whether the money
granted by parliament has been spent by government within the scope of the demand.
The Public Accounts Committee consists of not more than twenty-two members, fifteen
elected by Lok Sabha, the lower house of the Parliament, and not more than seven members of
Rajya Sabha, the upper house of the Parliament. The members are elected every year from
amongst its members of respective houses according to the principle of proportional representation by
means of single transferable vote. The chairperson is appointed by the Lok Sabha speaker. The term of
office of the members is one year.
Scope and Functions
The functions of the Committee, as enshrined in Rule 308(1) of the Rules of Procedure and
Conduct of Business in Lok Sabha, include examination of accounts showing the appropriation of sums
granted by Parliament for the expenditure of the Government of India, the annual finance accounts of
the Government and such other accounts laid before the House as the Committee may think fit. In
scrutinising the Appropriation Accounts of the Government of India and the Report of the Comptroller
& Auditor General of India thereon, the Committee has to satisfy:
(a) that the moneys shown in the accounts as having been disbursed were legally available for,
and applicable to, the service or purpose to which they have been applied or charged;
(b) that the expenditure conforms to the authority which governs it; and
(c) that every re-appropriation has been made in accordance with the provisions made in this
behalf under rules framed by competent authority.
It shall also be the duty of the Committee –
(a) to examine the statement of accounts showing the income and expenditure of state
corporations, trading and manufacturing schemes, concerns and projects together with the
balance sheets and statements of profit and loss accounts which the President may have
required to be prepared or are prepared under the provisions of the statutory rules regulating
the financing of a particular corporation, trading or manufacturing scheme or concern or
project and the report of the CAG thereon.
(b) to examine the statement of accounts showing the income and expenditure of autonomous
and semi autonomous bodies, the audit of which may be conducted by the CAG of India either
under the directions of the President or by a statute of Parliament; and (c) to consider the report
of the CAG in cases where the President may have required him to conduct an audit of any
receipts or to examine the accounts of stores and stocks. If any money has been spent on any
service during a financial year in excess of the amount granted by the House for that purpose
the Committee shall examine with 3 reference to the facts of each case the circumstances
leading to such an excess and make such recommendation as it may deem fit.
3 Powers of CAG i.r.o. the audit of accounts 7
Section 18 of DPC Act= Powers of CAG in connection with audit of accounts.
(1) The CAG shall in connection with the performance of his duties under this Act, have authority-
(a) to inspect any office of accounts under the control of the Union or of a State, including
treasuries and such offices responsible for the keeping of initial or subsidiary accounts, as
submit accounts to him;
(b) to require that, any accounts, books, papers and other documents which deal with or from
the basis of or are otherwise relevant to the transactions to which his duties in respect of audit
extend, shall be sent to such place as he may appoint for his inspection ;
(c) to put such questions or make such observations as he may consider necessary, to the person
in charge of the office and to call for such information as he may require for the preparation of
any account or report which it is his duty to prepare.
(2) The person in charge of any office or department, the accounts of which have to be inspected and
audited by the CAG, shall afford all facilities for such inspection and, comply with requests for
information in as complete a form as possible and with all reasonable expedition.
4 Finance commission and its constitutional provisions 7
The Finance Commission is constituted by the President under article 280 of the Constitution, mainly
to give its recommendations on distribution of tax revenues between the Union and the States and
amongst the States themselves. Two distinctive features of the Commission’s work involve redressing
the vertical imbalances between the taxation powers and expenditure responsibilities of the centre and
the States respectively and equalization of all public services across the States.
5 Classification of govt accounts 5

The Constitution of India provides for the following three kinds of funds for the Central government:
1. Consolidated Fund of India (Article 266)
2. Public Account of India (Article 266)
3. Contingency Fund of India (Article 267)
Consolidated Fund of India (Article 266)
Under Article 266 (1) of the Constitution of India, all revenues (for example tax revenue from
personal income tax, corporate income tax, customs, and excise duties as well as non-tax revenue such
as license fees, dividends, and profits from public sector undertakings, etc.) received by the Union
government as well as all loans raised by the issue of treasury bills, internal and external
loans and all money received by the Union Government in repayment of loans shall form a
consolidated fund entitled the ‘Consolidated Fund of India’ for the Union Government.
Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund of State (a
separate fund for each state) has been established where all revenues (both tax revenues such as Sales
tax/VAT, stamp duty, etc.. And non-tax revenues such as user charges levied by State governments)
received by the State government as well as all loans raised by the issue of treasury bills, internal and
external loans and all money received by the State Government in repayment of loans shall form part
of the fund.
The CAG of India audit these Funds and reports to the Union/State legislatures when proper
accounting procedures have not been followed.
Public Account of India (Article 266)
All other public money (other than those which are credited to the Consolidated Fund of India)
received by or on behalf of the Government of India shall be credited to the Public Account of India.
This includes provident fund deposits, judicial deposits, savings bank deposits, departmental
deposits, remittances, and so on. This account is operated by executive action, that is, the payments
from this account can be made without parliamentary appropriation. Such payments are mostly in the
nature of banking transactions.
Contingency Fund of India
The Contingency Fund of India is established under Article 267(1) of the Indian Constitution. It is in
the nature of an imprest (money maintained for a specific purpose).Accordingly, Parliament enacted
the contingency fund of India Act 1950.
The fund is held by the Finance Secretary (Department of Economic Affairs) on behalf of the
President of India and it can be operated by executive action. The Contingency Fund of India exists
for disasters and related unforeseen expenditures.
In 2005, it was raised from Rs. 50 crores to Rs 500 crore. Approval of the Parliament of India for such
expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently
obtained to ensure that the corpus of the Contingency Fund remains intact.
Similarly, the Contingency Fund of each State Government is established under Article 267(2) of
the Constitution – this is in the nature of an imprest placed at the disposal of the Governor to enable
him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the State
Legislature.
Approval of the Legislature for such expenditure and for withdrawal of an equivalent amount from the
Consolidated Fund is subsequently obtained, whereupon the advances from the Contingency Fund are
recouped to the Fund. The corpus varies across states and the quantum is decided by the State
legislatures.
6 Form of Accounts - Main Divisions of Accounts 5
Government accounts shall be kept in the following three parts:-
 Part I Consolidated Fund
of India (including Union Territory Administration or of the State
or Union Territory Government concerned.
Part II Contingency Fund

of India (including Union Territory Administration/

Part III Public Account
Government) or of the State concerned.
NOTE:- There being no separate Public Account in the case of Union Territory Governments, the
transactions pertaining to this account shall be booked in the Public Account of the Central
Government.
In part I, namely Consolidated Fund, of the accounts, there shall be two main divisions, namely:—
(i) Revenue Consisting of sections for 'Receipt heads (Revenue Account)' and 'Expenditure heads
(Revenue Account)'.
(ii) Capital, Public Debt, Loans consisting of sections for 'Receipt heads (Capital Account)',
'Expenditure heads (Capital Account)', and 'Public Debt', 'Loans', and 'Advances'.
The first division shall comprise the section Receipt heads (Revenue Account) dealing with the
proceeds of taxation and other receipt classed as revenue, and the Section 'Expenditure heads
(Revenue Account)' dealing with expenditure met therefrom.
The second division shall comprise the following sections:—
(a) The Section 'Receipt heads (Capital Account)' which deals with receipts of a Capital nature which
cannot be applied as a set off to Capital Expenditure.
(b) The Section 'Expenditure heads (Capital Account)' which deals with expenditure met usually
from borrowed funds with the object of increasing concrete assets of a material and permanent
character. It also includes receipts of a Capital nature intended to be applied as set off to Capital
expenditure.
(c) The Section 'Public Debt' Loans and Advances, which comprise, of loans raised and their
repayments by Government such as, Internal Debt, External Debt of the Central Government, and
loans and Advances made by Governments and their recoveries; transactions relating to 'Appropriation
to Contingency Fund' and 'Inter-State Settlement';
In Part II, namely Contingency Fund, of the accounts shall be recorded the transactions connected with
the Contingency Fund set up by the Government of India or of a State or Union Territory Government
under Article 267 of the Constitution/ Section 48 of the Union Territories Act, 1963.
In Part III, namely Public Account, of the accounts, the transactions relating to Debt (Other than those
included in Part I), 'Deposits', 'Advances', 'Remittances' and 'Suspense' shall be recorded. The
transactions under Debt, Deposit and Advances in this part are such in respect of which Government
incurs a liability to repay the moneys received or has a claim to recover the amounts paid, together
with the repayments of the former (Debt and Deposits) and the recoveries of the latter (Advances). The
transactions relating to 'Remittances' and 'Suspense' in this Part shall embrace all merely adjusting
heads under which shall appear such transactions as remittances of cash between treasuries and
currency chests and transfer between different accounting circles. The initial debits or credits to these
heads will be cleared eventually by corresponding receipts or payments either within the same circle of
account or in another account circle.
7 Functions of cag in the case of grants or loans given to the other authorities or 5
bodies?
Section 15 of DPC Act= Functions of CAG in the case of grants or loans given to other authorities
or bodies.
(1) Where any grant or loan is given for any specific purpose from the Consolidated Fund of
India or of any State or of any Union territory having a Legislative Assembly to any authority or
body, not being a foreign State or international Organisation, the CAG shall scrutinise the
procedures by which the sanctioning authority satisfies itself as to the fulfilment of the
conditions subject to which such grants or loans were given and shall for this purpose have
right of access, after giving reasonable previous notice, to the books and accounts of that
authority or body:
Provided that the President, the Governor of a State or the Administrator of a Union territory
having a Legislative Assembly, as the case may be, may, where he is of opinion that it is
necessary so to do in the public interest, by order, relieve the CAG, after consultation with him,
from making any such scrutiny in respect of any body or authority receiving such grant or loan.
(2) Except where he is authorised so to do by the President, the Governor of a State or the
Administrator of a Union territory having legislative Assembly, as the case may be, the CAG
shall not have, while exercising the powers conferred on him by sub-section (1), right of access
to the books and accounts of a corporation to which any such grant or loan as is referred to in
sub-section (1) is given if the law by or under which such corporation has been established
provides for the audit of the accounts of such corporation by an agency other than the CAG:
Provided that no such authorisation shall be made except after consultation with CAG and
except after giving the concerned corporation a reasonable opportunity of making
representations with regard to the proposal to give to the CAG right of access to its books and
accounts.
8 Vote on Accounts 5
When the Union government needs to withdraw any money from the Consolidated Fund of
India to cover its expenditure (especially during the time when elections are underway and a
caretaker government is in place), it has to seek approval from Parliament.
Article 266 of the Constitution mandates that parliamentary approval is required to draw money from
the Consolidated Fund of India.
A special provision is, therefore, made for a 'Vote on Account' by which the government obtains
the vote of Parliament for a sum sufficient to incur expenditure on various items for a part of
the year.
This enables the government to fund its expenses for a short period of time or until a full Budget is
passed. Most importantly, a 'Vote on Account' cannot alter direct taxes since they need to be passed
through a Finance Bill.
Normally, the 'Vote on Account' is taken for two months for a sum equivalent to one sixth of the
estimated expenditure for the entire year under various demands for grants. It stays valid for two
months but however, it can be extended if the year is an election year and it is anticipated that the
main demand and the appropriation bill will take longer to be passed by the house.
9 Appropriation bill 5
Appropriation Bill is a money bill that allows the government to withdraw funds from the
Consolidated Fund of India to meet its expenses during the course of a financial year.
 As per article 114 of the Constitution, the government can withdraw money from the
Consolidated Fund only after receiving approval from Parliament.
 To put it simply, the Finance Bill contains provisions on financing the expenditure of the
government, and Appropriation Bill specifies the quantum and purpose for withdrawing
money.
10 Provision regarding Audit of govt companies and corporations 5
Section 19 of DPC Act. Audit of Government companies and corporations.
(1) The duties and powers of the CAG in relation to the audit of the accounts of Government companies
shall be performed and exercised by him in accordance with the provisions of the Companies Act, 1956
(1 of 1956).
(2) The duties and powers of the CAG in relation to the audit of the accounts of corporations (not being
companies) established by or under law made by Parliament shall be performed and exercised by him
in accordance with the provisions of the respective legislations.
(3) The Governor of a State or the Administrator of a Union territory having a Legislative Assembly
may, where he is of opinion that it is necessary in the public interest so to do, request the CAG to audit
the accounts of a corporation established by law made by the Legislature of the State or of the Union
territory, as the case may be, and where such request has been made, the CAG shall audit the accounts
of such corporation and shall have, for the purposes of such audit, right of access to the books and
accounts of such corporation:
Provided that no such request shall be made except after consultation with the CAG and except after
giving reasonable opportunity to the corporation to make representations with regard to the proposal
for such audit.
11 propriety audit 5
PROPRIETY AUDIT:
Objective of the Audit: To identify improper, avoidable, or wasteful expenditure.
a) Regularity audit alone was not sufficient to protect Properly the Public interest in the
spending of money because even though expenditure has been incurred in confonnity with the
existing rules and regulations but still it may be highly wasteful.
b) Therefore the Auditor should look into the financial propriety of the transaction with
respect to reasonableness, faithfulness and economy of expenditure.
General principles or guidelines for judging Propriety: It is difficult to frame any precise rules for
regulating the course of audit against propriety. It purely depends on the common sense and logic
applied by the auditor depending on the circumstances.
However, some general principles have been laid down as follows:
1. The expenditure should not be prima facie more than the occasion demands. Every public
officer is expected to exercise the same prudence in respect of expenditure incurred from public
moneys as a person of ordinary prudence would exercise in respect of expenditure of his own
money.
2. No authority should pass an order for sanctioning an expenditure which will be directly or
indirectly to its own advantage
 3. Public moneys should not be utilized for the benefit of a particular person or section of the
community.
Exceptions:
a) The amount of expenditure involved is insignificant
b) A claim for the amount could be enforce iin a court of law
c) The expenditure is in pursuance of a recognised policy or custom
d) The amount of allowances granted to meet expenditure of a particular type
should be so regulated that the allowance are not become sources of profit to the
recipients.
4. The expenditure should
a) Pass down to the beneficiary without corruption.
b) Bring out optimum enduring benefits instead of mere spending away the public
money on meeting day to day needs repeatedly.
c) Should not exceed the benefits derived from the expenditure.
d) Should not become profits when it is only compensatory in nature.
12 Duties of the CAG in respect to compilation of accounts of Union and States 4
DPC ACT Secion 10= CAG to compile accounts of Union and States.
(1) The CAG shall be responsible-
(a) for compiling the accounts of the Union and of each State from the initial and subsidiary
accounts rendered to the audit and accounts offices under his control by treasuries, offices or
departments responsible for keeping of such accounts; and
(b) for keeping such accounts in relation to any of the matters specified in clause (a) as may be
necessary:
[Provided that the President may, after consultation with the CAG, by order, relieve him from
the responsibility for compiling-
(i) the said accounts of the Union (either at once or gradually by the issue of several
orders) ; or
(ii) the accounts of any particular services or departments of the Provided further that
the Governor of a State may, with the previous approval of the President and after
consultation with the CAG, by order, relieve him from the responsibility for compiling-
(i) the said accounts of the State (either at once or gradually by the issue of several
orders) ; or
(ii) the accounts of any particular services or departments of the State :]
[Provided also] that the President may, after consultation with the CAG, by order, relieve him
from the responsibility for keeping the accounts of any particular class or character.
(2) Where, under any arrangement a person other than the CAG has, before the commencement of
this Act, been responsible-
(i) for compiling the accounts of any particular service or department of the Union or of a State,
or
(ii) for keeping the accounts of any particular class or character.
such arrangement shall, notwithstanding anything contained in subsection (1), continue to be in force
unless, after consultation with the CAG, it is revoked in the case referred to in clause (i), by an order of
the President or the Governor of the State, as the case may be, and in the case referred to in clause (ii),
by an order of the President.
13 Finance Accounts 4
The Finance Accounts of Government of India/State presents the financial position of the Union/State
along with details of receipts and disbursements of the Government for the year.
This is prepared by the CAG of India in accordance with requirements of Articles 149, 150 and 151 of
the Constitution of India and the CAG’s (Duties, Powers and Conditions of Service) Act, 1971.
14 Appropriation Accounts 4
The Appropriation Accounts presents the sums expended in the year against the provisions specified in
the schedules appended to the Appropriation Act.
This is prepared by the CAG of India in accordance with requirements of Articles 149, 150 and 151 of
the Constitution of India and the CAG’s (Duties, Powers and Conditions of Service) Act, 1971.
15 Supplementary Grants 4
Supplementary Demand for Grants
 Article 115 of the constitution provides for Supplementary, additional or excess grants.
(Note: Article 116 provides for Votes on account, votes of credit and exceptional grants.)
 They are additional grants which are required to meet the expenditure of the government
 Their demand is presented when the authorized amounts are insufficient and need for
additional expenditure has arisen.
Why need supplementary grants?
 When actual expenditure incurred exceeds the approved grants of the Parliament, the Ministry
of Finance and Ministry of Railways presents a Demand for Excess Grant.
 It is needed for government expenditure over and above the amount for which Parliamentary
approval was already obtained during the Budget session.
 When grants, authorised by the Parliament, fall short of the required expenditure, an estimate is
presented before the Parliament for Supplementary or Additional grants.
 These grants are presented and passed by the Parliament before the end of the financial year.
16 Exceptional Grants 4
It is granted for a special purpose and forms no part of the current service of any financial year.
( Article 116 of The Constitution of India has provisions regarding this )
17 Constitutional provisions regarding Borrowings by the union and states 5
Article 292 of Constitution of India "Borrowing by the Government of India"
The executive power of the Union extends to borrowing upon the security of the Consolidated Fund of
India within such limits, if any, as may from time to time be fixed by Parliament by law and to the
giving of guarantees within such limits, if any, as may be so fixed.
Article 293 of Constitution of India "Borrowing by States"
(1) Subject to the provisions of this article, the executive power of a State extends to borrowing within
the territory of India upon the security of the Consolidated Fund of the State within such limits, if any,
as may from time to time be fixed by the Legislature of such State by law and to the giving of
guarantees within such limits, if any, as may be so fixed.
(2) The Government of India may, subject to such conditions as may be laid down by or under any law
made by Parliament, make loans to any State or, so long as any limits fixed under Article 292 are not
exceeded, give guarantees in respect of loans raised by any State, and any sums required for the
purpose of making such loans shall be charged on the Consolidated Fund of India.
(3) A State may not without the consent of the Government of India raise any loan if there is still
outstanding any part of a loan which has been made to the State by the Government of India or by its
predecessor Government, or in respect of which a guarantee has been given by the Government of
India or by its predecessor Government.
(4) A consent under clause (3) may be granted subject to such conditions, if any, as the Government of
India may think fit to impose.
18 Principles governing allocation of expenditure on a capital scheme between 4
capital and revenue expenditure?
Allocation between capital and revenue expenditure on a capital scheme
(1) The allocation between capital and revenue expenditure on a Capital Scheme for which separate
capital and revenue accounts are to be kept shall be determined in accordance with such general or
special orders as may be prescribed by the President on the advice of the CAG.
(2) The following are the main principles governing the allocation of expenditure on a Capital
Scheme, between Capital and Revenue accounts:
(a) Capital account should bear all charges for the first construction and equipment of a
project as well as charges for intermediate maintenance of the work while not yet opened for
service. It would also bear charges for such further additions and improvements as may be
sanctioned under rules made by competent authority.
(b) Subject to (c) below, revenue account should bear all subsequent charges for maintenance
and all working expenses. These embrace all expenditure on the working and upkeep of the
project and also on such renewals and replacements and such additions, improvements or
extensions as prescribed by Government.
(c) In the case of works of renewal and replacement which partake both of a capital and
revenue nature, the allocation of expenditure should be regulated by the broad principle that
revenue should pay or provide a fund for the adequate replacement of all wastage or
depreciation of property originally provided out of capital grants and that only the cost of
genuine improvements, whether determined by prescribed rules or formulae or under special
orders of Government, should be debited to Capital account. Where under special orders of
Government, a Depreciation or Renewals Reserve Fund is established for renewing assets of any
commercial department or undertaking, the distribution of expenditure on renewals, and
replacements between Capital account and the Fund should be so regulated as to guard against
over-capitalisation on the one hand and excessive withdrawals from the Fund on the other.
(d) Expenditure on account of reparation of damage caused by extraordinary calamities such
as flood, fire, earthquake, enemy action, should be charged to Capital account or to Revenue
account or divided between them in such a way as may be determined by Government
according to the circumstance of each case.
(e) Capital receipts in so far as they relate to expenditure previously debited to Capital heads,
accruing during the process of construction of a project, should be utilised in reduction of capital
expenditure. Thereafter, their treatment in the accounts will depend on circumstances, but
except under a special rule or order of Government, they should not be credited to the revenue
 account of the department or undertaking.
19 Independence of the CAG in relations to discharge of his duties and 4
responsibilities
The Constitution enables the independent and unbiased nature of audit by the CAG by providing for:
 CAG is appointed by the President by warrant under his hand and seal and provided with
tenure of 6 years or 65 years of age, whichever is earlier.
 CAG can be removed by the President only in accordance with the procedure mentioned in the
Constitution that is the manner same as removal of a Supreme Court Judge.
 He is ineligible to hold any office, either under the Government of India or of any state, once he
retires/ resigns as a CAG.
 His salary and other service conditions cannot be varied to his disadvantage after appointment.
 His administrative powers and the conditions of service of persons serving in the Indian Audit
and Accounts Department are prescribed by the President only after consulting him.
 The administrative expenses of the office of CAG, including all salaries, allowances and pensions
are charged upon the Consolidated Fund of India that is not subject to vote.
20 Duties and responsibilities of the CAG irt audit of accounts of stores and stock 4
 Authority of the CAG for audit of stores and stock
Section 17 read with Section 2(e) of the DPC Act authorises the CAG to audit and report on the
accounts of the stores and the stock kept in any office or department of the Union or of a State or of
a Union Territory having a legislative assembly.
 Manner of keeping accounts of stores and stock
The accounts of stores and stock shall be kept in the manner prescribed by the Union Government
in consultation with the CAG.
 Audit of stores and stock
Audit of stores and stock is primarily an extension of audit of expenditure. Additionally, it involves
verifying that adequate and sound systems and procedures are in place and complied with for:
(1) establishment of the need for procurement of stores;
(2) proper assessment of requirement of stores, including, where applicable, determination of
reserve stock limits;
(3) authorisation of procurement of stores;
(4) procurement of stores in a cost-effective manner in accordance with the prescribed systems
and procedures;
(5) receipt, inspection, custody, issue and accounting of stores including appropriate segregation
of duties of personnel and reconciliation of store accounts with books of accounts;
(6) verification of physical balances at prescribed intervals, and reconciliation and resolution of
discrepancies between physical balances and balances as per the records without delay; and
(7) identification of obsolete and surplus stores, their disposal by way of sale and/or transfer to
other units, divisions, etc. and accounting of corresponding receipts, or write off after proper
investigation.
 Right of Audit to investigate stores balances
Audit shall not normally assume responsibility for physical verification of stores which rests with
 the Government. It, however, reserves the right to investigate store balances and highlight
discrepancies.
21 Tax levied and collected by the union and distributed between union and 4
states
Article 270 of the Constitution = Taxes levied and distributed between the Union and the States
227A
(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles
268 and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied
for specific purposes under any law made by Parliament shall be levied and collected by the
Government of India and shall be distributed between the Union and the States in the manner
provided in clause (2).
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial
year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within
which that tax or duty is leviable in that year, and shall be distributed among those States in such
manner and from such time as may be prescribed in the manner provided in clause (3).
(3) In this article, “Prescribed” means -
(i) until a Finance Commission has been constituted, prescribed by the President by order, and
(ii)after a Finance Commission has been constituted, prescribed by the President by order after
considering the recommendations of the Finance Commission.’
22 General provisions of audit as per CAG(DPC) Act 1971 4
Section 13. General provisions relating to audit.
It shall be the duty of the CAG-
(a) to audit all expenditure from the Consolidated Fund of India and of each State and of each
Union territory having a Legislative Assembly and to ascertain whether the moneys shown in
the accounts as having been disbursed were legally available for and applicable to the service or
purpose to which they have been applied or charged and whether the expenditure conforms to
the authority which governs it;
(b) to audit all transactions of the Union and of the States relating to Contingency Funds and
Public Accounts
(c) to audit all trading, manufacturing, profit and loss accounts and balance-sheets and other
subsidiary accounts kept in any department of the Union or of a State ; and in each case to
report on the expenditure, transactions or accounts so audited by him.
23 Duties and powers of the CAG under section 19&20 of CAG(DPC) Act 1971 3
Section 19. Audit of Government companies and corporations.
(1) The duties and powers of the CAG in relation to the audit of the accounts of Government
companies shall be performed and exercised by him in accordance with the provisions of the
Companies Act, 1956 (1 of 1956).
(2) The duties and powers of the CAG in relation to the audit of the accounts of corporations
(not being companies) established by or under law made by Parliament shall be performed and
exercised by him in accordance with the provisions of the respective legislations.
(3) The Governor of a State or the Administrator of a Union territory having a Legislative
Assembly may, where he is of opinion that it is necessary in the public interest so to do, request
 the CAG to audit the accounts of a corporation established by law made by the Legislature of the
State or of the Union territory, as the case may be, and where such request has been made, the
CAG shall audit the accounts of such corporation and shall have, for the purposes of such audit,
right of access to the books and accounts of such corporation:
Provided that no such request shall be made except after consultation with the CAG and except after
giving reasonable opportunity to the corporation to make representations with regard to the proposal
for such audit.
Section [19A] .Laying of reports in relation to accounts of Government companies and
corporations.
(1) The reports of the CAG, in relation to the accounts of a Government company or a
corporation referred to in section 19, shall be submitted to the Government or Governments
concerned.
(2)The, Central Government shall cause every report received by it under sub-section (1) to be
laid, as soon as may be after it is received, before each House of Parliament.
(3)The State Government shall cause every report received by it under, sub-,section (1) to be
laid as soon as may be after it is received, before the Legislature of the State.
Explanation.-For the purposes of this section, "Government" or "State Government", in relation to a
Union territory having a Legislative Assembly, means the Administrator of the Union territory.]
Section 20. Audit of accounts of certain authorities or bodies.
(1) Save as otherwise provided in section 19, where the audit of the accounts of any body or
authority has not been entrusted to the CAG by or under any law made by Parliament, he shall,
if requested so to do by the President or the Governor of a State or the Administrator of a Union
territory having a Legislative Assembly, as the case may be, undertake the audit of the accounts
of such body or authority on such terms and conditions as may be agreed upon between him
and the concerned Government and shall have, for the purposes of such audit, right of access to
the books and accounts of that body or authority:
Provided that no such request shall be made except after consultation with the CAG.
(2)The CAG may propose to the President or the Governor of a State or the Administrator of a
Union territory having a Legislative Assembly, as the case may be, that he may be authorised to
undertake the audit of the accounts of any body or authority, the audit of the accounts of which
has not been entrusted to him by law, if he is of opinion that such audit is necessary because a
substantial amount has been invested in, or advanced to, such body or authority by the Central
or State Government or by the Government of a Union territory having a Legislative Assembly,
and on such request being made, the President or the Governor or the Administrator, as the
case may be, may empower the CAG to undertake the audit of the accounts of such body or
authority.
(3)The audit referred to in sub-section (1) or sub-section (2) shall not be entrusted to the CAG
except where the President or the Governor of a State or the Administrator of a Union territory
having a Legislative Assembly, as the case may be, is satisfied that it is expedient so to do in the
public interest and except after giving a reasonable opportunity to the concerned body or
authority to make representations with regard to the proposal for such audit.
24 Charged expenditure and Voted Expenditure 3
 Charged Expenditure Voted Expenditure
1. Arrangement of funds for items included in 1. Provision of funds for the items involved in
charged expenditure can only be allowed on the the voted expenditure can be done after the
approval of the President. approval of the Parliament and the President
signs it.
2. Parliament cannot interfere with such 2. Parliament can disallow such expenditure or
expenditure. It can be approved by reducing or modifying it.
3. It includes three types of expenses - 3. Generally all types of expenses (other than
(a) Expenditure on salary, allowances and pension charged expenditure) are included in the Voted
of CAG Expenditure.
(b) Judgment, decree or award of any court.
(c) Expenditure declared by the Constitution or
Parliament to be secure.
4. Such expenses are met from the Contingency 4. Such expenditure is made from the
Fund of India, which is subsequently reimbursed Consolidated Fund of India
from the Consolidated Fund.
25 Audit against regularity 3
Audit against Regularity consists in verifying that expenditure conforms to the authority which
governs it to the relevant provisions of the Constitution and of the laws and rules made there under
and is also in accordance with the Financial Rules, Regulations and orders issued by a competent
authority. The Financial Rules Regulations and orders against which audit is conducted mainly fall
under the following categories.
i) Rules and orders relating to the powers to sanction and to incur expenditure from the
consolidated Fund and the Contingency Fund.
ii) Rules and orders delaying with the mode of presentation of claim against the Government
from the Consolidated Fund, Contingency Fund and Public Account and in general the
financial rules prescribing the detailed procedure to be followed by Government servant in
dealing with Government transactions and
iii) Rules and orders regulating the pay and allowances, pension and other conditions of service
of Government servants.
The work of audit in relation to Regulatory of expenditure is of quasi-judicial character. It involves
interpretation of the Constitution, statutes, Rules and Orders with reference to Case, Laws of previous
decisions and procedures. During the process of audit it should be seen that the rules and orders are
not in-consistent with any provisions of the constitution or of the laws made thereunder, they do not
conflict with the orders and rules made by any higher authorities, the issuing authorities has got the
necessary powers. All orders relating to delegation of powers should be scrutinized to see whether they
are in Para 16.02 of Intro. Accts & audit 8 order. The CAG does not possess the final power to interpret
the Constitution status and of the Rules made by Government. The interpretation by audit should be
based on plain meaning of the provisions and the judgement of the Supreme Court/High Court.
26 Economy, efficiency & effectiveness of Audit 3
The concepts of economy, efficiency and effectiveness, commonly referred to as the three E’s, form the
basis of any performance audit.
 Economy refers to the terms and conditions under which an entity obtains the required resources.
An economical operation acquires these resources in appropriate quality and quantity at the right
time and place at the lowest possible cost.
 Efficiency defines the relationship between goods or services produced and the resources used to
produce them. An efficient operation produces the maximum output for any given set of resources
input or it has minimum input for any given quantity and quality of service goods provided. The
underlying management objective is therefore to increase productivity and lower unit costs.
 Effectiveness is defined as how well a programme or activity is achieving its stated objectives, its
defined goals or intended effects/outcomes.
27 Points to be seen in audit of grant in aids 3
Audit of grants-in-aid and loans is primarily an extension of audit of expenditure and the broad
principles of audit of expenditure shall apply. Additionally, it examines whether the amount of
Government assistance is utilised for the intended purpose.
Verifications to be done during audit of grants-in-aid and loans Audit of Government assistance
in form of grants-in-aid or loans shall be conducted to verify whether systems and procedures are in
place and are being complied with for:
(1) clear enunciation of purpose for the sanction of the Government assistance;
(2) proper and transparent identification and selection of persons, bodies and authorities for
Government assistance with reference to their antecedents, absorptive capacity, financial
position, systems and management practices;
(3) determination of amount of assistance and its timely release;
(4) proper accounting of assistance by the grantee or the loanee including maintenance of
accounts in such form as may be prescribed;
(5) ensuring the fulfillment of conditions of Government assistance;
(6) monitoring and ensuring the economical, efficient and effective end use of assistance
including achievement of the objectives of assistance;
(7) refund to the Government of any unutilised amount; and
(8) in the case of loans, their repayment as prescribed and recovery of interest including penal
interest according to applicable conditions.
28 Local audit 3
Under the provisions of the Constitution of India and the DPC Act, the CAG is the sole auditor of the
accounts of the Central (Union) Government and the State Governments. CAG is also responsible for
the audit of local bodies (i.e. Panchayati Raj institutions and urban local bodies) under the provisions of
some of the State Acts and provides technical and administrative guidance for accounting and audit
functions in all States as per orders issued by Ministry of Finance, Government of India.
Audit of accounts of Corporations, Government Companies and Departmental undertakings etc., is
conducted at respective units by deploying local Audit Parties. The provisions of paras 767 to 795 of the
Manual of Standing Orders (Tech) Vol-I form the basis for the detailed procedure of conducting local
audit. The principles of efficiency audit, overall performance audit and audit against propriety laid
down in the said Manual shall also be kept in view as guidelines for local audit.
29 Criteria for classification of expenditure under heads of capital section or 3
 revenue section of the consolidated fund
Criteria for determining whether expenditure should be classified under heads of Capital
Section or Revenue Section of the Consolidated Fund.
(1) Expenditure of a capital nature to be classified in the Capital Section shall broadly be defined as
expenditure incurred with the object of either increasing concrete assets of a material and permanent
character.
NOTE:- Expenditure on a temporary asset or expenditure on Grants-in-aid to local bodies or
institutions (for the purpose of creating assets which will belong to these local bodies or institutions)
cannot ordinarily be classifiable as capital expenditure, and shall not, except in cases specifically
authorised by the President on the advice of CAG be debited to a capital head of account.
(2) Expenditure of a Capital nature shall be distinguished from Revenue expenditure both in the
Budget Estimates and in Government Accounts.
NOTE:- Capital expenditure is generally met from receipts of a capital, debt, deposit or banking
character as distinguished from ordinary revenue derived from taxes, duties, fees, fines and similar
items of current income including extra-ordinary receipts. It is open to the Government to meet
Capital expenditure from ordinary revenues provided there are sufficient revenue resources to cover
this liability.
(3) Expenditure of a Capital nature as defined above shall not be classed as Capital expenditure in
the Government accounts unless the classification has been expressly authorised by general or special
orders of Government.
30 What is money Bill? How it is passed in parliament? 3
A money bill is defined by Article 110 of the Constitution, as a draft law that contains only provisions
that deal with all or any of the matters listed therein.
These comprise a set of seven features, broadly including items such as-
1. Imposition, abolition, remission, alteration or regulation of any tax
2. Regulation of the borrowing of money by the GOI
3. Custody of the Consolidated Fund of India (CFI) or the Contingency Fund of India, the payment
of money into or the withdrawal of money from any such fund
4. Appropriation of money out of the CFI
5. Declaration of any expenditure charged on the CFI or increasing the amount of any such
expenditure
6. Receipt of money on account of the CFI or the public account of India or the custody or issue of
such money, or the audit of the accounts of the Union or of a state
7. Any matter incidental to any of the matters specified above.
How it is passed-
 Unlike Ordinary Bill, Money bill is introduced only in Lok Sabha on the recommendation of
President which is a must.
 The bill, moved on the recommendation of the President and introduced in the Lok Sabha is
termed as a government bill.
Note: All government bills are introduced only by the minister.
 After Lok Sabha passes the bill, it is moved to Rajya Sabha which has only restricted powers. It
cannot reject or amend the bill.
 Note:
i) Rajya Sabha has to return the bill within 14 days with or without recommendations of
the amendments
ii) If it does not return the bill within the prescribed days, the bill is deemed to have been
passed
iii) Lok Sabha may or may not accept the amendments.
 After passing through both the houses, the President’s assent is required. He can take two
actions:
i) Give assent
ii) Withhold assent
Note: President can’t return the bill for reconsideration
 After President’s assent, the bill becomes the act and is published in the Indian Statute Book.
31 Provisions regarding financial bill and appropriation bill 3
Finance Bill
A Finance Bill, also defined as a Money Bill in Article 110 of the Constitution, is a bill introduced in the
Parliament every year to give effect to the financial proposals made by the government for the
upcoming financial year. A Finance Bill largely relates to a change in taxes and levies.
A Finance Bill is usually introduced once a year during the Budget presentation.
This means if the Finance Minister proposes some changes to income tax slabs during the budget
speech, then that proposal will be introduced in the Parliament as a Finance Bill and will have to be
passed by both the houses to come into effect.
Appropriation Bill
Appropriation Bill, also a Money Bill like the Finance Bill, is a bill that authorises the government to
withdraw funds from the Consolidated Fund of India to meet the expenses that it could incur for a
financial year.
The government tables the Appropriation Bill after it presents the Union Budget in the Parliament.
This is because the Budget contains plans to spend on social programmes to uplift various sections of
the society. In order to spend on these programmes, the government needs money and it takes the
same from the Consolidated Fund of India.
Difference between Appropriation Bill and Finance Bill:
One of the most basic difference between the two bills is that Appropriation Bill deals with the expense
side of the Budget, while the Finance Bill deals with the income (or taxes and levies) side of the Budget.
Another major difference between both the bills is that the houses of Parliament can seek amendments
to the amounts mentioned in the Finance Bill (with respect to reduction or rejection of taxes or levies),
however, no amendment can be moved or passed in case of Appropriation Bill.
32 Contingency fund 3
The Contingency Fund of India is established under Article 267(1) of the Indian Constitution. It is in
the nature of an imprest (money maintained for a specific purpose).
Accordingly, Parliament enacted the contingency fund of India Act 1950.
The fund is held by the Finance Secretary (Department of Economic Affairs) on behalf of the
President of India and it can be operated by executive action. The Contingency Fund of India exists
for disasters and related unforeseen expenditures.
In 2005, it was raised from Rs. 50 crores to Rs 500 crore. Approval of the Parliament of India for such
expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently
obtained to ensure that the corpus of the Contingency Fund remains intact.
Similarly, the Contingency Fund of each State Government is established under Article 267(2) of
the Constitution – this is in the nature of an imprest placed at the disposal of the Governor to enable
him/her to make advances to meet urgent unforeseen expenditure, pending authorization by the State
Legislature.
Approval of the Legislature for such expenditure and for withdrawal of an equivalent amount from the
Consolidated Fund is subsequently obtained, whereupon the advances from the Contingency Fund are
recouped to the Fund. The corpus varies across states and the quantum is decided by the State
legislatures.
33 List of taxes that are collected by the union and assigned to states 3
Article 269 of Constituion. Taxes levied and collected by the Union but assigned to the States.-
226A[(1) Taxes on the sale or purchase of goods and taxes on the consignment of goods shall be levied
and collected by the Government of India but shall be assigned and shall be deemed to have been
assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2).
Explanation-For the purposes of this clause, -
(a) the expression “taxes on the sale or purchase of goods” shall mean taxes on sale or purchase
of goods other than newspapers, where such sale or purchase takes place in the course of inter-
State trade or commerce;
(b) the expression “taxes on the consignment of goods” shall mean taxes on the consignment of
goods (whether the consignment is to the person making it or to any other person), where such
consignment takes place in the course of inter-State trade or commerce;
(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent
proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but
shall be assigned to the State within which that tax is leviable in that year, and shall be distributed
among those States in accordance with such principles of distribution as may be formulated by
Parliament by law.]
_227[(3) Parliament may by law formulate principles for determining when a _230[sale or purchase
of, or consignment of, goods] takes place in the course of inter-State trade or commerce.]
34 Differences between money bill and ordinary bill and procedures of passing 3
these bills
Difference Ordinary Bill Money Bill
Introduction In either Lok Sabha or Rajya Sabha Only in Lok Sabha
Introduced By Minister or a Private Member Only a Minister
President’s Not Need Only after he recommends
Recommendation
Rajya Sabha’s Role  Can be amended/rejected by  Cannot be amended/rejected by Rajya
Rajya Sabha Sabha. (It has to return the bill
with/without recommendations)
 Can be detained by the Rajya  Can be detained by the Rajya Sabha for
Sabha for a maximum period of a maximum period of 14 days only.
 six months.
President’s Assent Sent for his assent only after being Send for his assent only after Lok Sabha’s
approved by both the houses approval. (Rajya Sabha approval is not
required)
Can be rejected, approved, or Can be rejected or approved but cannot be
returned for reconsideration by returned for reconsideration by the
the President. President.
Joint Sitting of In case of deadlock, there is a No chance of disagreement, hence, no
Both Houses provision of a joint sitting provision of a joint sitting
Stages of passing an Money Bill- Question 30
Stages of passing an Ordinary Bill
There are five stages through which an ordinary bill has to go through before it finally becomes an act:
Stages Details
First Reading A minister or a member introduces the bill in either house of the Parliament. He
asks for leave before introducing the bill. He reads the title and objective of the
bill.
After the introduction, the bill is published in the Gazette of India
Note:
1. No discussion on the bill takes place in this stage
2. If the bill is published in the Indian Gazette before its introduction, the
minister/member does not have to ask for leave
Second Reading Stage of General Discussion- Four actions can be taken by the house on the bill:
1. It may take the bill into consideration immediately or on some other
fixed date
2. It may refer the bill to a select committee of the House
3. It may refer the bill to a joint committee of the two Houses
4. It may circulate the bill to elicit public opinion
Note:
1. Select Committee- Has members of the house where the bill is
introduced
2. Joint Committee- Has members from both the houses
Committee Stage:
1. Select Committee examines the bill thoroughly and in detail, clause by
clause.
2. It can also amend its provisions, but without altering the principles
underlying it.
3. After completing the scrutiny and discussion, the committee reports the
bill back to the House.
Consideration Stage:
1. The House, after receiving the bill from the select committee, considers
the provisions of the Bill clause by clause.
2. Each clause is discussed and voted upon separately.
 3. The members can also move amendments and if accepted, they become
part of the bill.
Third Reading One of the two actions take place:
1. Acceptance of the Bill (If the majority of members present and voting
accept the bill, the bill is regarded as passed by the House)
2. Rejection of the Bill
Note:
1. No amendments to the bill are allowed
2. A bill is deemed to have been passed by the Parliament only when both
the Houses have agreed to it, either with or without amendments.
Bill in the Second The first three stages are repeated here i.e.:
House 1. First Reading
2. Second Reading
3. Third Reading
The second house can take one of the four actions:
1. It may pass the bill as sent by the first house (ie, without amendments)
2. It may pass the bill with amendments and return it to the first House for
reconsideration
3. It may reject the bill altogether
4. It may not take any action and thus keep the bill pending
Note:
1. The bill is deemed to have been passed if both the houses accept the bill
and the amendments
2. If the second house takes no action for 6 months, a deadlock appears
which is acted upon through a joint sitting (summoned by President) of
both the houses
Assent of the One of the three actions can be taken by him:
President 1. May give his assent to the bill (The bill becomes an act and is placed
on statute book)
2. May withhold his assent to the bill (The bill ends and does not become an
act)
3. May return the bill for reconsideration (The houses can/cannot make
amendments and send it back to the President after which he has to give
assent)
Note:
President only enjoys ‘Suspensive Veto.’
35 Consolidated fund of India 3
Under Article 266 (1) of the Constitution of India, all revenues (for example tax revenue from
personal income tax, corporate income tax, customs, and excise duties as well as non-tax revenue such
as license fees, dividends, and profits from public sector undertakings, etc.) received by the Union
government as well as all loans raised by the issue of treasury bills, internal and external
loans and all money received by the Union Government in repayment of loans shall form a
consolidated fund entitled the ‘Consolidated Fund of India’ for the Union Government.
Similarly, under Article 266 (1) of the Constitution of India, a Consolidated Fund of State (a
separate fund for each state) has been established where all revenues (both tax revenues such as Sales
tax/VAT, stamp duty, etc.. And non-tax revenues such as user charges levied by State governments)
received by the State government as well as all loans raised by the issue of treasury bills, internal and
external loans and all money received by the State Government in repayment of loans shall form part
of the fund.
The CAG of India audit these Funds and reports to the Union/State legislatures when proper
accounting procedures have not been followed.
36 Describe the primary functions and spirit of Audit 2
Functions of Audit
The primary function of Audit is to verify the accuracy and completeness of accounts, to secure
that all revenue and receipts collected are brought to account under the proper head, that all
expenditure & disbursement are authorized, vouched and correctly classified and the final account
represent a complete and true statement of the financial transactions it purport the exhibit. Its broad
aim is to safeguard the financial interest of the taxpayer.
Spirit of Audit
In audit under insistence on trifling errors and technical irregularities which are of no
consequence to the finances of the Government should wherever possible be avoided and more time
and Para 15.2 of Intro. Accts & audit and Para 15.5 of Intro. Accts & audit pay attention devoted to the
investigation of really important and substantial irregularities with the object not only on securing
rectification of particular irregularity but also ensuring regularity and propriety in similar cases for the
future.
37 Principles, purpose and procedure of commercial Audit 2
A commercial audit results in improved revenue streams while reducing costs. It explores
the potential of the current staff from an outside, objective point of view, with the goal of increasing in-
company mobility and opportunities.
A Commercial Audit can examine all of the commercial activities of an organization or just a
particular part of the operation. It can involve looking at the products and services themselves, to
analyzing the resource and infrastructure that are required to bring them to market. It looks at how
customers have managed as well as the type of commercial offers that are available. It asks whether all
of the potential opportunities have been identified and how the organization manages any associated
risks.
Principles-?
Procedure-?
Commercial Audit – The accounting system maintained by business organizations is known as
commercial accounting.
In charge of the Conduct of Audit: External auditor appointed by the employer shall conduct the audit
here.
Type of Audit: In commercial concerns, mostly a periodical audit is conducted. A professional auditor
can audit the books of accounts kept under commercial accounting.
Nature of Appointment of Auditors: They are not the employees of the concerns whose accounts
they audit. It is maintained by business organizations to know the profit or loss and the financial
position of the business.
Need for Preliminary Examination of Bills: Cashier has nothing to do with an audit or preliminary
examination while making a payment of expenditure.
Rules & Regulations: It is not so in the case of commercial audits. It is maintained by following the
rules and principles of ‘Generally Accepted Accounting Principles’.
38 Principles and Methods of Govt Accounting 2
The basic principles of government account are as discussed in points given below: –
1. System of Accounting: Government accounting generally follows a single-entry system of
accounting for recording of transactions. But it also follows double entry accounting system for
some matters i.e., loans and borrowings in order to ascertain the arithmetical accuracy by
preparation of trial balance. In addition to this, double entry accounting system enables in
determining the balance of account as well.
2. Commercial enterprises under Public sector: Double entry system of accounting is
implemented under the mercantile basis such as commercial accounting in case of public sector
enterprises. A profit & loss account and balance sheet needs to be prepared for ascertaining the
results of undertaking. However, in many cases distinct techniques of management such as
funds flow analysis, cash flow analysis, ratio analysis and charts and diagrams along with
statistical data are considered.
3. Classification of Incomes and Expenditures: Government need to classify their income and
expenditure from the services under distinct heads and sub-heads.
4. Consolidated Transactions: All the transactions in government accounting are finally
consolidated in proper order for showing combined result for particular period after primarily
recording them under distinct head of accounts.
Government Accounting (Principles and Practices)
Form of Accounts:
1. Article 150 of the Constitution of India, reads “The Accounts of the Union and of the States
shall be kept in such form as the President may, on the advice of the CAG of India, prescribes”
2. Form of Accounts: As per Article 150, the Form of accounts of government are:
(i) Division and structure of accounts
(ii) Classification of transactions
(iii) Basis of accounting
(iv) Format of financial reporting
(v) Principles of recognition, measurement, classification and disclosure.

Features & principles of Government Accounting:

Budgetary accounting
(i) The steps are: Budget > Appropriation > Sanction > Expenditure > Accounting
(ii) Accounts follows budget and budgetary and accounting classification are similar.
(iii) Cash based budgeting and accounting
(iv) Uniform accounting at Union and State level.
• Chart of Accounts • Government Accounting Rules • Reporting Formats
 (v) Accounting based on codes & manuals containing accounting principles
(vi) Rule based accounting and absence of explicit government accounting standards unlike the
commercial accounting.
39 Principles and methods of commercial accounting 2
Headings Govt. Accounting Comm. Accounting
Objective Administration and management of all the Maintain the records of trading and
financial activities of the government. manufacturing of goods or to provide
services to calculate profits.
Date Entry It has single entry system — Govt. does not Normally, it has double entry system
System work to earn profit; so, it does not need cross- — need to prepare Trading & Profit &
check the accounting records. Loss account and Balance Sheet at the
end of the accounting period.
Basis of Accounting statements are also prepared on the Accounting statements are prepared
Accounting basis of single entry system. Most of the on the basis of double entry system.
statements statements are merely statements of collections
of revenue and expenditures done, except
where the Government acts like a banker or
lender or borrower.
40 Contract 2
A Contract is a written agreement between two parties for supply of goods or execution of works or a
promise to do so for consideration paid or payable in future
41 Revenue accounts and Capital Accounts 2
Revenue Account
As revenue includes the income earned by a business, a revenue account is essentially an
account that contains the receipts of this income. Such an account includes the income from the
operations in hand.
Let us consider the government like a business. Now, just like a common business, the
government also generates income by carrying out various operations. In this case, these operations
include:
1. Revenue from Tax: Tax revenues from taxes on imports and productions that can be both the
direct revenue and indirect revenue.
• Direct Tax Revenue: Such revenue is generated when the government receives income
tax and corporate tax.
• Indirect Tax Revenue: Such revenue is generated through service tax, excise duties, and
custom export and import duties.
2. Revenue from Sources Other than Tax: While tax revenue makes the major portion of income
for the government, other sources such as profits from public sector industries, interests of
investments, dividends, and certain penalties or fees are known as the non-tax revenue.
Capital Account
The second type of account associated with the government is the Capital account. As the name
suggests, a capital account holds the record of the capital assets and liabilities related to the
government. It includes payments and capital receipts of the government.
So, what could be the assets and liabilities of the government? To put it simply, they are similar
to any other business. The capital of a business is the money or liquid assets it generates throughout its
operation. So, for the government, this asset is generated from:
1. Capital generated from Public loans or Market loans
2. T-Bills or Treasury Bills that refer to the finances borrowed from banks
3. Other loans that are sanctioned by foreign government or institutions outside the country
4. Capital may also be generated from withdrawing or deduction of public sector/unit
investments.
As every business face liability as debt, the government also has certain liabilities in the form of
pension payments, government bills or bonds, or the payment of goods and services that the
government has acquired but has not paid for yet.
Both the government assets as well as liabilities are accounted for in the Capital account. This
account keeps a record of the nation's total assets and liabilities during a single financial year and the
net change in both of them. The account balance of a capital account decides whether a country is an
apparent exporter or importer of capital.
42 Priced ledger 2
A priced ledger would be a ledger that accounts for receipts and issues of materials at moving or
standard price
43 Additional grant 2
It is granted when a need has arisen during the current financial year for additional expenditure
upon some new service not contemplated in the annual financial statement i.e. the budget for that
year.
( Article 115 of The Constitution of India has provisions regarding this )
44 Excess grant 2
Excess grant is the money given to the government when the already allocated money for expenditure
for that year does not turn out to be enough and extra money is sought. The demand for excess grant
is provided for under Article 115 of the Indian Constitution. This demand for extra money or excess
grants is made when the expenditure has been incurred after a financial year has expired.
45 Vote on credit 2
It is granted for meeting an unexpected demand upon the resources of India, when on account of the
magnitude or the indefinite character of the service, the demand cannot be stated with the details
ordinarily given in a budget. Hence, it is like a blank cheque given to the Executive by the Lok Sabha.
( Article 116 of The Constitution of India has provisions regarding this )
46 Audit of receipts of union or of states 2
Section 16 of DPC Act. Audit of receipts of Union or of States.
It shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of
India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself
that the rules and procedures in that behalf are designed to secure an effective check on the
assessment, collection and proper allocation of revenue and are being duly observed and to make for
this purpose such examination of the accounts as he thinks fit and report thereon.
47 Duties and powers of the CAG to make rule under CAG(DPC) Act 1971 2
Section 22. Power to make rules.
(1) The Central Government may, after consultation with the, CAG, by notification in the Official
Gazette, make rules for carrying out the provisions of this Act in so far as they relate to the
maintenance of accounts.
(2)In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for all or any of the following matters, namely: -
(a) the manner in which initial and subsidiary accounts shall be kept by the treasuries, offices
and departments rendering accounts to audit and accounts offices;
(b) the manner in which the accounts of [the Union or of a State or of] any particular service or
department or of any particular class or character, in respect of which the CAG has been
relieved from the responsibility of compiling or keeping the accounts, shall be compiled or kept;
(c) the manner in which the accounts of stores and stock shall be kept in any office or
department of the Union or of a State, as the case may be ;
(d) any other matter which is required to be, or may be, prescribed by rules.
(3) Every rule made under this section shall be laid, as soon as may be after it is made, before each
House of Parliament, while it is in session, for a total period of thirty days which may be comprised in
one session or [in two or more successive sessions], and if, before the expiry of [the session
immediately following the session or the successive sessions aforesaid] both Houses agree in making
any modification in the rule or both Houses agree that the rule should not be made, the rules shall
thereafter have effect only in such modified form or be of no effect, as the case may be; so, however,
that any such modification or annulment shall be without prejudice to the validity of anything
previously done under that rule.
48 CAG power to make regulations 1
Section 23. Power to make regulations. The CAG is here by authorised to make rugulations for
carrying into effect the provisions of this Act in so far as they relate to the scope and extent of audit,
including laying down for the guidance of the Government Departments the general principles of
Government accounting and the broad principles in regard to audit of receipts and expenditure.
49 Meaning of accounts and appropriation accounts as per the CAG’s (DPC) Act 1
1971?
(a) "accounts", in relation to, commercial undertakings of a Government, includes trading,
manufacturing and profit and loss accounts and balance-sheets and other subsidiary accounts ;
(b) "appropriation accounts" means accounts which relate the expenditure brought to account during a
financial year, to the several items specified in the law made in accordance with the provisions of the
Constitution or of the Government of Union Territories Act, 1963, (20 of 1963.) for the appropriation
of moneys out of the Consolidated Fund of India or of State, or of a Union territory having a Legislative
Assembly, as the case may be;
50 Constitutional provisions relating CAG 1
Article 148: CAG of India
(1) There shall be a CAG of India who shall be appointed by the President by warrant under his
hand and seal and shall only be removed from office in like manner and on the like grounds as a
Judge of the Supreme Court.
 (2) Every person appointed to be the CAG of India shall, before he enters upon his office, make and
subscribe before the President, or some person appointed in that behalf by him, an oath or
affirmation according to the form set out for the purpose in the Third Schedule.
(3) The salary and other conditions of service of the Comptroller and Auditor- General shall be such
as may be determined by Parliament by law and, until they are so determined, shall be as
specified in the Second Schedule:
Provided that neither the salary of a CAG nor his rights in respect of leave of absence, pension
or age of retirement shall be varied to his disadvantage after his appointment.
(4) The CAG shall not be eligible for further office either under the Government of India or under
the Government of any State after he has ceased to hold his office.
(5) Subject to the provisions of this Constitution and of any law made by Parliament, the conditions
of service of persons serving in the Indian Audit and Accounts Department and the
administrative powers of the CAG shall be such as may be prescribed by rules made by the
President after consultation with the CAG.
(6) The administrative expenses of the office of the Comptroller and Auditor- General, including all
salaries, allowances and pensions payable to or in respect of persons serving in that office, shall
be charged upon the Consolidated Fund of India.
Article 149 – Duties and Powers of the CAG
The CAG shall perform such duties and exercise such powers in relation to the accounts of the Union
and of the States and of any other authority or body as may be prescribed by or under any law made
by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise
such powers in relation to the accounts of the Union and of the States as were conferred on or
exercisable by the Auditor-General of India immediately before the commencement of this Constitution
in relation to the accounts of the Dominion of India and of the provinces respectively. The CAG shall
perform such duties and exercise such powers in relation to the accounts of the Union and of the States
and of any other authority or body as may be prescribed by or under any law made by Parliament and,
until provision in that behalf is so made, shall perform such duties and exercise such powers in
relation to the accounts of the Union and of the States as were conferred on or exercisable by the
Auditor-General of India immediately before the commencement of this Constitution in relation to the
accounts of the Dominion of India and of the provinces respectively.
Article 150 – Form of Accounts of The Union and of The States
The accounts of the Union and of the States shall be kept in such form as the President may, on the
advice of the CAG of India, prescribe.
Article 151 – Audit Reports
• The reports of the CAG of India relating to the accounts of the Union shall be submitted to the
president, who shall cause them to be laid before each House of Parliament.
• The reports of the CAG of India relating to the accounts of a State shall be submitted to the Governor
of the State, who shall cause them to be laid before the Legislature of the State.
Article 279 – Calculation of "net proceeds", etc.
(1) In the foregoing provisions of this Chapter, “net proceeds” means in relation to any tax or duty the
proceeds thereof reduced by the cost of collection, and for the purposes of those provisions the net
proceeds of any tax or duty, or of any part of any tax or duty, in or attributable to any area shall be
ascertained and certified by the CAG of India, whose certificate shall be final.
(2) Subject as aforesaid, and to any other express provision of this Chapter, a law made by Parliament
or an order of the President may, in any case where under this Part the proceeds of any duty or tax are,
or may be, assigned to any State, provide for the manner in which the proceeds are to be calculated,
for the time from or at which and the manner in which any payments are to be made, for the making
of adjustments between one financial year and another, and for any other incidental or ancillary
matters.
Third Schedule –
Section IV of the Third Schedule of the Constitution of India prescribes the form of oath or affirmation
be made by the Judges of the Supreme Court and the CAG of India at the time of assumption of office.
According to the 6th Schedule the accounts of the District Council or Regional Council should be kept
in such form as CAG, with the approval of the President, prescribes. In addition, these bodies’ accounts
are audited in such a manner as CAG may think fit, and the reports relating to such accounts shall be
submitted to the Governor who shall cause them to be laid before the Council.
51 CAG’s general powers to make provisions 1
Section 22 and 23 of DPC Act (Question 47 & 48)
53 Duties and guidelines of finance commission? 1
Key Role
1. The key role Finance Commission in India is to act as an instrument to divide proceeds of
divisible taxes between the states and the Union government or in cases of taxes that are
collected by the centre but the proceeds of which are allocated between the states, to determine the
principles of such allocation.
2. The Finance Commission of India also determines the principles of governing the grants
in aids of the revenues of states out of the consolidated fund of India. It is an important
function of the Indian Finance Commission. The commission has the responsibility of considering
any matter referred to the commission by the President in the interest of sound finance.
3. The President under Article 280 lays the recommendations of the finance commission before each
House of the Parliament with an explanatory note as to the action to be taken on the
recommendations.
4. The Finance Commission distributes of proceeds of Income-tax between the union and the
states. But taxes on the payments of the central government are attributable only to the union
territories.
Key functions
The Commission makes recommendations to the president with regard to:
1. The distribution of the proceeds of taxes between the union and the states.
2. The principles which should govern the grants-in-aid to be given to the states.
3. Any other matter referred to the Commission by the President in the interest of sound finance.
4. The recommendations of the commission are generally accepted by the Union Government as
well as by the parliament.
54 What are responsibilities of AG(Audit) 1
Functions/responsibilities of the CAG of India
The Constitution in Article 149 provides the legal basis for the Parliament to prescribe the duties and
powers of the CAG in relation to the accounts of the Union and of the States and of any other authority
or body. The CAG Duties, Powers and Conditions of Service (DPC) Act, was passed in the parliament in
1971. The DPC Act was amended in 1976 to separate accounts from audit in the Government of India.
The duties and functions of the CAG as laid down by the Constitution are:
 Auditing the accounts related to all expenditure drawn from the Consolidated Fund of India,
consolidated fund of every state and consolidated fund of every union territory having a
Legislative Assembly.
 Audit of all expenditure from the Contingency Fund of India and the Public Account of India as
well as the contingency funds and the public accounts of states.
 Audit of all trading, manufacturing, profit and loss accounts, balance sheets and other
subsidiary accounts of any department of the Central Government and state governments.
 Auditing the receipts and expenditure of the Government of India and each state to ensure that
the rules and procedures in that regard are designed to secure an effective check on the
assessment, collection and proper allocation of revenue.
 Auditing the receipts and expenditure of the following:

i. All bodies and authorities substantially financed from the Central or state revenues;
Government companies; and
ii. Other corporations and bodies when so required by related laws.
 Auditing all transactions of the Central and state governments related to debt, sinking funds,
deposits, advances, suspense accounts and remittance business. He also audits receipts, stock
accounts and others, with approval of the President, or when required by the President.
 Auditing the accounts of any other authority when requested by the President or Governor. For
example, the audit of local bodies.
 Advising the President with regard to prescription of the form in which the accounts of the
Centre and the states shall be kept (Article 150).
 Submitting audit reports relating to the accounts of the Central Government to the President,
who shall, in turn, place them before both the Houses of Parliament (Article 151).
 Submitting audit reports relating to the accounts of a state government to the Governor, who
shall, in turn, place them before the state legislature (Article 151).
 Ascertaining and certifying the net proceeds of any tax or duty (Article 279). The certificate is
final. The ‘net proceeds’ means the proceeds of a tax or a duty minus the cost of collection.
 Acting as a guide of the Public Accounts Committee of the Parliament. He compiles and
maintains the accounts of state governments. In 1976, he was relieved of the responsibilities
regarding the compilation and maintenance of accounts of the Government of India due to the
separation of accounts from audit, through departmentalization of accounts. The CAG submits
three audit reports to the President:
 Audit Report on Appropriation Accounts
 Audit Report on Finance Accounts
 Audit Report on Public Undertakings
The President lays these reports before both the Houses of Parliament. After this, the Public Accounts
Committee examines them and reports its findings to the Parliament.
55 Describe the audit checks to be applied in audit of store and stocks accounts of 1
 an office or department of Govt
Audit of stores and stock Audit of stores and stock is primarily an extension of audit of expenditure.
Additionally, it involves verifying that adequate and sound systems and procedures are in place and
complied with for:
(1) establishment of the need for procurement of stores;
(2) proper assessment of requirement of stores, including, where applicable, determination of
reserve stock limits;
(3) authorisation of procurement of stores;
(4) procurement of stores in a cost-effective manner in accordance with the prescribed systems
and procedures;
(5) receipt, inspection, custody, issue and accounting of stores including appropriate segregation
of duties of personnel and reconciliation of store accounts with books of accounts;
(6) verification of physical balances at prescribed intervals, and reconciliation and resolution of
discrepancies between physical balances and balances as per the records without delay; and
(7) identification of obsolete and surplus stores, their disposal by way of sale and/or transfer to
other units, divisions, etc. and accounting of corresponding receipts, or write off after proper
investigation.
56 Duties and essential governing conditions to conduct the audit of expenditure? 1
Examination of systems and procedures and checks to be applied in audit of expenditure
Audit of expenditure incurred from the Consolidated Fund examines and verifies whether
adequate, proper and sound systems and procedures are in place and are being complied with, both in
letter and spirit, for spending public money. Audit inter alia checks the expenditure for:
(1) Appropriation, that is, the availability of funds in the budget, including supplementary
grant(s) and re-appropriation; this also includes
(a) examination of the orders of re-appropriation for their legality, competence and
propriety; and
(b) confirmation that the expenditure is within the scope and intent of the grant and does
not attract the limitation of new service or new instrument of service;
(2) Authorisation by the authority that is competent to do so;
(3) Compliance with the requirement of the applicable laws, rules, regulations, orders and
instructions in actual disbursement;
(4) Evidence by way of vouchers, payees’ acknowledgements, etc.
(5) Record in the books of the spending officer, including cross-verification with the records of
the treasury, pay and accounts office, bank, etc;
(6) Accounting in the books of the Government; and
(7) Monitoring, control and reporting as prescribed in the Government rules.
The above carries an embedded, but essential, requirement of the examination of expenditure
for compliance with the broad and general principles of financial propriety. Audit shall bring to light
not only significant cases of irregularity and breach of rules, regulations and orders but also every
matter which, in the judgment of the audit officer, appears to involve significant unnecessary,
excessive, extravagant or wasteful expenditure of public money and resources despite compliance with
the rules, regulations and orders.
AUDIT OF GOVERNMENT EXPENDITURE:
The audit of Government Expenditure is one of the major components of government audit. The basic
standards set for audit of expenditure are to ensure that there is provision for funds should be
authorised by competent authority fixing the limits within which expenditure can be incurred.
These standards are as follows:
1. Audit against Rules & Orders: The auditor has to see that the expenditure incurred
conforms to the relevant provisions of the statutory enactment and is in accordance with the
financial rules and regulations framed by the competent authority.
2. Audit of Sanctions: The auditor has to ensure that each item of expenditure is covered
by a sanction, either general or special, accorded by the competent authority, authorizing such
expenditure.
3. Audit against Provision of Funds: It contemplates that there is a provision of funds out
of which expenditure can be incurred and the amount of such expenditure does not exceed the
appropriations made.
4. Propriety Audit: The auditor aims to bring out cases of improper, avoidable, or in
fructuous expenditure even though the expenses had been incurred in conformity with the
existing rules and regulations. Audit aims to secure a reasonably high standard of public
financial morality by looking into the wisdom, faithfulness and economy of transactions.
5. Performance Audit: This involves that the various programmes, schemes and projects
where large financial expenditure has been incurred are being run economically and are
yielding results expected of them. It is an objective examination of the financial and operational
performance of an Organisation or programme and is oriented towards identifying
opportunities for greater economy, and effectiveness
57 Principle duties in respect of the contingent charges? 1
The auditor should very carefully check the various contingent charges. There may be some such
charges for which no provision has been made in the books but merely a note has been made at the
foot of the Balance Sheet, e.g. Bills Receivable which have been discounted and which have not
matured at the date of the Balance Sheet, arrears of fixed cumulative dividends, etc. For charges in
respect of which provision has to be made in the Balance Sheet, viz a suit, etc., the auditor should
examine such cases and ascertain the amount to be specifically reserved for the purpose. The auditor
should examine the Director’s Minute Book, correspondence made with the legal advisers and the
information obtained from the officials of the business. He has to ensure that proper provision has
been made for all such charges and if he is not satisfied, he should mention the fact in his report. It is
to be remembered that the requirements of the Companies Act regarding the contingent charge should
be complied with in the Balance Sheet on the liabilities side.
58 Technical accounts 1
Technical Accounts:
General:
The accounts of Government are prepared under Single Entry System. But, in order to maintain a set
of Technical Accounts (known as Journal and Ledger), Double Entry System is applied. The purpose of
journal and ledger is to ascertain the balance of accounts (in regard to which government acts as a
banker, remitter or borrower, or lender) in a scientific way.
Such balances of account can also be ascertained under Single Entry basis, their accuracy can be
guaranteed if the same are prepared under Double Entry System.
In the case of the Central Government, the various Accounts Officers shall prepare Ledger and
summary of balance in accordance with the procedure separately prescribed for the purpose by the
Controller General of Accounts, state Accountants General will maintain separate Journal and Ledger
for all transactions of the State Government, from which the annual summary of balances of accounts
or Trial Balance or Balance Sheet is prepared by them.
Journal:
The journal incorporates, at first, all the opening balances of the year along with the transactions so
happened during the year and, finally, all the closing balances of the year.
The transactions of each month is recorded as:
1. Sundry Accounts Dr. for revenue and receipt of the month
To Revenue Receipts Sundry Account
2. Service Expenditure Sundry Accounts Dr. for the disbursement of the month
To Sundry Accounts
The totals of the amount columns of the journals are carried forward at the end of the month.
Ledger:
The accounts which are opened in the Ledger are classified in the manner as denoted:
1. Opening and Closing heads, viz. Government Balance;
2. Revenue Receipts; Being the total of the transactions under Revenue, Expenditure and Capital
heads, within the Revenue Account.
3. Service Expenditure;
4. Capital Expenditure (outside the Revenue Account);
5. Debt Deposit and Remittance heads which are closed to Government;
6. Debt Deposit and Remittance heads which are closed to balance;
7. Personal accounts of collectors who are in account with the Accountant General (including
local Remittances in-transit, and also the following heads: Departmental Adjusting Accounts,
Exchange Accounts Abstract, Settlement Account Abstract and Transfers).
59 Annual accounts 1
What is an Annual Account?
Company accounts are a description of the financial performance of an organisation for 12 months.
Every year, they are prepared for filing income tax returns and consist of a balance sheet, profit and
loss statement, and cash flow statement.
The Balance Sheet
The balance sheet is a financial statement that will provide you with a snapshot of the assets, liabilities,
and equity of the owners in your company at a specific time point. It is an indicator of the
company’s financial health at the time it created accounts being a measure of what is owned and what
is owed.
Profit and Loss Statement
The report of profit and loss varies from the balance sheet because it tracks results over some time,
rather than just a snapshot. You can see the net income and overall cost of the company for the
financial year in the profit and loss (P&L) statement.
Cash Flow Statement
The purpose of a cash flow statement is to clarify the movements of cash in and out of the company
during the financial year. Cash flow is the sum of money that comes in over some time and goes out of
a company. It varies from the profit and loss statement as income is usually reported when
the transaction is made, and cash flow is indicated when the money is earned. The two are very
different, in that sense.
60 Suspense accounts 1
A suspense account is an account used to temporarily store transactions for which there is
uncertainty about where they should be recorded. Once the accounting staff investigates and clarifies
the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the
correct account(s). An entry into a suspense account may be a debit or a credit.
It is useful to have a suspense account, rather than not recording transactions at all until there is
sufficient information available to create an entry to the correct account(s). Otherwise, larger
unreported transactions may not be recorded by the end of a reporting period, resulting in inaccurate
financial results.
Certain intermediary/adjusting Heads of Account known as "Suspense Heads" are operated in
Government Accounts to reflect transactions of receipt and payments which cannot be booked to
a final Head of Account due to lack of information as to their nature, or for other reasons.
61 Wage and means Advance 1
The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a
banker to government. This temporary loan facility is called Ways and Means Advances (WMA).
1. The WMA for the Central Government
The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the
government. This facility can be availed by the government if it needs immediate cash from the RBI.
The WMA is a loan facility form the RBI for 90 days which implies that the government has to vacate
the facility after 90 days. Interest rate for WMA is currently charged at the repo rate. The limits for
WMA are mutually decided by the RBI and the Government of India.
If the WMA is extended for more than 90 days, it will be treated as an overdraft.
Overdraft
When the WMA limit is crossed, the government can avail funds through the overdraft facility.
Overdrafts are not allowed beyond 10 consecutive working days. The interest rate on overdrafts would
be 2 percent more than the repo rate.
2. WMA Scheme for State Governments
The state governments can get temporary loans from the RBI from two facilities- the WMA (Ways and
Means Advances) and Overdraft.
1. WMA – includes (a) Special Drawing Facility or Special WMA and (b) Normal WMA; and
2. Overdraft
62 How do we conduct the audit of sanctions in the audit office? 1
AUDIT OF SANCTIONS:
Objective of Audit: The auditor has to ensure that each item of expenditure is covered by a sanction,
either general or special, of the competent authority.
Duty of the Auditor: The auditor has to ensure that
 a) Whether the expenditure is covered by a proper sanction, and
b) also to satisfy that the sanction is made by a competent authority do so in accordance with
the
i) Relevant provisions of the Constitution and of the laws and rules made thereunder.
ii) The financial rules, regulations and orders issued by a competent authority.
63 Duties and responsibilities of auditors and sr auditors in central audit support 1
section (other than those relating to works and forest audit)
(A ) Senior Auditors
(i) Audit of loans and deposit vouchers.
(ii) Maintenance of portfolio files for Central, Centrally Sponsored and State Plan Schemes.
(iii) Issue and pursuance of objection memos with departmental officers.
(iv) Issue and pursuance of objection memos with accounting and entitlements sections.
(v) Maintenance of register of important points for local audit.
(vi) Compilation and consolidation of statistics including those meant for calculation of staff
requirements.
(vii) Half- Yearly Digest of Important and Interesting Cases.
(viii) Preparation and consolidation of reports and returns.
(ix) Preparation of audit certificates on Plan Schemes, World Bank Projects, etc.
(B) Auditors
(i) Maintenance and closure of objection book.
(ii) Provision of assistance in administrative work like posting, transfers, sanction of leave, etc.
(iii) Other routine work not specifically listed or any other work entrusted by the Audit Officer
64 Transfer entry 1
Transfer Entries are entries intended for the transfer of an object from one account manager to
another.
Transfer Entries are necessary:
1. To fix a classification mistake in the original accounts.
2. An object outstanding under the Debt, Deposit, or Remittance head to be adjusted by debit or
credit to its proper head.
3. To make daily modifications.
4. To arrange payments of assistance grants or loans to state governments or the governments of
union territories, etc.
There should be only one head on one side of each transfer entry, but there may be a debit or credit to
various other heads or vice-versa. The information describing both the essence of the change and the
reasons for the correction must be specified in the transfer entry. The process of documenting
transactions in a journal is known as journalizing, while the process of moving entries from the journal
to the ledger is known as posting.
65 Ledger 1
It is also known as the principal book of accounts as well as the book of final entry. It is a book in
which all ledger accounts and related monetary transactions are maintained in a summarized and
classified form. All accounts combined together make a ledger and form a permanent record of all
transactions.
It is the most important book of accounting as it helps in the creation of trial balance which then
acts as a base for the preparation of financial statements.
Example: An account can be either an Asset, Liability, Capital, Revenue or an Expense account. Few
examples of each are Furniture, Cash, Creditors, Bank Loan, Capital, Drawings, Sales, Rent, etc.
66 Broad objectives of Audit 1
Primary Objectives of Audit
The main objectives of the audit are known as the primary objectives of the audit. They are as follows:
1. Examining the system of internal check.
2. Checking arithmetical accuracy of books of accounts, verifying posting, casting, balancing, etc.
3. Verifying the authenticity and validity of transactions.
4. Checking the proper distinction between capital and revenue nature of transactions.
5. Confirming the existence and value of assets and liabilities.
Verifying whether all the statutory requirements are fulfilled or not.
Proving true and fairness of operating results presented by income statement and financial position
presented by the balance sheet.
Subsidiary Objectives of Audit
These are such objectives that are set up to help in attaining primary objectives. They are as follows:
Detection and prevention of errors
Errors are those mistakes that are committed due to carelessness or negligence or lack of knowledge or
without having vested interest.
Errors may be committed without or with any vested interest.
So, they are to be checked carefully. Errors are of various types. Some of them are:
 Errors of principle.
 Errors of omission.
 Errors of commission.
 Compensating errors.
Detection and prevention of frauds
Frauds are those mistakes that are committed knowingly with some vested interest in the direction of
top-level management.
Management commits frauds to deceive tax, to show the effectiveness of management, to get more
commission, to sell a share in the market or to maintain the market price of share, etc.
Detection of fraud is the main job of an auditor.
Such frauds are as follows:
 Misappropriation of cash.
 Misappropriation of goods.
 Manipulation of accounts or falsification of accounts without any misappropriation.
Under or over-valuation of stock
Normally such frauds are committed by the top-level executives of the business. So, the explanation
given to the auditor also remains false.
So, an auditor should detect such frauds using skill, knowledge, and facts.
Other objectives
  To provide information to the income-tax authority.
 To satisfies the provisions of the Companies Act.
 To have a moral effect.
67 Essential conditions governing incurring of expenditure 1
Subject to the provisions of Articles 266(3), 267(2) and 283(2) of the Constitution, no authority may
incur any expenditure or enter into any liability involving expenditure or transfer of money for
investment or deposit from Government account unless such expenditure or transfer, as the case may
be, has been sanctioned by general or special orders of Government or by any authority to which
power has been duly delegated in this behalf
68 Procedure relating to appropriation audit 1
Audit of Sanctions
The first stage of Appropriation Audit is the audit of sanctions containing orders of allotment,
Reappropriation and Resumption of funds. These sanctions should be scrutinized to ensure that:-
(a) the orders are issued by a competent authority ;
(b) the allotments made are not in excess of the amounts available under the Grant or Appropriation;
(c) the amount appropriated is available under the unit from which it is allotted ;
(d) amounts reappropriated are not intended for meeting expenditure on a ‘New Service’ or ‘New
Instrument of Service’
(e) no amount has been reappropriated from one Grant or Appropriation to another Grant or
Appropriation.
(f) no amount has been reappropriated from ‘Charged’ Section to ‘Voted’ Section and vice – versa ;
(g) no amount has been reappropriated from Revenue to Capital and vice versa ; and
(h) funds provided under ‘Plan’ heads have not been reappropriated to ‘Non-plan’ heads without the
previous consent of the Finance Department.
Audit of Expenditure
The second stage of Appropriation Audit is the audit of expenditure against allotments. Audit against
provision of funds should be directed primarily to ascertaining that the money expended has been
applied to the services and purposes for which the Grants and Appropriations specified in the schedule
to the Appropriation Act passed were intended to provide and that the amount of expenditure against
each Grant or Appropriation does not exceed the amount included in that schedule. A Grant or
Appropriation is intended to cover all the charges including the liabilities of past years to be paid
during the financial year or to be adjusted in the accounts of that year. It is operative until the close of
that year. Any unspent balance lapses and is not available for utilization in the following year
69 Separate audit report 1
Separate audit report means an audit report containing audit observations on the accounts of an
authority, body or corporation whether or not required to be laid before the legislature;
70 Major head, minor head, detailed head of accounts 1
Major, Minor and Detailed Heads
(a) The main unit of classification in accounts shall be the major head which shall be divided into
minor heads, each of which shall have a number of subordinate heads, generally shown as sub-heads.
The sub-heads are further divided into detailed heads. Sometimes major heads may be divided into
'sub-major heads' before their further division into minor heads.
 The Sectors, Major heads, Minor heads, Sub-heads and Detailed heads together constitute a five tier
arrangement of the classification structure of Government Accounts.
(b) Major heads of account falling within the Consolidated Fund shall generally correspond to
'Functions' of Government, such as different services like "Crop Husbandry", 'Defence' provided by
Government, while minor heads subordinate to them shall identify the 'Programme' undertaken to
achieve the objectives of the function represented by the major head. A programme may consist of a
number of schemes or activities and these shall, generally, correspond to 'sub-heads' below the minor
head represented by the programme. In certain cases, especially in regard to non-developmental
expenditure or expenditure of an administrative nature, the sub-heads may denote the components of
a programme, such as 'Organisations' or the different 'Wings of Administration'.
(c) A "detailed head'', is termed as an object classification. On the expenditure side of the accounts
particularly in respect of heads of accounts within the Consolidated Fund, detailed heads are primarily
meant for itemised control over expenditure and indicate the object or nature of expenditure on a
scheme or activity or organisation in terms of inputs such as 'Salaries', 'Office Expenses', 'Grants-in-
aid', 'Loans'. 'Investments'.
(d) The detailed classification of account heads in Government Accounts and the order in which the
Major and Minor heads shall appear in all account records shall be such as are prescribed by the
Central Government from time to time on the advice of the CAG of India. The 'List of Major and Minor
Heads of Account of Union and States contains the classification prescribed in this regard. The
classification prescribed (including the code No. assigned upto the major heads and minor heads
thereunder) should be strictly followed.
71 Difference between capital and revenue expenditure 1
CAPITAL EXPENDITURE REVENUE EXPENDITURE
Meaning The expenditure incurred in acquiring a Expenses incurred in regulating
capital asset or improving the capacity of an day to day activities of the
existing one, resulting in the extension in its business.
life years.
Term Long Term Short Term
Capitalization Yes No
Shown in Income Statement & Balance Sheet Income Statement
Outlay Non-recurring Recurring
Benefit More than one year Only in current accounting year
Earning capacity Seeks to improve earning capacity Maintain earning capacity
Matching concept Not matched with capital receipts Matched with revenue receipts
Shown in Income Statement & Balance Sheet Income Statement
72 Audit of receipts 1
Section 16 of DPC Act. Audit of receipts of Union or of States. It shall be the duty of the CAG to
audit all receipts which are payable into the Consolidated Fund of India and of each State and of each
Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in
that behalf are designed to secure an effective check on the assessment, collection and proper
allocation of revenue and are being duly observed and to make for this purpose such examination of
the accounts as he thinks fit and report thereon.
73 Appropriation act 1
 According to Article 114 of the Constitution of India, the government cannot withdraw any amount
of money from the Consolidated Fund of India, prior to it being passed by the Parliament and the
State Legislature, and also having received the President’s assent within a period of 75 days of its
presentation. Thus, once the assent is received from the President, the Appropriation Bill becomes
the Appropriation Act.
 The Appropriation Act allows the government to withdraw funds during the fiscal year from the
Consolidated Fund of India. It is necessary for the bill to be passed for both non-votable and votable
expenditures. Once the Bill has been passed by the Parliament and the State Legislature, no
amendments in the amounts mentioned can be made.
 If any inconsistencies arise between the amounts that were proposed and sanctioned and what was
eventually spent by the government during the fiscal year, the same will be reported by the CAG of
India (CAG) to the State and Union Legislatures. This excess expenditure incurred by the
government will then be scrutinised by the Parliament and the State Legislature.
 Expenditures of the government, such as repayment of public debts, expenses incurred by the
judiciary, etc. are called Charged Appropriation since they are not generally voted on by the
Parliament, and these expenses are charged on the Consolidated Fund of India, as per Article 112(3)
of the Constitution of India.
74 List of duties levied by the union but collected and appropriated by the states 1
Article 268. Duties levied by the Union but collected and appropriated by the States.-
(1) Such stamp duties and such duties of excise on medicinal and toilet preparations as are mentioned
in the Union List shall be levied by the Government of India but shall be collected-
(a) in the case where such duties are leviable within any Union territory, by the Government of
India, and
(b) in other cases, by the States within which such duties are respectively leviable.
(2) The proceeds in any financial year of any such duty leviable within any State shall not form part of
the Consolidated Fund of India, but shall be assigned to that State.
75 Regulation by law of procedure in the legislature of the state in relation to 1
financial business
Article 209 of Constitution of India
The Legislature of a State may, for the purpose of the timely completion of financial business, regulate
by law the procedure of, and the conduct of business in, the House or Houses of the Legislature of the
State in relation to any financial matter or to any Bill for the appropriation of moneys out of the
Consolidated Fund of the State, and, if and so far as any provision of any law so made is inconsistent
with any rule made by the House or either House of the Legislature of the State under clause (1) of
article 208 or with any rule or standing order having effect in relation to the Legislature of the State
under clause (2) of that article, such provision shall prevail.
76 Court not to inquire into proceedings of the legislature 1
Article 212
(1) The validity of any proceedings in the Legislature of a State shall not be called in question on the
ground of any alleged irregularity of procedure.
(2) No officer or member of the Legislature of a State in whom powers are vested by or under this
Constitution for regulating procedure or the conduct of business, or for maintaining order, in the
Legislature shall be subject to the jurisdiction of any court in respect of the exercise by him of those
powers.
77 Submission of audit report 1
Submission of audit reports to the Government and legislature
 The reports of the CAG in relation to the accounts of a Government company or a deemed
Government company shall be submitted to the Government concerned under Section 19A of the
Act. The Government shall cause every report so received to be laid before each House of
Parliament/State legislature, as the case may be.
 Article 151

i. The reports of the CAG of India relating to the accounts of the Union shall be submitted to the
President, who shall cause them to be laid before each House of Parliament.
ii. The reports of the CAG of India relating to the accounts of a State shall be submitted to the
Governor of the State, who shall cause them to be laid before the Legislature of the State.
 According to Sixth Schedule the accounts of the District Council or Regional Council should be kept
in such form as CAG, with the approval of the President, prescribe. In addition these bodies account
are audited in such manner as CAG may think fit, and the reports relating to such accounts shall be
submitted to the Governor who shall cause them to be laid before the Council.
78 Exemption of property and income from taxation of union and state 1
Article 285 Constitution of India
(1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be
exempt from all taxes imposed by a State or by any authority within a State.
(2) Nothing in clause (1) shall, until Parliament by law otherwise provides, prevent any authority
within a State from levying any tax on any property of the Union to which such property was
immediately before the commencement of this Constitution liable or treated as liable, so long as that
tax continues to be levied in that State.
79 Conditions for joint sitting of both the houses of parliament 1
Details about Joint sitting of Parliament
Article 108 of the Indian Constitution provides for a joint sitting of both Houses of Parliament
 The joint session is summoned by the President.
 It is presided over by the Speaker of the Lok Sabha
 The joint sitting is governed by the Rules of Procedure of Lok Sabha and not of Rajya Sabha.
 The quorum to constitute a joint sitting: 1/10th of the total number of members of the House.
 The Bill is passed by a simple majority of the total number of members of both the Houses
present and voting in the joint sitting,
Occasions when Joint Session of Parliament is summoned:
1. To resolve deadlock when any house of the Parliament passes a bill and:
a. The other House rejects this bill, or
b. The Houses do not agree on the amendments made to the bill, or
c. More than six months elapsed with the bill being received by the other House without it
being passed.
 2. According to Article 87 of the Constitution, there are two instances when the
country’s President specifically addresses a joint sitting of both Houses. They are:
a. At the start of the first session after a general election. This is when the reconstituted ok
Sabha meets for the first time after being elected.
b. At the start of the first session every year.
3. When any foreign dignitary may addresses the Parliament e.g. Barack Obama addressed a
joint session of Parliament during his visit in 2010.
Exceptions to Joint Session
According to the Indian Constitution, there are two exceptions when a joint sitting cannot be
summoned. They are for the following bills:
1. Constitution Amendment Bill: According to Article 368, both houses of Parliament must pass
a Constitutional Amendment bill separately. There is no provision for a joint sitting in case of a
disagreement.
2. Money Bill (Article 110): As per the Constitution, money bills require the Lok Sabha’s approval
only, Rajya Sabha has limited powers in this regard.
Joint sitting is an extraordinary machinery provided by the Constitution aimed to maintain a much-
needed synergy between the two houses of the Parliament.
80 Provisions of Article 148&151 1
Article 148: CAG of India
(7) There shall be a CAG of India who shall be appointed by the President by warrant under his
hand and seal and shall only be removed from office in like manner and on the like grounds as a
Judge of the Supreme Court.
(8) Every person appointed to be the CAG of India shall, before he enters upon his office, make and
subscribe before the President, or some person appointed in that behalf by him, an oath or
affirmation according to the form set out for the purpose in the Third Schedule.
(9) The salary and other conditions of service of the Comptroller and Auditor- General shall be such
as may be determined by Parliament by law and, until they are so determined, shall be as
specified in the Second Schedule:
Provided that neither the salary of a CAG nor his rights in respect of leave of absence, pension
or age of retirement shall be varied to his disadvantage after his appointment.
(10) The CAG shall not be eligible for further office either under the Government of India or
under the Government of any State after he has ceased to hold his office.
(11) Subject to the provisions of this Constitution and of any law made by Parliament, the
conditions of service of persons serving in the Indian Audit and Accounts Department and the
administrative powers of the CAG shall be such as may be prescribed by rules made by the
President after consultation with the CAG.
(12) The administrative expenses of the office of the Comptroller and Auditor- General,
including all salaries, allowances and pensions payable to or in respect of persons serving in that
office, shall be charged upon the Consolidated Fund of India.
Article 151: Audit reports
(1) The reports of the CAG of India relating to the accounts of the Union shall be submitted to the
 President, who shall cause them to be laid before each House of Parliament.
(2) The reports of the CAG of India relating to the accounts of a State shall be submitted to the
Governor of the State, who shall cause them to be laid before the Legislature of the State.
81 Audit of remittance transactions 1
82 Points to be seen by audit as regards to purchase of stores 1
83 Provisions regarding process of estimates 1
84 Duties of Audit iro the audit of public debts? 1