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10) Audit - Vouching & Verification
10) Audit - Vouching & Verification
I) Introduction
II) Importance
III) Points to be considered in the course of Vouching
IV) Gen. Principles Regarding Verification of
Assets / Liabilities
V) Audit of Income / Expenses
What is Vouching?
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Entries in the books of accounts are made on the basis of
supporting documents. These include bills, receipts, pay-in-slips,
cheques, counter-foils etc. These documents are called VOUCHERS.
Essentials of Voucher
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Name of the concern – eg. XYZ Pvt. Ltd.
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Date
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Serial No.
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Accounting Head
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Description of the Transaction (Narration)
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Amount in Words & in figures
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Name of the party involved
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Signatures – Maker, Checker & Authorised person.
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Signature of the payee – Sign on revenue stamp if payment > 5000 or limit set by the
company
General Considerations
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Date should fall within accounting period.
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Voucher should be made in the name of the client & not in the name
of any person
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Voucher should be duly authorised by concerned officer.
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Voucher should include all aspects of the transaction that has
been entered into.
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After examination of a voucher, each voucher should be either
impressed with rubber stamp or initials have to be put by concerned
person so that entry of the same voucher will not be made again .
Importance of Vouching
Auditing is critical examination of books of account to determine whether they are True & Fair, whereas
Vouching is examination of books of account with relevent documentary evidence.
Therefore Vouching is essence of Auditing. Success of an audit depends upon the manner in which
vouching has been done. The auditor should not only check arithmetic accuracy of transactions but also has
to check all aspects right from the source of transaction. Following are the imortance of vouching:
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Ensuring genunieness -No fake entries are made in the books
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Nature of transaction – only business transactions are entered.
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Period of transaction – same accounting period for which audit is being conducted.
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Detection of errors & frauds
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Adherence to accounting policies & principles.
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Compliance with law – companies act 2013, income tax act etc.
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Proper Disclosure.
Points to be considered in the course of Vouching
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Date of voucher
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Name of the client
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Cancellation of voucher
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Signatures of all concerned
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Revenue stamps
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Amounts in word & figures
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Account head
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Duplicate voucher
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Proper Filling
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Alteration
What is Verification?
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Verification means determining the existence & confirmation of
assets & liabilities on the date of Balance Sheet.
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It is an eqnuiry into the value, ownership & title, existence &
possession & presence of any charge on the assets.
Objects of Verification
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Inspection of assets on the basis of documentary evidence
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Acquired for business purpose
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Legally owned by the company
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Free from any charge, lien.
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There are no unrecorded assets
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Properly valued & disclosed.
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Verification of assets is the primarily the responsibility of the Management
of the company.
Valuation of Assets
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Valuation of assets means examination of the accuracy & propriety of the
valuation of those assets, which are shown in the balance sheet of the
concern at the end of the financial year.
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Valuation is an operation which includes:
➔
Obtaining & analyzing figures & other relevant information available.
➔
Confirming the fact that valuation is as per GAAP
➔
Consistency method if followed.
➔
Obtaining an opinion regarding accuracy of valuation.
General Principles of Verification of Assets
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Review internal control.
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Check Fixed Asset Register.
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If asset is purchased then check purchase agreement.
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If asset is sold then check sale agreement.
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Depreciation is provided correctly.
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Physical verification.
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NO Unauthorized charges.
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If shares are lodged with bank for loan then certificate from bank.
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If asset is disposed of, discarded or demolished then net gain or loss.
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If amalgamation/merger then amount of Goodwill or Capital Reserve.
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Properly valued & no incorrect treatment. (eg. Revenue exp. capitalized)
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Value of current assets at the end of the year
Verification & Valuation of Tangible FA
Step I Review of Internal Control. Regarding purchase, sale, accounting etc.
Step II Atttending Physical Physical verification, Add-purchase but not recd, Less -
stock taking program sold but not dispatched, discrepancies, defective stock,
purchase & sale invoices.
Step III Obtaining Direct If stock is held by third parties then written confirmation.
Confirmation
Step IV Applying analytical Comparison of GP / Ratios / Purchase / Sale / Yield etc
review procedures with previous year.
Step VI Disclosure & reporting Scheduled VI, basis of valuation, Opening/ closing/ WIP,
requirements. CARO 2003- physical verification by management,
procedure are resonable, proper records etc.
Objectives of Verifying Inventory
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No material discrepancy in physical & book stock
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True & fair view
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CARO 2003 – physical verification, method of valuation etc.
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Moral check on employees – by surprise visit by auditor.
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Identification of damaged / slow moving stock.
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Free from any charges / lien
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Check for any unrecorded stock
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Ownership of stock.
Verification of Liabilities
General principles of verification & valuation:
➢
Ensure the following
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Liabilities shown in the BS are actually payable
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Properly recorded
➢
Only business liabilities
➢
Contingent liabilities are disclosed in the BS by way of a note
Auditor should obtain certificate from the client that all liabilities which had accrue due till the
close of the year have been taken into account & contingent liabilities if any have been fully
disclosed.
It should be verified that liabilities have been properly grouped under different heads for
disclosure in the BS.
Ensure that secured & unsecured liabilities have been segregated & nature of security against
the secured liabilities have been stated.
Outstanding Expenses
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List of o/s expenses from the client
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Verify supporting documents.
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Basis of estimation of o/s expenses, if provided on an estimated basis.
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Also check Cash book of current year (A.Y.) to check o/s expenses (P.Y.) have paid of
by the time of audit. eg. Audit of P.Y. 2016-17 in A.Y. 2017-18 then cash book of 2017-
18 till date to check that o/s expenses as on 31st March 2017 have been paid or not.
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No o/s expenses have been paid which were not provided. If paid then check for
adjustment entries.
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Comparison of o/s expenses of current year with previous year.
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O/s expenses are shown under current liabilities.
Creditors/ accounts payable
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Check internal control regarding credit purchase & creditors.
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Schedule of creditors to be tallied with related control account.
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Documentary evidence about the validity, accuracy & completeness of creditors.
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Special attention to : loan o/s, unadjusted claims, purchases not yet recorded against
advances given.
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Cut-off procedure adopted by the entity.
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Creditors are properly disclosed.
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Comparison of closing balances, ratios etc.
Bills Payable
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Check intenal control regarding acceptance & payament of bills payable.
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Check statement of bills payable & compare with bills payable book & account.
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Cash book for payament before audit but after end of F.Y.
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Confirmation from the acceptors in respect of bills held by them
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Bills payable against any security then check register of charge, Board Resolution etc.
Contingent Liabilities
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Contracts entered into by company & likelihood of contingent liabilitiy.
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Check lawyer‘s bill to trace unreported contingent liabilities.
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Bank letters in respect of bills discounted & not matured.
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Bank letters to check guarantees given by the bank.
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Discuss with functional officers of the company about possibility of contingent liability.
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Obtain certificate from the management that all knonw contingent liabilities have been
included in the accounts & have been properly disclosed.
THANK YOU