VERIFICATION Ms. Fleur Dsouza Asst. Prof., BMS SIES College VOUCHER O A voucher is evidence to any expenses done. It is a written record against any expenditure or completed transaction.
O Sales invoice, cash memo, purchase
invoice, bank pay-in slips are examples. DEFINITION OF VOUCHING According to Spicer and Pegler,
“Vouching is the examination by the auditor
of all documentary evidences, which are available to support the authenticity of the transaction entered in the client’s record.” AUDIT OF EXPENSES PAYMENT OF TAXES O Check copy of assessment order, assessment form, notice of demand, receipted challan O Payment of tax to be verified by acknowledgement receipt O Interest earned on advance income tax to be recorded as income O Any interest or penalty due to non- payment of tax should be debited CUSTOMS DUTY O Check Bill of Entry and Payment Receipts O If duty is paid by agent, then bills issued by clearing agent for his charges should also be checked O In case of dispute regarding duty amount, a provisional amount is paid. Later, additional amount payable or refund of excess amount should be accounted for. O If imported goods are exported, verify whether duty has been refunded. EXCISE DUTY O Amount of duty paid should be according to quantity of goods allowed under the permit O Check triplicate copy of the TR-61GAR-7 challan for excise duty paid O Current account with excise authorities – check advance permit quantity with quantity of excisable goods actually issued TRAVELLING EXPENSES O To be approved as per rules formed by directors or partners O If no such rules, reimbursement as per amounts actually incurred O Travelling expenses should be incurred for business benefit, not personal reasons O All travel voucher must contain name of traveller, journey details, amount of fare, boarding and lodging expenses, daily allowances O Foreign travelling expenses should be approved first and then spent O Supporting proof to be provided for each expense incurred PRELIMINARY EXPENSES O Stamp duty, legal costs, printing costs, registration fees paid during creation of the firm O Reimbursement to promoters should be verified through resolution passed by BoD and power of Articles of Association O Each expense should be verified with supporting attachments and contracts O Excess amount paid under any head compared to amount disclosed in prospectus should have approval of shareholders O Part of preliminary expenses not written off to be disclosed separately O No other expenses should be recorded under this head. SALARIES AND WAGES O Verify salary and wage bill with attendance registers, schedules of rate, class and position of workers, and employees and payment sanctions. O No payment to dummy workers O Proper deductions like leave pay, PF, ESI, TDS has been considered O Mode of payment to be verified – ESOP, cash ,cheque, etc. O Disbursement – confirm that payment is made and entered into account. Undisbursed amount should be recorded as unpaid salary and wages. O Tax liability to be checked O Loan and advances given to employees – verify recovery and outstanding PETTY CASH O Verify amount sanctioned to petty cashier O Expenses should be supported by expense vouchers, receipts or documents O All expenses to be allocated according to their heads eg. Travelling, stationery, O Total of heads should match with total expense amount O Verify the cash balance in hand RESEARCH AND DEVELOPMENT EXPENSES O Verify nature of R&D expenses O Routine expenses of R&D to be written off to P&L A/c O Verify that the research is relevant to the objective and it is authorised by the Board O Any asset purchased for R&D purpose, depreciation should be debited to R&D A/c O Tax benefits to be taken into account in creating tax provision ADVERTISEMENT EXPENSES O Verify whether capital, revenue or deferred O Verify if regular contract with ad agency O If advertisement is done, verify by checking newspapers, hoarding, magazines, TV ad and radio showing the date and exact location O Check receipts for amounts paid for ads O Outstanding expenses to be disclosed in liability side of balance sheet AUDIT OF INCOMES CASH BOOK O Only indirect evidence can be obtained for incomes O Guard against omission of cash receipts O Compare opening balance of cash book with closing balance shown in audited balance sheet of previous year CASH SALES O Check carbon copies of cash memos with salesmen’s summaries and cashier’s abstracts. O Trace total of daily cash sales in the cash sales book O If paid by cheque, check pass book CASH RECEIVED FROM DEBTORS O Persons handling receipts should not take part in preparation and sending out of statements to debtors O Receipts issued and entries in Cash Book should match O Auditor can ask for the payment statement from debtors O Bank statement can also be vouched CAPITAL RECEIPTS O Sale of plant, machinery, investments O Vouch sale proceeds with contracts of sale, correspondence, other documents O Proceeds less any expense incurred should be fairly accounted for PROCEEDS OF BILLS RECEIVABLE O Check cash received from bills discounted or matured with the Bills Receivable book O If any bill is dishonoured, see that reverse entry is made O Drawee to be charged with dishonour charges and original balance INCOME FROM INTEREST AND DIVIDENDS O Interest received from FD or RD in bank should be vouched with Bank Passbook O Genuineness of Pass Book to be ascertained O Dividends received checked from counterfoils of dividend warrants or letters covering cheques O Interest received on securities vouched from securities or from the investment ledger COMMISSION O Vouched with the account of the parties from whom commission is or is to be received. O Agreements regarding rate of commission can be inspected SALE OF SCRAP O Auditor to confirm that the life of the assets is finished and it has become total scrap O Use assets register and fixed assets schedule for vouching MISCELLANEOUS RECEIPTS O Rents, O Income from hire purchase agreements, O Bad debts recovered, O Insurance claim money, O Subscriptions, O Contributions O Share capital, etc. Relevant evidence like leases, receipts, correspondence, agreements, etc. VERIFICATION MEANING Physically examining assets and liabilities to check – O Value O Ownership O Title O Existence O Possession O Free from any charge PLANT & MACHINERY O Obtain detailed list of all P&M and asset-wise accummulated depreciation O Check Opening Balance with last year’s annual report O For purchase of P&M, verify quotations, invoices, etc. Related expenses should be duly capitalised. O For sale, verify relevant invoice. Check authorisation of sale and value report. Proper accounting of profit or loss due to sale of P&M O Verify resolution regarding purchase and sales of P&M O Self-constructed – verify amount of material, labour and other expenses are capitalised. O Check rate and calculation of depreciation, as per Section 123 of Companies Act, 2013 O Physical verification by obtaining register and personal visit to workplace O Check whether all disclosures made in balance sheet as per Companies Act O P&M kept abroad – obtain certificate from a local auditor O IMPORTED PLANT AND MACHINERY O Verify RBI’s permission and import license O Check entries in books of accounts O Examine Directors’ Minute Book for resolution regd authorising the purchases O Vouch the bills related to purchase, custom duty payment, clearing and shipping charge, insurance premium, etc. O If asset purchased on credit, check credit terms FREEHOLD LAND & BUILDING O Keep freehold separate from leasehold O Balances shown in balance sheet should be easily traceable from those ledgers O Title deed should be genuine, in name of the client and has free and fair possession of the client O Building is constructed – Builder’s certificate, contractor’s certificate, architect’s certificate, local authority certficate should be verified O In case of sale – verify documents of sale O Property under mortgage – obtain Certificate of Mortgage O Land is not to be depreciated O Building to b depreciated at proper rate O Check physical existence of the asset FURNITURE, FIXTURES AND FITTINGS O Funriture – movable –chairs, tables, etc. O Fixtures - fixed to the ground O Fittings – fitted on the wall O Check if register properly maintained O Balances of register properly posted to balance sheet O Depreciation charged as per Companies Act, 2013 O New purchase – verify quotations, orders, invoices, authorisation, physical verification of asset O Sales – verify authorisation and entries O Accounting treatment of profit or loss on sale O Assets on lease – verify lease agreement MOTOR VEHICLES O Verify the chedule of vehicles O Verify registration book of each vehicle. Check insurance paid on vehicle O Valued at cost less depreciation O Rate of depreciation O Sale as scrap – verify auctioneer’s statement, valuer’s report. Profit or loss on sale properly accounted O Physical verification of each vehicle by inspecting registration numbers, O In case R/C book is lying with lender, verify the certificate from lender GOODWILL O Method of goodwill creation O Verify opening balance from last year’s audited balance sheet O If there was no opening balance, verify the value from the agreement of purchasers of business, minute books, etc. O Physical verification not possible O Not to be depreciated, if any amount written off then find out the reason INVESTMENTS O Obtain schedule of investments – purchase date, book value, market price, rate and date of interest, tax deducted, etc. O Dividends received – check counterfoils of dividend warrants O Long term investment – valued at cost price, short term investment – cost price or market price, whichever is less O Check investments in balance sheet O Investment certificate not received – examine transfer deed, broker’s contract note O Investment given to bank for safe custody – obtain certificate from bank O Held by trust – verify trust deed O Investment in subsidiaries – Disclosure requirements of Section 133 of Companies Act to be complied O Investments should be in name of client O Investments made should not be contrary to provisions of Section 186 of Indian Companies Act, 2013 PATENTS O Check Certificate granting the patent O If patent is purchased, check assignment deed. Deed should be registered in name of the client O Verify voucher, pass book, agreement, authorisation, etc. O Fees paid to purchase patents to be treated as capital expenditure. Renewal fees are revenue expenditure. O If several patents, obtain list of patents with date of acquisition, cost, etc. O Depreciation as per Companies Act– show in Balance sheet as cost minus written off amount TRADEMARKS O Right to own the brand and protect it from imitation O Points similar to Patents COPYRIGHTS O Rights to produce or reproduce any creative work O Points similar to Patents SUNDRY DEBTORS Debtors to be classified as per Companies Act, 2013 – Debtors outstanding more than 6 months Other Debtors – • Debtors good and secured • Debtors good but only personal security • Bad or doubtful debts • Debts due by directors or other officers of the Company • Debts due by firms or private companies in which any director is a partner or director or member • Debts due from other companies under same management O Obtain Sundry Debtors list and compare with ledger accounts O Verify opening balance from last year’s balance sheet O Verify Provision for Bad Debts, Provision for Discount to Debtors, are properly made O Verify vouchers, minutes book to verify bad debts written off are correct or not O Credit balance in debtor’s account not to be deducted from debit balance. Show credit balance as liability. O Verify any dispute regarding balance from debtors O Send letters to debtors to confirm their balance outstanding. Replies should be sent to auditor’s office directly. O Check if any unrecorded debtors – check cut-off date for transactions for deciding whether debtor is of current year or next year STOCK IN TRADE O Consists of stores and spares, raw materials, WIP and finished goods O IF stock is overvalued, profit is inflated; if undervalued it creates secret reserves O Check gatekeeper’s outward register to find out any fictitious sale entered in Sales Book O Verify balance of Stock Register with the Stock sheets O Verify same principle of valuation of stock is followed every year (eg. LIFO, FIFO, etc.) O Verify obsolete, slow-moving, non-moving and damaged items and their treatment in accounts CASH IN HAND O Count the cash on date of Balance Sheet in front of cashier O Cashier should deposit all cash, except petty cash, into bank account O In case of temporary advances, verify the delays O If physical cash does not tally with Balance sheet amount, CA to issue qualified report O If cash could not be counted on last day of the year, CA may count on another day .Check cash book entries from last day of accounting year till cash counting date. O Get certificates from branch auditors regd. Cash balance in hand and their correctness O Ensure quantum of mutilated notes/coins is not very large and that they are exchanged at the earliest. CASH AT BANK O Compare Cash Book and Pass Book O Prepare Bank Reconciliation Statement O Obtain letter of confirmation from bank O Verify that ‘charges not yet collected’ are genuine and not made up in order to conceal the deficiency CREDITORS O Check accounts of creditors and compare with the Purchase Ledger O Compare the accounts with the invoices, receipts, credit notes and statements O Check entries in Goods Inward Book and compare with Purchase Ledger LOANS TAKEN O Verify Memorandum of Association and Articles of Association to verify borrowing power of the company O Check Resolution of directors for obtaining loan O Verify if loan is secured or unsecured O Verify assets mortgaged against loan O Obtain confirmation from lending institution regd. Amount of loan, security, interest, etc. O Verify interest and principal paid and payable The above slides are for reference only. For full content, please refer text book.
Students have to read up on all the
incomes, expenses, assets and liabilities given in text book. Only some heads have been covered in this ppt.