AUDIT PROGRAM
By - Jayant R. Shetye
1
A DETAILED AUDIT PROGRAM
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By - Jayant R. Shetye
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An audit program consists of an appropriate
audit procedure to achieve audit objectives.
Audit programmes are prepared while planning
the audit. At the planning stage, auditors will
need to prepare audit tests to test the account
areas.
As part of the planning stage, auditors need to
prepare audit tests to test the account areas.
To assist the auditors there are audit assertions
for the purpose of Audit.
Transactions are to be tested in audit with
reference to the audit assertions. Assertions will
be different for different account areas.
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AUDIT ASSERTIONS
Assertion
Questions
Occurrence
Is the transaction recorded
expenditure in correct year
account?
Regularity
Is the transaction legal and regular?
Disclosure
Is the transaction correctly coded and
disclosed?
By - Jayant R. Shetye
Completeness Has the transaction been recorded in
the accounting records?
Measurement Is the transaction recorded at the
correct value?
as
of
3
STAGES IN AN AUDIT
Stages
Particulars
Audit Initiation
II
Vouching of Transaction
III
Statutory Compliances
IV
In-depth Scrutiny of Ledgers
V
Preparation of Financial Statements
and Final Reporting
Stages of audit are explained in the following
slides.
By - Jayant R. Shetye
I
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STAGE I: AUDIT INITIATION
1.
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Studying the incorporation documentation i.e.
Partnership deed, Memorandum and Articles of
Association
By - Jayant R. Shetye
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Understanding the Entity and its environment.
The industry in which the entity operates and the
internal controls implemented; for example for a
manufacturing Concern the following should be
considered.
a) List the products manufactured.
b) Narrate the Manufacturing process.
c) Brief on Delivery mechanism and invoicing
method, PO tracking
d) Note on Inventory Maintenance and related
records of goods sold, manufactured.
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STAGE I: AUDIT INITIATION
2.
4.
By - Jayant R. Shetye
3.
Determine the nature, timing & extent of other
audit procedures
Ensure that Auditor’s Appointment Letters are
obtained and acceptance replied.
Confirmation of opening balances:
Check the current year's opening balances with
the closing balances of audited Financial
Statements of the previous year.
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STAGE II: VOUCHING AND VERIFICATION
OF TRANSACTION
Purchases/Sales
1.
Check the date, amount, authorization, number, etc. of the
invoice with the accounting entry passed in Accounting
Software.
2.
Whether Purchase Order was made for the purchase.
3.
Verify the related Sales/Purchase order.
4.
Whether Purchase Order was duly authorized by
Administrative Head.
5.
Whether Material/ Equipment ordered for has been received.
6.
In case of part receipt of materials; whether amount is paid
only for the received materials or for all materials ordered.
7.
Whether Rate charged & Qty received matches with the
original order.
8.
Confirm the accuracy of arithmetical calculations of the
invoice (Quantity*Amount).
9.
Ascertain whether the quantity mentioned is correct alongwith the supporting such as Delivery challan.
10. See that materials rejected if any have been properly
accounted for .
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By - Jayant R. Shetye
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STAGE II: VOUCHING AND VERIFICATION
OF TRANSACTION
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1.
2.
4.
5.
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1.
2.
Confirmation of Balances
Confirmation of balances with the banks / Lending institutions
should be obtained on a monthly basis for the purpose of
preparation of bank reconciliation statements.
Confirmation of balances with the Creditors / Debtors should be
obtained on a six monthly basis. The balances in the
Creditors/Debtors Ledger account should also be reconciled
with the balances as per the party’s books on a six monthly
basis.
By - Jayant R. Shetye
3.
Checking of Bank reconciliation
Confirm the bank balances along with the bank statements.
Note the cheques which are outstanding for long, and also
ascertain the reasons for the same i.e. Stale Cheques.
List the cheques which have been issued but not recorded.
Also list the cheques which have remained uncleared for more
than 30 days.
Obtain the copy of quarter end reconciliation statement in our
audit file.
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STAGE II: VOUCHING AND VERIFICATION
OF TRANSACTION
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1.
2.
3.
5.
6.
7.
8.
9.
10.
11.
12.
Check authorization of Journal Vouchers by a responsible person.
Check the Journal vouchers with supporting Bills / Invoices /documents.
Check that supporting documents are duly approved by an appropriate authority.
Check the correctness of the accounting head - debit / credit.
Check that all the relevant columns of the journal vouchers have been properly filled in.
In case of contractors bills check that bills submitted by the contractors are supported by
the Work Orders issued in advance to the contractors. No bill should be passed unless
supported by a/ WO and the value of the Bill should be in agreement with the WO prepared.
Check that the Work Orders are prepared in advance before the start of the work.
Check that the bills of the contractors are duly approved and certified for payment by the
person responsible for getting the work done i.e the user. All the bills must have “Approval”
for payment in writing by the user on the face of the bill.
Check that all the supporting bills / invoices to a journal voucher are approved / certified for
payment by the User Department. The user Department should specifically put a remark
on the bill for approval/ payment.
In case of contract jobs relating to labour supply the bills are to be supported by attendance
sheets duly certified by the Time Office.
In case of transporters bills - check the bills with the agreed rates and receipted copies of
consignment notes.
Check the measurement books in case of bills for civil work and ensure that the
Measurement books are signed and checked by the Engineer in charge of the Work.
In case of running and final bills for civil work check that the civil engineer has checked
and verified the measurements and entries of all running and final bills are made in the
Measurement Books.
By - Jayant R. Shetye
4.
JOURNAL VOUCHERS
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STAGE II: VOUCHING AND VERIFICATION
OF TRANSACTION
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Advance to Employees
Check the Trial balance in respect of Advance to employees to ascertain
the amount outstanding in the name of each employee. Find out the date
since when the advance is outstanding to be settled and make a list if
employees advances that have not been settled for a long period.
2.
Ensure that no further advance is given to an employee unless the
previous outstanding advance is cleared by him.
3.
Advance to an employee may be towards - Travel / Official work\ loan or a
salary advance. Ensure that the recovery is made from the salary of the
employee when the advance taken by the employee is not settled by him
within a reasonable period.
4.
Further check that the recovery of installments in respect of loan / salary
advance is made correctly on monthly basis from the salary of the
employees.
5.
Check and make a list of employees who have left the company and their
full and final settlements have not been made but debit balances are still
appearing in their names in the Advance to employees account.
By - Jayant R. Shetye
1.
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STAGE II: VOUCHING AND VERIFICATION
OF TRANSACTION
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1.
2.
4.
5.
6.
7.
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1.
2.
3.
4.
5.
6.
7.
By - Jayant R. Shetye
3.
Check the Cash/Bank transactions
Check authorization of Cash Vouchers / Bank Vouchers by a responsible
person.
Check supporting Bills / Invoices
Check the correctness of the accounting head – expense / income
Check for cash receipts signature /acknowledgement of cash recd.
Check that all the relevant columns of the Cash/ bank vouchers have been
properly filled in.
Check that all the supporting to the Vouchers are crossed as cancelled after
the payment.
Check that payments are made only against original supporting.
Payroll
The amount of salary drawn by a staff is in accordance with companies policy;
Appointment of the staff is as per the rules and regulations and post
sanctioned;
The pay drawn by a newly appointed staff is as per the appointment letter;
Necessary deductions have been made in accordance with the relevant rules
and orders
Salaries paid have been properly recorded in the salary register
The payment of salary must be duly acknowledged by the payee staff only; and
Salary increments are as per the rules and orders.
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STAGE III: STATUTORY COMPLIANCES
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Profession Tax
1.
2.
2.
Prepare the Month-wise Table Verify.
Whether PT has been deducted correctly for all employees as
per salary working
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Sales Tax/VAT/Service Tax
1.
1.
By - Jayant R. Shetye
3.
TDS
Verify whether the tax has been deducted at the correct rates
and against the correct bill.
Prepare the Delay in TDS deposit and TDS not deducted table.
Whether certificate is properly prepared and delivered to client
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Verify the Calculation of VAT/Service Tax Payable and prepare
computation of VAT/Service Tax Liability and Payment
Statement.
Check Original Payment Challan.
Verify whether Tax has been paid on/before due date.
Incase of delay, whether the same has been paid along-with interest.
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
3.
4.
5.
6.
7.
8.
9.
Prepare the bill-wise outstanding entries, along-with the remarks of
receipts during the subsequent audit period.
Obtain the Auditee's response, for debtors outstanding of more than
90 days.
Verify if there have been any mutual settlement, identify the bad
debts, if any.
Check whether discount allowed is properly recorded.
Incase of sales return, verify the proper reversal of VAT, if
necessary and its inventory accounting
Check that the balance shown by the Debtors Ledger Trial balance
agrees with the balance shown by the Debtors control account in the
General Ledger Trial balance.
Check the Age-wise analysis of Sundry Debtors and comment upon
it.
Check the Debtors Accounts that are stuck up for long and are
doubtful of recovery.
Check the debtors accounts where legal cases have been filed / are
to be filed and ascertain the progress in the legal cases.
By - Jayant R. Shetye
2.
Debtors Scrutiny
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
3.
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5.
6.
7.
8.
9.
During Creditors scrutiny, verify if there are any long
outstanding bills.
Obtain the Auditee's response, for Creditors outstanding of
more than 90 days.
Verify if there have been any mutual settlement.
Check whether discount received is correctly recorded.
Check the accounting entry for purchase return.
Check the period for which the amount is outstanding.
Ascertain the reasons for the outstanding amount.
Check whether the amount has actually paid after the date
of balance sheet date .
By - Jayant R. Shetye
2.
Creditors Scrutiny
Check the Age-wise analysis of Sundry Debtors and
comment upon it.
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
2.
4.
5.
6.
7.
By - Jayant R. Shetye
3.
Scrutiny of Fixed Assets and Depreciation
Check the Bills for any new purchases which were made
during the year.
Check whether the rates for depreciation are proper and also
whether it has been correctly calculated. Schedule II is
applicable to companies incorporated under Companies Act.
Whether the asset has been capitalized properly.
Fixed assets are properly recorded at cost/valuation.
Ensure appropriate authority for acquisition.
Whether the Fixed Assets purchased are tagged giving an
appropriate reference number.
Whether the asset has been entered in the fixed asset
register
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
2.
4.
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1.
2.
3.
4.
5.
Secured loans/Term loans/Cash Credit.
Obtain the Statement of Accounts from the financier Bank/
Institution
Obtain interest certificate as to compare with the balance in
the Books.
If the loans are obtained from Directors/ Shareholders,
obtain certificate that the same is not given out of borrowed
funds.
Balance, Additions , Repayment, interest credited , Tax
Deducted and any other
Adjustments , so as to agree with the total opening and total
closing balance and maximum outstanding during the year.
By - Jayant R. Shetye
3.
Fixed Deposits
Reconcile the amount with FD certificate.
Ask for 16-A & check whether TDS have been correctly
deducted by bank.
Reconcile the TDS deducted with 26AS statement.
Collect Form 16-A for your record.
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
2.
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1.
2.
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1.
2.
3.
Scrutiny of Other Assets
Investigate about how the closing balances have been
obtained.
Check the Bills for any new purchases which were made
during the year.
Investments
Details of Investments at the Year end
Check the income accrued on the Investments
Disclosure requirements under Schedule III.
By - Jayant R. Shetye
3.
Director's Account Scrutiny
Check the transactions that have taken place through the
directors personal account.
Verify the calculation of directors remuneration including
the amount of the TDS Deducted.
See that the personal expenses have been debited to
drawings accounts
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
2.
4.
5.
6.
7.
By - Jayant R. Shetye
3.
Inventory
Check the Method of Valuation of the Closing Stock.
Reconcile the physical / book items of inventory showing
opening balances, purchases , issued for consumption/sales ,
short & excess and closing Stock with the Excise Records..
trace the deviations if any from the method of valuation of
Stock, purchases, sale according to section 145A of the
Income Tax Act.
According to the provisions of the said section all duties,
cess, taxes and levies are to be Included at the first instance
in the said items including provisions for excise duty on
closing stock of finished goods.
Check the Compliance of the Accounting Standard -2 "
Valuation of Inventories.“
It may be noted that the said Accounting Standard ignores
the CENVAT adjustments and only exclusive method is
permissible.
Sheet of physical verification conducted by the management
to be obtained.
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
3.
4.
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1.
2.
3.
Provision for Taxation
Ensure the taxation provided according to the taxation Laws
applicable at the date of balance Sheet
Ensure that provision for tax is made in accordance with the
AS-22. " Deferred Tax"
Ensure that Provisions u/s 115JB MAT is also considered.
By - Jayant R. Shetye
2.
Loans and Advances Given
Prepare the Chart of Loans and advances given showing the
opening balance, additions, repayment , interest charged ,
TDS deducted and other adjustments made during the year..
Check the Compliances as per Para 8(B) above.
Obtain the details of Due from directors with maximum
outstanding during the year
Ensure proper disclosure is made w. r. t. security aspects.
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STAGE IV: IN-DEPTH SCRUTINY OF
LEDGERS.
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1.
2.
Obtain the documentary evidence, Agreements, and
calculation of commission and their recognition in the
Accounts.
By - Jayant R. Shetye
3.
Other Incomes
Interest Income correlate the same with TDS receivable for
the year.
Insurance Claims received.
Commission Income
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STAGE V: PREPARATION OF FINANCIAL
STATEMENTS AND FINAL REPORTING
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By - Jayant R. Shetye
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CARO 2015 Applicability.
Tax Audit Applicability
Prepare Financial Statements based on the final data
obtained from the client.
Prepare Ratio Analysis along-with the possible reasons from
management for material deviations.
Preparing the Draft Computation of Income.
Advance tax table and Tax issues, if any.
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FOLLOWING SHOULD ALWAYS BE A PART OF YOUR
AUDIT FILE
Copy of the audited PLBS of the previous year
2.
Letter of Appointment.
3.
Summary of Audit Visits
4.
Printout of all the tables made during the audit visit in the
form specified
5.
Copies of the quarterly bank statements
6.
Any working papers prepared on behalf of the client
7.
Copies of acknowledgements of TDS returns
8.
Copies of acknowledgements of VAT returns
9.
Printouts of ledger accounts taken during the course of audit
10.
Any other document obtained during the course of Audit.
By - Jayant R. Shetye
1.
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Audit Sampling
Audit Sampling Requires auditors judgment.
By - Jayant R. Shetye
Statistical Sampling
Simple Random Sampling
This method uses sampling without replacement; that is, once
an item has been selected for testing it is removed from the
population and is not subject to re-selection. An auditor can
implement simple random sampling in one of two ways:
computer programs or random number tables.
Systematic (Interval) Sampling
This method provides for the selection of sample items in such a
way that there is a uniform interval between each sample item.
Under this method of sampling, every "Nth" item is selected
with a random start. Example every 4th item
Stratified (Cluster) Sampling
This method provides for the selection of sample items by
breaking the population down into strata, or clusters. Each
strata is then treated separately. For this plan to be effective,
dispersion within clusters should be greater than dispersion
among clusters. An example of cluster sampling is the inclusion
in the sample of all remittances or cash disbursements for a
particular month.
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By - Jayant R. Shetye
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