Sunday, 30 October 2011

How you would audit 1. Audit of journal 2. Audit of bill receivable book 3. Audit of purchase book 4. Audit of sales book 5. Audit of balance sheet

All the extra ordinary transactions for which there are no special books of first entry are passed though the journals.

1. Complete Checking :- The entries of the journal should be checked thoroughly by the auditor. Each entry should be supported by the authorized voucher.

2. Verification Of Opening Entries :- Auditor should verify the opening entries with the last balance sheet.

3. Examination Of Documents :-
To vouch the allotment of shares and debentures auditor should inspect the application letter, prospectus minutes and contracts.

4. Adequate Depreciation :- Auditor should discuss in detail with the management that depreciation provided is adequate.

5. Adequate Reserve :- For the provision of bad debts auditor has to go through the accounts of debtors and satisfy himself that reserves are adequate.

6. Verify Purchase & Sale The Assets :- Auditor should verify the purchase and sale of assets by the contracts and correspondence.

7. Verify The Posting :- Auditor should also check the posting into the ledger after vouching the entry.

8. Other Verifications :- Closing entries should be verified in to the final accounts. Heavy discount which is unusual must be noted. Missing vouchers should also be noted.

Auditor should check the following items :

1. Checking Of Postings :- Auditor should check the postings periodical totals to credit of bills payable in account. He should also check the postings to debit of personal accounts.

2. Verification Of Bills :- Those bills which are traced should be compared with cash book and these should be verified with the returned bills.

3. Check Addition :- Auditor should verify all the additions made in the payable book.

Auditor should pay special attention to the following points :

1. Examination Of Invoices :- Auditor should see that all the invoices should be in the name of the client. These are passed by the authorized person. He should also verify the dates and amount of invoices. Auditor should check that all the invoices are serially numbered and these numbers are also written in book of invoices. No Invoice should be entered twice.

2. Entry In Book :- Auditor should also find that all goods taken in stock are entered in the purchase book.

3. Checking Of Postings :- Auditor should check the postings of totals to debit of the purchase account.

4. Inspect The Additions :- Auditor should inspect the additions of the purchase book. Goods in transit should be brought in account. He should see that goods received on consignment are hot entered in the purchase book.

Auditor should check the following items :

1. Verifications Of Invoices :- Auditor should verify the date, name and amount of the entries from the outward invoices. He should see that all invoices are duly signed by the authorized person. He should check that all the invoices are serially numbered and these numbers are also written in the sales book against their entries. He should also see that no sale invoice is omitted.

2. Checking Of Postings :- Auditor should check the postings to debit of personal accounts of the customers. Check the postings of totals to the credit of sales account. Goods returned should be entered with the approval.

3. Check Additions :- Auditor should check the additions of the sales book. He should see that sales of consignee are note included.

4. Take Note :- Auditor should take note of any unusual discount or allowance deducted.

Auditor should audit the balance sheet in the following way :

1. Verify Balances :- Auditor should verify the balances of all the assets and liabilities fro the trial balance into the balance sheet. Each asset or liability should appear in its appropriate head.

2. Checking Of Sundry Lists :- Auditor should verify the lists of sundry debtors and creditors to find the debts and credits.

3. Cash And Bank Balances :- Auditor should check the cash in hand by actual counting. Bank balances should be verified with pass book and bank statement.

4. Verifications Of Loans :- Auditor should verify the loans borrowed with the documents. He should also check all the outstanding liabilities.

5. Case Of Mortgage :-
Balance sheet must disclose the fact if any asset is pledged or mortgaged. Auditor should verify it.

6. Verify The Final Accounts :- Auditor should not sign until he satisfies himself about the final accounts by discussing various points with his client.

7. Inspect The Payments To Staff :- Auditor should verify the loan given to staff with relative vouchers.

8. Inspection Of Investment :- Auditor should verify the investment by actual inspection or by the bank verification.

9. Checking Of Certificate :- Auditor should see the certificate and mode of valuation on the balance sheet.

10. Adequate Depreciation :- Auditor should verify that adequate depreciation is provided on assets in the balance sheet.

11. Checking Of Additions :- Auditor should examine the additions of fixed assets to check that these represent the real capital expenditure.

12. Inspection Of Title Deeds :- In case of landed properties auditor should check the title deeds.

Following points should be kept in view while auditing the accounts :

1. Examine Both Sides :- Auditor should examine both the sides of accounts while checking the balances and additions of all ledger accounts. It will ensure him that no items is left.

2. Checking Of Items :- Auditor should check the items from the trial balance into the trading and profit and loss account and the balance sheet.

3. Proper Inclusion :- Auditor should verify that there should be a proper inclusion of adjusting entries in the trial balance.

4. Check The Ledger Balances :- Auditor should check the ledger balances into the trial balance.

5. Verification Of Agreement :- Auditor should verify the agreement of the trial balances.


1. Consistent Account :- Auditor should examine that form of trading and profit and loss account should be consistent.

2. Checking Of Each Item :- Auditor should check the each item from the trial balance.

3. Comparison Of Profit :- Auditor should compare with previous years the percentage of gross and net profits on sales. If there is a big difference then he should require about it a comparison with previous year is very essential.

4. Proper Allocation :- Auditor should check all the allocations and adjustments made in this account.

5. Proper Heads :- Auditor should verify that all items in this account should appear under its correct head. Capital and revenue items should be written in proper heads.

6. Profit and Loss Should Be Separate :- Profit or loss of any assets should be shown separately. Auditor should verify that no unearned profit should be brought in the accounts. He should check that all losses should be brought in it.

7. Unusual Item :- If any unusual item or source of gain is found auditor should note it and inquire about it.


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