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8/3/2019 Ahmad Final Audit
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VOUCHING OF LOANS
2011
30th MAY
AUDIT REPORT
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VOUCHING OF LOANS
REPORT
Submitted To:Prof. Imran Shehzad
Submitted By:
Ahmad Zubair (L3F09BCOM2528)
UsmanTahir (L3F09BCOM2530)
UmairIlyas (L3F09BCOM2531)
Submission date:
30/05/2011
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Contents
LOAN: ______________________________________________________________________ 4
TYPES OF LOAN: ______________________________________________________________ 4
Open-Ended and Closed-Ended Loans __________________________________________________ 4
Secured and Unsecured Loans ________________________________________________________ 5
Conventional Loans ________________________________________________________________ 5
How Does Having Co-Signer for My Loan Affect My Credit Score? ______________________ 5
Credit Score ______________________________________________________________________ 5
Co-Signer _________________________________________________________________________ 6
Risk _____________________________________________________________________________ 6
What Is A Loan Audit? ______________________________________________________________ 6
VOUCHING: __________________________________________________________________ 7
The Technique of Vouching In the Audit ___________________________________________ 7
CHARTS OF ACCOUNTS: ________________________________________________________ 8
Audit Work Program Long term loans and advances _________________________________ 9
EXAMPLES OF VOUCHING OF LOANS ____________________________________________ 15
Vouching/verifying the Borrowings from Bank. _________________________________________ 15
Vouching/verifying the Contingent Liabilities. __________________________________________ 15
Vouching/verifying the Trade Creditors. _______________________________________________ 15
MCQS FOR ASSIGNEMNT ______________________________________________________ 17
Bibliography ________________________________________________________________ 19
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LOAN:A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of
financial assets over time, between the lender and the borrower.
In a loan, the borrower initially receives or borrows an amount of money, called the principal,
from the lender, and is obligated to pay back or repay an equal amount of money to the lender at
a later time. Typically, the money is paid back in regular installments, or partial repayments; in
an annuity, each installment is the same amount.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an
incentive for the lender to engage in the loan. In a legal loan, each of these obligations and
restrictions is enforced by contract, which can also place the borrower under additional
restrictions known as loan covenants. Although this article focuses on monetary loans, in
practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks for financial institutions. For otherinstitutions, issuing of debt contracts such as bonds is a typical source of funding.
TYPES OF LOAN:
There are many different types of loans you can take out. When youre looking to borrow
money, its important that you know your options.
Open-Ended and Closed-Ended Loans
Open-ended loans are loans that you can borrow over and over. Credit cards and lines of credit
are the most common types of open-ended loans. With both of these loans, you have a credit
limit that you can purchase against. Each time you make a purchase, your available credit
decreases. As you make payments, your available increases allowing you to use the same credit
over and over.
Closed-ended loans cannot be borrowed once theyve been repaid. As you make payments on
closed-ended loans, the balance of the loan goes down. However, you dont have any available
credit you can use on closed-ended loans. Instead, if you need to borrow more money, youd
have to apply for another loan. Common types of closed-ended loans include mortgage loans,
auto loans, and student loans.
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Secured and Unsecured Loans
Secured loans are loans that rely on an asset as collateral for the loan. In the event of loan
default, the lender can take possession of the asset and use it to cover the loan. Interests rates for
secured loans may be lower than those for unsecured loans. The asset may need to be appraised
before you can borrow a secured loan.
Unsecured loans dont have asset for collateral. These loans may be more difficult to get and
have higher interest rates. Unsecured loans rely solely on your credit history and your income to
qualify you for the loan. If you default on an unsecured loan, the lender has to exhaust collection
options including debt collectors and lawsuit to recover the loan.
Conventional Loans
When it comes to mortgage loans, another term conventional loan is often used.Conventional
loans are those that arent insured by a government agency like the Federal HousingAdministration (FHA), Rural Housing Service (RHS), or the Veterans Administration (VA).
Conventional loans may be conforming, meaning they follow the guidelines set forth by Fannie
Mae and Freddie Mac. Non-conforming loans dont meet Fannie and Freddie qualifications.
Loans to Avoid
Certain types of loans should be avoided. Payday loans are short-term loans borrowed using your
next paycheck as guarantee for the loan. Payday loans have notoriously high annual percentage
rates (APRs) and can be difficult to pay off. If youre in a financial crunch, seek alternatives
before taking out a payday loans.
Advance-fee loans arent really loans at all. In fact, theyre simply scams to get money from you.
Advance-fee loans use different tactics to convince borrowers to send money to obtain the loan.
Once the money is sent (usually wired), the lender typically disappears without ever sending
the loan.
How Does Having Co-Signer for My Loan Affect My Credit Score?
Credit Scoreo When you apply for a loan, the bank will check your credit score, as well as your credit history.
Your credit history involves how often you pay bills on time, how much money you have in
savings, how long you've had your current job, what your current debt is, etc. Basically, banksuse your credit history as a way to decide how likely it is that you will pay back your loan.
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o If your credit score isn't good enough, then a bank will turn you down for a loan and you won'tbe able to get them to loan you money. One option to temporarily improve your score is to get a
co-signer on your loan.
Co-Signer
o A co-signer on a loan is added insurance for a bank. If you are not able to get a loan by yourself(usually due to bad or no credit), then you can ask someone to co-sign with you. Effectively thatperson is saying that he is vouching for you, and if he has a much better credit score than you do,
it will make the bank or lending institution reconsider whether to approve you for a loan. If you
do receive a loan due to a co-signer, then the loan will begin showing on your credit history and
positively affect your credit score---though not as much as having a loan without a co-signer---ifyou make all payments in full on time. Of course, a co-signer is doing more than just vouching
for you; if your payments fall behind, then the loan falls on the co-signer's shoulders as well.
Risko If you receive a loan through having a co-signer but then begins missing payments that will not
only affect your credit score, but also the credit score of your co-signer. Since both parties names
are on the loan, it's as though the loan was given to both of you. This is why a person shouldconsider carefully whether to co-sign a loan. If you can't keep up your end of the loan agreement,
then the co-signer's credit score and history can quickly be ruined. However, if you can keep up
with payments and everything goes well, then both your credit score, and that of the co-signer
will improve (somewhat) since both your names are on a loan that's being paid back. However,having a co-signer could negatively affect your future loans, since banks aren't inclined to trust
someone who's needed co-signers. This is something both parties should consider when applying
for a loan
What Is A Loan Audit?
A loan audit, simply put, is a review of your mortgage documents to ensure that they comply
with all relevant local, state, and federal laws. A borrower must receive certain notices on aspecifically defined time frame depending on the type of mortgage applying for. If the lender
fails to provide these notices then you have a right to rescind your loan in many cases and could
be entitled to a refund of your payouts.
Its not a difficult process getting a loan audit. Your loan auditor should tell you right up fronthow long you can expect to wait to get your results in and how long the entire process should
take beginning to end. Thats not to say you can know for sure the exact length of your situation
(they all vary), but a general idea is a good start. If you think you may need a loan audit then
contact an attorney and request one.
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VOUCHING:
Vouching generally means Providing evidence or assurance.
The act of examining vouchers is referred to as vouching. It is the practice followed in an audit,
with the objective of establishing the authenticity of the transactions recorded in the primary
books of account. It essentially consists of verifying a transaction recorded in the books of
account with the relevant documentary evidence and the authority on the basis of which the entry
has been made; also confirming that the amount mentioned in the voucher has been posted to an
appropriate account which would disclose the nature of the transaction on its inclusion in the
final statements of account.
The Technique of Vouching In the Audit
At the time of conducting the vouching the following points must be borne in mind:
In order to ensure that valuable time is not lost in vouching, the client should produce tothe auditor all the vouchers arranged in the order in which entries appear in the books of
account.
The auditor must satisfy himself that the dates given on the vouchers which are recordedin the books fall in the year under review.
Satisfaction must be made in respect of the head of account debited or credited from theavailability documentary evidence.
While examining the documentary evidence it should be carefully seen that thetransaction pertains to the business. Care must be given to those vouchers which are in
the personal names of the partners, managers, secretary and directors.
Every voucher has been passed by the authorized official. Attention should also be paid to the point where the voucher bears proper revenue stamp. Complete notes should be taken in respect of such items as require further clarifications
or evidence.
Attention should also be paid to the amount to ensure that it agrees both in words andfigures.
Any alternation particularly in respect of the figure on the receipts and vouchers must befully inquired into.
http://www.businessdictionary.com/definition/evidence.htmlhttp://www.businessdictionary.com/definition/assurance.htmlhttp://www.businessdictionary.com/definition/assurance.htmlhttp://www.businessdictionary.com/definition/evidence.html8/3/2019 Ahmad Final Audit
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CHARTS OF ACCOUNTS:
Current Liabilities
2000 Accounts Payable
2300 Accrued Expenses
2310 Sales Tax Payable
2320 Wages Payable
2330 401-K Deductions Payable
2335 Health Insurance Payable
2340 Federal Payroll Taxes Payable
2350 FUTA Tax Payable
2360 State Payroll Taxes Payable
2370 SUTA Payable
2380 Local Payroll Taxes Payable
2390 Income Taxes Payable
2400 Other Taxes Payable
2410 Employee Benefits Payable
2420 Current Portion of Long-term Debt
2440 Deposits from Customers
2480 Other Current Liabilities
Long-term Liabilities
2700 Notes Payable
2702 Land Payable
2704 Equipment Payable
2706 Vehicles Payable
2708 Bank Loans Payable
2710 Deferred Revenue
2740 Other Long-term Liabilities
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Audit Work Program Long term loans and advances
AUDIT WORK PROGRAM LONG TERM LOANS AND ADVANCES
Audit Program
(d) Long term loans and advances
WP Ref.:
Prepared
by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Long term loans and advances
Amount in
Rs.
Account balances:
Long term loan and advances
Provision against long term loan and advances
Classes of transactions:
Interest income
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S. No. Audit Objectives Assertions Risk Assessment
IR CR ROSM
1. Long term loans and advances are
completely and accurately recorded CA
2. All recorded long term loans and
advances actually exist. E
3. Long term loans and advances are
recorded at appropriate values and all bad
and doubtful balances have been
provided for/ written off. V
4. Long term loans and advances recorded
are the right of the company. R
5. Long-term loans and advances to
associated undertaking were in
accordance with legal requirements.
Laws &
Regulation
6. Long term loans and advances are
presented and all disclosures have been
given in accordance with the Fourth
Schedule of the Companies Ordinance,
1984 and relevant IASs.
OCAL
RVU
S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
ALL
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S. No. Audit Procedures Objective Done by W. P. Ref.
incurrence of transactions and event) and
detective (exercised after incurrence of
transactions and event) controls
established by management to support its
assertions.
2. Check on sample of selected transactions
covering the whole period that all
preventive controls are exercised on all
transactions.
ALL
3. Check that proper subsidiary records have
been maintained and entries are made in
the same on prompt and consistent basisand the same is reconciled with general
ledger.
ALL
4. Check on a sample of transactions that
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been taken
to avoid recurrence of the same.
CE
5. For sample of disbursements made duringthe year: -
(a) Check approval of appropriate level
of management.
(b) Check that the employee has
fulfilled all formalities necessary before
disbursement of loans.
EV
S. No. Audit Procedures Objective Done by W. P. Ref.
6. Ensure that management does not
override the designed controls by
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S. No. Audit Procedures Objective Done by W. P. Ref.
Enquiring from the designated
staff person
Remain skeptical duringperforming test of design and test of
effective operation
7. Document the conclusion after
performing test of controls and required
level of assurance from substantive
procedures.
N/A
Analytical Procedures
1. Compare current year balances and
expense with last year balances and
ensure that any significant variation
should be properly and logically
reasoned.
CEA
Test of Details
1. Obtain a employee-wise movement
schedule of principal amount of loans and
advances and interest thereon and tracethe opening balances from the general
ledger, subsidiary records, and last year
working papers. Check casting and cross
casting of the schedule.
CE
2. For disbursements made during the year
check disbursements of funds with
disbursement register and bank statement.
E
S. No. Audit Procedures Objective Done by W. P. Ref.
3. For a sample of repayments made during EVR
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S. No. Audit Procedures Objective Done by W. P. Ref.
the year: -
(a) Ensure that amount and date of
repayment was accordance withrepayment schedule or agreement.
(b) Check receipt of funds with receipt
records and bank statement.
(c) Recovery of interest is in
accordance with the policy (i.e. along
with principal or after recovery of full
principal, as the case may be).
4. Circularize confirmations to selected
parties. Match replies with the amounts
outstanding against each party.
CER
5. Obtain age-analysis of long-term loans
and advances and perform the following:-
(a) Verify that loans have been
classified in correct categories.
(b) Current maturity has been
appropriately calculated and separately
disclosed.
(b) Consider the value of securities
available against each loan for the
purpose of calculation of provision for
doubtful loans and advances.
VK
6. Check subsequent recovery of loans etc. EV
7. Ensure that all loans and advances toassociated undertakings are granted after
due compliance with legal requirements.
Laws etc.
S. No. Audit Procedures Objective Done by W. P. Ref.
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S. No. Audit Procedures Objective Done by W. P. Ref.
8. Ensure that none of the loans and
advances are impaired or therecoverable
amount of a loan or advance is not less
than its carrying amount. If the carrying
amount of a loan/ advance is more than
its recoverable amount, then same should
be reduced to recoverable amount
recognising the reduction as impairment
loss
V
9. For items stuck-up for considerable
period of time, inquire about its status
from the management. Compute
provisions if required and ask for
management representations.
V
10. Ensure that loans and advancesshould be
measured at amortised cost using the
effective interest rate method.
11. Re-perform calculation of interest income
on test basis: -
(a) Verify rate of interest fromagreement/ policy.
(b) Check the number of days for
which interest is to be charged.
OATE
12. Test check loan agreement and legal
documents to verify the terms and
conditions of the advances
RU
13. Ensure that closing balances as per our
working paper file are in match withgeneral ledger.
CE
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EXAMPLES OF VOUCHING OF LOANS
Vouching/verifying the Borrowings from Bank.
Borrowings from a bank: Borrowings from a bank may be either in the form ofOverdraft limits;
or short term or medium term or long term loans. The audit
Procedures which an auditor may adopt are outlined below:
Ensure that balance as per books of the client and the bank statement tally. InCase of difference
between the two amounts, reconciliation statement preparedby the client should account for
reasons.
Examine whether borrowings from the bank have been duly authorized.
Examine documents to ensure that statutory requirements, if any, with regardsto creation and
registration charges have been met.
Examine the loan agreement and ensure that the terms therein have been dulyComplied
withAscertain the purpose for which loan has been raised and examine whether end Use of the
funds have been accordingly made.
Vouching/verifying the Contingent Liabilities.
Contingent Liabilities
(i) Review minutes of the meetings of the Board of Directors or other similar bodies.
(ii) Review contracts, agreements and arrangements.
(iii) Review list of pending law suits and obtain a certificate and opinion of the lawyerdealing
with the cases.
(iv) Review of records relating to contingent liabilities maintained by the company.
(v) Review of terms and condition of grants and subsidy availed.
(vi) Obtain representation from the management.
(vii) Ensure that proper disclosure is made of all the contingent liabilities.
Vouching/verifying the Trade Creditors.
Trade creditors:
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Theadequacy of cut off procedure to ensure that transaction of nextperiod is not accounted and
all transactions of year end are accounted.
Check posting in the bought ledger from books of prime entry.
Compare the balances in the schedule of creditors with balances in boughtledger.
Compare the balances with the confirmation or statement of account receivedfrom trade
creditors.
Pay special attention to long outstanding items and enquire about the reason therefore.
Verify subsequent payments and reversal entries in the bought ledger of yearend entries.
See that trade creditors are classified and shown in the balance sheet as perrequirement of
Schedule VI of the Companies Act. 1956.
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MCQS FOR ASSIGNEMNT
1) What is a loan?a) Debtb) Creditorc) Account receivablesd) Bad debts
2) How many types of loan discussed in the topics?a) 1b) 3c) 5d) 4
3) What does word vouching refer to?a) Make suretyb) Written documentc) An accountd) Providing evidence
4) Credit cards and lines of credit are examples of which type of loan.a) Open-Ended and Closed-Ended Loansb) Secured and Unsecured Loansc) Conventional Loans
5) Borrowing from a bank either in form ofa) Overdraft limitsb) Short termc) Medium termd) Long term loanse) All of them
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6) In a legal loan, each of these obligations and restrictions is enforced by contract, whichcan also place the borrower under additional restrictions known as?
a) Loan barriersb) Loan return restrictionsc) Loan covenants
7) The loan is generally provided at a cost, referred to asa) Profitb) Interestc) Over amountd) Charges
8) Which type of loan cannot be borrowed once they are repaid?a) Closed-ended loansb) Openended loansc) Conventional Loans
9) Which of following comes under head of close ended loans?a) Mortgage loansb) Auto loansc) Student loansd) All of them
10)Is it true that interest rate of secured loans is lower than unsecured loans?
a) Yesb) No
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Bibliography
http://en.wikipedia.org/wiki/Loan [Online] // wikipedia. - feb 22, 2002. - may 21, 2011.
www.about.com [Online] // About. - august 13, 2002. - may 21, 2011.
www.blurtit.com [Online] // Blurt. - august 09, 2002. - may 21, 2011.
www.friendsmania.com [Online] // friendsmania. - Audit notes, march 22, 2009. - may 21,
2011.
www.icai.org [Online] // ICAI. - pcc compsuggans, december 17, 2006. - may 21, 2011.