Auditing Block1

8/10/2019 Auditing Block1

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Types of audit


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Interim audit

It will normally take place approximately three-quarters of the way through the

financial year.

The work on internal control system would be carried out in interim audit while

majority of balance sheet work during the final audit.

Final audit

The work will be carried out in a single phase commencing typically short time before

the year end and continuing into post balance sheet period.

Continous audit

Large companies sometimes carry out more than one interim audit .the audit staff will

either make several visits to client throughout year


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Internal Check system

checks on day-to-day transactions which operatecontinuously as a part of routine system whereby the workof a one person is proved independently or iscomplementary to the work of another

The object is prevention or early detection of fraud anderror

Internal check is a part of overall internal control system

A system of internal check in accounting impliesorganization of a system of bookkeeping and management

of staff duties in such a manner that no one person cancompletely carry through a transaction and record everyaspect thereof


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General considerations in framing of

internal check

No single person should have an independentcontrol over any imp aspect of the business

The duties of members should be changed timeto time without any previous notice

Every member should be encouraged to go on aleave at least once in a year

Persons having physical custody of assets mustnot be permitted to have access to the books ofaccount

There should exist periodical inspection of assets


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Automatic cash register should be employed

Budgetary control should be there

Stock taking should be done by staff of otherssectors of organization

Financial and administrative powers should be

divided very judiciously among different

officers


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Internal check with regard to purchase

a) Purchase Requisition

b) Enquiry for purchase

c) Purchase orderd) Receipt of goods

e) Making the payment


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Internal check with regard to sales

a) Independent sales department

b) Receipt of orders

c) Packing the goodsd) Preparation of Invoices

e) Checking of invoices

f) Despatching the goods


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Internal check with regard to wages

a) Review the internal control system in preparation ofwages

b) Checck that payment sheets are checked byresponsible person before payment

c) Check deductions on account of PF, ESI, Income tax

d) Check names appearing in wages sheet

e) Check wages are paid in presence of senior officer

f) Check calculations of gross and net salariesg) Check the employee acknowledge receipt of wages


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Internal check in store department

Receipt:-

a) Verifying all receipts as to quality and quantity

b) Entering goods immediately in goods inward

c) Drawing quadruplicate goods received note

d) Transmitting the material in stock department

Storage:-

a) Keep track on ordering level

b) Good should be stored such that they are easily accessible, safefrom deterioration, occupy minimum space and segregatedbetween fast moving and slow moving

c) Also it should be ensured that goods are insured from fire andtheft


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Issues:-

Entry should be made on Stock card on Issue of

goods and balance should be reduced.


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MEANING OF AUDIT

PLANNINGAudit planning refers to the planning

by the auditor to enable them to

conduct an effective audit in anefficient and timely manner andincludes planning about

area,scope,depth of transactions tobe audited ,time to be devoted,persons to be deployed for audit etc.


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OBJECTIVES OF AUDITING

Audit planning involves establishing theoverall audit strategy for the engagementdeveloping an audit plan. Adequate planning

benefit the audit of financial statement inseveral ways.

It help the auditor to devote appropriateattention to important area of audit

It help the auditor to identify and resolvedpotential audit


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Planning helps the auditor to properly

organize and manage the auditor

engagement so that it is performed in an

effective and efficient manner

It assists, where applicable, in coordination of

work by auditors of companies and experts


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FACTORS TO BE CONSIDERED

While planning his audit, the auditor shouldconsider the factors such as complexity of theaudit, the environment in which the enterpriseoperates, his precious experience with the client

and knowledge of clients business. The auditor should considered the following

factors while planning audit:

Complexity of audit

The environment in which the entity operates

Knowledge of client business


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Test Checking

The term 'test checking' stands for themethod of auditing, where instead of acomplete examination of all the transactions

recorded in the books of accounts, only someof the transactions are selected and verified.

Test checking means to select and examine arepresentative sample from a large number ofsimilar items


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Objectives of Test Checking

The basic objective of test checking is to draw

a valid conclusion by undertaking examination

of some transactions from the large number

of transac-tions and thereby save time andcost.


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Advantages of test checking

It is one of the best techniques of auditingthrough which cost of audit can be reduced,

It can ensure the speed of audit work.

It can easily locate the deficient areas and thushelps to come to the conclusion as to theacceptability of financial records.

It is a labour saving device.

It acts as a guide to the auditor to arrive at aconclusion regarding the true and fair view of thestate of affairs of the business


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Disadvantages

By Prof Nishant Ghuge, KCES's IMR, Jalgaon

It will prove inefficient where internal check andcontrol system are not operating or foundineffective.

It is not suitable for small concerns. It will bound to show incorrect result if the

samples are not proper representative of thepopulation.

It does not offer any consistency in selecting thepercentage of check that will be adoptedby all concerns.


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ROUTINE CHECKING:

Routine checking is a total process of accountingcontrol, which includes

Examination of the totalling and balancing of thebooks of prime entry,

Examination of the posting from the primarybooks to the ledger accounts,

Examination of totalling and balancing of theledger accounts and of the trial balance preparedwith those balances and

Overall examination of writing up thetransactions properly.


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Advantages

It is the simplest form of audit work.

Detection of errors and frauds of simple nature can bevery easily detected.

The books of accounts can be thoroughly checked.

It is the basis of checking the final account as it helps inchecking castings and postings.

Arithmetical accuracy of all the transactions can be

confirmed by this method. It offers an opportunity to train the new entrants to the

profession.


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Disadvantages

It is not generally considered as an important partof audit work where self-balancing system ismaintained.

As the audit staffs are engaged in same type ofwork, the possibility of becoming monotonous isthere, in this system.

Negligence of work and lacking the advantage ofinternal check system are frequent.

It fails to detect errors and frauds arising from the

fraudulent manipulation in accounting principles.


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THANK YOU

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Auditing Block1