Auditing New (1)

7/29/2019 Auditing New (1)

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F.Y.BAF PRESENTS PROJECT ON..

CONCEPTS INAUDITING


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Foundation Of AuditingVouching

Verification

Valuation

True & Fair Audit

Errors & Frauds

Secret Reserves

Window Dressing

Teeming & Lading

Concepts In Auditing


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Auditing Auditing begins, where accountancy ends. An

auditor examines the financial statements prepared

by the accountant and verifies the items therein with

the help of relevant documentary evidence and

explanation and information given to him.

In other words he examines analytically and

critically the accounts and financial statementsprepared by the accountant.

INTRODUCTION


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SCOPEOFAN

AUDIT

AS ITS VERYMINIMUM

AUDITOR SHOULDASSESS THE

RELIABILITY AND

SUFFICIENCY OFINFORMATIONCONTAINED INUNDERLYINGACCOUTNINGRECORDS AND

SOURCE DATA BY

STUDY AND EVALUATIONOF ACCOUNTING SYSTEMAND INTERNAL CONTROLS

TESTING THE INTERNALCONTROLS

TESTS,INQUIRIES,VERIFICATION

PROCEDURES OF

TRANSACTIONS ANDBALANCES

DECIDE WHETHERTHE RELEVENT

INFORMATION ISPROPERLY

DISCLOSED IN THEFINANCIAL

STATEMENTS

COMPARING THEFINANCIAL STATEMENTSWITH THE UNDERLYINGACCOUNTING RECORDS

AND OTHER SOURCE DATA

CONSIDERINGMANAGEMENTSJUDGEMENTS INPREPARATION OF

FINANCIAL STATEMENTS

AS PRESCRIBED BYTHE TERMS OFENGAGEMENT

MATTERS PRESCRIBED BYLAW. EG. BY CARO 2003

MATTERS PRESCRIBED BYTHE PROFESSIONAL

PRONOUNCEMENTS OFICAI


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Vouching consists of comparing the entries in the books

with particulars in the voucher as regards date, amount,

name of the party.

But vouching is not a mere comparison of the entry with the

supporting document.

It is a critical examination of the supporting documents to

understand the substance / essence of the transaction & to

ensure that accounting of the transaction is done as per

substance/ essence of the transaction.

VOUCHING


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What are the Objectives of vouching ?

1. Transactions are authorized.

2. Transactions represented by the entries are not ultra vires the

entity.

3. Transactions represented by the entries have :- actually occurred

- during the period under the audit.

- pertain to the entry under audit.

4. Transactions have been recorded in the correct amounts.

5. Transactions have been allocated properly between capital

&revenue.

VOUCHING


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1. Addressed to the client all vouchers should be in the name of the

client .if they are addressed in the name of an employee / official etc. it

could be a personal expense and not a business expense.

2. Date- the date on the voucher should be seen . The date of the

voucher should fall during the period under audit. Otherwise, it is

possible that payments pertaining to earlier or later period is included

in the accounts of the current period.

3. Cancelled- vouchers examined should be cancelled by initials /firms

stamps to avoid the same voucher being produced again in support of

another payment.

4. Amount- the amount entered should be checked with the amount on

the vouchers.

5. Authorization- voucher should be authorized by competent authority.

POINTS TO BEAR IN MIND WHILE VOUCHING


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Verification of assets & liabilities.

Introduction:

Verification means confirmation of the truth , accuracy &

existence of an item or entry.

Verification of assets & liabilities implies obtaining and

examining evidence in respect of assets and liabilities.

Verification goes beyond books of accounts and

documentary evidence. It is more than checking

arithmetical accuracy of the record of assets & liabilities;

it involves physical inspection of certain assets as shown in

the balance sheet really exist.

VERIFICATION


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Scope of verification/ verification includes:

1. Whether the assets are owned by the company.

2. Whether they are shown in the books of accounts.

3. Whether they are free from any change other than those

disclosed in the books .

4. Whether they are acquired in connection with the object of

the business.

5. Whether they are actually lying with the company or the

balance sheet date.

6. Whether they are properly valued or the balance sheet date.

VERIFICATION


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Valuation of assets means determining the fair value of assets

on the basis of generally accepted accounting principles(GAAP).

It is an important part of auditors duty. The auditor must satisfy

himself whether all the assets shown in the balance sheet are

at proper values.

If the assets are over or under valued, the financial statement

will not disclose true & fair view of the state of affairs & the

profitability of the company .

Thus, the main object of proper valuation of assets is to

represent a true and fair view of the state of affair of concern

through the balance sheet.

VALUATION


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Methods of valuation of assets :

1. Cost price :

In this method, the assets are valued at actual cost including installationcharges if any.

2. Market value :

Market value is the price which exits in the market on the balance sheet

date .

3. Cost of market value whichever is lower :

This method of valuation is generally used for valuation of current

assets.

4. Replacement value:

Here, the replacement value means the amount of money which could

be required to replace an existing asset by purchasing a new asset of

the same type . On arriving, at such a value, expenses such as

commisions , freight etc are taken into account.

VALUATION


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5. Realizable value:

It means the amount of money which will be realized in the

market from the sale of assets. Under this, assets are valued

according to be anticipated sale value of assets.

6. Scrap value:

Scrap value means realizable value of assets which arereceivable after long use. Under this, assets of no use to the

business are valued at the amount for which they can be

sold in the market as if they were scrap.

7. Going concern/ book value / written down value :

Going concern value is the estimated present value of the

asset. It is equivalent to cost less depreciation written off up

to date. Generally , fixed assets are value at going concern

value.

VALUATION


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VOUCHING v/s VERIFICATION

VOUCHING VERIFICATION

Meaning & Scope:

Is a substantive audit procedure whichdeals with examination of profit and loss

transactions/items.

Meaning & Scope:

Is a substantive audit procedure whichdeals with examination

of balance sheet transactions/items

whether they are assets or liabilities are

properly stated in the balance sheet.

Normally, extensive vouching exercise is

done during the depth test/cradle-to grave

test.

Also applies to profit and loss item to check

the account balances and their

presentation.

Vouching enable the auditor to know

whether the transactions are genuine and

valid to enable the auditor to report on the

financial statements.

Verification process encompasses the

inquiry into the ownership/ title, existence,

valuation, completeness and presentation

of assets and liabilities in the balancesheet.

Vouching is the substantive

testing/examination of transaction at their

POINT OF ORIGIN.

Verification usually deals with the FINAL

BALANCE in the Final Accounts viz

the balance sheet and profit and loss


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VOUCHING VERIFICATION

Nature of work:

It examines the entries relating to

transactions

Nature of work:

It examines the assets & liabilities in the

balance sheet

Time :

It is done throughout the year

Time :

It is done at the end of the year

Basis:

It is based on documentary examination

Basis:

It includes personal as well as documentary

examination

Valuation:

It does not include valuation.

Valuation:

It includes valuation


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VERIFICATION v/s VALUATION

Verification Valuation

Meaning:verification means determining the

accuracy of assets and liabilities shown in

the balance sheet.

Meaning:valuation means testing the accuracy of the

asset and liabilities.

Scope:

The scope of verification is wide.

Scope:

The scope of valuation is limitedExecution:

Verification is executed by auditor.

Execution:

Valuation executed by the client's staff.

Nature :

The nature of verification is objective.

Nature:

The nature of valuation is subjective.

Proof :

It proves the existence, ownership & title

Proof:

It certifies the correct value of Asset &

Liability

Evidence :

Title deeds, receipts & payments.

Evidence :

Certificate from owners/directors.


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The basic primary objective is expression of opinion as to

truthfulness and fairness of financial statements.

ACCORDING TO DE PAULA- The main object of an audit is to

ascertain that the balance sheet and profit and loss account of

undertaking do show true and fair view of its financial position and

earnings.

This object has statutory recognition in India and has been clearly

stated in section 227 of the companies Act 1956. It requires the

auditor of a company to state whether in his opinion the accounts

give a true and fair view in case of balance sheet, of the state of

companys affairs as at the end of financial year and incase of the

profit and loss account, of the profit or loss for the financial year.

PRIMARY OBJECTIVE OF AN AUDIT


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Pretention and preventions of frauds and errors is a major

secondary objective of an audit.

A true and fair view cannot be expressed by the auditor

on the basis of accounts which have material

misstatements resulting from errors and fraudulent

manipulations.

Fraud refers to intentional misstatement which is

material to the financial statements, management ,

employees or third parties may get involved in committingfrauds to obtain an illegal advantage of personal gain.

Fraud generally involves either misappropriation of assets

that maybe called employee

SECONDARY OBJECTIVE OF AN AUDIT


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In a dictionary for accountants Eric L- Kohler defines the secret

reserve as, the amount by which the net worth has been

deliberately understated a hidden reserve.

Such a condition exists where the assets are omitted or under-

valued or where liabilities are over-stated.

The term does not represent any actual account bearing that

name.

thus a reserve which is not disclosed in the balance sheet of the

entities called a secret reserve, hidden reserve or an inner

reserve .

SECRET RESERVE

SECRET RESERVE


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Some of the ways of creating secrete reserves are given

below:

By writing off excessive depreciation on fixed assets

By undervaluing the closing stock

By charging capital expenditure to reserves

By surprising sales

By making excessive provisions for bad debts

By making excessive provisions for contingencies

SECRET RESERVE

WINDOW DRESSING


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Window dressing is the art of showing a substantially better

financial position of the company that it is in reality.

A sound financial position is painted on the face of the

balance sheet by concealing the actual state of affairs.

In window dressing, assets are over valued , liabilities are

under valued and profits are over stated or, if there are

losses they are under stated.

It is one of the methods of manipulating accounts , but itdoes not necessarily involve misappropriation of cash or

goods .

WINDOW DRESSING

DIFFERENT WAYS OF WINDOW DRESSING


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1. Charging inadequate depreciation on fixed assets.

2. Providing inadequate reserves for bad and doubtful debts.

3. Charging revenue expenditure to capital account

4. Over valuing closing stock at the end of the year .

5. Showing actual liabilities as contingent liabilities.

6. Showing fictitious credit sales & thereby over valuing debtors.

7. Showing fictitious assets.

8. Creating inadequate provision for outstanding expenses.

DIFFERENT WAYS OF WINDOW DRESSING

OBJECTS/BENEFITS OF WINDOW DRESSING


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1. It helps by attracting more applicants for shares or debentures in

case of fresh issue of shares .

2. It helps in getting more remuneration to the managerial

personnel when it is given on the basis of percentage of net

profit.

3. It helps in getting easy finance facilities like bank overdraft or

loan from bank and other financial institutions

4. It helps in getting more favourable credit terms on purchase

from suppliers .

5. More goodwill can be demanded in the case of absorption and in

the case of admission of a new partner .

OBJECTS/BENEFITS OF WINDOW DRESSING

TEEMING & LADING


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TEEMING & LADING

Teeming and lading is one of the methods of

misappropriation of cash.

Under this method, the money received from the first

customer is misappropriated by the cashier.

The money received from the subsequent customer is

then credited to the account of the first customer and

this process continues till such a time that the cashier is

able to replace the money misused by him, or such time

that the cashier is caught.

TEEMING & LADING


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The auditor can detect such a fraud by taking the following steps :

i. The auditor should verify the system of internal control and

check regarding receipt of cash from customers and the deposits

take place into bank.

ii. The auditor should scrutinize the Debtors Accounts, especiallythose accounts which show part payment.

iii. He should co-relate the dates of cash receipts from debtors with

the date on which the amount is deposited into the bank.

iv. He should get the balance confirmation certificates from debtors.

v. He should check the discount allowed column in the cash book

with the prevailing discount rate.

TEEMING & LADING

CONCLUSION


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CONCLUSION

BIBLIOGRAPHY


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BIBLIOGRAPHY

ACKNOWLEDGEMENTS


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ACKNOWLEDGEMENTS

We are heartily thankful to Professor Afsha Kirkire ,

Professor Ashok Vanjani and our co-ordinatorProfessor Deshpande, whose encouragement,

guidance and support from the initial to the final level

enabled us to develop an understanding of the

subject.

Lastly, We offer my regards and blessings to all of

those who supported us in any respect during the

completion of the project.

PRESENTED BY :


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PRESENTED BY :

JAPJIV SINGH ANAND 18SAHIL GANGWANI 20SHIKHA SACHDEV 23KOMAL RATANPAL 27JHANVI PATEL 49FAHAD HINGORA 59SHUBHDA VARDE 60


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Auditing New (1)