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AUDIT PROGRAM

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A DETAILED AUDIT PROGRAM 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 ASSERTIONSAssertion Questions

Completeness

Has the transaction been recorded in the accounting records?

Measurement

Is the transaction recorded at the correct value?

Occurrence Is the transaction recorded as expenditure in correct year of account?

Regularity Is the transaction legal and regular?

Disclosure Is the transaction correctly coded and disclosed?

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STAGES IN AN AUDIT

Stages of audit are explained in the following slides.

Stages Particulars

I Audit Initiation

II Vouching of Transaction

III Statutory Compliances

IV In-depth Scrutiny of Ledgers

V Preparation of Financial Statements and Final Reporting

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STAGE I: AUDIT INITIATION

1. 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 trackingd) Note on Inventory Maintenance and related records of goods sold, manufactured.

Studying the incorporation documentation i.e. Partnership deed, Memorandum and Articles of Association

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STAGE I: AUDIT INITIATION

2. Determine the nature, timing & extent of other audit procedures

3. Ensure that Auditor’s Appointment Letters are obtained and acceptance replied.

4. 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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eSTAGE II: VOUCHING AND VERIFICATION

OF TRANSACTION Purchases/Sales1. 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 along-with

the supporting such as Delivery challan.10. See that materials rejected if any have been properly

accounted for .

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eSTAGE II: VOUCHING AND VERIFICATION

OF TRANSACTION Checking of Bank reconciliation

1. Confirm the bank balances along with the bank statements.

2. Note the cheques which are outstanding for long, and also ascertain the reasons for the same i.e. Stale Cheques.

3. List the cheques which have been issued but not recorded.

4. Also list the cheques which have remained uncleared for more than 30 days.

5. Obtain the copy of quarter end reconciliation statement in our audit file.

Confirmation of Balances

1. Confirmation of balances with the banks / Lending institutions should be obtained on a monthly basis for the purpose of preparation of bank reconciliation statements.

2. 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.

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eSTAGE II: VOUCHING AND VERIFICATION

OF TRANSACTION JOURNAL VOUCHERS1. Check authorization of Journal Vouchers by a responsible person.2. Check the Journal vouchers with supporting Bills / Invoices /documents.3. Check that supporting documents are duly approved by an appropriate authority.4. Check the correctness  of the accounting head - debit / credit.5. Check that all the relevant columns of the journal vouchers have been properly filled

in.6. 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.

7. 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.

8. 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.

9. In case of contract jobs relating to labour supply the bills are to be supported by attendance sheets duly certified by the Time Office.

10. In case of transporters bills - check the bills with the agreed rates and receipted copies of consignment notes.

11. 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.

12. 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.

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eSTAGE II: VOUCHING AND VERIFICATION

OF TRANSACTION Advance to Employees1. 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.

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eSTAGE II: VOUCHING AND VERIFICATION

OF TRANSACTION Check the Cash/Bank transactions

1. Check authorization of Cash Vouchers / Bank Vouchers by a responsible person.

2. Check supporting Bills / Invoices

3. Check the correctness of the accounting head – expense / income

4. Check for cash receipts signature /acknowledgement  of cash recd.

5. Check that all the relevant columns of the Cash/ bank vouchers have been properly filled in.

6. Check that all the supporting  to the Vouchers are crossed as cancelled after the payment.

7. Check that payments are made only against  original supporting.

Payroll

1. The amount of salary drawn by a staff is in accordance with companies policy;

2. Appointment of the staff is as per the rules and regulations and post sanctioned;

3. The pay drawn by a newly appointed staff is as per the appointment letter;

4. Necessary deductions have been made in accordance with the relevant rules and orders

5. Salaries paid have been properly recorded in the salary register

6. The payment of salary must be duly acknowledged by the payee staff only; and

7. Salary increments are as per the rules and orders.

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STAGE III: STATUTORY COMPLIANCES TDS1. Verify whether the tax has been deducted at the correct rates

and against the correct bill.2. Prepare the Delay in TDS deposit and TDS not deducted table.3. Whether certificate is properly prepared and delivered to client

Profession Tax1. Prepare the Month-wise Table Verify.2. Whether PT has been deducted correctly for all employees as

per salary working

Sales Tax/VAT/Service Tax1. 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.

Debtors Scrutiny1. Prepare the bill-wise outstanding entries, along-with the

remarks of receipts during the subsequent audit period.2. Obtain the Auditee's response, for debtors outstanding of more

than 90 days.3. Verify if there have been any mutual settlement, identify the

bad debts, if any.4. Check whether discount allowed is properly recorded.5. Incase of sales return, verify the proper reversal of VAT, if

necessary and its inventory accounting 6. 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.

7. Check the Age-wise analysis of Sundry Debtors and comment upon it.

8. Check the Debtors Accounts that are stuck up for long and are doubtful of recovery.

9. Check the debtors accounts where legal cases have been filed / are to be filed and ascertain the progress in the legal cases.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Creditors Scrutiny1. During Creditors scrutiny, verify if there are any long

outstanding bills.2. Obtain the Auditee's response, for Creditors outstanding

of more than 90 days.3. Verify if there have been any mutual settlement.4. Check whether discount received is correctly recorded.5. Check the accounting entry for purchase return.6. Check the period for which the amount is outstanding.7. Ascertain the reasons for the outstanding amount.8. Check whether the amount has actually paid after the

date of balance sheet date .9. Check the Age-wise analysis of Sundry Debtors and

comment upon it.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Scrutiny of Fixed Assets and Depreciation1. Check the Bills for any new purchases which were made

during the year.2. 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.

3. Whether the asset has been capitalized properly.4. Fixed assets are properly recorded at cost/valuation.5. Ensure appropriate authority for acquisition.6. Whether the Fixed Assets purchased are tagged giving

an appropriate reference number.7. Whether the asset has been entered in the fixed asset

register

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Fixed Deposits1. Reconcile the amount with FD certificate.2. Ask for 16-A & check whether TDS have been correctly

deducted by bank.3. Reconcile the TDS deducted with 26AS statement.4. Collect Form 16-A for your record.

Secured loans/Term loans/Cash Credit.1. Obtain the Statement of Accounts from the financier

Bank/ Institution2. Obtain interest certificate as to compare with the

balance in the Books.3. If the loans are obtained from Directors/ Shareholders,

obtain certificate that the same is not given out of borrowed funds.

4. Balance, Additions , Repayment, interest credited , Tax Deducted and any other

5. Adjustments , so as to agree with the total opening and total closing balance and maximum outstanding during the year.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Director's Account Scrutiny1. Check the transactions that have taken place through

the directors personal account.2. Verify the calculation of directors remuneration

including the amount of the TDS Deducted.3. See that the personal expenses have been debited to

drawings accounts

Scrutiny of Other Assets 1. Investigate about how the closing balances have been

obtained.2. Check the Bills for any new purchases which were made

during the year.

Investments1. Details of Investments at the Year end2. Check the income accrued on the Investments3. Disclosure requirements under Schedule III.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Inventory1. Check the Method of Valuation of the Closing Stock.2. Reconcile the physical / book items of inventory

showing opening balances, purchases , issued for consumption/sales , short & excess and closing Stock with the Excise Records..

3. trace the deviations if any from the method of valuation of Stock, purchases, sale according to section 145A of the Income Tax Act.

4. 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.

5. Check the Compliance of the Accounting Standard -2 " Valuation of Inventories.“

6. It may be noted that the said Accounting Standard ignores the CENVAT adjustments and only exclusive method is permissible.

7. Sheet of physical verification conducted by the management to be obtained.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Loans and Advances Given1. 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..

2. Check the Compliances as per Para 8(B) above.3. Obtain the details of Due from directors with maximum

outstanding during the year4. Ensure proper disclosure is made w. r. t. security

aspects.

Provision for Taxation1. Ensure the taxation provided according to the taxation

Laws applicable at the date of balance Sheet 2. Ensure that provision for tax is made in accordance

with the AS-22. " Deferred Tax" 3. Ensure that Provisions u/s 115JB MAT is also considered.

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STAGE IV: IN-DEPTH SCRUTINY OF LEDGERS. Other Incomes1. Interest Income correlate the same with TDS receivable

for the year. 2. Insurance Claims received.3. Commission Income

Obtain the documentary evidence, Agreements, and calculation of commission and their recognition in the Accounts.

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STAGE V: PREPARATION OF FINANCIAL STATEMENTS AND FINAL

REPORTING 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

1. 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.

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eAudit SamplingAudit Sampling Requires auditors judgment.

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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