Upload
japjiv-singh
View
216
Download
0
Embed Size (px)
Citation preview
7/29/2019 Auditing New (1)
1/29
F.Y.BAF PRESENTS PROJECT ON..
CONCEPTS INAUDITING
7/29/2019 Auditing New (1)
2/29
Foundation Of AuditingVouching
Verification
Valuation
True & Fair Audit
Errors & Frauds
Secret Reserves
Window Dressing
Teeming & Lading
Concepts In Auditing
7/29/2019 Auditing New (1)
3/29
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
7/29/2019 Auditing New (1)
4/29
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
7/29/2019 Auditing New (1)
5/29
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
7/29/2019 Auditing New (1)
6/29
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
7/29/2019 Auditing New (1)
7/29
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
7/29/2019 Auditing New (1)
8/29
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
7/29/2019 Auditing New (1)
9/29
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
7/29/2019 Auditing New (1)
10/29
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
7/29/2019 Auditing New (1)
11/29
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
7/29/2019 Auditing New (1)
12/29
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
7/29/2019 Auditing New (1)
13/29
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
7/29/2019 Auditing New (1)
14/29
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
7/29/2019 Auditing New (1)
15/29
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.
7/29/2019 Auditing New (1)
16/29
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
7/29/2019 Auditing New (1)
17/29
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
7/29/2019 Auditing New (1)
18/29
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
7/29/2019 Auditing New (1)
19/29
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
7/29/2019 Auditing New (1)
20/29
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
7/29/2019 Auditing New (1)
21/29
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
7/29/2019 Auditing New (1)
22/29
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
7/29/2019 Auditing New (1)
23/29
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
7/29/2019 Auditing New (1)
24/29
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
7/29/2019 Auditing New (1)
25/29
CONCLUSION
BIBLIOGRAPHY
7/29/2019 Auditing New (1)
26/29
BIBLIOGRAPHY
ACKNOWLEDGEMENTS
7/29/2019 Auditing New (1)
27/29
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 :
7/29/2019 Auditing New (1)
28/29
PRESENTED BY :
JAPJIV SINGH ANAND 18SAHIL GANGWANI 20SHIKHA SACHDEV 23KOMAL RATANPAL 27JHANVI PATEL 49FAHAD HINGORA 59SHUBHDA VARDE 60
7/29/2019 Auditing New (1)
29/29