University Auditing Note

7/26/2019 University Auditing Note

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BINAYAK ACADEMY,Gandhi Nagar 1stLine, Near NCC Office, Berhampur

Unit 2

Vouching:-

Vouching is the act of checking or examining the entries made in the books of account withthe supporting the documentary evidences or vouchers.

In the words of L.R DICK!! "#Vouching is an act of comparing entries in the books ofaccount with the documentary evidence in support thereof#.

Objectives of vouching:-

$% &he principa' ob(ective of vouching is to ensure that the transactions" as recorded in thebooks of accounts" are acceptab'e" genuine" proper'y authorised and correct'y recorded.

)% *nother ob(ective of vouching is to ensure that a'' the entries made in the books aresupported by necessary documentary evidence.

+% &o see that a'' the transactions connected with the business have been recorded in theappropriate books of account.

,% &o ensure that no transactions" which is not connected with the business" has beenrecorded in the books of accounts.

-% Detection of errors and frauds.

Importance of vouching:-

Vouching constitutes the foundation upon which the super structure of auditing is erected. Itis the back born of auditing. In the words of .R./ De 0au'a" vouching is the essence ofaudit.

Vouching can be regarded as the essence or back bone of auditing for the fo''owingreasons.

a% &he success of an audit 'arge'y depends upon the care and attention with which vouchingis accomp'ished.

b% Vouching is the most potent too' in the hands of an auditor to ascertain the accuracy ofthe transactions recorded in the books of account.

c% &o see that a'' the transactions connected with the business have been recorded in theappropriate books of account.

d% &o ensure that there are no transactions" which are not connected with the business" hasbeen recorded in the books of accounts.

e% Detection of errors and frauds

f% Vouching ensures the arithmetica' accuracy of the books of account.

g% If vouching is done with care and caution" the auditor can smooth'y proceed further in hiswork.

Vouchers:-* voucher is the documentary evidence in support of a transaction recorded in the books ofaccount. It is a documentary evidence of an entry in a book of account. &he fo''owing arethe some of the examp'es of vouchers1

a% Receipt obtained from a payee.

b% Counter foi' of a receipt.

c% 0urchase invoice.

d% a'es invoice.

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e% Cash memo.

f% 2ank pay3in3s'ip.

g% * contract or an agreement.

h% * reso'ution passed at the meeting of the board of directors.

Test Check

2ig business houses have a 'ot of transactions. o" it is very di4cu't to check a'' thetransactions in detai'. *n auditor needs to prepare and present report in short period oftime. o" an auditor checks the samp'e transactions and prepares and presents report tothe concern authority which is known as 5&est Check5. *n auditor checks the books ofaccounts of a particu'ar time or area if there is no any doubt" s6he proves the account astrue and fair" otherwise auditor checks in detai' where s6he has doubts.

2ut if any errors or frauds are 'eft out due to random samp'ing" auditor wi'' be responsib'efor such 'osses. o" an auditor app'ies test check if interna' check is e7ective in theorgani8ation.

o''owing points are to be taken into consideration whi'e app'ying test check1

$. amp'e shou'd be se'ected from the various books of account and of di7erent times.

). &ransactions re'ated to beginning and ending period of particu'ar year shou'd bechecked in detai'.

+. &ransaction re'ated to cash and stock shou'd be checked in detai'.

,. amp'e se'ection is to be made in random basis" not in p'anned way.

-. Detai' check of 2ank Reconci'iation tatement is necessary.

Avantages of Test Check

o''owing advantages can be obtained whi'e app'ying test check1

$. &est check he'ps an auditor to comp'ete work in 'ess time because test of fewtransactions can be made.

). *n auditor can comp'ete the work of audit of various organi8ations within stipu'atedtime.

+. &est check saves 'abor" time and cost of man auditor. o" an auditor can check in detai'the speci9c items rather than checking simi'ar items.

,. &est check gives assurance of accuracy and re'iabi'ity of transactions to some extent.

-. *ccounting sta7s remain a'ert and carefu' because auditor checks the transactions ofvarious times in random basis.

!isavantages of Test Check

$. &here are chances of 'iving errors and frauds because transactions with frauds may be

'eft out from audit.). Resu't presented by income statement may be incorrect and report presented to themanagement may not be true due to the use of test check.

+. &est check increases the responsibi'ity of auditor because an auditor shou'd beresponsib'e for the undetected errors and frauds due to app'ication of test check.

,. &est check is not suitab'e method for the audit of sma'' organi8ations.

"outine Checking

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Regu'ar checking of a'' the dai'y transactions is known as Routine Checking. Routinechecking incorporates the fo''owing tasks1

: Checking of record in primary books" costing" transfer etc.

: Checking transfer of transactions from origina' books of accounts to 'edger account.

: Checking debit and credit side of various accounts.

: Checking transfer of ba'ances of various accounts to other pages or accounts orstatements.

Various signs are used whi'e conducting routine check. uch signs provide the proof ofroutine checking of transactions.

igns which are used in audit shou'd be sma'' and c'ear. ;enera''y red or pink co'or is usedwhi'e conducting routine check. 2ut green co'or is used whi'e conducting 9na' audit.

Vouching of cash book or cash transactionsCash transactions take p'ace a'most every day in business. *n auditor shou'd give care and

attention to the vouching of cash transactions.&he main ob(ectives of vouching of cash transactions are"$% &o ensure that a'' receipts of cash are du'y accounted for.)% &o ensure that no improper payments are made.+% &o see that a'' receipts and payments of cash are actua''y and proper'y recorded.,% &o see that a'' payments have been made to proper persons and the payments aretrue payments.-% &o see that cash and bank ba'ance correct and rea''y exist.Vouching of cash book or cash transaction covers the vouching of receipt side andvouching of payment side.Vouching of receipt sie or ebit sie of cashbook or cash receipttransactions:-

Vouching of cash receipt transactions is more di4cu't than that of cash paymenttransactions" since there is greater chance of manipu'ation in regard to cash receipt.&he auditor shou'd bear in mind the fo''owing points" whi'e vouching the cash receipttransactions.$% &he auditor shou'd carefu''y examine the system of interna' check in operation withregard to cash receipt transactions.)% *n auditor can resort to test checking on'y if he has satis9ed himse'f that there is ane4cient system of interna' check.+%


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c% &he receipts have to be signed by a responsib'e o4cer.d% &he unused receipt book shou'd be kept in safe custody.e% *'' spoi't receipts shou'd remain attached to the counter foi's.

Vouching of cash pa#ments or creit sie of the cash book

Ahi'e vouching cash payments" an auditor shou'd pay attention to the fo''owing points.

$% *'' vouchers re'ating to cash payments shou'd be seria''y numbered and proper'yarranged.

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&he e4cient system of interna' checks ensures that a'' goods received and de'ivered areentered in the stock register and the chances of discrepancies are few and far between.0urchase department shou'd be an independent unit" free from the task of receiving" storing

and dispatching of goods. 0urchase department shou'd function in constant consu'tationwith the sa'es departments" regarding the nature of demand" the ?uantity and ?ua'ity ofgoods demanded" etc. purchase department shou'd a'so be aware of the avai'abi'ity ofvarious goods and their prevai'ing rates.

Concept of Audit of Impersonal Ledger

Impersona' accounts refer to rea' accounts and nomina' accounts which are re'ated totrading account" pro9t and 'oss account and ba'ance sheet. o" if there are any errors insuch accounts" they wi'' a7ect adverse'y to the report and 9nancia' statements which are tobe signed by the auditor. Checking of such accounts is known as audit of impersona' 'edger.It does not on'y assure the correctness and re'iabi'ity of nomina' accounts but a'so he'ps todetect the errors which remain in persona' accounts. uch audit is conducted with the he'pof cash book" (ourna' and subsidiary books.

Following works are to be performed for the audit of impersonal ledger:

$. Cash transactions are to be checked on the basis of cash book or (ourna'.

). ther impersona' transactions are to be recorded on the basis of su4cient evidences. *nauditor has to check whether it is recorded on the basis of evidence or not.

+. pecia' attention shou'd be given whi'e checking transfer entries because it e7ects the9na' accounts.

2a'ance heet

0ro9t and 'oss account

Cash 2ook

,. &ota's and ba'ances of impersona' 'edger shou'd be rati9ed with the ba'ance shown intria' ba'ance.

-. pening ba'ance of impersona' 'edger shou'd be veri9ed with the audited account ofprevious year.

=. *uditor shou'd thorough'y check the tota's of the various other books of origina' entryand a'so the postings of their tota's of the impersona' 'edger.

Unit $

Veri%cation an Va&uation of Assets an 'iabi&ities(

Veri%cation:

Veri9cation is a process carried out to con9rm the ownership va'uation and existence of

items at the ba'ance sheet date.

)picer an *eg&erde9ne veri9cation as" the veri9cation of assets imp'ies an in?uiry intothe va'ue" ownership and tit'e" existence and possession and the presence of any charge onthe assets.

It is a'so de9ned as a process by which the auditor substantiate the accuracy of the righthand side of 2a'ance heet and must be considered as having + distinct ob(ects" i.e."veri9cation of the existence of assets" the va'uation of assets and authority of theirac?uisition.

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&he auditor is re?uired to report whether the 2a'ance heet exhibits the true and fair viewof the business. or this" he has to examine and ascertain the correctness of money va'ue ofassets and 'iabi'ities as shown in the 2a'ance heet. In the case of London i' torage

Company Ltd" it was he'd that it is the duty of the auditor to verify the existence of assets"stated in the 2a'ance heet and that he wi'' be 'iab'e for any damage su7ered by the c'ient"if he fai's in this duty.

&he Institute of C* of India" states that the veri9cation of assets shou'd be aimed atestab'ishing their1

a. !xistence

b. wnership

c. 0ossession.

d. ree from !ncumbrance.

e. 0roper recording and proper veri9cation.

!i+erence Bet,een Veri%cation an Vouching($. Vouching 0roves the accuracy of book entries but certi9cation on ba'ance sheet can bemade on'y after veri9cation.

Vouching Veri%cation

$. Vouching examines the entriesre'ating to transactionsrecorded in books of accounts.

$. Veri9cation examines theassets and 'iabi'ities appearingin the 2a'ance heet.

). Vouching is done throughoutthe year.

). It takes p'ace at the end of theyear.

+. Vouching is bases on on'ydocumentary examination.

+. Veri9cation is based onpersona' as we'' asdocumentary examination.

,. It does not inc'ude veri9cation. ,. It inc'udes va'uation.

-. Vouching is norma''y done byaudit assistant.

-. It$ is done by the auditorhimse'f.

Va&uation: &he accuracy of 2. depends on the correctness of estimation of va'ue ofassets. * companyEs 2 is not drawn for the purpose o showing what the capita' wou'd beworth if the assets were rea'i8ed and 'iabi'ities paid o7. 2ut to show how the capita' standsinvested. ItEs the responsibi'ity of the auditor that items in the 2 are neither over va'ued

nor underva'ued.Auitor *osition "egaring Va&uation:

*n auditor can obtain the certi9cation of va'uer and other competent persons. Fsua''y" theassets are va'ued by responsib'e o4cia's. *n auditor audits many types of companies andhe canEt be an expert to va'ue a'' kinds of assets.

*n auditor is not a va'uer" and canEt be expected to act as such. *'' that he can do is toverify the origina' cost price and to ascertain as far as possib'e the current va'ues are fairand reasonab'e and are in accordance with accepted princip'es.

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It must be borne in mind that the actua' va'uations are made by o4cia's who have apractica' know'edge of such assets and that an auditors duty is con9ned to testing theva'uations as far as he can and in this way satisfy himse'f with correctness of the 2

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&he auditor shou'd a'so examine whether fees paid to purchase patents are treatedas capita' expenditure. If renewa' fees are paid" it shou'd be treated as revenueexpenditure. If the c'ient has number of patents he shou'd get the 'ist of patents

with detai's such as the date of ac?uisition" the period of which it ac?uired etc.0atents are written o7 over the period of which they are ac?uired.


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whether they are proper'y numbered and proper accounts are maintained. Repairsto furniture shou'd be treated as revenue expenditure and hence debited to 0GL a6c.furniture is a'ways va'ued at cost 'ess depreciation at a reasonab'e rate.


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iv. Book !ebts3 )unr# !ebtors:2ook debts are to be c'assi9es as good" bad anddoubtfu'. &he auditor shou'd see the accuracy" va'idity" and co''ectabi'ity andcon9rmation 'etters direct'y from the debtors. or any ba'ance for which no

con9rmation is received" he shou'd carefu''y verify the account.


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cost price" if they are he'd as current assets" they are va'ued at cost price or marketprice whichever is 'ess.

isce&&aneous e1penses an &osses:

$. *re&iminar# e1pense:a'' expenses incurred in the formation of a company areca''ed pre'iminary expenses. &he auditor shou'd vouch the payments made and seewhether these expenses are written o7 regu'ar'y. &he portion of pre'iminaryexpense not written o7 wi'' be shown in the ba'ance sheet on the assets side.

). !iscount on issue of shares an ebentures:whenever shares and debenturesare issued at discount" the company shows discount amount of the asset side ti'' itis written o7. &he auditor shou'd verify the re'evant accounts and documents andsee whether discount on the issue in particu'ar on the re issue of forfeited share isas per the provision so act.

+. Veri%cation of &iabi&ities: if 'iabi'ities are not proper'y exhibited account do notshow fair view of the business. Ahi'e verifying 'iabi'ities the auditor shou'd ensure

that1a. a'' the 'iabi'ities in the 2a'ance heet are actua''y payab'e.

b. &hey are actua''y recorded.

c. &hey have arisen out of natura' business operation.

d. &here is a proper disc'osure.


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ii% Outstaning 51penses: &he auditor shou'd obtain a statement of a''outstanding expenses signed by a responsib'e o4cia'.


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which is an examp'e of app'ying the matching princip'e as per genera''y

accepted accounting princip'es.

Depreciation is ca'cu'ated on a'' depreciab'e assets which can be de9ned as those whichhave a usefu' 'ife for more than one accounting period but is 'imited and are he'd by an

enterprise for use in the production or supp'y of goods and services. !xamp'es

of depreciab'e assets are machines" p'ants" furniture" bui'dings" computers" trucks" vans"

e?uipment" etc. /oreover" depreciation is the a''ocation of 5depreciab'e amount5 which is

the 5historica' cost5 or other amount substituted for historica' cost 'ess estimated sa'vage

va'ue.

Depreciation has signi9cant e7ect in determining and presenting the 9nancia' position and

resu'ts of operations of an enterprise. Depreciation is charged in each accounting period by

reference to the extent of the depreciab'e amount.

In this way" depreciation is an a''ocation of the cost of assets over their usefu' 'ife. *

systematic procedure of for a''ocating the cost over the periods of its usefu' 'ife in a rationa'

manner is ca''ed depreciation accounting.

0eatures of !epreciation

o''owing are the main features of depreciation1

$. Depreciation is dec'ine in the book va'ue of 9xed assets.

). Depreciation inc'udes 'oss of va'ue of assets due to passage of time" usage or

obso'escence.

+. Depreciation is a continuing process ti'' the end of the usefu' 'ife of assets.

,. Depreciation is an expired cost and hence must be deducted before ca'cu'ating taxab'e

pro9ts.

-. Depreciation is a non3cash expense. It does not invo've any cash How.

=. Depreciation is the process of writing3o7 the capita' expenditure a'ready incurred.

eaning of *rovision

* provision is the sum of amount set aside by charging against the pro9t and 'oss account.It is created for meeting a known 'oss or 'iabi'ity. 0rovision is maintained for meeting ananticipated 'oss or 'iabi'ity of uncertain amount. uch amount of anticipated 'oss or 'iabi'itycan on'y be estimated. If the present regu'ar transactions undoubted'y bring certain 'osses

or 'iabi'ities of unknown amount in further then provisions shou'd be made for them incurrent year5s book. uch provisions shou'd be made every year by debiting the pro9t and'oss account without considering whether the business is in pro9t or 'oss. * provision isa'ways created for the speci9c purpose. It is not for the distribution to the shareho'ders. &heprovision" in fact" reduces the 9gure of pro9t and not the 9gure of divisib'e pro9t.

;enera''y" a business maintains di7erent types of provisions with some speci9c purposes.&hey are as fo''ows1: 0rovision for doubtfu' debts

: 0rovision for discount on debtors

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: 0rovision for taxation

: 0rovision for repairs and renewa's

Objectives of *rovision

ome of the important ob(ectives of maintaining provisions are as fo''ows1

6 To eet Anticipate 'osses An 'iabi&ities: 0rovisions are created for meetinganticipated 'osses and 'iabi'ities such as provision for doubtfu' debts" provision for discounton debtors and provision for taxation.: To eet 7no,n 'osses An 'iabi&ities: 0rovisions are created for meeting known'osses and 'iabi'ities such as provision for repair and renewa's.

6 To *resent Correct 0inancia& )tatements: In order to present correct 9nancia'statements and to report true pro9t and 9nancia' position" the business must maintainprovision for known 'iabi'ities and 'osses.

eaning of "eserve

* reserve is a part of the pro9t set aside to meet future contingencies and 'osses. Fsua''y"the who'e amount of pro9t earned by the business is not distributed to the owners orshareho'ders. * part of the pro9t is retained in the business either for meeting itsunexpected future 'iabi'ities and 'osses or for strengthening 9nancia' position. It can becreated for redeeming 'iabi'ities or rep'acing depreciab'e assets or dec'aring uniform rate ofdividend over years. It is created out of the pro9t on'y. If there is no pro9t in a particu'aryear" no reserve can be created in that year. It is created by debiting the pro9t and 'ossappropriation account. It does not reduce the 9gure of net pro9t because it is created afterdetermining pro9t. &he reserve" therefore" reduces on'y the 9gure of divisib'e pro9t. Itbe'ongs to the owners and shareho'ders. It can be distributed to the shareho'ders if itsexistence is no 'onger re?uired.

Objectives of "eserve

&he main ob(ectives of maintaining reserve are as fo''ows1

: &o meet unexpected future 'osses" 'iabi'ities and contingencies.

: &o strengthen the 9nancia' position of the business.

: &o redeem debentures" preference shares and other 'oans and 'iabi'ities.

: &o rep'ace wasting or depreciating assets.

: &o dec'are and distribute the uniform rate of dividend over years.

: &o meet the need of fund from interna' sources.

: &o provide additiona' working capita' and to improve the working capacity of the business.

AU!ITO") !UT8 4IT "5/A"! TO !5*"5CIATIO9

$. Companies *ct provides on'y minimum rates. &he company can charge depreciation at ahigher a'so. Jr it means 'esser 'ife%.

). &he company can adopt di7erent methods for di7erent type of assets provided the sameis consistent'y fo''owed.

+. Change in method of depreciation shou'd be with retrospective e7ect and on'y if it isre?uired by statute or accounting standard or if it resu'ts in better presentation.

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,. &he accounts must disc'ose the methods which have been used to ca'cu'atedepreciation.

-. Low3va'ue items may be fu''y depreciated provided this is disc'osed appropriate'y in the

accounts.

=. Depreciation shou'd be ca'cu'ated from the date when the asset is ready to use.

Auitors ut# ,ith regars to reserves

&he position of the auditor in connection with the secret reserves is very c'ear.


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J)% *n auditor who received on'y 'oan or guarantee from or on beha'f of the company.

J+% *n auditor who has any business re'ationship in the company.

J,% *n auditor who has been emp'oyed in the company

J-% *n auditor whose re'ative is in the emp'oyment of the company

*00IO&/!O& *O *FDI&R

IR& *FDI&R

&he 9rst auditor of a company is appointed by the 2oard of Directors within the month ofthe Registration of the company. &he 9rst auditor" appointed by the 2oard of Directors wi''ho'd o4ce ti'' the conc'usion of the 9rst annua' genera' meeting of the company.

If 2oard of Directors fai's to appoint the 9rst auditor" the company may appoint the 9rstauditor in the genera' meeting. &he 9rst auditor appointed by the shareho'ders in thegenera' meeting" wi'' a'so be reappointed at the 9rst annua' genera' meeting of thecompany

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*fter receiving a copy of the proposed reso'ution" the auditor concerned can make hisrepresentation to the company. &hereafter" if the members desire that the auditor shou'd beremoved before his term of o4ce and another person shou'd be appointed in his p'ace" an

ordinary reso'ution shou'd be passed by the share ho'ders at the genera' meeting.It may be noted that for the remova' of a subse?uent auditor" the provisions approva' of thecentra' government a'so must be obtained.

"5U95"ATIO9 O0 A9 AU!ITO"

&he remuneration of the 9rst auditor is 9xed by the 2oard of Directors" if he is appointed bythe 2oard of Directors.

&he remuneration of every subse?uent auditor" who is appointed by the company" is 9xedby the company in the genera' meeting.

Ahere a subse?uent auditor is appointed by the Centra' government on the fai'ure of thecompany to appoint the auditor" his remuneration wi'' be 9xed by the Centra' ;overnment.

Unit =

!I)TI9CTIO9 B5T4559 *"O0IT A9! !IVI)IB'5 *"O0IT):

ne shou'd c'ear'y understand the di7erence between these two terms. *'' the pro9ts of acompany are not divisib'e. n'y those pro9ts" which can be 'ega''y" distributed in the formof dividend to the shareho'ders of the company are ca''ed as Divisib'e 0ro9ts. &here is node9nition of the term divisib'e pro9t in the companies act.

&here are two main princip'es which he observed before dec'aring dividends to theshareho'ders1

$. In every case" dividend must be paid in accordance to the provisions of section )P- ofthe companies act and of the companyEs memorandum of association and artic'es ofassociation. If the artic'es of association of a company are si'ent on this matter"dividend must be paid according to Regu'ations @- and , of tab'e * schedu'e $appended to the companies act.

). Dividends shou'd not be paid at the cost of creditors or debenture ho'ders of thecompany.

BA)IC CO9)I!5"ATIO9) 0O" !IVI)IB'5 *"O0IT):

&here are many factors invo'ved in ca'cu'ation the divisib'e pro9ts.


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C&ause ?@1 this states that the board may from time to time pay to the members suchinterim dividends as it appears to be (usti9ed by the pro9ts of the company.

2ut un'ike 9na' dividend doesnEt not create a debt against the company" and the board

may subse?uent'y revoke the reso'ution and cance' the announcement.

C&ause ?:

$. &he board may before recommending any dividend set aside out of the pro9ts of thecompany" such sums as it thinks proper" as reserve or reserves which at thediscretion of eh board be app'icab'e for any purpose to which pro9ts of the companymay be proper'y app'ied" inc'uding provisions of the meeting contingencies or fore?ua'i8ation of dividends" an pending such app'ication may at the 'ike discretioneither be emp'oyed in the business of the company or be invested in suchinvestments as the board may from time to time think 9t.

). &he board may a'so carry forward any pro9t which it may think prudent not to dividewithout setting them aside as reserve. &he meaning of this c'ause is that the

company has the right to create any reserve or reserves before recommending anydividend.

C&ause ??:according to this c'ause a company may pay dividend in proportion to theamount paid up on each share. If une?ua' amounts have been paid up on some shares"the dividend may be une?ua' among di7erent shareho'ders.


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CompanyEs amendment act $>, says that the company shou'd a'so transfer theprescribed percentage of pro9ts Jthat is not exceeding $P% to its reserves beforedec'aring dividends. &he company can a'so transfer a higher percentage of its pro9ts in

accordance with the ru'es framed by the centra' govt." in this regard. of the act

provides that a banking company incorporated in India must transfer )P of its annua'pro9ts to a reserve fund before payment of dividend.


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!istribution of capita& pro%ts an &ega& ecisions:

Capita' pro9ts are not pro9ts in the norma' course of business. If a company se''s a part ofthe property at a cost higher than the origina' cost of such assets the pro9ts thus earned is

capita' pro9t. imi'ar'y" premium received on issue of shares" pro9ts made on the re3sa'e offorfeited shares etc are examp'es of capita' pro9ts" and thus it is c'ear that capita' pro9ts donot arise in the course of business. *s per the company 'aw" such pro9ts shou'd not bedistributed amongst the shareho'ders as dividends. 2ut the be'ow mentioned case decisionsprovides that under certain circumstances" capita' pro9ts can a'so be distributed among theshareho'ders of the company.

2ased on the tow 'ega' decisions regarding the distribution of capita' pro9ts" it can beconc'uded that capita' pro9ts canEt be distributed as dividends" un'ess1

a. *'' the other assets have been reva'ued.

b. uch pro9ts had been actua''y rea'i8ed.

c. &hat the *rtic'es of *ssociation of the company had permitted such a distribution and

d. Aorking capita's of the company shou'd a'so be su4cient for the company to carry outthe business because it is a'ways good from the 9nancia' point of view of the company.

Auitors uties ,ith regar to pa#ment of !ivien(

$. &he auditor shou'd examine the /emorandum and *rtic'es of *ssociation of the companyto determine the rights of di7erent c'asses of shareho'ders to whom dividend has beenpaid.

). Dividend can on'y be distributed out of pro9ts and capita' of eh shareho'ders cannot beused for the purpose.

+. &he auditor shou'd ascertain whether pro9ts set aside for the purpose of dividend havebeen computed in accordance with the re?uirements of section )P- of the companiesact.

,. &he auditor shou'd ascertain whether the rate of dividend has been recommendedproper'y in the meeting of the board of directors.

-. &he auditor shou'd examine the 'ist of shareho'ders with the register of shareho'ders tosee that the tota' amount of dividend payab'e agrees with the dividend account.

=. &he amount of unc'aimed dividend shou'd be veri9ed with the dividend account bankpassbook and dividend warrants if any returned unde'ivered.

>. &he auditor shou'd check whether the income tax has been deducted at source.

@. &he auditor shou'd see that the dividend has been paid within the terms of c'ause @@ of&ab'e * i.e in proportion to the amount paid for shares" if the same is incorporated in theartic'es of the company.

. In case of issue of bonus share it shou'd be ascertained that whether the artic'es of ehcompany authori8ed it.

$P.It shou'd be seen that the depreciation in respect of 9xed assets and a'so Hoating assetshas been provided before computation of divisib'e pro9t.

$$.It shou'd be seen that security avai'ab'e to the creditors of the company is in no waya7ected by the distribution of dividends.

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Documents

University Auditing Note