- 1 Special Audit Bcom Notes
- 1.1 Special Audit
- 1.2 Audit of Banking Company
- 1.3 Preliminary
- 1.4 Audit of Income
- 1.5 Audit of Expenditure
- 1.6 Miscellaneous
- 1.7 Audit of Educational Institutions
- 1.8 General Points
- 1.9 Audit of Expenditure Items:
- 1.10 Audit of Insurance Companies
- 1.11 Audit of the Income Items
- 1.12 Audit of Expenditure Items
Special Audit Bcom Notes
Special Audit Bcom Notes:- In this post, I am giving you the notes of Bcom 3rd Year auditing, which is going to be very useful in your examination and you should share this post to all friends and all your groups so that your friends also read this post. Could. Special Audit Bcom Notes
Audit of Banking Company
The accounts and audit of banking companies are governed by the Banking Regulation Act, 1949, Banking Companies (Acquisition and Transfer of Undertaking) Act of 1970 and 1980 as also the Companies Act, 1956 to the extent the provisions of the latter not inconsistent with those of the former. An auditor should pay attention to the following points while auditing the accounts of a bank:
Special Audit Bcom Notes
Considering a large number and complexity of business transactions, it is practically impossible for an auditor of a bank to perform a detailed audit. He has therefore to rely on the system of internal control the details of which must be made available to him in writing. He should particularly ascertain whether: (a) the duties of staff are frequently changed: (b) there is an effective segregation of duties as to maintenance of the ledger and the books and (c) all entries and transfers of funds of an unusual nature are properly authorised.
- The auditor should visit the bank at the close of business at the end of the financial year to physically count the cash in hand, bank notes, cheques, etc., forming part of the cash balances in hand at that date.
- If cash or securities have been deposited with the Reserve Bank or any other bank, he should obtain a certificate from the bank concerned.
Audit of Income
- He should examine the shares, securities, deeds, etc., representing the investments of the bank and see that income received or accruing in respect of the same has been duly accounted for.
- Interest received or accruing on loans should be vouched by reference to the agreement etc., with customers making due allowance for the amount of interest deemed to be irrecoverable.
- He should check the correctness of the calculation as to rebate on bills discounted. The amount of rebate is taken credit of only at the time of discounting of bills though it is earned over the period of maturity of the bills. It should therefore be seen that rebate properly attributable to the subsequent period is duly carried forward.
- He should verify the income on account of commission in respect of various services rendered to customers by reference to advices sent to them.
Audit of Expenditure
- He should take care to ascertain whether proper distinction has been made between capital and revenue items of expenditure.
- Interest credited to customers’ accounts should be verified by reference to the balances in their accounts. Some banks follow the practice of sending a statement to each of the customers at the date of balancing of his account and requesting him to sign and return the said statement as evidence of his agreement with the balance stated therein. These statements should also be verified to confirm the balances in individual accounts.
- Expenses on account of salaries, rent for the business etc. should be verified from the salary register, service contracts, rent deed etc.
Special Audit Bcom Notes
- He should examine that all the assets with the bank are verified for their existence, value, title and possession.
- He should examine all assets and liabilities written off specially with a view to create a secret reserve.
- He should see whether adequate provision for doubtful debts has been made or not.
- The auditor should inquire into the method of valuing bank’s investments for balance sheet purposes and see that it is as per the generally accepted principles of valuation.
- He should see that the branch returns duly certified by the respective branches are properly incorporated after necessary adjustments in the Head Office Books.
- He should check the general ledger in detail.
- He should carefully verify the assets of the Bank.
- He should verify all investments at one time and should see that interest on such investments has been duly received.
- He should carefully scrutinise the foreign exchange transactions, if any.
- He should see that the loans granted to the customers are within the power of the bank separately.
- Secured loans, partly secured loans and unsecured loans should be shown in the balance sheet separately.
- He should keep a note of the secret reserves and see that they are not misused by the directors.
- He should see that all the liabilities at the close of the financial year are brought into account.
- He should see that the profit and loss account and the balance sheet have been prepared according to the requirements of the Banking Regulation Act. (Form A and B).
- He should see whether the provisions of the Banking Regulation Act have been complied or not.
Audit of Educational Institutions
While auditing the accounts of a college or any educational institutions, the auditor must consider the following points:
(1) To see rules and regulations: The auditor should examine the Charter, Trust Deed Regulations in the case of the school or college and note all the provisions thereof, especially those which have a direct bearing on the accounts.
(2) To See Minutes of Managing Committee: He should go through the minutes of the meetings of the Managing Committee, of the institution, and note the resolutions as regards accounts.
(3) Study of Internal Check System: He should study and evaluate the internal check and control to see appropriate segregation of duties and responsibilities, adequate mechanism for authorisation and record-procedures as to assets and liabilities. Main sources of an educational institution constitutes the fees Audit of Income Items received from students, Government aid, Donations, Income from investments etc. In this regard, an auditor should pay attention to the following points.
(4) Audit of fees: Fees constitute an important source of income of an educational institution. The auditor should vouch the fees received with the counterfoils, of money receipts issued to students, as also with the entries in the cash book and the fees register. He should see that fees received in advance is carried forward and the fees outstanding is adjusted.
In the case of free studentship or other concessions as to fees, he should see that these are duly authorised and any charges which are irrecoverable have been written off. He should check late payments of fees along with fines with the entries of arrears in the fees register.
He should see if all the arrears of fees, including hostel dues are recovered before the students’ accounts are closed. In case there are heavy arrears of fees or hostel fees, it should be enquired whether these have been brought to the notice of the managing committee or not.
(5) Grants and Donations: He should verify that donations received from different charitable bodies or persons have been duly acknowledged and recorded properly in the accounts. He should check that the money received for a particular purpose have been utilized for the same.
(6) Grants-in-aid: He should vouch the income by way of grants-in-aid from the Government or local bodies on the basis of the memorandum or other correspondence with regard thereto. Where any grant is by way of a percentage of actual expenditure, should examine the expenses which are not approved for the purpose of the grant.
(7) Receipts from Assets and Investments: The auditor should verify the assets and investments of the institution personally and vouch the income received on them with the help of related documents and cash book. If interest is not received on any investment, he should see whether it has shown in the balance sheet or not.
Special Audit Bcom Notes
Audit of Expenditure Items:
(8) Salary of the Staff: Salaries paid to the staff should be carefully vouched and annual increments added to salaries are sanctioned by the competent authority.
(9) Contribution to Provident Fund: He should check the provident fund accounts of the staff and see that the funds are properly invested.
(10) Scholarship: He should check the payments made on account of scholarships with the help of receipts from the students and the scholarship register.
(11) Issue and Purchases of Materials: He should test-check the efficacy of the procedure as to purchase, custody and issue of materials such as provisions, foodstuffs, clothing, equipment etc. All purchases and issues should be properly authorised by a responsible officials.
(12) Establishment Expenses: Establishment expenses should be checked with the relevant vouchers and entries in the Cash Book. In case of an unduly heavy expenditure on any item, the auditor should enquire into the reasons for the same and also whether the Managing Committee has approved it.
(13) Capital Expenditures: He should ascertain whether items of capital and revenue expenditure are properly distinguished in accordance with sound accounting practices.
All expenditure of a capital nature should be vouched with resolutions of the Managing Committee authorising the same, as also relevant vouchers and entries in the Cash Book.
(14) Other Points: An auditor should consider the following other points alongwith the above:
(i) He should examine the annual statements of accounts and see that separate statements of account have been prepared as regards Building Fund, Provident Fund, Games Fund, etc.
(ii) Investment income of an approved educational institution is not liable to income-tax. As such, the auditor should ascertain that in case any tax from such income has been deducted at the source, refund has been duly claimed and received.
(iii) He should see whether purchase invoices are duly passed for payment, and liability as to unpaid purchases are adequately provided for.
(iv) Stock of furniture, stationery, clothing, foodstuffs, and other equipment should, as far as practicable, be physically verified. He should compare the stock in hand with the quantity and description as given in the Stock Register.
Special Audit Bcom Notes
Audit of Insurance Companies
It will not be possible for an auditor to check all the transactions of an Insurance Company in detail and therefore, he has to depend upon the internal check and control applied by the company to a great extent. Having enquired about them, he should decide about the extent of the checking of the accounts. At the same time, he must keep in mind the various provisions of the Insurance Act, 1938 and see that they are duly observed. Then he should process as follows:
Special Audit Bcom Notes
Audit of the Income Items
- Premium: An insurance company has its main source of income from the receipt of premium from the policy holders of the company. The auditor should vouch the premium received with the counterfoils of the receipt book, premium register, copies of insurance policies, and premium account.
He should also ensure that the outstanding premium and the premium received in advance in respect of risks commencing from the following year have been properly recorded in the revenue account and disclosed separately under a separate head in the balance sheet. He should vouch the premium paid/received from other branches with extra care.
- Investment: The auditor should ascertain the market and book value of investments and see that the investments are shown at the lower of the two. Investment lodged with the Reserve Bank should be verified with the Bank’s Certificate. He should see the investment register and vouch the receipts of interest and dividends with relevant documentary evidences. Dividend accrued but not yet received should be credited to the revenue account.
- Re-insurance: He should vouch the premium paid/receive on re-insurance policies and the recoveries on account of re-insurance in the usual manner.
Audit of Expenditure Items
- Claims: All claims paid during the year should be vouched by the claim register, cash book, counterfoils of the cheque book, surveyor’s certificate, correspondence, sanctions of the competent authorities and other documentary evidences to find out the exact amount of claims.
Claims admitted but not yet paid on the date of the balance sheet should be properly estimated and be shown as liability in the balance sheet.
- Commission: The amount of commission paid or payable to the insurance agents should be vouched with commission vouchers, acknowledgement of the agents and agreements with the agents. The auditor should ensure that the commission paid or payable to such agents is in accordance to the prescribed limits. The commission which has not been paid to the agents must be checked and be shown in the liability side of the balance sheet.
- Expenses: Examine managements expenses carefully and see that provisions of the Act are duly observed in this connection. See that such expenses have been charged to Revenue Account only duly classified. Check that the common expenses have been allocated between various departments (fire, accident, marine and general). Ensure that such allocation is based on accounting principles and made reasonably and equitably.
- Branch and Agency: Scrutinise carefully the outstanding branch and agency balances to determine that they are recoverable. Check that sufficient provision has been made against all doubtful accounts.
- Reserve: See that sufficient amount has been set aside for reserve for unexpired risks. A reserve of 40% of the premium income is considered sufficient.
- Contingent liabilities: Make sure that all the contingent liabilities have been duly ascertained and properly disclosed in the Balance Sheet as required.
- Code of conduct: Check that the provisions of code of conduct have been duly observed.
- Annual Accounts: See that the annual accounts of the insurance company has been prepared in accordance with the prescribed forms and regulations for their preparations have been duly observed.
- Loans and advances: See that no loans or temporary advances have been made to any director, other officer of the company. manager, auditor or any
- Qualified Auditors: See whether the accounts of the branches have been audited by qualified auditors. If not, they should be checked by him carefully.
Special Audit Bcom Notes