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AUDITING
UNIT 3
VOUCHING, AUDIT OF EDUCATIONAL INSTITUTIONS AND OTHERS
VOUCHING
Meaning: - It is the act of testing or sustaining the validity, authenticity & accuracy of the entries made in the books of accounts with the help of relevant documentary evidence. Vouching means a careful examination of all original evidence i,e, invoices, statements, receipts, correspondence, minutes & contracts etc., with a view to ascertaining the accuracy of the entries in the books & also to find out, as far possible, that no entries have been omitted in the books of accounts. Definition: - Acc. To Arthur W Holmes "Vouching is the examination of the underlying evidence which is in support of the accuracy of the transaction. The process of vouching is intended to substantiate an entry by providing authority, ownership, existence & accuracy". IMPORTANCE OF VOUCHING:
- Vouching is the backbone of Auditing: - main aim of auditing is to detect errors & frauds for proving the true & fairness of results presented by income statement & balance sheet. Vouching is only the way of detecting all sorts of errors & planned frauds. So, it is the backbone of auditing.
- Vouching is the essence of Auditing: - Auditing not only checks the accuracy of books of accounts but also checks whether the transaction is related to business or not All the transactions are performed after the prior approval of concerned authority or not, transaction are real or not because an accountant may include fictitious transactions to commit frauds.
- Vouching is important to see whether evidence are correct or not: - an auditor checks the books of accounts to detect errors & frauds. Frauds may be committed presenting duplicate vouchers. All the small & big amounts of frauds can be detected with the help of vouching. So, all the documents & records are to be checked carefully & in detail by an auditor which is the scope of vouching. OBJECTIVES OF VOUCHING:
To Ensure Accuracy and Genuineness Vouching is the act of examining the records of business transactions. It helps to ensure the genuineness and accuracy of the entries. Detection Of Errors and Frauds It carefully examines each and every entry and documentary evidence in the books of accounts. So, it helps to track the errors and frauds committed in the accounting process. To Discover Missing Transactions Another objective or importance of vouching is that it helps to discover missing or unrecorded financial transactions. Auditor checks all the vouchers and related documents to ensure the completeness and correctness of postings made by the accounting personnel. To Ensure Authenticity Vouching ensures the validity and authenticity of supporting documents such as bills, invoices, bank slip, receipts, minutes etc. Base For Auditing Vouching is very important because it provides a base for auditing. It simplifies the work of final audit. ROUTINE CHECKING: Routine checking refers to the checking of the casting & posting of subsidiary books & the ledger accounts by the auditor. IMPORTANCE OF ROUTINE CHECKING:
- It facilitates through checking of books or original entry.
- A through checking helps in the preparation of trial balance.
- Clerical errors & ordinary frauds are revealed by routine checking.
- Routine checking helps in verifying the arithmetical accuracy of the entries in the books of account.
- Routine checking ensures that no alteration is made in the figures after they have
- been checked & tricked.
- It is a simple job. So, it can be done easily by any audit clerk with an ordinary knowledge of accounts.
- It is intelligent checking of all the (^) transaction with the help of documentary evidences. It is simple or mechanical checking of the book entries.
- The real accuracy of the entries in the books of accounts is ascertained. Arithmetical accuracy of the entries in the books of accounts are ascertained.
- Vouching includes routine checking Routine checking doesn't include vouching.
- Reveals not only the clerical errors but also errors of principle. Reveals clerical errors but doesn't reveal the errors of principle.
- It^ is^ broader^ concept which include (^) not only checking but also verify the source of transaction. It is narrow concept which involve merely involves checking of books of accounts. VOUCHING OF RECEIPTS 1. CASH SALES Vouchers-carbon copies of cash memos, salesman's dairy, cashier summaries, counterfoils of receipts book etc. The vouching procedures with regard to has sales should be following lines. a. Examining whether the allocation of duties is such that the authenticity to execute the sale receives the payment & deliver the goods is not with the same persons. b. Check whether the cash sales recorded in the cashier summaries & salesman's diary represent amounts actually received by the enterprises during the period under audit. c. Check the prices charged, discounts/rebate allowed & rates of sales tax charged & ensure that they are proper & duly authorized. d. Check the arithmetical accuracy of cash memos, counterfoils of receipts books, e. salesman's diary & cashiers summaries.
f. Summary of daily sales should be checked with the cash book & bank paying - in• slips & note that ail cash is deposited into the bank daily. g. Examine^ the^ classification^ of^ cash^ sales^ to^ ensure^ that^ correct account heads have been credited. h. Compare the ration of cash sales to total sales in each month with the ratio of the corresponding month of previous years to ensure that there are not unusual trends or fluctuations. i. The total in the rough cash book, if any should be checked with the main cash (^) book.
2. BILLS RECEIVABLE Voucher-cash book, passbook, bills receivable book. a. The B/R received relate to the business of the enterprise. b. The authorized person has recorded the B/R received during the period under audit in the books of account. c. The auditor should check the cash received from bills matured by comparing the BIR book with the cash book & the passbook. d. The amount of cash received from bills discounted should be checked by comparing the bills discounted book with the cashbook, the passbook & B/R book. e. He should verify that the amount of discount deducted is separately debited to discount account. f. He should determine contingent liability I respect of bills discounted, but not matured on the date of balance sheet & ensure that the particulars of such liability are shown in the balance sheet. g. BIR discounted relating to the period after the date of balance sheet should be shown as a asset under the head·• rebate on the bills discounted not yet due". 3.SALE OF INVESTMENT Voucher- brokers note, bank advice, correspondences etc. a. Receipts from the sale of investment recorded in the books of account represent amounts actually received by the enterprises during the period under audit. b. The receipts relate to the business of the enterprises. c. He should see that the sale of investments is approved by the BOD. d. If investment is sold through brokers, brokers sold note should be
g. If the investment has been sold ex-dividend, the auditor should see that the dividend is received & recorded subsequently. h. If the investments pertain to some earmarked funds, the auditor should see that P/L on the sale of investments is transferred to the earmarked funds a/c. 4.SALE OF BUILDING Voucher- sale deed account, correspondence. a. The auditor should see of buildings has been properly sanctioned. b. The receipt on sale of recorded in the books of account represents amounts actually received by the enterprise during the period under audit. c. The receipt relates to the business of the enterprise. d. He should see that the sale is approved by the BOD. e. If building is sold through a broker or an auctioneer, such sale proceeds should be vouched with the help of brokers sold note or auctioneer's note. f. He may also vouch the sale proceeds of building with the sale contracts, the fixed assets account & correspondence with the parties. g. If there is any capital profit on the sale of building, the auditor should see that it is credited to the capital reserve a/c & not to the general P/L a/c. h. He can verify the entry for the receipt in the cash book with the counterfoils of the receipt issued to the party. VOUCHING OR PAYMENTS TO CREDITORS
1. CASH PURCHASE: Voucher- cash memos, Goods inward book etc. a. He should see that the purchases are duly authorized. b. The auditor should examine the original voucher to find out whether the goods were purchased for the business or for the personal use of any of the officers. c. The purchases made during the period audit have been recorded in the books of accounts. d. To ensure that goods have actually been received the available documentary evidence, such as goods received notes, goods
inward book, should be examined. e. Payment for cash purchases should be vouched with cash memos of the suppliers. f. Special attention should be paid to trade discounts. He should wee that only the net amount is recorded in the books of accounts. g. If any voucher in missing, he should insist upon getting a duplicate copy of it.
2. BILLS PAYABLE: Voucher- bills payable register, payers acknowledge. a. He should see that the payments of BIR relate to the period under audit. b. He should see that the payments of BIR are sanctioned by the authorized
5. PURCHASE OF PATENT AND COPYRIGHTS: Vouchers, invoice, agreements, letter of contract, receipts etc. a. The payment made for purchase of patent rights relates to the period under audit. b. The payment is properly authorized.
c. The payment shown in the cashbook has been actually made for the business only. d. If a patent has been purchased, the patent & the receipt acknowledging the purchase consideration should be seen. e. Any expenses incurred in acquiring it should be capitalized. f. If the patent has been acquired through an agent, the auditor should see that his commission is capitalized. g. It should be remembered that the renewal fee is not capitalized but treated as revenue expenditure.
6. PURCHASE BOOK: a. He should see that purchase not make for the business re not recorded in the purchase book. b. He should verify whether an officer duly authorized to do so places the order for goods. c. He should find out whether the date of the purchase invoice agrees with the date in the purchase book & falls within the trading period under audit. d. He should see that purchases of capital are not included in the purchases book. e. To ensure that all invoices are included in the purchase book, the auditor should obtain the statements of accounts from the creditors & examine them. 7. SALES BOOK: a. He should see whether the date of the outward invoice agrees with the date in the sales book. b. He should see that sales not made for the business are not recorded in the sales book. c. He should see whether goods sold by an officer duly authorized to do so. d. He should see that goods sold, but not delivered are not included in the closing stock. e. He should see that goods sent on sale or return or consignment is not entered in the sales book.
g. Bank charges can be vouched from the bank's advice note. h. Auditor should carefully note the withdrawal dates.
9. OUTSTANDING EXPENSES: a. An outstanding expense refers to expenses incurred during the current year, but for which payments have not been made during the current year. b. Examples of outstanding expenses are outstanding wages, outstanding rent etc. c. Each outstanding expenses is added with the concerned expense on the debit side of the trading a/c or P/L a/c & again it is shown as a liability on the liabilities side of the balance sheet. d. He should examine the demand notes, vouchers etc, to ascertain whether the outstanding liabilities are brought into account or not. e. He should compare the outstanding liabilities of the current year with those of the previous year & enquire into the material difference, if any. 10. PREPAID EXPENSES: a. Prepaid expenses referred to the expenses of the subsequent years but paid during the current year. b. Rent paid in advance insurance paid in advance, etc. are the examples of prepaid expenses. c. Each prepaid expenses are deducted from the concerned expenses on the debit d. side of the trading account or profit & loss a/c is again shown as an asset on the asset side of the balance sheet. e. He should examine the demand notes, vouchers, etc. to ascertain whether the outstanding assets are brought into a/c or not. f. He should compare the outstanding assets of the current year with those of the previous year & enquire into the material difference, if any. 11. ACCRUED INCOMES: a. Accrued incomes referred to income accrued during the current
year, but not received during the current year. b. 0/S commissions, accrued rent etc. are the examples of 0/S or accrued incomes. c. Each accrued incomes is added with the concerned income on the credit side of the profit & loss ale & is again shown as an asset on the asset side of the balance sheet. d. He should compare the outstanding assets of the current year with those of the previous year & enquire into the material difference, if any. Audit of Educational Institutions A large number of educational institutions are registered under the India Society Registration Act, 1860. The purpose behind the formation of educational institutions is to spread education and not just earn profits. The following table lists out the sources for collection of amount and also the different types of expenses incurred by the educational institutions − Main Source of Collection Admission fees, tuition fees, examination fees, fines, etc. Securities from students. Donations from public Grants from Government for building, prizes, maintenance, etc. Types of Expenses / Payments Salary, allowances and provident fund contribution for teaching and non- teaching staff. Examination expenses Stationery & printing expenses Distribution of scholarships and stipends Purchase and repair of furniture & fixture Prizes Expenses on sports and games Festival and function expenses
Audit of Income of Educational Institutions The following points need to be considered by an Auditor while conducting audit of the Income of Educational Institutions −
- Fees and charges received on account of admission fees, tuition fees, sports fees, examination fees etc. should be verified based on the approved fees structure.
- Verification of counterfoil copies of fees receipt with fees received register should be done.
- Prescribed conditions by the State Government and the University Grants Commission should be verified whether fulfilled or not.
- Cash book should be verified with counterfoil of receipt book and fees register.
- Fees receivable and actual fees received should be reconciled.
- Charges and fees received and receivable should be examined on account of hostel accommodation, mess, housekeeping and clothing, etc.
- Cash book should be verified with the donation received register.
- Donation received should be accounted for according to the nature of donation means careful distinction should be there for revenue nature donation and capital nature donations; the same procedure is to be followed for Grants received.
- The purpose and utilization of grant should be same.
- Investment register and cash book should be verified for income received on account of interest on investment and dividends, etc. Audit of Expenses of Educational Institutions The following points need to be considered by an Auditor while conducting audit of
Expenses of Educational Institutions −
- Electricity expenses, telephone expenses, water charges, stationery and printing, purchase of sports items should be properly verified with quotation, purchase bills, inward register and Bills received from service providers, etc. All purchases should be authorized by appropriate person.
- In case where hostels purchase food items, provisions, clothing, etc. should be properly verified.
- Verification of Tax Deducted at Source, Employee State Insurance and Provident Fund should be checked. It is also very important that all deducted amount should be deposited in appropriate Government accounts well within time without any default. These can be verified from relevant bank challans.
- Payment made on account of salary should be verified from terms of appointment and increment policy. Auditor should verify the computation of salary and check whether all required deductions are made out of it or not like advance salary, loan installment, absence from duty, ESI (Employee State Insurance), PF (Provident Fund), etc. The Net Salary Payable amount will be verified from cash book and bank pass book for salary paid.
- Terms and conditions, cash book, voucher and receipts should be the basis for the verification of scholarship paid.
- Appropriate provision should be made on account of outstanding payments. Audit of Insurance companies A company that creates insurance products to take on risks in return for the payment of premiums. Companies may be mutual (owned by a group of policyholders) or proprietary (owned by shareholders). (Also known as insurer or provider). Types of insurance
Audit of cooperative society Auditors’ duty
- Fixed deposit register Date of acceptance Date of maturity Interest due date Repayment
- Surety Register Loans are given against the personal security of the debtor, in addition to a surety or guarantee given by two members. Register of recovery of loan from salaries and directly by receipts from members
- Loan disbursement register Members register and their pass books vLoan given and its repayment Confirmation of loan balances in person
- Share holding
- A member other than registered societies can hold least of the two: 20% of total number of shares Shares of value of Rs.
- Loan Loan can be given only to members.
1. Registers to be verified
- Property and investment register
❖Situation
❖Date of acquisition
❖Cost price and present market price. If the difference between two is
significant note should be given regarding present market value.
❖ Depreciation
❖Face Value
❖Interest due dates, interest realized
❖Sales, purchases, profit or loss on sale
Loan can be given to another registered society by passing special resolution
- Investment of funds Investment can be in one or more of following In the central or state co-operative bank In the shares, securities, bonds or debentures of any other society with limited liability In co-operative banks as approved by the registrar.
- Appropriation of profits At least 25% of the profits should be transferred to reserve funds, before distribution of dividends or bonus to members Registrar can reduce transfer not below 10%
- Overdue debts
• It has to be classified as overdue from six months to five years and more that
five years.
• Analysis of overdue debts from the point of view of recovery and classify as
good or bad
• Analyze provision for doubtful debts.
• Compare the percentage of overdue debts to the working capital and loans
advanced with that of last years and see the trend 7.Overdue interest
• An overdue interest reserve is created and credit of overdue interest credited to
interest account is reduced. It is excluded while calculating profit
