Inclusion of bank

This query is : Open

Bhargav (Querist)
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12 August 2011 Hello Sir,

One of my client, Pvt Ltd, had not included one bank in the accounts and even the auditor did not check that.

Though all the receipts and withdrawals were shown as cash receipts and withdrawals. The previous auditor might not have checked the same.

Now this year, the directors are under doubt as to show the account or not.

In my opinion, it should be shown as it contained huge transactions affecting business.

At the opening, we may create a ledger of bank through crediting cash and debiting the new bank as per the opening balance of Bank.

I have doubt as to what consequences will it have.

-Do we need to specify in to notes about this?
-In future IT Assessments, what kind of penalty/consequences?
-Any other solution.

Thank you

CA AYUSH AGRAWAL

CA AYUSH AGRAWAL (Expert)
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12 August 2011 I Think Best Option Available is See From Which Year This A/c is operating......and Then Consolidate that Account Balance Every year in Past Years and after that any balance left in account that to transfered to cash.that we shown it as cash instead of showing bank account or else show as director money deposited in bank account.as the situation agrees.

Regards,
Ayush agrawal

Guest

Guest (Expert)

13 August 2011 yes you can simply transfer the balance from cash to bank ledger as rectification entry.

If you dont want to bring such things to the notice of other (IT dept or anybody), then instead of making the above rectification entry, its better to close the old bank account in a gradual manner and to open a new bank account. (first you should open new account and after some time you should gradually bring the balance of the old account to zero for closing it)

With this your future transaction will be full proof from the day one. if you simply make rectification accounting then your future will anyhow remain linked with your past error and if any inquiry comes in future then this new account's history will lead to the past transactions by way of its well established link in the form of rectification entry which you are suggesting above.

for inquiry upto the closure of old bank account, you can argue that by mistake the said bank has been considered in cash balance and its just the matter of presentation of the accounts and nothing has been kept outside the books of account.

(whatever mentioned above are just my personal views)

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Bhargav

Bhargav (Querist)
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13 August 2011 Ayus, thanks for your reply.

Rohit, well I had the same view as you said.

My point is that Auditor need to state anywhere in audit report?

Guest

Guest (Expert)

13 August 2011 i dont think so..

Becuase the transactions have already been covered in the books of accounts.

even cash flow statement do not make any difference between cash and bank.

if the thing was on opposite side then it would have made a lot difference because IT dept has put many restriction on cash transactions and not on the bank transactions.

CA. Vikash Dwivedi

CA. Vikash Dwivedi (Expert)
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17 August 2011 All i can sense is improper book keeping. It is NOT possible to forget to consider Bank Account in Balance sheet.
there must be some intentions behind it now you want to rectify that.

As far as Audit Report is concerned, Auditor has to express his opinion on maintenance of Proper Books of Accounts and B/sheet reflects true affairs of the company. these are 2 key paras of Audit Report.

Bhargav

Bhargav (Querist)
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17 August 2011 Vikashsir, You are right, It is improper book-keeping.

But I see genuine ignorance of previous auditor. There were other matters also on which the auditor did not give consideration. He might have signed only as a matter of process.

But I have to rectify whatever have gone wrong and might have material effect.

Can anybody tell me should the current auditor should mention the same thing anywhere in audit report?