Ledger Scrutiny - Backbone of Statutory Audit

Greetings of the Day to all the members of CCI Family.

So Professionals September season is going to start & I know everyone will be busy with their respective Audits. The same thing is happening with me & i am also fed up of 6 A.M TO 10 P.M Schedule. But if we look at the other side this month will make us learn a lot. 

While finalising my last Audit which was of a Educational Institution my junior was facing problem in "Ledger Scrutiny " and he got too much frustrated by excessive pressure. 

So at that point of time i thought other Interns who have just cleared their IPCC in 2012 must also be facing the same problem, So I would like to dedicate this article for all the freshers of CA aspirants.

Ledger Scruitny - Backbone of Statutory Audit

Students who are not aware of the Basics of Audit can Go through the following Link:   

Auditing - A Beginners Guide 

So the point lies How to do Ledger Scrutiny?

Capital Head - 

1. First of all we should check that whether or not there has been any increase in Share Capital of the company, if yes we should ask for the relevant documents comprising of List of Shareholders, How many shares have been issued, At what Price (Face Value) & all the documents relating to the issue should be taken for record purpose.

2. If company have made any payment of Interim Dividend to the shareholders, following points should be taken care of -

a. During the F.Y whether or not Amount Equivalent to 1% has been transferred to General Reserve

b. Whether or not provision for Depreciation has been made during the F.Y

c. Deprecation relating to P.Y have been duly charged

d. Don't forget to collect the letter of the Board Sanctioning the Payment of Dividend.

Loans -

1. First of all check whether or not Board has sanctioned the Loan.

2. Check all the relevant documents relating to Loan

3. If Loan has been taken from Sister Concern check each & every document relating to loan.

4. If it has been taken from Financial Institution check whether or not Interest has been paid regularly.

5. Whether or not purpose have been achieved for which loan was taken.

6. Whether or not Repayment of Loan is made regularly.

Fixed Assets -

1. The Purchases made during the Year should be tallied with the original Bills.

2. Whether Depreciation have been charged at proper Rate or not

3. Whether purchases made during the F.Y have been capitalized or not.

4. Fixed assets are properly recorded at cost/valuation.

5. The fixed assets physically exist or not.

6. Ensure appropriate authority for acquisition.

7. For acquisition through tender/quotation, ensure company’s policies, procedures and LOA are complied with.

Fixed Deposits -

1. Reconcile the Amount with F.D Certificates

2. Ask for Form 16-A & check whether T.D.S have been correctly deducted by Bank

3. Reconcile the TDS Deducted with 26-AS (Credit Statement)

4. Collect Form 16-A for your Record.

Debtors/ Creditors -

1. Analyse Debtors Ageing i.e 2 Months. 3, 6 Months, 1 year etc and accordingly analyse whether or not amount should be written off.

2. Check for the payment mode - Cheque or Cash

3. Payment is being made regularly or not

4. If there are transactions relating to sister concern check the Documents concerned

5. If debt is Doubtful you should advice the client to write it off.

For Creditors -

1. In the creditors have to see that what are the possible reasons, which increase the creditors balance, and what are the reasons for decrease in creditors balance.

2. After analyzing the creditors account you can easily understand the above mentioned reason. The reasons are as follows:

The reasons for increase in creditors balance are:

a. Credit purchase

b. Dishonored of any cheque etc.

Now the reasons for the decrease in creditors balance are:

a. Cheque payment

b. Cash Payments

c. Return outward

d. Bills endorsed

e. Bills accepted etc.

3. Whether or not TDS have been deducted while making Payment of creditors

4. Whether or not Discount have been Availed from the Creditors

5. Whether or not payment have been made at Regular Interval & of not Why?

Bank & Cash - 

1. Reconcile the Balance of each Bank with Balance Confirmation Certificate

2. Check Bank Reconciliation Statement (BRS)

3. Physical Verification of cash should be made

4. Keep the Balance Confirmation Certificate & BRS for record Purpose.

I hope you all will appreciate my small effort. Queries as well as Suggestions are welcome.

Thanks & Regards

Sanyam Arora