internal audit

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manish

manish (Querist)
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28 February 2009 Hi

Can anyone send me format of internal audit report for processes review audit.

Ram Avtar Singh

Ram Avtar Singh (Expert)
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01 March 2009 Year of Audit
Name of the Partner/Incharge
Name of the Assistant (s)
Date/Period of Audit

1. General:
• Name of the Firm
• Constitution with Date
• Type of Activity
• Brief Note on Business activities:
• Applicable laws as per Business Activites
And their compliance (short note)
• Main Finished Product
• Main Raw Material
• Name of Director/Partners
(in case of directors with DIN)
(in case of partner with profit ratio)
• Change in Partners and directors
(Form 32 and DIN compliance)
• PAN No.
• Service Tax/VAT No.
• CIN No.
• TDS No.

2. Previous Year:
• Whether last books are closed and stamped
• Whether opening balances are correctly forwarded
• Whether last year I.Tax return/RoC return filed
• Is there any refund due or tax payable
Details in respect of previous pending assessment/appeals
Income-tax
VAT
Service Tax

3. Business Address:
• Registered Office address
• Whether return has bee filed from
Registered office address (if not, address
Of from which the return filed)
• Other location of business like warehouse etc.
• Whether PAN have correct address particulars
• Whether VAT/Service Tax informed about all
Business locacation?
• Change in address properly informed to all the
Departments like IT, VAT, RoC? (DVAT7/Form 18)
• In case of corporates, if books are not maintained
At Registered office the same has been informed
to RoC
• All the premise are owned, if not rent/lease deed
and the expenses regarding rent, electricity, water,
House Tax etc. in books of account. If TDS is
applicable whether the same is complied with.
• In case of companies all the bill, letter heads, receipts
etc contains the Registered office address

4. Capital:
• Is there any negative capital of Proprietor or Partner
• Is there any new addition, source there of
• Interest on capital whether authorized by Partnership
Deed, rate of interest and particulars
(verify Partnership deed and obtained copy thereof)
In case of corporates:
• Any addition in authorized is supported by Form 5
• Any addition in paid up capital supported by Form 2
• List of old and new shareholding (with percentage)
• Proof and source of new addition (including PAN)
• Whether any Share Application is outstanding, how
Old it is ? Complete break up with confirmation.
• Reason for non-allotment
• Status of Share Application Forms/Share Certificates
And transfer deeds
• Is there any special case like bonus issue (Right issue
in case of Ltd. Companies) etc.

5. Reserve & Surplus:
Applicable in case of companies and Trusts:
• General reserve, Revaluation Reserve, Share Premium
P& L account balance etc. has been separately shown
• Share Premium has been verified with Form 2

6. Unsecured Loan:
• List of Unsecured Loan to match with Control a/c
• Confirmation in respect of all outstanding loans with
complete address and PAN particulars.
• Detailed list of loan taken u/s 269SS and loan repaid
u/s 269T as per 3CD report
• All loan are interest bearable, if not why so (if yes rate
of interest and interest details with marking payment to
relatives and directors)
• Whether interest rate is consistently followed. Check
interest calculation and TDS thereon.
• Whether TDS compliance made on such interest payment
• In case of Corporates whether loan are only obtained
from corporated bodies, shareholders, directors and
their relatives.
7. Secured Loan:
• Balance in respect of each outstanding of Secured Loan
to match with respective lenders statement
• Copy of agreement or any formal document signed to
verify terms of loan, interest rate etc.
• Interest are duly provided for, check interest calculation
TDS compliance if applicable
• In case of corporate, whether charge to be created the
same has been created
• If any secured loan completely repaid whether the charge
earlier created has been satisfied.
• Disclosure of charge details in balance sheet.

8. Current Liabilities:
• List of creditors to be tallied with control account
• There is no negative (debit) balance in Creditor list and/or
Classification is proper
• Ledger scrutiny to determine:
1. Small balance has been written off
2. Creditors with no transaction and same balance
3. Only having one side entries
4. Cases, which speaks about adjustments
• Whether confirmation of major creditors obtained
• Break-up in respect of all the other CL heads like EMD,
Exp payable etc has been obtained.
• Amount due to SSI units should be separately determined
for schedule VI disclosure
• Provision for different outstanding expenses and clearance
of old outstandings.
• All the statutory dues like TDS, PF, ESI, VAT etc. payable
has been timely deposited (obtain copies)

9. Provisions
• Provision for Income-tax, FBT, Wealt-tax, Dividend tax
• Adjustments of previous provision with prepaid taxes
• Provision for deferred tax liabilities/assets as per AS 22
• Provision for liability of retirement benefits
• Whether contingent liability needs provision or vice versa
• In case of dividend declaration whether trsf to reserve is correct
• In case of NBFC – Trsf to reserve as per RBI regulation.
Provision for Income tax:
• Depreciation effect of I.Tax act.
• Determination of liability from MAT point of view.
• Disallowance of Expenses
• Prior Period items
• Deferred tax assets need to be taken as revenue expenses
• Effects of Sale of assets
• Effect of carry forward and set off of losses & dep
• Calculation of expenses pertaining to exempted income
Provision for FBT
Determination of eligible expenses
Doubtful cases (strategy or reference material)
Calculation chart

10. Contingent Liability:
Bank guarantee outstanding but not revoked
Bills discounted
Disputed matters in respect to tax, vendor payment etc.

11. Fixed Assets
• Fixed assets register maintained
• New assets addition – Verify proofs
• Effect of Incidental expenses like insurance, tax, etc.
• Small items, consumables- wrongly classified as assets
• Classification of addition is proper heads and period wise
• In case of sale :
Under I. Tax – Block of assets rules followed
Under Roc – Gross block has been adjusted
• Whether old items need written off
• Depreciation calculation as per I.Tax (Whether opening
from previous I.tax chart taken)- verify rates & calculation
Total of chart to verify with controls.
• Depreciation calculation as per ROC – Method should be
consistently followed, rate, and calculation to verify.
Total of chart to verify with controls.

12. Investments
• Classify the investment in heads like Immovable, shares,
Debentures, securities, interest in partnership firm etc.
• Classification of investments in shares in quoted and
Unquoted investments
• Physical verification of documents in respect of at least
of new investments
• Income to be received from investments should be verified
• TDS if any deducted has been correctly accounted for and
Income has been correctly grossed up
• Whether erosion in the value of investments has been
provided for (check the accounting policy)
• Is there any investment which is not held in the name of
Company or is benami

13. Inventories
• Classify the items like raw material, WIP, Finished Goods
Consumables, packing goods , spare parts etc for which
closing quantity and value to determine.
• Is there any stock register maintained
• Is there any negativity in stock noticed during the year?
• Where stock register maintained - apply the FIFO method
or any other method that has been consistently followed
• While arriving the cost all incidental expenses has been taken
in to account to determine inventory value
• In case of manufacturing company the total consumption
sheet should be drawn and should be compared with
standards to determine major deviation in consumption
pattern
• Whether wastages have any major deviation
• In case of inventory determined on GP formula, the facts
that GP rates are in order should be verified.
• Make the complete working sheet recording all assumption
• Prepare summary statement of quatitative details as
required for 3CD report and Schedule VI

14. Sundry Debtors
• List of debtors to be tallied with control account
• There is no negative (credit) balance in debtors list and/or
classification is proper
• Ledger scrutiny to determine:
1. Small balance has been written off
2. debtors with no transaction and same balance
3. Only having one side entries
4. Cases, which speaks about adjustments
• Whether confirmation of major debtors obtained
• Classification of debtors’ age wise especially less than
and more than six months
• Is there any provision requiring for doubtful debts?

15. Cash & Bank Balance

• Determine there is no negative cash during the year
• Obtain a certificate from management of balance
cash in hand as on balance sheet date
• Statement for all the bank accounts obtained
• Bank reconciliation statement for all the banks
prepared, obtain copy of BRS and last page of BS.
• Whether BRS do have entries that needs passing
of rectification entries?
• Classify the funds like with different bank under
Scheduled and non-scheduled bank category
• Verify the FDR with physical receipts
• Verify the interest receivable calculation
• Verifty whether TDS on interest has been correctly
accounted for

16. Other Current Assets
• Determine that security deposit shown in BS
are refundable
• In case of interest bearing security whether
Interest has been provided?
• Determine that prepaid portion has been
segregated out of various eligible expenses
(Insurance, AMC etc)
• Are break-up in respect of all the current assets
available?
• Is there any I.Tax or other department is refund
long outstanding?
• Collect the details and challans of Advance tax,
TDS Receivables, FBT paid, wealth-tax etc.
Determine the authenticity of un-expired VAT,
CENVAT etc.

17. Loans and Advances
• Obtain the break-up (if any ) of control a/c
• Otain confirm in respect of all loan outstanding
as on Balance Sheet date.
• If there is any agreement whether the condition
of repayment and interest etc. are complied with
• Determine the cases of default of repayment and
interest payment
• Whether interest has been correctly calculated
and provided for including TDS
• Advances to staff or other parties (Imprest) are
routinely adjusted or are long outstanding?
• Advance to staff (salary) needs adjustments

18. Miscellaneous Assets
• Preliminary Expenses o/s are routinely written off
• Deferred Revenue Expenses has been properly
classified, w/off, disclosed.
• Policy has been determined and reflected in notes
to accounts
• The DRF has been rightly treated in computation

19. Purchases
• Carry out the Purchase vouching on random basis
• Verify whether outstation purchases are supported by
transportation evidence and expenses
• The bill are in the parties name and address denoted
is correct (see the VAT complexity)
• Import purchases are duly supported with all the custom
documents?
• Fluctuation on import payments are separately shown
Under Income/loss from Exchange Fluctuation A/c
• Is there any high seas purchases whether the procedure
adopted for same is right?
• Whether classification of Purchase is right as per VAT
and Excise rules?
• Whether Purchase register as per VAT rule maintained
• Accounting for purchase in respect of VAT & CENVAT
credits is right and only eligible credits has been considered
• Purchases returns are rightly recorded and not recorded as
Sales
• Verify that various purchase related information furnished
with VAT department etc. are tallied with books (Returns)
• Is there proper system of maintaining credit notes received
from the parties and same has been rightly accounted for

20. Sales

• Carry out the Sales vouching on random basis
• Whether retail/or tax invoice has been rightly
raised on customers? Invoices carry the VAT no.
• Make out quarterly/monthly statement chart to
cross check with the Sales register; whether returns
are timely filed.
• Verify whether outstation sales are supported by
transportation evidence and expenses
• The bill are in the parties name and address denoted
is correct (see the central sales angle)
• Exports are duly supported with all the custom
documents and recorded on GR prices?
• Fluctuation in realization are separately shown under
Income/loss from Exchange Fluctuation A/c
• Is there any high seas sales whether the procedure
adopted for same is right?
• Whether classification of sales is right as per VAT
and Excise rules?
• Whether Sales register as per VAT rule maintained
• Accounting for sales in respect of VAT & CENVAT
credits is right
• Sales returns are rightly recorded and not recorded as
Purchases
• Is there proper system of maintaining debit notes received
from the parties and same has been rightly accounted for

21. Gross Receipts (Service Industry)
• Carry out the Receipts vouching on random basis
• Whether invoice has been rightly raised clearly
Showing Service tax no. and amount of tax.
• Make out quarterly/half yearly statement chart to
cross check with the ledger; whether returns
are timely filed and tax are timely deposited.

22. Input Credit for Services
In case of Auditee who are covered under service tax
• Only credits on eligible inputs services claimed
• (the services which contribute to earn taxable revenue)
• Whether proper record of eligible services kept and are
• Duly supported by documents
• If opted for confessional scheme no input credit availed
• Input credit has been adjusted within the quarter

23. Debit Notes & Credit Notes
• In case the company issues debit/credit notes whether
these are serially numbered and serially kept.
• The company has recorded all the credit/debit notes in
books of account.
• The company have the policy of issue its own debit/credit
notes in respect of credit/debit notes received from the party.
Or it is simply issuing credit notes and recording debits on
the basis of other party credit notes.

24. GP Ratio/NP Ratio
• Is the stock records are maintained or company is
working out stock on GP basis?
• Whether the GP ratio and NP ratio of the company is
comparable with the previous year and consistent. If not,
the reason there of.
• If the company is dealing in different type of products the
GP ratio should be separately worked out for each class
of products.
• Calculate GP/NPRatio, stock turnover ratio and Material
consumption ratio as desired in 3CD form
(basis of calculation ????????????)

25. Comparative Charts of Expenses
• Prepare a chart showing comparative figure of
current and previous year
• Work out the differences in % and absolute terms
in two separate column and analyze major deviation.
• Justify deviation in terms of increase/decrease of sales
other factors like change in pattern or modus operandi
of business and exceptional factors.

26. Vouching of Expenses to determine personal expense
Cash payments, prior period, non-business expense and
Verifty:
The vouchers are supported by proper evidence
The evidence pertains to the company
The dates of evidence fall with in the financial year
The heads of account is right
The vouchers are authorized
The revenue stamp affixed wherever applicable
The mark of posting has been in case of manual vouchers

27. Manufacturing Expenses
Salary & Wages – properly classified in Mfg. & admin
Energy – connection wise chart of electricity and monthwise
Of other consumption along with production details
Consumables – major expenses
Factory Rent – Premises wise/month wise
Fright Inward – Month wise with Purchases figure
Statutory Dues – Pollution Exp etc.

28. Admin & Selling Expenses details:
Salary chart
Rent (Property wise month wise)
Interest (Loanee wise)
Electricity (Connection wise/bill wise)
Generators (monthwise)
Telephone, Mobile & Internet (connection wise)
Postage & Courier (Month wise/vendor wise)
Conveyance (employee wise)
Tour & Travelling (tour wise)
Printing & Stationery (major payment)
Business Promotion (major payment)
Vehicle Running (month wise and major payment)
Professional payments (professional wise with cause)
Legal Expenses
Repair & Maintenance (major payments)

29. TDS Compliance on various expenses made
Income-tax
• Whether TDS has been deducted on all the eligible
expenses like contractors payment, salary, interest,
Professional services, brokerage & commission, Rent,
Lease rent of moveable assets etc. List down the case
Where no-tax has been deducted at source.
• Whether TDS so deducted has been deposited, list
down the cases of TDS not deposited or late deposited
• Whether TDS returns are timely submitted, obtain list
of return so submitted with acknowledgement no.

VAT
• Whether TDS has been deducted on all the eligible
Payments to contractors.
• Whether TDS so deducted has been deposited
• Whether TDS returns are timely submitted

30. Accounting Policies
Make the disclosure of accounting policy regarding:
Fixed Assets & Depreciation
Revenue Recognition
Inventories
Investments
Retirement benefits
Foreign Exchange Transactions
Preliminary and DRF write-offs

31. Notes to Accounts
32. Compliance to Accounting standards
33. Tax Audit Report & Annexure
34. CARO
35. Special matter – audit report of charitable trust
36. Directors Report

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