26 January 2010
Ask for the supporing documents(Ex: Purchase Invoice,Bank Statements Agreements,Salary Register,EPF & ESI monthly Return) in respect of each transactions accounted in respective ledger account and ensure their neccessity for an Org. and ensure that Balance payable and receiveable stood on Balance sheet are tallied with out sider's account.
26 January 2010
Very Good Question for Auditing Area.
Ledger scrutiny reveals "undue pattern" of accounts, if any.
For example; an amount outstanding for more than 2 years is suddenly paid; it may create suspicion whether it is actually paid.
First of all; opening balances of all the accounts will be checked from previous finalised trial balance.
1. CURRENT LIABILITIES(provisions,Payable{Exp,Salary,ESI, PF},Creditors :
Check "unusal" payments in a month; if any. It may be decided having a look over previous month's pattern.
Creditors account may be checked in line with the credit allowed by the creditors.
If late payments are there; there may be possibilities that other payments are also delayed. This correlation may be checked with other payments.
2. Loans(liability)-Bank OD, Term Loan,Deferred Tax.
Regarding loans and Bank OD balances; we have confirmations and statements. Nevertheless; we have to check whether interest have been charged properly.
Regarding deferred Tax; see the calculations made by the Tax Expert. Check it according to your own expertise. (Practically it does not involve that much ledger scrutiny).
3. Fixed assets.(P & M, Land,Building)
See the charge of depreciation and construction/acquisition during the year.
Although; at the time of audit; correlation of all the transactions should be simultaneously checked keeping in mind various factors.
For example; if production has increased; definitely there is either an increase in the plant and machinery and if not; it might be possible that previously the plant was run only upto certain percent of capacity.
Accordingly consumption of power will also increase which will be checked simultaneously applying the ratio analysis.