Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

How will you vouch and/or verify the following?
a) Liability towards gratuity
b) Rental Receipts
c) Sale proceeds of scrap material
d) Insurance Claims
a) Liability towards gratuity:
(i) The liability towards gratuity payable to the employees at the time of cessation of service should be ascertained and provided for in the accounts when the employees are in service, it is an ascertained present liability accruing over the period of service but payable upon cessation of service.
(ii) The auditor should check the quantification of the gratuity liability. He should ascertain whether the same had been actuarially determined.
(iii) The auditor should treat the actuary as an expert and conduct procedures relevant to checking the opinion of an expert in accordance with NSA 620.
(iv) The auditor should check the technical competence of actuary, the input fed to the actuary, the assumptions made the actuary, the methodology adopted the actuary, opinion given etc.
(v) The auditor should bear in mind the relevant pronouncements of SET STANDARDS6 “Accounting and Reporting By Retirement Benefit Plans” in this regard. He should check whether the expenses of provision for gratuity are towards a defined benefit plan or contribution plan.
(vi) If the contributions are made to outside agency, says the insurance company, he should check the premium paid, the acknowledgement receipts issued the insurance company, the coverage of policy etc. Premium due but not paid, prepaid premium etc. should be appropriately accounted.

(vii) If the company maintains its trust for gratuity, the auditor may peruse whether the trust is an approved one under income tax law, whether the trust accounts are audited, copy of the latest accounts etc.

b) Rental Receipts

(i) Check copies of bills or rent receipt issued to the tenant with reference to tenancy agreement and bills of charges paid the landlord on behalf of tenants.
(ii) The entries in the rental register in respect of rent accrued should be traced with reference to copies of rental bills.
(iii) Scrutinize the account of collecting agent when the rent is collected such agent.
(iv) Vouch the entries for rent received in advance and ensure proper adjustment is made.
(v) Investigate into abnormal rent outstanding.
(vi) Reconcile the outstanding rent and see that proper provision is made if unrecoverable.
(vii) If rent is received net of TDS, see that rent income is shown at gross and TDS is shown in Balance Sheet as advance Tax.

c) Sale Proceeds of Scrap Material

(i) Review the internal control on scrap materials, as regards its generation, storage and disposal and see whether it was properly followed at every stage.
(ii) Ascertain whether the organization is maintaining reasonable records for the sale and disposal of scrap materials.
(iii) Review the production and cost records for determination of the extent of scrap materials that may arise in a given period.
(iv) Compare the income from the sale of scrap materials with the corresponding figures of the preceding three years.
(v) Check the rates at which different types of scrap materials have been sold and compare the same with the rates that prevailed in the preceding year.
(vi) See that scrap materials sold have been billed and check the calculations on the invoices.
(vii) Ensure that there exists a proper procedure to identify the scrap material and good quality material is not mixed up with it.
(viii) Make an overall assessment of the value of the realisation from the sale of scrap materials as to its reasonableness

d) Insurance Claims
Insurance claims may be in respect of fixed assets or current assets. While vouching the receipts of insurance claims, the auditor should examine a copy of the insurance claim lodged with the insurance company correspondence with the insurance company and with the insurance agent should also be seen Counterfoils of the receipts issued to the insurance company should also be

seen. The auditor should also determine the adjustment of the amount received in excess or short of the value of the actual loss as per the insurance policy. The copy of certificate/report containing full particulars of the amount of loss should also be verified. The accounting treatment of the amount received should be seen particularly to ensure that revenue is credited with the appropriate amount and that in respect of claim against asset, the profit and loss account is debited with the short fall of the claim admitted against book value, if the claim was lodged in the previous year but no entries were passed, entries in the profit and loss account should be appropriately described.

(Visited 7 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published. Required fields are marked *