Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

How would you vouch and verify the following?
a) Recovery of Bad-debts written off
b) WIP
c) legal Charges
d) Rental Receipts
Answer
a) Recovery of Bad-debts written off
 The total amount of bad debts to be ascertained.
 All recoveries of bad debts have been properly recorded in the books of account to be ensured.
 Notification from the Court or from bankruptcy trustee, letters from collecting agencies or from debtors should also be seen.
 Credit Manager‟s file for the amount received and deposit of the said amount into the bank promptly to be verified.

b) WIP
The auditor has to carefully assess the stage of completion of the work-in-progress for assessing the appropriateness of its valuation. For this purpose, the auditor may examine the production/costing records (i.e., cost sheets), hold discussions with the personnel concerned, and obtain expert opinion, where necessary. Cost sheets of work-in-progress should be verified as follows:
 The cost sheets are to be duly attested the works engineer and works manager.
 The correctness of the cost as disclosed the cost records to be verified with respect to quantities and cost of materials, wages and other charges included in the cost sheets reference to the records maintained in respect thereof.
 The unit cost or job cost as shown the cost sheet to be compared with the standard cost or the estimated cost.
 The allocation of overhead expenses should be made on a rational basis.
 The cost sheet should be compared in detail with that of the previous year. If they vary materially the cause has to be investigated.
c) Legal charges
 Examine the bills received from lawyer and the receipt for payment made.
 Ensure that advances given earlier, if any has been adjusted against the bills.
 Determine the nature of expenses to consider whether the same should be capitalized or charged to revenue.
 Ensure that applicable tax deductions have been made before the payment is made.
 Consider whether these charges can be recovered from anybody else and if yes, examine whether efforts have been made to do so.
 See that the related files containing case statements or other matters forwarded to the lawyer.
 Check the Register for law suits if any, maintained the entity.

d) Rental receipts
 The copies of bills issued to tenants should be verified against the tenancy/rental agreements.
 Examine that charges pertaining to electricity, security, water have been charged in accordance with agreed terms and conditions.
 If these are on reimbursement basis of actual expense, the actual expense should be compared to the proportionate charges made to all applicable tenants.
 Check the tax deducted tenants on rent has been appropriately booked.
 The rental income has been appropriately booked covering the total period as per the agreements with each tenant.
 Rental Register should be scrutinized for deciding whether unduly long outstanding should be written off or provision against the same should be made.
 Ensure whether any of the rental agreements have expired and that these are timely renewed or if remained vacant, a certificate in respect thereof should be obtained from the client.



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