Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

As an auditor how would you vouch/verify the following
a) Receipt of capital subsidy
b) Purchase of quoted investment
c) Retirement gratuity to employees
d) Sales commission expenditure
e) Purchase return

a) Answer:

 Refer to application made for the claim of subsidy to ascertain the purpose and the scheme under which the subsidy has been made available.
 Examine documents for the grant of subsidy and note the conditions attached with the same relating to its use, etc.
 See that conditions to be fulfilled and other terms especially whether the same is for a specific asset or is for setting up a factory at a specific location.
 Check relevant entries for receipt of subsidy.
 Check compliance with requirements of set standards on “Accounting for Government Grants and Disclosure of Government Assistance” i.e. whether it relates to specific amount or in the form of promoters‟ contribution and accordingly accounted for as also compliance with the disclosure requirements.

b) Answer:

 Ascertain the date of purchase, rate of purchase, nature of investments purchased and nature of transaction, i.e., error cum-dividend/interest/right/bonus.
 Compare the rate of purchase with quotation available. Obtain suitable explanations in case of significant variations.
 Verify the amount paid towards purchase of investments.
 Trace the amount in the cheque book counterfoils and bank statements.
 Obtain a schedule of investment from Management for physical verification at the year end.
 Verify the investment certificate to confirm title.
 Verify whether investments are duly disclosed in financial statements in accordance with recognized accounting policies and practices and relevant statutory requirements.

c) Answer:

 Examine the basis on which the gratuity payable to employees is worked out. The liability for gratuity may either be worked out on actuarial rules or agreement or on the presumption that all employees retire on the balance sheet date.
 Verify computation of liability of gratuity on the aggregate basis.

 Check the amount of gratuity paid to employees who retired during the year with reference to number of years of service rendered them.
 See that the annual premium has been charged to Profit and Loss account.
 Ensure that the accounting treatment is in accordance with set standards, “Accounting and Reporting Retirement Benefit Plans”.

d) Answer:
 Ascertain agreement, if any, in respect of sales transaction actually occurred during the year carried out authorized parties on its behalf. If yes, the commission should be in accordance with the terms and conditions as specified.
 Check evidence of services rendered the party to whom commission is paid with reference to correspondence etc.
 Ensure that the sales in fact have taken place and the same has been charged to profit and loss account.
 Compare the amount incurred in previous years with reference to total turnover.

e) Answer:
 Examine debit note issued to the supplier which in turn may be confirmed corresponding credit note issued the supplier acknowledging the same. The relevant correspondence may also be examined.
 Verify reference to relevant corresponding record in goods outward book or the stores records. Further, the figures in these documentary evidence should be compared with the supplier‟s original invoices for rates and other charges and calculation should also be checked.
 Examine in depth to eliminate the possibility of fictitious purchase returns for covering bogus purchases recorded earlier when such returns outwards are in substantial figure either at the beginning or end of the accounting year.
 Cross-check with reference to original invoices any rebates in price or allowances if any given suppliers on strength of their Credit Notes.

(Visited 11 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published.