Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

How would you verify the following items in the books of account of a company?
a) Retirement gratuity to employees
b) Bills payable

a) 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.
 Ensure that the basis of computing gratuity is valid.
 Verify computation 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 in the case the concern has taken a policy from the Insurance Company.
 Ensure that the accounting treatment is in accordance with the generally accepted accounting principles.

b) Answer
These are acknowledgements of debts payable. For their verification, it is necessary to see that bills paid have been cancelled and the liability in respect of those outstanding has been correctly ascertained and disclosed.

The steps involved in their verification are:
 Vouch payments made to retire bills on their maturity or earlier and confirm that the relevant bills have been duly cancelled.
 Trace all the entries in the Bills Payable Book into the Bills Payable Account to confirm that the liability in respect of the bills has been correctly recorded.
 Reconcile the total of the schedule of bills payable outstanding at the end of the year with the balance in the Bills Payable Account.
 Obtain confirmation from the drawers or holders of the bills in respect of amount due on the bills accepted the client that are held them.
 Verify that the charge, if any, created on any asset for the due payment of bills has been appropriately disclosed.

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