Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

How will you vouch and verify the followings: (5 Marks each, June 2010)
a) Provision for income tax
b) Bank Borrowings
c) Premium paid for insurance of a Motor car.

Answer:

a) Provision for income tax
 Obtain the computation of income prepared the auditee and verify whether it is as per the Income-tax Act, 2058 and Rules made there under.
 Review adjustments, expenses, disallowed special rebates, etc. with particular reference to the last available completed assessment.
 Examine relevant records and documents pertaining to advance tax, self-assessment tax and other demands.
 Compute tax payable as per the latest applicable rates in the Finance Act.
 Ensure that overall provisions on the date of the balance sheet is adequate having regard to current year provision, advance tax paid, assessment orders, etc.

b) Bank Borrowings
Borrowings from the banks may be either in the form of overdraft limit or fixed loans. In each case, borrowings should be verified as follows:
 Reconcile the balances in the overdraft or loan account with that shown in the pass books and confirm the last-mentioned balance obtaining balance confirmation certificate from the bank.
 Obtain certificate from the bank showing particulars of securities deposited with the bank as security for the loans or of the charge created on an asset / asset of the concern and confirm the same has been correctly disclosed and duly registered with the Registrar of Companies and recorded in the Register of Charges.
 Verify the authority under which the loan or overdraft has been raised. In case of the company, only the Board of Directors is authorized to raise a loan or borrow from a bank.
 In case of company, confirm restraint of Company Act regarding the maximum amount of loan that the company can raise has not been contravened.
 Ascertain the purpose for which the loan has been raised and the manner in which it has been utilized and that this has not prejudicially affected the concern.

c) Premium paid on Insurance of a Motor Car
 Check insurance cover note issued Insurance Company. Verify car no., period of Insurance etc.
 See that “No claim Bonus” is given, where entitled, the Insurance Company.
 Ensure that proper adjustment is made for pre-paid insurance premium.



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