02 July 2014
In a Government Organisation there are some balances outstanding in the head of Advances and Infrastructure etc. are being brought forward from 05-06 and the statement have been audited by several auditors. We are appointed as auditor for F.Y. 2013-14 and in verification we found that there is no such actual balance exist and these are dummy balances amounting to Rs. 1,14,00,000.00 approx.
So what can be the process of writing off or adjusting this huge amount so that this dummy balance can be written off
05 July 2014
This is a huge sum. It can not be written off like this. And this should not go unaccountable. Take a proper written reply from the management about the said sum. There is nothing like Dummy Balances. All figures should be properly supported by documents.
You take a Letter of Representation from management regarding your doubts on this Balance . .and qualify in your report if it requires so . . No idea about govt organisations,.. . But in case of commercial entites there will be cases where Dummy sales were accounted and revenue recognised in that year and credit will be given to some dummy party . . After some year this balance will be written off as Baddebt..
These type of issues do occur .. In the same way Know how this Huge balance was accumulated . . and deal it in your report . .***************************************** @sanjaygupta--Replied after sanjay gupta comment on me
yes, I have just given a case observed by me on verification of opening balances of one small start up company on our first year audit. . yes he did only to show some income in his books to show some healthy state of affairs time being on that time . yes he suffered with Income tax authorities and service tax authorities due to this mistake done by him .... .
Note: I dont want to cut the flow of beautifu suggestions so i have given reply to sanjay sir here itself
06 July 2014
Dear Ganeshbabu even dummy sales should be supported by papers like invoices and challans. And sales tax and excise payment. And if entire amount is taken as Bad Debts queries will come in Income Tax Proceedings. So how commercial entities manages this? and Whats the benefit in boosting sales this way? I know suppressing sales is common activity in such commercial entities for evasion of Tax.
In government organisation there is difficult to be such loophole since apart from Statutory Audit there are so many Govt Audits. So its difficult to fathom such a mishap.
In the given case, if nothing can be traced then qualification is the only option that remain with you.
06 July 2014
The amount is stated to be ADVANCE for Infrastructure. The origin of the transaction should be checked to whom that amount has been paid. . . Most probably, either the contract made with the supplier is in dispute and/or contract has been cancelled but the recovery from the Contractor has not been made. . The reason of such happening may be -
the amount has been paid to one of the related parties of the directors/management. . Whatever statements are given by the management, these must be supported with the evidence/documents. . After taking full note of all the surrounding circumstances, the action can be suggested.
07 July 2014
The origin of that transaction is not traceable and even the related department's and managerial person have also no idea about this balance. neither any evidence/documents supporting the same exist.
But this same balance is being written down since 05-06.
07 July 2014
If the annual transactions amount run into certain thousands of crores in the government company; then it may not be material to write off the amount. . However, take the due representation of the management and keep into your records. . If they are unable to explain anything, then also get this in writing. . If the profits of the company are materially affected due to such write off; then of course, qualify the report.
07 July 2014
Practical suggestion : . If the reserves are too high, debit it directly to the reserves as the source of the transaction is not clearly known. .
07 July 2014
If the practical suggestion is accepted by the management, then there is no need to qualify the report because it will not materially disturb either the profit and loss account or the balance sheet.
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