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Vouching indirect expenses

harry (Awaiting ca final results) (461 Points)

21 July 2009

what is the procedure to vouch indirect expenses in case of statutory audit?

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CA CS Amit Borade (Chief Accountant) (2828 Points)
Replied 23 July 2009

Hi Harry follow the following checklist...

Operating Expenses		Work Done
Sr.No.	Particulars	Y	N	NA
1.	Operating expenses includes the following - Administrative Expenses - Selling & Distribution Expenses - Financial Expenses
2.	Understand the requirement of Schedule VI of the companies act in respect of Operating expenses
3	Whether company is having documented list of Authorized personnel who sanction expenses & their individual amount of sanctioning the limits
4	Identify the nature of expenses such as revenue & capital & ensure that expenses are properly booked. Check that capital expenditure is not treated as revenue expenditure.
5	Verify the Cut off entries to ensure that all the expenses are properly recorded in the current financial period.
6	Verify the following Four Potential Errors: - - Completeness –(transaction are not recorded) - Recording – (transaction are recorded in accurately) - Cut off – (transactions are recorded in accounts in the wrong period.) - Validity –(recorded transaction are not valid)
7	Verify the necessary provisions are made during the closing of accounts & ensure that are correct.
8	Understand the provision policy of the company for Operating expenses. Normally the provisions are based on actual & estimated basis.
9.	Apply the “Analytical Testing” method for verifying the expenses & based on that derived the expected figures & compare with the actual figures recorded in the financial statement.
10.	Enquire about major expenses made during the year & take the appropriate reasoning for the same & justify the same.
11.	Verify if any “Related Party” transaction made during the year & ensure that are presented in the financial statement.
12.	Verify the accounting entries passed in the books
13.	Ensure that Operating expenses balances are reasonably stated in the financial statement.