Audit queries..

Others 1345 views 6 replies

Ankit Hinduja

Student

1227 Points Joined June 2011

1. How will you vouch collection from Debtor's?

- Check if there is a system of preparing "Ageing Schedule" of debtors, and regular follow up action is taken for collection on timely basis.

q. Here i did not understand "Ageing Schedule"..

- Examine cases of dishonour of cheques, if any, and see whether proper follow up action is taken in respect of such situations.

q. here what kind of follow up actions are taken?

2.In audit of sale proceeds of junk material, there's a point...Compare income of junk material in current year with that of preceding three years..

q. My question is what is the need for such comparision??

3. A co. makes purchases from other entities under the same management.

q. Here i did not understand : other entities under the same management.

4.How will you vouch verify Advance given to supplier.

- Obtain schedule of debit balances in creditor's account and pay particular attention to the age of balances. Also scrutinise the bought ledger.

q. here i did not understand the whole point .(above)

5. How will you vouch/verify Purchase return ?

- Examine in-depth to eliminate the possibility of fictitious purchse return for covering bogus purchases recorded earlier when such retun outwards are in substantial figure either at he start or at the end of the accounting year.

q. Here also i did not understand the whole point.

6.What do we mean by purchase requisition note ?

7.In one of the entities the Auditor finds that there is a sharp increase in GP ratio in the current year compared to previous year.

One of the possibility he verifies is : Increase in level of production , leading to economies of large scale production.

q. A question came in my mind was how will increase in level of production increase GP..I assumed that increase in production would increase in sales , which will increase GP, but at the same time increase in production will also result in increasing production costs, so how can GP increase ?? please clarify..

8.One of the liabilities for a co, is : Receipt of capital subsidy

q. What do we mean by Capital Subsidy ?

Please clarify the above mentioned doubts..

Replies (6)

Abhimanyu Bind

CA Final Student & Audit Assitant

2051 Points Joined February 2010

Hi here are the answers of few of your queries,

(1) (a) Ageing of Debtors- It is the calculation of the total number of days since the payment on a debtor is due.

"Ageing Schedule"is the schedule where debtors are classified on the basis of the days of there payment liablity due. for e.g.

30 days old debtors 60 days old 90 or more days old

And collection plan prepare accordingly.

(1) (b) Dishonour of Cheques

Following follow up actions can be taken

(i) Proper and regular follow up with debtors for receiving payment.

(ii) Provisions in books for bad debts if risk of obselency is there.

(iii) Correction accounting entries etc.

(4)- Obtain schedule of debit balances in creditor's account and pay particular attention to the age of balances. Also scrutinise the bought ledger.

If advance is given to suppliers then there account balance shows debit balance. Here obtain the same for verification and pay attention on age of balances (here age of balances means the time period passed since the advance given to creditors).

It is needed to check whether entity is really purchasing something or just hiding there money in this mode and same thing will be clear by checking bought ledger which is nothing Purchase ledger from wehre you can ensure that purchase has been made before all advances given to creditors.

Abhimanyu Bind

CA Final Student & Audit Assitant

2051 Points Joined February 2010

(6) purchase requisition note

Its the list of materials and items required to be bought, given by store room or user department to purchase department with required quantity and time period under which its required to bought.

(7) Sharp increase in GP RATIO

Here the answer given in the possiblity you written above with question i.e. "leading to economies of large scale production"

Economies of large scale production means benefits of large scale of production provided that sale is increasing.

And your point is right, when production will increase, at the same time cost will also increase. But only VARIABLE COST will increase fixed cost will remain same in total and with the increase of production PER UNIT FIXED COST decreases and it will result in decrease of produced units.

And it is the benefit of Large Scale Production.