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rachit jain (chartered accountant )     20 January 2011

internal audit check list


INTERNAL AUDIT FUNCTIONS

þ Internal Audit is an audit conducted for & on the behalf of the management.

þ The objective of the Audit is to Assist the management to discharge its    

    responsibility effectively.

þ Auditor will be appointed by the management of the entity.

þ Scope of work is defined by appointing authority.

þ Report will be submitted to the management.

þ Objective is to review Financial and Non Financial operations.

þ Responsibility is to report on compliance of Accounting, Administrative

controls and Financial procedures.

 

Ø Internal audit is basically divided into two

 

1.     Operational Audit

2.     Management Audit

 

Ø Operational Audit is an audit for reporting on all departments of the co. compliance with procedures etc…

Ø Management Audit is a Proprietary/Authority audit.

 

 þ A company whose paid up capital and reserves are more than 50 lakhs

 

(Or)

 

Whose average annual turnover for the last three financial years preceding     the present financial year exceeds Rs. 5 crores.

As per Companies (Auditor’s Report) Order 2003 a statutory auditor of that company requires to report whether the internal audit system of the company is commensature with the size and nature of business of the company.

 

There are many functional areas are covered during internal audit few of them are explained below:-

 

ü The two main pillars of auditing are vouching and verification.

· Vouching means comparing entries entered in books with the Documentary Evidence.

·  Verification is to conform the existence, value & ownership of the asset.

 

F CASH:-

 

ü Cash is one of the most sensitive areas; business cannot run efficiently if cash is not maintained properly. Money is procured with cost i.e. shareholders will be paid dividend; interest will be paid to debenture holders/bank/financial institutions etc...

ü So internal auditors must check that no unauthorized payment is made and teeming & lading is not being practiced.

ü Cash vouchers raised will be compared and checked with the bills & cash memo which is authorized by the concerned person of the department who has authority to do so.

ü Cash spent for expenses/purchases or for buying an asset should be recorded under proper heads of accounts i.e. capital expenditure should be capitalized etc…

ü Cash spent must be for the purpose of business, no personal expenses must be accounted as business expenditure, if so accounted should be disallowed.

ü Internal auditors should ensure that no payments is made in cash in excess of Rs. 20,000/- against the same bill or to same person on the same day.

 

F BANK:-

 

ü Bank statements should be compared with cheque folio & bank vouchers.

ü Parties to whom cheque has been issued must be the person with whom business contract is made. Payment must be for the purpose of business i.e. for salary or for purchases etc…

ü Reconciliation statements must be verified with bank statement & bank records maintained.

 

F PURCHASE:-

 

PROCESS:- 1.Receiving quotation from clients  à 2.Selecting the best suitable to the entity à3.Issuing Purchase Order à4.Goods to be received with Delivery Challan & Invoice à5.Descripttion, quantity & quality to be checked with Purchase Order à6.If accepted payment to be made as agreed.

 

ü Purchases should be vouched against the invoices issued by suppliers.

ü Goods must of the same nature which is normally dealt in business.

ü Rate of the goods supplied to be compared with the quotation given & purchase order issued by the entity.

ü Gate register to be cross verified with stores inward i.e. date on which it is moved inside the premises is the same, quantity & descripttion is matching etc…

ü Quality Checked seal must be placed on the Delivery Challan/Invoice.

ü Labour charges & Asset purchased should not be recorded here.

ü Input VAT in the bill should be claimed by the entity if applicable i.e. if the company is engaged in research & development business then it will reimburse its expenses from the company with whom they have contracted with, in such cases VAT should not be claimed.


 

F SALES:-

 

PROCESS: - 1.Quotation to be sent à 2.Purchase order to be received à3.Goods to be sentà4.payment to be received as agreed.

 

ü Sale invoice must be verified with the sale order issued by the purchaser company.

ü Delivery challan issued should be verified with stores outward & security register.

ü Payment terms on which the contract is agreed must be cross checked i.e. if agreed in contract that 50% will be received in advance, another 40% on delivery & remaining after satisfaction (or) After 45 days etc…

ü If interest is to be paid in case of late payments calculations must be checked.

ü VAT/CST/Service Tax should be charged at appropriate rates as applicable.


 

F PAYROLL:-

 

ü Salary must be paid as per the policy practiced by the entity after deducting Loss of pay, Provident Fund contribution, T.D.S if so applicable.

ü Calculations of provident fund contribution both by employee & employer must be checked & accordingly to be paid to the respective authority in time.

ü Incase of delay in payment it should be highlighted in the report.

ü Overtime payments made to the workers should be cross checked with the attendance timing & O.T form in which reason & authorized signature of the concerned head of the department must also to be reviewed.

ü Basis of calculating salary, leave credits carried forward etc... is to be checked.


 

F INFORMATION TECHNOLOGY:-

 

 

 

ü The most sensitive area incase of Information is I.T Department. No confidential information of the company should be leaked out to others in any manner possible. (Now-a-days it is very easy to leak out the information’s of the company using the advanced technology available E.g. Pen drive, mail etc..)

ü Every individual must be provided with his/her Login ID with password so that no unauthorized usage by any other person is possible.

ü Every individual must be provided with his/her official email ID of company’s Website & should be allowed to use only that ID     E.g.  murtuzaroshan @ xyz.com.

ü Accessing of pen drive sort must be restricted from every system of the entity.

ü Accessing of internet application of other sites such as yahoo & Gmail must be restricted. Only those sites which are commonly used for the purpose of business should be authorized such as governmental websites (MCA, IT, VAT) etc…

ü For those people who are given authorization to use blocked site for the time being internal memorandum must be received in which reason must be stated & Authorized signatory of the concerned person is to be received.

ü Asset register should be maintained by IT department regarding computers & its Accessories purchased & issued to the different departments.

 

 

F PURCHASE RETURN:-

 

ü Goods must be inspected when it is purchased & if the descripttions is found unmatched with the purchase order issued or the quality of product is not as per the requirement etc… goods must be rejected on spot. Debit note to be raised accordingly.

ü Incase rejection is made after accepting it should be highlighted in the report that quality & descripttion is not being properly checked when the goods move into the premises.

ü Reasons for rejection must be specified in internal memorandum.

ü If low quality materials are accepted & used will lead to low quality output; i.e. to maintain qualitative output quality input is must required.

ü Goods rejected should not be kept in the premises for longer time.

ü Input VAT/ Service tax to be reversed accordingly.

 

 

F SALES RETURN:-

 

ü Credit note must be checked with invoice issued to the purchaser.

ü VAT/ Service tax treatment to be given accordingly.

ü Reasons for return should be considered and steps to be taken to avoid such repetation of mistakes in future.

ü Goods moved inside the premises to be tracked with gate register.

ü Reason for rejection should be checked with the goods returned by the party.


 

F STORES:-

 

ü Stores inward to be tracked with the gate register maintained.

ü Day to day balance must be closed as per issue made & material brought in during the day.

ü Physical verification of stock to be done on periodical basis  i.e. monthly/quarterly based on the size of the entity.

ü Discrepancies if any are to be noted and to be reported to the management.

ü Differences to be reconciled accordingly.

ü Stores inward and outward to be tracked with the internal memorandum issued by the concerned department.

 

 

 

 

F DEBTORS & CREDITORS:-

 

ü Advances received from debtors are to be showed at liability side.

ü Debtors showing credit balance (excluding advances) to be reported separately.

ü Advances given to creditors must be treated as asset, i.e. advances to be recoverable in cash or kind.

ü Creditors showing debit balance should be reported accordingly.

ü Age wise breakup of debtors & creditors to be given respectively i.e. debtors/creditors for <30days, 30-60 days, 60-90 days, >90 days.

 

 

 

 

F STATUTORY COMPLIANCE:-

 

ü Internal auditor should check whether the entity has complied with all the statutory obligations as per The Companies Act 1956 or under any other special act if applicable. (CARO 2003, IDBI Act 1984 etc….)

ü TDS must be deducted for those parties to whom it is applicable as per the rates specified in The Income Tax Act 1961.

ü VAT/ Service tax credit to be properly claimed & returns are filed on Due dates of respective Act accordingly.

ü Treatment for capital goods purchased is to be checked.VAT should not be claimed at one stroke. (In two years or three years as deemed fit by the entity & as per the Act prevailing in that state).

 

 

þ Discrepancies found during vouching and verification of the above mentioned areas is to be noted & discussed with the concerned department. Report is to be prepared based on the discrepancies found, queries made & replies given.



 7 Replies

CA P KARTHIKA

CA P KARTHIKA (Chartered Accountant)     20 January 2011

very detailed informative!

7 Like
Parthenia

Parthenia (gtfghtfhtyuhy)     22 January 2011

Thanks for the insightful  and interesting post.

 

______________

Personal Bankruptcy

santosh

santosh (article assitant)     27 January 2011

Thanks i like the way u provided the information.

nadakuditi Bhargav

nadakuditi Bhargav (Articled Assistant)     16 August 2011

thank u for detailed infomation

1 Like
Mehraj

Mehraj (student)     13 January 2016

Great work!

K.chandrasekaran

K.chandrasekaran (Partner)     06 January 2017

Good presentation

Manikanth

Manikanth (Chartered Accountant)     10 March 2017

Nice explanation..thank you

 


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