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ledger scrutiny

akash patni (industry) (74 Points)

16 August 2009

how to conduct ledger scrutiny of debtors& expenses ???

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Ashish M (Chartered Accountant) (2731 Points)
Replied 17 August 2009

Ledger scrutiny involves the careful scrutiny and examination of every entry of every legder account of the client be it capital account, loan account, debtors, creditors, expenses or what ever..........

opening every ledger and examining every entry in it to find the trail for various various business transactions........

In respect of expenses, It involvves diving into every account affected by the expense including seeing the trend of the monthly expenses of a particular account and to find the reasons for the abnormal or exceptionally high expense at any particular date or month........not to say considering the materiality concept in mind.........

Examining the vourchers and bills for the exceptionally high or low expenditure, along with the personal sense of expenditure been expended with normal distribution throughout the yr excepting some high or low coupling with reasons thereof........

As regarding debtors, find segregating the debtors for more and less than six months and to see at what interval, the debtors are being recieved.......if a particular debtor or bunch of debtors are not paying.......the reasons thereof...........

Hope it helped u understanding the thing...................!!

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jignesh l bhatia (CA) (78 Points)
Replied 05 August 2010

Mr. Ashish i want to ask u question?

What if there r debtors in the books of the Company and they are doubtful & the company itself is not sure whether they will get the payment or not.

In that case they can go fro making "Provision for Doubtful Debtors" but from last 5 years the company has created any provision for the same.

They are not ready to make provision as they think making of "Provision for Doubtful Debtors"will lead to Scrutiny in Income Tax & they hav very serious prblms in Tax which they are facing from very inception.

What to do then?Pls help.

Rahul Gupta (Project Controller ACA MBA(Fin.)) (8014 Points)
Replied 29 August 2010

In such case, first obtain from the management about the probability of getting the payment. In case they are very sure that say 75% chances are for not getting the payment, then they should make the provison for D/d or write it off as bad debts. In case, the management does not agrees with that , then as an auditor you should state the fact in the auditor's report about the management decision and contentions.

Also, in addition, you can ask the management to obtain confirmation of the amount from the debtors regarding the balance in their clients books. If it also confirms the outstanding balance, then there is no need to make provision, but if it is not so, then its better to make provision for doubtfull debts, or write it off as bad debts.

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