Part2

Part2

Published on 24 August 2020

Auditing presentation video two anu

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AM
Transcript
00:01
VOUCHING
00:01
Examining the vouchers
00:02
Checking accuracy of the transactions recorded in the books of accounts with its supporting/underlying documents - say bill, receipt, vouchers etc.
00:06
How do we vouch
00:08
Confirm the authenticity (genuineness) of the transaction.
00:08
To find whether the transactions and the supporting document are appropriate.
00:08
To ensure whether the transactions are authorized (approved).
00:08
To ensure whether the classification of the transaction is proper.
00:14
Go through the accounting records and documents  if you come across any unusual transactions, verify the same thoroughly. This is called scanning of records, which requires experience and expertise.
00:20
How far can you rely on the said documents?
00:23
It depends on the origin (source) of the documents and the efficiency of the internal control system in operation.
00:27
One can classify the documents into 4 major categories according to their origin and availability.
00:31
Lets have a quick activity here
00:32
Documents which have their origin in the hands of the third party and held by them
00:32
Documents which have their origin in the hands of the third party and held by the organization
00:32
Documents which have their origin in the hands of the organization and held by the third party
00:32
Documents which have their origin in the hands of the organization and held by the organization
00:32
Most reliable evidence
00:32
More reliable
00:32
Reliable only if the internal control is effective
00:32
Reliable
00:40
VERIFICATION
00:41
Verifying assets and liabilities
00:43
To Confirm the following
00:46
• actual existence of assets and liabilities appearing in the Statement of Financial position • Legal ownership and possession of the assets • Correct valuation, and • Ascertaining that the asset is free from any charge of lien. • If an item can be measured in physical term, the same may be verified for quantity and quality (if possible).
00:51
In simple terms
00:52
Examining P&L items are vouching
00:54
Examining Balance sheet items are verification
00:59
P&L Items like > Revenue streams > Returns, refunds, discounts etc. > Cost of goods sold, > Advertising and promotion, > Depreciation > Expense items like rent, electricity charges, office expense etc.
01:04
Balance sheet items like > Land and Building > Plant and Machinery > Stock-in-hand > Stores and consumables > Investments > Securities > Cash-in-hand > Bills receivable
01:10
OBSERVATION
01:15
Consists of looking at the process/procedures being performed by others, to evaluate the efficiency and effectiveness of the system followed by the organization.
01:20
You should observe a particular procedure being carried by the organization. Example - Observation of the internal control measures that are adopted in transactions involving cash, procedures followed on receipt or issue of material, etc.
01:26
INQUIRY 
01:31
It consists of seeking both financial and non-financial information of knowledgeable persons within or outside the entity.
01:36
01:37
EXTERNAL CONFIRMATION
01:43
is the process of obtaining a representation of information or of an existing condition directly from a third party either in physical form or in Electronic medium.
01:48
Inquiry and confirmation can take place either orally or in writing. The best example for inquiry and confirmation is confirming the balances of debtors shown in the accounting records with the debtors of the organization.
01:53
Example: > Confirmation from debtors and creditors about balances. > Confirmation from banks about bank balances, fixed deposits, interest accrued, overdraft or cash credit limit balance, etc. > Confirmation from financial institutions about loan and interests. > Confirmation from management about contingent liabilities, etc.