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.
