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AUDITING > MODULE 2 > Flashcards

MODULE 2 Flashcards

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1
Q

What is internal control?

A

Internal control refers to a system of policies

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2
Q

What is the objective of internal control?

A

To prevent fraud and errors

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3
Q

What is internal check?

A

It is the continuous checking of day-to-day transactions by different staff members as part of normal duties to prevent fraud and errors.

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4
Q

What is internal audit?

A

An independent appraisal function within an organization to examine and evaluate its activities and internal controls.

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5
Q

Differentiate internal check and internal audit.

A

Internal check is a part of routine duties to prevent errors; internal audit is a separate evaluation of controls and operations.

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6
Q

What is the audit procedure?

A

Audit procedures are the techniques used by auditors to gather evidence to form an opinion on financial statements.

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7
Q

Define vouching.

A

Vouching is the process of checking the authenticity of transactions with the help of supporting documents or vouchers.

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8
Q

What are the basic requirements of a voucher?

A

Authenticity

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9
Q

What is the auditor’s role in vouching cash sales?

A

To verify sales invoices

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10
Q

How is vouching of receipts from debtors done?

A

By checking counterfoils of receipts

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11
Q

How is vouching of cash purchases done?

A

By examining purchase invoices

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12
Q

How does an auditor vouch payment to creditors?

A

By verifying purchase bills

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13
Q

How is vouching of wages payment performed?

A

By checking wage sheets

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14
Q

What documents are needed for vouching purchase of land and buildings?

A

Sale deeds

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15
Q

What are the duties of an auditor while vouching?

A

To check validity of transactions

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16
Q

What is verification of assets and liabilities?

A

The process of confirming the existence

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17
Q

Why is verification important?

A

To ensure that the financial statements present a true and fair view.

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18
Q

What is valuation of assets?

A

Valuation involves determining the correct value of assets as per accounting principles.

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19
Q

What are the methods of verification of assets?

A

Physical inspection

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20
Q

What are the methods of valuation of assets?

A

Cost

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21
Q

What are the auditor’s duties in verification?

A

To ensure proper ownership

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22
Q

What are the auditor’s duties in valuation?

A

To ensure correct valuation basis is applied and values are fairly presented in financial statements.

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23
Q

Name a key difference between verification and valuation.

A

Verification confirms existence; valuation determines monetary worth.

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24
Q

What documents are used to verify liabilities?

A

Loan agreements

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25
Importance of Vouching
Evidence of transaction Genuineness Accuracy Basis for verification Documentary evidence Regularity of client's business Certification of the state of affairs of a business
26
General Principles of Vouching
Audit period Credited and debited Proper amount Entity Concerned official Particulars of vouchers Internal control system
27
Requirements of vouchers
Duly stamped Printed form Signed Name of the client Capital and revenue Related to business Date Amount Particulars Properly authorised Alterations Duplicate Partners, directors Cancel
28
Interests and Dividends received
Pass book Investment register Counterfoils of dividend warrants Tax deduction certificate
29
Sale of Investments
Broker's sold note Bank advice
30
Sale of fixed assets
Sales deed Correspondence Broker's sold note Auctioneer's Note
31
Receipt from Hire sale
Hire purchase agreement Counterfoils of receipts
32
Subscriptions received
Register of members Counterfoils of receipts
33
Insurance claim
Insurance policy Premium receipt Correspondence Account rendered by insurance company
34
Miscellaneous receipts
Correspondence Contract with the parties Relevant documents ( Bad debts recovery,share capital,income from royalty)
35
Vouching of payment side- points
Relating to business Audit period Duly authorised Received by payee alone Cash book Proper vouchers
36
Cash purchases
Cash memo Goods inward book
37
Payment to creditors
Receipts Statement of accounts Contracts Invoices
38
Payment of wages
ICS Wage records Job cards Wage sheets -duly Test checking Calculation of wages Amount of cheque drawn Dedections
39
Payment of salaries
Salary books- duly Counterfoils of cheques Appointment orders Agreements Minutes Cheque Annual increment Special increment Deduction for pf, insurance premium, income tax
40
Traveling expenses
Bills- duly checked Receipts Rules and conditions
41
Travellers' and agents commission
Receipts Agreements Calculation of commission Conditions
42
Establishment expenses
Receipts Bills Agreements Refer to rent rates tax lightning Period
43
Insurance premium
New policy Policy document Receipts for premium paid Premium notice Renewal Premium receipt Schedule of policies
44
Bills payable
Bills payable returned Pass book
45
Bank charges
Pass book Banker's advice
46
Directors' fee
Directors' minutes book Attendance register Receipts AoA Resolution of shareholders
47
Dividends paid
Dividend warrants Pass book
48
Freight,carriage and customs duties
Statements from forwarding and clearing agents Receipts Allowance in respect of rebates
49
Payments under hire purchase and installments
Agreements Receipts Vouchers of each instalment Principal and interest apportionment
50
Postage
Postage book Petty cash book Cash book Stamp in hand Business purposes
51
Partners' drawings
Partnership deed Drawings account Rules for drawings
52
Taxes paid
Sales tax- return submitted Treasury or bank receipt Income tax - Assessment Order Form Notice of Demand Chellan- receipt
53
Capital expenditure
Freehold and leasehold property Title deed Lease deed Broker's Note Auctioneer's statement Buildings Sale or title deed, correspondence,contracts Plant and machinery Invoice, receipt, agreement, auctioneer's statement Patent Agreement of purchase Receipt of PC Patent Investment Broker's Brought note Receipts Pass book
54
Petty cash
ICS Receipt of money by cashier - payment entered Totals,balances, castings Petty payments - random Vouchers above fixed amount Summary duly signed Postage and stationary register Periodically checked Balance of petty CB on the date of BS No IOU
55
Verification definition
Means to prove the truth about the correctness and authenticity of assets and liabilities stated in the balance sheet Balance sheet audit It is a process by which the auditor satisfies himself about the actual existence, possession and ownership of assets
56
Spicer and pegler- verification
Verification of assets implies an enquiry into the value, ownership and title; existence and possession and the presence of any charge on the assets
57
Duties of an auditor or general Principles as regards verification of assets
Existence ( physical) Ownership (documents) Rights (line or charges) Valuation ( AS) Disclosure ( ICAI and law) Completeness
58
Valuation - Definition
Critical examination and testing of the determined values of assets by the auditor on the basis of generally accepted conventions and principles
59
Considerations for valuations
Original cost Expected life Wear and tear Scrap value Chances of becoming obsolete Method of depreciation Replacement value Accounting principles and practices regarding valuation
60
Important concepts of value
Cost price Market value Replacement value Realisable value Book value Scrap value or break up value Going concern value/ historical/conventional value
61
valuation - Fixed assets
Cost price less depreciation
62
Current assets
On the date of balance sheet at cost price or market price whichever is less
63
Wasting assets
Cost price less the amount of depletion
64
Intangible assets
Cost price less depreciation
65
Fictitious assets
No value but represent only expenditure or loss Actual expenditure less any amount written off from year to year
66
Duties of auditor as regards valuation
Reasonable care and skill
67
Kingston cotton mills Ltd.
An auditor is not liable,if in the absence of suspicious circumstances,he relies on trusted officials of the company
68
69
clean report
expresses an auditor's "unqualified opinion," which means the auditor did not find any issues with a company's financial records. "Unqualified" expresses that the company does not need to meet any additional qualifications to improve its financial status. it shows it follows the standards set by the GAAP. most desired and common type the company has a good financial standing and complies with the laws and governing principles of accounting. Most investors want a company to earn a clean audit report

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