Audit Procedure to be followed during Internal Audit of
Manufacturing Concern –
1) Brief knowledge about clients nature of business:
First of all if u want to carry an audit to any manufacturing company, U
should have a brief knowledge about the client’s nature of business,
what are the activities they are carrying, what is the procedure they are
following while making purchases & sales, at what range they are
following internal control procedures.
2) Identify the Production process:
Take a list of what are the major raw materials inputs they are using in
production. Note the steps they are following for the conversion of raw
material into finished goods. Verify the internal control at the time of
inputting raw material.
AUDIT PROCEDURE:
3) Opening balances Verification –
First collect the opening balances report from the management and
verify whether the opening balances have been carried forward correctly
from the previous year audited financial statements.
4) Vouching of purchases –
Ask about the purchase procedure and draw a flow chart which is very
relevant for your understanding while carrying audit.
Compare the Purchase Voucher with the Taxable Invoice received from
the seller and Material Received Note (MRN) to confirm that whether
quantity & amount is tallied or not.
Also check whether the rate of material on Invoice tallies with Purchase
Order (P.O) raised by the company and check whether the date on MRN
is relating to the current period.
5) Vouching of Journal vouchers (JV’s), Tour Bills and Cash & Bank –
Verify whether the supporting bills tallied with the JV’s and that
expenditure relating to the current period. While verifying the JV’s
ensure whether the TDS was deducted wherever applicable
.
For Vouching of Tour Bills the company should maintain their tour policy,
ask the management for tour policy. Verify whether bills are as per the
limits set for the designation in policy.
For Vouching of cash verify whether any cash payments are exceeded
Rs.20, 000/- (Sec. 40A (3)) and also check for credit balances in cash.
Also go to surprise verification of cash. Verify whether the Bank
Reconciliation Statement (BRS) is tallied.
6) Reconciliations –
During the course of audit reconcile the following:
a) GST returns with purchase and sales
b) Provident Fund (PF)
c) Professional Tax (PT)
d) Employee State Insurance (ESI) - The above said statutory payments
are majorly applicable to all the companies, and all other like TDS,
Excise etc., also have to be reconcile.
7) Carry the Stock Audit –
The Company should maintain the RG 23 books and stock registers
when they are carrying manufacturing activity. Verify whether the RG 23
A Part II / RG 23 C Part II are tallied with purchase registers and input
credit is recorded correctly.
Verify the Personal Ledger Account (PLA) register whether payment is
made through PLA after considering input credit. Also carry the Physical
Stock Verification, ensure whether the physical quantity is tallied with the
stock register maintained at factory.
8) Miscellaneous:
a) Rental Agreements: Verify whether Rent paid is as per the Rental
Agreement. Also check whether Rental Agreements are updated.
b) PAN No’s for contractors: Checked whether the company is
maintaining Photocopy PAN cards for contractors because from the
AY 11-12 onwards every company has to maintain PAN No’s of all
persons who comes under TDS applicability for that company.
Otherwise Straight away deduct the TDS @ 20%.
