THE TAMIL NADU Dr. AMBEDKAR LAW UNIVERSITY (State University Established by Act No. 43 of 1997) SCHOOL OF EXCELLENCE IN LAW ‘Perungudi Campus’, M.G.R. Salai, Perungudi, Chennai - 600 113. PRACTICAL AUDITING STUDY MATERIAL By Mrs. K. SANGITHA Assistant Professor, Dr. M.G.R. Janaki Arts & Science College for Women, Chennai - 600 028.PREFACE Auditing is an examination of accounting records and vouchers of a business as will enable the auditor to satisfy himself that the Balance Sheet is properly drawn up, so aas to give a true and fair view of state of affairs of the business and whether the Profit and Loss Account gives a true and fair picture for the financial period according to the information and explanation given to him. Practical Auditing is an important paper for the commerce students. This study material covers the entire SOEL syllabus for B.Com., LL.B.,(Hons) students. All important concepts have been explained in simple terms and wherever necessary diagrams and flowcharts have been given. Further, ‘Summarized form of advantages and limitations to important concepts has been given to make the students remember and recollect the points easily. All the chapters have been covered in this study material in an understandable manner. Mrs. K. SANGITHA Assistant Professor, Dr. M.G.R. Janaki Arts & Science College for Women, Chennai - 600 028.COURSE OUTLINE UNIT-I ‘Meaning and definition of auditing — Distinction between auditing and accounting —objectives—Advantages and limitations of audit — scope of audit — classifications of audits — Audit planning, meaning —Audit programme, meaning, objectives and contents —audit note book, contents, usefulness of audit note book —Audit working papers, meaning. Ownership and custody — Test checking and Routine checking, meaning- Internal control, meaning , definition, objectives, Technique for evaluation of intemal control system — Intemal check, meaning, objectives, difference between intemal control, Intemal check and intemal audit. UNITIL Vouching, meaning and definitions, objectives — Trading transactions — audit of ledger- Scrutinizing of ledgers vouching of cash receipts and payments. Vouching of outstanding assets and liability — verification, ‘meaning objectives and process — valuation of assets and liabilities- Distinction between verification and valuation. UNIT IN Depreciation and reserves ~ meaning — Auditor’s duty with regard to depreciation ~ Reserves and provisions- Distinguish reserves and provision —_Depreciation of wasting Assets. UNITIV Appointment of auditors — appointment of first auditor—appointment by central government —filling of casual vacancy —Appointment by special resolution — Re-appointment and compulsory re-appointment — ceiling on the number of Auditorship -Removal of auditor— Remuneration - auditors lien qualification and disqualification — Duties of the company auditor — Rights and powers of auditors— different classes of auditors —Audit Report Preparation and Presentation. UNITV EDP audit~meaning -Division of auditing in EDP environment — Impact of computerization on audit approach - online computer system audit ~ Types of online computer systems audit around with the computers ~ procedure of auditunder EDP system.CONTENTS Unit-1 |LIntroduction 1.1. Definition Of Auditing 1.2 Origin And Evolution 1.3 Objectives Of Auditing 1.4 Prodcedure To Be Followed To Detect Errors 1 Sauditor’s Position And Duty In Regard To Detection And Prevention Of Errors And Frauds 1.6 Advantages 1,7 Limitations 1.8 Auditing Vs. Investigation 1.9Auditing Vs Accounting 1.10 Qualification And Qualities Of An Auditor 1.11 Classification Of Audit 1.12 Preliminary Stage Of Audit Work 1.13 Audit Techniques 1.14 Auditing And Assurance Standards 1.15 Audit Planning 1.16 Audit Programme 1.17 Audit Notebook 1.18 Audit Working Papers 1.19 Internal Control 23 24 25 27 30 33 35 391.20 Internal Check 41 1.21 Difference Between Internal Control, Intemal Check And Intemal Audit 43 1.22 Procedure Of Audit 44 Unit-11 47 2Vouching 47 2.1 Objectives Of Vouching a7 2.2 Importance Of Vouching a7 2.3 Vouchers 48 2.4 Vouching Of Cashbook Or Cash Transactions 49 2.5 Verification Of Assets And Liabilities 63 2.6 Valuation OF Assets 64 2.7 Verification And Valuation Of Different Assets 67 2.8 Verification And Valuation Of Different Liabilities 9 Unit— 11 82 3 Depreciation 82 3.1 Definition Of Depreciation 82 3.2 Characteristics Of Depreciation 83 3.3 Causes Of Depreciation 83 3.4Need For Providing Depreciation 84 3.5 Basic Factors In Estimating Depreciation 85 3.6 Methods Of Providing Depreciation 853.7 Auditors Duty Regarding Depreciation 87 3.8 Reserves 88 3.9 Reserve Fund 94 3.10 Sinking Fund 94 3.11 Provisions 95 3.12 Difference Between Provison And Reserves 96 3.13 Auditors Duty While Verifying Provisions ” 3.14 Wasting Asset 98 Unit-IV 99 4Audit Of Limited Companies 99 4.1 Qualifications Of An Auditor 99 4.2 Disqualifications OfAn Auditor 99 4.3 Appointment OF An Auditor 100 4.4Ceiling On Number Of Auditorship 101 4.5 Removal OfAn Auditor 102 4,6Remuneration To An Auditor 103 4.7 Auditors Lein 103 4.8 Rights Of An Auditor 103 4.9 Duties And Responsibilities Of An Auditor 105 4.10 Liabilities Of An Auditor 106 4.11 Auditors Report 108Unit-V 4 5 Auditing In Electronic Data Processing Environment 4 5.1 Uses Or Benefits Of Computerized Audit 114 5.2 Problems Or Disadvantages us 5.3 Audit Approaches is 5.4 Internal Control Under An Edp Environment 116 5.5 Computer Assisted Auditing Techniques 7 Model Question Paper 19UNIT-I 1, INTRODUCTION “The word audit is derived from Latin word audire which means ‘to hear’. Auditing isa critical examination of the records and books of account ofa business by an independent qualified person for ascertaining the authenticity and the accuracy of entries appearing in the books of account and financial statement. 1.1 DEFINITION OF AUDITING Spicer and Pegler have defined audit as “ such an examination of the books , accounts and vouchers of a business as will enable the auditor to satisfy himself that the Balance Sheet is properly drawn up, so asto givea truc and fair view of the state of affairs ofthe business and whether the profit and loss account gives a true and fair view of the profit or loss for the financial period , according to the best of his information and explanation given tohim and is shown by the books and ifnot in what respect he is not satisfied.” Montgomery defined auditing as examination of the books and records of a business in order to ascertain or verify and report up on the facts regarding the financial operations and the results thereof.” 1.2 ORIGIN AND EVOLUTION ‘The term audit is derived from the Latin word ‘audire’, which means to hear. In early days an auditor used to listen to the accounts read over by an accountant in order to check them. Auditing is as old as accounting. It was in.use in all ancient countries such as Mesopotamia, Greece, Egypt, Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra by Kautilya had emphasized the importance of accounting and auditing. The original objective of auditing was to detect and prevent errors and frauds. Auditing evolved and grew rapidly after the industrial revolution in the 18th century with the growth of the joint stock companies the ownership and ‘management became separate. The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were the employees The objective of audit shifted and audit was expected to ascertain whether the accounts were true and fairrather than detection of errors and frauds. In India, the companies Act 1913 made audit of company accounts compulsory with the increase in the size of the companies and the volume of transactions. The main objective of audit shifted to ascertaining whether the accounts were true and fair rather than true and correct. Hence the emphasis was not on arithmetical accuracy but ona fair representation of the financial efforts. “The companies Act.1913 also prescribed forthe first time the qualification of auditors.The Intemational Accounting Standards Committee and the Accounting Standard board of the Institute of Chartered Accountants of India have developed standard accounting and auditing practices to guide the accountants and auditors in the day to 1day work The later developments in auditing pertain to the use of computers in accounting and auditing. In conclusion it can be said that auditing has come a long way from hearing of accounts to taking the help of computers to examine computerized accounts. 1.3 OBJECTIVES OF AUDITING The objective of an audit may be classified as (1) Primary Objective (2) Subsidiary Objective (3) Specific Objective 1.3.1 Primary Objective or Main Objective: Expression of expert opinion: - The main objective of auditing is to verify the accounts and records and to report to the owners of the business whether the profit and loss account and the Balance sheet have been properly drawn up according to the requirements of law, and whether they exhibit a true and fair view of the profit and the financial position of the business. ‘Toensure that the primary objective of auditis achieved, an auditor must: (a) Examine the Internal Control and Internal Check. (b) Verify whether all the books of accounts as required by law are kept. (©) Verify whether proper accounting principles and procedures are followed. (@) Check the arithmetical accuracy of the books of accounts. (©) Verify the authenticity and validity ofthe transactions. (8) Confirm the existence and the values ofthe assets and liabilities by physical verification. (g) Find out whether the financial statement is properly drawn up. (h) Report whether the profitand loss gives a true and fair view of the profit or loss for the year and Balance sheet gives true and fair view of the financial position of the business at the end of the financial year. 1.3.2 Subsidiary or Ancillary objectives: - Subsidiary objectives of auditing are (1) Detection and prevention of errors. (2) Detection and prevention of frauds.Detection and prevention of Errors: - Errors refer to unintentional mis statements in the records or books. Errors are two types namely (1) Clerical or technical errors and (2) Errors of principle. Clerical Errors: ~Clerical errors refer to all types of errors committed on account of clerical mistakes. They are (a) Errors of omission (2) Errors of Commission (3) Compensating errors and (4) Errors of duplication. Errors of Omission: - An error of omission is one which arises when a transaction has been omitted to be recorded in the books of accounts either wholly or partially. An error of omission may be an error of complete ‘omission or an error of partial omission. An error of complete omission does not affect the agreement of the trial balance, as both the aspects of the transaction are omitted from the trial balance, they cannot be detected easily. ‘They can be detected only by an intensive checking of the subsidiary books, and the postings from the subsidiary books to the ledger. On the other hand, an error of partial omission affects the agreements ofthe trial balance, as only one of the aspects of the transactions is omitted from the trial balance, itcan be detected easily. Errors of Commission: - Errors of commission refer to errors committed in the process of posting from the subsidiary books ta the ledger accounts, casting, carry forward and balancing of ledger accounts. Some of the errors of commission will not affect the agreement of the tral balance. They cannot be detected easily. Only a thorough checking of the subsidiary books and posting to the ledger can help to detect these etrors. ‘Compensating errors: - When the effect of one error is counter balanced, set off or compensated by another error, the errors are known as compensating errors or offsetting errors. Compensating errors do not affect the agreement of the trial balance, as they are counter balanced or set off. Errors of Duplication: - Errors of duplication arise when an entry in a book of original entry has been made twice and also been posted twice. Errors of Principle: - An error of principle arises when the generally accepted principles of accountancy are not observed, while recording a transaction in the books of account. In other words, ifa transaction is recorded in the books of account against the generally accepted principles of accountancy, the error is known as an error of principle. Capital expenditure recorded as revenue expenditure or vice versa, capital receipt recorded as revenue receipt or vice versa is examples of erors of principle. Errors of principle will not affect the agreement ofthe trial balance. Only a detailed and intensive checking will reveal these errors. Detection and prevention of frauds: - Its intentional or willful representation or deliberate concealment of ‘material fact with a view to deceive, cheat or mislead somebody. Fraud may be broadly classified into three types. They are (1) Misappropriation of cash (2) Misappropriation of goods (3) Manipulation of accountsMisappropriation, Defalcation or Embezzlement of Cash; - Misappropriation of cash means the fraudulent appropriation of cash belonging to another person by whom it has been entrusted. Misappropriation of cash may take place in any of the following ways: a) Suppression or non di Sf ts: The following are examples of suppression of cash receipts: (1) By misappropriating the receipt by not recording the same in the Cashbook. (2) Byentering lesser amount on the counterfoil and misappropriating The difference between money actually- received and the amount entered on the counterfoil of the receipt book (3) Bynot recording the receipt of sale of a casual nature for example Sale of scrap, sale of old newspapers etc. (4) By omitting to record cash donations received by non-profit making charitable institutions (5) Bymisappropriating the cash received on discounting the bills Receivable and showing them as bills outstanding onhand. (6) By misappropriating cash received from debtors and concealing the same by giving artificial credit to the debtors in the form of bad debts, Discount or sales retum ete. (7) By adopting the method of “teeming and lading” or “lapping process”. This is one of the methods of misappropriation of cash. Under this method cash received from the first customer is misappropriated by the cashier. The money received from the second customer is credited to the account of the first customer, the money received from the third customer is credited to the account of second customer, and the money received from the fourth customer is credited to the account of third customer and so on. This process is carried out throughout the year. (8) By suppressing the cash sales by not recording them or by treating the cash sales as credit sales. (9) By misappropriating the sale proceeds of VPP sales or sales of Goods on approval basis by treating the transaction as goods Received or not approved. (10) By under casting receipt side total of the cashbook. (b) Inflating the payments or showing false cash payments: - The following are examples of this type of misappropriation: (1) Recording fictitious or false cash purchases and pocketing the amount. (2) Inflating the cash purchases and pocketing the difference. (3) Recording payments to fictitious creditors for purchases and pocketing the money.(4) Recording the payment to creditors at a figure higher than the actual amount and pocketing the difference. (5) Recording payments to dummy workers and pocketing the money. (6) Recording fictitious payments of expenses and pocketing the money. (7) Recording payments of some accounts at figures higher than the actual payments and pocketing the difference. (8) By showing credit purchases as cash purchases and misappropriating the amount (9) Recording personal expenses as business expenses MANIPULATION OF ACCOUNTS Manipulation of accounts means falsification of accounts without any misappropriation of cash or goods. It implies presentation of accounts more favorably than what they actually are, Manipulation of accounts may be done in any of the following ways: (1) Non prosision of depreciation on fixed assets. (2) Provision of less depreciation on fixed assets (3) Provision of more depreciation on fixed assets (4) Over valuation of assets (5) Under valuation of assets (6) Over valuation of liabilities. (1) Under valuation of liabilities (8) Recording revenue expenditure as capital expenditure, (9) Recording capital expenditure as revenue expenditure (10) Showing expenses of the next year in the current year’s profit and loss account (11) Showing income of the next year in the current year’s profit and loss account. (12) Not recording the accrued expenses in the current year’s profit and loss account. (13) Not recording the acerued incomes in the current year’s profit and loss account. (14) Omission of prepaid expenses. (15) Omission of incomes received in advance. (16) Inflating the profits by showing fictitious purchases and sales returns.(17) Deflating the profits by showing fictitious expenses. (18) Window dressing: - Iti the practice by which the balance sheet is made to show a state of affairs that is different from the actual state of affairs. Generally, the practice of window dressing is adopted to make the balance sheet show a state of affairs far better than the actual state of affairs. Window dressing may be done in any of the following ways: (1) Non provision of depreciation on fixed assets (2) Provision of less depreciation on fixed assets (3) Over valuation of assets (4)Under valuation of liabilities (5) Recording revenue expenditure as capital expenditure. (© Showing income of the next year in the current year’s profit and loss account. (7)Recording of fictitious sales. (8) Recording fictitious purchase retums (9) Showing short term liabilities as long term liabi (10) Recording sales of the next year in the current year’s revenue account. 1.3.3 SPECIFIC OBJECTIVES “There will be specific objective in respect of each type of specific audits. For example, in operational audit, the aim of audit is to evaluate the existing operations of the entity in order to give expert advice to improve their efficiency. The cost audit is to check the cost records of the entity in order to make a report on the proper ascertainment of cost of production of goods or services. Depending upon the nature of specific audit, there may be different objective in respect of each specific audit. 1.4 PROCEDURE TO BE FOLLOWED TO DETECT ERRORS Following procedures may be adopted by the auditor to detect the errors. 1. Check the opening balances from the balance sheet of the last year. 2. Check the posting into respective ledger accounts 3. Check the total of the subsidiary books. 4. Nerify all the castings and the carry forwards.5. Ensure that the list of debtors and creditors tally with the ledger accounts, 6. Make sure that all accounts from the ledger are taken into accounts. 7. Nerify the total ofthe trial balance. 8. Compare the various items from the trial balance with that of the previous year. 9.Find out the amount of difference and see whether an item of half or such amount is entered wrongly. 10. Check differences involving round figures as Rs. 1,000; Rs. 100 ete. 11. See where there is misplacement or transposition of figures thatis 45 for 54; or 81 for 18 etc. 12. Ultimately careful scrutiny is the only remedy for detection of errors. 1.5 THE AUDITOR’S POSITION AND DUTY IN REGARD TO DETECTION AND PREVENTION OF ERRORS AND FRAUDS 1. Examine all aspects of the finance. 2. Vouch all the receipts from the counterfoils or carbon copies or cash Memos, sales mart reports etc. 3. Check thoroughly the salary and wages register. 4. Verify the methods of valuation of stocks. 5. Check up stock register, goods inwards notes, goods out wards books and delivery challans etc 6. Calculate various ratios in order to detect fraudulent manipulation of accounts 7..Go through the details of unusual items. 8, Probe into the details of the problems when there is a suspicion. 9. Exercise reasonable skill and care while performing the duty. 10. Make surprise visit to check the accounts. An auditor’s position and duty in relation to detection and prevention of errors and frauds had been beautifully explained in the case of Kingston Cotton Mill Company. In this caseit was remarked, “An auditor isa watch dog and not a blood hound”. ‘The remark an auditor is a watch dog limits the audit examination to mere verification of accounts but does not cover detection of errors and frauds. But an effort to detect errors and frauds and suggest ways and means to prevent the errors and frauds inthe future. Verification of accounts also implies vigilance on the part ofthe auditor to detect errors and frauds. As such while verifying the books of accounts, ifan auditor smells some irregularitieshe must follow them h them. Up and unearth them. He should act honestly and takes reasonable skill and care in detecting errors and frauds. In India, the duty of an auditor has to detect errors and frauds have also been emphasized by the Council of Chartered Accountants. According to this council, an auditor should bear in mind the possibility the existence of fraud or other irregularities, because the financial position may be misstated as a result of errors and frauds. Itis true that an auditor has to detect errors and frauds, But while performing his task of detection of errors and frauds, he need not be a blood hound. He is not required to take to task those staff that has been found guilty of committing errors and frauds. This view was upheld in the case of London Oil Storage Company Ltd VS Seears Hasluck and Company. In this case it was held an auditor is not bound to assume when he comes to do his duty that he is dealing with fraudulent and dishonest people. If circumstances of suspicions arise, itis his duty to probe them to bottom, To sum up, an auditor is not an insurer against errors and frauds. That he does not guarantee that the books do notcontain any errors and frauds. However, he has always to be very careful about errors and frauds. He must exercise reasonable care and skill in the detection of errors and frauds. Once he suspects the existence of errors and frauds, he must go in to the roots and unearth them. In short, an auditor is not just a watch dog. But, at the same time, he need not be blood ‘hound. 1.6 ADVANTAGES OF AUDIT Audit offers several advantages. They are: 1.6.1. Advantages of Audit to the business enterprise and Management (1) Audit ensures the accuracy or correctness of the books of accounts (2) Audit ensures the authenticity and reliability of the financial statements. (3) Audit helps in the detection and rectification of errors and frauds. (4) Audit helps the enterprise and management to ascertain whether the legal requirements are complied with, (5) Audit point out the weakness of the existing system of intemal check and intemal control. (6) Audit examination makes the employees in charge of accounts and records vigilant, regular and up- to-date in their work. (7) Loans and credit facilities can be easily obtained by a concern on the basis of audited accounts. (8) Liability ofan enterprise as to income tax, wealth tax, and value added tax ete can be easily determined on the basis of audited accounts.(9) Abusiness can enjoy better reputation, ifits accounts are audited by an independent professional auditor. (10) Audited accounts are more reliable as evidence in courts of law. (11) Facilitates calculation of purchase consideration. (12) The insurance claim can be easily determined on the basis of audited accounts. (13) Audited accounts serve as a basis for solving the disputes as to higher wages. (14) Comparison of accounts from year to year becomes easier since the accounts are uniformly prepared. 1.6.2 Advantages of audit to the owners of the business: (J) Inthe case of a sole trader, auditing assures him that all business transactions have been duly accounted. for and there are no errors or frauds. It also helps him to know the true facts about the business. (2) Inthe case of partnership firm, audited accounts serve as an evidence of proper management of the affairs of the business. Audited accounts are help in the valuation of goodwill and settlement of accounts on the admission, retirement or death ofa partner. Again audited accounts minimize the chances of disputes among the partners. (3) Inthe case of a joint stock company, audit of accounts assures the shareholders that the affairs of their ‘company are smoothly and their investment is safe. The shareholders ofa company can value their shares on the basis of audited accounts. (4) Inthe case of a co—Op society ora trust, audit assures the members or the beneficiaries thatthe affairs ofthe society or trust are conducted properly and their investment are looked after properly. 1.6.3. Advantages of Auditing to others: (1) Lenders can depend on audited financial statements while taking a decision to grant credit to the business ‘concem. (2) Tax authorities can depend on audited statements in assessing sales tax, income tax and wealth tax of the business. (3) Audit of accounts safeguards the interests of the workers and is helpful in the settlement of claim for higher wages and bonus. (5) Insurance company can rely on audited accounts to settle claims in respect of damage or loss of any business asset by fire, theft ete. (6) The purchaser of a business can easily calculate the amount of purchase consideration on the basis of audited accounts. (7) Audited accounts create confidence in the minds of investors in a joint stock company. 21.7 LIMITATIONS OF AUDITING: Generally following are the Limitations of auditing 1. Non-detection of errors or frauds: - Auditor may not be able to detect certain frauds which are committed by the clients, 2. Dependence on explanation by others: - Auditor has to depend on the explanation and information given by the responsible officers of the company. Audit report is affected adversely if the explanation and information prove to be false. 3. Dependence on opinions of others:~ Auditor has to rely on the views or opinions given by different experts viz Lawyers, Solicitors, Engineers, Architects ete, he cannot be an expert in all the fields 4. Conflict with others: - Auditor may have differences of opinion with the accountants, management, engineers etc. In such a case personal judgement plays an important role. It differs from person to person. 5. Effect of inflation : - Financial statements may not disclose true picture even after audit due to inflationary trends, 6. Corrupt practices to influence the auditors: - The management may use corrupt practices to influence the auditors and geta favourable report about the state of affairs of the organisation. 7.No assurance: - Auditor cannot give any assurance about future profitability and prospects of the company. 8. Inherent limitations of the financial statements: - Financial statements do not reflect current values of the assets and liabilities. Many items are based on personal judgement of the owners. Certain non-monetary facts cannot be measured. Audited statements due to these limitations cannot exhibit true position. 9. Detailed checking not possible: - Auditor cannot check each and every transaction, He may be required to do test checking. 10. Auditing is a post mortem examination of accounts. 101.8 AUDITING Vs INVESTIGATIO! Investigation is an enquiry into the accounts and records of a business concem for a special purpose, say, to know the actual financial position of the concem or to know the real earning capacity of the business or to know the extentof fraud, if any. There are many differences between the two. They are: | e . 8 i it tH it f = | ! ih f i | : rT1.9 DISTINCTION BETWEEN AUDITING VS ACCOUNTING: uy Hol eb TE RUE Hh Th 4 Th By Hil | 3 a i Be i An accountant is an insider | An auditor is an outsider, 121.10 Qualification and Qualities of an Auditor: ‘To bean efficient auditor, an auditor must possess certain professional qualifications and professional and personal * Professional qualification: - An auditor is a professional accountant. So he must possess certain professional qualifications. Under the Companies Act, an auditor of ajoint stock Company must be a Chartered accountant within the meaning of the Chartered Accountants Act of 1949. To be a Chartered accountant, he must pass the C.Aexamination conducted by the Institute of Chartered Accountants. He must also obtain a certificate from the institute from the Institute of Chartered Accountants to take up public practice of accountancy. Professional Qualities: They are: ~To perform his work efficiently, an auditor must possess certain professional qualities. 1. Knowledge of principles and practice of general accounting. 2. Knowledge of Cost accounting 3. Knowledge of Management accounting 4, Thorough knowledge of techniques of auditing 5, Knowledge of provisions relating to income tax , wealth tax, VAT etc. 6. Knowledge of business laws. 7. Knowledge of economics. 8. Knowledge of Mathematics and Statistics 9. Knowledge of Business Management and Organization and financial administration 10. Knowledge of report writing. 11, Knowledge of technical details of the business under audit. 12. Knowledge of the accounts of the business under audit. Personal Qualities or General Qualities: - Besides the professional qualities, an auditor must also have certain personal or general qualities to perform his work efficiently and smoothly. The requisite personal qualities are: (i) Honesty and Integrity. (ii) Tactfulness Gi) Vigilance 13(iv) Anenquiry mind (v) Methodical (vi) Care and Skill (vii) Diligence (vi) Judgement. (ix) Responsibility, (x) Impartiality and independence. (xi)Common sense (xii) Ability to communicate (xiii) Ability to work hard (xiv) Patience (xv) Courtesy (xvi) Ability tomaintain secrets. 1.11 CLASSIFICATION OF AUDIT OR TYPES OF AUDIT Audit can be classified on different types: (1) Classification of Audit on the basis of Organization structure, (2)Classification of audit on the basis of Degree of independence of the auditor (3) Classification of Audit on the basis of method or approach to audit work or on the basis of extent of work to be performed or on the basis of conduct of audit. (4) Classification of audit on the basis specific objectives 1.11.1 CLASSIFICATION ON THE BASIS OF ORGANIZATION OR ORGANIZATION STRUCTURE On the basis of organization structure, audit may be classified into three types. They are: (1)Statutory audit (2) Government audit (3) Private AuditStatutory Audit: - Statutory auditrefers to the audit of accounts ofa business enterprises carried out compulsorily under the provisions of a statute or law. Its is the audit carried out compulsorily under any statute any law. Features of statutory audit are: 1. Statutory audit is compulsory under law. 2. Statutory audit is required to be conducted by a qualified auditor. 3. Inthe case of Statutory audit, the rights, duties and liabilities of the auditor are governed by the statute or law applicable to the undertaking. 4, Statutory audit is an independent audit. 5. Statutory audit is an extemal audit. 6. Statutory audit must be a complete or full audit. It cannot be partial. Statutory audit is carried outin a number of Organizations, such as, 1 Joint stock Companies governed by the Companies Act of 1956. 2. Banking companies governed by the Banking Regulation Act of 1949. 3. Insurance companies governed by the Insurance Act of 1938, 4. Electricity supply companies governed by the electricity supply Act of 1948. 5. Co— operative societies registered under the Co-operative Societies Act. 6. Public and charitable trusts registered under Religious and Endowment Acts 2. Government audit: - Government audit refers to the audit of accounts of Government departments and offices, Government companies and statutory or public corporations. The features of government audit are 1, Government audit is prescribed for by law. 2. Itis conducted either by the comptroller and Auditor General of India and his staff or professional chartered accountant approved by the Comptroller and Auditor General of India. 3. Itis internal audit. 4.A government audit isa continuous audit. Objectives of Government audit 1. To ensure that all payment has been sanctioned by the competent authority. 2. To ensure that every payments is made as per the rules and regulations. 153. To see that the payments have been made to the right persons. 4, To ensure that the expenditure is not excessive. 5. To see that payments are properly classified as capital and revenue. 6. To verify the existence of stocks and stores. 7. To ensure that a proper system of stock taking has been adopted. Government audit may be classified into three types. They are: 1. Audit of government departments and offices. 2. Audit of Government Companies. 3. Audit of Statutory Corporations registered as statutory corporations. 3.Private audit or Voluntary audit :- Where an audit is not compulsory under any statute, but is undertaken by the owners voluntarily to get the benefit of audit, the audit is called private audit. In other words , private audit refers to the audit of accounts of private enterprises such as a sole trading concems, partnership firms and other individuals and institutions. Advantages of private audi 1. Audit assures to the owners that the accounts of the business are properly maintained and there are no imegularities. 2. Itprovides a moral check on the employees. 3. Ithelps the owners of the business to know the real profitability and the state of affairs of their business. 4, Audited accounts serve as a basis for assessment of tax liability. 5. Audited accounts facilitate the process of raising loans from banks and other financial institutions. 6. Audited accounts help in the settlement of dispute and claims between the partners ofa firm. 1.11.2 CLASSIFICATION OF AUDIT ON THE BASIS OF DEGREE OF INDEPENDENCE 1. Internal audit 2. External audit Internal audit: Intemal audit is a continuous and systematic review of the accounting, financial and other operations ofa concem by the staff specially appointed for the purpose. In other words, itis the audit of accounts by the staff specially appointed for the purpose. 16Objectives of Internal audit: 1. To ascertain whether internal check and accounting systems are adequate and effective. 2. To ascertain whether predetermined policies, plans and procedures have been complied with. 3. To ascertain the reliability of the accounting and other data. 4, To evaluate the performance of the personnel. 5. To ascertain whether the properties of the concem are safeguarded. 6. To suggest to the management the improvements desired in the intemal check systems, accounting system etc. Features of Internal audit: 1 Itis generally undertaken by large concerns. 2. It is not compulsory. 3. The scope of internal audit may vary, depending upon the nature and size of the concem. 4. Itmay be in addition to extemal audit. 5. Itis conducted by the staff of the concern. 6. The techniques and methods of auditing employed in internal audit are the same as those in extemal audit, 7.[tis an integral part of internal control. 8. The staff engaged in internal audit is appointed by the management. They are responsible to the management. Importance and advantages of internal audit 1. Itishelpful to the management to ascertain whether the internal check and accounting systems are adequate and effective to prevent errors and frauds. 2. Ithelps the management to ascertain whether the predetermined policies, plans and procedures have been complied with. 3. Itis helpful to ascertain the reliability of the accounting and other data complied within the organization. 4, Itis helpful to evaluate the performance of the personnel. 5. Ithelps to ascertain whether the properties of the concem are safeguarded. 6. Itcovers the review of accounting and non accounting matters, 17Disadvantages: Itis conducted by staff who may not be a qualified one. 1) tis optional 2) Quality depends upon the decisions of management. 2. External Audit. Audit conducted by independent qualified person and examines the books of accounts and report to the management. Difference between Government Audit and Commercial Audit Government Andit Commercial Audit 1. It is adopted in government|1. it is conducted in private departments, government offices | enterprise. and Government Company. 2. Mis compulsory. 2. Itis optional, 3. It is conducted by CAGI and his ‘ 2 - 3. It is conducted by professionally Staff and qualiied staff quelled passion: 4, Continuous audit. 4 Periodical audit. 5. Disbursing officer is responsible | 5 Disbursing officer is not eee 5. Disbursing officer is not responsible, 6. Treasury officer undertake preliminary audit. 6. There is no preliminary audit. 1.11.3. ON THE BASIS OF CONDUCT OF AUDIT OR METHODS OR APPROACH TO AUDIT ‘WORK 1. Continuous Audit. Continuous audit is one where the auditor’s staffs occupied continuously on the accounts whole the year round and performs interim audit, Itis an audit under which detailed examination of the books of accounts is conducted continuously throughout the year. It is continuous review of the accounts of the organization. Itis generally applicable to banking company and insurance company. Advantages: 1) Easy and quick discover of errors and frauds. 2) Technical knowledge. 3) Quick presentation of accounts. 4)Keep the client staffregular. 185) Moral check on the client's staff. ©) Efficient audit. 7) Preparation of interim accounts is very easy. 8) Audit staff can be kept busy. Limitations: 1) Alteration of figures. 2) Dislocation of the work of the client staff. 3) Expensive. 4) Queries may remain outstanding 5) Extensive note taking may be necessary. 6) Chance for collusion betweenvlient staff and audit staff. 7) Mechanical and monotonous. Precautions or steps to be taken to overcome the drawbacks: 1) Well dream up audit program should be followed by the auditor. 2) No alterations to be allowed after the accounts are audited. 3) Ifany alterations are made, it should be made in the rectification entries inthe journal. 4) Anote should be made in respect of queries asked. 5) Ifany alterations are made in figures before auditing, a special tick mark must be made. 6) Recommend surprise visit. 7) Rotate the audit work among auditors. 2. Final Audit or Annual or periodical audit: Itis an audit carried out after the preparation of financial statement. Itis an audit where the auditor takes up his work of checking the books of accounts only at the end of the accounting year. In this case, the audit work is commenced and completed in a single uninterrupted session,Advantages: 1) Cost of audits less than that of continuous audit. 2) Audit work is completed in one continuous sitting. 3) Not causing any dislocation of client work. 4) Nopossibility of alteration of figures. 5) Itis not mechanical and monotonous. 6) Less chance for collusion between client staffand audit staff. 7) There is no lose the thread of the work. Limitations: 1) Errors and frauds remains in the accounts for long period of time. 2) Postmortem examination of accounts. 3) Little time for checking, 4) Rely upon test checking. '5) Not suitable for imposing moral check on the client staff, ©) Not helpful for preparing interim accounts. 7) Not suitable for large size organizations. 3. Interim Audit: Itis an audit conducted between two annual audits. In other words, it is the audit conducted in the middle of the financial year. Itis carried out for some specific purpose for declaring interim dividend, ascertaining interim profit. Advantages: 1) Quick discovery of errors and frauds. 2) Imposes moral check on client staff. 3) Helpful for speedup the final audit. 4) Usefl for publication of interim figures. ‘5) Audit becomes easy and can be completed without lapse of time. 204, Balance sheet audit : Balance sheet audit is a type audit which concentrates mainly on the verification of the items in the balance sheet such as capital, reserves, profit and loss account balance, liabilities and provisions and all the assets of the business. 5. Occasional Audit: An occasional audit is an audit which is conducted once a while, whenever the need arises. In other words, itis akind of audit which is not conducted on regular basis, but is conducted fora special event, time or purpose. 6. Complete Audit : Complete audit is a kind of audit under which all the records and books of accounts are audited by an auditor. 7.Partial Audit: Itis a kind of audit the scope of which is limited one. It is carried out in respect of only a part of the books of accounts of a business, fora part of whole of the period. 1.11.4 CLASSIFICATION OF AUDIT ON THE BASIS OF SPECIFIC OBJECTIVES 1. Cash Audit: - Iisa type of partial audit which is undertaken for only cash receipts and cash payment. 2. Special Audit:- Its a kind of audit with some special object in view. Its a fact finding enquiry. 3. Operational Audit: - It is an efficient examination of the various operations of the different functional area of ‘business. 4, Proprietary Audit: -Itis an audit in which various actions and decisions are examined to find out whether in Public interest and whether they meet the standard of conduct. 5, Efficient Audit: - Itis an evaluation of overall efficiency and performance of an organization. 6. Tax Audit: - It means audit for tax purpose. Audit required to be carried out of income tax act of 1961. Itis conducted by certified Chartered Accountant. ‘There are certain circumstances in which tax audit is necessary. 1. Compulsory tax audit under section 44 AB of the Income tax Act 1961 2. Tax audit for claiming deductions and Reliefs under the Income Tax Act. 3. Tax audit for Tax Consultancy and Representation, 7. Cost Audit:- Itis a thorough examination of the cost accounting records ofa company by acost auditor to censure that they are accurate and they also follow to the cost accounting principles, procedures and plans. 21Objectives: 1) Verifying the accounting entries related in the cost books. 2) To find out whether the cost records have been properly maintained. 3) To verify whether the cost accounting principles are complied with. 4) To find out whether the cost statements are properly dream up, 5) To verify the items of cost expenditure are correctly incurred. 6) To find out the efficiency and inefficiency of handling of material, labour and other expenses. 7) To check up the overall working of the cost accountant. 8) To reduce the volume of work of the external auditor. 9) To detect errors and frauds. 8. Management Audit: Itis the critical examination, scrutiny and appraisal of plans, policies, procedures, objectives, means and operational area of the organization. Itis the audit of managerial actions and decisions. It is the audit of activities of various level of the managers. Objectives of Management audit: 1. Toidentify the overall objectives of an organization. 2. To pinpoint the deficiencies and defects in functional areas and suggest remedies for improvement. 3. Toassist the various level of management in discharge their duties. 4. Tohelp the management in achieving co- ordination among the various departments. 5. To ensure that management objectives are achieved. Advantages of Management Audit: 1. Itidentifies the overall objectives of the organization 2. Itreviews plans, policies, procedures and controls. 3. Itassesses the performance in each functional area 4. Italso ascertains the motivational system in operation in the business. 5, Suggesting ways and means for the attainment of management goals. 22Criticism against management audit: 1. Itis argued by some managers and accountant that management audit is a vague concept and so, it serves no material purpose. 2. Management audit may discourage the managers from undertaking tasks which are useful to the organization. 3. Itis argued that it wll adversely affect to the efficiency and production. 9. Social Audit: Social audit is a systematic study and evaluation of a business enterprise’s social performance as distinguished fromits economic performance. Social audits intended to evaluate the social performance or social contribution ofabusiness organization. TISCO firstly adopted social audit. 1.12 PRELIMINARY STAGE OF AUDIT WORK OR PREPLANNED ACTIVITIES OF THE AUDIT WORK OR STEPS TOBE TAKEN BY THE AUDITOR BEFORE COMMENCEMENT OF THE AUDIT OR AUDIT PLANNING An auditor must prepare well before he actually commences a new audit. He has to take certain steps or bear in mind certain considerations before commencing a new audit. These steps are known as preliminary steps or ‘general steps. The following are the important preliminary or general steps to be taken by an auditor in all types of concems before the commencement of anew audit: 1. Obtaining letter of appointment. Auditor should satisfy himself that he has properly appointed. IL. Knowing the scope of his studies. IL Ascertaining the nature ofthe business undertaken by the client enterprise. IV. Knowledge of the organizational structure of the client business. Pattern of authority and responsibility are revealed through the organizational structure. V. Obtaining thelist of principal officers ofthe client business. \VI.Knowledge of intemal check, internal control and internal audit VIL. Knowledge of system of accounting of the client business. VIL. List of books maintained in the organization. IX. Detailed study of important documents of the organization. X. Study of prospectus, preliminary contracts etc of the organization. XI. Study of the previous year financial statements. 23XIL Enquiry about the reason for the change of the auditor, XII Giving instructions to the client. a) The books should be closed before the audit. b) Voucher should arranged date vise. c) Schedules should be kept for ready reference such as schedules of debtors and creditors, list of bad and doubtful debts, schedule of investment, schedule of depreciation etc... XIV. Division of audit work among the auditors. XV. Preparation of audit program. 1.13 AUDIT TECHNIQUES Techniques of audit are the methods or means adopted by an auditor for the collection and evaluation of audit evidences forhis audit work. Important audit techniques are 1) Vouching 2) Confirmation Tis the technique through which an auditor communicates with outside parties. 3) Enquiry Enquiry is the technique of making enquiries with the responsible officials ofthe client and obtaining in depth information. 4) Reconciliation Tt is the technique of identification and explanation of the items which cause the difference between two related items. 5)Physical examination Itisthe technique of ascertaining the actual existence. 6) Test checking 7) Analysis of financial statements 8) Scrutiny or scanning Itisthe technique of making a quick and overall examination of books of accounts to verify whether the transactions are correctly and completely recorded in the books of account. 249) Extension verification Itis the technique of multiplying two or more amounts to verify whether the totals have been correctly arrived at. 10)Posting verification 11) Documentary examination 12) Observation Itis the technique by which an auditor observes or witnesses an act performed by others. 13) Footing Footing is the technique of adding the columns of different accounting figures to test the accuracy of the total. 14) Flow charting Itis the technique of using flow chart to describe graphically the cause ofthe transactions through different stages from the beginning to the end. 1.14 AUDITING AND ASSURANCE STANDARDS Anauditor Should have a thorough understanding of the auditing practices that are generally accepted as standards toconduct his auditeffectively. Forthis purpose , he has to study and understand the professional announcement ‘onauditing, The objective of auditing and assurance standards issued by the ICAL is to secure compliance by the members of the institute on matters which are important for the proper discharge of their audit work. ‘Various Auditing and Assurance Standards issued by ICAI: * 1. AAS | : Basic principles governing audit 2. AAS 2: Objective and Scope of financial Audit 3.AAS3: Documentation 4. AAS 4: Fraud and error 5. AAS 5 : Audit Evidence 6. AAS 6: Risk Assessment and Internal Control 7.AAS 7 : Relying upon work of an Intemal Auditor 8. AAS 8: Audit planning 9. AAS 9: Using the Work of an Expert. 10. AAS 10 : Using the work of another Auditor. 2511. AAS 11 : Representation by Management, 12. AAS 12: Responsibility by joint Auditors. 13, AAS 13 : Audit Materiality 14, AAS 14: Analytical Procedures, 15, AAS 15: Audit Sampling. 16. AAS 16: Going Concem Assumption. 17. AAS 17: Quality Control for Audit work. 18. AAS 18: Audit of Accounting Estimate 19, AS 19 : Subsequent events. 20. AAS 20: Knowledge of the Business 21. AAS 21: Consideration of Laws and regulations in an Audit of Financial Statement, 22. AAS 22: Initial Engagement 23. AAS 23 : Related Parties 24. AAS 24: Audit Consideration relating to Entities using Service Organisations. 25. AAS 25: Comparatives 26. AAS 26 : Terms of Audit Engagement 27. AAS 27: Communication of Audit Matters with those entrusted with Govemance, 28. AAS 28 : Auditor’s Report on Financial Statements. 29. Audit in Computer information system Environment AAS~1 :Basic principles governing an audit: - The basic principles governing an audit are: 1. Integrity, objectivity and independence: - This principle suggests that an auditor must be straight forward, honest sincere, fair and objective in the performance of his professional duties. 2. Confidentiality: - This principle implies that the auditor must not disclose any information acquired by him in the course of his audit work to any person. 3. Skills and Competence: - This principle means that an audit should be performed and the audit report should be prepared with due professional care by persons who have adequate training, experience and competence in auditing. 264, Work performed by Others: This principle implies that when an auditor delegates his work to his assistants or uses the work performed by other auditors and experts he will continue to responsible for performing and expressing his opinion on the financial statement. 5. Documentation: - This principle implies that all matters which are important in providing evidence that audit ‘was carried out in accordance with basic principles should be adequately documented. 6. Planning:-This principle suggest that an auditor should plan his work to enable him to conduct an effective auditin an efficient and timely manner. 7. Audit evidences - This principle implies that an auditor should obtain sufficient appropriate evidence to draw reasonable conclusions. 8.Accounting system and Internal Control: -This principle suggests that an auditor should reasonably assure himself that the accounting system and internal control are adequate. 1.15 AUDIT PLANNING In order to ensure a high standard of performance, itis important that the auditor should prepare adequately for his work. Planning for an audit, just like every human endeavour, is essential for the smooth performance of the audit work and its successful completion. Planning ahead for an audit work will not only guarantee a valid audit opinion but will also help the auditor to ensure that: (a) The audit objective is established and achieved; (b) The audit is properly controlled and adequately directed at all stages; (©) High risk and critical areas of the engagement are not omitted but that adequate attention is focused on these areas; and (@) The work is completed economically and expeditiously, hence, savings on audit resources, It is important to distinguish between an audit planning memorandums. Audit plan relates to preparations made by the auditor for one specific audit engagement. While audit planning memorandum isa standing arrangement made by the auditor for the continuing engagement of a particular client. Hence, audits plan for the audit of one client for one year while audit planning memorandu is a standing plan for the continuing audit ofa client from year to year. Points for Consideration in Audit Planning Points for Consideration in Audit Planning Points for Consideration in Audit Planning Audit planning requires a high degree of discipline on the part of the auditor. In order to make the planning more meaningful, the auditor shouldtake into consideration the following matters in relation to the audit engagement: 27(a) Preliminary Work to be Done in Addition to the Real Audit Work: This will include such matters as. stocktaking, cash count, debtors’circularisation and review of previous year’s working papers. This will remind the auditor of those matters brought forward from the previous year and any other points to be resolved in the current year or problems anticipated. (b) Changes in Legislation or any Auditing Standards or guidelines: Guidelines The promulgation of the ‘Companies and Allied Matters Act, Cap. C20, LEN 2004, brought with it a lot of changes in accounting and auditing requirements of companies. Such legislations whether in respect ofall companies or particular industrial group, must be reviewed ahead of the engagement in order to determine their effects on the operations or reporting requirements of the enterprise. (©) Analytical Review of Available Management Accounts and Other Management Information that Relate to the Accounts: This will assist in establishing valuable ratios and indicators that will guide the auditor. For instance, the computation of the gross profit percentage compared with that of the previous year will provide good indicator to the auditor of the accuracy and reliability of sales and cost of sales. (@) Changes in the Business or Management: The appointment of a new Finance Controller and the establishment of a new business line or the creation of a new branch are significant changes in the circumstances ofthe company which will necessitate changes in the existing audit plans, (e) Changes in the Accounting System: The introduction of computers such that when a company introduces significant changes in its operating procedures will require a review and evaluation of the system of internal control. (f) Deadlines Established for the Submission of Audit Report: Where a client has set deadlines for its statutory activities such as the annual general meeting, itis important for the auditor to work in line with such programmes. (g) Use of rotational testing and verification: In practice, the auditor may not carry out a hundred percent testing ot verification ofthe client's transactions or segments of the business. Where rotational testing or verification is adopted, it will be necessary for the auditor to determine ahead of the date of the engagement which aspects of the business should be selected for testing or verification. An example of rotational testing could be applied on the client’s branches to be visited. Points for Consideration in Audit Planning Memorandum Audit planning memorandum should cover the following standing matters which are designed to achieve the desired audit objectives: (a) Terms of Engagement: In the case of a new audit engagement, a letter of engagement should be prepared as part of the overall plan of the audit. Even in subsequent visits, the letter of engagement should be reviewed in 28the light of current circumstances to ensure that all aspects of the work undertaken for the client are covered in the letter especially as they relate to taxation, accountancy, staff development and executive search. (b) Audit Risk Areas: The auditor should critically review all the areas of high risk in order to ensure that the planned procedures adequately cover such areas and that competent staff have been assigned to these areas. High risk areas may relate to the nature of the items, such as cash for a retail establishment with numerous collection points and outdoor disbursement locations. Risk may also relate to a high probability of erroras in the case of stocks whose quantities are subject to estimation and are susceptible to pilferage. The risk may also relate to the structure of the organisation especially in cases of joint ownership of an organisation, where the ‘owners are not equally represented in the management. There is therefore the risk of withholding key information from some of the directors. (©) Assets and Liabilities: These will require detailed plans since they are of continuing relevance to the financial statements of many years and the relevant vouchers may not be readily accessible. The plans relating to assets should clearly disclose their history such that current movements may easily be ascertained and adequately verified, These will apply mainly to plant and long term loans. (d) Presence of Internal Auditor: Wherever an internal auditor exists in an organisation, the auditor should develop suitable plans to review the technical competence ofthe intemal auditor, his degree of independence and scope and quality of his work in order to determine the extent of reliance to be placed on his work and to identify the areas of work overlap. (e) The Need for Specialists: The auditor should determine ahead of his visit those aspects of the work that ‘may require the services of specialists. This may be internal or external specialists as relates to stocks, specialist valuation for insurance or computer applications. (Audit Approach: Based on the review of the system of intemal control, the auditor should be able to decide ‘onthe audit approach to adopt. This will be based on the extent of reliance to be placed on the system of internal control. (g) Timetable: A critical aspect of the auditis the timetable. The auditor should establish plans to ensure that for cach year, the audit is completed within any stated deadline for submission of the report (h) Staffing: The auditor should plan for adequate number of staff with the required skill for the audit. The training of audit staffis along term process which will require that even from the initial appointment of the auditor, he should take steps to train suitable staff in sufficient number to handle the audit of the client. (i Fees: Based on plans already established in terms of time, staff and materials, the auditor should plan for his fees to cover staff salaries, overhead costs and leave a sufficient margin for the partners’ share of profit and pension scheme. The planned fees must be discussed with the client, ifnot already agreed. 291.16 AUDIT PROGRAMME Anaudit program, also called an audit plan, is an action plan that documents what procedures an auditor will follow to validate that an organization is in conformance with compliance regulations, The goal of an audit program is to create a framework that is detailed enough for any outside auditor to understand what official examinations have been completed, what conclusions have been reached and what the reasoning is behind each conclusion. The framework should explain the audit's objectives, its scope and its timeline. The audit program should also describe how working papers — the documented evidence of the audit — will be collected, reviewed and reported. 1.16.1 Objectives Of Audit Programs When developing an audit program, the intemal auditor and its associated audit team should start with outlining the audit’s objectives, goals and obligations. Audit program objectives help direct planning of the audit report and are based on the policies, procedures and guidelines unique to the company. These objectives may relate to and outline how the auditors will maintain efficiency, professionalism and a specific code of conduct during audit procedure, In addition to relevant regulatory compliance mandates, objectives for audit programs should consider aspects such as management priorities, business intentions, system requirements, business structure, legal and contractual ‘mandates, the expectations of customers and other interested parties, potential risk management vulnerabilities, and any corrective action taken based on previous audits. 1.16.2 Types Of Audit Programs Different types of audit programs include standardized audit programs, tailored audit programs and compliance audit programs. Standardized audit programs, which are available for many different industries, can be used proactively to help an organization create its own internal compliance framework and internal audit program, For ‘example, the Intemational Federation of Accountants publishes financial audit standards called the International Standards on Auditing, A standardized audit program is different than a fixed audit program, which is defined as an audit program that cannot be changed during the course of an audit. Tailored audit programs are different from standardized audit programs in that they cater audit procedures to match specific needs of the auditing entity. These audit programs are “tailored” to reference specific areas such as business procedures, legal documents and assets. By targeting these specific requirements through tailored audit programs, the company can more quickly identify potential compliance lapses and develop intemal controls to offset these vulnerabilities ‘A compliance audit program outlines how an organization will adhere to regulatory guidelines. The details of compliance audit program will vary depending upon factors such as whether an organization is a public or private company, what kind of data it handles and if it transmits or stores sensitive financial data, For instance, Sarbanes- 30Oxley Act requirements state that electronic communication must be backed up and secured with disaster recovery infrastructure, while financial services companies that transmit credit card data are subject to Payment Card Industry Data Security Standard (PCI DSS) requirements. In the Unites States, publicly traded companies must report results of intemal control audits to the Securities and Exchange Commission (SEC). In each case, an organization's audit program outlines how the company will maintain compliance with regulatory compliance rules. Specimen copy of an Audit Programme The following isa specimen copy of an audit programme for the year ended 31 March 2015. Particulars Period of Name of Tobe ‘Completed Verification the Persons completed by on ‘Cash Book: ‘Vouching: First 3 and Last 3 Months Posting: Casting: First2 and AB 25th July 30th Jaly Last2 Months Supervisor Signature: Signature of Audit Staff: Purchase Day Book: Vouching: First 1,2, last cD 29th July 31stJuly andany I month inthe middle Posting: ‘Casting: All the above 5 months Signature of Audit Staff Supervisor 311.16.3 Advantages Of Audit Programme ‘The advantages of Audit Programme are: 1. Provides a clear set of instruction on the work to be done. 2. Provides clear record of work done and by whom. 3. Work can be reviewed by senior auditor. 4, Work will not be duplicated. 5. Noimportant work will be overlooked. 6. Evidence of work done is available for use in defending charge for negligence. 7. Audit Programme serves as ashield against any charge of negligence by a client on the part of the auditor. 8. Itprovides an assurance that no material aspect of audit examination has been overlooked. 9. Itpinpoints the audit work to be done by audit staff and that has already been done. 10. IT facilitates in the distribution of work among the audit staff according to their knowledge. 11. Audit programme of last year serves as a basis in preparing the audit programme for subsequent year. 12. Before signing the audit report, final review of work done can be easily made. 13. _Itensures the adherence to International Accounting and Auditing Standards. 14, Responsibility of each audit staff (articled clerk) is fixed. 1.16.4 Disadvantages Of Audit Programme The disadvantage of Audit Programme are as follows: 1. Work may become mechanical. 2. Parts may be executed without regard to whole scheme. 3. Programme may rigidly followed. 4, Initiative may be lost. 5. Audit taff'may not have opportunity of showing independent thinking, intelligence and initiative due to adherence to audit programme, 6. Audit programme may not cover everything that might come up during the course of audit 7. Itmay create rigidity in audit examination if not frequently reviewed and updated. 328. Audit staff'is bound to follow audit programme mechanically irrespective of changes in internal control introduced by the client. 9. Audit staff may defend by claiming that a particular audit examination was not provided by audit programme, 10. Fixed auditing programme will have its own limitations. 11. Clients staff knowing the extent and methods of checking followed by auditor may devise means to escape detection of fraud by auditor. 1.17 AUDIT NOTE BOOK During the course of audit the audit clerk experiences several difficulties. He cannot remember everything at all time. So he maintains a book with him in which he makes note of important points and queries, which he has to refer to the client’ staffor clarify with the chief auditor. Such a book is called Audit Note Book. Itis an essential book used to note important points that shall be included in the Auditor's report. Itis a complete record of doubts and their clarification. Ithelps the auditor in his subsequent audits Itis also used as a guide to the other audit clerks. ‘To sumup audit note book is nothing but a dairy, maintained by the audit staff for the purpose of recording certain points which require further clarification, explanation and investigation. This book generally includes the errors found out during the course of audit, difficulties observed and doubtful queries of various accounting records, etc This note book usually forms a part of the permanent audit file. Audit note book is also called as a remembrance book. It contains all matters that come to the notice of the auditor in the course of audit. Italso plays an important part in defending the auditors ifany legal action is brought against them. Audit note book can be used as authentic evidence in support of the work done by them. Audit note book may be in the form of a bound book or of a permanent file of the audit office. It may also be in the form of loose sheets where the auditor files these sheets subsequently according to the sequence of dates for the future reference. Definition of Audit Note Book E.L. Kohler formulated a detailed definition for the term. According to him, “Audit note book is a record, used chiefly in recurring audits, containing data of work done and comments outside the regular subject matter of working papers. It generally contains such items as the audit programme, notations showing how sections of the audit are carried out during successive examinations, information needed forthe auditor’s office and for staff administration, personnel assignment, time requirements and notations for use in succeeding examination”. 331.17.1 Contents of Audit Note Book Anaudit notebook generally consists of the following information: 1, The nature of the business and summary of important documents relating to the constitution of the business suchas Memorandum of Association, Articles of Association or Partnership Deed, etc. 2. Alistof the books of accounts maintained. 3. Particulars as to the system of accounts followed and the system of intemal check in force. 4. Names of principal officers, their duties and responsibilities. 5. Progress of audit work together with the dates on which the work was undertaken and completed. 6. Extracts from correspondence with different authorities. 7. Audit programme, 8. Allocation of work among different audit staff. 9. All queries which have not been clarified so far. 10. Lists of missing receipts, vouchers, bills, etc. 11. Any special point arising during the course of audit to which the attention of the auditor must be drawn. 12, Particulars of cash balances, investments, fixed deposits, and the reconciliation statements of principal bank accounts. 13, Extracts of the minutes and contracts affecting the accounts. 14, Record of audit work done with dates of commencement and of completion. 15, Particulars regarding the financial policies followed by the business. 16. All mistakes and errors discovered, 17. Points to be incorporated in the audit report. 18, Points, which need further explanations and clarifications. 19, All important matters for future reference at subsequent audits. 20. Information of permanent nature relating to the business and notes ofall important technical transactions. ‘These matters are very useful in preparing the audit programmes for subsequent audits. 341.17.2 Importance of Audit Note Book 1. Audit note book shall be taken as reliable evidence even by the Court of law in case of dispute or if the auditor ischarged with tegligence. 2. tis useful for drawing the audit programmes. 1.17.3 Advantages of Audit Note Book ‘Some the advantages of audit note book are given below: 1. Audit note book enables the auditor to record important points, which arise during the course of his audit; otherwise he might forget these points. 2. An auditor can produce this book as a documentary evidence in a suit filed against him for negligence or misfeasance, 3. It facilitates the preparation of the audit report. 4. Ifthe assistant in charge is changed before the completion of a particular work, itacts as a guide and makes the completion of balance work easier. 5.Acredit note book makes the work of audit convenient because all the important details about audit can be recorded in this book and, as such, any change in the staff of the auditor does not disturb or dislocate the work of audit. 6. Itcan help in making an assessment of the work of audit clerks. 7. Itprovides akey to evaluate the efficiency of the audit staff. 1.17.4 Disadvantages of Audit Note Book There are, however, certain disadvantages of audit note book. They are as follows: 1. Very often, it creates misunderstanding between the client staff'and the audit staff. 2. Ifitis not properly and carefully prepared it cannot be used as evidence against the auditor for negligence 3. Itdevelops a fault finding attitude in the minds of the staff ofthe audit. 4, Aut staff has to depend too much upon the client's staff for its preparation. 1.18 AUDIT WORKING PAPERS Audit working papers include those papers and documents, which consist of details about accounts, which are under audit, They are the written, private materials, which an auditor prepares for each audit. They describe the accounting information, which he obtained from his client, the method of examination used, his conclusions and the financial statements. 35Definition of Audit working papers The Institute of Chartered Accountants of India insists on the preparation and keeping of adequate working papers. According to the Institute of Chartered Accounts of India, “Working papers must include audit programme, queries, explanations given for the queries, schedules of important items like depreciation, inventories, confirmation from third parties, certificates issued by the management, banks, etc” Thus, the standard requires an auditor to maintain adequate working paper. Working papers provide basic evidence of audit conducted in accordance with standard audit practices. They help the auditor in writing the report. The quality of audit work performed by the auditor can be judged by the character and contents of working papers prepared and maintained by the auditor. According to Prof. Meigs, “The term working papers is a comprehensive one and includes all the evidences gathered by the auditor to show the work he has done, the methods and procedures he has followed and the conclusions he has developed “. 1.18.1 Objectives of audit working papers 1. The working papers serve the auditor both as useful audit ool as well asa permanent record of the audit work performed. 2. They are useful to the auditor to control the current year’s audit work. 3. They constitute a reliable guidance for planning the future audit assignments 4, Areview of the audit working papers gives an assurance that the audit work is both accurate and complete. 5. The auditors arrange the data properly in the working papers. Hence, the data become more meaningful and useful for the purpose of the, audit 6. Working papers are necessary to corroborate the work and the findings of all the audit staff, 7. The chief auditor is assured that the opinion is supported by the findings of their audit staff. 8. The working papers constitute complete and conclusive evidence in future as to the entirety and completeness of the audit work. 1.18.2 Contents of audit working papers AAS3 states working papers should record the auditor’s plan, the nature, timing and extent of the audit procedures performed; and the conclusions drawn from the evidence obtained. Generally, audit working papers consist of the following details: 361. Schedule of debtors and creditors. 2. Trial Balance. 3. Certificate of officials regarding certain important matters like bad debts, valuation of stock, unpaid expenses, accrued incomes, ete. 4. Statementof depreciation, 5. Correspondence between the auditor and the debtors, creditors, etc. of the client. 6. Investment Schedules. 7. Confirmation by the bank regarding the bank balances of the client. 8 BankReconciliation Statement. 9. Important extracts from the minute books such as agreement with vendors, hire purchasers, selling agents, 10. Detail of cash balance checked. 11. Adjustmententries. 12, Contingent liabilities certified by the management. 13, Draftfinancial accounts. 14, Details ofclarifications made during the course of audit. 15. Acopy ofthe auditor’s book. 16. Letters of representation, 17. Correspondence from legal advisors 18, Pertinent memoranda relating to the audit. 19, Datarelating to the review of internal control. 20. Stock holder equity and the minutes. 21. Testof transactions. 1.18.3 Purpose of Audit Working Papers The following are the purposes of Audit working papers: 1, Working papers represent the volume of work performed by the auditor and his staff. Hence, they enable the easy drafting and preparation of a detailed audit report. 372. The various minute details and aspects of the audit report can be well substantiated based on the findings summarized in the report. 3. They become valuable documentary evidence for the auditor on the occasions when he has to defend himself against the charges of negligence, etc. eveled against him. 4. They enable auditor to coordinate and organize the work of audit clerks. 5. They enable tie auditor to advice his client regarding the improvement of the system of internal check and efficiency of the accounting system. 6. They serve asa guide to the auditor in subsequent examinations and help the auditor to plan for the succeeding year: 7. They serve as a means to give training to the audit clerks to summarize the work done by them. 1.18.4 Essentials of Good Working Papers ‘The essentials of good working papers are as follows: 1. Working papers should be complete in all respects. They should contain all necessary information so that they may beofmaximumuse. 2. They should be properly organized and arranged so that one may not experience any difficulty in locating a particular matter. 3. They must contain accurate information so that they will be relied upon. 4, They should contain the facts, which are of self-explanatory. 5. The facts given in working papers should be readily apparenttto the reader, 6. The relevant details should always be kept in the working papers. Al irrelevant inforruation should be kept out of the space in order to enhance their utility for the purpose for which they are kept. 7. The audit working paper files should be properly preserved and filed. These files should be serially numbered and indexed so that they may be made available whenever they are needed. 8. Paper used for the preparation of working papers should be of better quality and uniform size. 9. Sufficient space should be left after each note so that any decision taken by an auditor may be written in that space. 1.18.5 Preservation of Audit working papers Working papers are to be retained in the safe custody of an auditor. The client's staff or third parties should not have access to working papers. The documents are to be preserved for sufficient lmgth of time in order to satisfy 38the needs of auditor and professional requirements of record retention. The auditor has to maintain the confidentiality of the affairs of the client. 1.18.6 Ownership of Audit working papers The working papers are the matters documented by the auditor, So they are his property. Although, the client ‘may claim thems a record of his business matters, the auditor cannot part with them as his conclusions are based on them and as they provide evidence of the audit work carried out according to the basic principles. ‘The legal observation in the case of Sockockinsky Vs Bright Grahame & Co. is that “The working paper belongs to the auditor not to the client, as the auditor is an independent contractor and not theagentof the client”. Similarly the Court of Appeal in the case of Chantrey Martin & Co. Vs Martin held that “The working papers prepared by the auditor are the property of the auditor”. Thus, the working papers are the property of the auditor. They are not a part of, nor substitute for, the client's accounting records. 1.19 INTERNAL CONTROL Internal control is the whole system of control established by the management for the proper conduct of various activities of the organization, Itis not only internal check and internal audit but also the whole system of control financially and otherwise established by the organization in order to carry out the business in orderly and efficient manner. Itis useful for the organization to safeguard the assets and serve the reliability of accounting records. In other words, itis the overall control adopted by the organization. 1.19.1 Features: 1)Itis the overall control adopted by the management. 2) It comprises of plans, methods and procedures for the effective control of the operations of the business. 3) Itcomprises of internal check, intemal audit, accounting system and administrative control. 4) Itis established by the management. 5) Itintended to help the management to run the business efficiently. 1.19.2 Objectives: 1) To ensure that transactions are recorded proper books of account. 2) See that all transactions are carried out only on account of a sanction of authority. 393) See that management policies and decisions are properly implemented. 4) To ensure efficient conduct of business. 5) To evaluate the efficiency of performance of the various personnel. 6) To safeguard the assets of the organization. 7) To safeguard the interest of the organization. 8) To ensure reliability of accounting records. 9) To ensure the periodical verification of assets. 1.19.3 Scope or Area of internal control: 1) Accounting Control. It ensures the reliability of accounting transactions. Accounting transactions are recorded by using accounting principles. 2) Administrative Control. Itis concemed with distribution of authority and decision making process of management. Overall operation efficiency of the organization is ensured. 1.19.4 Essentials of Good internal Control: 1) Itshould be clear and well developed plan of organization. 2) There should be competent and trust worthy personnel for the success of the business. 3) There should be segregation of duties: - Operational duties are separated from recording duties. Physical handling of asset must be separated from accounting records. 4) There should be administrative traditions and practices for the performance of the duties. 5) There should be well developed and adequate accounting system. 6) There should be a sound system of maintenance and recording of accounts. 7) There should be effective intemal check system. 8) There should be good audit system. 9) Periodical review of intemal control. 1.19.5 Advantages Of Internal Control A, Advantages to the business: 1) Provide accurate and reliable data to the management for taking correct decisions. 2) Ensure that policies and procedures are complied with. 403) Promotes operational efficiency. 4) Help to attain organizational goal. 5) To safeguard the assets of the organization. 6) Toensure the reliability of accounting records. B. Advantages to the auditors: 1) Helps the auditor in framing the audit program. 2) To ascertain extent of test check can apply. 1.19.6 Limitations of Internal control: 1) Expensive. 2) Transactions of unusual nature may not be subject to internal control. 3) Human errors remain in any system of control. 4) Limitation of preventing frauds committed through collusion between persons. 5) It may not be keep pace with the change in the condition. 1.20 INTERNAL CHECK Itis an arrangement of accounting work under which the work of one person comes under the security of another person. So, that itis not possible to commit fraud without collusion between two or more persons. In other words, itis an arrangement of accounting system under which no one person is allowed to carry out one work completely Specialization & division of work is important one. The work of one staff is automatically checked by another person in order to locate errors and frauds 1.20.1 Advantages: ‘A. Advantages to business: 1, Proper division of work 2. Fixation of responsibility 3. Greater efficiency of the staff. 4, Increased carrying capacity. 5. Barly detection of errors and frauds. 6. Easy preparation of final account. 7. Truth and accuracy of accounting can be available. 41B. Advantages to Owners: 1. Genuineness and accuracy of the account. 2. Overall efficiency, economy in operations, increased profitete.. C. Advantages to Auditor: 1. There is no need for detailed examination of book of accounts. 2. Itreduces burden. Objectives: 1) Proper division of work. 2) Minimization of errors and frauds. 3) Easily detection of errors and frauds. 4) Ensures the reliability of accounts. 5) Easily preparation of final accounts. 6) Simplification of the extemal auditors work 1.20.2 Limitations: 1) Suitable only for big concerns. 2) Sacrifice of quality for quickness. 3) Certain type of disorder, confusions etc... in the working of the organization. 4) Useful only when there is no collusion between employees. 5) Risky for the auditor. 1.20.3 Principles and essential of good internal check system: 1) Simple, easy workable and effective. 2) Not be too expensive. 3) Carefully devised and properly regulated. 4) Authority should be clearly defined. $5) Proper division of responsibility. 6) Division of work among the staff. 427) Work of similar nature should be entrusted with one person to ensure specialization. 8) No individual should be allowed to perform one work completely. 9) Work should be distributed in such a way that the work of one staffis automatically check another. 10) No employee should be allowed to remain a particular job for along period. 11) No employee of the concern should be rely upon too much. 12)Proper reporting to the management. 13) Propersystem of filing vouchers. 14) Safeguards should be prescribed for the safe custody of unused cheque book, securities etc... 15) There should be a self balancing ledger system. 16)AIll incoming letter should be opened by responsible officers. 17) The receipt of cash and disbursement should be entrusted to different personnel. 18) Cashier should have no access to ledger. 19) All remittance received should be deposited in a bank immediately. 20) All cash payments should be made by a cheque. 21) Cash and bank balance should be verified frequently. 22) Petty cash payment should be on imprest system. 23) There should be effective control of receipts and issue of goods. 24) There should be a perpetual inventory system. 1.21 DIFFERENCE BETWEEN INTERNAL CONTROL, INTERNAL CHECK AND INTERNAL AUDIT Difference between internal control, internal check and internal audit —_ Internal Control. Internal check. Internal audit. It is the whole system of | It is the arrangement of| Continuous review of control established by | accounting work under | records by staff management. which the work of one| appointed for the person comes under | purpose. another. 43Scope of internal audit is Scope of internal check|less that of internal control wider than internal check. The object of intemal audit is to assure the management that the syitem of internal control and internal check in operation are in effective in design and operation. It is conducted by the staff specially appointed for the purpose called as internal auditor. It is undertaken by the auditor after the work has been completed. Internal audit is adopted only those concerns which really need it 1.22 PROCEDURE OF AUDIT: The way in which the audit work should be conducted by the auditor. 1) Routine checking 2) Testchecking 3) Surprise checking. 4) Audit in depth. 5) Adoption of distinctive tick mark, check mark ete... 1. Routine checking: It is the checking and casting common books of accounts by the auditor. It involves following activities. a) Checking, casting and sub casting of such books. b) Checking of posting into ledger book. ©) Checking the balances transferred from one book to another Common Books. Sales ledger, private ledger, wage sheet , general ledger, debit note, credit note, all subsidiary books like cash book, purchase book, journal proper ete.. 44Advantages of routine checking: 1) It facilitate through checking of books of original entry. 2)Posting under routine checking, posting are completely checked, 3) Thorough checking of casting and posting are involved. 4) Verifying the arithmetical accuracy in the entries. 5) Clerical errors and ordinary frauds are located through routine checking, 6) Itconstitutes the basis of entire audit. 7) Itensures there is no alteration of figures. Limitations of routine checking: 1)Itis purely a mechanical checking. 2) Itis notimportant in an organization where self balancing system is in operation. 3) Simple type of errors and frauds can be located 2. Test Checking: Testing of test checking means to select and examine a representative sample from large number of similar items. The main objective of test checking isto select representative item and examining itand conclusion is drawn from all ofthe items. Essentials of Test Checking: 1) The success of test checking depends upon the system of intemal check in operation. 2) The sample should be selected at random. 3) Transaction should be selected only representative of the whole of the group. 4) Homogeneous transactions are taken into account. 5) Selection of sample should be made without bias. 6) Testchecking is not applicable in cash book transactions, 7) Noindication should be given to small organization. 8) Itis not applicable to first month and last month transactions. 9) It is not applicable to checking of opening and closing balance. 10) Ifthe transactions are non-recurring in nature itis not applicable. 45Advantages: 1) Complete the audit work ina shorttime. 2) The volume of work of the auditor is reduced to certain extent. 3) Itensures better accuracy of the book of account if selection is made on properly. 4) Itensures examination of efficiency of the intemal check system of the organization. Limitations: 1)All of the errors and frauds cannot be detected. 2) Test checking increase the responsibility of the auditor. 3) The staff of the client may become careless. 4) The current financial position cannot be revealed. 3. Surprise checking: A system under which the auditor make surprise visit to the organization and check the important items i.e. the verification of the cash book, investment, examination of entries related to stock and stock items and examine the book of original entry. 4. Auditing in depth: Examination of selected item in depth or to the origin to conclusion. Generally it is adopted where internal control is not effective. 5. Adoption of distinctive tick mark, check mark ete: For the purpose of audit the auditor can use the ticks, tick marks, check marks ete to indicate the work done by the auditor. 1) Different type of tick should be used in different type of audit work. 2) Itis better to use ballpoint pen instead of pencil. 3) Tick of different colours for different audit. 4) Tick should be too small. 5) Tick should be clear and simple. 6) Tick should not be mixed up with the figures shown in the book of account. 7) Clear instructions must be provided to the client for the use of tick mark. 8) Tick of client staff and audit staff should be distinctive. 46UNIT-II 2 VOUCHING: ‘Vouching is the act of checking or examining the entries made in the books of account with the supporting the documentary evidences or vouchers. In the words of L.R DICKSEE ,”'Vouching is an act of comparing entries in the books of account with the documentary evidence in support thereof”. 2.1 OBJECTIVES OF VOUCHING: 1) The principal objective of vouching isto ensure that the transactions, as recorded in the books of accounts, are acceptable, genuine, properly authorised and correctly recorded. 2) Another objective of vouching is to ensure that all the entries made in the books are supported by necessary documentary evidence. 3) To see that all the transactions connected with the business have been recorded in the appropriate books of account. 4) To ensure that no transactions, which is not connected with the business, has been recorded in the books of accounts. 5) Detection of errors and frauds. 2.2 IMPORTANCE OF VOUCHING Vouching constitutes the foundation upon which the super structure of auditing is erected. Itis the back born of auditing, In the words of FRM De Paula, vouching is the essence of audit. Vouching can be regarded as the essence or back bone of auditing forthe following reasons. a) The success of an audit largely depends upon the care and attention with which vouching is accomplished b) Vouching is the most potent tool in the hands of an auditor to ascertain the accuracy of the transactions recorded in the books of account. ) Tosee thatall the transactions connected with the business have been recorded in the appropriate books of account. d)To ensure that there are no transactions, which are not connected with the business, has been recorded in the books of accounts. ) Detection of errors and frauds f) Vouching ensures the arithmetical accuracy of the books of account. 2) If vouching is done with care and caution, the auditor can smoothly proceed further in his work. 472.3 VOUCHERS A voucher is the documentary evidence in support of a transaction recorded in the books of account. It is a documentary evidence of an entry in.a book of account. The following are the some of the examples of vouchers: a) Receipt obtained from a payee. b) Counter foil of a receipt. ©) Purchase invoice. 4) Sales invoice. €) Cash memo. ) Bank pay-in-slip. g)Acontract or an agreement. h) A resolution passed at the meeting of the board of directors. i) Minutes ofa meeting. j) Bought notes. k) Sold notes. 1) Debi note, m) Credit note. 1) Wages sheet. 0) Salary register ) Goods inward book. 4) Goods outward book. 2.3.1 Types of vouchers: 1) Primary vouchers:-a primary voucher is written evident in original. Purchase invoice, cash memos for goods purchased etc. are examples. 2) Collateral or secondary vouchers:- even evidences in original are not available, copies of the evidences are produced in support. Again, sometimes, subsidiary evidences are also provided for the purpose of audit, Such vouchers are usually known as collateral or secondary vouchers. 48Essentials of vouchers or points to be noted by the auditor while vouching the vouchers: 1) Vouchers are consecutively numbered, arranged serially in the order ofthe entries and are properly filed. 2) Vouchers are in the name of the client. 3) See the teach voucher is genuine on its face. 4) Voucher is certified as correct by a responsible official. 5) The amount of each voucher is written in words and figures. 6) Every voucher, which is a receipt for cash payment over Rs 5000, bears a revenue stamp of Rs | 7) Alteration made in a voucher is properly signed by the maker and approved by a responsible official. 8) Any explanation is desired with to any voucher, the same should be noted in the audit note book. 9) Missing vouchers produced, the auditor should do, 2) Prepare a list ofall such missing vouchers )Call for explanation from the concerned official from the loss of original vouchers 10) Ifany voucher requires a special scrutiny, the auditor should proceed cautiously and use special ticks for checking. 11) As faras possible the auditor should complete the vouching work relating to a particular period in continuous siting, 12)The auditor should not take the help of any staff while vouching the vouchers. 13) Test checking may be resorted only in exceptional circumstances. 2.4 VOUCHING OF CASH BOOK OR CASH TRANSACTIONS Cash transactions take place almost every day in business. An auditor should give care and attention to the ‘vouching of cash transactions. The main objectives of vouching of cash transactions are, 1) To ensure that all receipts of cash are duly accounted for. 2) To ensure that no improper payments are made. 3) To see that all receipts and payments of cash are actually and properly recorded. 4) To see that all payments have been made to proper persons and the payments are true payments. +5) To see that cash and bank balance correct and really exist. Vouching of cash book or cash transaction covers the vouching of receipt side and vouching of payment side. 492.4.1 Vouching Of Receipt Side Or Debit Side Of Cashbook Or Cash Receipt Transactions: Vouching of cash receipt transactions is more difficult than that of cash payment transactions, since there is sreater chance of manipulation in regard to cash receipt. The auditor should bear in mind the following points, while vouching the cash receipt transactions. 1) The auditor should carefully examine the system of internal check in operation with regard to cash receipt transactions. 2) An auditor can resort to test checking only if he has satisfied himself that there is an efficient ‘system of internal check. 3) He should ascertain whether a diary of cash receipt or rough cash book has been in use. Ifa rough cash book has been in use, he should examine the entries in the Tough cash book and compare with the entries in the ash book. 4) He should examine the methods of depositing daily receipts into the bank. 5) He should check the bank pass book with the entries in the cash book. 6) He should vouch cash receipts by reference to documentary evidences. 7) He should enquire into the system of allowing documents, the rate of discount allowed ete. 8) He should enquire into the bad debts written off. He should satisfy himself the bad debt written off are authorized by a responsible person. He should ensure whether there is a proper control over use of receipt book. In this context, he should keep in mind the following points: a) Allreceipts are on printed forms. b) See that receipt book should be consecutively numbered. c) The receipts have to be signed by a responsible officer. 4) The unused receipt book should be kept in safe custody. ©) All spoilt receipts should remain attached to the counter foils. 2.4.2 Vouching Of The Important Items On The Debit Side Of The Cashbook Or Cash Receipt ‘Transactions: 1) Opening balance: The opening balance of the cash book should be vouched by comparing it with the closing balance of cash book as shown in the audited copy of the balance sheet of the previous year, 502) Cash sales: The vouching procedure in regard to cash sales should be on the following lines: 1, He should examine the system of intemal check in operation in regard to cash sales. 2. After ascertaining the efficiency of the internal check system as regards cash sales, auditor should vouch the cash sales as follows: a) Cash memos written by the salesman should be checked with the summery sales prepared at the end of the day. ) He should examine the rough cash book, if any. ) He should check up the rough cash book with the main cash book. 4) The summaries of daily sales should be checked with the entries in the stock register. ©) He should verify the daily deposit of cash received into the bank, pay-inslip also should be vouched. 3) Receipts from debtors: While vouching the receipts from debtors, an auditor should bear in mind the following points: 1. He should enquire into the system of internal check in operation in regard to the receipt from debtors. 2. After satisfying himself about the efficiency of internal check in operation in regard to the receipt from the debtors, the auditor should conduct the vouching of receipts on the debtors on the following lines: a) He should check the total cash received from the debtors by verifying the rough cash book with the counter foils of the receipts issued to customers. ) He should check the cash book with the rough cash book. ©) He should check the details of cash and cheques paid into the bank. 4) He should enquire into whether bad debts are written off by a competent authority. ¢) He should verify the balances due as per the schedule of debtors with letters of confirmation received. ) He should be alert to the possibility of teeming and lading. 514) Receipts from bills receivable: Bills receivable include bills of exchange, promissory notes, and I.O.U’s received from debtors. The receipts from bills receivable can be in two ways: 1). Receipts from bills discounted: The vouching of receipts from bills discounted should be as follows: a) The amount of cash received from bills discounted should be checked by comparing the bills discounted book with the cash book, pass book, B/R book. 'b) Sce that proper records have been made in the books for discount on bills discounted. c) He should determine the contingent liability in respect of bills discounted but not matured on the date of the balance sheet. 2). Receipts from bills matured 4) The auditor should check the cash received from bills matured by comparing the bills receivable book with the cash book and the pass book. ») Special attention should be givento bills which have matured but remain unpaid. 5) Receipts from sale of investment: Vouching of receipts from the sale of investment should be on the following lines: a) Investments are usually sold through brokers, as such, brokers sold notes or contract notes should be examined to vouch the amount from the sale of investments. If the sale of investment has been effected through the bank, then, the bank advice should be examines to vouch the amount received from the sale of investments. b) The sale proceeds of the investments should also be checked with the related investment account with the stock market quotations. c) Ifthe investment has been sold cum-) Payments are related to the period under audit. ©) The payments is properly sanctioned or authorized. 4d) The payments are made to the right person. e) The payments are supported by proper vouchers. £) The payments are properly recorded in the cash book. 5). Examine the rough cash book items and compare it with the main cash book. 6) See that the payments made are posted to the concemed accounts. 7) See that the amount appears in the vouchers both in words and figures and it agrees with the amount in the cash book. 8) Ensure that the payments have been passed as correct by a responsible official. 2.4.4 Vouching Of Different Items On The Payment Side Or Credit Side Of The Cash Book : 1) Opening credit balance: ‘The opening credit balance in the bank column can be verified from the previous year’s audited balance sheet. 2)Cash purchases: ‘The vouching of the cash purchases should be on the following lines. 341) The auditor should examine entries in the cash book with the help of cash memos or invoices issued by the supplier and also goods inward book. 2) Special attention should be paid to trade discount, which should be deducted from purchase. 3) See that the cash paid for the goods have actually received. 4) He should see that the purchases are duly authorised. 5) He should see that the amount paid is debited to the appropriate account. 6) To ascertain whether payment made for cash purchases relates to the business. 3) Payments to creditors ‘Vouching of payment to creditors should be on the following lines. 1) Payments to creditors may be vouched with the receipts issued by the creditors. 2) He should check the amount due to the creditors with the accounts of the creditors. 3) Examine the goods inward book and see that goods have actually been received. 4) The auditor should verify the periodical statement of accounts. 5) In the case of purchase made before the close of the year, sce that goods not actually received are kept out of the closing stock of the year. 4) Payment of bills payable Payment of bills payable on their maturity should be vouched on the following lines. 1) The payment of bills payable, as recorded in the cash book, should be vouched with the bills payable book and also with the bills payable returned by the payees. 2) Ifthe bills payable are through the bank, the auditor should examine the bank pass book for the payment. 3) He should see that bills payable paid and retuned by the payees are cancelled. 5) Vouching of loans advanced Loans advanced should be vouched by the auditor on the following lines. 1)He should see that loans advanced are properly authorised. 2) He should examine the loan agreement. 3) He should vouch the loan advanced as recorded in the cash book with the loan agreement also with the receipt given by the borrower. 554) Ifthe loan is advanced against any security, the auditor should examine the security and its ttle deeds, 5) Examine the mortgage deed, ifthe loan is advanced against mortgage. 6) See that the provisions of the companies Act as regards the granting of loans to directors and officers of the company are complied with 6) Purchase of investment Vouching of purchase of investment should be on the following lines. 1) The auditor should see that the purchase of investment is properly authorised. 2) If the investments are purchased through a broker, he should vouch the investments purchased with the broker’s note. 3) If the investments are purchased through the bank, he should examine the bank pass book to check the payment, 4) He should make a physical verification of the investment purchased. 5) Ifthe investments are purchased cum interest, he should see that the payment made is properly allocated between capital and revenue. 6) See that investments purchased are registered in the name of the client. 7) Inthe case of accompany, the auditor should see that investments have been purchased in accordance with the provisions ofthe companies Act. 7) Payment of capital expenditure ‘The payment of capital expenditure refers to the payment made for the acquisition ofthe fixed assets such as land & building, plant & machinery, patent, copy right, funiture etc. Vouching of payment of capital expenditure should be on the following lines. 1) The auditor should see that the payment of capital expenditure is properly authorised. 2) He should examine the document pertaining to the purchase and ownership of the fixed assets. 3) He should examine the invoices and the receipts obtained from the suppliers to ensure that payments have been made. 4) He should see that all expenses incurred for the acquisition are capitalised. 5) He should see that repairs and maintenance expenses incurred are charged to revenue account. 6) He should physically examine the fixed assets purchased. 567) He should vouch the cash boom entries for the payment of capital expenditure with the concemed ledger account. 8) See that property purchased is registered in the name of the client. 2.4.5 Vouching Of Payment Made For The Acquisition Of Patents: ‘Vouching of payments made for the acquisition of patents should be on the following lines. 1) Ifthe patent has been purchased, the auditor should vouch the payment made for the patent with the help of the contract for sale and the receipts for the payment obtained from the seller. 2) Ifthe patent has been purchased through an agent, the auditor should vouch the agent commission with the help of agents account and receipt given by the agent. He should see that the agent’s commission is capitalized. 3) He should see that expenses incurred on the purchase of the patent are capitalized. 4) Where the patent is acquired through research, the auditor should see that all the expenses incurred on the experiments and the research connected with patents are capitalized. 5) He should see that payments made towards the renewal fee are charged to revenue account. 6 He should actually see the patent. 2.4.6 Vouching Of Wages: ‘The object of vouching wages is to ensure that the payment for wages as recorded in wage sheet and cash book, ‘were actually made properly authorised and were correctly maintained. Vouching of payment of wages should be done in the following lines. 1) He should enquire into the system of internal check in force in regard to the maintenance of wage records, preparation of wage sheet and payment of wages. 2) Ifthe internal check is effective, the auditor can conduct the vouching of wages on the following lines. a) He should check a few items of wage sheets here and there to ensure that the calculations are correct. b) He should check totals of wage sheet with the cash book, ©) He should see that the amount of cheque drawn for wages tallies with the totals of wage sheet. 4) He should see that deduction from wages have properly adjusted and recorded in the books. ¢) He should see that wages recorded in the cash book have actually been paid. £) He should examine the system of employment of casual labour and check the payment made to casual labour. {g) He should see that proper record is maintained for unpaid wages. hh) Wages for the current months should be compared with the wages of the previous month. Ifthere is a material difference, the auditor should enquire into the reason for the difference. 372.4.7 Vouching Of Salaries: Vouching of payment made for salary should be on the following lines. 1)Anauditor should enquire into the system of internal check in operation in the concem in regard to the payment ofsalaries. 2) Ifthe internal check system in regard to the payment of salaries is sound, an auditor can conduct the vouching of salaries on the following lines. a) He should see that the salary bill is prepared with the sanction of a responsible officer. b) He should see that the salary register is duly signed by each employee and counter signed by a responsible official. ©) He should check the salary register with the entries in the cash book. d) He should see that the deduction for provident fund, life insurance premium, income tax etc have been correctly made and properly recorded in the books ¢) For vouching salaries of the secretary, manager and other important officials, the auditor should examine the board’s minutes book f) He should check the attendance register. g) He should compare the salary bill for the current month with the salary bill of the previous month. Ifthere is any material difference, enquire into the reason for the difference. h) He should see that the total ofthe salary book for a particular month agrees with the cheque drawn forsalaries. 2.4.8 Vouching Of Petty Cash Book: Vouching of petty cash book should be on the following lines. 1) He should examine the system of intemal check in force in the business in regard to the petty cash transactions. 2) If he finds that the system of internal check is sound, he should adopt the following lines. ) He should find out find out the system of petty cash book. b) He should ascertain the name of the petty cashier to the amount of the imprest. ¢) He should check some petty cash payments at random with the vouchers to ensure the correctness of the petty cash payments. 4d) He should see that all petty cash payments over a certain amount are supported by proper vouchers. ¢) He should see that petty cash payments not supported by proper vouchers are supported by slips by the officer who have spent the amounts, 58£) See that the petty cash book is periodically checked and initiated by some responsible officer. 2) See that the petty cash balance as shown in the petty cash book agrees with petty cash balance as shown by petty cash account. 1h) He should check the casting of total payment column and the individual expenses column. i) He should physically count the petty cash balances on the balance sheet date. Ifhe fails to do so, he will be held liable for damages. This was upheld in the case of London Oil Storage Company Limited v/s Sears Hastuck and Company. {j) He should see that .0.Us are not included in the petty cash balances. 2.4.9 Vouching Of Trading Transactions: Vouching of trading transaction is concerned with credit purchases, credit sales, purchase returns, and sales returns are entered in the purchase book, sales book, purchase return book and sales return book respectively. So vouching of trading transactions also means that vouching of purchase book, sales book, purchase retum book, and sales return book. One main object of vouching of trading transaction is to detect misappropriation of goods, ifany. 2.4.10 Vouching Of Credit Purchases Or Vouching Of Purchase Book: ‘The main objective of vouching of purchase book or credit purchases is to ensure that all purchase invoices are entered in purchase book, that goods entered in the purchase book are actually received and the business pays only for those goods which are delivered by the suppliers. Firstly, an auditor should examine the system of intemal check in force in the business in regard to credit purchases. Ifthe system of intemal check is not sound, he should check all the entries in the purchase book in detail. Ifthe system of intemal check is sound, he need not check al the entries in the purchase book in detail. He has to vouch the credit purchases on the following lines: 1)He should examine the inward invoices from which entries are made in the purchase book. While examining an inward invoice, an auditor should pay attention to the following points: a) The invoice is in the name of the client. ) The date given in the invoice relate to the period under audit, ©) The invoice is related to the business in which the concem deals. 4) The invoice is initiated by a responsible officer. ©) The trade discount has been deducted from the amount of invoice and then only net amount has been entered. ) Quantity mentioned in the purchase invoice tallies with the quantity recorded in the purchase book, 592) He should check the purchase invoices with the purchase book, where the credit purchases are recorded. 3) He should see that only credit purchases are recorded in the purchase book. 4) He should see that purchases not made for the business are not recorded in the purchase book. '5) He should see that purchases of capitals assets are not included in the purchase book. 6) He should see that all goods received prior to the date of closing and taken into stock are recorded in the purchase book. 7) He should see that goods entered in the purchase book but not received are included in the closing stock. 8) He should verify some of the purchase invoices with the goods inward book, stock records and the challans from the suppliers to see that the goods have actually received. 9) He should compare some of the entries in the purchase book with the order book and goods inward book to ensure that no fictitious purchases are recorded and no invoice is entered twice. 10) To ensure that all invoices are included in the purchase book, the auditor should obtain the statement of accounts from the creditors and examine them. 11) He should make list of all invoices missing or not available. 12) Where contracts for forward purchases are entered into, the auditor should see that they are not abnormal. If they are abnormal in amount, he should see that it is mentioned in the balance sheet by way of note. 13) He should check the casts and carry forwards to the purchase book. 14) He should check the postings from the purchase book to the purchase account as well as to the creditors account 15) He should check carefully the purchase made in the first month and the last month of the accounting year, because, sometimes, purchases made in the last month of the last year may be included in the purchase of the current year or purchase made in the last month of the current year may be included in the purchases of the first month ofnext year. 2.4.11 Vouching Of Credit Sales Or Vouching Of Sales Book: Outward invoices, which are the vouchers for the credit sales, are not completely reliable, as they are prepared by the staff of the business. So an auditor has to very careful in vouching credit sales. Firstly he should examine the following lines: 1) He should examine the outward invoices from which entries are made in the sales book. While examining the ‘outward invoices, he should pay attention to the following points: 60a) See that name of the customer stated in the outward invoice agrees with the entry in the sales book. b) The date given in the outward invoice relate to the period under audit. c) The invoice is initiated by a responsible officer. 4) See that trade discount allowed is deducted from the sales price and net amount has been entered. 2) He should check the outward invoices with the sales book, where the credit sales are recorded. 3) He should check the sales book with the order received book and see that the sales are genuine and all the sales are included in the sales book. 4) After the examination of outward invoices, the auditor should see that they are cancelled by stamping out and all the cancelled invoices are kept together for verification 5) He should see that only credit sales are recorded in the sales book. 6 He should see that sales of capital assets are not included in the sales book. 7) See that good sent on sales or return or on consignment are not entered in the sales book. 8) He should see that good sold, but not delivered are not included in the closing stock. 9) He should check the casts and carry forwards of the sales book. 10) He should check the postings from the sales book to the sales account and customer accounts in the ledger. 11) He should check carefully the sales made in the first month and the last month of the accounting year, because, sometimes, sales made in the last month of the last year may be included in the sale of the current year orsale made in the last month of the current year may be included in the sales of the first month of next year. 12) Ifthe trade discountallowed during the current year is exceptionally high, the auditor should enquire in to the reasons for the same, 13) Where the sales are subject to sales tax, the auditor should see that the sales tax, collected is separated from the sales price, and is shown in a separate column in the sales book. 14) Sometimes, fictitious sales are included in the sales book to inflate the sales and the gross profit, an auditor has to take necessary steps to discover such fictitious sales. 2.4.12 Vouching Purchase Returns Or Purchase Returns Book: ‘An auditor should undertake vouching of purchase retums on the following lines: 1) He should enquire into the system of recording of purchase returns. 2) He should vouch the purchases retums book with the credit notes received from the creditors. 613) He should examine the goods outward book and the related correspondence to ensure that there is no suppression of purchase returns. 4) He should check the casts and carry forwards of purchase returns book. 5) He should check the postings from the purchase returns book to the purchase returns account and customers account in the ledger. 6) He should check carefully the entries in the purchase returns book for the first month and forthe last month of the year to ensure that there is no manipulation of accounts. 2.4.13 Vouching Of Sales Returns Or Sales Returns Book: 1) He should enquire into the system of recording sales returns. 2) He should vouch the sales returns book with the credit notes issued. 3)He should examine the goods inward book and the related correspondence to ensure that there is no suppression of sales returns. 4) He should check the casts and carry forwards of sales returns book. ‘5) He should check the postings from the sales returns book to the sales returns account and customers account inthe ledger. 6) He should check carefully the entries inthe sales returns book for the first month and for the last month of the year to ensure that there is no manipulation of accounts. 2.4.14 Vouching Of Journal Proper: Journal proper is meant for recording all those transactions which cannot be recorded in the other subsidiary books viz purchase book, sales book, purchase return book, sales return book, cash book, B/R book, B/P book. The following entries are recorded in the journal proper: 1) Adjusting entries. 2) Transfer entries. 3) Closing entries. 4) Rectification entries. 5) Entries for purchase and sale of assets on credit, 6) Opening entries. 7) Entries for consignment. 8) Entries for application for shares, allotment on shares and calls on shares, 62£9 ‘panedaid st 004s 9oueyeq ‘uy zoe 289 otp Jo pus ayy ye BuOp 1 uOHPALFLIAA SeaLOYM ‘xeaK ayy noysHONH auop st TUIYoNOA ~aUNL (p -spuo Suryonon araya suifaq uoNeOEIDA ‘pIOM 8THO UT “squnoooe Jo $4009 o1p Jo BuryonoA ayy aye UOxEUOPUN due SONITEqEI] PUe SJosse Jo UONLIILIOA -rsuFBIq YIOAA (E “ypoys aounjeq axp WI UAOYs se ssouSNg B49 J0 SenIqey| pur syosse Jo sonqea axp WUTyUOD 0} UaxEUApUN st WoREOYLDA ngl “ANU [eUTBLIO Jo SyO0g 2p Ut Pop10sa1 suonoesuen ssouisng amp Jo Anonuampne atp pue ss9u}991100 axp auUTEXd 0} atop st BuIyonoA ~:89an9afqQ (Z “yeoys 2oueyeq amp ur uuwadde samiriqey pur siosse Jo uoNeuTUExe axp s{ UONIBOLIOA Se AIDA ‘Kayuo peurSu0 Jo syoog oxp ut popiodas SuoHoBsuEN ssouTsng dtp Jo WoHVeUTUNeXe atp S| BuIyonoA ~29aNyBN (I sMOHLOYLaA pur Suyanoa usaayoq soudsHIG TST “ssouisng oyp Jo uonIsod yersueUy amp Jo ANaTA aurey pure ony B sais ays 2ouRpE axp JOYIayN UTES OL (9 “syunoaoe Jo $009 amp Jo Koemooe jRoHAUNTALIE 2H 49949 OF (S -sonigel] pue siasse jo uonvoysse|o sadoud st arayp soyroy INO puy OL Cb aoys 2ouvyed axp ur TuLzadde sjasse amp Jo diysioumo pu vorssassod om wITHOD OF (E “sonyea yoax109 stop ye WMOYS are ays 2ouEEQ ap Ut SuLseadde som iyiqet| PUR SHasse oxp JoyPOYA UTEUDOSE OY, (Z -astxo Aqjemyoe jo04s coueyeg amp ur UmoYs SanHTIqer] pue sjosse JOKPayA INO PUL OY (| SSOpMAeH PUL Sjasse Jo WOR EOHFLIIA Jo S)994O T'S*Z “sont 1 pue sjossejouoneneA pu vonvoyrsse[o sodoud pue sjasse ou Jo worssossod pure drystoumo yooys aouvjeq amp Supreadde s pur sjasse oup Jo aousysixa jenjoe oxy Suryst|qeyso SUOMI ‘SpIoM JaKPO UT ‘sseUTSNg axp Jo.OYS dduETEG amp UL Suteadde sonyiqer pue sjasse ou Jo onyea Aouow atp Jo ssauyoaus0D atp pue eoueystxe arp ynoge WN atp Bursoud sueow sanqiqel pue siesse Jo uoNBOTIAA * {HNN a1p Jo uoeUANJUOD, 10 ,yyM oxy uTAord, streaU MONLOYLIOA, SALLITIGVI'I ONY SLASSV AO NOLLVOIARYAA $7 -sonied Jo aouapiaa arp woyy samnuD soup Yooyp pinoys zoypne ayy ‘odoud yeunof ayy ui SoU UD DWIOS 104 a]qeyTeAe JOU Are saquApIAD om UIA (¢ -wonexreu Aq pourejdxo st sodoud yeumof ayy ur Anjua Axons yeup 298 Pinoys 9H (Z “gouaptA2 40 soyanoa v £q pouoddns st radoud jeumof axp ur Anus zona vex 29s PINoys 2H (| :souy Susmoy]0y ou7 wo sadord yeumof axp YonoA Pinoys JoNpNe9 sea 01 2ea6 ways juayststio9 Ua9q aAeY SIOsse Jo VONEN|eA Jo soneId pure sajdiouud amp soyraya AjLDA Pinoys oH (¢ “syasse Jo wonenyea arp Jo sams [je ou azAyeure pue outurexe AjeonUD prnoys aH (Z “syasse Jo wonenqea axp jo joadsaz ut ajqejreae woReMLOFUL [Te UrEIGO PINOYS aH (T :Buuao|[oy a1p op plnoys soupne ue joax109 are sjosse Jo Sonyea oxy eM JTOsUATY A¥styes oy ape Atsadosd oaq sey sjasse Jo uonenyea yorpJJASuHY Aystyes pure UonENyeA aMp DuTUTEXD AjfeonO 0} Sey JOHIPHE LY “yoo1s au Jo sjteap ayp 105 ajdoad soo uo Afar ysnUt oF “yoors 254 01 Amp s,oupHe we Jo wed ou Ot SeaL ‘ase 5, reduO9 SII WOOD UorseUry{ tp ‘aydurexa 104 “saseo Kumeu mt pjaydn seam ATA ST, ‘pourmnayop Aqrodord ame sjasse Jo anpea atp yerp s[9staNy Ayses pur sjasse jo uonenyea ayy oq Anmnbua ue aout 01 £tuo sey soypny“ssoursng arp Jo sqeroygo omp Aq ouop st stosse Jo WoREATeA oY, JONTEA YOU St JONpNe UE LOYS ‘Uy “sjasse Jo uonrenyea ox op oF paroadxe aq 3,429 JON Ue Og “sTosse Jo WoRENTwA atp 40} partnbar oumy amp JOU 28pa moun jeonutjsa} satprou sey soNpne te yng] “9Bpe}moury jeoruyso} Sasmnbouyy Se y|NOUPEP est S}asse Jo UOHENEA sS9SSVJO WOHUNTEA OF pavday UT Aynq soPNY 79° -qyoud 24p oonpax so ayeyur 0} juNoaoe Jo VONEIMdyUEUI OU s} axaEp TEMP aTeOIpUT OF (¢ “ssouisng 2qp Jo wonisod jerouwuy ayy Jo MOA sey puw ony & sjuosaudas Jooys aouR[Eq amp Te DveOIpUT OY, (Z ‘panyea jiadoad waag envy 190ys eouejeq ax UI UMOYS stasse yp JaMIOYA AJLAA OL (| ssoan99f40 19° -pouremioiap Apradosd uo9q sey 1909s 2ouEyEq am UT UMOYS Se Esse OM Jo aNyea KaUOLH aM yey) Buymsu so ssaooud atp st YoOys Uy ‘sapdroutsd SuUMOoae padoooe Ajperauo# Jo siseq axp Uo sjasse atp Jo sonyea pauruniayap atp Jo Supsoy pur wonearurexo eonto sorjdun y1Ipnw UI JADMOH] Yoays 2ouKeg o1p UT UALOYS are siasse orp yorya re anyen Kauour axp Jo 1uaUIEEUZOSE aq] 10 JO VONUIULIOTaP atp SuRAUH SJasse Jo UONENEA SLASSVAO NOLLVNTVA 9° -jlosumy oupne axp Aq Spsour ouop st woneorson ing loupne aun Jo.gexs.up £q auop st Buryonon ~ouuoss9d (g cuoneurumexo Arequoumoop se [Jom se jeorsKyd uo pase st uoneoy uaa puey Jaq}O otf UO “UoTeUTLeXa KrejaUMDOp Uo paseg st TuryoNOA-:sIswE (L "PaYS d9uETEG atp Jo arep aUp Ye AstXA ATTeAL SONFTGeN| 10 Slasse amp JoIOYM sonoud wonpoyts9A Ing -yoays aaUE[EG tp Jo yep axp yeaS1xa A]qwor SIN TTEQRT| Jo syosse reNoNed w JoNOUs oTeoIPUL 1x9 0} 140 SON TTIGeT| JO Sjasse re[Noned e eXp ayeorput

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