AUDIT

PROCEDU
RES
Agenda
 Before You Start Audit
 Application of Common audit
Procedures
 Time Limits & Bifurcation of work
Opening Balance Verification
1. What is Opening Balance Verification?

2. How to Verify the Opening Balance

Step 1:- Export Trial Balance:-
I. Gateway of Tally Display Trial Balance
II. Press Alt+F1 & then F12 and Click Yes for Opening
Balance and NO for Closing Balances.
 III. Export to Excel (Alt + E)
Step 2:- Add Columns for Closing Balance as per
Previous year.
Step 3:- Add the respective figures from the Audited
Balance sheet of previous year in that column.
Step 4:- Calculate the difference
(opening Balance of Current FY – Closing Balance of
previous FY)
3. What if there are differences in Opening
Balance?
Vouching
1. Purchases
A. 100% Vouching
B. Documentation
i. Tax Invoice
ii. Purchase order
iii. E-Way Bill
iv. Weighment Slip
v. Goods Receipt Note(GRN)
vi. Delivery Challan(DC) (Issued by supplier)
i. Tax Invoice
ii. Purchase Order
iii. E-Way Bill
 Movement of Goods
 Value of Goods > Rs. 50,000
 Goods are not Exempt
 Validity of EWB
Nature of Distance Time Limit
Conveyance
Up to 20 kms 1 Day

Dimensional Cargo More than 20 Kms Additional 1 day for

every 20kms
Up to 200 kms 1 Day
Other than
Dimensional Cargo More than 200 kms Additional 1 day for
every 200 kms

*Source:- cleartax.in/s/eway-bill-gst-rules-compliance
iv. Weighment Slip
v. Goods Receipt Note (GRN)
2. Sales
 Sampling Basis
 What to check:
 Tax Invoice
 E-Way Bill
 Weighment Slip
 Gate pass
3. Cash
 Use 100% verification (Sampling if suitable)
 What to check:-
 Cash Voucher
 Supporting Document
 Authorization
4. Bank
 One to One Vouching
 What to Check:-
 Correctness of Amount posted.
 Correctness of Ledger to which posted.
 Reconciliation of Monthly Closing Balances.
5. Expenses
 Voucher
 Journal
 Supporting Document
 Invoice
Workings & Verification
1. Statutory Dues
I. Goods & Service Tax (GST)
i. GSTR 2A Reconciliation
 Taxable Purchase as per Books = GSTR-2A
 Input Tax Credit (ITC)

ii. GSTR 3B Reconciliation

 Verification of actual output tax recorded in books is shown
in GSTR 3B and the proper utilisation of Input Tax Credit
(ITC).
 Verification of Cash Payment of Tax to be made (after the
due utilization of ITC).
i. GSTR 2A Reconciliation
 What is GSTR 2A?
 Steps for Reconciliation
A. Creating Summary as per books.
B. Creating Summary as per GSTR 2A.
(by Using appropriate methods e.g. pivot tables)
C. Using either V-Lookup or the Double Pivot Method for
calculating the differences.
D. If using Vlookup in excel, then ensure that proper GSTIN
for each party is recorded in books.
E. Vlookup method to be performed by both using Books as
base and using GSTR 2A as base.
 Books as base:-
i. #N/A = Recorded in books, but not in GSTR 2A.
 GSTR 2A as base:-
i. #N/A = Not Recorded in Books, (presents in GSTR 2A)
 Points to be considered:-
a) Summary as per Books & as per GSTR 2A should be
created for Party Name, GSTIN, Taxable Value, Input
IGST, CGST & SGST
b) Subtract Debit notes (Credit note as per GSTR 2A)
c) Using the Vlookup:-
 =vlookup(GSTIN, Range, Column Number, false)
ii. GSTR 3B Reconciliation
 What is GSTR 3B?
 What to consider in reconciliation?
1. Output Tax as per Books and actually stated in
GSTR-3B
2. Input Tax in Books & actually utilized in return.
3. Set off method of ITC used

 Points to be considered
1. For figures of “As per Books” either Export Purchase
Register, Sale Register, Debit Note, Credit Note
Register from tally or
2. Export from Duties Taxes but don’t forget to
considering the effects of subtracting Debit Notes &
Credit Notes from the respective ledger.
3. Use Links
II. Tax Deducted at Source (TDS)
 Calculation of Correctness TDS Deducted
 Steps:
 Exporting Output TDS ledgers from tally
 Deriving the Taxable Value
 Applying the correct rate (as per provisions)
 Calculating the Difference
 Points to Consider:-
 Consider the PAN of deductee
 Fourth Letter of PAN:-
1. P = Individual / Person
2. C = Company
3. F = Firm
4. H = HUF
5. T = Trust
6. A = Association
 Indentifying the Transactions where TDS needs to
be deduct but not deducted.
 This can also be checked while performing Ledger
Scrutiny.
 Knowledge of appropriate provision is required.
 E.g. U/s 194C of Income Tax Act, TDS needs to be deduct
on Payment to Contractor/ Sub-Contractor.
(With Due limits and Rates)
• Company Job Work
• Limit of Rs. 30,000(single Transaction)/ Rs. 1,00,000 (Aggregate)
is exceeding
• TDS needs to be deduct
 While Scrutinizing Creditors.
 Procedure for Sec. 194Q
III. Tax Collected at Source (TCS)
 Correctness of TCS Amounts & Rate
 Steps
 Additional Procedure for 206C(1H)
 Export Sale Register
 Use Pivot Table
 Sale > Rs. 50,00,000/-
 Party Ledger wise Scrutiny
 Part of vouching and ledger scrutiny
2. Interest on Cash Credit (CC)
 For Verifying correctness of Interest charged by bank
on Cash Credit Facility availed.
 Interest Charged on Monthly basis.
 Client can claim the excess interest charged by bank.
 Penal Interest @2% (if closing balance exceeds the
limit)
 How to calculate:-
 In Tally
1. Enable the Interest Calculation in Account Info. Of Respective
Bank Ledger.
2. Display Statements of Account Interest Calculation
Interest payable
 2. .

 In Excel:-
1. Take day wise closing balances of each month from bank
statement.
2. Apply the formula =closing balance*ROI%*1/365 ]
 3. Formula for Penal Interest
 =if(closing balance>limit,(closing balance-limit)*2%*1/365,0)

4. Take the total of Interest Calculated

5. Match the same with actually charged by bank.

 Difference (if any) can be reversed claimed by client

from bank after due procedure.
3. Salary Sheet
 Can verify salary expenses recorded in books through
salary sheet.
 Calculations of PF, PT, ESIC and other respective dues.
 Summarizing the figures from challan paid in excel and
comparing with actually recorded in books.
 Checking for the provision made for salary in a month
with actually paid.
 For employees of labour contractor appointed,
verification can be done through invoice and
supportings provided by the contractor.
 In many companies PF, PT, ESIC and other dues of
Employees of Contractor are paid by the company &
then Adjust same in the bill.
4. Ledger Scrutiny
 What is Ledger Scrutiny?
 Detail Scrutiny of each ledger item of Balance sheet
and P&L a/c.
 Unusual Transactions
 Suspecting/ Wrong Entries
 Wrong Posting
 Verification
 Understanding transactions
 Raising Queries
 Giving Recommendations(if any), etc.
 *Balance Sheet Items*
 Equity & Liabilities
1. Share Capital
 Can be Verified on MCA Site.
 www.mca.gov.in/mcafoportal/viewCompanyMasterData.do
2. Reserves & Surplus
 Capital Reserves
 Securities Premium
 Profit & loss A/c
 Other Reserves
 Loans:-
 Secured Loans
1. Bank Overdrafts
 Cash Credit
 Drawing Power (DP)
• How Much you can Draw
• DP = (Closing Stock + Debtors – Creditors) – Margin
• Debtors < 90 days
• Stock which is Insured
 Sanction Letter
 Part of Bank Vouching (One to one if Possible) & Reonciliation of
Balances
 Interest Calculation
2. Term Loan
 Sanction Letter
 Repayment Schedule
 Loan A/c Statement
 Interest Transfer Entries
 Creation of Charge
 First Charge
 Second Charge
 Pari Pasu
 Fixed Charge, Floating Charge, Crystallization
Can Check Charge Created on Companies asset MCA site
 Unsecured Loans
 Check the compliance for provisions of
Companies Act, 2013.

 Interest Paid on unsecured loans.

 Can ask for Ledger Confirmation (If possible)

 Verify bank statements for Receipts & Payments

of such loans
 Current Liabilities
1. Duties & Taxes
 Check Challan paid with books.

 Verify the returns uploaded.

 Check transfer entries made.

 Examine the Set Off Entries passed.

2. Sundry Creditors
 Examine the Purchase made and respective payments to
creditors.

 Advance Payment (Dr. Balance of Creditor) if any needs

special attention.

 Check transactions for purchase in such ledger in next

months.

 Cash Discount availed.

 Applicability of provisions of TDS needs to be checked.

 Ledger Confirmation from Creditors with huge balance can be

asked.
3. Current Maturities
 Opening Balance of CM to be transfer.

 Calculation of Current years Current Maturities.

 Check Repayment Schedules for such CM’s.

4. Advance from Customers

 Credit balance of debtors.

 Check Bank Entries for verification.

 Examine next months transactions with such debtor.

5. Provisions & Other Payables

 Workings made by company for such provisions

 Outstanding Expenses or Expenses Payable

 E.g. Provision for salary, Income Tax, Other Statutory

liabilities, etc.
 *Profit & Loss A/c*
1. Opening Stock
 Check the closing stock of previous year.

 Use proper valuation method for verification e.g.

Standard Cost, FIFO, etc.
2. Purchases
3. Direct Expenses
I. Direct Wages
II. Loading & Unloading Charges
III. Power & Fuel
IV. Freight Inward / outward
II. Other Direct Expenses
4. Sales
5. Indirect Expenses
 Depreciation & Amortization
 It should be as per Companies Act, 2013
 Verify the working of Depreciation
 Depreciation to be charged on additions made to fixed
assets on month wise basis.
 No depreciation on Land & Building
 No Depreciation on Work – in – Progress
 Administrative Expenses
 Verify the Bills, Invoices, Cash Vouchers, Etc.
 Check Entries in Bank Statement if payment is through
Bank.
 Perform Trend Analysis
 Check for TDS Liabilities
 Personnel Expenses
 Includes Salary Expenses.
 Contribution of Employer.
 Directors Remuneration
 Security Expenses
 Bonus
 Canteen Expenditure, Medical Expenditure & other Staff
Welfare Expenses.
 Financial Expenses
 Processing fees, Bank Charges, Interest, etc.
 GST on such charges
 Selling & Distribution Expenses
 Verify the workings made for commission expenses.

 Vouch the bills raised by the agents for commission

expenses and proper recording of GST on such Expenses.

 Examine the bills for advertisement expenses & TDS

Liability on same.

 General Vouching Points

 Trend Analysis
Thank You