December 26, 2021

Trading is a chain of business process of buying, taking delivery of goods bought, making proper arrangements for their storage and issuing them on sale, etc. The function of audit, in this background, is to ensure that there is no leakage of goods or cash; also that the goods that are purchased have been received […]

General Considerations In addition to matters which are listed in the audit of cash transactions, certain other principal matters that should be taken into account while vouching trading transactions are :  Correctness of book-keeping record : The auditor should also take steps to verify that the amount of profit has not been overstated, e.g., by

The auditor should carry out physical verification of cash at the date of the balance sheet. However, if this is not feasible, physical verification may be carried out, on a surprise basis, at any time shortly before or after the date of the balance sheet. In the latter case, the auditor should examine whether the

Apart from comparing the entries in the cash book with those in the Pass Book the auditor should obtain a certificate from the bank confirming the balance at the close of the year as shown in the Pass Book. If the bank account is overdrawn, the auditor should obtain from the bank particulars of assets

Obtain the schedule of discounted bills receivable dishonoured. Check the entry in bank statement regarding the amount of bills dishonoured and see that the bank has debited the account of client. Verify the bills receivable returned by the bank alongwith bank’s advice. See that the dishonoured bills have been noted and protested by following the

The refund of insurance premium may be because of earlier provisional payment of premium or may be a policy might have been cancelled at a later date. The auditor should take following steps while vouching such refunds :  Ascertain the reasons for refund of insurance premium.  Examine insurance policy or cover note to find out

Bad debts written off are verified with reference to relevant correspondence and proper authorisation.  Ascertain the total amount lying as bad debts.  Ensure that all recoveries of bad debts have been properly recorded in the books of account.  Examine notification from the Court or from bankruptcy trustee. Letters from collecting agencies or from debtors should

Review the internal control on junk materials, as regards its generations, storage and disposal and see whether it was properly followed at every stage.  Ascertain whether the organisation is maintaining reasonable records for the sale and disposal of junk materials.  Review the production and cost records for the determination of the extent of junk materials