Accounting-Finance

Learning Materials For Accounting, Management , Finance And Economics.

Wednesday, February 22, 2012

Concept And Meaning Of Verification And Valuation Of Assets And liabilities

Accounting , auditing
Concept And Meaning Of Verification 

Verification means proving the correctness. One of the main work's of auditor is verification of assets and liabilities. Verification is the act of assuring the correctness of value of assets and liabilities, title and their existence in the organization. An auditor should be satisfied himself about the actual existence of assets and liabilities appearing in the balance sheet is correct. If balance sheet incorporates the incorrect assets, both profit and loss account and balance sheet do not present true and fair views.
Thus, verification means to confirm the truth or accuracy and to substantiate. It is a process by which the auditor satisfies himself not only about the actual existence, possession, ownership and the basis of valuation but also ensures that the assets are free from any charge. While verifying the assets, an auditor should consider the following points:

* Ensuring the existence of assets.
* Acquiring the assets for business.
* Ensuring the proper valuation of assets.
* Ensuring that the assets are free from any charge.

Concept And Meaning Of Valuation

Valuation is the act of determining the value of assets and critical examination of these values on the basis of normally accepted accounting standard. Valuation of assets is to be made by the authorized officer and the duty of auditor is to see whether they have been properly valued or not. For ensuring the proper valuation, auditor should obtain the certificates of professionals, approved values and other competent persons. Auditor can rely upon the valuation of concerned officer but it must be clearly stated in the report because an auditor is not a technical person.
An auditor should consider the following points regarding the assets while making valuation off assets:

* Original cost
* Expected working life
* Wear and tear
* Scrap value
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Tuesday, February 14, 2012

Auditor's Duty Regarding Capital Expenditure And Revenue Expenditure

Accounting , auditing

Demarcation of capital expenditure and revenue expenditure is an important function of an accountant because such expenses directly affect the income statement and balance sheet. Thus, an auditor should check whether correct demarcation is made or not.

 Following are the duties of an auditor regarding capital and revenue expenditure:

1. An auditor should ask with concerned officer regarding doubtful items.

2. An auditor should understand the nature of work and procedures of an organization. S/he should know the rules and regulations of the business so that s/he can easily identify the expenditure as revenue and capital expenditure.

3. An auditor should check whether demarcation made as per the generally accepted principles of accounting or not. For, painting in existing building is revenue expenditure and new building is capital expenditure.

4. An auditor should consider the situation of making payment because situation also make same expenditure as capital expenditure and sometimes revenue expenditure.
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Concept And Works To Be Performed For The Audit Of Impersonal Ledger

Accounting , auditing
Concept Of Audit Of Impersonal Ledger

Impersonal accounts refer to real accounts and nominal accounts which are related to trading account, profit and loss account and balance sheet. So, if there are any errors in such accounts, they will affect adversely to the report and financial statements which are to be signed by the auditor. Checking of such accounts is known as audit of impersonal ledger. It does not only assure the correctness and reliability of nominal accounts but also helps to detect the errors which which remain in personal accounts. Such audit is conducted with the help of cash book, journal and subsidiary books.

Following works are to be performed for the audit of impersonal ledger:

1. Cash transactions are to be checked on the basis of cash book or journal.

2. Other impersonal transactions are to be recorded on the basis of sufficient evidences. An auditor has to check whether it is recorded on the basis of evidence or not.

3. Special attention should be given while checking transfer entries because it effects the final accounts.

4. Totals and balances of impersonal ledger should be ratified with the balance shown in trial balance.

5. Opening balance of impersonal ledger should be verified with the audited account of previous year.

6. Auditor should thoroughly check the totals of the various other books of original entry and also the postings of their totals of the impersonal ledger.
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Monday, February 13, 2012

Points To Be Considered While Vouching Of Cash Transactions

Accounting , auditing
Vouching of cash transaction is the most important job of an auditor. Before setting the program of vouching, an auditor should inquire carefully into whole system of internal control. An auditor should examine and understand the system and should pay attention in the following points.

1. Responsible officer for cash received and authority to sign check should not be given to the cashier and a copy of counterfoil should be kept for record of office. The receipts should be numbered serially.

2. All the receipt of cash should be recorded in the cash book.

3. Amount of cash received should be deposited into bank daily.

4. The cashier should not have any control over ledgers.

5. Drawer of check should present it to responsible officer to sign.

6. All unused receipt books and check books must be kept under lock.

7. System for recording cash sales and miscellaneous income should be different.

8. All the payments except petty cash expenses must be made by check.
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Factors To Be Considered While Vouching

Accounting , auditing
Vouching helps to prove the truth and fairness of account by detecting errors and frauds. So, while conducting the test of vouchers, following factors are to be taken into consideration:

1. An auditor should check the records whether they are supported by evidential documents or not.

2. All the documents related to income and expenditures are to be separated and separate files should be maintained. If not, auditor should ask to do so.

3. An auditor should use special sign in tested vouchers so that they cannot be used again.

4. While vouching, an auditor should check whether the general principles of accounting have been followed or not and clear cut demarcation of capital and revenue is made or not.

5. Whether the documents presented for testing are related to the current year or not.

6. All the documents which are presented for auditing must be authorized by the concerned authority. An auditor should check whether it is done or not.

7. An auditor should ask duplicate copies of missing vouchers, but if important vouchers have been missed and auditor is not satisfied with the reasons presented, s/he should write in report to this fact.

8. If an auditor finds the correction in the evidential document, then such figures should be verified with documents and to be noted down in audit note book for consideration while preparing report.

9. All the documents are to be reviewed before closing the work of audit which helps to check again those facts where special sign is given.
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Sunday, February 12, 2012

Importance Of Vouching

Accounting , auditing
Vouching is the act of checking evidential documents to find out errors and frauds and to know the authenticity, accuracy and reliability of books of accounts. Thus, it is important for an auditor due to the following reasons:

1. Vouching Is The Backbone Of Auditing

Main aim of auditing is to detect errors and frauds for proving the true and fairness of results presented by income statement and balance sheet. Vouching is only the way of detecting all sorts of errors and planned frauds. So, it is the backbone of auditing.

2. Vouching Is The Essence Of Auditing

Auditing not only checks the accuracy of books of accounts but also checks whether the transactions are related to business or not. All the transactions are performed after the prior approval of concerned authority or not, transactions are real or not because an accountant may include fictitious transactions to commit frauds. All these facts can be found with the help of vouching. So, vouching is essential for auditing.

3. Vouching Is Important To See Whether Evidences Are Correct Or Not

An auditor checks the books of accounts to detect errors and frauds. Frauds may be committed presenting duplicate vouchers. All the small and big amounts of frauds can be detected with the help of vouching. So, all the evidential documents and records are to be checked carefully and in detail by an auditor which is the scope of vouching.

Therefore, it can be said that vouching is the heart of auditing because without the work of vouching, the work of auditing cannot be performed.
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Meaning And Objectives Of Vouching

Accounting , auditing
Meaning Of Vouching

Voucher is known as the evident for the support of a transaction in the books of account. It may be bill, receipts, requisition form, agreement, decision, bank paying slip etc.

The act of examining documentary evidence in order to ascertain the accuracy of entries in the account books is called "Vouching". Vouching is a technical term which refers to the inspection by the auditor of documentary evidence supporting and substantiating a transaction. Simply stated, vouching means a careful examination of all original evidence i.e invoices, statements, receipts, correspondence, minutes and contracts etc. with a view to ascertain the accuracy of the entries in the books of accounts and also to find out, as far as possible, that no entries have been omitted in the books of accounts. Therefore, vouching is the act of testing the truth of entries appearing in the primary books of accounts. It is initial for auditing.

Objectives Of Vouching

Main objective of vouching is to find out the regularity or irregularity of transactions, frauds and errors. Regularity means maintaining record and performing the work compliance with the rules, regulation and law. But irregularity means doing the work crossing to the line of rules, regulation and laws. Some of the major objectives of vouching are given below:

1. To Detect Errors And Frauds

All transactions are to be supported by evidence. Each document should be proved
by authorized authority. With the help of vouching we can detect errors and frauds by verifying each transaction. Planned fraud can be detected through vouching.

2. To Know The Truth Of Account

Each and every transaction is checked and ratified on the basis of support document. So, we can easily know the truth of account.

3. To Find The Unrecorded Transactions

Each and every transaction is checked and ratified on the basis of document. Vouching helps to find out the unrecorded or missing transactions. If any voucher is found unrecorded, auditor can suggest to record such transactions.

4. To Know That All The Transactions Are Authorized

If the transactions are made on the consent of concerned authority, such transactions are known as authorized transactions. If transactions are not authorized, such transactions can be fictitious transactions. So, such fictitious transactions ca be found with the help of vouching.

5. To Know That Only The Business Transactions Are Recorded

Sometimes, transactions are performed for individual purpose but payment is made out of business. Such transactions should not be recorded in account of business. If such transactions are recorded, we can find it with the help of vouching. To know the real profit or loss of business, such transactions are to be separated.
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