Vouching of Different Transactions | India | Auditing

In this article we will discuss about the vouching of various transactions for auditing purpose:- 1. Petty Cash Book 2. Cash Sales 3. Underwriting Commission on Shares 4. Purchase of Investments 5. Dividends from Investments 6. Sale of Investments 7. Rent from Immovable Properties 8. Sale of Scraps 9. Income Tax Refund 10. Bad Debts Realised 11. Wages 12. Buildings 13. Income Tax and Few Others.

1. Petty Cash Book:

(i) Examining the adequacy of internal check and internal control systems in force;

(ii) Ascertaining the name of the petty cashier, the imprest amount, the authority fixing the amount, when and how it was fixed;

(iii) Vouching the cheques drawn for petty cash by reference to cash book (credit side) and petty cash book (debit side), all vouchers over a certain sum with respect to supporting evidences/ receivers’ signature/payment authorization/stamped receipt/initialing of alterations/amounts in words and figures, etc. ;

(iv) Verifying the petty cash balance by actual inspection;

(v) Checking the receipts/payments columns, the total of subsidiary columns to ensure their agreement with the total payments, the postings of totals to the impersonal ledger (via. appropriate accounts), the amounts drawn for petty purchases (say, postage stamps, stationery articles) with the relevant account books (postage book, stationery book);

(vi) Examining I.O.U.’s for confirmation with the high officials and money lent to any employee which is not allowed under the rules.

2. Cash Sales:

(i) Examining the adequacy of internal checks and internal controls in force;

(ii) Checking the duplicate copies of the cash memo with the salesmen’s copies/summaries or abstracts with the analysis of cash received by the cashier, the cashier’s analysis with the duplicate copies of the cash memo;

(iii) Vouching the cashier’s cash book, the daily totals of cash received with the entries in the General cash book;

(iv) Verifying the entries in the cash sales book and in the cash book with the ’till’ records, where automatic ’tills’ are in use.

3. Underwriting Commission on Shares:

(i) Examining the Articles of Association on the issue of shares and the rates of commission to underwriters;

(ii) Vouching and cross-checking of: the Articles of Association, the agreement with underwriters, the underwriters’ stamped receipts, the record of the rates of commission, the underwriters’ statements of accounts, the prospectus or statements in lieu of prospectus.

4. Purchase of Investments:

(i) Examining the Company’s Memorandum and Articles of Association in order to ascertain the company’s powers to such purchase;

(ii) Examining the Board’s/Shareholders’ Minute Book for such resolution and the Central Govt’s sanction in case of limited companies;

(iii) Vouching and cross checking of: Brokers’ Bought Note, Share Certificates, Bonds, Allotment letters, Payee’s receipts, etc.;

(iv) Verifying — physical existence, ownership (in the company’s/partners’ name), the banker’s certificates (if in bank custody), the entry of payment with the entry in the bank statement, and the allocation of interest or dividend received between the capital and revenue; and

(v) Checking the price indicated in the Brokers’ Bought Note with Newspapers Quotations and also the price/Brokerage paid to the stockbroker.

5. Dividends from Investments:

(i) Examining the Investment Register and the counterfoils of the Dividend warrants;

(ii) Vouching dividend warrants with the entries in the cash book/bank pass book;

(iii) Examining the broker’s sold notes and/or broker’s bought notes, where investments are sold ‘ex-div’ or purchased ‘cum- div’, to ensure, subsequent receipt of dividends, credit to dividend account, and proper allocation of dividend between capital and revenue.

6. Sale of Investments:

(i) Vouching sale proceeds of investments with the broker’s sold note, or with the Bank advice when sold through a bank;

(ii) Checking the adjustments made for any profit or loss, and also the transfers of profit or loss to the earmarked fund account in case of sales of investments pertaining to some earmarked funds;

(iii) Verifying the receipt of dividend for investments sold ‘ex-div’ and also the allocation of dividend between capital and revenue in case-of ‘cum-div’ sales.

7. Rent from Immovable Properties:

(i) Ascertaining the amount of rents payable by the tenants, due dates, repairs provisions, etc. from the lease deeds and Agreements;

(ii) Vouching — (a) the counterfoils of rent receipts or rent account of collecting agent with the ‘Rent Received’ account after having checked the property wise Rent Register; and (b) the entries in respect of ‘rent received in advance’ made in the Rent Register with the advance receipts, their credit to the advance account and corresponding reversal entry in the following year;

(iii) Verifying the statement of rent outstanding with the Rent Register and also with the reversal entry in the following year;

(iv) Seeking confirmation from the tenants, with the client’s permission, about the amount of arrears of rent outstanding against them to detect misappropriation or irregularities of rent receipts;

(v) Obtaining a certificate in respect of a vacant property from a responsible official to determine the non-receivable portion of rent.

8. Sale of Scraps:

(i) Examining the contracts or agreements with the parties to whom sold;

(ii) Vouching sales authorisation and sales value computations, etc. by reference to the copies of the sales invoices or the purchasers’ credit notes.

9. Income Tax Refund:

Vouching and Checking of:

(i) The Refund Order issued and the statement furnished by the Income Tax officer;

(ii) The statement of tax refund with the copy of the claim originally submitted by the client.

10. Bad Debts Realised:

Bad debts may have been realised or recovered in two ways:

(a) From a debtor who has become bankrupt, and

(b) From a party whose debt is already written off in accounts. While the former category of recovery is known as ‘bad debts dividend’, the latter category is called ‘bad debts recovery’.

In case of first category, the vouching extends to:

(i) The ascertainment of recovered amounts, whether in full or in part,

(ii) The verification of a receipt with the carbon copy or counterfoil of the receipt issued to the party,

(iii) The correctness of accounting treatment that is, whether credited directly to ‘Bad Debts Recovered A/c’ or credited first to the relevant debtor’s A/c and to the control A/c and thereafter transferred to ‘Bad Debts Recovered A/c’.

For the second category, the amount received should be vouched with:

(i) The dividend warrants received from the Official Receiver,

(ii) The correspondence with the Official Receiver,

(iii) The copy of a receipt issued to the Official Receiver, and

(iv) The Bank deposit slip and Bank Pass Book. The documents, such as Notification from the Court or from Bankruptcy Trustee, letter from Collection Agents, etc., constitute the vouchers to be considered for the purpose of vouching.

11. Wages:

(i) Examining internal checks and internal controls in force in respect of the various aspects, such as time records or piecework records, preparation of wages, disbursements of wages to workmen, unpaid wages, etc.;

(ii) Checking at random the calculations and castings of various records connected with preparation and payment of wages;

(iii) Verifying the data with entries made in payrolls, and test-checking sanction and more authorisation by the responsible officials and also the initials of staff taking part in various stages of the work;

(iv) Vouching the cheques drawn for wages as entered in the cash book with the wages totals, the schedules of ESI and Income tax deductions with the payrolls to ensure non-inclusion of ‘dummy’ names, the lists of advance wages and unpaid wages, the signatures of workmen of two or three periods for genuineness etc.

12. Buildings:

(i) Examining the purchase agreements or lease deeds or title deeds, etc.;

(ii) Vouching the directors’ sanction for purchase, broker’s note or the auctioneer’s account, registration document as per Transfer of Property Act, solicitor’s advice on the title of transfer, lease agreement, fixed assets records, etc.

For Buildings under Construction, vouching extends to:

(i) Architect’s fee receipts

(ii) Builder’s contract or agreement,

(iii) Builder’s bills or receipts,

(iv) Board’s resolution for construction,

(v) Delegation of powers to the officials authorising construction expenditure,

(vi) Engagement of own men and use of own material for construction,

(vii) Allocation of own materials and wages to the building account,

(viii) Completion certificate from the Architects, and

(ix) Certificate from the Corporation or Municipal authorities for construction, etc.

For Buildings repairs Same as above except the points at

(vii) and (ix), Use the work ‘repairs’ against ‘construction’ wherever appears.

13. Income Tax:

For Income Tax refund — See item no. (9).

Income Tax Payment:

Vouching includes

(i) Inspection of receipted challans for payments,

(ii) The accounting year and corresponding assessment year,

(iii) The assessment order provisional and final,

(iv) The order on appeals, and

(v) The interest payable and paid for late payment of tax, if any. In addition, the ledger accounts separately maintained for each accounting year should be checked by reference to advance payment of tax and credit allowed by I.T.O., year-wise payment of taxes provisionally, and payment against final assessment.

Sales Tax:

Vouching includes

(i) Examination of the records to be maintained separately in respect of Central Sales Tax and State sales tax;

(ii) Ensuring correctness of the returns as to the amounts calculated and paid;

(iii) Checking payments with the receipted challans;

(iv) Verification of the assessment order, order-in-appeal and that of the balance tax paid at the time of final assessment; and

(v) Scrutiny of the refunds due and received.

14. Cash Purchases:

(i) Examining the adequacy of internal checks and internal controls in operation;

(ii) Vouching:

(a) Purchase authorisation,

(b) Payment authorisation,

(c) Receipted bill or invoice or cash memo with the goods receipt notes and

(d) Discounts and rebates received;

(iii) Verification as to the amounts debited to the relevant account.

15. Consignment Sales:

(i) Examination of the internal checks and internal controls in operation;

(ii) Vouching the rates and amounts of delcredere commission, proforma invoice, account sale, and receipted counterfoils;

(iii) Verifying the sales realisation by reference to the bank statement, bank drafts, etc.; and the bills receivable book.

16. Partners’ Drawings:

(i) Examination of the clauses of the partnership deed in respect of (a) the time, manner, and maximum permissible amount of drawings by partners out of profit or capital and any interest chargeable thereon; (b) the allocable personal expenses and value of goods to which the partners are entitled, etc.;

(ii) Vouching the entries made in the Partner’s Drawing Account with the payments authorisation, partner’s receipt, partner’s signature, etc.;

(iii) Verification of the annual statement of the partners’ capital accounts, drawing accounts, and balances thereof duly confirmed and signed by each of the partners.

17. Travelling Expenses:

(i) Examination of the existing rules in respect of reimbursements including the advances, or the past practice followed;

(ii) Checking the systems of internal controls and internal checks in force;

(iii) Vouching the bills with regard to sanction, payment authorisation, supporting of evidence, advance, adjustments, receipts, etc.;

(iv) Test checking the calculations or expenditure details with approved journeys and rates, and extraordinary expenses whether sanctioned by a senior official.

Travelling expenses to the Directors: For attending the board meetings, vouching includes:

(i) Examination of the Articles of Association permitting such payment,

(ii) Verification of attendance book or minute book, resolution fixing the rates and amounts per meeting and also the receipts.

For other travelling expenses including foreign travel, vouching extends to:

(i) Examining the Articles of Association allowing such payment,

(ii) Checking the board’s resolutions fixing the rates and amounts and approving the journeys including foreign travel,

(iii) Verifying the Reserve Bank of India’s permission, foreign exchange documents, travelling agent’s bills, receipts, payments authorisation and vouchers, etc. and

(iv) Ensuring separate disclosure of the amount of foreign exchange in the accounts as per the requirement of Part I of Schedule to the Companies Act.

18. Selling Agency Commission Paid:

(i) Examining the terms and conditions of the agreement to ascertain the rates and amounts of selling agency commission;

(ii) Checking the calculations;

(iii) Vouching the amounts paid, payment authorisation, agent’s receipts, and entries in the cash book, etc., and

(iv) Examining the compliance with the provisions of company law and other legal formalities.

19. Payment to Suppliers:

(i) Examining the internal controls and internal checks in operation;

(ii) Checking the calculations in respect of cash or trade discount, invoice amount, etc.,

(iii) Vouching the amounts paid, payment authorisation, counterfoils of cheques, suppliers’ receipts, Statement of accounts, ‘on account’ payments (if any), etc. ;

(iv) Referring to the Directors’ minute book for resolution, if necessary, for credit terms;

(v) Examining the adjustments in case of difference between the amount of payment and the amount of invoice.

20. Customs Duty and Clearing Charges:

(i) Examination of the Customs Tariff to ascertain the rate of customs duty chargeable and of the Clearing Agents’ schedule of rate for shipping, clearance, etc. ;

(ii) Inspection of the clearing agents’ bills or monthly statements of accounts by reference to the Bill of Entry duly stamped by the customs department as to the amount of duty paid and the date of payment, and also to the receipts issued by them ;

(iii) Vouching the cash payment of duty with the receipts issued by the customs department; and

(iv) Verification of the accounts to which the customs duty paid has been debited (e.g., duty paid for import of raw materials should be debited to the raw materials account, etc.).

21. Issue of Shares for Consideration Other than Cash:

(i) Ascertaining the specific circumstances for which such shares are issued (Circumstances may be purchase consideration of a running business, remuneration to the promoters, underwriting commission to the underwriters of shares, shareholders to the old company absorbed or amalgamated or reconstructed, bonus shares out of reserves, etc.);

(ii) Examining the documents like contract between the company and vendors, vendor’s authorisation for issue of shares to its nominees, minute books of the directors and shareholders (regarding allotment of shares to the vendors, bonus shares out of reserves to existing shareholders, and the arrangement for absorption/amalgamation/reconstruction); and

(iii) Vouching the entries in the financial books, the details in the prospectus or statement in lieu of prospectus in respect of Contracts, and the Register of Members for the shares allotted.

22. Trade Discount:

(i) Examining the terms and conditions of trade discount;

(ii) Ascertaining the rates of discount receivable or payable and of special discounts and comparing them with the rates prevailing in the market;

(iii) Vouching the entries in the financial books by reference to the copies of sales/purchase invoices, counterfoils of receipts/payments, statements of account etc.

23. Cash Discount:

Examining the correspondence with the party (if any) and the calculations where applicable.

24. Examiners’ Remuneration:

(i) Ascertaining the terms of remuneration, such as rate per answer-script and other charges and also the number of answer scripts subject-wise;

(ii) Checking the calculations contained in the bills

(iii) Vouching the payments by reference to the financial entries, cheques, counterfoils of receipts, etc.

25. Claims Paid by an Insurance Company under Loss of Profit Policy:

(i) Verification of the insurance policy, copy of the claim and the basis of claim; and

(ii) Vouching the correspondence between the insured and insurer, the insurance company’s advice to the insured, the receipt from the insured, and the entries in the bank book and the bank account after verification of the counterfoils of the Pay-in-slips.

26. Royalty Paid:

(i) Examination of the agreement to ascertain the rate and amount of royalty to be paid;

(ii) Examination of the Deed for the lease or patent or copyright;

27. Purchase of Shares at a Premium:

(1) Examining the compliance of the provisions of Section 78 of the Companies Act, 1956 by a company with respect to

(a) Transfer of a sum equal to the aggregate amount or value of the premiums on the shares to an account called ‘Share Premium Account’ whether for cash or otherwise;

(b) Share premium amount not being mixed up with the share capital;

(c) Use of Share Premium Account actual for the purposes of:

(i) Paying up unissued shares to be issued to the members as fully paid up bonus shares,

(ii) Writing off the commission paid or discount allowed on, or the expenses of any issue of shares or debentures,

(iii) Providing for the premium payable on the redemption of any redeemable preference shares or any debentures;

(2) Verifying the memorandum and articles of association and the board’s minute book to confirm authorisation for issue of such shares;

(3) Inspecting the prospectus and the rate and amount of premium to be received;

(4) Vouching the accounting entries to confirm utilisation of premium as stated under (1) (C) above; and

(5) Confirming the premium amount that actually appears in the liabilities side of the balance sheet under the head ‘Reserve and Surplus’,

28. Penalty Levied on an Unauthorized Import:

(i) Examining the relevant clause of the import period up to which royalty is payable; procedure under which the penalty has been imposed.

(ii) Checking the payment of penalty with the receipts for the receipt and order issued the Govt. authorities, payment, etc. with the Pass book in case of payment through the bank; and

(iii) Verifying the accounts to which the penalty levied and paid has been debited (e.g., penalty paid for unauthorized import of raw materials should be debited to the raw materials account).

29. Interest Paid During the Period of Construction:

The expenditure during construction is usually incurred to keep the construction going and therefore, it is indirectly related to construction. Interest being is a general expense should, however, be capitalized as a part of the construction cost.

Hence, vouching extends to:

(i) Examination of the entries in the bank pass book,

(ii) Checking of the calculations of interest, and

(iii) Board’s resolution authorising such payment of interest and accounting treatment as to capitalisation, etc.

30. Directors’ Remuneration:

The directors of a company, as a general rule, are not entitled to any remuneration on a monthly basis unless the Articles of Association make provision in clear terms in this regard. However, the auditor should see that the remuneration paid in the form of fees or commission is separately disclosed in the Profit and Loss Account

31. Directors’ Commission:

(i) Examination of the terms and conditions of the Agreement to find out the rate of commission payable; i.e., whether as a percentage on profits of the company;

(ii) Verification as to the compliance of the provisions under Sections 349, 350 and 351 of the Companies Act in respect of calculation for profit;

(iii) Vouching the calculations of commission, payment of commission with the receipts, and the entries in the financial books, etc.

32. Redemption of Redeemable Preference Shares:

Section 80 of the Companies Act Governs the issue land redemption of redeemable preference shares,.

Thus, the steps are:

(i) Verifying from the articles of association that the company is authorised to issue such shares for redemption,

(ii) Examining the fulfilment of the conditions to the effect that:

(a) The shares have been redeemed only when they are fully paid up;

(b) The shares have been redeemed out of the profits which would otherwise be available for dividend, or out of the proceeds of the fresh issue of shares made for the purposes of redemption;

(c) The premium, if any, payable on redemption has been provided for out of the company’s profits or share premium account, before the shares are redeemed;

(d) A sum equal to the nominal amount of the shares redeemed has been transferred to Reserve fund called ‘Capital Redemption Reserve Account,’ when shares are redeemed out of the profits;

(e) the capital redemption reserve account, where utilised, has been utilised in paying up unissued shares to be issued to the members of the company as fully paid up bonus shares ;

(f) The Registrar of Companies has been notified within one month of the redemption of shares; and

(g) The redeemable preference shares have actually been specified in the balance sheet,

(iii) Verifying that an amount equal to the shares redeemed has actually been invested, and the interest on such investment has been properly accounted for.

33. Contribution to National Defence Fund:

(i) Examination of the company’s Memorandum of Association to ascertain that it has the power to give such contribution, and of the Board’s resolution to confirm that it has sanctioned the payment of contribution;

(ii) Verification to confirm that the amount of contribution is within the statutory limits; and

(iii) Vouching the entries in the financial books with the receipt and also with the Income Tax exemption certificate received from the National Defence Fund.

34. Compensation for Loss of Office Paid to Directors:

(i) Examination of the compliance with the provisions under Section 318 of the Companies Act, 1956;

(ii) Verification of the calculations and the accounting treatment to confirm that it has been debited to the current year’s Profit and Loss Account ; and

(iii) Vouching the transactions recorded in the financial books of account with the receipt, board’s resolution, etc.

35. Minimum Subscription:

It is the minimum amount which, in the opinion of the directors or of the signatories of the Memorandum, must be raised by the issue of shares.

Vouching, in this respect, aims at examining the following items which have been considered to decide the total amount of minimum subscription:

(i) Any preliminary expenses payable and any commission payable to any person in consideration of his agreeing to subscribe for, or for his procuring or agreeing to procure subscriptions for any shares in the company;

(ii) The purchase price of any property bought or to be bought which is spent in whole or in part out of the proceeds of the issue;

(iii) The repayment of any borrowings in respect of (i) and (ii) above and

(iv) The working capital and any other estimated expenses.

Further, the following points need verification:

(i) Whether shares offered to the public for subscription have been irregularly allotted without raising the minimum subscription;

(ii) Whether all moneys received from the applicants have been refunded to them within 130 days in the event of the minimum subscription not received within 120 days after first issue of the prospectus; and

(iii) If not so refunded within 130 days, whether such refunds have been made with the appropriate rate of interest from the expiry of 131 day.

36. Advertisement Expenses:

(i) Verification of the advertisement bill with the contract or order, its calculations and its entries in the financial books; and

(ii) Vouching the bill with the receipt and the copy of the advertisement.

37. Commission Paid to a Consignee:

(i) Examination of the terms and conditions of the agreement to ascertain the rates and amounts of commission;

(ii) Checking the calculations;

(iii) Vouching the amounts paid payment authorisation, consignee’s receipts, and entries in the cash book, etc.

38. Purchase of a Motor Car:

Vouching extends to:

(i) Examination of purchase order, purchase invoice, registration certificate or blue book, auctioneers’ accounting, etc.;

(ii) Checking customs duty, clearing charges, etc. in case of imported car; and

(iii) Verification of entries made in the financial books and capital assets record.

39. Hire-Purchase Payments (or Instalment Payments):

(i) Examination of the terms and conditions of the agreement as to mode and manner of payments, insurance coverage, interest charges, etc.;

(ii) Checking the initial deposit and future instalment payments, made with the challans and receipts and with the clauses as per the agreements;

(iii) Verifying:

(a) The actual dates of payment with the due dates to confirm correctness of the interests paid,

(b) The apportionment of payments under capital and revenue heads,

(c) The entries in the financial books in respect of instalments and other charges including interest, and

(d) The final instalment paid along with interest in order to determine the ownership of the asset purchased under the scheme.

40. Brokerage on Issue of Shares:

(i) Examination of the Board’s Minute Book regarding the approval of this arrangement, and of the Articles of Association authorising such payment;

(ii) Verifying the disclosures in the prospectus;

(iii) Vouching the receipts and the calculations of such brokerage paid to each broker; and

(iv) Checking the entries in the financial books as well as seeing that this item has been shown separately on the asset side of the balance sheet under the head Miscellaneous Expenditure until it is written off.

41. Interests and Dividends Received:

Interest is generally received from sources, like bank deposits (fixed or savings), debentures subscribed, government securities, loans to parties and customers for late payments.

Interest on bank deposits:

(i) Verifying that the deposits are in the name of the client; and

(ii) Vouching the credit entries in the bank statements or bank pass books with the interest on fixed deposits as per the terms and conditions of each deposit certificate, and\or with the interest on Savings on half-yearly basis after having checked the calculations; and

(iii) Obtaining certificates from the banks in some cases.

Interest on debentures subscribed:

(i) Verifying that the debentures and debenture interest warrants are in the name of the client;

(ii) Vouching the entries in the bank statements for the credit of interest with the interest warrants and the income tax deduction certificates, and also with the credit side of interest account; and

(iii) Confirming that the interest is received and credited regularly on an half-yearly basis.

Interest on Govt. Securities:

(i) Verifying that the Govt. Securities, tax deduction certificates and interest warrants are in the name of the client;

(ii) Vouching the entries in the bank statements or bank pass books for credit of interest with the documents at (i) above;

(iii) Confirming that the interest is received and credited half-yearly on the due date and month as indicated in the Securities themselves; and

(iv) Ensuring that a provision is made of the ‘interest accrued but not due’ in the accounts.

Interest on loans to Parties:

(i) Examining the terms of the agreement with borrower to find out the rate of interest and the due date of its receipt from the borrower;

(ii) Verifying that: (a) the cheques for interest received are in the name of the client, and (b) the same is credited to interest account;

(iii) Vouching the interest account with (a) the bank statements and (b) the counterparts of receipts issued.

Interest from Customers:

(i) Examine that the interest received is for late payments only;

(ii) Verifying that the interest account is credited with the element of interest only where the same is received along with the debts; and

(iii) Vouching the interest account with the copies of the receipts issued.

42. Refund of Insurance Premium: Vouching and Checking Of:

(i) The statement of refund with the relevant cheques issued by the insurance company;

(ii) The relevant adjustment entries in the financial books of accounts;

(iii) The bank pass book or statement for the amounts received; and

(iv) The copy of the claim for refund by the insured, etc.

43. Part Payment to a Contractor for Erection of New Factory:

(i) Examining the terms and conditions of the contract or award for the release of part payments;

(ii) Verifying:

(a) The stage wise completion of erection jobs as per the details of contract with architect’s certificate,

(b) The ‘on account’ bills paid with the rate schedule of the contract,

(c) The board’s resolution sanctioning the Contract,

(d) The delegation of powers to the officials authorising such part payments ;

(iii) Vouching:

(a) The entries made in the financial books of account,

(b) The allocation of own materials and labour to the various accounts such as buildings/plants/machinery/roads, etc. and

(c) The payments made by reference to vouchers, receipts, cash book or bank statements, etc.

44. Bills Receivable:

(i) Verifying and vouching:

(a) The entries in the Bills Receivable Book with those in the Cash Book, Bank Pass Book or Statement to ensure the receipt of the amount on due date, and

(b) The entries for dishonor of bills to make further inquiries;

(ii) Conducting inquiry as to the bills themselves and their existence or otherwise to ascertain the bonafide of dishonour with the object of detecting a fraud like misappropriation of the proceeds of the bills;

(iii) Confirming that the amount of bills receivable discounted but which have not matured as on the balance sheet date is determined as a part of contingent liability.

Bills Receivable discounted but dishonored:

(i) Verifying the bills returned by the bank (after dishonour) and the payments subsequently made by the client to bank or the debit entry appearing in the bank statement (due to dishonour of bills);

(ii) Vouching:

(a) The bank’s advice attached to the payment voucher,

(b) The amount credited to the bank account,

(c) The amount debited to the debtors account

(d) The commission charged by the bank and its recovery from the debtor.

45. Bills Payable:

(i) Examining as to whether the returned bills have been duly cancelled and attached to the payment voucher or filed separately;

(ii) Vouching the payment with reference to the bank statement or pass book and with the entries made in the Bills Payable Book.

46. Freight Inwards:

(i) Examining the system of internal checks in operation;

(ii) Verifying the bills or .receipts of transporters, railway authorities, cargo agents, etc.;

(iii) Checking: Goods received notes, Goods inward book and the freight account; and

(iv) Scrutiny of payment authorisation and of allocation between revenue and capital heads.

47. Purchase of Patent:

(i) Examining the purchase agreement to ascertain the payment terms that is, whether a fixed amount as lump-sum or royalty on a period basis;

(ii) Seeing the assignment deed made in favour of the client;

(iii) Verifying the purchase price and other expenses and the relevant accounting entries; and

(iv) Checking as to : payment authorisation, capitalisation of initial expenditure, booking of periodical renewal fees to revenue head, etc.

48. Loan Taken on Security from Bank:

(i) Examining the Memorandum/Articles of Association and the compliance of Section 292 and 293 of the Companies Act in case of loans taken by a company;

(ii) Scrutiny of the loan agreement between the client and the Bank to ascertain the terms and conditions;

(iii) verifying as to : company’s borrowing powers, purposes for which borrowed, purposes for which spent, securities pledge, registration of charges, interests charged and paid, balance confirmed by the bank, etc.; and

(iv) Ensuring adequacy of disclosure i.e., whether accounted for as a ‘Secured loan’.