Unit – 5
AUDIT OF SPECIALIZED INSTITUTIONS
There are some form of business organizations whose Audit cannot be done in a regular way due to their unique nature of operations. To conduct Audit of such organizations, the Auditor need to prepare a different Audit checklist.
NOTE FOR STUDENTS:
General Guidelines to write any answer for this chapter for LONG ANSWERS (15-20 Marks):
1) 1st point should be – Check the background of the organisation.
2) 2ndpoint should be – Check the accounting system of the organisation.
3) 3rdpoint should be – Check the Internal Control system of the business entity.
4) 4th to 7th points should be related to 4 Incomes
5) 8th to 11th points should be related to 4 Expenditures
6) 12th and 13th points should be related to 2 Assets
7) 14th and 15th points should be related to 2 Liabilities
General Guidelines to write any answer for this chapter for SHORT ANSWERS: (5 Marks)
1) 1st point should be – Check the background of the organisation.
2) 2nd point should be – Check the accounting system of the organisation.
3) 3rd point should be – Check the Internal Control system of the business entity.
4) 4th to 5th points should be related to 2 Incomes
5) 6th to 7th points should be related to 2 Expenditures
6) 8th point should be related to Assets
7) 9th point should be related to Liabilities
Audit of Banking Companies:
Audit of Banking Companies involves Security Check apart from routing nature of Auditing.
1) To check if all the other entrances to the bank and the ones within the bank are locked at the time of opening the cash room.
2) If the burglar alarm system is functioning properly.
3) If the branch has a copy of the Insurance Policy obtained by their corporate office.
4) Ensure that all the payments for the tax are on time and all the Challans for the same are present.
5) It is to be confirmed whether the letter of his appointment is in order.
6) He should examine the audit report of last year and should note down the observation and qualification, if any.
7) He should examine the minutes of the meeting of Board of Directors and note down those points which may affect his Audit work.
8) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the trust.
9) He should physically verify the assets as many as possible.
10) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
11) He needs to verify the Deposits Register and confirm the provisions relating to the amount, time of deposit, rate of interest and other details, as required by the prevailing Law.
Audit of Educational Companies:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) Examine the Trust Deed and note down its important provisions.
4) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
5) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the trust.
6) Whether collected fees is deposited in bank on a daily basis.
7) Verification of counterfoil copies of fees receipt with fees received register should be done.
8) Fees receivable and actual fees received should be reconciled.
9) Whether waiver of fees is properly sanctioned by appropriate authorities.
10) All purchases should be authorized by appropriate person.
11) In case where hostels purchase food items, provisions, clothing, etc. should be properly verified.
12) Appropriate provision should be made on account of outstanding payments.
13) Whether control system for payment is adequate or not.
14) He should physically verify the assets as many as possible.
15) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Audit of Electricity Supply Companies:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
4) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the Board of Directors.
5) He should verify the bills issued to consumers.
6) He should verify the receipt of cash from cash receipt counterfoils, cash book.
7) He should examine the total number of bills generated, payment received and pending for payments.
8) Payment received on account of arrears should be properly accounted for.
9) Auditor should verify whether proper accounting is done for arrear of bills.
10) Auditor should vouch payment for repair of sub-power stations, transformers and meters; all these repairs should be treated as revenue expenses.
11) All payments should be authorized by appropriate person.
12) All allowances and rebates should be properly sanctioned by the appropriate authority.
13) Depreciation should be properly verified according to applicable provisions of the Act.
14) He should physically verify the assets as many as possible.
15) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Audit of Hospitals:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
4) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the owners Managing Committee
5) He should obtain the rate structure for fees, medicine and other services, power to do concession or waiver of fees. There should be adequate system for charges and waiver.
6) An Auditor should adopt the usual way to vouch purchases and other expenses of the hospitals.
7) Salary of staff should be vouched according to general auditing principles.
8) Depreciation should be properly verified according to applicable provisions of the Act.
9) He should physically verify the assets as many as possible.
10) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Audit of Club:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
4) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the Managing Committee
5) The donation received by club will be verified with the counterfoils of receipt, donation register and cash book.
6) To know the policy regarding membership fees of the new members, an Auditor should check the policy of club
7) Membership fees should be vouched with counter foil of receipts, membership register and cash book.
8) On the basis of the members register, annual subscription dues received in advance and arrears of subscription should be reconciled.
9) Verification of rent received and outstanding rent may be verified with the rental agreement, receipt book and cash book.
10) Capital expenditure should be verified from minutes of meeting of managing committee.
11) Staff salary and annual increment to staff should be verified from appointment letters, attendance register, salary register, time records, etc.
12) Physical verification is recommended for food items, wines, crockery, sports equipment etc. on the basis of stock register.
13) All payments should be authorized by appropriate person.
14) All allowances and rebates should be properly sanctioned by the appropriate authority.
15) Depreciation should be properly verified according to applicable provisions of the Act.
16) He should physically verify the assets as many as possible.
17) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Audit of Hotels:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
4) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the Managing Committee
5) Room rent is charged on the basis of fixed tariff according to the category of room.
6) An Auditor has to verify that all collected Luxury Tax is deposited with state within time.
7) Discounts may be offered to customers; this depends on various factors like season, holidays and other things. Special discount is also offered to groups of students, delegates, corporate customers, VIP customers, etc.
8) All generated bill should be accounted for in the main bill of the resident customer.
9) An Auditor should examine the bills issued to customers and the amount paid to the travel agencies for transportation of customers.
10) For laundry, An Auditor should get the rate list to verify the rates and the billing should be verified with the housekeeping record.
11) For health club section, An Auditor should verify the rate charged for service provided and guest attendance register.
12) Depreciation should be properly verified according to applicable provisions of the Act.
13) He should physically verify the assets as many as possible.
14) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Audit of Charitable Institutions or Trust:
1) It is to be confirmed whether the letter of his appointment is in order.
2) He should examine the audit report of last year and should note down the observation and qualification, if any.
3) He should examine the minutes of the meeting of trustee and note down those points which may affect his Audit work.
4) He should verify that the Internal Control and Internal Check System are working appropriately and are in the line decided by the Trust Committee.
5) Auditor should obtain list of members to verify the amount of subscriptions and list of regular donors to know the nature and purpose of donation of regular donors.
6) Auditor should vouch the amount of subscription and donations from counterfoils of receipts, members list, donation register and cash book, etc.
7) He should ensure that the funds received for a specific purpose are being utilized for the same purpose or not.
8) Legacies can be verified with receipts book and legacies register.
9) All the related expenses should be vouched carefully according to general auditing practices and principles.
10) Depreciation should be properly verified according to applicable provisions of the Act.
11) He should physically verify the assets as many as possible.
12) All the applicable requirements of law should be fulfilled for the purchase of investments and fixed assets.
Recent Trends in Auditing – Auditing of Inflation Accounting, Human Resource Accounting, Audit Committees and Social Audit
Auditing of Inflation Accounting:
Inflation AccountingTechnique is used during high inflation or hyper-inflation period, when Historical Costs becomes irrelevant to record in the books of accounts.To counter the issue, the historical information is adjusted to the Current Value and these adjusted amounts are recorded in the financial statements to show the ‘real’ financial position during the inflationary period.
Inflation Accounting is done by adjusting the historical information in financial statements according to the price indexes. The biggest advantage of Inflation Accounting is that a more realistic view of profitability is perceptible.
Audit of Inflation Accounting involves - verifyingvarious calculations involved while converting the Historical information to their Present Values. Since Inflation Accounting involves calculation of price indexes, besides other mathematical calculations, its verification by an independent officer also becomes equally very important. As the Auditor is well versed in this arena, the verification responsibility lies with him.
Auditing of Human Resource Accounting:
Conventionally, expenditures incurred on the human resources of a business entity are not accounted for. Human Resource Accounting is the process of calculating the expenditures made on the human resources and reporting them while preparing the financial statements. The costs incurred by an entity on recruitment procedure, training on the recruited staff and developing their human assets are included while accounting the investments made on Human Resource.
The main objectives of HR Accounting is to monitor the use of human resources by the management and to derive Cost information on human resources for making effective management decisions.
Audit of Human Resource Accounting involves –analysis of the employment programme and to point out the areas that may benefit from investment.
HR Accounting helps to measure performance of each employees of every department and its auditing can confirm the same. This helps the entity to compare the standards with the actual performance and thereby achieve organisational goals.
Audit Committees:
An Audit Committee is a committee of the entity’s Board of Directors, responsibility of which is to supervise the process of financial reporting.
As per the guidelines issued by the Ministry of Corporate Affairs, the Audit Committee shall consist of a minimum three Directors, with independent directors forming a majority. An Audit Committee’s tenure is for one year and upon the expiry of the term, the Committee shall be reconstituted.
The Committee shall call the Auditors for their expert comments on Internal Control systems. Further, the Auditors have a right to be heard in the meetings of the Audit Committee but does not have a right to vote.
It is further mentioned in the guidelines that every listed company shall establish a vigil mechanism for directors and employees to report genuine concerns insuch manner as may be prescribed.
Social Audit:
A social audit is a review of a company's procedures and activities regarding social responsibility and the impact created by the company on the society. In other words, a social audit is an assessment of how well the company is achieving its goals for social responsibility.
The first Social Audit was conducted in Sweden and its report was issued in the year 1988. Social Audit have now become a regular practice not only throughout Sweden but in many countries at the global level.
Social Audit is conducted on regular intervals.Social Audit promotes collective decision making and sharing responsibilities.
To make the Social Audit successful, it is important that there should be enough information shared with and involvement of stakeholders, particularly of the rural poor, women and other marginalized sections.
References:
- Auditing – T. R. Sharma – SahityaBhawan Publications.
- Auditing – B. K. Mehta – SBPD.
- Auditing – N. L. Nadda.
- A Hand Book of Practical Auditing - B. N. Tandon, S. Sudharsanam& S. Sundharabahu – S. Chand.
- Auditing – O. P. Gupta, B. N. Ojha, B. K. Singh – S. Dinesh & Co.
- Auditing: Theory and Practice – G. D. Verma, Pradeep Kumar, BaldevSachdeva, Jagawant Singh – Kalyani Publisher
