UNIT 1

VOUCHING

1.1 MEANING

Vouching is an important procedure for obtaining audit evidence. Normally, entries in the books of account are made on the basis of documentary evidence such as bills, receipts, cheque counter-foils, pay-in-slips, pay roll and so on. Such documentary evidence is called a voucher. Vouching means the critical examination of such vouchers. Vouching is the inspection of documents supporting an entry in accounts. It is the act of examining vouchers to establish the authenticity (genuineness) of the transactions recorded.

1.2 AIMS, OBJECTIVES AND IMPORTANCE

Auditing is the critical examination of accounts to determine whether they are true and fair and free from errors and frauds. Vouching is said to be the essence of auditing. Vouching is the method of critically examining the documents which support the entries in the accounts. Vouching is important as it achieves the following aims or objectives-

1.2.1 TRUE AND FAIR

Vouching enables the auditor to ascertain whether the entries in the books are true and fair, which is the basic objectives of auditing.

                  Occurrence

Vouching helps the auditor to ascertain whether the transaction actually occurred.

                  Amount

Vouching helps the auditor to check whether the transaction is recorded for the right amount.

                  Relevant Entries

Vouching helps the auditor to ascertain whether the entries recorded in the books are relevant i.e. they relate to concern and to the current accounting year.

                  As per Standards

Vouching enables the auditor to verify whether an item is accounted as per the recognized accounting standards, policies and practices.

                  As per Law

Vouching ensures that the transaction complies with the provisions of Law e.g. The Companies Act, the Income-tax Act etc.

                  Disclosure

Vouching enables the auditor to ensure that an item is properly disclosed in the final accounts as required by Schedule III of the Companies Act, 2013.

1.2.2 ERRORS AND FRAUDS

Vouching helps an auditor to achieve the object also. Thus, vouching helps an auditor to detect errors in recording transaction e.g. Errors of commission, errors of omission or errors of principle etc. vouching ensures the arithmetical accuracy of books of accounts. Vouching also enables detection of frauds by manipulation of records.

1.3 POINTS TO BE CONSIDERED IN VOUCHING

1. Checking the Voucher
2. Checking the supporting documents and
3. Checking the entry in the Books.

1.3.1 CHECKING OF VOUCHER

1. Name of the concern
2. Date of the Voucher
3. Serial number of Voucher
4. Heads of Account Debited and/ or Credited
5. Description of transaction and Name of Parties Involved
6. Amounts in Figures and Words
7. Signature of Authorized Official
8. Signature of Person Preparing Voucher
9. Signature of Person Making Entry In a Day-book
10. Signature of the payee

1.3.2 CHECKING SUPPORTING DOCUMENTS 

1. PERTAINS TO CLIENT
2. PERTAINS TO Current Year
3. 3 serial Number of Bill
4. Details of transaction
5. Quantity
6. Amount
7. Signature of Party
8. Approval of Bill

1.3.3 CHECKING ENTRY IN BOOKS

1. Client’s Books
2. Date of Entry
3. Serial number of voucher
4. Heads of Account Debited and/or Credited
5. Quantity
6. Amount

1.4. Vouching of Receipts

In vouching, payments shown on cash book, an auditor should see that payment has been made wholly and exclusively for the business of the client and that it is properly authorized by the person who is competent to do so.

An auditor should keep in mind the following special points while vouching payments:-

1. Name of the concern
2. Date of the Voucher
3. Serial number of Voucher
4. Heads of Account Debited and/ or Credited
5. Description of transaction and Name of Parties Involved
6. Amounts in Figures and Words
7. Signature of Authorized Official
8. Signature of Person Preparing Voucher
9. Signature of Person Making Entry In a Day-book
10. Signature of the payee

1.5. SALES

1.5.1 Sales:

The authority for sale is most important. It is, therefore, a matter which should receive the attention of the auditor. Another important aspect which requires consideration is that the sale proceeds have been fully accounted for. It should further be confirmed that sale proceeds have been credited to an appropriate head of account and the amount of profit arising out of it has been segregated between revenue profits and capital profits, if any, accordingly appropriate accounts are credited, where there is a loss, the same should be written off.

1.5.2 Cash Sales:

Primarily, the system of internal check should be examined with the objective of finding out loopholes therein, if any, whereby cash sales could be misappropriated. Further, the practice followed in the manner cash memos are issued should be ascertained. Because in case, cash memos are issued not only for cash sales but also for credit sales, the amount whereof if collected long after, there would be no guarantee that all the amount of cash sales has been collected before the close of year or that some of the amounts collected have not been misappropriated.

Cash sales usually are verified with carbon copies of cash memos. If sales are quite voluminous then a Cash Sales Summary Book is maintained and the cash memos are traced into it; the totals of the Summary Book are verified and the daily totals of the Summary book traced into the Cash Book. One of the matters, to which attention of the auditor should be paid in the process, is that the dates on the cash memos should tally with those on which cash collected in respect thereof has been entered in the Cash Book.

To verify that price of goods sold has been calculated correctly; the computation of the sales should be ascertained. If a cash memo has been cancelled, its original copy should be inspected, for it could be that the amount thereof has been misappropriated.

1.5.3 Sales on Approval

A businessman arranges where an individual or company, who is interested in purchasing a specific tem, is allowed to use the item for a given length of time. At the end of that time, if the individual is unsatisfied with the item, they agree to purchase it. However, if the individual is unsatisfied for any reason, they are able to return the item and are not committed to purchase it.

1.5.4 Consignment Sale:

Where the number of consignments sent out in a year is large, usually a separate consignment Sales Day Book and Ledger are kept. In that case, the entries in the Day Book in respect of price of goods sent out and expenses incurred on their transport and insurance should be verified with copies of Performa invoices and other relevant documents; the sale price of goods sold and expenses incurred by the consignee should be verified from the Account Sales.

The balances in the Consignment Ledger, at the end of the year in such a case, would represent the cost of unsold goods, including a proportion of non-recurring expenses incurred on their transport and insurance. These balances should agree with those shown in the respective account sales received from the consignees.

If the goods sent out for sale on consignment have been charged at the invoice price, the difference between the cost and the invoice price would be credited to the Consignment Stock Adjustment Account. The appropriate part of the amount credited in this account attributable to the inventory remaining unsold at the year end, should be reversed so that credit can be taken for the net amount representing the difference for the part actually sold.

1.5.5 Sales Returns

From time to time accounts of account receivables are credited with the value of goods returned and the rebates and allowances sanctioned on one account or another. The entries are passed on the basis of credit notes issued to account receivables. The credit note contains complete particulars of the credit allowed and the basis on which it has been allowed. In each such case the auditor should verify that credits for goods returned have been allowed on the basis of the record maintained in the stores in respect of goods received back in the Goods Returned Book; also that rebates and allowances have been allowed in accordance with the policies and practices of the business. To verify credits in respect of goods returned, the auditor must check entries in the Goods Inward Book kept at the factory gate. He must further verify, on a reference to the memo prepared when the goods were returned, that the goods in fact were defective and the defect was not one which occurred subsequent to the case on which the goods had left the factory premises. If such a memo is not on record, the management should be advised that a responsible official should examine the goods on their return and prepare such a memo.

When there is long time lag between the dates of the sale and that of return of the goods, the reasons for the same as well as the conditions, in which the goods have been received back, should be ascertained. For it could be that the account receivable had returned the goods on its price having fallen, on one or the other pretext with the connivance of the sales staff.

The credit given to allied or associated concerns on account of goods returned by them should be specially examined to verify that the goods have been returned due to some valid reasons and the credit does not represent the reversal of fictitious sales earlier entered in their account. Allowances are granted to account receivables of a number of reasons; goods having been supplied short or goods having suffered damage while they were in transit, some defect in their quality, etc. The auditor should verify that these have been granted under a proper authority and on a due consideration of a claim and of the policies of the business in these matters. If considered necessary, correspondence with the party, the quantities and value of goods supplied and those returned out of them also should be verified.

1.6. Recovery of Bad Debts written off

Recovery of bad debts written off is 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 account receivables should also be seen.
• Check Credit Manager’s file for the amount received and see that the said amount has been deposited into the bank promptly.
• Vouch acknowledgement receipts issued to account receivables or trustees.

1.7. Rental Income

Before proceeding to vouch rental receipts, copies of bills issued to tenants should be test checked by reference to copies of tenancy agreements and bills of charges paid by the landlord on behalf of the tenants, i.e., house tax, water tax, tax deducted at source, electricity consumed, etc. The entries in the Rental Register in respect of rents accrued afterwards should be verified by reference to copies of rental bills. The amounts collected from tenants on account of rent should be checked by reference to receipts issued to them. These afterwards should be traced into the Rental Register.

At the end, the register should be scrutinized to find amount or rents which have not been recovered and are considered bad or irrecoverable, for deciding whether these should be written off or as provision against the same should be made.

An overall check over rental receipts is also necessary. For this purpose, particulars of total accommodation available for being let out, in different buildings, belonging to the client, should be ascertained. It should be verified that every available accommodation has been let out and rental income has been duly accounted for. If it is reported that one or more tenements have remained vacant a certificate in respect thereof should be obtained from the client.

1.8 Interest & Dividend Income (i.e. Income from Investments)

If the investments are many, the client generally would have an Investment Register. In such a case, the dividend income is first vouched by reference to the counterfoils of Dividend Warrants and the interest on securities by reference to the tax-deduction certificates, issued by the Reserve Bank. Afterwards the amounts collected are traced into the Investment Register; it is scanned to find out whether interest or dividend, relating to any investment, has remained unrealised. If so, the reasons thereof are ascertained. In order that the gross amount of interest are disclosed in the Statement of Profit and Loss, the tax deducted out of interest is debited to the Income-tax Account and credited to Interest Account. The auditor should verify that this has been done.

The auditor should examine the separate ledger accounts kept for each investment or loan given. The dates on which dividends or interest payments generally fall due should also be noted. The counterfoil of dividend warrants should be seen. These should be tallied with the records of investment. Where investments are sold ex-dividend, it should be seen that the dividends are subsequently received. Similarly when a purchase is on cum dividend basis, the receipt of dividend should be checked. In case of interest on deposit with banks, verification should be done by reference to the bank statement and the agreed rate of interest. The receipts of dividends and interest should be addressed to the bank statement for encashment. It should be ensured that the interest and dividend received are credited to the respective account in full i.e., before deduction of tax at source and the tax deducted at source should be debited to an appropriate account. It should be further seen that the certificate for tax deducted at source exists in each case.

1.9 Royalties Income

The auditor should see the relevant contract and examine the important provisions relating to the conditions of payment of royalty. In particular, the rate of royalty, mode of calculation and the due dates should be noted. The periodical statements received from the publisher and the calculation of the royalty should be checked. If there is any deduction on account of recoupment of royalty for the past period, the records for earlier royalty receipts should be seen to ensure that the amount of deduction is as per the contract. Royalties due but not yet received should have been properly accounted for.

1.10. Vouching of Payments

Cash Payment is defined as a form of liquid funds given by a consumer to a provider of goods or services as compensation for receiving those products. • In most domestic business transactions, a cash payment will typically be made in the currency of the country where the transaction takes place, either in paper currency, in coins or in an appropriate combination. • Terms used in Vouching of Payments – Cheque, Cash in hand, Wages, Vouchers, Voucher Numbers, Bank Reconciliation, Blank Cheques, Monthly accounts, Discounts, Payment authorities. In vouching, payments shown on cash book, an auditor should see that payment has been made wholly and exclusively for the business of the client and that it is properly authorized by the person who is competent to do so.

1.11. Purchases

1.11.1 Credit Purchases

The purchases on credit should be verified by reference to the suppliers invoices to which generally copies of delivery notes, disclosing the dates and particulars of goods received and acknowledged by the Receiving Department, are also attached. While vouching entries for purchases with the invoices, the following points should be specially observed:

1. That the date of invoice falls within the accounting period;
2. That the invoice is made out in the name of the client;
3. That the supplier’s account has been credited with the full amount of the invoice and that the deduction in the amount of the invoice, if any, has been made on a proper basis;
4. That the goods purchased are those that are regularly dealt in by the concern or required for the process of manufacture carried on by it and that the price payable has been correctly arrived at;
5. That the cost of purchases has been debited to an appropriate nominal account or accounts;
6. That the invoice is signed by the accountant to show that he has verified it as well as the store-keeper to indicate that the delivery of goods have been taken by him. If the invoice relates to the purchase of a technical store or a chemical, the price whereof is dependent on its quality, a copy of the report of a technical person showing that the article purchased is of the specification for which the order has been placed; and
7. That the manager or some other official, competent to sanction payment, has authorised its payment.

For controlling expenditure on purchases it is essential that these should be classified under the following heads-

1. Purchases of raw material, for each material separately.
2. Purchases of finished goods.
3. Purchases of consumable stores, fuel etc.
4. Purchases of packing materials, etc.
5. Purchases of articles like stationery for office use.
6. Purchases for making additions to assets.

1.11.2 Cash Purchase:

Cash Purchases should be verified by reference to cash memos or receipted invoices by suppliers. Payments made against credit purchases should be vouched with the receipts issued by the suppliers and the credit to their accounts on the basis of invoices entered in the Purchases Daybook. There must be also evidence of the goods having been received through an entry in the Goods Inward Books or inventory ledger.

1.11.3 Purchase Return

If a part or whole of a consignment of goods found to be defective or of a poor quality, the goods sometime are returned to the supplier and his account is debited. The debit is raised in the Purchase Returns Books, on the basis of Debit Note. The supplier, on receiving the Debit Note, issues Credit Note indicating his acceptance of the debit. Thus, on receipt it is attached to Debit Note. All these entries should be verified by reference to the record kept in the Goods Outwards Book or the Stores Record. The original invoices through which the purchases were made also should be referred to for confirming that the nominal account, which was originally debited on the purchases being made, has been subsequently credited on a part or whole of the goods contained in the consignment having been returned. Where the purchase returns are large, either at the beginning or at the close of the year, these might be fictitious, entered to cover bogus purchases recorded earlier. On such a consideration the nature thereof should be ascertained. The rebate in price and allowances granted by the suppliers should be adjusted through the journal on the basis of Credit Notes received from the suppliers. These should be verified by reference to the original invoices.

1.12. Salaries and Wages

Payments on account of salaries and wages need to be vouched carefully, since amounts which were either not due or in excess of those due may have been paid by the client. The evidence in support of such payments generally is internal. It can, therefore, be relied upon only if it has been produced in the normal course of business and there exists an efficient system of internal control which could be expected to prevent it from being fabricated.

Therefore, before proceeding to verify payment made on account of salaries and wages, the auditor should examine the internal control procedure as regards the following:

(a)     Appointment, promotion, transfer and discharge of employees.

(b)    Recording attendance of workers engaged on the time basis, as well as particulars of jobs performed by piece workers.

(c)     Arrangement for the preparation of wages and salaries bills and their analysis.

(d)    Sanctioning the disbursement of wages and salaries.

(e)     Arrangement for disbursement of wages and salaries for workers and employees not present on the pay day.

(f)       Custody of the wages records

He should also verify that the system of internal control provides for the following matters:

(a)     Mechanical recording of attendance of workmen by time recording clocks installed at the factory gate, as well as in each department and the reconciliation of the total labor force with the total of workmen in different departments; also the recording of attendance of the staff departmentally in separate registers.

(b)    Preparation of wages and salary bills by members of the staff, who are not connected with maintaining a record of engagement of workers, recording of their attendance or fixation of their wages.

(c)     Rotation of duties of different clerks employed for preparation of wages and salaries bills so that calculations, additions and extensions are not carried out by the same clerk every month. Also, signing of the statement by persons who have prepared them and indication by each person so employed of the nature of work carried out by him.

(d)    Verification of salaries and wages bills in case of newly appointed persons by reference to orders for appointment, promotions or transfer made during each month and of those payable to old employees by reference to old records and on reference to the record of attendance.

(e)     Verification of the amount of total wages paid with the amount adjusted in the costing record.

(f)       Checking and authorising the overtime and piece work payment by officers who are not associated with the Wages Department.

(g)    Withdrawal by a single cheque from the bank of the exact amount of wages and salaries payable as are entered in the wages and salaries bill, depositing in the bank the undisbursed amounts.

(h)     Recording of unclaimed wages and salaries immediately in the Unpaid Wages and Salaries Register, and their subsequent payment on the employee’s claim to them.

(i)       Payment of advances in lieu of wages and salaries to persons who go on leave on short notice before the end of the month through the Petty Cash.

(j)       Disbursement of wages in the presence of an official who is in a position to identify the worker and ensure that wages are not being paid to persons other than the workmen except under a proper authority.

Provided that the system of internal control has built-in safeguards against payments being made in excess, the auditor should check the wages and salaries bills for one month as follows:

(a)     Check the bill in detail by reference to the record of attendance, schedule of rates, sanctioned by the management for different classes of workers and employees and the sanction for their payment.

(b)    Check the computation of wages and salaries payable to different workers and employees by taking into account the deduction and other factors on a consideration of the following-

1. Absence;
2. Leave with pay;
3. Loans and advances;
4. Increments;
5. Fines and penalties;
6. Deduction on account of Provident Fund and Income-tax;
7. Deduction on account of contribution towards Employees’ State Insurance, etc.

(c)     Verify the addition, extension and classifications of wages and salaries for distributing them among different accounts.

(d)    Confirm that all payments to workers and other employees have been acknowledged and amounts which have remained undisbursed have been deposited back in the bank and credited to the Unpaid Wages and Salaries Account. Also, check disbursement of unpaid wages and salaries made during the month.

(e)     See that wage sheets are signed by the persons who have prepared wage sheets and disbursed wages; also that they have indicated precisely the nature of work carried out by them.

(f)       Test the correctness of the amount paid by reference to the Annual Return of Salaries, etc., submitted to the Income-tax Authorities and that of wages with Employee’s State Insurance Cards.

(g)    Trace recoveries out of loans and advances, outstanding against employees into the Employees Loans and Advances Register.

(h)     See that names of the same persons do not always appear on the list of unpaid wages if their wages are not, from time to time, adjusted against their loans and advances to prevent their absence being noticed at the time wages are paid. It might provide a clue that the workmen are dummies.

If the aforementioned checking does not disclose significant mistakes, either in the preparation of wages and salaries bill or in their disbursements, the auditor could verify the wages and salary bills for the rest of the period by the application of the following checks:

(a)     Test checking the amount of wages and salaries, shown as payable in the bill, to a selected list of employees by reference to their attendance record as well as Employees Insurance Cards ; also verifying the rate of wages and salaries at which the amount due have been computed on an inspection of the authority under which they were engaged.

(b)    Verifying the disbursement of all wages and salaries by reference to receipts furnished by employees or their authorised representatives on the salaries and wages bill.

(c)     Verifying the amounts withdrawn each month from the bank for payment of the salaries and wages bill.

(d)    Reconciling the amounts deposited in the bank each month with that undisbursed shown in the relevant bill.

(e)     Vouching all payment made on account of wages and salaries that had remained unclaimed on the pay day.

A Company shall disclose separately by way of notes on the face of the Statement of Profit and Loss additional information regarding aggregate expenditure on Employee benefits expenses as under:

(a)     Employee Benefits Expense

(b)    Salaries and Wages

(c)     Contribution to Provident and Other Funds

(d)    Expenses on Employee Stock Option Scheme (ESOP) and Employee Stock Purchase Plan (ESPP)

(e)     Staff Welfare Expenses.

1.13. Rent, Insurance Premium, Other Expenses

1. Check direct expense such as customs duty, excise duty with the value of purchases and quantity of goods for sales; verify adjustment of regular expenses e.g. Rent, managerial salaries, insurance charges, postage, stationery, etc.
2. Compare the total of each expense account comprised in the Statement of Profit and Loss with the corresponding amount in the same account for the previous year and if there is any material variation in any one of them, find out the reason therefore.
3. Determine whether increases or decreases in wages, material consumed and variable expenses appear to be proportionate to the increase or decrease in the turnover.
4. Investigate the causes of any material change in the rate of gross profit.
5. Enquire into extraordinary expenses, e.g., donations paid to charities or item of a non- recurring nature, like expenses of foreign tours, those on an advertisement campaign and others which have resulted in changes of material amount on the revenue of the period.
6. Ascertain whether there have been any changes in the basis of accounting which have resulted in significant increase or decrease in the amount of expenses included in the Statement of Profit and Loss e.g. Due to non-provisions of closing inventory of stationery or advertisement material, non-provisions of bonus or gratuity payment to staff, etc.
7. Compare schedules of outstanding expenses and provision with those for the previous period and ascertain causes of any material changes therein; check in detail the provisions for depreciation and taxation.

1.14 Telephone Expenses

The auditor should vouch it as under:

1. The internal control system existing in the firm of payment of expenses to be verified.
2. The entry of payment of telephone expenses are to vouch with telephone bills and payment vouchers.
3. The date, signatures, amount of payment verified by comparing entry, bill and voucher.
4. The payments made after the due date are verified.
5. The bills received but not paid are to be examined.
6. The outstanding expenses provided or paid in advance are to be examined.

1.15 Postage and Courier

Trace payments made for the purchase of postage stamps recorded in the Postage Book. The totals of the Postage Book should be test checked. The amounts of postage stamps in hand, at the end of the year, should be credited to Postage Account by debiting the amounts to Postage in Hand Account. It should be seen that the amount paid for postage stamps is not unduly large and the Postage Book is normally checked by the petty cashier from time to time before the amount of imprest is reimbursed. Confirm that the postage expenses for the year are reasonable as compared with that in the postage expenses from month to month.

1.16. Petty Cash Expenses

Payments from petty cash should be verified as follows:

1. Trace the amounts advanced to the petty cashier for meeting petty office expenses from the Cash Book in the Petty Cash Book.
2. Vouch payments with docket vouchers which must be supported, wherever possible, by external evidence e.g., payee’s receipted bill or invoices, cash memo, etc.
3. Trace payments made for the purchase of postage stamps recorded in the Postage Book. The totals of the Postage Book should be test checked. The amounts of postage stamps in hand, at the end of the year, should be credited to Postage Account by debiting the amounts to Postage in Hand Account. It should be seen that the amount paid for postage stamps is not unduly large and the Postage Book is normally checked by the petty cashier from time to time before the amount of imprest is reimbursed. Confirm that the postage expenses for the year are reasonable as compared with that in the postage expenses from month to month.
4. See where a columnar Petty Cash Book is maintained, that the extension have been carried forward into appropriate amount columns.
5. Check the column totals and cross totals.
6. Trace posting of the various columns in which payments are classified to the respective ledger accounts.
7. Verify the cash balance in hand.
8. Auditor should also verify whether the amount of petty cash imprest is fixed. Is this amount reasonable considering the total amount of petty cash payments made during a month or so?

1.17. Travelling Expenses

Travelling expenses are normally payable to staff according to rules approved by directors or partners. Where no rules exist, the auditor should recommend that these be framed for controlling the expenditure. In the absence of T.A. Rules, the expenditure should be vouched on the basis of actual expenditure incurred. A voucher should be demanded for all items of expenses incurred, except those which are capable of independent verification.

As regards travelling expenses claimed by directors the auditor should satisfy himself that these were incurred by them in the interest of the business and that the directors were entitled to receive the amount from the business.

The voucher for travelling expenses should normally contain the under mentioned information:

1. Name and designation of the person claiming the amount.
2. Particulars of the journey.
3. Amount of railway or air fare.
4. Amount of boarding or lodging expenses or daily allowance along with the dates and times of arrival and departure from each station.
5. Other expenses claimed, e.g., porterage, tips, conveyance, etc.

If the journey was undertaken by air, the counterfoil of the air ticket should be attached to the voucher; this should be inspected. For travel by rail or road, the amount of the fare claimed should be checked from some independent source. Particulars of boarding and lodging expenses and in the case of halting allowance the rates thereof should be verified. The evidence in regard to sundry expenses claimed is generally not attached to T.A. Bills. So long as the amount appears to be reasonable it is usually not questioned. All vouchers for travelling expenses should be authorised by some responsible official. In the case of foreign travel or any extraordinary travel, the expenses, before being paid, should be sanctioned by the Board. The travelling advance taken, if any, should be settled on receipt of final bills. At the year end, the amount not settled should be shown appropriately in the Balance Sheet.

Unless the articles specifically provide or their payment has been authorised by a resolution of shareholders, directors are not entitled to charge travelling expenses for attending Board Meetings.

1.18 Advertisement

The Advertisement expenses will be vouched in the following manner:

1. Ascertain the nature of advertisement expenses to ensure that the same have been charged properly.
2. Obtain the complete list of advertisement, media wise, i.e., newspapers, slides, hoardings, magazines, television, radio, etc. showing the dates, exact location, timings, etc., along with the amounts paid in respect of each category.
3. See that advertisement expenses relate to the client’s business.
4. Ascertain whether there is a regular contract with an advertising agency. See that regular statements are obtained from the agency showing the advertising media and amounts debited to the client. Discounts, if any, should be properly adjusted and disclosed in the bills.
5. Check the receipts for amounts paid for the advertising expenses incurred.
6. See that outstanding advertising expenses have been properly disclosed on the liabilities side of the balance sheet.

1.19 Interest Expense

1. Inspect the receipt obtained from the receiver (lender). Trace the same into the cash/bank book to ascertain that entry has been passed for correct amount. Trace the entry into ledger’s account from cash book.
2. Examine the agreement, if any, which may be in form of a letter or even a receipt issued to the lender. The receipt or letter would normally mention the terms regarding interest.
3. If installments are also paid along with interest, see that the only interest element is debited to the interest account.
4. In case of interest on public deposits, see that directives of the RBI and provisions of the Companies Act are compiled with.
5. If interest is paid net of Tax Deducted at Sources (TDS), see that interest is shown in the accounts gross of TDS so that the amount of TDS  is shown as payable. See that the TDS certificates are given in time.
6. Interest expenses should be shown as a separate item under “Finance cost” in the Statement of Profit and Loss according to the revised Schedule III.