Auditing Notes for +2 1st Year Students Vocational Commerce.docx

**Auditing** **Concept of Auditing** Auditing is a process in which there is systemic and scientific examination of company accounts by a well qualified person. The word audit derived from Latin word" Audire" which means" to hear". Auditor can examine the books of accounts to ensure that accounts...

**Auditing** **Concept of Auditing** Auditing is a process in which there is systemic and scientific examination of company accounts by a well qualified person. The word audit derived from Latin word" Audire" which means" to hear". Auditor can examine the books of accounts to ensure that accounts of the company are properly maintained or not. A true and fair account of the company shows their financial position and deducting errors. The word Auditing is derived from the latin word 'Audire' which means 'to hear' originally. It was customary for persons responsible for maintenance of accounts to go to some impartial and experienced persons ordinarily judges known as 'auditors' who used to hear these accounts and express their opinion about their correctness and otherwise. Thus, the term auditing literally means 'heare' i.e. one who hears. The term is used in this sense ever since the days when public accounts were accepted and approved on the basis of leaving the accounts read. It was Luca Pacioli who introduced double entry book keeping also defined and described the duties and responsibilities of an auditor. Since then, there have been far reaching changes in the scope and definition of audit. Further, the Industrial Revolution in England compelled the necessity of Auditing. When First Companies Act of 1913 came in to force made it obligatory on the part of every Company registered under it, to have the accounts audited at least in every year. **Definitions of Auditing** R R Moutz defines: Auditing is concerned with the verification of accounting data with determining the accuracy and reliability of accounting statements and reports. Montogomery defines: A systematic examination of books and records of a business of other organization in order to ascertain or verify and to report upon the facts regarding the financial operations and the results there of. In brief auditing involves testing the reliability, competency and adequacy of evidences in support of monetary transactions. It has principal roots in accounting with it reviews, on which it leads heavily for idea and methods. **Features of Auditing:** Following are the Features of Auditing. 1. **Verification of activity** In auditing the auditor can verify the activity of company and before auditing of company accounts by qualified person the company examine their own accounts which is known as internal audit. 2. **Examination of Accounts** In auditing process there is systematic and scientific process of examination of books of accounts by a qualified person. 3. **Ascertain financial statements** The Auditor has to ascertain financial statements of the company by inspect, compare, check and review all financial vouchers. 4. **Review of accounting system ** Auditing is a review of accounting system and Internal control. **Objectives of Auditing** The main object of auditing is to verify the accounts and to report whether the Balance Sheet and Profit & Loss Account have been prepared as per the Companies Act and whether they show true and fair view of the state of affairs of the concern. Besides, there are certain subsidiary objects also to conduct an audit. They are as follows: a. Detection and prevention of errors b. Detection and Prevention of Frauds **Primary Objective** There are two objectives, which are considered as chief objectives of auditing. They are as below: Confirmation of truth and fairness of financial statement i.e. Balance Sheet and Profit and Loss Account. Thus aims to establish the degree of reliability of the annual statement of accounts and to report whether the same has been prepared properly and in accordance to the Companies Act and they portray true and fair state of affairs. **Secondary Objectives** The objective is to detect and prevent various errors of various types as given below: i. **Error of Principle --** When a transaction is recorded against the fundamental principles of accounting, it is an error of principle. Error involving violation of accounting principles is known as Error of Principle. Generally, these errors relate to distinction between capital and revenue item. For Ex- Debiting of purchase of furniture to office expenses A/c credited rest received from tenant to tenants A/c, crediting sale of furniture to sales Account, debiting payment of salaries to employee A/c, stationary used by the proprietor to business expenses A/c etc. involves errors of principle. ii. **Clerical Errors --** These errors can again be sub-divided as follows -- a. **Errors of Omission --** Errors of omission are errors resulting from the complete failure to enter a transaction in the books. It refers to omission of a transaction of the time of recoding in subsidiary books or posting ledger. These errors are further classified in to 2 parts. i. **Complete Errors --** When a transaction is not recorded in the books of original entry, agreement of Trial Balance is not affected because both aspects of transaction are not recorded. This may be defined as completed errors. For Ex -- A payment of Rs.5000/- to Mr. X omitted from being recorded in cash Book. ii. **Partial Errors --** If a transaction has been journalized or recorded in a subsidiary book but has not been posted in both the ledger Accounts, it will be an error of partial omission and will not hamper the agreement of the Trial Balance. b. **Errors of Commission --** When transaction are recorded and posted in a wrong manner it is termed as errors of commission. It may or may not affect the agreement of Trial Balance. For example -- Recording of wrong amount in the subsidiary Books. Posting an amount to wrong account etc. are two side errors and never affect the agreement of Trial Balance. These types of errors are not disclosed by the Trial Balance. It may happened at the posting of a single transaction twice in the ledger. c. **Compensating Errors --** These errors are of neutralizing in nature. These are counter balanced by another errors in such a way that it is not disclosed by the Trial Balance. Neither the Original errors nor the compensating error will thus be detected by failure to a balance, since use error cancel another errors. For Ex -- An extra debit of salary Account for Rs.2000/- may be compensated by an extra credit of Rs. 2000/- in sales Account. d. **Errors of postings --** If transaction has been journalized or recorded in a subsidiary book but has been posted wrongly in the ledger Account, it is an error of posting. For Ex -- Goods sold to Mr. X on credit for Rs.2000/- have been posted in Mr. X account as Rs.200/-. e. **Error of casting --** Casting is an accounting term for addition. These errors may occur due to short casting or excess casting in any subsidiary book or in account in the ledger. These errors are reflected in the Trial Balance unless it is compensated by other errors. **Detection and Prevention of Frauds** Frauds may be taken place in the furnish: - Misappropriation of Cash - Misappropriation of goods - Falsification of Accounts **Misappropriation of cash** This may be committed either by omitting to enter receipts or by entering factious payments. In order to detect the first, the auditor must check in receipts shown in the cash book with the original records, such as bill books, books against returns etc. Fictitious payments should be discovered by a careful examination of vouchers, invoices, wage sheet and other direct evidences of this nature. **Misappropriation of goods** This type of fraud is even more difficult to detect, unless accurate stock records are kept. It is almost impossible to detect small misappropriations of this nature. Without such records, sometimes the losses already incurred may be detected by checking the percentage of profit to sales but this will not locate the fraud itself. **Falsification of Accounts** It is generally perpetrated by the people at the top such as Directors, Managers etc. Directors of the Managers who wish to boost the image of the concern by showing fictitious profit in order to -- - Declare higher rates of dividend - Obtain additional credit - Increase commission or remuneration due to themselves - Dispose of their share holdings in the company at inflated prices. - Avoid or minimize the amount of taxation In all these cases, the falsification of accounts is not accompanied by actual misappropriation. The auditor must be particularly vigilant about such types of frauds. He would be given false information and explanations deliberately. He must exercise considerable care and skill to make exhaustive investigation. **Types of Audit** Audit is classified in to different parts on the basis of various elements like scope, activity, form, people and legal necessity. **On the basis of scope** An audit examination can be general or specific. It can ne in dependent or internal. On the other hand, specific audit focuses on specific areas, object or may be period. On the basis of emphasis, it can be further classified as: - Partial audit - Occasional audit - Interim audit - Cost audit - Management audit - Performance audit - Standard audit - Audit in depth - Post and vouch audit - Cash audit **On the basis of Nature of Activity** The activities with the subject matter of audit may be considered as commercial or non-commercial audit. The nature of activity will determine the scope and approach of the audit. While the audit of profit motive organizations can be called commercial audit, the audit of non-profit organizations will fall under non-commercial audit e.g. government audit, audit of organizations involved in promotion of education, health or environment etc on non-profit basis. **On the basis of form of organization** On the basis of form of organization the audit may be classified as Private and Government. The method of appointment and reporting will differ considerably in those two types of audit. **On the basis of who conducts the audit** On this basis the audit is classified in to independent or internal audit. An independent audit is conducted by an independent, professionally qualified person who is not an employee of the organization, by hiring his services. An independent audit enjoys better creditability in the eyes of public. Indian Companies Act and Chartered Accountants Act contain number of provisions to ensure the independence of the auditor. On the other hand, internal audit is conducted by employees of the organization to enable better exercise of managerial control. **On the basis of Legal necessity** On this basis the audit can be classified in to statutory and non-statutory audit. Where law, through some act requires compulsory audit of an organization or activity, such audit is called statutory audit e.g. Companies Act, Banking Companies Regulation Act etc. Where audit is conducted without any legal necessity or requirement, the audit is called non-statutory audit. **On the basis of Method of Examination** When the auditor and his staff is constantly engaged in the work during the whole year or period at regular or irregular intervals, the audit is known as Continuous Audit. On the other hand, the audit conducted after annual closure of accounts is known Completed audit, periodical audit, Annual audit or Final Audit. When the audit is concerned with the items of balance sheet then only it is called Balance Sheet audit. **Concept of Vouching** Taylor and Perry defines vouching as the examination of evidence offered in substantiation of entries is in the books including in such examination thereof , so far as possible that no entries have been omitted from the books. According to R.B.Bose, By vouching is meant the verification of the authority and authenticity of transactions as recorded in the books of account. Lawrence R. Dicksee defines Vouching consists of comparing entries in the books of accounts with documentary evidences in support thereof. From the above definition it is concluded that the act of examining vouchers is referred to as vouching. It aims at establishing the authenticity of the transactions recorded in the primary books of account. It consists of verifying the record of each transaction contained in the books of account with the relevant documentary evidence and the authority. On the basis of which the entry has been made. It confirms that the amount mentioned in the vouchers has been posted to an appropriate account which would disclose the nature of the transactions on its conclusion in the final statements of account. **Importance of Vouching** According to De. Paula, vouching is the very essence of auditing. He says the whole success of an audit depends upon the intelligence and thoroughness with which the part of the work is done. In the opinion of Joseph Lancaster, the very nature of vouching renders it a practically indispensable phase of every audit and that where curtailment of the auditor's duties in his direction is contemplated, the risk that may be incurred should not be over looked. Thus vouching is a sort of preliminary work which forms an important part of audit work. The accounts of a business begin with the passing of entries. It becomes a basis for further scrutiny to be made at a larger stage. The purpose of checking entries by reference to appropriate documentary evidence is to be ensured that the transitions relating to a particular period have been recorded there is no voucher left unrecorded in the financial books. After satisfying him with regard to the authority and authenticity of transaction, the auditors can say categorically that the books of accounts are correct and the balance sheet and profit and loss account exhibit the true and correct state of the financial state of affairs of a business. If vouching is done with care and caution by the auditor, he can be processed well further in his work. The success of an audit depends upon the intelligence and thoroughness with which vouching is done. It is not only the inspection of receipts with the cash book, it includes the examination of the transactions of business, together with documentary and other evidences of sufficient validity authorized and care correctly recorded in the books. Thus, the auditor goes behind the books account and traces the entries to their sources. It is in this way along that he can ascertain the full meaning and circumstances of the various transactions. If he confirms himself to the entries as they appear in the books of account, his information will be incomplete, and he may pass matters of the utmost importance which affects the accounts materially. The entries in the books show only such information as the book keeper choices to disclose. This information may be purposely or unintentionally contrary to the true facts. An auditor can ascertain the real estate of affairs only by examining external evidence. Clever frauds can only be discovered by vouching was emphasized in different case where the auditors were found guilty of negligence because of their failure to detect defalcations perpetrated by manipulations of wage records and petty cash vouchers. In the course of his judgment the learned judge stated, it was clear that a good many documents were suspicious on their face and called for enquiry. The auditor has to apply his experiences, knowledge of accountancy, critical faculty, keen observation and common sense to get the best result out vouching. Vouching has rightly called the backbone of auditing. Vouching consists of comparing entries in books of account with documentary evidences in support thereof. **Dicksee** The examination of documentary evidence in support of entries is often referred to as vouching. **R.K.Mautz** Vouching is a technical term which refers to the inspection of documentary evidence supporting and substantiating a transaction. **Renold A Irish** The act of examining vouchers is referred to as vouching. It is the practice followed in an audit, with the objective of establishing the authenticity of the transactions recorded in the primary books of account. It essentially consists of verifying transactions recorded in the books of account with the relevant documentary evidence and the authority on the basis of which the entry has been made. On these considerations, the essential points to be borne in mind while examining a voucher are: - That the date of the voucher falls within the accounting period. - That the voucher is made out in the client's name. - That the voucher is duly authorized. - That the voucher comprised all the relevant documents which could be expected to have been received or brought in to existence on the transactions having been entered in to ie. The voucher is complete in all respects. **Important points to be considered while vouching** - All the vouchers are serially numbered and filled in order of the entries in the accounts. - Attention should be paid to the dates which must correspond to the audit period. - The auditor should see the whether the vouchers is in the name of client. - He should see whether the amount written in words and figures is correct. - He should ensure whether the account head is properly written or not. - He should also see whether the voucher is signed by the recipient of the amount. - He should ensure whether the voucher is properly authenticated. - Auditor also sees whether the expenditure shown is responsible or not. - He should see the whether the expenditure is for the course of the business. - Auditor should see whether the voucher is properly accounted in the books or not. **Concept of Verification** Verification means providing the truth or confirmation one of the most important duties of an auditor in connection with the audit of the accounts of a concern is to verify the assets and liabilities appearing in the balance sheet. According to Spicer and Pegler, verification of assets implies an enquiry in to the value ownership and title, existence and possession and the presence of any charge on the assets. According to Holmes, Verification is the proof of accuracy of existence, footing, posting, existence and ownership of assets. From the above definition it is concluded that verification refers to confirming the truth. Verification satisfies the auditor by real inspection as to the existence, possession, the different items cited in the Balance Sheet. Vouching tells that an asset ought to exist that its real existence is neither proved nor it is in the possession of the firm on the Balance Sheet. Following are the points that distinguish between vouching and verification. 1. **Nature of Work:-** Vouching examines the entries relating to transaction recorded in the account books while verification examines the assets and liabilities appearing in the balance sheet. 2. **Time:-** Vouching is done through out of the year while verification is done at the end of the year when the balance sheet is prepared. 3. **Basis:-** 4. **Personnel:-** Vouching is done by juniors like the audit clerks where as verification is done by auditor himself. 5. **Valuation:-** Verification means providing the truth or confirmation one of the most important duties of an auditor in connection with the audit of the accounts of a concern is to verify the assets and liabilities appearing in the balance sheet. According to Spicer and Pegler, verification of assets implies an enquiry in to the value ownership and title, existence and possession and the presence of any charge on the assets. According to Holmes, Verification is the proof of accuracy of existence, footing, posting, existence and ownership of assets. From the above definition it is concluded that verification refers to confirming the truth. Verification satisfies the auditor by real inspection as to the existence, possession, the different items cited in the Balance Sheet. Salient Points to be considered by an Auditor during verification of Assets are given as follows: According to the statement on auditing practices issued by the Institute of Chartered Accountants of India, the following are the points to be considered at the time of verification of assets by an auditor. 1. **Existence of Assets:-** The auditor has to verify the existence of assets by reference to documentary evidence or by physical inspection. Where physical inspection is not possible he should obtain the evidence from third parties such as confirmation from banks, creditors, solicitors etc. Sometimes the management takes the responsibility to carry out physical examination of fixed assets at periodicals intervals depending upon the size of the business. 2. **Ownership of Assets:-** 3. **Possession of Assets:-** The auditor should verify the possession of assets under the organization. The possession may be actual or constructive, pledged o hypothecated or given as a collateral security. All these have a bearing on the value of the assets and on the client's right to dispose it off. 4. **Proper Valuation of Assets:-** Besides verifying the existence of assets the auditor should see that they are properly valued. He is not a value rut his duty in this connection is to see that assets are valued in accordance with the generally accepted accounting principles, professional guidelines and established practices followed in earlier years. 5. **Free from Charge:-** The auditor should see that all the assets are free from any charge or lien. It should be clearly stated in the balance sheet. He should verify the documents of title and if they are possessed by the bankers, solicitors or any other party, a certificate is to be obtained showing that the assets are free from any charge. 6. **Proper Presentation:-** All the assets should be properly disclosed and described in the financial statements. The manufacturing and other company's order which came into force from 1976, has made an important observation in this connection. It states that the auditor's report shall include a statement stating whether the company is maintaining proper records to show full particular including quantitative details and the situation of fixed assets. 7. **Adequate Internal Control:-** Usually, the existence of assets is verified by reference to documentary evidence available and by evaluations of internal control. The auditor has to see that there is an adequate control over the acquisition, utilization and disposal of the asset. The verification of assets and liabilities is primarily the responsibility of the management of the business, since they are expected to have an intimate knowledge of assets and liabilities as regards location, condition and present position etc. **Suggestions for respective verification** The following points are suggested to make verification of assets more effective: 1. Where possible, verification of assets should eb carried out on the last day of the accounting period. But normally, audit is taken up sometime after the final accounts are prepared. In the mean time, the values of assets may change. Therefore, it would be necessary to check back all the subsequent transactions to satisfy the values stated in the Balance Sheet are correct. 2. If there are several cash balances or a large number of investments, the auditor should verify all of them at the same time to avoid the possible ties of substitution. In case, it is not possible to check all of them in one sitting, he must keep all the securities and cash balance under his control and possession until he has completed his verification. 3. For certain assets, documentary evidence may not be readily available for inspection. For example, securities may be in the custody of the bank. In such a case, a certificate should be obtained from the bankers to the effect that they hold them for safe custody. 4. Where some assets do not exist or assets over-valued the auditors should verify the concerned documents to ascertain the correct valuation and the position. He should inspect the documents of title and certificate and make full enquires regarding their valuation. 5. As regards liabilities the auditor should confirm the nature and extent of their amounts due at the date of the balance sheet. **Concept of Internal Control** The system of internal control must be under continuous supervision by management to determine that it is functioning as prescribed and is modified, as appropriate, for changes in environment. Internal control system extends beyond those matters which relate directly to the functions of accounting system and comprises of control environment and control activities. Following are the important objectives of internal control system: - To examine the continued effectiveness of internal control system through evaluation and make recommendations, if any, for improving that effectiveness. To focus towards improving internal control structure and promoting better corporate governance - To obtain an understanding of significant processes and internal control systems sufficient to plan the internal audit engagement and develop an effective audit approach, assess and evaluate the maturity of entity's internal control, assess management's attitudes, awareness and actions regarding internal controls and their importance in the entity - To evaluate internal control system in an entity, based on various criteria - To ensure segregation of duties between various functions - Tests of control are performed to obtain audit evidence about the effectiveness of design of internal control systems - Based on the results of tests of control, internal auditor should evaluate whether the internal controls are designed and operating as contemplated in the preliminary assessment of control risk. To consider whether internal controls were in use throughout the period - To identify internal control weaknesses that have not been corrected and make recommendations to correct those weaknesses - When internal controls are found to contain continuing weaknesses, internal auditor should consider whether management has increased supervision and monitoring, additional or compensating controls have been instituted and/or management accepts the risk inherent with control weakness - To evaluate identified control deficiencies and then determine whether those deficiencies, individually or in combination, are significant deficiencies or material weaknesses - Report to the management should provide a description of significant deficiency or material weakness in internal control. His opinion on possible effect of such weakness on entity's control environment Internal controls are a system consisting of specific policies and procedures designed to provide management with reasonable assurance that the goals and objectives it believes important to the entity will be met. \"Internal Control System\" means all the policies and procedures (internal controls) adopted by the management of an entity to assist in achieving management\'s objective of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The internal audit function constitutes a separate component of internal control with the objective of determining whether other internal controls are well designed and properly operated. Internal control system consists of interrelated components as follows: - Control (or Operating) environment. - Risk assessment. - Control objective setting. - Event identification.. - Control activities. - Information and communication. - Monitoring. - Risk response. The system of internal control must be under continuous supervision by management to determine that it is functioning as prescribed and is modified, as appropriate, for changes in environment. The internal control system extends beyond those matters which relate directly to the functions of the accounting system and comprises: a\. \"control environment\" means the overall attitude, awareness and actions of directors and management regarding the internal control system and its importance in the entity. The control environment has an effect on the effectiveness of the specific control procedures and provides the background against which other controls are operated. Factors reflected in the control environment include: - The entity\'s organizational structure and methods of assigning authority and responsibility (including segregation of duties and supervisory functions). - The function of the board of directors and its committees, in the case of a company or the corresponding governing body in case of any other entity. - Management\'s philosophy and operating style. - Management\'s control system including the internal audit function, personnel policies and procedures. - Integrity and ethical values. - Commitment to competence. - Human resource policies and practices. b\. \"control activities" (or procedures) which means those policies and procedures in addition to the control environment which management has established to achieve the entity\'s specific objectives. Control activities include approvals, authorizations, verifications reconciliations, reviews of performance, security of assets, segregation of duties, and controls over information systems. Internal controls may be either preventive or detective. Preventive controls attempt to deter or prevent undesirable acts from occurring. They are proactive controls that help to prevent a loss. Examples of preventive controls are separation of duties, proper authorization, adequate documentation, and physical control over assets. Detective controls attempt to detect undesirable acts. They provide evidence that a loss has occurred but do not prevent a loss from occurring. Examples of detective controls are reviews, analyses, variance analyses, reconciliations, physical inventories, and audits. Internal controls are generally concerned with achieving the following **Objectives:** - Transactions are executed in accordance with management\'s general or specific authorization. - All transactions and other events are promptly recorded in the correct amount, in the appropriate accounts and in the proper accounting period so as to permit preparation of financial statements in accordance with the applicable accounting standards, other recognized accounting policies and practices and relevant statutory requirements, if any, and to maintain accountability for assets. - Assets and records are safeguarded from unauthorized access, use or disposition. - Recorded assets are compared with the existing assets at reasonable intervals and appropriate action is taken with regard to any differences. - Systems and procedures are effective in design and operation. - Risks are mitigated to a reasonable extent. Internal control is a process. Internal control can be expected to provide only reasonable assurance, not absolute assurance. Internal control is geared to the achievement of objectives. Internal control is affected by people and not by policy manuals and forms alone. **Inherent Limitations of Internal Controls** Internal control systems are subject to certain inherent limitations, such as: - Management\'s consideration that the cost of an internal control does not exceed the expected benefits to be derived. - The fact that most internal controls do not tend to be directed at transactions of unusual nature. The potential for human error, such as, due to carelessness, distraction, mistakes of judgment and misunderstanding of instructions. - The possibility of circumvention of internal controls through collusion with employees or with parties outside the entity. - The possibility that a person responsible for exercising an internal control could abuse that responsibility, for example, a member of management overriding an internal control. - Manipulations by management with respect to transactions or estimates and judgments required in the preparation of financial statements. **Concept of Internal Check** Internal check is an organization of the system of account under which the work of one person is automatically checked by another, with a view to prevent and detect the errors and frauds. Under such a system, it is not possible to commit errors & frauds without the collusion between to or more people. **Objective of internal check:** - - - - - - - **Principle of internal check:** - - - - - - - - - **Advantages of Internal Check System** The main advantages of internal check are listed below:- **1. Moral influence on employees: -** System of internal check puts moral check on members of staff and enables them to learn honesty, hard work and straight forwardness. **2. Determination of employee's liability:-** System of internal check determines the responsibilities of employees. The member of the staff may be held responsible for any irregularity carried on by him. **3. Less possibility of frauds:-** There is a less possibility of frauds under the system of internal check because errors and frauds can be detected at an early stage. **4. Increase in efficiency:-** The system of internal check ensures greater efficiency and speed because the arrangement of internal check is based on division of labour. **5. Auditing made easy:-** The system of internal check facilitates the work of auditor to a great extent by enabling him to relay on test checking. **6. Final accounts can be prepared:-** In internal check system the 'Profit and Loss Account' and Balance Sheet is prepared without any loss of time. **7. Correct and complete records of all the transactions:-** The system of internal check may also result into correct and complete records of all the transactions on each balancing of the books of accounts. **8. Detection of dishonesty or irregularity:-** Any dishonesty or irregularity in the concern by the members of staff can be detected before they assume any complication. **9. Test checking possible:-** If the auditor finds the system of internal cheek satisfactory. Then by taking into mind it defects or weak points he can take the help of test checking. **Disadvantages of internal check** The defects or weak points of the system of internal check are listed below: 1. **Expensive: -** The system of Internal Check is more expensive and time consuming. 2. **Slackness in the work: -** This is also a serious defect of the system of internal check. The auditor may show slackness in the work. He may rely on the system of internal check blindfold, which may affect the quality of audit work adversely. 3. **Not suitable for small concern: -** The system of internal check is not suitable for small concern as it may be uneconomical in small concern. 4. **Grouping among employees: -** If the employees of the concern join hand they may keep the employer in dark and may cause, many irregularities defying any-detection thereof. This grouping amongst the employees may not be healthy. **Vouching of Cash Transactions** Cash receipts should be checked because it has a great scope for misappropriation of cash if there is no well organized system of internal check. The following system of internal check may be adopted for cash receipts:- 1. All incoming mails should be opened under the supervision of a person who has norelation with accounts and administration; 2. Every receipt of cash should be entered in a rough cash book in the presence of a responsible person; 3. All cheques received should be immediately cashed; 4. All incoming cheques and postal orders should be cancelled by means of stamp with crossing of Not Negotiable-Account Payee Only; 5. All cash receipts should be acknowledged by issuing printed receipts with counter foils or carbon copies; 6. Receipts should be signed by responsible official and counter signed by the cashier; 7. Receipts should be consecutively numbered; 8. Unused receipts should be kept under lock and key; 9. Spoiled receipts should be cancelled and should be preserved along with counterfoils; 10. If some alteration is made in the receipts already written, it should be properly initialed; 11. No blank counterfoils should be accepted; 12. Automatic till¶s or cash register must be used for checking purpose; 13. All cash receipts should be deposited in the bank immediately; 14. Cashier should not access to the ledgers; 15. Bank reconciliation statement should be prepared periodically by a person other thancashier. **Cash sales:-** Cash sales may take the form of counter sales, sales by travelling salesmen and postal sales;  **Counter sales:-** 1. Name of the authorized salesman should be specified; 2. Cash memos should be printed in numerical sequence. 3. The salesman sells goods to a customer and prepares four copies of the cash memos, three f them to be handed over to the customer and the fourth to be retained by him. 4. All these copies are checked by another official sitting nearly. 5. The customer is required to carry all the three copies to the cashier who, after collecting the amount and after recording the sale, returns two copies to the customer duly stamp-marked, Cash Paid. 6. Goods are handed over to the customer by the gate-keeper and one copy of the cash memo is retained by the gate keeper. 7. At the end of the day, the salesman, the cashier and the gate keeper prepare summarizes of the cash sales separately. 8. Receipts from cash sales should be deposited in the bank on the same day 9. Where cash recording machines are used, the total of cash received as given by the machine should be checked with the amount actually banked. **Sales by Travelling Salesman:-** In big business houses, generally travelling salesman are employed to push sales and to collect debts. These salesmen collect debts from old customers and accept advances from the new ones. A good system of check over this salesman is vitally essential. However, the following measures should be adopted. a. Traveling salesman should be issued with predetermined rough receipt books. b. Customers should be asked to correspond straight with the Head Office if a final receipt is not mailed to them within a stipulated time. c. Travelling salesman should be instructed to remit the entire cash to the Head Office without making any deduction for commission or any other expenditure out of it. d. Head office should regularly send statements of accounts to old customers to apprise them of their debts and balances. e. Special attention should be given to defaulters. f. Salesman should also be transferred from one area to another. This is necessary for increasing the efficiency of the salesman and for avoiding frauds. **Postal Sales:-** The following should be noted in this regard: a. There should be a separate register to record sales by post or V.P.P. b. When cash is received against a V.P.P. sale, it should be entered in this separate register. c. Separate bank pay-in-slip should be prepared to deposit cash received against postal sales. d. An officer should be deposited to check carefully this register and special attention should be given to those goods which have been returned. **Cash payments** The person in charge of making payments should have no connection with the receipt of cash. All payments should, as far as possible, be by cheques excluding petty cash payments. The cheques drawn for payment should be order cheques and as for as practicable they should be crossed. Only authorized persons are given the authority to sign the cheque. Persons authorized to sign cheque should not be allowed to prepare the cheques. The following categories of payments have, however, been evaluated from the operation of the above provision. a. Beyond certain amount all payments must be made by crossed cheques against relevant supporting document. b. Persons authorized to sign cheques should not be allowed to prepare credit list or cheques two persons must sign the cheques. c. Blank cheques should be held under the lock and key with some responsible person. d. Receipts duly signed and stamped should be obtained for each payment. e. These should be properly arranged and maintained through proper filling in cash book. f. To ensure the availability of discounts, all monthly accounts should be paid on the fixed dates. g. Before they are passed for payment, there should be proper checking of statements with initiated invoices. **Vouching of Trading Transactions** Comprehensive system of internal check with regard to the buying and selling departments of a manufacturing concern: **Internal check as regards purchases:** A separate department for credit purchases is usually maintained in business houses. The efficiency of such a department depends upon its policy of purchasing best goods at the cheapest price. The Purchases Department should function separately and its work should be sub-divided between small departments, each of which should be headed by a responsible officer. To facilitate its operation, the whole work connected with purchases may be divided into five heads: \(1) Assessment of Requirements, \(2) Enquiry, \(3) Placing Orders, \(4) Receipt of Goods, and \(5) Recording and Making Payments. **1. Assessment of requirements:** This is the first important job to assess requirements of goods. Requisition Books should be issued to the various departments of a concern. The head of the department which is in need of goods should fill in a requisition slip duly signed and then send it to the Purchases Department. The details about the quantity, quality, the price (if it can be quoted) and the time by which goods must be supplied, should be entered in the requisition slip. On receipt of similar requisition slips from the various departments, the Purchases Department can know exactly the volume of requirements of different goods to be purchased. **2. Enquiry:** Then, the Purchases Department makes an enquiry about the terms and conditions of purchases from different suppliers. For this, tenders or quotations are invited from them. The lowest tender should be accepted, and accordingly, a decision be taken by an officer or by a sub-committee of the Purchase Department if the amount of purchase is heavy and involves a huge expenditure. **3. Placing orders:** The Purchases Department places orders which should be recorded in the Purchases Order Book. Three copies of such orders should be prepared -one each for the supplier, the store and the Purchases Department itself. A responsible officer should sign the order. After putting the number of the order on the requisition slip concerned and vice versa, such requisition slip should be filed in the Purchases Department. **4. Receipt of goods:** On receipt of goods, the gate-keeper should enter the particulars of all goods received in the Goods Inward Book after having checked them properly. The goods then should be sent to the Store where they should be carefully preserved. The stores Department should prepare a 'Goods Received Note' and send a copy thereof to the Purchase Department, the Accounts Department and the Production Control Department. The goods received note should be prepared with the following details: \(1) The date when the goods were received. \(2) The name of the supplier. \(3) The advice note number. \(4) The description and code number of goods. \(5) The quantity advised. \(6) The quantity received. Besides, if a part of the goods has been rejected, the goods received note should contain the following additional information: \(7) The quantity rejected. \(8) The rejection note number. \(9) The quantity accepted into store. \(10) Signatures of employees concerned with having entered items on it. **5. Recording and making payments:** Lastly, the Purchases Department should scrutinize the requisition slip, the order; the goods received note and the invoice. Invoices are usually checked by a separate person known as the Invoice Clerk. The number of the order should be entered on the invoice and so on. All these documents should be marked as checked and signed, if necessary. The invoice should then be handed over to the Accounts Department where steps will be taken to make payments. It is to be seen that the invoices, when checked, have been properly stamped. The Accounts Department should enter the invoice in the Purchases Book. If the goods are defective partially or wholly, the invoice should not be passed in such cases. It is, however, for the Purchases Department to make correspondence with the suppliers about the return of such goods which are defective. The aim of an efficient system of internal check is to prevent the following errors and fraud in connection with purchases: \(1) Fictitious purchases may be recorded in Purchases Book so that payments withdrawn from the business may be misappropriated. \(2) The same invoice may be recorded twice so that double payment made may be misappropriated. \(3) Goods purchased may not be entered in that period so as to inflate profits. \(4) Goods not received in one period may be entered as purchases so as to show profits less than the actual. **Internal check as regards purchases returns:** \(1) There should be a proper system of control in regard to purchases returns so that full credit may be ensured for all goods returned. \(2) A statement should be prepared by the Stores Department for all goods returned. \(3) The Purchases Department should check such goods and prepare an advice note which should be sent to the Accounts Department. \(4) The Accounts Department should further examine the advice note with original invoice and enter it in the Purchases Returns Book. \(5) All goods returned should be entered in the Goods Outward Book. \(6) A credit note should be obtained from the supplier, i. e., the creditor, for each return of goods which should then be attached to the invoice if it is not yet paid. It should be remembered that, if the system of internal check is not good, a credit note so received may be suppressed and the correspondence cash payment misappropriated. **Internal check as regards sales:** The whole system of credit sales should be kept under proper control and supervision. There should be a separate Sales Department for the purpose. The Sales Department should have charge of receiving orders, supplying goods to customers, preparing invoices and maintaining accounts of goods supplied. The Sales Department should function as a composite of some sub-departments. The procedure of its working may be like this: \(1) All orders received should be entered in the Orders Received Book and properly numbered. The original order or its copy should then be sent to the Dispatch Department. \(2) The Dispatch Department should take steps to pack the goods as per the order. It should prepare a statement showing the goods packed. \(3) The statement so prepared by the Dispatch Department should be sent to the Counting House where the list of goods should be checked and rates, etc. entered in it. The invoice will then be prepared in triplicate by means of carbon papers. \(4) Two copies may be sent to the customers who will then return one of them after signing it in token of having received the goods. Thus, it will serve the purpose of delivery note. The third copy will be retained for further reference. \(5) The Accounts Department should prepare documents like Railway Receipt, Bill of Lading, etc. \(6) All goods supplied on order should be entered in the Goods Outward Book which should be checked at frequent intervals with the Orders Received Book. \(7) The Invoice Book should also be compared with the Goods Outward Book and the Orders Received Book. \(8) The Sales Book should be written up with the help of the copies of invoices. The following type of fraud may be committed in connection with sales: \(1) Sales may be omitted from recording in the Sales Book. \(2) Inflation of sales in the Sales Book in any of the following ways: \(a) Recording fictitious sales; \(b) Treating goods as sales sent on approval or by V. P. P.; but not yet accepted or sent on consignment but not yet sold by the consignee; \(c) Treating sales of fixed assets as sales of goods; \(d) Entering sales of the next year as sales of the current year; and \(e) Treating sales of consignment inward as own sales. **Internal check as regards sales returns:** All goods returned by customers should be recorded in the Goods Inward Book. The statement of goods so returned when received should be sent to the Dispatch Department which should check it and, then send it to the Accounts Department. A credit note should then be prepared and signed by a responsible official before it is sent to the customer. The Sales Return Book should be written up with the help of the copies of credit notes issued. The number and date of credit notes should also be entered in this book. The aim of such a system is to prevent an improper credit being passed in the books for fictitious returns and to avoid fraud involved in misappropriating equivalent cash. **Auditor's Duty in respect of Dividend and Divisible Profits** The profits available for the distribution among the shareholders of a company as dividend are called divisible profits. The profits are calculated by comparing the income and expense of one year. The necessary adjustments are made before calculating the profit of a business concern. The accounting principles are followed. The directors have the right to create provisions, reserves and funds out of business profits under the articles of association and the Companies Ordinance 1984. The remaining profit may not be used in full for dividend. A part of such profit can be used to pay dividend to the shareholders. Keeping in view business conditions, the directors can propose the rate of dividend. The shareholders can approve such rate of dividend in annual general meeting. The rate of dividend proposed by the directors cannot be increased by the shareholders at all. The proposed dividend is paid with in45 days after the declaration of it. Dividend must be paid out of the revenue profits. The correct calculation is essential for all who depends upon business. The overstatements can disturb one section of investors while understatement can upset another group. It is clear that divisible profits are profits available for shareholders in the shape of dividend. The articles of association are the rules of the company for managing the business activities. The articles prescribe the rules for divisible profits. The directors are entitled to distribute the profit under the rules. They cannot exceed the prescribe limit. The Companies Ordinance 1984 states the rules and regulations for distribution of profits to the shareholders. The dividend can be paid out of revenue profit. The directors must follow the rules of companies for distributing profits. They cannot violate the law. The accountancy Principles must be followed for calculating the divisible profits. The going concern, consistency. Conservatorium, matching concepts are applied. These principles must be applied otherwise the reliable results cannot be expected from the accounting books and records. The legal decisions must be kept in mind while calculating the divisible profits. The court cases relating to auditing must be followed if applicable to conditions of the business. The auditor must know the decisions announced by the court for time to time. The principle of capital maintained must be applied. The capital cannot be used to paid dividends. The revenue profits can be utilized for payments of dividend the capital account must remain intact. It is illegal if the directors pay dividend out of capital during any year. **Factors influencing divisible profits** The following factors influence the divisible profits; **1. Capital Profit** The divisible profit ca be paid, if there is some capital profit or gain. **2. Capital Loss** If some part of the capital is lost or there is capital loss the dividend can be paid out of the current profits without making any provisions for any capital loss. **3. Depreciation** The depreciation is charged before the distribution of the divisible profit **4. Transfers of Reserves** Under company ordinance 1984, before declaring dividends the directors have powers to make such reserves as they may think proper.  **Concept of Profit** Like the term \"value\" in economics accountants have used the word. \"Profit\" for many years without assigning a definite meaning to it. This state affairs has given rise to much informed criticism of accountants and their work added to this is the difficulty caused by the divergence that exists in the concept of the profit between the economist and an accountant for the purpose of settlement of claims of parties to their shares in the profit of a business.  **Principles of Divisible Profit** 1. **Articles of Association** The articles of associations are the rules of the company for managing the business activities. The articles prescribe the rules for divisible profit. The directors are entitled to distribute the profits under the rules. It cannot exceed the prescribed limits. 2. **Companies Ordinance** The companies ordinance 1984 states the rules and regulation for distribution of the profits to the shareholders. The dividend can be paid out of revenue profit. The directors must follow the rules of companies for distributing profits. They cannot violate the law. 3. **Accountancy Principle** The accountancy principles must be followed for calculating the divisible profits. The going concern, consistency, conservation matching concepts is applied. These principles must be applied other wise the reliable result cannot be expected from the accounting books and records 4. **Legal Decision** The legal decision must be kept in mind which calculating the divisible profits. The court cases relating to auditing must be followed if applicable to the conditions of business. The auditor must know the decision announced by the courts from time to time. 5. **Capital Maintenance** The principles of capital maintenance must be applied. The capital cannot be used to pay dividend. The revenue profits can be utilized for payments of dividend. The capital account must remain intact. It is illegal it the directors pay dividend out of capital during any year. 6. **Shareholders Approval** The divisible profits can be used to pay as dividend after approval of shareholders. The annual general meeting is called and the shareholders approve rate recommended by directors. The rate of dividend proposed cannot be increased at all. 7. **Capital Profit** The capital profit can be used to pay dividend under certain conditions. The capital profit should be realized. All the assets should be revalued and even then there is surplus. The articles of association allow the distribution of capital profit as dividend. The depreciation on the revalued assets has been recorded in the books of accounts. 8. **Directors Proposal** The directors have the right to propose the rate of dividend under certain conditions. The capital profit should be realized. All the assets should be revalued and even then there is surplus. The articles of association allow the distribution of capital profit as dividend. The depreciation on the revalued assets has been recorded in the books of accounts. 9. **Capital Loss** The dividend can be paid out of revenue profits even there is capital loss. There is no need to adjust old capital loss before payment of dividends. The current year revenue profit can used to pay dividend. The capital profit must be used to eliminate capital loss finest and then surplus can be used to pay dividend. 10. **Depreciation** The dividend can be paid out revenue profits. The depreciation on fixed assets must be charge to profit and loss before declaring revenue profits. In case of manufacturing company it is compulsory to charge depreciation before declaration of profit or dividend. 11. **Past Losses** The company may sustain a loss in one year. It can earn profit in the next year. The company may adjust loss of previous year. The remaining profit of current year can be pay dividends. In 1918, Ammonia Soda Co. V Chamberlain case the court decided that under the articles of association the directors can pay dividend out of current year profit with out adjustment past losses. 12. **Transfer to Reserve** The dividend can be paid of revenue profit remaining after transfer to reserves. The articles of association empower the directors to create at a certain rate. In case of banks and financial institutions it is obligatory to set up statutory reserves. 13. **Secret Reserves** Management creates the secret reserves by various techniques. The financial institutions need such reserves to develop the confidence of customers and owners. The reserves can be created and used to pay dividend if allowed under the articles. The misuse of such reserves must not be allowed. 14. **Undistributed Profit** The directors for declaring dividend can use undistributed profit or profit and loss appropriation balance. It is revenue of the previous years. It is a right of the directors to used such profit for payment of dividend at the end of the year. 15. **Profit Prior to Incorporation** The profit prior to incorporation is a capital profit. It cannot be used for payment of dividend. It is a profit earned before the registration of the company. It can be used to write off capital loss or issue of bonus share by the company management. 16. **Asset Revaluation** The management can revalue the assets. The surplus on revaluation of assets can be started on liability side of balance sheet. It can be used after realization. The assets may be sold and profit may be realized. 17. **Solvency of Company** The solvency of the business is very important than payment of dividend. The management must determine cash needs of the company. If cash is surplus than business requirements then dividend then can be paid is cash. In cash of storage of funds dividend should not be paid in cash. 18. **Creditors Protection** It is a principle of divisible profits that dividend must be paid out of revenue profits. The correct calculation is essential for all who depend upon business. The overstatement can disturb one section of investors while understatement can upset another group. **Multiple Choice Questions** 1. **Name the process of critical examining books of accounts on the basis of vouchers, documents, information and explanations of different institutions.** a. Accounting b. Auditing c. Management d. Inspection 2. **Which of the following are regarded as auditing principle or principles?** e. Principle of Independence f. Principle of Objectivity g. Principle of Materiality h. All of the above 3. **Auditors who are not competent in the work of auditing is known as** i. Amateur Auditor j. Professional Auditor k. Government Auditor l. Local Auditor 4. **The main objective of an audit is to** m. Examine the books of accounts n. Ascertain Profit or Loss o. Prepare the Balance Sheet p. All of the above 5. **Subsidiary objectives of Auditing are** q. Detecting errors r. Detecting Frauds s. Prevention of frauds and errors t. All of the above 6. **An audit of an organization which is legally mandatory under any enactment is known as** u. Private Audit v. Government Audit w. Statutory Audit x. Internal Audit 7. **The examination of the books of accounts by the auditor throughout the year or at regular intervals is known as** y. Government Audit z. Interim Audit a. Local Fund Audit b. Continuous Audit 8. **When the books of accounts are audited at any time during the course of the financial year to ascertain the profit or loss or the financial standing of an enterprise, it is called** c. Private Audit d. Interim Audit e. Statutory Audit f. Internal Audit 9. **Statutory Auditor is appointed by the company in accordance with the provisions of Section 139 of the** g. The Companies Act h. Partnership Act i. Indian Contract Act j. Right to Information Act 10. **The system of control of all aspects of the business and its transactions is known as** k. Management l. Internal Control m. External Control n. Organizational Control 11. **The primary objectives of internal check are** o. To prevent frauds and errors p. Determination of responsibility q. To prevent omissions in accounting r. All of the above 12. **The periodic checking of the accounts of an institution or a company from time to time by its internal auditors is called** s. Interim Audit t. Internal Audit u. Periodical Audit v. Statutory Audit 13. **The documentary evidence that authenticates the transaction entered in the books of accounts is termed as** w. Audit Working Paper x. Audit Evidence y. Voucher z. None of the above 14. **A technique of auditing in which the auditor certifies the assets and liabilities as shown in the Balance Sheet by actual checking or any other technique is termed as** a. Auditing b. Vouching c. Internal Control d. Verification 15. **In case of a company, the auditor can be appointed by** e. Company's Board of Directors f. Managing Director g. Independent Director h. SEBI 16. **The primary duties of an Auditor under Indian Companies Act 2013 are** i. To check certain special points j. To Issue a report k. To help in Investigation l. All of the above 17. **If any auditor does not do the duties entrusted to him or which arise due to his position, then he shall be held guilty of** m. Negligence n. Misfeasance o. Mismanagement p. Ineffectiveness 18. **The final report prepared and submitted by the auditor after verifying the books of accounts of an organization is known as** q. Auditor's Report r. Partial Report s. Audit Report t. Final Report 19. **If the auditor is not appointed to verify all the accounts, but only some books of accounts and the auditor issues a report, then it is known as** u. Interim Report v. Partial Report w. Final Report x. None of the above 20. **Verification of the correctness of cost accounts and adherence to the cost accounting principles, plans and procedures is termed as** y. Financial Audit z. Management Audit a. Cost Audit b. Internal Audit 21. **Which type of audit is compulsory for all limited companies in India?** c. Financial Audit d. Cost Audit e. Management Audit f. Government Audit 22. **Who can be appointed as a Cost Auditor?** g. A practicing Chartered Accountant h. Qualified Company Secretary i. Cost Accountant j. Both (a) and (c) 23. **The cost auditing techniques executed in the process of cost audit are** k. Vouching l. Checking & Ticking m. Working Paper & Audit Notes n. All of the above 24. **The documents, vouchers, letter of clarification etc. which may help Auditor in his working are known as** o. Audit Evidence p. Audited Vouchers q. Working Paper r. None of the above 25. **Auditor, mainly concerned with the valuation of the policies and activities of the management and making them more efficient is known as** s. Financial Auditor t. Cost Auditor u. Management Auditor v. None of the above 26. **Name the type of audit approach in which auditors concentrates on input and output and ignores the specification of computerized data processing or transactions.** w. Black Box Approach x. White Box Approach y. Red Tape Approach z. Green Box Approach 27. **When the use of computer is made by the auditor to carry out compliance and substantive procedure, it is called** a. Auditing through the computer b. Auditing around the computer c. Computerized Audit d. None of the above 28. **The moral or ethical or value framework under which corporate decisions are taken is termed as** e. Corporate Ethics f. Corporate Strategy g. Corporate Governance h. Corporate Hierarchy 29. **The ability of a company to outsmart competitors time and again that and over a long period of time can no more be described as** i. Corporate Ethics j. Corporate Excellence k. Corporate Governance l. Corporate Hierarchy 30. **A systematic life cycle used to help a business organization drive towards overall sustainability is termed as** m. Corporate Governance n. Ethical Governance o. E-Governance p. Green Governance 31. **Organizations which pool a large sums of money and invest those sums in companies are popularly termed as** q. Institutional Investors r. Financial Institutions s. Regulators t. None of the above 32. **The first formal regulatory framework for listed companies specifically for corporate governance was established by** u. RBI v. SEBI w. TRAI x. Central Government 33. **Which of the following is a committee formed for reforming the Corporate Governance in India?** y. Aditya Birla Committee z. Mukesh Ambani Committee a. Kumar Mangalam Birla Committee b. Balbindar Singh Committee 34. **Which of the following is a major Corporate Governance Scandal in India?** c. Junk Bond Scam d. Tyco International Scam e. Parmalat Scam f. Satyam Computer Services Ltd. Scam 35. **Which of the following is a Corporate Governance Problem?** g. Conflict of Interest h. Mismanagement i. Financial Scarcity j. None of the above 36. **Companies policy statements that define ethical standards for their conduct is termed as** k. Corporate Code l. Management Code m. Corporate Ethics n. None of the above 37. **Responsibility of a business organization towards customers, workers, shareholders and the community is termed as** o. Corporate Governance p. Corporate Ethics q. Corporate Social Responsibility r. None of the above 38. **A business approach that creates long term consumer and employee value by creating a "green" Strategy is termed as** s. Corporate Social Responsibility t. Corporate Sustainability u. Corporate Governance v. None of the above 39. **The effective translation of an institution's mission into practice in line with accepted social values is termed as** w. Corporate Social Responsibility x. Corporate Sustainability y. Corporate Governance z. Social Performance 40. **Purchase of products and services that cause minimal adverse environmental impacts is known as** a. Social Performance b. Purchase Order c. Green Procurement d. Green Funding Answers: 1. (b) Auditing, 2. (d) All of the above, 3. (a) Amateur Auditor, 4. (a) Examine the books of accounts, 5. (d) All of the above, 6. (c) Statutory Audit, 7. (d) Continuous Audit, 8. (b) Interim Audit, 9. (a) The Companies Act, 10. (b) Internal Control, 11. (d) All of the above, 12. (b) Internal Audit, 13. (c) Voucher, 14. (d) Verification, 15. (a) Company's Board of Directors, 16. (d) All of the above, 17. (b) Misfeasance, 18. (a) Auditor's Report, 19. (b) Partial Report, 20. (c) Cost Audit, 21. (a) Financial Audit, 22. (d) Both (a) and (c), 23. (d) All of the above, 24. (c) Working Paper, 25. (c) Management Auditor, 26. (a) Black Box Approach, 27. (a) Auditing through the computer, 28. (c) Corporate Governance, 29. (b) Corporate Excellence, 30. (d) Green Governance, 31. (a) Institutional Investors, 32. (b) SEBI, 33. (c) Kumar Mangalam Birla Committee, 34. (d) Satyam Computer Services Ltd. Scam, 35. (a) Conflict of Interest, 36. (a) Corporate Code, 37. (c) Corporate Social Responsibility, 38. (b) Corporate Sustainability, 39. (d) Social Performance, 40. (c) Green Procurement.