Company Audit And Audit Of Other Entities PDF

UNIT-4 COMPANY AUDIT AND AUDIT OF OTHER ENTITES Company Auditor Appointment of Auditor After incorporation of a company in the first annual general meeting, an Auditor must beappointed by the Board of Directors. The Auditor will typically hold term till the conclusionof 6thAGM or 5 years. The app...

UNIT-4 COMPANY AUDIT AND AUDIT OF OTHER ENTITES Company Auditor Appointment of Auditor After incorporation of a company in the first annual general meeting, an Auditor must beappointed by the Board of Directors. The Auditor will typically hold term till the conclusionof 6thAGM or 5 years. The appointment of an Auditor can also be made for a period of 1year, renewable at each annual general meeting. Company Auditor Definition: Company Auditor is an individual appointed for preparing an independent audit report of thecompany. They can be either appointed by the company’s Board of Directors, Shareholders, Central Government or Comptroller and Auditor General of India (C&AG) accordingly. Anindividual must have expert knowledge and a practising certificate fromthe Indian InstituteofChartered Accountants for becoming a company auditor. It is mandatory for the companies to get their financial statements auditedfor every financial year for which Companies Act 2013, states all the provisions associatetocompany’s audit in Sec 139 to Sec 142, whereas; Sec 128 to Sec 132 reported the provisionslinked with the accounts of the company. Qualification and Disqualification of Company Auditor Qualification and Disqualification of company auditor are regulated by the Companies Act, 2013(Sec 141), and these provisions are pertinent for all kinds of appointments. Qualifications For becoming a company auditor one should have any one of the following qualifications: 1. Chartered Ac ountant  According to Sec 141(1) of the Companies Act an individual holding a practisingcertificate of being a certified chartered accountant from the ICAI (Indian InstituteofChartered Accountancy) is qualified for being an auditor of a company.  Chartered accountancy firm where all partners are practising in India is also qualifiedfor being a company’s auditors. However, any partner of the firm acting on behalf of their firmcan work as company auditor. 2. Confined State Auditor The certificate holder issued by the law entitling him to act as a company’s auditor in Indiaholdsthe right to become an auditor of a company. Disqualifications The following individuals are not qualified to become a company auditor:  A Corporate Body as it has limited liability.  Working employees or officers of the company.  Partners of officers who are working in the company.   Individual holding security of the company.  A person disqualified by any subsidiary company from acting as a company auditor. In case of a partnership firm, if any of the partners is disqualified because of any above reasons, the firm will also be disqualified from being appointed as company auditor. Rights OR Powers of Company Auditor 1. Right of Examining Books and Vouchers The auditor has a full right to ask for any document of business if required by himfor performing his work. He can ask for all the documents of the head office or any other branchinthe working hours of the company for verifying the vouchers to prepare his audit report. Thecompany cannot refuse to present the asked documents by the company auditor. 2. Right to Acquire Information The company auditor can ask for any information regarding company fromthe officersof thecompany to perform his duty accurately and precisely and if the proper informationisnot received the auditor has a right to report it to the members of the company. 3. Right to Ac ess Ac ounts and Visit Branches The company auditor has a right to visit the branches of the company and accesstheir accounts if he feels to go through it for his report generation even if another auditor auditstheaccounts of branches. He has full right to access vouchers and books of accounts of thebranches whenever required. 4. Right to at end General Meetings The company auditor has a right to receive the notices regarding General Meetings of thecompany; although it’s not his duty to take part in the discussion, he can give clarificationonany part where his consent is required as an auditor. However, he cannot outbreak responsibilityof any omission in his report. Duties of an Auditor 1. Provide an Audit Report The fundamental duty of a company’s auditor is to make a report regarding accounts andfinancial statements examined by him and present the same to the members of the company. Such an opinion of the auditor enhances the credibility of the financial statements. This isbecause it provides reasonable assurance from the auditor that the financial statements giveatrue and fair view of the company’s state of affairs. Furthermore, such an auditor’s opinion assures that the report has been prepared takingintoaccount the accounting and auditing standards. 2. Make Proper Enquiry It is the duty of every auditor to seek access to books of accounts, vouchers and other information and explanation from the company. Furthermore, an auditor can also inquire information regarding the following matters from the company at any time:  whether the loans and advances made by the company on the basis of security havebeen properly secured. Furthermore, he needs to inquire whether the terms and conditions on the basis of which such loans and advances have been made are not unfair.  if the transactions of the company represented only by book entries have actually takenplace and are not unjust to the company in any way  whether loans and advances made by the company are shown as deposits  if the personal expenses (expenses not associated with the company) are chargedtothe revenue amount  whether cash has been received for the shares that were issued for cash. However, if nocash has actually been received, the auditor shall verify that the company’s positionasstated in the books of accounts is correct, regular and not misleading. 3. Assist in Branch Audit The accounts of a branch office can be audited by:  a company’s auditor  any individual appointed as the branch auditor as per the act  company’s auditor or accountant or any competent person appointed as per the lawsof the foreign country in case of a foreign branch Thus, a branch auditor needs to prepare a report with regards to the accounts of the branchexamined by him. He needs to ensure that proper books are maintained and hence give reasonsof qualification in the report. After preparing the report, the branch auditor needs to submit this to the company’s auditor. Furthermore, the company’s auditor shall examine such a report in a manner as he deemsfit. 4. Compliance With Auditing Standards The central government establishes the auditing standards in consultation with the ICAI andNational Financial Reporting Authority (NFRA). These standards help the auditors to examine the books of accounts effectively and withgreat accuracy. Thus, every auditor must comply with the established auditing standards whileexamining a company’s books of accounts. 5. Reporting of Frauds A company’s auditor while performing his duties might encounter fraudulent situations. Insuchcircumstances, the auditor may believe that an offence equivalent to a fraud has been committed against the company. And such a fraud has been committed by any of the officers or the company’s employees. Thus, in such situations, it is the duty of the auditor to report such matters to the central government within 60 days of his knowledge. 6. Provide Assistance in Investigation Investigation refers to checking of specific records of a business systematically and critically. Such an examination is conducted when a fault on the part of the company already existsandthe intent of the investigation is to find out a reason and person involved in such an activity. Thus, it is the duty of an auditor to assist the officers undertaking such an investigation. Professional Ethics Of An Auditors 1. Integrity A professional accountant should be straightforward and honest in all professional andbusiness relationships. 2. Objectivity A professional accountant should not allow bias, conflict of interest, or undue influence of others to override professional or business judgments. 3. Professional Competence and Due Care A professional accountant must maintain professional knowledge and skill at the level requiredto ensure that a client or employer receives competent professional service based on current developments in practice, legislation, and techniques. Professional accountants should act diligently and by applicable technical and professional standards when providing professional services. 4. Confidentiality A professional accountant should respect the confidentiality of information acquired fromprofessional and business relationships and should not disclose any such information tothirdparties without proper and specific authority unless there is a legal or professional right or dutyto disclose it. Confidential information acquired from professional and business relationships shouldnot beused for the professional accountant’s or third parties’ advantage. 5. Professional Behavior A professional accountant should comply with relevant laws and regulations and avoid any action that discredits the profession. Liabilities of an Auditor: A Chartered Accountant is associated with the valuable profession. His primary duty istopresent a report on the accounts and statements submitted by him to members of the company. He is responsible not only to the members of the company but also to the third partiesof thecompany, i.e., creditors, bankers etc 1. Liability for Negligence: Negligence means breach of duty. An auditor is an agent of the shareholders. He has toperformhis professional duties. He should take reasonable care and skill in the performanceof hisduties. If he fails to do so, liability for negligence arises. An auditor will be held liable if theclient has suffered loss due to his negligence. It should be noted that an auditor will not be liabletocompensate the loss or damage if his negligence is not proved. 2. Liability for Misfeasance: Misfeasance means breach of trust. If an auditor does something wrongfully in the performanceof his duties resulting in a financial loss to the company, he is guilty of misfeasance. Insuchacase, the company can recover damages from the auditor or from any officer for breachof trust or misfeasance of the company. Misfeasance proceedings can be initiated against theauditor for any untrue statement in the prospectus or in the event of winding up of the company. 2. Liabilities under Companies Act The following are the liabilities of an auditor under the provisions of the Companies Act. (1) Liability for Misstatements in the Prospectus [Sec.35]: An auditor shall be held liable to compensate every person who subscribes for any sharesor debentures of a company on the faith of the prospectus containing an untrue statement madeby him as an expert. The auditor shall be liable to compensate him for any loss or damagessustained by him by reason of any untrue statement included therein. The auditor may escapefrom liability if he proves that: The prospectus is issued without his knowledge or consent. He withdrew his consent, in writing before delivery of the prospectus for registration. He should have withdrawn his consent after issue of prospectus but before allotment ofshares and reasonable public notice has given by him regarding this. (i ) Criminal Liability of Auditor under Companies Act: 1. Untrue statement in Prospectus [Sec.34] The auditor is liable when he authorizes a false or untrue prospectus. When a prospectusincludes any untrue statement, every person who authorizes the issue of prospectus shall beimprisoned for a period of six months to ten years or with a fine, which may be three timestheamount involved in the fraud or with both. 2. Non compliance by auditor [Sec. 143 and 145]: If the auditor does not comply regarding making his report or signing or authorizationof anydocument and makes willful neglect on his part he shall be punishable with imprisonment uptoone year or with fine not less than ₹. 25,000 extendable to ₹. 5,00,000. 3. Failure to assist investigation [Sec.217 (6)]: When Central Government appoints an Inspector to investigate the affairs of the company, it isthe duty of the auditor to produce all books, documents and to provide assistancetotheinspectors. If the auditor fails to do so he shall be punishable with imprisonment up tooneyear and with fine up to ₹.1,00,000. 4. Failure to assist prosecution of guilty of icers [Sec.224]: An auditor is required to assist prosecution when Central Government takes any actionagainst the report submitted by the Inspector. If he fails to do so, he is found guilty and is punishable. 5. Penalty for falsification of books [Sec.336]: An auditor when destroys, mutilates, alters or falsifies or secrets any books of account or document belonging to the company. He shall be punishable with imprisonment andalsobeliable to fine. 6. Prosecution of auditor [Sec.342]: In the course of winding up of a company by the Tribunal, if it appears to the Tribunal that anauditor of the company has been guilty of an offence, it shall be the duty of the auditor togiveall assistance in connection with the prosecution. If he fails to give assistance he shall beliableto fine not less than ₹ 25,000 extendable up to ₹.1,00,000. 7. Penalty for deliberate act of commission or omission [Sec.448]: If an auditor deliberatelymake a statement in any report, certificate, balance sheet, prospectus, etc which is falseor which contains omission of material facts, he shall be punishable with imprisonment for aperiod of six months to ten years and fine not less than amount involved in fraud extendabletothree times of such amount. 3. Criminal Liability under Indian Penal Code If any person issues or signs any certificate relating to any fact which such certificate isfalse, he is punishable as if he gave false evidence. According to Sec.197 of the Indian Penal Code, the auditor is similarly liable for falsification of any books, materials, papers that belongstothecompany. 4. Liability under Income Tax Act [Sec.278] For tax evasion exceeds ₹.1,00,000, rigorous imprisonment of six months to sevenyears. A person who induces another person to make and deliver to the Income Tax authoritiesa false account, statement or declaration relating to any income chargeable to tax whichheknows to be false, he shall be liable to fine and imprisonment of three months to three years. Anauditor may also be charged in case of wrong certification of account. A Chartered Accountant can represent his clients before the Income Tax Authorities. However, if he is guilty of misconduct he can be disqualified from practicing. An auditor can face imprisonment upto two years for furnishing false information. 5. Liability for Professional Misconduct The Chartered Accountant Act, 1949 mentions number of acts and omissions that compriseprofessional misconduct in relation to audit practice. The council of ICAI may removetheauditor’s name for five years or more, if he finds guilty of professional misconduct. 6. Liability towards Third Parties There are number of persons who rely upon the financial statements audited by the auditor andenter into transactions with the company without further enquiry viz. creditors, bankers, taxauthorities, prospective shareholders, etc. 1. Liability for Negligence: It has been held in the court that auditor is not liable to third parties, as there is nocontract between auditor and third parties. He owes no duty towards them. 2. Liability for Frauds: The third parties can hold the auditor liable, if there is fraud on the part of auditor even if thereisno contractual relationship between auditor and third parties. In certain cases negligenceofauditor may amount to fraud for which he may be held liable to third parties. But it must beproved that auditor did not act honestly and he knew about it. Auditing procedure for NGO’s NGOs are not owned by any particular person. They cannot distribute profits by wayofdividends. Whatever profits are earned by NGOs from the economic activities are reinvestedor spent on appropriate non-profit activities. The Auditor ne ds to conduct the fol owing tasks while conducting an NGO Audit.  Since the NGO has its own memorandum the Auditor while conducting NGOAudit must have few insights about the company.  The Auditor, while conducting NGO Audit, must investigate about the amount receivedas subscription ratifying with counterfoils of the receipts.  The Auditor during an NGO Audit must evaluate the decisions taken by the executives.  The Auditor must make physical verification of assets ratifying with store ledger.  The Auditor shall check the liabilities and also that its assets during NGO Audit andwhether its transfer is proper or not.  NGOs receives grant from foreign institutions as well. So it is the duty of the Auditor tocheck whether it is accepted as per the provision of financial rules and regulationsof thenation or not.  The Auditor during the NGO Audit should check the use of Government grants. It should also look if the accounts are adequately maintained or not for recording the grants.  In case such an institution has received the donation from any individual or organization, an auditor should  check accounting of such amount and its use. Auditing procedure for Charitable Institution. Charitable Institutions can be a Public Trust, Society, Section 8 Company, Co-operative Society, Multi State Co-operative Society, Non-Profit Organizations etc. Audit procedure. 1. Constitution of Charitable Institution under which it has been set up and their scope. 2. Examine the laws which is properly followed or not by the institution. 3. Verify the Accounting of collections under Internal Check System. 4. Proper utilization of income and their supporting where they used. 5. Subscriptions and donations are the important source of Income which must be accounted properly. 6. Examine the frequency or movement of life membership subscription during the year. 7. Verification of official receipts. 8. Control check over unused receipt books. 9. Verify the sequence of all receipt books. 10. Give proper attention on counterfoils of Cash book. 11. Examine the source of subscriptions & donation as well as their list of names. 12. Check the total subscriptions and donations with the books & tally with figures. 13. Examine the process of Cash management and their accounting with books. 14. Examine the available resource and verify them in figures with amounts received. 15. Grants play a key role in the income of any charitable Institutions because as per Income Tax Act there is a provision to use the grant for their purpose. So, it must be checkcarefully. Auditing procedure for Educational Institution. Audit of books of educational institutions i.e. Schools, Colleges, Universities etc is knownasaudit of educational institutions. This type of audit comes under the category of special audit. Audit procedure. o Study of the trust deed or regulations. o Examine the previous financial statements. o Noting of provisions applicable. o Evaluation of internal control system. o Examine the minute of the meeting and resolution. o Verification of students fee register. o Authorization for fee concessions. o Verification of cashbook with respect of counterfoils of receipts and payments. o Examination of capital fund regarding admission fees. o Verify free studentship and concessions. o Confirmation of fines for late payment or absence. o Check hostel dues recovery. o Verification of rental income or expenses. o Examine the bank pass book of different nature. o Verification of investment register and also ask about any interest and dividendfrominvestment if  any. o Verify grants from any local bodies or Government with reference to memo or sanctionletter. o Reporting of any arrears. o Vouch counterfoils of receipts taken from donors. o Confirmation of any deposits and caution money and its treatment. o Examination of expenses for library books and sports equipments. o Checking of acknowledgement letter if any with regards to scholarship. o Examination of payments with respect to prizes if any. o Examine the salary register. o Verify the Provident Fund Register. o Check annual report with accurate supporting documents. o Vouching of all establishment expenses. o Vouch payment for electricity and water bill. o Examination of payment for hostel maintenance and any other miscellaneous expenses. Auditing procedure for Government Government auditing is the objective, systematic, professional and independent examinationoffinancial, administrative and other operations of a public entity made subsequently totheir execution for the purpose of evaluating and verifying them, presenting a report containingexplanatory comments on audit findings together with conclusions and recommendationsfor future actions by the responsible officials and in the case of examination of financial statements, expressing the appropriate professional opinion regarding the fairness of thepresentation. RE-APPOINTMENT OF RETIRING AUDITOR Section139 (9) At any annual general meeting, a retiring auditor shall be Audit and Auditors reappointedasauditor of the company except under the following circumstances (a) he is not qualified for re-appointment (b)he has given the company a notice in writing of his unwillingness to be re-appointed. (c) a special resolution has been passed at that meeting appointing somebody else insteadofhim or providing expemaly that retiring auditor shall not be re-appointed. Section 139 (10) laysthat where at any annual general meeting, no auditor is appointed or re-appointed, the existingauditor shall continue to be the auditor of the company. ROTATION OF AUDITORS-Section 139(3) Members of a company can provide for following by passing a resolution: (a) In the audzfirmappointed by it, the auditing partner and his team shall be rotated at such intervals as mayberesolved by members, or (b) The audit shall be conducted by more than one auditor. Atransition period of 3 years from the commencement of the Act has been prescribed for the companyexisting on or before the commencement of the Act, to comply with the provisions of therotation of auditor ROTATION OF AUDITORS ON EXPIRY OF THEIR TERM Section 139 (4) and Rule 6 Rotation of auditors on expiry of auditor's termthen same procedurewill be followed required for appointment of auditors. The procedure is as under: (1) The Audit Committee shall recommend to the Board, the name of an individual audior or of an audit firm who may replace the incumbent auditor on expiry of the termof such incumbent. (2) Where a company is required to constitute an Audit Committee, the Board shall consider therecommendation of such committee, and in other cases, the Board shall itself consider thematter of rotation of auditors and make its recommendation for appointment of the next auditor by the members in annual general meeting. REMOVAL OF AUDITOR-Section 140 (1) and Rule 7 The auditor appointed under section 139 may be removed from his office before the expiryofthe term only by-(1) Obtaining the prior approval of the Central Government by Audit andAuditors 9 filling an application in form ADT-2 within 30 days of resolution passed by theBoard(ii) The company shall hold the general meeting within sixty days of receipt of approval of theCentral Government for passing the special resolution. (iii) The auditor concerned shall begivena reasonable opportunity of being heard. RESIGNATION OF AUDITOR-Section 140 (2), 140 (3) and Rule 8 The auditor who has resigned from the company shall file a statement in FormADT-3 indicatingthe reasons and other facts as may be relevant with regard to his resignation as follows: (i) In case of other than Government Company, the auditor shall within 30 days fromthe dateofresignation, file such statement to the company and the registrar. (ii) In case of Government Company or government controlled company, auditor shall within 30 days fromthe resignation, file such statement to the company and the Registrar and also file the statement withtheComptroller and Auditor General of India (CAG). The onus to file such statement containingrelevant facts and reasons for resignation is on the resigning auditor and any contraventionofsub clause (2) is punishable with monetary fine which could be minimumRs. 50,000andmaximum Rs. 5 lakh. Audit Procedure of Local Bodies. Audit of the accounts of all Local Bodies (Both Urban and Rural at all levels) may bedoneunder the technical guidance and supervision (TGS) of the Comptroller and Auditor General of India. Local bodies include gram panchayat, Municipality, Urban corporation,etc Duties of the Auditor 1. The Accounts of the local body shall be examined and audited by the auditor at least onceayear, 2. It shall be the duty of the Auditor to see that 3. The accounts have been kept and are presented in approved forms; 4. The particular items of receipts and expenditure, are stated in sufficient detail; 5. The payments are supported by adequate vouchers and authority; 6. All sums received are brought into account and entered in the Cash Book, and 7. The receipts and expenditure in all cases are such as are authorised by law 8. The auditor shall also verify the cash balance in the hand of the custodian of the GPFundonthe date of commencement of audit. 9. The accounts of a local body Fund shall be audited after the close of the financial year. Withintwo months from the date on which the audit is completed, the auditor shall prepare a para-wisereport containing his objections and send the same along with audit evidence to the Pradhanofthe Local body for rectification and a copy thereof to the District Panchayat Officer for onwardtransmission to the State Government through the Director of the local body. Audit procedure of Cooperative Societies Audit as Per Section 17 of the Co-operative Society Act, 1912  The Registrar shall audit or cause to be audited by some person authorized by himbygeneral or special order in writing on his behalf, the accounts of every registeredsocietyonce at least every year.  The Audit under sub-section (1) shall include an examination of overdue debts, if any, and a valuation of the assets and liabilities of the society.  The Registrar, the Collector or any person authorized by general or special order inwriting on his behalf by the Registrar, shall at all-time have access to all the books, accounts, papers and securities of a society, and every officer of the society shall furnishsuch information concerning the transactions and working of the society as the personmaking such inspection may require. Qualification of Auditor  A chartered accountant within the meaning of the Chartered Accountant Act-1949, Or,  A person who holds a government diploma in Co-operative Accounts or in Cooperationand Accountancy; or,  A person who has served as an Auditor in the co-operative society department of theState Government and whose name has been included by the Registrar on the Panel of Certified Auditors maintained and published by him in the official Gazette at least once every year. Appointment of Auditor The appointment of an Auditor is done by Registrar of Co-operative Societies. The Auditor conducts his audit on behalf of the Registrar. The Audit fees is paid by co-operative societyaccording to the statutory scale of fees prescribed by the Registrar in this regard accordingtothe category of society. The Auditor is required to submit his audit report directly to the Registrar and one copy of the audit report is submitted to the concerned society. Rights of an Auditor  As per Section 17, an Auditor can access all the books, accounts, documents andsecurities of the society.  He has to see that Balance-sheet of the society shows a true and fair viewof a businessaccording to information and explanation given to him.  Every officer of the society is bound to give all information regarding working andtransactions of the society. Duties of An Auditor An Auditor needs to consider the following points to be able to perform his duties in an efficient way −  An Auditor should be well-versed with the Co-operative Society Act, 1912 and the by laws of the society.  If there is any type of irregularities and improprieties found by an Auditor during hisaudit regarding Co-operative Societies Act, 1912 and by-laws, he should immediately point out the same.  An Auditor should ascertain that how many shares are held by each member of thesociety; for this, he should check the member ship registers.  An Auditor should be well aware of power of officers regarding loan, investment, borrowings, advancing of the funds.  He should thoroughly check and vouch the cash book and bank book.  An Auditor should check all the receipts and payments of the society according tostandard auditing practice.  He should go through the agreements between society and borrower to check theinterest due on loan and repayment schedule. An Auditor should also check andcompare the actual interest received and the repayment of loan received with duesfromthem.  He should carefully vouch and verify that loan given to members of the society is according to agreement, regulation and resolution passed by the Managing Committeeof the society or not.  An Auditor has to assure that a loan given to a non-member is not without the permission of the Registrar.  He should verify the loan given by Co-operative bank should be according to the prescribed limit.  An Auditor should physically examine and verify the assets of a society.  He should adopt different methods for different kind of societies.  Balance-sheet, profit and loss account and Auditor report should be according totheproforma given by the Chief Auditor of the Co-operative Society of the State.  Accounts should be according to the Co-operative Society Act and also with the provision of Income Tax Act.  All the assets, expenses, income, cash-in-hand, etc. should be vouched and verifiedaccording to standard accounting procedures and principles. Audit procedure of Hospital There are many types of facilities that are provided by the hotels to their customers thesedays. Hotels generate their income from room rent, room service, laundry, restaurants, swimmingpool, bar-room, sports room, health clubs, conference halls and banquet hall for marriages, parties and seminars. In addition to these, few hotels are also letting out shops to companiestopromote and sell their products and services. Audit procedure.   An Auditor should determine the scope of his audit from his letter of appointment. It should be seen whether he is asked to express his opinion on financial statementsonlyor some additional responsibility being assigned to him.  An Auditor should obtain list of books of accounts, documents and registers maintainedby hotel.  He should see whether relevant hotels have independent status or a part of chainsof hotels.  An Auditor should study the Memorandum of Articles and the Memorandumof Association.  He should obtain the title deed and other related documents to verify the land andbuilding.  He should also obtain Minutes of meeting of the Board of Directors to note downtheimportant decisions relating to accounts, finance and audit. Revenue from Telephone & Internet An Auditor needs to consider the following points and verify the Revenue fromTelephoneandInternet −  Telephone bills are charged through EPABX system and internet service is chargedthrough internet service providing system.  For internet charges, Service Tax is charged.  In some states like Kerala, Luxury Tax is charged on telephone bills. Revenue from Housekeeping This revenue is normally charged for sale of wardrobes and baby-sitting, etc. Revenue from Laundry An Auditor needs to consider the following points and verify the revenue fromLaundry −  Laundry service is provided to employees of hotel and resident guests.  Billing is done through accounting software according to the rate provided.  An Auditor should get the rate list to verify the rates and the billing should be verifiedwith the housekeeping record. Revenue from Beauty Parlors and Health Clubs An Auditor needs to consider the following points and verify the Revenue fromBeauty Parlorsand Health Clubs −  These facilities are provided to resident guests, walk-in guests or through membership.  An Auditor should verify the rate charged for service provided and guest attendanceregister.  He should ensure the all services should be charged and recovered fromcustomers. Revenue from Sale of Scrap and Disposal of Empties An Auditor needs to consider the following points and verify the Revenue fromSale of ScrapandDisposal of Empties −  Scrap and empties can be sold on the basis of contract price or on the basis of onetimeevaluation at the time of sale.  An Auditor should verify the agreement for contract price in case where there is atimebound agreement between hotels and scrap buyer.  Sale of dry scrap is also very important in hotels like sale of empty cans, bottles andother containers.  He should verify the outward register, weighing slips, etc. and the rate charged for thesame.  An Auditor should verify the cash receipt & cash book, etc. Audit of Expenses An Auditor needs to consider the following points and verify the Revenue fromExpenses −  An Auditor should verify the appointment letter, policy of increment, time record, salaryregister, cash book and bank book to verify the salary payments of employees.  He should verify all purchases through requisition slip, quotations, purchase order, inward register, quality control verification record and stock ledger.  Every purchase should be passed by appropriate authority in this regard.  Vouching should be done properly and should be verified with documentary evidences.  At times, there may be a contract between a seller and a buyer (hotel) to sell a particular product at the same rate for a specific period like a week or a month, especially incasewhere the supply of material is done on daily basis like milk, bakery products, freshvegetables, etc. The Auditor should verify purchases on the basis of such agreement.  An Auditor should apply all other precautions and experience to audit the expensesashe does in any other industries.  Verification of purchases, consumption and stocking is very crucial in hotel industryandit is a real challenge for an Auditor to verify all these very carefully. An Auditor shouldapply all his experience and knowledge to do audit of it. Audit of Income of Hospitals An Auditor should check the bill book, bill register and copy of bills. It should be verifiedthat bills are prepared properly according to visit charges of doctors, medicine, stay charges, room rent, etc. Audit procedure.  He should obtain a list of books, documents, register and other records as maintainedbythe Hospitals.  He should examine the audit report of last year and should note down qualifications, if any.  He should examine the system of receiving grants and donations, whether receivedthrough cheque or otherwise.  According to the overall objectives of audit, he should examine the scope of responsibilities.  He should note down the important clause of Trust Deed or Charter, which may affect the audit and accounts of hospitals.  He should examine the Minutes of Meetings of the Board of Directors/Trustees or theManaging  Committee. He should note down the important decisions concerningthefinancial transactions relating to fixed assets, investment and financial powers asrequired by him during his audit.  He should examine the internal control system regarding purchase of fixed assets, medicines, stores, consumables, clothing and provisions, etc.  He should examine the internal control system for recording of purchases, issue andstorage of all items and physical verification of them.  He should obtain the rate structure for fees, medicine and other services, power todoconcession or waiver of fees. There should be adequate system for charges andwaiver.  He should calculate and examine the input-output ratios.  An Auditor should adopt the usual way to vouch purchases and other expenses of thehospitals.  Clear distinction should be made between capital and revenue expenses.  Salary of staff should be vouched according to general auditing principles.  Title documents and other records relating to land and building should be carefully examined by the Auditor.  Resolution of Trustees/Managing committee should be verified for sale and purchaseof fixed assets.  Depreciation should be charged on the basis of the policies of the Managing Committee.  Liabilities should be verified in the usual manner.  An Auditor should physically verify the investments like shares, debentures, bondsandsecurity certificates. He should also verify them with the investment register.  Stock and stores of medicines, clothing, consumables, etc. should be physically verifiedat the end of the year.  An Auditor should check the bill book, bill register and copy of bills.  It should be verified that bills are prepared properly according to visit charges of doctors, medicine, stay charges, room rent, etc.  Bills should be verified with the fees/charges structure.  Concession and waiver on account of fees and other charges should be verified.  Bills should be verified with cash receipt book, counterfoil of receipts and cash book. Audit of Club Similar to a typical account audit, a club audit examines the effectiveness of a club's internal reporting procedure and identifies any instances of fraudulent reporting. Audit procedure. The following points need to be considered while conducting Audits of Clubs −  An Auditor should decide his scope of work from his appointment letter.  He should know whether he is engaged for only accounting and financial matter or someother assignment too.  He should know about the constitution and the legal status of the Club under whichAct the club is registered.  A Club may be registered under the Companies Act, the Societies Registration Act or thePublic Trust Act.  An Auditor should note down all the related provisions of the applicable Act relatingtothe accounts and audit.  He should study the Memorandum of Association and the Articles of Associationtoknow the powers of executive committee.  An Auditor should be aware of the important decisions relating to accounts, finance, saleand purchase of fixed assets and investment from the minute book of meeting of theBoard of Directors or the Trustees or the Managing Committee.   He should obtain a list of books of accounts, related documents and other recordsmaintained by that club.  He should study the letting out system of the club premises, equipment and other facilities.  The Auditor should know the bills raising system.  He should study the rate and the basis of guest house charges, temporary membershipcharges, eatables, sports equipment.  If Auditors find that the internal control system is adequate in club, he may opt for test checking, otherwise he might have to go for detailed vouching.  Membership fees should be vouched with counter foil of receipts, membership register and cash book.  Annual subscription of members should be vouched from counterfoil of receipt andcashbook.  On the basis of the members register, annual subscription dues received in advanceandarrears of subscription should be reconciled.  Verification of rent received and outstanding rent may be verified with the rental agreement, receipt book and cash book. An Auditor should ensure that the provisionfor rent outstanding has been provided in books of accounts.  Income received on account of interest and dividend on investment should be verifiedwith cash book, investment register and documents.  Bills raised for sports, canteen, health club and restaurant should be verified andheshould check the payment against these bills are duly accounted for in cash book andledger accounts.  Capital expenditure should be verified from minutes of meeting of managing committee.  Auditor should verify in due course of audit purchases on account of eatables, sportsequipment, heath club equipment, general provisions, stationery and printing expenses, etc.  Staff salary and annual increment to staff should be verified from appointment letters, attendance register, salary register, time records, etc.  Physical verification is recommended for food items, wines, crockery, sports equipment etc. on the basis of stock register  The donation received by club will be verified with the counterfoils of receipt, donation register and cash book.  To verify whether it is a capital donation or a revenue donation, an Auditor shouldknowthe policy of the Managing Committee.  To know the policy regarding membership fees of the new members, an Auditor shouldcheck the policy of club, whether membership fees will be treated as revenue receipt or capital receipt. Audit procedure of Banks. An audit of banking is a routine examination of the services provided by the organizationtoensure their compliance with the standard and laws of the industry. It helps to uncover thebreaching of laws and regulations of the financial institutions. here are many types of bank audits: risk-based internal audit, statutory audit and tax audit, stockaudit, credit audit, RBI inspection system audit, forensic audit, concurrent audit, snap audit, andforeign exchange.  Risk-based internal audits provide reasonable assurance to top management and the Boardabout the effectiveness and adequacy of the risk management and control framework intheinstitutions’ operations  A statutory audit is carried out by chartered accountants instructed by a statute or lawtoensurethat the books of accounts presented to different regulators and the public are fair  RBI inspection of bank branches empowers the Reserve Bank of India to supervise and inspect commercial banks  Credit audit can bring out the spaces in the processing and sanctioning loans and monitoringloan accounts and wrong documentation  According to the bank’s stock audit policy, the bank’s external auditors shall inspect assetscharged to the bank once or twice a year as desired by the bank  A forensic audit examines a company’s financial records to derive evidence fromthemanduseit in a court of legal proceedings  The forensic auditor’s report can help prosecute the parties involved in embezzlement, fraud, or other financial misappropriations Statutory Audit of Banks A statutory audit of banks is a type of banking that ensures that the financial statements andbooks of account conferred to the regulators and the public are fair and precise. Statutory auditors are usually given a time frame within which they have to audit the bank’sbranches allocated. An auditor should accept the appointment immediately and send a formal intimation to the branch manager about the information necessary to conduct and completeanaudit. The assigned auditor should ensure that their report qualifies for advances, interest expenses, deposits, etc. The essential elements to verify in a statutory audit of a bank aretax- related objects, verification of cash procedures and loan accounts. Process of Audit The audit of banking involves various stages to complete the procedure successfully.  The first stage is the initial consideration by the statutory auditor by the declaration of Indebtedness, engagement risks, team discussion  The second stage is to identify the risk of misstatement and access the risk management  The third stage is understanding the institution’s environment and control systemto processthe next step, accounting  The next steps are team discussions to plan an overall strategy to develop an audit plan Reviewing the previous year’s audit reports and internal inspection reports is very beneficial. *************************************************************************************