Auditing Internal Check and Auditor – tryspring

By | March 5, 2019

Auditing – Internal Check and Auditor

The nature and extent of the scope of the Auditor’s work depends
upon the system of Internal Check in an organization. The system
of Internal Check will determine the reliability on work which an
Auditor can place. The External Auditor is ultimately responsible
for the final accounts.

The Internal Check system cannot relieve the Auditor of his
contractual responsibilities in case anything goes wrong in the
final accounts, therefore it is the duty of the Auditor to check
the whole transaction in detail. A good Internal Check system may
relieve the Auditor of detailed checking and he can utilize the
saved time to any other work of more importance.

We will further discuss Internal Check related to different
aspects −

  • Cash Payments
  • Cash Sales at Counter
  • Cash Sales by Salesmen
  • Postal Sales
  • Cash Receipts
  • Purchases
  • Sales
  • Stores
  • Fixed Assets
  • Investments

Cash Payments

Consider the following points while doing Internal Check for cash
payments −

  • Excluding petty cash payments, all payments should be made
    through cheques, Demand Drafts, RTGS (Real Time Gross
    Settlement), NEFT (National Electronic Fund Transfer) or any
    other banking mode as available time to time.

  • Person making payments should have no connection with the
    receipt of cash.

  • Every paid bill or voucher should be stamped as “Paid” to
    avoid double payments for same bill or voucher.

  • Confirmation of balances from creditors should be made
    directly.

  • Cash receipt should be obtained for each payment.

  • For petty cash payments petty cashier will be responsible
    instead of main cashier.

  • Petty Cash should be maintained on Imprest system.

  • In absence of cash receipt, proper bill or voucher should be
    obtained from the petty cashier.

  • Petty cash book should be checked by the Cashier frequently.

  • Bank reconciliation should be done on a regular interval.

  • Pay-in slip to deposit cash in bank should be filled by the
    Cashier not by the person who is going to deposit the cash.

As per the provision given under section 40A(3) of the Income Tax
Act, 1961 for payment exceeding Rs. 20,000/- it is stated that
“Where the assessee incurs any expenditure and it is paid in a
sum exceeding Rs. 20,000/- otherwise than by crossed cheque or
crossed bank draft, whole of such expenditure is disallowed”

Cash Sales at Counter

  • Every Salesman who is authorized to do cash sales should be
    specifically demarcated.

  • Four copies of cash receipt should be generated out of which
    three will be handed over to the customer out of which
    customer will give one copy to cashier at the time of payment
    and one copy to gatekeeper at the time of delivery of goods
    and exit from gate and one copy will be retained by the
    customer.

  • Three sales summaries will be prepared, one by the Salesman,
    second by the Cashier and the third by the Gatekeeper to
    tally the cash sales on daily basis.

  • All Cash Sales should be deposited into bank on daily basis
    without any failure without deducting any expenditure or
    commission out of it.

  • Cash received (as per cash recording machine), cash sales and
    amount deposited into bank should be same.

Sales by Travelling Salesmen

  • Pre-numbered rough cash receipt book should be issued to
    every salesman for the collection of debt or advance from
    customers.

  • Final receipt should be sent to customers directly.

  • Without making any deduction, salesmen should deposit all the
    cash at the head office on daily basis without any fail.

  • Regular reconciliation of account should be made with
    customer.

  • To avoid any fraud every salesman should be replaced and
    transferred regularly to other areas.

Postal Sales

  • Postal sales should be recorded in separate register.

  • A separate register should be maintained to record the cash
    received against postal sale.

  • Cash received through postal sale should be deposited into
    bank separately.

  • Regular and careful checking of the sale and payment register
    should be done by an officer of the company.

Cash Receipts

A Cashier deals with the following tasks concerning cash receipts

  • Record cash receipts immediately upon the receipt of cash.

  • He is not authorized to keep cash with him.

  • He is not allowed to make any expenditure out of it.

  • Cash receipt should be deposited in to bank on daily basis.

  • Cashier should not be allowed to do primary entry in the
    books.

Purchases

  • Requisition slips duly signed by the head of the
    department should be issued and sent to the purchase
    department, clearly mentioning the quantity, quality and the
    delivery date on the requisition slip

  • Enquiry about the required material should be done by
    the purchase department from different suppliers of the
    material

  • Purchase order should be issued on the basis of the
    lowest quotation received from the suppliers. There may be
    four copies of the purchase order, one for the supplier,
    second for the stores department, third for the accounts
    department and the fourth copy should be retained by the
    purchase department

  • Goods should be sent to store after proper examination at the
    time of receipt of goods. Store department will inform
    concerned department for the same.

  • After proper verification of purchase invoice same
    should be sent to accounts department for their accounting
    and payment purpose

  • On the basis of the purchase order, the accounts department
    will book that invoice in our books of accounts and if there
    is any discrepancy, debit note should be issued to the
    supplier under intimation to the purchase department.

  • Payment is made to the supplier according to the due
    date.

Sales

  • After receipt of the sales order, one copy of it should be
    sent to the dispatch department for further process.

  • The dispatch department after receipt of the sales order
    packs the material according to the order.

  • Preparation & verification of Invoice is done based on
    the sales order.

  • Entry is done in goods outward register before sending it to
    customers.

  • Sales return is entered in goods inward register and a credit
    note for the same is issued to customers accordingly.

Stores

A Store is a very important and crucial department of any
industry and proper control over store is very much essential to
prevent theft, pilferage and misuse of inventory. Following
points need to be considered for Internal Check on Stores −

  • Every store must be equipped with all the facilities as
    require keeping inventory in order and convenient location of
    store is also important for any industry.

  • Triplicate copy of G.R.N. (Goods Receipt Note) should be
    issued on receipt of material, one to be sent to purchase
    department along with invoices, second for accounts
    department and third will be retained by store department.

  • Receipt goods should be stored at proper place. Proper stock
    accounting should be there for receipt of goods and on issue
    of goods.

  • Physical stock taking at regular interval should be carried
    out and reconciliation of stock with books should be done
    without any fail. There should be a proper and quick action
    in case of any discrepancy.

  • If material is issued to any other department, it needs to be
    specified on “Material Transfer Note”, the return of Material
    should be on the MRN (Material Return Note) and the material
    being issued to the customer should be on the basis of Sales
    Invoice only.

Fixed Assets

Purchase of Fixed Assets may be for normal addition to Fixed
Assets, for new project or for expansion of business. Fixed
assets are of permanent nature to earn income, i.e., Land,
Building, Plant & Machinery, Furniture & Fixtures,
computer and vehicles, etc.

Following are the important checks related to fixed assets −

  • Sanction of capital expenditure should be done by a committee
    may be set up for this purpose or by the proper authority.
    Same procedure should be followed in case of transfer or
    discarding of any assets.

  • Distinction between Capital and Revenue expenditure is must
    for proper accounting records.

  • Fixed Assets register should be maintained giving all the
    description about qty, cost and location etc of fixed assets.

  • Physical verification of fixed assets should be there from
    time to time.

  • Accounting and depreciation of fixed assets should be done
    according to Accounting Standard-10 issued by the Institute
    of Chartered Accountants of India.

Investments

Following points need to be considered while dealing with
investments −

  • Sale and purchase of investment should be done by an
    authorized person only.

  • Detailed investment register should be prepared and physical
    verification of the document of title on periodically basis
    to be done. These documents of title should be kept in safe
    custody of company.

  • Correctness of charges of brokers should be checked.

  • Checking of accounting entries on account of dividends
    interest, bonus and capital repayment should be done.

  • Physical verification of investment should be done.

‘; (vitag.displayInit = window.vitag.displayInit ||
[]).push(function () { viAPItag.display(ad_id); }); }())