Page 178 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes counterfoils of the receipts issued to the debtors. Whenever possible, after taking permission
form his clients, a statement of accounts should be sent to the debtors to confirm the balances
show in the statement so sent.
Income from Interest, Dividends, etc.: Interest received on account of fixed deposits in the bank
account should be vouched with the bank pass book; Dividend received can be vouched with the
counterfoil of ”tops” of the dividend warrants or the letterers covering the cheque. Interest
received on securities can be vouched form the securities themselves or from the tax deduction
certificate issued by the Reserve Bank.
Loans: The receipt of loan should be vouched with the agreement with the lender.
He should see whether his client is entitled to raise loan. He should examine the
rate of interest payable, the terms of repayment and the security offered which should be
examined.
Rents Received: The auditors should examine the Lease Deed and agreements to ascertain the
amount of rent payable, the due date, and provision regarding the repairs, etc. Particular attention
should be paid towards rent-outstanding. It is possible that rent might have been received but
misappropriated while it may be shown as ‘outstanding’.
Rent received: Bill receivable Book should be compared with Cash book and the Pass book to see
that the amount has been received on the due date. Inquires should be made regarding the bills
when have matured but the amount has not been received for them. Such bills might have been
dishonored or retired.
Commission: Commission account should be checked with the accounts of the parties form
whom commission has been received. Agreement with parties regarding the rate of commission
should be inspected.
Sale of Investment: The amount received on account of the sale of investment should be vouched
with the Broker’s sold note. If they have been sold through the bank, examine the bank advice.
‘Ex-dividend’ and ‘Cum-dividend’ must be inquired.
Insurance Claim Money: Insurance money received against a claim from and insurance company
should be checked with correspondence passing between the client and insurance company, the
account rendered by the insurance broker or company.
Share Capital: In the case of firms, the partnership Deed should be examined. In case of company
the Memorandum of Association should be examined.
Sale of Fixed Assets: This item may be vouched with correspondence, auctioneer’s account, sale
contract minute book of the Board of Directors or any other evidence available. He should see
that the proper asset account has been credited with the amount. If there is any profit, that should
be credited to the Capital Reserve Account which is not available for distribution to the
shareholders.
Miscellaneous Receipts: Correspondence, contracts or any other document will
help auditor to vouch such transactions.

9.2.3 Credit Side or the Payment Side of the Cash Book

When the auditor has finished the vouching of the debit side of the cash book and having
satisfied himself that there is a good internal check system, he should now proceed to
vouch the cash payments which mean that he should satisfy himself that the payments
have been actually made:

1. to the right persons or parties;
2. for the business itself;

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