Rent received

1. Internal check: examine the system of internal check. 2. Lease agreement: examining lease agreement with the tenant to ascertain the total yearly rent receivable and see that it is accordingly received. 3. Rent register: vouching the rent received with reference to carbon copy of the rent receipt and rent register. 4. Agents statement: rent received/collected through agent should be checked with carbon copy of receipt, agents statements etc. 5. Adjustment for rent receivable: see that rent received in advance is not credited to rent received account. See that proper adjustment entries are passed for rent receivable. 6. Arrears: investigate into all arrears of rent for a long time to avoid the possibility of defalcation. The auditor should write to the tenants to confirm the arrears. 7. Authority for bad debts: write off of irrecoverable rent is to be authorized. 8. Entry in cash book: see that rent received is recorded in the cash book on the same date. 9. Provision for outstanding rent: see that a reasonable provision for doubtful outstanding rent is made. Vouch the outstanding with the reference to rent bills, and confirmatory letters from tenants and list of properties occupied. 10. Certified list: get a certified list from a responsible officer in respect of a vacant property. 11. Rent against deposits: verify adjustment of rent against deposits. 12. Examine the counterfoils of pay slips. 13. Disclosure: see that rent is disclosed separately. 14. Reconciliation: prepare a statement of rent accrued and reconcile with rent receipts. 15. Adjustment: see that adjustment is made for advance rent, rent deposit and rent receivable.

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Telephone expenses

1. Internal control manual: get a complete list of telephone connections in the name of the company and find out the nature ie Landline, mobile, WLL etc. 2. Bills & statements of accounts: obtain telephone bills and see that they are in the name of the company. 3. Deposit receipts: see whether any deposit is kept with Telephone Company and it is properly accounted for. 4. Payment voucher: trace the payment made in the bank statement. 5. Personal expenses: ensure that personal expenses of the directors, partners, have not been debited to profit and loss account. 6. Recovery from staff: if the company has paid telephone expenses on behalf of the employees, see that it has been recovered from the concerned employee. 7. Service tax returns: see whether service tax input credit has been availed by the company on the basis of telephone bills. 8. FBT returns: any liability in respect of fringe benefit tax on telephone expenses has been properly computed. 9. Year-end adjustment: verify that year-end adjustments are made in respect of outstanding telephone expenses.

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Furniture & fixtures

1. Internal control: ensuring that a suitable internal control system exists for recording purchases and inspection of furniture & fixture. 2. Serial no. : see that each item of furniture is given stock register serial number and the same is painted on that item. 3. Schedule of furniture: obtain a schedule of furniture which shows details of furniture, location, cost, date of acquisition etc. 4. Physical examination: conducting physical examination to verify the existence. 5, Verify cost: verifying the cost of furniture with reference to the invoices received. Any expenditure regarding purchases is capitalized. 6. Depreciation: see that adequate depreciation is provided on the furniture and fixture. 7. Verify the existence: observing the physical verification being conducted by the management. 8. Verify ownership: examining the purchases invoices, freight bill, insurance and installation charges relating to furniture and fixtures. 9. Verify disclosure: as per AS10, the furniture and fixture has to be disclosed. Examining the compliance of schedule VI of the companies Act and CARO 2003.

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Loans borrowed

1. Power to borrow money: examining the partnership deed or memorandum and articles of association to find out the powers of the client to borrow money. 2. Validity: examining the loan agreement and correspondence relating to loans. 3. Entries: checking the cash received along with the receipts issued and checkup the same in the cash book. 4. Scrutiny of agreement: scrutinsing the agreement made with the bank in case of overdraft. 5. Security: enquiring into the details of the security given against loan in case the loan is secured, ensuring that such a fact has been disclosed in the balance sheet. 6. In the interest of the company: finding out the reason of borrowing see that it is in interest of the client. 7. Registration of mortgage: see that the mortgage is registered with the registrar of companies under section 125 of the companies Act 1956. Ensuring that entry is made in the register of mortgages. 8. Payments made: verifying the payment of interest and installments with the receipts issued by the lender and confirm that they are paid in accordance with the time schedule mentioned in loan agreement. 9. Compliance with Companies Act: ensuring that the provisions of Companies Act regarding the maximum amount of the loan that the company can raise, have been complied with. 10. Utilization: ascertaining the purpose for which the loan is taken and see that it is utilized for the right purpose. 11. Confirmation: obtain confirmation letters from the parties. 12. Reconciliation: reconciling and making sure that the book balance agrees with the statement sent by the lenders.

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Audit of hotels
The business of a hotel is very much dissimilar to running, say a manufacturing unit. It is a service oriented business and may have some element of production of food stuff and sales thereof. However, this business is characterized by handling of liquid cash, stocking and providing a large variety of items mostly of relatively low value in good quantity keeping watch on customers to ensure that they do not leave the hotel without settling the hotel dues etc. In view of these the following matters deserve special attention of the auditor in auditing Hotel. 1) Internal Control: Pilfering is one of the greatest problems in any hotel and the importance of internal control in this regard cannot be overstressed. The auditor should evaluate the internal control system particularly with regard to the following: i. Effectiveness of arrangement regarding receipts and disbursement of cash. ii. Procedure for purchase and stocking of various commodities and provisions. iii. Procedure regarding billing the customers. Specially, the system may be tested for room service and sundry services like telephone, laundry etc. iv. System regarding recording and physical custody of edibles, wines, cigars, cigarettes, crockery, cutlery, linen, furniture, carpets etc.

2) Cash collection: There are various sales point scattered in a hotel which make cash sales. In view of this, control of cash assumes great proportions in any hotel. The auditor should reconcile the total sales reported with the total bills issued at each sales point. Special care has to be taken in respect of the bills issued to customers who are staying in the hotel because they may not be required to pay the

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bills in cash. Billing may be done room-wise. The auditor should see that there exists numerical control over the bills to ensure that all bills are included in the total.

3) Stocks: the stock in any hotel are both readily portable and saleable particularly the food and the beverage stocks. It is, therefore, extremely important that all movements and transfer of such stocks should be properly documented to enable control to be exercised over such individual areas and sales point. The auditor should carry out tests to ensure that all such documentation is accurately processed. The areas where stocks are kept should be locked under the supervision of the departmental managers. The auditor should see that the movement of goods in or out of the stores takes place only after proper authorization and recording. Valuation of stock is another important aspect that has to be considered. Normally many hotels use specialized professional valuers to count and value the stock on a continuous basis throughout the year. Such a valuation is the almost invariably used as a basis for the balance sheet stock figure at the year end. Although such valuers are appointed by the management, it is important that the auditor satisfies himself regarding this; the auditor should consider attending at the physical stock taking and check certain pricing calculation.

4) Fixed assets: the accounting policies for valuation of fixed assets are likely to differ from one hotel to another. Certain hotels may count silver cutlery as a stock item while other may treat it as fixed assets. In such cases, it is important that a comprehensive definition of stock items exists and the auditor should consider whether or not the same have been closely followed in reality. The fixed asset should be properly depreciated.

5) Casual labor: as any hotel generally operates to very large extent with the help of casual labor, the auditor should consider whether adequate records have been

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maintained in this respect or not. I would ensure that manipulation on this account did not take place.

6) Compliance with statutory provisions: invariably all types of hotels are governed by various rules and regulations by different authorities. The department of tourism also prescribes various conditions to be fulfilled by the hotels. Foreign exchange is another important area because in large hotels have a very common to have the facility of exchanging foreign currency into Indian rupees. I would see that the various applicable provisions of foreign exchange regulations act 1973 and the rules framed by foreign exchange dealers association have been complied with. Compliance with conditions of license for running the hotel should also be seen.

7) Travel agents: it is very common that the hotels get their bookings through travel agents or other booking agencies. I would ensure that money is recovered from travel agents as per the terms of credit allowed. Commission, if any, paid to travel agents should be checked by reference to the agreement on that behalf.

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8) Vouching and verification: the special points are as follows: i. Consumption shown in the various physical stock accounts may be traced to customers bills on a sampling basis wherever practicable or to appropriate consumption account to ensure that all issues have been billed or accounted for. ii. All payments made to foreign collaborator, if any, are in accordance with the terms of agreement. iii. iv. Adequate depreciation has been provided on various fixed assets. Expenses and receipts may be compared with the figures of the previous year having regard to the average occupancy of visitors and changes in the rates. v. Special receipts on account of letting out of the auditorium space and other spaces for shops and boutiques and for special shows etc., should be verified with reference to the respective agreements. Agreements with travel agents etc., should be noted and deviations, if any, brought to the notice of the management. vi. The customers ledger should be examined on a sample basis, but in depth to see that all charges that should be made to customers are in fact made. vii. The occupancy rate should work out and compared with other similar hotels and with the previous year. Material deviation should be investigated. Whether the value of services rendered including room charges but not yet billed to customers still in occupancy on the closing day have been accounted for checked. viii. Checking proper reserves area maintained for redecoration and renovation of buildings and facilities. Also see that provision for replacement of current assets like carpets, linen etc., is also made.

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9) Minute books: examine the minute book of the meeting of BoD/Management committee/Finance committee and note the relevant points. 10) List of Books: obtain a list of books of accounts and other registers and records. 11) Audit report: examine the previous audit report along with internal audit reports, if any. 12) Letting of premises: examine the system relating to letting out of premises and other facilities for conferences, marriages etc. 13) Recovery of charges: ensure that the charges are recovered from the licenses promptly as they become due in respect of renting out facilities like shops, restaurants, swimming pool, travel agency counter etc. 14) Material Deviations: workout the occupancy rate and compare the same with similar hotels and also with the previous year. 15) Ratios: make comparisons of various input-output ratios for the current year with the corresponding figures for previous year.

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Audit of a Partnership Firm

1. Appointment: the Indian partnership act, 1932 does not prescribe audit of a partnership firm. The auditor to a firm is usually appointed by the partners either on the basis of a decision taken by them or to comply with a condition in the partnership agreement. His remuneration is also fixed by the partners. It is important that the letter of appointment should clearly state the nature and scope of audit which is to be carried out and particulars of limitations, if any, under which he would have to be function. 2. Provisions of law and AS: I should have a knowledge of the provisions of the Partnership act for the verification of adjustment in the accounts of partners made in respect of profits and losses, interest and remuneration of partners, their contribution to capital, etc. especially that of powers and audit of partners and their right to profit and capital under different situations and circumstance. I may, particularly, ensure application of accounting standards prescribed by the institutes. In case the firm is required to get its accounts audited under the requirements of any, the auditor will have to qualify the report in case of non-compliance with the accounting standards. 3. Partnership deed: I would study the partnership deed to know: i. ii. iii. The name and the style under which the business shall be conducted. The duration of the partnership, if any, that has been agreed upon. The amount of capital that shall be contributed by each whether it will be fixed or could be varied from year to year. iv. The period at the end of which the accounts of the partnership will be closed periodically and the proportions in which the profit shall be divided
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among the partners or losses shall have to be contributed by them; whether the losses shall be borne by the partners or whether any of the partners will not be required to do so. v. The provision as regards maintenance of books of account and the matters which must be taken into account for determining the profits of the firm available for division among the partners e.g., creation of reserves, provisions for depreciation, etc. also the period within which accounts can opened for correcting a manifest error. vi. vii. Borrowing capacity of the partnership. The rate at which interest will be allowed on the capitals and loans provided by partners and the rate at which it will charged on their drawings and current accounts. viii. Whether any salaries are payable to the partners or withdrawals are permitted against shares of profits and, if so, to what extent? ix. Duties of the partners are regards the management of business of the firm; also, the partners who shall act as managing partners. x. Who shall operate the bank account of the firm? How will the surplus funds of the partnership be invested? xi. Limitation and restriction that have been agreed upon the rights and powers of partners and on their imp[lied authority to pledge the firms credit or to render it liable. 4. Partnership act: in the absence of a partnership agreement, the provisions of the act which concerns the auditor are the following: i. ii. iii. iv. Each partner is required to contribute an equal amount of capital. The partners share equally in profits and losses. The partners are not entitled to any interest on capital. Where a partner is entitled to his capital, it will be payable only out of profits. v. A partner is entitled to interest at 6% p.a. on his advances and loans.

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vi.

Every partner can take part in management of the business. A partner is, however, not entitled to receive any remuneration for taking part in the conduct of the business.

vii.

Every partner has the right to inspect and to take copy of any the books of the firms.

viii.

A partner is entitled to be indemnified for all payments made and liabilities incurred by him in the ordinary course of business or in the preservation of firms property.

ix.

The property of firm must be held and used by the partners exclusively for the purpose of the business.

x.

If a partner derives any profit for himself from any transaction of the firm or from the use of the property or business connections of the firm or the firm name, he must account for that profit and pay it to the firm; also the profit from any competing business carried on by a partner without other partners consent must also be accounted for and paid to the firm.

xi.

In the absence of any usage or custom of trade to the contrary, the implied authority of partner does not empower him to : submit a dispute relating to the business of the firm to arbitration; open a bank account on behalf of the firm in his own name; compromise or relinquish any claim or portion of a claim by the firm; withdraw a suit or proceeding filed on behalf of the firm; admit any liability in a suit or proceeding against the firm; acquire immovable property on behalf of the firm; transfer immovable property belonging to the firm; or enter into partnership on behalf of the firm.

xii.

The firm is liable to third parties : if a partner, acting within the scope of his apparent authority, receives money and misapplies it or, if the firm in the ordinary course of the business receives money, which is misapplied by a partner.

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xiii.

No person can be introduced as a partner without the consent of the other partners.

xiv.

Any difference arising as to ordinary matters connected with the business are to be decided by the majority of the partners, but no change can be made in the nature of the business without the consent of all the partners.

xv.

If, on the death or retirement of a partner, no final settlement has been effected and the business is carried on by the surviving or continuing partners, the outgoing partner or his estate has the option of claiming: (a) such share of profits as may be attributable to his share of the assets; or (b) interest at 6 per cent per annum on his share of partnership assets.

xvi.

On dissolution of the partnership, every partner has the right to have the goodwill of the business sold for the common benefit of all the partners.

xvii.

On a dissolution of the firm, the losses, including deficiencies of capital must be made good first out of profits; next out of capital; and lastly, by the partners individually in the proportion in which they share profits.

xviii.

On the dissolution of the firm, assets are to be applied in the following order: a. In paying the firms liabilities to third parties; in repaying partners advance and loans. b. In repaying partners capital; and the residue if any, is to be divided amongst the partners in the proportion in which they share profits.

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 Special points I would consider in the audit of accounts of a partnership:

1) Letter of appointment: confirming that the letter of appointment, signed by a partner, duly authorized, clearly states the nature and scope of audit contemplated by the partners, specially the limitation.

2) Minutes: studying the minute book, if any, maintained to record the policy decision taken by the partners specially the minute relating to authorization of extraordinary and capital expenditure, raising of loans; purchase of assets extraordinary contacts entered into and other such matters as are not of a routine nature.

3) Authorized business: verifying that the business in which the partnership is engaged I s authorized by the partnership agreement; or by any extension or modification thereof agreed to subsequently.

4) Books: examining whether books of account appear to be reasonable and are considered adequate in relation to the nature of the business of the partnership.

5) Authorized actions: verifying generally that the interest of no partner has suffered prejudicially by an activity engaged in by the partnership which, it was not authorized to do under the partnership deed or by any violation of a provision in the partnership agreements.

6) Tax provision: Confirming that a provision for the firms tax payable by the partnership has been made in the accounts before arriving at the amount of profit divisible among the partners.

7) Division of profits: verifying that the profits and losses have been divided among the partners in their agreed profit-sharing ratio.
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TAX AUDIT
S. 44AB
Section 44AB provides for the compulsory audit of accounts certain persons carrying on business or profession. Section 44AB reads as under:

Audit of accounts of certain persons carrying on business or profession. Every persona) Carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds sixty lakh rupees in any previous year; or b) Carrying on profession shall, if his gross receipts in profession exceed fifteen lakh rupees in any previous year; or c) Carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD or section 44AE, or section 44AF or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, Get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:

Provided that this section shall not apply to the person, who derives income of the
nature referred to in section 44AB or section 44BBA, on and from the 1 st day of April, 1985 or, as the case may be, the date on which the relevant section came into force, whichever is later:

Provided further that in a case where such person is required by or under any other
law to get his account audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited
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under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section. Explanation For the purposes of this section: i. accountant shall have the same meaning as in the Explanation below sub -section (2) of section 288; ii. Specified date, in relation to the accounts of the assesse of the previous year relevant to an assessment year, means the 30th September of that Assessment Year.

Scope of Auditors role Under Income Tax Act:

The role of the auditor under Income tax Act is summarized into:

a) Conduct of tax audit under section 44 AB. b) Certification for claiming various deductions under the Income Tax Act. c) Conducting selective Audit under section 142 (2A). d) Giving tax advice and tax planning consultancy.

Tax auditor
A tax auditor has to be a chartered accountant even if statutory audit has been conducted by a person other than a chartered accountant. Section 44 AB does not stipulate that only the statutory auditor appointed under the companies act or other similar statute should perform the tax audit. Hence, tax audit can be performed either by the statutory auditor or by any other Chartered Accountant in practice.

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Firm of chartered Accountants

Though the section refers to the accounts being audited by an accountant which means chartered accountant the statement of audit can be done by a firm of chartered accountants. In such a case, the name of the partner be mentioned along with membership number below the signature.

Communication with previous auditor

The tax auditor who is accepting the assignment must communicate with the member who had done tax audit in the earlier year as specified by the chartered accountants Act.

Letter of appointment
As per section 44 AB, the tax auditor must obtain from the assesse a letter of appointment for conducting the audit. The letter of appointment must be signed by the assesse who signs the return of Income.

Statement of particulars
The tax auditor should get the statements of particular authenticated by the assesse before he proceeds to verify the same.

Report
The tax auditor has to submit the report to the assessee.

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Performance audit
Performance audit aims to ascertain that government programmes have achieved the desired objectives at the lowest cost and given the intended benefits. Performance audit includes efficiency, economy and effectiveness.

1. Efficiency Audit:
It looks into whether: The various scheme/projects are executed, and Their operations are carried out in an economical way and efficient manner, and They are yielding the expected results.

2. Economy audit: It looks into whether: The government has acquired the financial, human and physical resources in an economical manner and, The sanctioning authority and spending authority have observed economy.

3. Effectiveness audit: It is an appraisal of the performance of programmes, schemes, projects with reference to the overall targeted objectives as well as efficiency of the means adopted for the attainment of the objectives. Efficiency cum performance audit is an objective examination of the financial and operational performance of an organization, authority or function and is oriented towards identifying opportunities for greater economy and effectiveness.

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Performance audit may

a) Assess whether the objectives and the means provided are proper, consistent,
suitable or relevant to the policy.

b) Assess the effectiveness of public sector programmes. c) Assess whether social and economic impacts of a policy are due to the policy. d) Identify factors inhibiting satisfactory performance or goal fulfillment. e) Assess whether the programme complements, duplicates, overlaps or contracts
other related programmes.

f)

Assess the adequacy of the management control system for measuring monitoring and reporting the effectiveness of the programme.

g) Identify way of making the programme more effective.

Procedure:
The procedure of conducting performance audit covers: Identification of topic Preliminary study Planning Execution of audit Reporting. The performance appraisal of an activity can be done in the light of the objectives which it is directed to achieve. Objectives spell out the results desired. Emphasis is placed on the output to be achieved. Tremendous amount of efforts is required to measure the output.
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Controller & Audit General of India

The duties and powers of the Comptroller and Auditor General of India are enshrined in Chapter V of Part V of the Constitution of India in Articles 148 to 151 and Elaborated under CAG's (Duties, Powers and Conditions of Service) Act1, 1971.

AUDIT FUNCTIONS
The duties of Comptroller and Auditor General includes audit of: all expenditure from the Consolidated Fund of India of Union, of each State and of each Union Territory having a Legislative Assembly with the objective to ascertain whether the moneys shown in the accounts as having been disbursed were legally available for and applicable to the service or purpose to which they have been applied or charged and whether the expenditure conforms to the authority which governs it; all transactions of the Union and of the States/Union Territory having a Legislature elating to Contingency Funds and Public Accounts; all trading, manufacturing, profit and loss accounts and balance-sheets and other subsidiary accounts kept in any department of the Union or of a State and in each case, to report on the expenditure, transactions or accounts so audited by him; receipts and expenditure of bodies or authorities substantially financed from Union or State revenues; grants or loans given to other authorities or bodies; revenue of the Union and of the State Governments; accounts of stores and stock; Government Companies and Corporations under the Company's Act 1956 read with CAG's (DPC) Act, 1971 ; and Accounts of other authorities or bodies as per their statute or upon request by the Governor of a State or the Administrator of a Union Territory having a Legislative Assembly.
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Duties of comptroller and auditor general of India The c & AG of India has to perform the following duties: 1. To compile and submit accounts: the comptroller and auditor general of India shall compile the accounts relating to the annual receipts and disbursements of the Union/State/Union Territory. He shall submit those accounts to the President/Governor/administer. He shall give to Union/state/Union territory, such information as they may, from time to time, require and render such assistance in the preparation of the annual financial statements as they reasonably ask for. 2. To audit receipts and expenditure: the C & AG shall audit and report on all receipts and expenditure of any body or authority, which has been substantially financed from the consolidated fund of India/State/Union territory. For this purpose a body or authority shall be treated as financed if the amount of a grant or loan in one year is: i. ii. Greater than INR 25 lakhs and, Such amount is greater than 75% of the total expenditure of that body or authority. 3. to audit Grants and loans: this applies to any specific purpose loan and grant, given from the Consolidated Fund of India/State/Union territory, to any body other than a foreign state or international organization. C & AG shall scrutinize the procedures by which the sanctioning authority satisfies him as to the fulfillment of the conditions of giving such loans and grants. 4. To audit receipts of union or states: C & AG shall audit all receipts payable into the Consolidated Fund of India/State/Union Territory. He shall satisfy himself that rules and procedures are designed to secure any effective check on the assessment, collection and proper allocation of revenue and are being duly observed.
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5. To audit accounts of stores and stock: the C & AG shall have the authority to audit and report on the stores and stock kept in the office or department of the Union or State. 6. To audit accounts of government companies and Corporations: The C & AG shall exercise such powers and observe such duties as per the provisions of the Companies Act, 1956 in relation to the Government Companies and Corporations. 7. To audit and report: the C & AG shall audit and report: a) All expenditure from Consolidated Fund of India/state/Union Territory to ascertain whether the money disbursed were legally available for and applicable to service or purpose to which they have been applied or charged, and Whether the expenditure confirms to the authority, which governs it b) All transactions of Union/state relating to the Contingency Funds and Public Accounts. c) All trading, manufacturing, profit and Loss account and balance Sheet and other subsidiary accounts kept in any department of the Union/State.

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AUDIT REPORTS
CAG presents a number of Audit Reports on the basis of audit of the Union Government and the State Governments to the Parliament and State Legislature respectively under Article 151 of the Constitution of India. In addition, CAG certifies the Appropriation Accounts and Finance Accounts of the Union Government and of the State Governments and forwards them to the President / Governors of States for being laid on the Table of Parliament and State Legislature respectively. CAG also submits Separate Audit Reports on all statutory corporations and autonomous bodies, for which he is the sole auditor. The sectors under which CAG presents one or more volumes of his Audit Reports to Parliament are: Civil; Autonomous Bodies; Scientific Departments; Defense Services; Railways; Direct Taxes; Indirect Taxes; and Commercial

CAG presents the following reports to State Legislature and Union Territories with Legislative Assemblies in one or more volumes: Civil; Revenue; and Commercial.

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With a view to ensuring the accountability of the executive of the Government Companies and Corporations to the Parliament and State Legislature, the Act envisages that the Comptroller and Auditor General of India shall have powers to conduct the audit of the accounts of the Government Companies an Corporations3. These provisions are consistent with the Companies Act, 1956 and the acts establishing the Corporations. The Companies Act, 1956 empowers the Controller and Auditor General of India to:

o o o

appoint/ re-appoint the auditors of a Government Company; direct the manner in which accounts shall be audited; give such instructions to the auditors in regard to any matter relating to audit;

o o

to conduct a supplementary or test audit of the accounts; and to comment upon or supplement the audit report of the statutory auditors.

The Act also prescribes the authority of the Comptroller and Auditor General of India in respect of production of documents and information by the audited entities. The Act provides the authority to the Comptroller and Auditor General of India to determine the manner and scope of audit.

As per the CAG's (DPC) Act, 1971 the Comptroller and Auditor General shall be responsible for compiling and keeping the accounts of the Union and of each State, any particular services or departments of the Union. Under the Act, the President/ Governor after consultation with the Comptroller and Auditor General can relieve him from the responsibility for compiling of such accounts.

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Auditing Standards
With a view to maintaining high quality of audit, the Comptroller and Auditor General of India has promulgated Auditing Standards that prescribes the standards of professional conduct of the officers and staff of the Indian Audit and Accounts Department, both in terms of professional competence and ethics. It also prescribes the principles of the entire spectrum of audit. The Standards are consistent with the Act prescribing the duties and powers of the Comptroller and Auditor General of India. These are also consistent with the contemporary global best practices, including those of International Organization of Supreme Audit Institutions (INTOSAI). Apart from the Standards of professional conduct, the Auditing Standards also lay down the quality assurance system within the institution, overall framework for the steps to be followed by auditors in conducting and managing audit work and framework for reporting the result of audit. With a view to ensuring that the audit works within the Indian Audit and Accounts Department conform to the standards set for itself, the Comptroller and Auditor General of India has issued standing orders and various guidelines.

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Guidelines and practice notes

In the light of widely varying, complex and vast auditee environment, CAG has issued detailed subject and technique specific guidelines for each sector of audit viz. Civil, Commercial, Defence, Post & Telecommunications and Railways, etc. These guidelines contain step-by-step procedure/methodology and techniques for conduct of audit in pursuit of the Act and Auditing Standards established for conduct Of audit as well development of the professional competence of the officers and Staff.

Consultative procedure
While the audit is conducted in the background of the Constitution of India and the Act made there-under; CAG has also established a framework of a consultative arrangement for audit. The inputs/ suggestions by the Public Accounts Committee and Committee on Public Undertakings of the Parliament are also taken into account for audit planning.

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Organisation structure

Comptroller and Auditor General of India

Headquarters Deputy Comptrollers and Auditors General, Additional Deputy Comptrollers and Auditors General, Directors General, Principal Directors, Directors/Deputy Directors

Auditing function

Accounts and Entitlement functions

Field Audit Offices Civil; Accounts and Entitlement offices headed by:

Post & Telecommunications;

Railways; Defence; Commercial; and Overseas. These offices are headed by Directors General Principal Accountants General

Accountants General
Sr. Deputy Accountants General Training establishments: iCISA and NAAA each headed by Director General Regional Training Institutes headed by: Principal Directors
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(Audit)

Scrutiny of Creditors A/c

XYZs Ledger ABCs Account Dr.
Date 2011 Particulars F. Rs. Date 2011 APR. 01 2012 Mar.02 To Purchase Return Mar.07 To Payment Mar.07 To Purchase return Mar.09 To Payment Mar.31 To Balance c/d 15,000 B 5 3,000 Mar.27 By Purchases C 2 5,000 B 3 900 Mar.26 A 2 4,000 Mar.05 By Purchases By Purchases C 6 9,000 B 3 4,500 A 1 1,000 2012 Mar.01 By Purchases A 1 5,000 By Balance b/d 400 Particulars F.

Cr.
Rs.

23,900

23,900

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1) Nature of account: Mr. ABC is a creditor of Mr. XYZ. This account will appear in the creditors ledger.

2) Object of scrutiny: the scrutiny of Mr. ABCs account is to be done to obtain audit evidence that (a) the closing balance shown in the account is really due and payable. (b) the balance of Rs.15,000 is properly valued i.e. neither more nor less. (c) The balance is properly classified and disclosed in the balance Sheet.

3) Check opening balance: Opening balance of the account [Rs. 400] will be verified from the schedule of creditors for the year ended 31.3.2011, available in the audit file.

4) Check posting : scrutiny of the postings in the account shows thata) The postings are on the correct side of the account (e.g. purchases are posted on the credit side of the account). b) all entries are posted in sequence of dates i.e. chronological order. c) No entry is inserted in between two entries afterwards. d) no entry is altered. e) Against each entry, there is a reference of the folio of the original book or register.

5) Check casting: the total [Rs. 23,900] of the account is correct.

6) Mark bill against payment: Each bill will be marked against its corresponding payment and the credit note/debit note, if any. This is done as follows: A. Mark Purchases [Rs. 5,000] against Purchase Return [Rs. 1,000] and Payment [Rs.4, 000]. No balance. B. Mark Purchases [Rs. 4,500] against Purchase Return [Rs. 900] and Payment [Rs.3, 000]. [Rs.600] balance.

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7) Closing balance composition: the closing balance of the account [Rs. 15,000] is ,made up of opening balance Rs. 400 + Purchaseon5.3 partly unpaid Rs. 600 + purchases on 26.3 and 27.3 fully unpaid [9,000 + 5,000].

8) Closing Balance-Nature: the closing balance of the account [Rs.15, 000] is a credit balance (which is normal for a creditors account). 9) Closing balance-paid during next year: if the entire amount pending on 31.3.2012 are paid in the next year 2012-13, this confirms that the balance as on 31.3.2012 is genuine.

10) Closing balance- goods returned Next year: if the goods (e.g. received on 26.3 and 27.3) were returned immediately in the beginning of the next year, there is a possibility that these are bogus purchases recorded only to show higher costs and less profit so as to pay less income-tax.

11) Closing balance- still unpaid: if any dues on 31.3.2012 are not paid in the next year (till the date of audit), confirmation letters should be sent to the party. If the party does not confirm the balance, a certificate should be obtained from the management that such balance is payable. Auditor should judge whether such amounts are really payable. If the balance remains outstanding, auditor should enquire whether there is any dispute.

12) Stock reconciliation: the receipt of goods pertaining to the last two bills should be checked in the stock book as this transaction is close to the year-end (cut-off transaction).

13) Check into Schedule: The final balance of this account should be checked into the schedule of creditors.`

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