Vouching in the backbone of audit?

Answer 1

What is meant by Verification

of Assets? What are the

objectives of verification?

Solution: Vouching is concerned

with checking entries in the

books of accounts with the help

of vouchers. The accuracy of

books of accounts is maintained

through vouching. The entry is

recorded and posted on the

basis of vouchers only.

Comparing of figures in entries

and vouchers can help the

auditor to locate errors. The

location and correction of errors

leads to reliable data. The

vouching is that the backbone of

auditing for discovery of errors.

Vouching is an element of

auditing. The minor frauds are

detected by it. The management

can fix the responsibility of fraud.

Vouching is a tool in the hands

of auditors for ensuring that the

books of accounts are accurate.

Vouching is essential for

checking totals and sub-totals.

The total of voucher are tested.

The deductions of discount are

checked. The addition of taxes or

other charges are noted. The net

amount is recorded in journals

and ledgers. There is a need of

correct total for accuracy.

Vouching is the essence of

auditing. There is a demand for

accurate record of audit. When

posting is complete in all respect,

it means work of vouching is

under process. The trial balance

is extracted from such record. It

will facilities audit work.

Verification of Assets

The object of verification of

assets is the satisfaction by the

auditor as to its existence,

proper valuation, correct

ownership, proper disclosure etc

on the balance sheet. Verification

of liabilities is also as important

as verification of assets. If the

liabilities are overstated or

understated the balance sheet

will not represent a true and

fair.Auditor has different

responsibilities. If the auditor

fails to verify the existence of

assets he will be held liable. It is

not possible for the auditor to

inspect each and every asset e.g.

stock. If this duty is imposed on

him, it may take weeks, months

for him to actually inspect each

asset

1. The auditor should verify the

records (accounting books) with

reference to the documentary

evidence. Physical verification of

fixed assets is the primarily the

responsibility of the the

management.

2. The opening balance is to be

verified from schedule of fixed

assets, ledger or fixed asset

register.

3. Assets acquired during the

year or improvements done

during the year should be

verified on the basis of purchase

orders, invoices, material receipt

notes, and title deeds.

4. Capital assets built inside (self-

constructed fixed assets) and

capital work-in-progress should

be verified by reference to work-

order records, contractor bills.

5. For fixed assets fully

depreciated during the year of

acquisition, the auditor has to

examine whether they were

recorded in the fixed assets

register.

6. In the case fixed assets

registered, the auditor should

examine (i) the authorisation

procedure (ii) sales process

(calling for quotations etc.) (iii)

adjustments to the account of

the asset (iv) accounting for the

proceeds of the sale and (v)

adjustment for the gain or loss

on the sale.

7. Ownership of assets such as

land and buildings should be

verified by examining the title

deeds. In case the title deeds are

with other parties such as

bankers (mortages or safe

custody) and solicitors,

confirmation should be obtained

directly by the auditor through a

request mailed to the concerned

persons signed by the client.

8. Physical verification is the

responsibility of the

management and they need to

ensure that it is carried out at

appropriate intervals in order to

ensure assets are in existence.

The auditor has to ensure that

physical verification was done.

For this purpose, he should

observe the verification being

conducted. He should examine

the instructions given by the

management for physical

verification and working papers

of physical verification. It is to be

ascertained that the persons

carrying out the physical

verification has the necessary

competence.

Objectives of the asset

verification

(1) To comprehensively find out

the asset status of central

enterprises, to faithfully uncover

the conflicts and problems

existing in enterprises, to

truthfully and completely reflect

the asset status, financial status

and business achievements of

enterprises and to enhance the

quality of the accounting

information of enterprises.

(2) To comprehensively check

and verify the asset losses of

central enterprises and cope

with the losses in light of the

policies of the state on asset

verification, to promote