Complete Auditing Report

8/3/2019 Complete Auditing Report

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AUDITING:-The term audit generally implies auditing of financial statements. In suchan Audit, the Auditor provides the expert opinion about the quality ofsuch statements & merely attests the truth of the statements. Audit

implies to non-financial matters as well, like audit of operations,efficiency etc. In simple terms, Audit means critical and intelligentexamination of facts financial or otherwise, to give in the form ofcertificate or report an attestation, an expert opinion or advice.

As per Auditing and Assurance standard: Basic Principles governing anAudit (AAS 1) published by the Institute of Chartered Accountants ofIndia, Audit refers to the independent examination of financialinformation of any entity, whether profit oriented or not, and irrespective

of its size or legal form, when such examination is conducted with a viewto express an opinion thereon.

Scope and objective of Audit:-The Auditing and Assurance Standard: Objectives and Scope of Audit of Financial

StatementsAAS 2 of the Institute of Chartered Accountants of India specifies that

the main objective of an audit is to express an opinion about the truth and fairness of

the financial statements. The expression emanates after performance of audit

procedures i.e., to give the opinionabout the financial statements, the auditor examinesthe financial statements to satisfy himselfabout the truth and fairness of the financial

position and operating results of the enterprise. Thesecondary objectives are

( I ) detection and prevention of errors and

( II ) detection and prevention offrauds.

The scope of audit refers to the identification or delineation of audit related aspects

with regard to the objective of audit, procedures, areas to be covered etc. It also relates

the auditors concern in the underlying accounting records and source documents.

The scope of audit is governed by: The terms of engagement

Relevant statutory provisions

Relevant Institute pronouncement


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AUDITORS AIMS:-

The auditor aims at checking the following during Audit:

1. Sufficiency and relevance of information contained in underlying accounts

records and source documentsTo check the sufficiency and relevance of information contained in the underlying

accounting and source records, the auditor examines the existence of internal

control and accounting system, and tests them to decide the nature, extent and

timing of other audit procedures.

2. Proper disclosure of relevant information in financial statements

To determine the proper disclosure of relevant information in financial statements,

the auditor compares the transactions, events represented in the source documents

and underlying accounting records with the financial statements and checks that

they are properly summarized, carried down to the financial statements and

adequately disclosed. In other words, the auditor checks that:

i). The trial balance reflects the proper summary of balances and transactions,

ii).The financial statements reflect the fair disclosure of events and transactions by proper

grouping of balances, events, transactions,

iii).Information reflected in the financial statements adequately convey the messages required by

narration and notes as may be desired by statute, pronouncements or requirement of the context,

iv). Judgement of the management is fairly made in matters where they are inherent and implied For example, estimation involved in making a provision, or selection of a particular accounting

policy among available alternative policies (like in depreciation methods).

EVALUATIVE FACTORS CONSIDERED FOR SELECTION OF

AUDIT EVIDENCE:-1. Relevance

2. Reliability

3. Sufficiency

4. Cost effectiveness

5. Convenience

6. Preservation

7. Materiality of the assertion to be tested

8. Need for corroboration or resolution of inconsistency

9.Accepted Auditing standards / agreed upon procedures to obtain specified

evidence.


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METHODS OF OBTAINING AUDIT EVIDENCE:-The auditor obtains sufficient and appropriate audit evidence through the

performance of compliance and substantive procedure to enable him to draw

reasonable conclusions, to base his opinion on financial information (AAS 1 Basic

Principles Governing an Audit).

Compliance procedures are tests designed to obtain reasonable assurance that

internal controls on which audit reliance is based are in effect i.e., it tests the

framework of internal control.

Substantive procedures are designed to obtain audit evidence as to the

completeness, accuracy and validity of the data produced by the accounting system

i.e., it is test about the financial data.

The substantive tests are of two types:

i. Testing details of transactions and balances

ii. Analysis of significant ratios and trends including the resulting enquiry ofunusual fluctuation and items.

PROCEDURE TO DRAW REASONABLE CONCLUSIONS:-Following are the methods of obtaining audit evidences:

Inspection

Observation

Inquiry

Confirmation

Computation

AnalyticalReview


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Inspection- Inspection consists of examination of documents, records or tangibleassets.

Observation- Observation consists of witnessing a process or procedure withoutactually doing it, by the auditor. If inventory is counted by the clients staff, theauditor may witness physical counting.

Inquiry and confirmation- Inquiry consists of seeking appropriate informationfrom sources inside or outside the entity, such as operational personnel ormanagement or owners or experts or persons dealing with the entity. It also includesinteracting with an electronic information system with a search and query language.

Andconfirmation techniques consist of the response to an inquiry to substantiatethe information. For example, the debtors may be requested to confirm the balance asper their records with the balances as per the entitys records; or the consignee maybe asked to confirm that the stocks lying with him do belong to the concerned entity.

Computation- Computation consists of checking the arithmetical accuracy of the

source data, or accounting data of the entity. It may include addition, subtraction,multiplication, division, checking the carry over, brought down, comparing the totalsof two sides, checking the postings, checking extraction, reconciliation etc.

Analytical ReviewAnalytical review consists of Studying significant ratios, and trends Investigating unusual fluctuations and items


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TAX AUDIT:-Tax Audit refers to the audit carried out under the provisions of section44AB of the Income Tax Act, 1961. Originally introduced by TheFinance Act, 1984, in the Income-tax Act, 1961 w.e.f. 1 April 1985through Section 44AB. Even if income is below taxable limit, tax auditneeds to be carried out if turnover exceeds prescribed limit. Applicableto both Residents and Non-Residents.

The purpose of Tax audit is to ensure proper maintenance of books ofaccounts and other records, in order to reflect the true income of theassessee and to facilitate the assessing officer to carry out theverification.

OBJECT OF TAX AUDIT:-

To assist the Assessing Officer in computing the total income of

the assessee.

Involves expression of opinion on the truth and correctness of

certain factual details by assesses to the Income Tax Dept.

To enable proper assessment of tax by the Department.

To ensure that income-tax assessments are made simpler andfaster since the basic data required for assessments are

provided with the return of income, by filing Forms 3CA, 3Cb

and 3CD of the tax audit report.

Increases self compliance by the tax payer and educates them.

SALIENT FEATURES:-

Limit of turnover business wise. Option of presumptive scheme-business wise.

Audit for that business only which does not opt for presumptive

norms and total income exceeds taxable limit.

Applicability of TDS provisions.

Not applicable to Company and LLP.


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BASIC ELEMENT:-

Person carrying on business:-

Sales turnover, gross receipts exceeds Rs. 40 lacs in previous year.

Deemed profit U/s 44AD, 44AE, 44AF, 44BB & 44BBB and claims it to be

lower.

Not applicable if covered by Sec. 44B and 44BBA.

Person carrying on Profession:-

Gross receipts in profession exceeds Rs. 10 lacs.

Position from AY-2011-2012:-

(Changes made by Finance (No.2) Act 2009 U/s 44AD):-

44AD now applicable to all eligible assessees engaged in any eligible

business.

Eligible assesseeIndividual, HUF or General Firm.

Eligible business any business except buying/leasing or hiring goods

carriage referred to in Sec. 44AE and turnover from eligible business does not

exceed Rs. 40 lacs.

Appointment of auditor:-

AUDITORS

CharteredAccountant

or

Firm of CA

Accountantin Full Time

Practice

Statutory

Auditor

CA/ Firm

appointed asTax Consultant


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Audit due date:-

Obligation on the aforesaid persons to obtain before the

"specified date" a report of the audit.

Report to be in the prescribed form duly signed and verified by

the accountant.

specified date" relevant to the assessment year, means 30th

of September of the A.Y.

Audit planning:-

Forms of tax audit report:-

S.No Particulars ApplicableForm

1. Assessee not required to get hisaccounts audited under any other

law.

Form 3CB andForm 3CD.

2. Assessee required to get his accountsaudited under any other law.

Form 3CA andForm 3CD.

3. Assessee required to get his accountsaudited under any other law andfinancial year is not previous year.

Form 3CB andForm 3CD.

Obtain Appointment Letter

Issue Engagement Letter

Obtain Representation LetterObtain Certificates as required in

clause of Form 3CD


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Penalty:-

U/s 271B, if a person fails to get his accounts audited as required

under section 44AB or to furnish the report of such audit, then:

The Penalty imposed shall be, lower of

% of sales or gross receipts

Rs 1,00,000/-

NO PENALTY IS IMPOSABLE U/S 271B, IF THE ASSESSEE

PROVES THAT THERE WAS A REASONABLE CAUSE FOR THE

FAILURE.


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SPECIMEN OF FORM CBFORM NO. 3CB[See rule 6G(1)(b)]

Audit report under section 44AB of the Income-tax Act, 1961 in the case of a person referred to in

clause (b) of sub-rule (1) of rule 6G

* I/We have examined the balance sheet as at 31st March ______________________________________

,and the * profit and loss account/income and expenditure account for the year ended on that date,attached herewith, of

___________________________________________ mention name and address of the assessee with

permanent account number]

2. * I/We certify that the balance sheet and the * profit and loss account/income and expenditure account

are in agreement with the books of account maintained at the head office at ______________________

and ** ______________________ branches.

3. (a) * I/We report the following observations/comments/discrepancies/inconsistencies; if any:____________________________________________________________________________________

(b) Subject to above,-(A) * I/We have obtained all the information and explanations which, to the best of* my/our knowledge

and belief, were necessary for the purposes of the audit.(B) In * my/our opinion, proper books of account have been kept by the head office and branches of the

assessee so far as appears from * my/our examination of the books.(C) In * my/our opinion and to the best of* my/our information and according to the explanations givento * me/us, the said accounts, read with notes thereon, if any, give a true and fair view:-

(i) in the case of the balance sheet, of the state of the affairs of the assessee as at 31st March, _________;

and(ii) in the case of the * profit and loss account/income and expenditure account of the * profit/loss or *surplus/deficit of the assessee for the year ended on that date.

4. The statement of particulars required to be furnished under section 44AB is annexed herewith in Form

No. 3CD.

5.In * my/our opinion and to the best of* my/our information and according to explanations given to *me/us, the particulars given in the said Form No. 3CD and the Annexure thereto are true and correct.

*** Signed

Place _____________ Name : ________________________

Date ______________ Address : ______________________

____________________________________________

Notes :1. *Delete whichever is not applicable.2. **Mention the total number of branches.

3. ***This report has to be signed by-(i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or(ii) any person who, in relation to any State, is, by virtue of the provisions of sub-section (2) of section 226 of theCompanies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in thatState.4. The person, who signs this audit report, shall indicate reference of his membership number/certificate ofpractice number/authority under which he is entitled to sign this report.


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CONTENTS OF FORM CD:-In the case of a person who carries on business or profession but who

is not required by or under any other law to get his accounts audited

the audit report has to be given in Form No. 3CB.

Form No. 3CB consists of four paragraphs.

PARA 1:-The tax auditor has to state whether he has examined the balance sheet as at 31st

March of the relevant previous year and the profit and loss account/ income and

expenditure account for the year ended on the date. Further, such a balance sheet

and the profit and loss account must be attached with the audit report.

PARA 2:-The tax auditor has to certify that the balance sheet and the profit and loss

account/income and expenditure account are in agreement with the books of

accounts maintained at the head office and branches. He has also to mention thetotal number of branches.

PARA 3:-Tax auditor should report only such of those observations/comments/ discrepancies/

inconsistencies which are of qualificatory nature which affect his reporting

about obtaining all the information and explanations which were necessary for the

purposes of the audit, about the keeping of proper books of account by the head

office and branches of the assessee and about the true and fair view of the financial

statements.

PARA 4:-That the prescribed particulars are furnished in Form No.3CD annexed to the report

and whether in his opinion and to the best of his information and according to the

explanations given to him, they are true and correct.

The auditor may have a difference of opinion with regard to the particulars

furnished by the assessee and he has to bring these differences under various

clauses in Form No.3CD.

The auditor should make a specific reference to those clauses in Form No.3CD in

which he has expressed his reservations, difference of opinion, disclaimer etc. in

this paragraph.


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SPECIMEN OF FORM CDFORM NO. 3CD

[See rule 6G(2)]

Statement of particulars required to be furnished underSection 44AB of the Income Tax Act, 1961

PARTA

1. Name of the assessee :

2. Address :

3. Permanent Account Number :

4. Status : Company

5. Previous year ended : March 31,2006

6. Assessment year : 2006-2007

PARTB

7 (a) If firm or Association of Persons, indicate names of

partners/members and their profit sharing ratios

(b) If there is any change in the partners or members or in their

profit sharing ratio since the last date of the preceding year,

the particulars of such change.

8 (a) Nature of business or profession (if more than one business

or profession is carried on during the previous year, nature

of every business or profession).

(b)If there is any change in the nature of business orprofession, the particulars of such change.

9 (a) Whether books of account are prescribed under section 44AA, ifyes, list of books so prescribed.

(b) Books of account maintained. (In case books of account aremaintained in a computer system, mention the books ofaccount generated by such computer system)

(c) List of books of account examined.

10 Whether the profit and loss account includes any profits

and gains assessable on presumptive basis, if yes, indicatethe amount and the relevant section (44AD, 44AE, 44AF,

44B, 44BB, 44BBA, 44BBB or any other relevant section).

11 (a) Method of accounting employed in the previous year.

(b) Whether there has been any change in the method of

accounting employed vis--vis the method employed in the

immediately preceding previous year.


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(c) If answer to (b) above is in the affirmative, give details of

such change, and the effect thereof on the profit or loss.

(d) Details of deviation, if any, in the method of accounting

employed in the previous year from accounting standards

prescribed under section 145 and the effect thereof on the

profit or loss.

12 (a) Method of valuation of closing stock employed in theprevious year.

(b) Details of deviation, if any, from the method of valuation

prescribed under section 145A, and the effect thereof on the

profit or loss.

12

A

Give the following particulars of the capital asset convertedinto stock-in-trade

(a) Description of capital asset;

(b) Date of acquisition;

(c) Cost of acquisition;(d) Amount at which the asset is converted into stock-in-trade.

13 Amounts not credited to the profit and loss account, being,-

(a) the items falling within the scope of section 28;

(b) the proforma credits, drawbacks, refund of duty of customsor excise or service tax, or refund of sales tax or value addedtax, where such credits, drawbacks or refunds are admitted asdue by the authorities concerned;

(c) escalation claims accepted during the previous year;

(d) any other item of income;

(e) capital receipt, if any.

14 Particulars of depreciation allowable as per the Income-tax

Act, 1961 in respect of each asset or block of assets, as the

case may be, in the following form: -

(a)

(b)

( c)

(d)

Description of asset/block of assets.

Rate of depreciation.

Actual cost or written down value, as the case may be.

Additions/deductions during the year with dates; in the

case of any addition of an asset, date put to use; including

adjustments on account of

(i) Modified Value Added Tax credit claimed and allowed underthe Central Excise rules, 1944, in respect of assets acquired onor after March 1, 1994,(ii) change in rate of exchange of currency, and

(iii) subsidy or grant or reimbursement, by whatevername called.

(e) Depreciation allowable.

(f) Written down value at the end of the year.


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15 Amounts admissible under sections -

(a) 33AB

(b) 33ABA

(c) 33AC (wherever applicable)

(d) 35

(e) 35ABB

(f) 35AC

(g) 35CCA(h) 35CCB

(i) 35D

(j) 35DD

(k) 35DDA

(l) 35E

(a) debited to the profit and loss account (showing the amountdebited and deduction allowable under each sectionseparately );

(b) not debited to the profit and loss account.

16 (a) Any sum paid to an employee as bonus or commission forservices rendered, where such sum was otherwise payable to

him as profits or dividend. [Section 36(1)(ii)].(b) Any sum received from employees towards contributions to

any provident fund or superannuation fund or any other fundmentioned in section 2(24)(x); and due date for payment andthe actual date of payment to the concerned authoritiesunder section 36(1)(va).

17 Amount debited to the profit and loss account, being :-

(a) Expenditure of capital nature;

(b) Expenditure of personal nature;

(c) Expenditure on advertisement in any souvenir, brochure,

tract, pamphlet or the like, published by a political party;

(d) Expenditure incurred at clubs, -(i)as entrance fees and subscriptions;(ii)as cost for club services and facilities used;

(e) (i) expenditure by way of penalty or fine for violation ofany law for the time being in force;

(ii) any other penalty or fine;

(iii) expenditure incurred for any purpose which is anoffence or which is prohibited by law;

(f) Amount inadmissible under section 40(a);

(g) Interest, salary bonus, commission or remunerationinadmissible under section 40(b)/40(ba) and computation

thereof;(h) (A) whether a certificate has been obtained from the assessee

regarding payments relating to any expenditure coveredunder section 40A(3) that the payments were made byaccount payee cheques drawn on a bank or account payeebank draft, as the case may be [Yes/No];

(B) amount inadmissible under section 40A(3) read with rule6DD [with break-up of inadmissible amounts];

(i) provision for payment of gratuity not allowable under section40A(7);


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(j) any sum paid by the assessee as an employer not allowableunder section 40(A)9;

(k) particulars of any liability of a contingent nature.

(l) amount of deduction inadmissible in terms of section 14A inrespect of the expenditure incurred in relation to incomewhich does not form part of the total income;

(m) amount inadmissible under the proviso to section 36(1)(iii).

18 Particulars of payments made to persons specified undersection 40A(2)(b).

19 Amounts deemed to be profits and gains under section 33ABor 33ABA or 33AC.

20 Any amount of profit chargeable to tax under section 41 andcomputation thereof

21* In respect of any sum referred to in clause (a), (b), (c), (d), (e)or (f) of section 43B, the liability for which;

(A) pre-existed on the first day of the previous year butwas not allowed in the assessment of any preceding previousyear and was

(a) paid during the previous year;

(b) not paid during the previous year;

(B) was incurred in the previous year and was

(a) paid on or before the due date for furnishing thereturn of income of the previous year under section139(1);

(b)not paid on or before the aforesaid date.

22 (a) Amount of Modified Value Added Tax credits availed of orutilised during the previous year and its treatment in theprofit and loss account and treatment of outstanding ModifiedValue Added Tax credits in the accounts.

(b) Particulars of income or expenditure of prior period creditedor debited to the profit and loss accounts.

23 Details of any amount borrowed on hundi or any amount duethereon (including interest on the amount borrowed) repaid,otherwise than through an account payee cheque. [Section69D].

24 (a)

*

Particulars of each loan or deposit in an amount exceedingthe limit specified in section 269SS taken or accepted duringthe previous year: -

(i) name, address and permanent account number (ifavailable with the assessee) of the lender or depositor;(ii) amount of loan or deposit taken or accepted;(iii) whether the loan or deposit was squared up duringthe previous year;(iv)maximum amount outstanding in the account at anytime during the previous year;(v) whether the loan or deposit was taken or acceptedotherwise than by an account payee cheque or an accountpayee bank draft.

*(These particulars need not be given in the case of aGovernment company, a banking company or a corporationestablished by a Central, State or Provincial Act.)


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(b) Particulars of each repayment of loan or deposit in an amountexceeding the limit specified in section 269T made during theprevious year :-

(i) name, address and permanent account number (ifavailable with the assessee) of the payee;(ii) amount of the repayment;(iii) maximum amount outstanding in the account at anytime during the previous year;

(iv) whether the repayment was made otherwise than byaccount payee cheque or account payee bank draft.(c) Whether a certificate has been obtained from the assessee

regarding taking or accepting loan or deposit, or repayment ofthe same through and account payee cheque or an accountpayee bank draft. [Yes/No]

The particulars (i) to (iv) at (b) and the Certificate at (c) aboveneed not be given in the case of a repayment of any loan ordeposit taken or accepted from Government, GovernmentCompany, banking company or a corporation established by aCentral, State or Provincial Act.

25 (a) Details of brought forward loss or depreciation allowance, inthe following manner, to the extent available :

Serial Assessment Nature of Amount Amount asRemarks

Number Year Loss/ as assessedAllowa- return- (give refe-

nce ed rence to(in (in relevantrupees) rupees) order)

(b) Whether a change in shareholding of the company has takenplace in the previous year due to which the losses incurredprior to the previous year cannot be allowed to be carriedforward in terms of section 79.

26 Section-wise details of deductions, if any, admissible underChapter VIA.

27 (a) Whether the assessee has complied with the provisions ofChapter XVII-B regarding deduction of tax at source andregarding the payment thereof to the credit of the CentralGovernment.

(b) If the provisions of Chapter XVII-B have not been complied

with, please give the following details* namely :-

Amount

(i) Tax deductible and not deducted at all(ii) Shortfall on account of lesser deduction than

required to be deducted(iii)Tax deducted late(iv)Tax deducted but not paid to the credit of theCentral Government

*Please give the details of cases covered in (i) to (iv) above.

28 (a) In the case of a trading concern, give quantitative details ofprincipal items of goods traded:

(i)Opening stock;(ii) Purchase during the previous year;(iii) Sales during the previous year;


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(iv) Closing stock;(v) Shortage/excess, if any,

(b) In the case of a manufacturing concern, give quantitative detailsof the principal items of raw materials, finished products and by-products:

A. Raw materials:(i) Opening stock;(ii) Purchases during the previous year;

(iii)

Consumption during the previous year;(iv) Sales during the previous year;(v) Closing stock;(vi) *Yield of finished products;(vii)*Percentage of yield;(viii)*Shortage/excess, if any.

B. Finished products/By-products:

(i) Opening stock;(ii) Purchases during the previous year;(iii) Quantity manufactured during the previous year;(iv) Sales during the previous year;(v) Closing stock;

(vi)

Shortage/excess, if any.* Information on may be given to the extent available.

29 In the case of a domestic company, details of tax ondistributed profits under section 115O in the following form:

(a) Total amount of distributed profits;

(b) Total tax paid thereon;

(c ) Dates of payment with amounts.

30 Whether any cost audit was carried out, if yes, enclose a copyof the report of such audit [See section 139(9)].

31 Whether any audit was conducted under the Central ExciseAct, 1944, if yes enclose a copy of the report of such audit

32(a)

Accounting ratios with calculations as follows: -

Gross profit/Turnover;

(b) Net profit/Turnover;

(c ) Stock-in-trade/Turnover;

(d) Material consumed /Finished goods produced.


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Annexure I

PARTA

1. Name of the assessee

2. Address

3. Permanent Account number

4. Status Company.5. Previous year ended 31STMarch, 2006

6. Assessment year 2006-2007

PARTB

Nature of business or profession in respect of

every business or profession carried on during the

previous year:

Code:

Sr.

No.

Parameters Current Year

Rs.

Preceding

YearRs.

1. Paid up share capital/capital ofpartner/proprietor

2. Share Application Money/Current Account ofPartner or Proprietor, if any

3. Reserves and Surplus/Profit and Loss Account

4. Secured Loans

5. Unsecured loans

6. Current liabilities and provisions

7. Total of Balance Sheet

8. Gross turnover/gross receipts9. Gross Profit

10. Commission received

11. Commission paid

12. Interest received

13. Interest paid

14. Depreciation as per books of account

15. Net Profit (or loss) before tax as per Profit andLoss Account

16. Taxes on income paid/provided for in thebooks


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CONTENT OF FORM CD PART A- General Particulars

Clause 1: Name of the assesseea) Provide the name of the assessed, correct and full name should be given.

b) Incase of companies and firms to the extent possible acronyms should be avoided.

c) In case of a branch, write name of branch along with name of assessee.

d) If assessee is a proprietor give the name of the firm along with the name of the proprietor.

Clause 2: Addressa) Provide the address from where the assessee conducts the business.

b) In case of company, address of registered office must be given.

c) In case of branch, address of branch should be given.

d) Care must be taken that the same address is communicated to the Income tax department for

assessment purposes.

Clause 3: Permanent Account Numbera) The permanent account number has to be mentioned.

b) If the application is pending, the fact should be mentioned along with the GIR No.

Clause 4: Statusa) Status of the assessee as per section 2(31) of the Income Tax Act 1961, should be mentioned.

i. An individual.

ii. A Hindu undivided family.

iii. A company.

iv. A firm.

v. An association of persons or a body of individuals, whether incorporated or not.

vi. A local authority.

vii. Every artificial juridical person.

b) Status here does not refer to residential status.

Clause 5: Previous year ended

a) Previous year should be mentioned as per section 3 of the Income Tax Act 1961, i.e. ending on 31stMarch.

b) In case of a newly set up business or profession, previous year will be beginning on the date on

which it is set up and ending on 31st March.

Clause 6: Assessment yearAssessment year relevant to the previous year for which audit has been done should be stated.


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PART B- Disclosers of ParticularsClause 7-

Mention the name of partners with profit sharing ratios and loss sharing ratios, if they aredifferent.

If as per the partnership deed there are separate ratios for sharing profits and losses bothare to be mentioned separately.

If there is any such change since the last date of the preceding year must be stated. Allthe changes occurring during the entire previous year must be stated.

Clause 8-

The principal line of business should be stated along with the nature of business.

With regard to the nature of business, the principal line of each business such asmanufacturing of consumer durables, trading in chemicals, and wholesale trade intextiles should be stated.

If there are more than one type of business, then particulars for all should bestated.

In case of a person rendering services, the nature of each type of service should bebroadly stated.

Any material change in business should be precisely stated.

Clause 9-

Sub-Clause a) & b)This clause is applicable to-

specified professionals (person carrying on legal, medical, engineering or architecturalprofession or the profession of accountancy or technical consultancy or interior decoration orauthorized representative or film artist)-whosetotal gross receipts in the profession exceeds

one lakh fifty thousand rupees in any one of the three years immediately preceding theprevious year, or,

where the profession has been newly set up in the previous year, and his gross totalreceipts in that year is likely to exceed Rs. 1,50,000 shall keep and maintain the books ofaccount and other documents as follows.

A cash book.

A journal, if the accounts are maintained according to the mercantile system ofaccounting.

A ledger.

Carbon copies of bills, whether machine numbered or otherwise serially numbered.

Obtain a list of books of accounts from the assessee. In case books of account are maintained in a

computer system, mention the books of account generated by such computer system and obtain aprintout for the same.

Sub- Clause c)Give a list of accounts examined .if any books could not have been examined due to non-

availability, the fact should be stated.


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Clause 10-

This clause is applicable if a person is having both regular business as well as businessfalling under presumptive taxation. In case of presumptive taxation, there is no need tomaintain books of account if the income is shown above or at the limit prescribed. Bypassing a single accounting entry the profit and loss account may reflect such income. If itis included in Profit and Loss Account then, to deduct such some from regular business

activity, this information is required.

Clause 11-

Companies compulsorily should follow mercantile system. In case of other assesses, otherthan companies, they may opt for Cash System or Mercantile System. If any assesseechanges from one method to another method, it will have a bearing on the profitabilitywhich requires to be quantified.

Clause 12- FIFO, Weighted Average, Net realizable value etc., method consistently employed

by the assessee. Value of purchase and sale of goods and inventory in accordance with the method

followed regularly; and To adjust for tax, duty or fee paid to bring to the place of its location and condition

as on the date of valuation.

Clause 13-Certain entities have tendency to straight away transfer to Balance Sheet. If so, then onlythis information is required to be provided.This has an impact on concealment of income one has to thoroughly scrutinize the credit

side of balance sheet to see that such income is credit to balance sheet items instead ofP & L items and should be enlisted under this clause.

Clause 14-Asset wise or block wise depreciation.


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Clause 15-

33AB Tea Coffee Rubber development account Upto 50 % of the profits33ABA Site Restoration Fund Up to 20% of the profits33AC Reserves for shipping business 50% of such profits debited

to Profit and Loss Accountand reserve is created to the

same extent &Utilize forobtaining new ships within8 years.

35 Sums paid to scientific researchassociations, to a company for scientificresearch, to a University, collegeor any institution to be used for social scienceand or statistical researchsubject

1 of the sums paid

35ABB Expenditure for obtaining licence to operate

telecommunication services

Deduction equal to the

appropriate fraction of theamount of such expenditure.35AC Expenditure by way of payment of any sum to a

public sector company or a local authority or toan association or institution approved by theNational Committee for carrying out anyeligible project or scheme,

Upto Amount of Expense

35CCA Expenditure by way of payment to associationsand institutions for carrying out ruraldevelopment programmes.


35CCBExpenditure by way of payment to associationsand institutions for carrying out programmes ofconservation of natural resources.


35D Amortisation of Preliminary Expenses Upto Amount of Expense35DDA Amortisation of Expenses incurred under

voluntary retirement scheme.Upto Amount of Expense

35E Deduction of expenses in relation to prospectingof mineral oils


Clause 16:-

If the payment to employee in the form of bonus or commission not having any link withthe profits to be attributed for such services, the same shall be allowable in its entirety.

Employees contribution collected by employer and not paid in time will call fordisallowance. If payments are made within grace period under that enactment, the amountshall not be disallowed.


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Clause 17

Amount of expenditure of respective nature need to be specified in accordance with natureof expenditure.

Clause 18

Obtain management representation in the beginning in the form of list of directors/

Partners holding partnership, directorship or proprietorship in any concern and the natureof business transacted with those entities through ledger scrutiny.

Clause 20:-

41 (1) Expenses of earlier year if received during the year41 (2) If sales realization of assets exceed the written down value41 (3) Gains on asset representing expenditure of a capital nature on scientific

research41 (4) Bad Debts written off earlier and recovered in the current year41 (4a) Reserve created and subsequently withdrawn

41 (5) Income from discontinued business after setting off certain admissiblelosses.

Clause 21

Tax includes Municipal tax, water tax, conservation tax. They are the statutory liabilities.Hence those items also should be included. However, interest on excise liability is not astatutory liability and hence its non payment does not amount to disallowance undersection 43B of the Act.

Clause 24 a & b

Details of Transactions such as Transactions between sister concerns. Transfer entries. Transaction through electronic transfer. Direct Deposit of Cash in Bank Account.

Clause 25 a & b

Obtain list of shareholders as on opening date and closing date of the accounting year with

documentary proof for such changes. If no change is there, obtain managementrepresentation to that effect since you will not be able to know the shareholding patternthrough public domain.

Clause 26

Deductions under Chapter VI A


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Clause 27

Details regarding Provisions of TDS.

Clause 28

Quantitative Details:- Sub-Clause a) For Traders only

Sub-Clause b) For Manufacturers only Sub-Clause c) For Manufacturers cum Traders also.

Clause 32

Accounting Ratios All ratios in monetary terms only. Ratio for business as a whole Consistency to be maintained

ANNEXURE 1Financial Parameters

PART A- General Information. PART B- Detail Information of Capital Account, Fixed account, Current

Assets and Liabilities of Current Year as well as Previous Year.

ANNEXURE 2FBT abolished w.e.f. Asstt. Year 2010-11 Following items executed from FBT w.e.f. Asstt. Year 2009-10

credit facility for employees children

payment to sponsor on employee sportsman

expenditure to organize sports events for employees maintenance of

guest house other than for training purpose

valuation for festival celebration reduced from 50% to 20%

expenditure through electronic meal card subject to condition.


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BANK AUDIT:-TYPES OF BANK AUDIT:-

Statutory Audit:-The audit which is compulsory as per law. The StatutoryAudit of banks includes examination & inspection of internal audit, concurrent

audit, etc. The Statutory Audit of banks is like a post mortem activity. Thesuggestions of Statutory Auditors can assist the bank management in improving theeffectiveness of internal audit/concurrent audit/ inspection etc. In this wayStatutory plays a very important role in regulating the banking companies.

Internal Audit:- Bank generally have a well-organized system of internalaudit. There internal auditor pays frequent visit to branches. They are an importantlink in internal control of the bank. The system of Internal Audit in different banksalso have a system of regular inspection of branches & head offices. A separatedepartment within the bank by firms of CA carries out the Internal Audit &

Inspection Function.

Concurrent Audit:-It is the system which is introduced by RBI with the viewthat interval between the occurrence of transactions by auditors take place as soon asthe transaction take place. It has perceived the effective means of control. The mainaim of concurrent audit is to see that the transaction are properly recorded,documented and vouched.

Statutory Audit

Internal Audit

Concurrent Audit

System Audit

Revenue Audit


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System Audit:- In todays Technological advancements, Banking Companiesare using a well organized computer system to perform their transactions. So, it isvery necessary to conduct System Audit in order to evaluate the computer systemfor effectiveness.System Audit is the audit of such computer environment/system & comprises thefollowing internal controls over EDP activities & with application controls specific

procedures over accounting application assuring that all transactions are recorded &authorized & completely, accurately, timely processed manner which in turn areverified by computer.

Revenue Audit:- It refers to audit of revenues/ incomes. In Revenue Auditof Banking Companies, auditors go through the various sources of revenue fromwhich bank earn income. In Revenue Audit of banks, the auditor inspect that all therecords are showing true and fair pictures of revenue or not.

OBJECTIVES OF BANK AUDIT:- To supplement efforts of the Bank in carrying out simultaneous internal checks of

transactions and compliance with the systems and procedures of the Bank.

To perform substantive checking in key areas and rectification of deficiencies in theearliest possible period to preclude the incidence of serious errors and fraudulentmanipulation.

To reduce the interval between a transaction and its examination by an independent

person not involved in its documentation. To improve the functioning of the branch, leading to up gradation of working of the

branch and prevention of fraud.

Compliance with internal control as well as RBI/Government of India guidelines.

Identification of areas/activities requiring corrective action and urgency.

NEED OF BANK AUDIT:- The transactions are properly recorded/documented and vouched

The irregularities are rectified immediately The systems and procedures of the bank are implemented properly

The transactions are performed or decisions are taken within the policy parametersstipulated by the Head Office, and is not violating the instructions or policyprescriptions of the RBI

The delegated authority is exercised and the same is within the terms and conditionsof the delegated authority.


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SCOPE OF BANK AUDIT:-

Cash:- Daily cash transactions with particular reference to any abnormal receipts and

payments. Proper accounting of inward and outward cash remittances. Proper accounting of Currency Chest transactions, its prompt reporting to RBI. Expenses incurred by cash payment involving sizeable amount, whether such

expenditure is authorized by appropriate authority.

Loans & Advances:-

Ensure that loans and advances have been sanctioned properly and in accordancewith delegated authority.

Verify the compliance of statutory and other restrictions on loans and advancesprescribed by bank time to time.

Ensure that securities & documents have been received as applicable to particularloans and securities have been properly charged/ registered.

Ensure all conditions of sanction have been complied with.

SCOPE

CashLoans &Advances

Deposits

TaxRelatedIssuesOperations&Housekeeping

ForeignExchangeTransactions

Investments


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Ensure timely receipt of Installment, interest and charges and also ensure that postdisbursement supervision and follow-up is proper, such as the timely receipt ofstock and book debt statements, QIS data, renewal of limits, insurance etc.

Physical verification of assets kept as security against loans and verification of enduse of loans as per periodicity prescribed by the bank.

Verify whether there is any misutilisation of the loans and whether there areinstances indicative of diversion of funds.

Investments:- Ensure that in respect of purchase and sale of securities, the branch has acted within

its delegated power having regard to its Head Office instructions. Ensure that the securities held in the books of the branch are physically held by it. Ensure that the branch is complying with RBI/Head Office guidelines regarding

Bank Receipts, SGL forms, delivery of scripts documentation and accounting.

Ensure that the sale or purchase transactions are done at rates beneficial to the Bank.

Foreign Exchange Transactions:- Import transaction. Collection of Bills Direct Bills. Bills under L/C. Export transaction. Bills for collection. Remittances Inward & Outward. Guarantees Financing of Import and Export under various types of credit facilities.

Ensure adherence to the guidelines issued by RBI/HO of the Bank about dealingroom operations.

Deposits:- Check the transactions about term deposits received and repaid. Percentage check of interest paid on deposits may be made, including calculation of

interest on large deposits. Check new accounts opened, particularly current accounts, operations in new

current/S.B. accounts may be verified in the initial periods to see whether there are

any unusual operations.

Operations & Housekeeping:- Auditing of day to day transactions in systematic manner and passing of vouchers.

Fixed Assets physical verification.

Physical verification of Gold/Inventory/Lockers, Control over sale/transfer, safekeeping and custody of Gold/Inventory/Locker.

Audit of all registers maintained at branch like inward and outward registers etc


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Reconciliation of accounts with other banks. Ensure that the maintenance and balancing of accounts, ledgers and registers

including cash book is proper. Ensure that customer complaints are dealt with promptly. In case of difference in clearing, there is a tendency to book it in an intermediary

suspense account instead of locating the difference. Examine the day book to verifyas to how the difference in clearing has been adjusted.

Tax Related Issues:- Checking of PAN/Form 60/61 required at the time of Opening of New Account,Rs

50000 or more deposited at one time in any account or Accepting cash for purchase

of foreign currency by customer exceeding Rs.25000/- at any one time..

Verification of compliance of issues relating to TDS like deduction of TDS, Issue of

TDS certificate.

Verify advance payment of rent details with the lease deed or advance payment of

contract payment with contracts. Compliance of Service Tax, Trade Tax, other duties and taxes.

EXECTION OF AUDIT:-

INSPECTION

&

OBSERVATION

INQUIRY

&CONFORMATION

COMPUTATION

ANALYTICALPROCEDURE


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INSPECTION & OBSERVATION:-Inspection consists of examining records, documents, or tangible assets. The auditorinspects in order to: Be satisfied as to the physical existence of material negotiable assets that the bank holds;

and Obtain the necessary understanding of the terms and conditions of agreements (including

master agreements) that are significant individually or in the aggregate in order to:Consider their enforceability; andAssess the appropriateness of the accounting treatment they have been given.

INQUIRY & CONFORMATION:-Inquiry consists of seeking information of knowledgeable persons inside or outside theentity. Confirmation consists of the response to an inquiry to corroborate informationcontained in the accounting records. The auditor inquires and confirms in order to: Obtain evidence of the operation of internal controls; Obtain evidence of the recognition by the banks customers and counter parties of

amounts, terms and conditions of certain transactions; Obtain information not directly available from the banks accounting records.

COMPUTATION:-Computation consists of checking the arithmetical accuracy of source documents andaccounting records or of performing independent calculations. In the context of the audit ofa banks financial statements, computation is a useful procedure for checking the consistentapplication of valuation models.

ANALYTICAL PROCEDURE:-

Analytical procedures consist of the analysis of significant ratios and trends including theresulting investigation of fluctuations and relationships that are inconsistent with otherrelevant information or deviate from predicted amounts.

AUDITOR FOR BANK AUDIT:-

Appointment of Auditor:- the auditor of a banking company is to be appointed at the annual general

meeting of the shareholders.

the auditor of a nationalised bank is to be appointed by the bank concernedacting through its Board of Directors. In either case, approval of the Reserve Bank is required before the appointment is

made

The auditors of the State Bank of India are to be appointed by the ReserveBank of India in consultation with the Central Government.

The auditors of regional rural banks are to be appointed by the bankconcerned with the approval of the Central Government.


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Remuneration of auditor:- The remuneration of auditor of a banking company is to be fixed in accordance

with the provisions of the Companies Act, 1956. The remuneration of auditors of nationalised banks and State Bank of India is to

be fixed by the Reserve Bank of India in consultation with the CentralGovernment.

In the case of regional rural banks, the auditors remuneration is to bedetermined by the bank concerned with the approval of the Central Government.

Rights of Auditor:- The auditor of a banking company or of a nationalised bank, State Bank of

India, a subsidiary of State Bank of India, or a regional rural bank has thesame powers as those of a company auditor in the matter of access to thebooks, accounts, documents and vouchers.

He is also entitled to require from the officers of the bank such informationand explanations as he may think necessary for the performance of his duties.

In the case of a banking company, he is entitled to receive notice relating to

any general meeting. He is also entitled to attend any general meeting and to

be heard there at on any part of the business, which concerns him as auditor.

QUALITY OF REPORT:- Observations in audit report should be specific. It should not be like in some

case or in few cases. All the remarks should be written with instances. Ensure that in report, only those items verified during the month should be

confirmed. If some areas not covered, comment should be given accordingly. Wherever audit has been conducted on sample basis same should be disclosed in

audit report or sample sheet attached with the audit report. Report should be made in the format provided by bank if any.


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BIBILOGRAPHY:- WWW.GOOGLE.COM

WWW.SCRIBD.COM

WWW.CACLUNINDIA.COM

WWW.NAUKRIHUB.COM

WWW.AUTHORSTREAM.COM

WWW.WIKIPEDIA.COM

CAs Tax Audit Report.

Bank Audit Report.
http://www.google.com/http://www.google.com/http://www.scribd.com/http://www.scribd.com/http://www.caclunindia.com/http://www.caclunindia.com/http://www.naukrihub.com/http://www.naukrihub.com/http://www.authorstream.com/http://www.authorstream.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.authorstream.com/http://www.naukrihub.com/http://www.caclunindia.com/http://www.scribd.com/http://www.google.com/

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