In the course of audit examination, the auditor will have to keep in mind the different situations existing in different types of organizations. There may be some very important steps to be taken by an auditor in a certain type of audit examination which may not be so important in other organizations. Audit examination of manufacturing organizations such as Textile and Sugar Companies will require different emphasis to be laid by the auditor which may be totally different in case of a trading concern or a banking company. However some general points may be discussed which may be applicable in every type of business. These general points may be summarized as under:
1- To check the efficiency or otherwise of Internal Control System in the organization;
2- In order to ensure the liquid position of the organization to verify the cash in hand;
3- Verification of bank balance is also a must almost in all the organizations;
4- Various types of legal documents are to be prepared by every organization, these are to be thoroughly checked;
5- To compare the current balance sheet with the previous years;
6- Capital and Revenue distinctions are to properly ensured;
7- Inspection of Payroll of employees;
8- Schedules of Accounts Receivable and Payable are to be thoroughly checked;
9- Adequate supporting documents are to be obtained and inspected.
Special Audit of a Bank
Auditor will begin his work by carrying out a thorough verification of the assets and liabilities of the banking company. Points to which he must pay his special attention in the performance of this work with regard to each individual asset and liability are discussed below:
1- Cash in hand / with other banks – Auditor will attend on the last date of the period under audit and will verify cash in hand or bullion by actual counting or weighing. He will compare and tally the balance with the Cash Book, the Day Book. Balances with the State Bank or other banks shall be verified.
2- Investments – Auditor shall obtain a list of the investments of the bank. He shall verify these investments at the close of the year by carrying out an actual inspection of the scripts or other documentary evidence available with the bank. He must take utmost care to see that the same investments are not shown to him twice.
3- Advances, Overdrafts, Loans and Cash Credits – Auditor shall obtain a schedule of all loans, advances, cash credits and overdrafts etc from the bank and will then proceed to verify them with the balances of respective leaders. The totals will be compared and checked up with the respective total accounts maintained in the general ledger.
The responsibilities of the auditor with regard to the verification of loans and advances etc are very heavy. He will have to pay special attention with regard to the different kinds of advances such as:
a) Advances against government securities;
b) Advances against stock in trade;
c) Advances against properties;
d) Advances against Life policies;
e) Advances against fixed deposits;
f) Advances against bullion.
4- Bills Discounted and Purchased – Auditor will verify bills discounted and purchased as recorded in the books with those which are in the actual possession of the bank. He shall see that the limits fixed by the Board of Directors have not been exceeded and that the total of the Bills Discounted Ledger agrees with the balance of the control account in the General Ledger. He will examine the date of maturity of each bill in order to verify the amount of overdue bills.
5- Contra Accounts – Usually they relate to the following types of accounts (a) Bills for collection (b) acceptances, guarantees, letters of credit etc, opened on behalf of the customers. These items appear on both sides of the balance sheet as they constitute both the assets and liabilities of the bank.
6- Branch adjustments – This item discloses the combined effect of the difference sin the inter-branch balances. Auditor shall verify this item from the certificates of balances received from branches preparing reconciliation statements.
7- Other Assets – Other assets of the bank shall include premises, furniture and fixtures, stock of stationary, interest accrued on investments etc. Auditor shall examine the title deeds or any other type of documentary evidence in order to ascertain that the assets of the bank, on the date of the Balance Sheet, do exist in the name of the bank and that they have been properly valued.
8- Liabilities – Important items which usually appear on the liabilities side of the Balance Sheet of a bank are the customer’s deposits, borrowings from other banks or agents etc, bills payable, branch adjustments, liabilities for outstanding expenses and contingent liabilities etc. Auditor will try to check up the understatement or overstatement of liabilities.
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