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COMPANY AUDIT

Q. 1. Explain the provisions of Companies Act, 1955 and auditors duty for
(A) Shares issued other than cash for consideration.
(B) Bonus shares.
(C) Interim Dividend.
(D) Forfeiture of Shares.

A. 1. (A) Auditors duty as per Companies Act for shares issued other than cash are
as follows:-
Share issued for consideration other than cash. Any company may issue its shares at (i)
Nominal value (ii) at a higher price than the nominal value, i.e. at a premium, and (iii) shares
issued at discount at lower price, in all such cases it has been principally considered that
the issue of shares for cash and duty of an auditor in connection therewith. The following
circumstance indicates that company has issued its shares either fully paid or partly paid for
consideration other than cash; which are as follows:

(A) Shares issued to vendors for purchase or a business.
(B) To the nominees of Vendors.
(C) To underwriters of shares.
(D) To promoters who have already defrayed the preliminary expenses.
(E) To issue share in lieu of purchase consideration for any case of absorption,
amalgamation or reconstruction,
(F) Shares issued to existing shareholder as bonus shares out of reserve.

The auditor should verify the entries in the journal regarding the issue of such shares.
He should examine or inspect the details of prospectus or statement in lieu of
prospectus in respect of such contract with the vendors, promoters, underwriters etc.
He should check the copies of the contract with all above mentioned parties.
In case of issue of such shares registered Auditor has to verify that company has been
filed with the Registrar of Companies within one month of the allotment Sec. 75 (1)(b).
In case of no written document of a contract, he must verify that whether the Registrar
has been informed of the particulars of the contractor not.
In case of Bonus shares, auditor should examine the minute books of the Directors and
shareholders. He has to verify the entry made for it and the auditor has to check that the
amount of shares issued for consideration other than cash should be shown separately
in the-Balance-sheet.
Inspection of Directors' Minute Book it resolution was passed to give notice.
Necessary entries are given in the books of account. The received amount should be
transferred to the credit of forfeited share account. It must be shown in the Balance
sheet.
If more than nominal value of shares is received, it must be transferred to Capital
Reserve Account, it being capital profit. Upon such forfeiture, shareholders' name is
removed from the - register of members.
The total number of such shares should have been shown in the Annual returns of the
company.
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A. 1. (B) Bonus shares:
The Auditor should verify the Articles of Association to see whether the company has
authority to capitalize reserve and profits to issue bonus shares.

- Memorandum of Association to see whether the paid-up share capital after the issue
of bonus shares would be covered in the authorized capital.
- Resolution for the issue of bonus share passed by the directors in their Board
Meeting and also for the same which has been passed must be approved in the
general meeting of the shareholders.
- He should see whether the conditions contained in the guideline have been
complied with SEBI (Security Exchange Board of India)
- After examining the application for the bonus issue, he should give his certificate
which has to be enclosed with the application.
- He should check the sanction received.
- He should check all the accounting entries of capitalization of reserves and profits.
- He should also check entries in the Register of Members. He should see that the
paid-up capital includes the value of the bonus shares also.
- Under the head 'Share capital' information must be disclosed regarding bonus
shares.
- He should also check that from which source they have been issued.
e.g. Capitalization of profits, Balance of Profit & Loss A/c
Free reserve
From Share Premium Account
Sinking Fund.

A. 1. (C) Interim Dividend:
A Company may distribute part of its profits during the two annual general meetings.
It is known as "Interim Dividend." That means, the company may-declare dividends before
the close of the accounting year and finalization of accounts. The auditor should bear in
mind the following points while checking interim dividend.

- There must be express power in the Articles to declare it, and an Auditor must
therefore, inspect the Articles and the directors minute declaring dividend.
- Interim accounts are prepared to ascertain the quantum of divisible profits.
- Auditor must observe that before declaring, however, the directors must use
reasonable care in order to satisfy themselves that such dividend is justified, and for
this purpose, accounts for the half-year or for period of 6 months should be
prepared, full provision being made for depreciation, reserves for bad debts and for
outstanding.
- Auditor should see that Budget system is in force. It will be great assistance in this
connection,
- It should also be seen that the company has sufficient cash available to pay the
dividend.
- The amount of interim dividend shall be deposited in a separate bank account within
five days from the date of declaration of such dividend. (Sec. 205, Sub sec. 1A of the
Act) and it must be paid out of it.
Lastly, an auditor should go into all the circumstances most carefully, and see that
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proper accounts have been prepared and that the whole position has been adequately
considered.

(D) Duties of an Auditor regarding forfeiture of shares:
The share may be forfeited due to non-payment of calls by the shareholders or. members if
Articles allow. Duties of an auditor in respect to share forfeiture are as under :

- Articles to be examined for forfeiture of shares.
- Calls or installment of call or the interest outstands.
- Due notice is to be given to shareholders for forfeiture.
- Inspection of Directors' Minute Book it resolution was passed to give notice.
- Necessary entries are given in the books of account. The received amount should be
transferred to the credit of forfeited share account It must be shown in the Balance
sheet.
- If more than nominal value of shares is received, it must be transferred to Capital
Reserve Account, it being capital profit. Upon such forfeiture, shareholders' name is
removed from the register of members.
The total number of such shares should have been shown in the Annual returns of
the company.

Q.2. Discuss the points to be considered before commencing the audit of a company.
In case of a company, audit is compulsory. Auditor appointed for audit work is known as
statutory auditor. He would require certain preliminary information and other information
that may be necessary for audit work. Before starting audit work auditor will nee6 or
consider the points as mentioned in the box.
(1) Appointment of an Auditor: Auditor must obtain his appointment in writing along with a
resolution passed by the directors in genera! meeting. He should see the other provisions of
the Companies Act, 1956 for his appointment.
(2) Nature of Work: Auditor must obtain definite instructions from the company regarding
the nature and the scope of his work and duties. What he has to do ? The accounting work
or auditing work ? Time limit for submission of the report and duration of the audit work. As
regards his duties, rights, powers, liabilities etc. are all laid down by the Companies Act,
1956.
(3) Accounting system: Which type of accounting system has been employed by the
company, in case of any weak point, he must examine it thoroughly and make suggestions
to remove it.
(4) Books of Accounts : The Auditor must obtain a list of all the books vouchers, supporting
evidence maintained in the office of the company, He also try to check the names of the
keepers of such books, and it must be duly signed by the authority. The Auditor must have
to give in his report that the books of accounts which has been examined are true and
correct and the financial position is True and fair.
(5) Internal check system: If the system is in operation he should . get, if possible, a
written statement to that effect and examine the system.

(6) List of officers: In case of a company auditor must get a copy, or list of the officers
which include names, addresses, duties powers etc,
(7) Documents of the company: The business of accompany runs according to the
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provisions of the Act. The following documents are required as per the Act : (i) Articles of
Association, Memorandum of Association; prospectus and other important documents,
Memorandum of Association must have at least the name of the company.
Objects, capital including classification of shares, nominal value of shares names of
promoters, first directors, solicitor bankers etc. are also required
(8) Nature of the company: In case of the company who has purchased the. business,
auditor must know the particulars of relevant agreements, purchase consideration, methods
for it, etc. in case of a newly started, particulars of such a business e.g. location, product;
market of a product, registered office, head office, factory, building, depots etc. and also
which type/nature of business is run by the , company-trading, manufacturing, or any
other?
Lastly, the auditor must have information in respect of directors, shareholders, list,
holding of directors in the share capital of the company. List of public and private limited
companies in which they are directors. Also inquire whether its properties-fixed assets are
properly insured or not.

Q. 3. State the provisions of the Companies Act, 1958 and also mention the duties
of an auditor in respect of shares issued at discount.
Provisions of Sec. 79 of the Companies Act3 with regard to issue of shares at discount :
(1) Lower price : Shares issued at discount i.e. shares issued at a price less than
the face value of shares e.g. nominal value is Rs. 100 but if issued at Rs. 90 then Rs. 10 is
called shares discount,
(2) Time limit: Shares can be issued at discount but only after one year has elapsed from
the date of commencement of business, i.e. after one year of commencement of the
business.
(3) Class of share: According to Sec. 79 of the Companies Act, , it can be issued in respect
of class of shares already issued.
(4) Legal provisions: The issue of the shares at a discount is authorized by a resolution
passed by the company in a general meeting. Such resolution must be sanctioned by the
Company Law Board.
(5) Rate of discount: Discount cannot exceed 10%. In certain circumstances Law Board
specifically can consider a higher percentage.
(6) Accounting effect: Shares issued at discount must be shown in the B/s at nominal
value and the amount of discount must be shown under the heading of Misc. exp. as 'Share
Discount' on the Assets side. It must be written off in the forthcoming years.
(7) Auditor's Duties:
(1) It is the duty of the auditor to see that conditions laid down/ in Sea 79 of the
Companies Act, 1956 are complied with.
(2) He should see the resolution passed at the general meeting of the shareholders.
(3) He should verify the sanction obtained from the Company Law Board.
(4) He should see to it that the rate of discount does not exceed 10% or a higher rate as
sanctioned by the Company Law Board.
(5) He should see the prospectus for necessary information as required under the Act
which is disclosed therein.
(6) The Discount on the issue of shares should be shown in the B/s under the head Misc
expenditure" until it is written off.

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Q. 4. State the provisions and duties of the auditor in respect of 'Issue of shares at
premium."
(1) General: Section 78 of the Companies Act, 1956 deals with the issue of shares at a
premium. The company issues shares at a higher price than their nominal value. It may be
for cash or otherwise. The excess amount of premium must be credited to separate account
called "Share Premium Account."
(2) Application of share premium account : The amount credited under the head of "'share
premium account" should be shown under "Reserve and Surplus/' It is not utilized for paying
dividend.
It can be applied for the purposes:
(a) In paying fully paid bonus shares.
(b) In writing off-preliminary expenses, underwriter's commission, Discount allowed on
issue of shares on debentures.
(c) It can be utilized for redemption premium either for preference shares or debentures.
(3) Auditor's Duties :
(1) Auditor should examine the prospectus.
(2) Auditor should verify the Articles of company to see whether they permit it.
(3) Auditor also should examine minute book of directors to see whether they have
authorized such an issue or not.
(4) He should confirm the rate of premium from 1, 2 and 3 above.
(5) The Auditor should check all the accounting entries.
(6) The Auditor should verify that it has not been credited to profit and loss account.

SEBI Guidelines: The Auditor should examine the trend of SEBI guidelines in respect
of share" premium.
(1) A new company can issue shares at a premium with a five year track record of
consistent profit.
(2) In case of unlisted company the limit is of three years. Lastly, the auditor will have to
verify that the company has issued shares at a premium for consideration other than cash,
an amount equal to the amount of premium must be transferred to share premium
Account.

Q.5. State the provisions of the Companies Act, 1956 and also the duties of an
auditor for redemption of preferences shares.
(1) Legal Provisions: Section's 100 to 105 deals with the matter of redemption of
share capital if authorized by A/A and by a special resolution.
(2) Pre. Shares Sec. 80: In case of redeemable preference shares-section 80 deals
with it if Articles of Association may issue of such shares and also liable to be
redeemed. The terms of redemption or conversion have to be disclosed in the
Balance sheet.
(3) Conditions: These shares can be redeemed
- Out of the profit which is available for dividend.
- Out of the proceeds of the fresh issue of shares.
- Shares must be fully paid-up.
- Redemption premium must be provided from Profit and Loss A/c or shares premium
account.
- The company must have to transfer a sum equal to the nominal amount to the
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capital redemption reserve account.
(4) Auditor's Duties:
(1) Examine that the Articles permit issue of redeemable preference shares.
(2) Verify that such shares were fully paid up.
(3) In case of redemption of shares out of the profits, a sum equally to the nominal
value of the shares redeemed is to be transferred to the "Capital Redemption
Reserve Account."
(4) Redemption Premium must be charged to share premium account.
(5) Vouch the entries passed for the transaction or redemptions.
(5) Resolutions: The Auditor must examine the various resolutions pass for redemption
of preference shares.

Q.6. What are the auditor's duties in regarding statutory audit.

(1) Meaning: The report that is sent to the members and which is discussed at the statutory
meeting is known as the statutory report. Statutory Audit is that audit which is required to
be performed by the auditor prior to the statutory meeting of the company. The auditing of
Statutory Report is called "Statutory Audit". The Report is certified by the director and after
that it is certified by the auditor but it should be before the statutory meeting. The audit of
and issue of certificate of the Report is based on the terms of the Statutory Report.
(2) Particulars of Statutory Report which, auditor has to audit: It is prepared by virtue of
Section 165 of the Companies Act, by every public company limited by shares or by
guarantee and having a share capital, must hold a general meeting within six months, but
not before one month from the commencement of business-known as statutory meeting,
the Report is prepared For this purpose in which the following information is included in
respect of
(i) Share capital - Authorized share capital.
- Total No. of shares.
- Shares Allotted to shareholders.
- Paid-up amount on allotted shares-cash received.
- Different kinds of shares.
- Shares allotted to directors, management, promoters
and the amount paid up on it.
- Deducting necessary expenses, the balance of cash
received on the date of submission of Report.
(ii) Expenses: - Preliminary expenses paid and the total amount of it.
(iii) Officers: - Names, address and occupations of directors,
Manager, Secretary and auditors of the company.
(iv) Particulars of - Any contract, or modification or
Contract: proposed modification must disclose before the
shareholders for approval.
(v) Underwriting - The particulars of any commission, brokerage
commission paid or to be paid in connection
Brokerage: with the issue or sale of shares, debentures, to be paid
to shareholders, directors and or to the manager.

(3) Auditor's Duty: For the purpose of certification of Statutory Report auditor; should
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perform his duty in the following manner:
(1) To check the transaction of share capital
(2) He will make enquiries about internal check for receipts payment and other transaction.
(3) He should vouch cash book and bank transactions,
(4) Auditor has to audit the details or the shares allotted, cash received from it and
verification of cash received and payments. He has also to examine the Memorandum,
Articles, and the prospectus, minute books of the Board of Directors.
(5) He will verify all the receipts, documents, register applications, and allotment of shares
as referred to in the shares audit.
(6) He will vouch all the payments e.g. commission, brokerage, salary and such other
expenses.
(7) Whenever necessary, he will also examine the minutes book of the directors.

When he is satisfied, he will issue a certificate for the Statutory Report. Before
issuing certificate he should examine the Statutory Report must be certified as correct by
the two directors, one of them must be a managing director.


Q.7. What are the Auditor's duties for brokerage and underwriting commission?

(1) Legal Provisions: Section 76 permits the joint stock companies to pay commission or
brokerage. The person who gets commission or brokerage must be broker or underwriter
who had assured that all issued shares would be sold and no difficulty would come up for
minimum subscription. The terms for these purposes must be fulfilled which are as follows:
(1) Articles must permit such a payment
(2) Commission must not exceed 5% in case of issue of shares and 21/2% for
debentures.
(3) Rate must be disclosed in the prospectus.
(4) A copy of the contract with the persons must be filed with the Registrar of
Companies.
(2) Purposes: Commission for procuring subscription or placing shares. Person who
procures buyers for the shares of a company gets his commission. Brokerage is a
commission payable to a stock broker.
(3) Auditors, duty:
- Auditor will examine Articles and prospectus.
- Articles and Minute Book agree to commission.
- He should examine the terms and conditions between the brokers or underwriters
and the company.
- Auditor must check the application ^for shares signed and stamped by brokers.
- Auditor should examine all cash receipts in respect of the transaction, e.g.
application money deposited by underwriter, allotment fees on the shares against
commission.
- Auditors should checked that amount paid for underwriter commission and
brokerage' and should be shown under the head Misc. exp. on assets side of Balance
sheet and every year part of it has to be written off to Profit and Loss Account.

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AUDITOR'S REPORT / CERTIFICATE
Q. 1 Give deference between qualified and unqualified (Clean) auditor's report.

Points of
Difference
Unqualified Report clean Report Qualified Report
(1) Meaning It is a report which does not
indicate any mistake or defect,
It covers or indicates mistakes in the report.
(2) Circums-
tances
(1) Books of accounts are
kept by requirement of
law.
(2) P/L A/c shows correct
profit or True and Fair
view.
(3) B/s also gives True
and Fair view.
(4) During examination
auditor is not able to find
out any mistakes/defects.
(5) Auditor is satisfied
with all explanations.
(1) Books of accounts are not kept by
requirement of law.
(2) P/L A/c and B/s can-not show
True and Fair view,
(3) Books of Account are not prepared
according to requirement.,.
(4) It does not follow the accepted
principles.
(3) Special Note It is not required. When auditor has not given explanation he
puts special note for it.
(4) Auditors
Liabilities
When auditor has worked
according to the requirements of
law and with care and skill, he is
not liable for such clean report.
During the work of examination of
books of accounts it he has found any
defect and not pointed out and has given
the report without it, the auditor is liable
for the report.
(5) Directors'
Duty
Directors are not responsible for
submission of any explanation.
In case of queries realized by the auditor,
directors are responsible for explanation of
directors is required.
(6) When to
submit
When the Auditor is satisfied in
all material respects with the
matter, he reports it to share
holders.
Auditors is not satisfied in material
Respects with matters concerning the areas
of his reports.
(7) Impression Creates good impression of
company.
Creates bad impression on readers.





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Q.2 Diff. Audit Report Vs Auditors Certificate.

Points Audit Report Auditor's Certificate
Meaning : It is Auditor's opinion. Auditor's issuing or signing \l vouchsafes the
truth of the statement he makes.
Examinations
of Accounts:
Auditor examine the accounts
because he has to prepare report
for the books of accounts that
they are properly-drawn up in
accordance with the Companies
Act, so as to give True and fair
view1.
Is not required to certify the books of
accounts.
Responsibility
of an Auditors:
Report is merely an opinion of an
auditor, he may be wrong and for
that one he will not be held re-
sponsible.
Certificate - what he states is cent per cent
true and correct. Later on if. it is found that
it was wrong, he will be held responsible.
To whom it
concerns :
Auditor is appointed by
shareholder and for that reason
audit report is addressed to
shareholders.
It is not addressed to any party. Simply it is
a statement by the requirement of the
Companies Act.
Nature : it may be clean or qualified
Report.
Certificate itself is based on correctness. So
it cannot be qualified.
Period : It covers the accounting period
yearly.
As and when it is required by client,
Certificate can be prepared.

Q.3 "True and fair" :
The phrase "True and fair view" has been used in Sec. 211 of the Companies Act. This
means that the profit and loss account must state clearly and correctly the result of the
working of the company for the year under audit. There should be no manipulation of
accounts. Similarly, the balance sheet should show the honest position, i.e. there should be
neither over valuation, nor under valuation of assets or liabilities.
Before the Act came in force in 1956, the same phrase was used as "True and
correct" in Sec. 145 of the Act of 1913 with the help of this Phrase. There were loopholes by
which company could create the secret reserve. To prevent, it the phrase has been changed
and accepted as "True and fair". "Correct" shows that the annual accounts are according to
Books of Accounts and it is reproduced only while "Fair" denote state of affairs of the
company. The arithmetic accuracy is fair for Balance sheet and Profit & Loss Account for the
financial year. Auditor will not only trust on books of accounts but go beyond the
transactions, so that true aspect is shown in financial statements. Annual accounts must
show ail material facts properly disclosed in a "true and fair" way. The standard of
presentation of information must be one set by the current business practice of honest men
in relation to company's accounts.
Fair view also means disclosure of unusual, exceptional or nonrecurring items of
income or expenses, Profit & Loss separately to clarify trading and financial position of the
company. Books of accounts must be kept to give "true and fair view" of state of the
company affairs and explain the transactions.
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DIVISIBLE PROFITS

Q. 1 What is capital profit? State the auditor's duties in respect of
distribution of dividends out of capital profits.
(1) Meaning : Capital profit is not normal profit. Capital profits are not earned during
the ordinary, regular course of the business. Profits which are not earned on account of
trading, or operational activities are called capital profits. It is known as Non-Trading profit
of the business e.g. the surplus of the revaluation of fixed assets.
(2) Sources : The Capita! profits may be computed in the following circumstances :
(A) Profits earned on the business purchased but before obtaining a certificate of
commencement of business.
(B) Premium received on issue of shares or debentures.
(C) Profits made on the reissue of forfeited shares.
(D) Profits earned on the sale of fixed assets.
(E) Surplus on the bona-fide revaluation of the assets.
(3) Auditor's duty regarding capital profits : Auditor should see that the company has
not declared dividend out of capital profits unless;
(i) The Articles of Association of the company may permit for such declaration.
(ii) It must have been realized in cash.
(iii) It must have been computed after the proper valuation of the assets, (iv) The Capital
losses are made good.

Q.2. "Divisible Profit" :
Profits are different from "Divisible Profits". Profits imply a comparison between the state of
a business at two specific dates. The fundamental meaning is the amount of gain made by
the business at two dates. The total assets of the business on the two dates may be
compared, and the increase which they show at the latter date as compared with the earlier
date, represents the profits of the business during the period.
All profits are not divisible profits. "Divisible profits" represent that portion of profits
which can be legally distributed by the company as dividends. This will depend upon the :
(i) Provision in the Articles of Association of the company.
(ii) Provisions of the Companies Act, 1956 and other related Acts. e.g. Income Tax Act,
1961.
(iii) Principles of Accountancy.
(i) Provisions- contained in A/A :
Clauses 85 to 94 Table A (Schedule 1 of the Companies Act, 1956) deal with-
dividends and reserves.
The Board may, by recommending any dividend, set aside out of-the profit of the
company after making provision for meeting contingencies or equalizing dividends. Dividend
must be declared and paid; on paid up amount of share capital of the company. No amount
of profit can be distributed as dividend which is against the provisions of Articles of
Association.
In case of limited companies in general, the determination of divisible profits has
always been found to be problematic specially in view of the following factors :
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(1) Depreciation, Reserve for probable losses etc. are charged to Profit and Loss Account.
It is often a matter of dispute as to what should be the correct amount of such charge
which vitally affects the state of affairs.
(2) Capital Profit - whether such profit can be distributed.
(3) Capital Losses - whether they will be taken account of before arriving at profits
available for dividends.
(4) Capital and revenue items - How to ascertain their nature and on what basis to
apportion the same.

AUDIT PROGRAMMES
Q. 1 Draft audit programme on a "Self-finance commerce college."
The following special points should be observed by the auditor:
(1) Examine carefully the University Act. He must also refer the trust deed or constitution of
the self-finance college.
(2) Go through the minutes book and carefully study the resolutions and official orders.
(3) Examine the internal check-system or an internal audit system.
(4) The auditor must check the cash receipts on account of fees. He must vouch from the
fees register and the counter foils of the fees receipt issued. He must also compare the fees
receipt with the application forms approved and signed by the principal of the college or by
the Head of the Managing committee.
He should check that fees other than tuition fees like examination fees, library fees,
caution money, hostel fees, sport fees etc, are credited to their respective heads. Income
from donation, if permissible, income from investment, if any, Govt. Grant should be
properly verified. Income from endowment, if any, should be separately vouched.
(5) Payments: The auditor should see that management expenses are not mixed up with the
college expenses. He should vouch all the expenses carefully. He should see that the internal
check system-regarding purchase of stationery, provisions etc. is proper.
Salary paid to teaching and non-teaching staff should be verified. He should see that
the increments to the staff are within the rules and approved by the managing committee.
He should also check the leave records and statutory deduction and tax deduction. He
should also see that the adequate provisions for provident fund, gratuity, medical aid etc.
are made.
He should examine the cases of fee-concession and scholarship. It must be within
rules should have been and sanctioned by the committee.
(6) Verification: The auditor must verify the cash on hand, petty cash on hand and Bank
balance. He must also verify the balances as regards to stores and stationery, and existence
of fixed assets acquired by the college.
(7)The auditor should see the proper record for capital expenditure like furniture, building,
equipment; library books, sports goods, are maintained. He should also see that adequate
depreciation is provided and the assets are shown in the balance-sheet. He must check all
the revenue expenditures debited to income & expenditure account.
Q.2 Audit Programme of a Hospital run by Public Charitable Trust.
A hospital is a medical institution offering health-services. It may be established by
the government or by a private trust. The main object before the auditors must be to look at
the budget allocations and proper accounting of incomes and expenditure.
The following points should be examined before preparation of an audit programme.
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(1) Constitution: In case of hospital run by government auditor should examine the rules
and regulations or bye-laws of the institution. Examine, in particular, those clauses which
affect the accounts directly or indirectly. In case of Trust, he has to examine the constitution
of the hospital See that the provisions of the applicable Trust Act, 1950 are complied with.
Verify the minute books of the managing committee or the governing body, as the case may
be.
(2)Act and provision of Act: He has to see that to run the institution-hospital rules framed
by the medical council are properly applicable or not. If it is run by the Trust. The auditor
should see the provisions of Trust Deed which are applicable to the hospital e.g.
investments of trust-funds, transfer or immovable properties, trust income and expenses
etc.
(3)Internal check: Examine the internal check as regards the receipt and issue of stores,
medicines, linen, clothing instruments, etc. so as to ensure that purchases have been
properly recorded in the stock register and that issues have been made only against proper
authorization.
(4)Books of accounts and its preparation: The auditor should examine the method of
accounting system followed by the hospital. If it is run by the government, the accounts" are
required to be maintained in accordance with legal requirements of government accounting
policy. In case of trust, auditors should see that forms prescribed in schedules 8, 9, 9C of the
Trust Act, 1950 are filed in time in the office of the charity commissioner. He has to submit
auditor's report every year.
(5) Vouching of cashbook:
(A)Receipts : The following are the receipts in case of the hospital -Donations, membership
fees, e.g. x-ray charges operation theatre charges, operation charges, medicines other
facilities, other receipts like dividends, interest on securities, rent etc. Vouch the receipt of
all these types from the counterfoils of the receipts issued. See that all receipts are credited
properly in" the books of accounts.
Auditor must verify the total fees received as per patients' registers also examine
that bills are prepared properly from such register Vouch the grants received from
government authorities and other sources Copies, calculation and other documents should
be examined
(B) Vouching of expenditure or payments : The following are the important expenses of
capital nature, e.g. purchases of Land-construction of building, operation theatre, purchases
of different kinds of machineries, revenue expenses includes administrative expense, e.g.
salary, remuneration paid to hospital staff, doctors and administrative staff, purchases of
medicines, medical instruments, stores, drugs, lien, cloths, repairs.
All these payments should be properly authorized and accounted for. Payments
should be vouched with vouchers. Compare the bills with the attendance register of the
patients. Vouch the administrative expenses in the usual manner.
(6) Valuation & Verification of Assets & Liabilities: Auditor must examine & verify the value
of assets. In case of fixed assets, it must be shown in the balance-sheet cost value less
depreciation. Investment at market price and other stocks are at lower price.
Verify equipments, furniture, fittings, and stocks of medicine on hand. See that the
capital expenditure under different heads does not exceed the budgeted amounts.
(7)Allocation of expenses: Auditor should verify the expenses paid also try to consider the
proper head of capital expenses and revenue expenses. Auditor should see that it is shown
in the balance sheet and charged to Profit & Loss account properly.