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AUDITING
Accounting: “ Accounting is the art of recording, classifying an summarizing in a

significant manner and in terms of money, transactions an events which are in past at least of a financial character and interpreting the result thereof.” The word “AUDIT” is derived from the latin word “Audire” which means to hear. In olden times whenever the owner of a business suspected fraud, they appointed certain persons to check the accounts. Such persons sets for the accountant and “heard” whatever they had to say in connection with the accounts. It was an Italian, Luca Paciato, who first published his treatise on double entry system of book keeping for the first time in 1494.

DIFINITION OF ACCOUNTING
It is a bit difficult to give a precise definition of the word ‘audit’ in a word or two. Originally, its meaning and use were confined nearly to cash audit i.e. an auditor had to ascertain whether the person responsible for the maintenance of accounts had properly accounted for all the cash receipts and payment on behalf of his principal. But the word ‘audit’ a wide usage and it now means a through security of the books of accounts and its ultimate aim is to verify the financial position disclosed by the balance sheet and the profit and loss account of a company.

ACCORDING SPICER AND PEGLER “ An audit may be said to be such an examination of the books, accounts and vouchers of a business as will enable the auditor to satisfy that the balance sheet is properly brown up so as to give a true and fair view of the state of affairs of the business and whether the profit and loss account gives a true and fair view of the profit or loss for the financial period according to the best of his information and the explanation given to him and as shown by the books, and if not, in what respect he is not satisfy .

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EVALUATION OF AUDITING
The auditing has the origin in the necessity in the development of some system to put a check on the persons whose duties were to record receipts and disbursements of money on the behalf of owners. In the ancient days auditing was confined to public accounts only. The historical records show that ancient Egyptians, the Greeks and the Romans used to get their public accounts audited. With the development of trade and commerce the need for recording transactions was felt by businessman. He started taking the services of others for recording those transactions. This has necessitated the development of some system of check upon the persons who recorded such transactions on the behalf of businessman. Luca Paciolo, an Italian, who has published his treatise as double entry system of book keeping for the first time in 1494. This system of double entry was capable of recording all kinds of mercantile transactions. He also described the duties and responsibilities of an auditor. This system has its effect on auditing also, thereby the scope of duties of an auditor was enhanced. The audit is in its present shape is the result of large-scale production in consequence of industrial Revolution during the 18th century. With the development of banking facilities, communication and transport means, the concept of corporate management had taken birth. The management and the owners were separated. It necessitated the investors to know whether there investment is safe or not. Shareholders need an independent person having expert knowledge of accounts to report on the working of the company and truthfulness of the profit or loss and the financial position disclosed by the management. These developments have direct effect on revolution of auditing of business accounts became common in 19th century. The enormous increase in trade, commerce and industry made use of auditing of accounts unavoidable. Under these conditions, the public became perfectly aware of necessity of auditing, and the importance of audit increased to such an

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extent that accounts were not accepted as correct unless professional and qualified auditors audited these. In these days independent firms of professional accountants have come into existence to audit the accounts of mercantile firms, but still the government accounts and audit are with separate government departments.

BOOK-KEEPING, ACCOUNTING AND AUDITING
1. Journalizing 2. Posting into ledger 3. Totaling of different accounts in the ledger and balancing, checking the words of the book keepers, preparation of trial balance, preparation of trading and P&L a/ c. Preparation of balance sheet passing entries for rectification of errors and making adjustments.

BOOK-KEEPING
As is evident from the above table, book keeping is the art of recording the daily transaction in set of financial books. A book keeper who is mainly concern with journalizing, posting, totaling and balancing the various accounts in the ledger performs the elementary part of the week in the whole process.

ACCOUNTANCY
“Accountancy begins where book keeping ends.” It means than an accountant comes in the picture only when the book keeper as done his job. He has to go behind the work of a book keeper and so satisfy himself that the transaction has been properly recorded and posted in the books of accounts. His duty lies in making the trial balance agree and then to prepare the profit and loss account and balance sheet after making the necessary adjustment and rectification of errors.

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AUDITING
“When accountancy ends, auditing begins” and auditor has to verify the entries pass by the accountant and final accounts prepared by him. Auditing is therefore, the scrutiny of the accounts of a business with the help of vouchers, documents and information given to him and also explanation submitted to him. Unlike an accountant, an auditor has to satisfy himself after due verification and through scrutiny of accounts as to whether the transactions entered into the books and bona fide. It is to be note that an auditor is required to submit his report to the affect whether or not the balance sheet is a true and fair representation of the existing state of affairs of a business concern. Hence, an auditor must be as well versed in the accounting principles. This is why he should be a chartered accountant. He has to express his impartial opinion in his report, which he cannot give unless he satisfies himself completely with the proper Recording transactions. No auditor can dream of certifying a balance sheet as true and fair by simply acting as an accounting. ACCOUNTANT AND AUDIT As shown earlier, a line of demarcation has to be drawn between accountancy and auditing. The following points can be helpful in doing so: 1. Accounting is mainly concerned with the preparation of summary and records prepared by the bookkeeper. For this an accountant

analysis of the

has to prepare trial balance and the, annual. Auditing is the examination of the completed records. 2. The main object of accounting is to ascertain the trading results of business during a financial year while the object of audit is to certify the financial statement prepared by the accountant. 3. An accountant is an employee of the business while an auditor is an independent outsider.

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4. As an employee of the business, the draws his monthly salary regularly from the business itself while an auditor does not get it but is paid remuneration agreed upon between him and his client. 5. An accountant is not expected to have knowledge of auditing but for an auditor, it is very essential to process a though knowledge of accountancy.

AUDITING AND INVESTIGATION
Auditing and investigation is not the same, but there is a lot of difference between two. The accounts of a firm may be investigated for some special purpose. It is a sort of thorough enquiry into the financial position of business to measure profit-earning capacity. It is conducted in times of some suspicious about it. 1. As already pointed out, investigation is done with some special purpose in view while audit is carried out to find whether the balance sheet of a concern is properly drawn up and it exhibits a true and fair view of the state of affairs. 2. Audit is generally conducted at the end of financial year and as such is related to the accounts of one year only, while investigation covers several years say 3,5or 7 tears, to find out average earning capacity or to measure the financial position of a concern. 3. Investigation may be normally carried out on behalf of those who are outsiders who either want to purchase the business, to become partners, to advance loans or to purchase the shares of a firm. Audit is always conducted for proprietors only 4. Audited accounts are further investigated for some special purpose in view while investigated accounts are not audited in the ordinary sense. 5. As the purpose behind investigation are different from those of audit one cannot take the place of the other. As such, they have a separate function to perform. 6. Audit is legally compulsory, especially in the case of companies, but in investigation is voluntary and depends upon the necessary of some purpose.

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BASIC PRINCIPLES OF AUDIT
The council of the ICAI has issued statement an “standard audit practice”-I in April, 1985 describing the basic principle which govern the professional responsibilities of auditor. these should be complied with whenever an audit is conducted. Various principles in SAPI are explained as followed:

1. Integrity Objectivity and Independence:
The auditor should be honest and sincere towards his work. He must maintained objectivity without any bias or prejudice.

2. Confidentiality:
The information acquired during an audit should be kept confidential.

3. Skill and Competence:
The audit work shall be conducted by the person who has adequate training, experience and competence in auditing.

4. Work Performed by Others:
The auditor remain responsible for expressing his opinion on financial information when he delegates audit work to assistants or uses the work done by the other auditors. He is permitted to rely on work done by others provided he exercise due skills and care and there is no reason not to place such reliance.

5. Documentation:
The auditor must prepare and preserves all the document while conducting an audit, these may be used as evidence that audit was conducted as per basic principles.

6. Planning:
To conduct the audit in time and efficiently, the auditor should plan his work. The audit plan should cover:

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(i) Clients accounting system, policies and internal control system. (ii) To what extent internal control system can be relied upon. (iii) Determining the audit procedure to be used. (iv) Co-coordinating the audit work.

7. Audit Evidence:
The auditor should obtained sufficient appropriate evidence before conducting an audit.

8. Accounting System and Internal Control:
Management is responsible for maintaining an adequate accounting system and incorporating internal controls as per the requirement of business.

9. Audit Conclusion and Reporting:
The auditor should express his opinion on financial statement on the basis of his review and assessment of audit evidence and knowledge of business. It involves over all conclusion as to whether: (a) Financial information has been prepared using acceptable accounting policies, which have been applied consistently. (b) Financial information complies with relevant regulation and statutory requirements. (c) There is adequate disclosures of all material matters relevant to the proper presentation of financial information, subject to statutory requirement, where applicable.

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ADVANTAGES OF AN AUDIT
Importance of auditing can be judged from the fact that even those organizations which are not covered by Companies Act 1956 get their financial statement audited. It has become a necessity for every commercial and even non- commercial organization. People are interested to know the true facts about their business which are helpful to them for future planning and improvements in operations.

ADVANTAGES OF AN AUDIT

For owners Business & Shareholder

For the management

For the creditors

For the For other government bodies

1. For the Owners of the Business & Shareholder: (i) In case of sole trader, he can depend on the audited accounts. He can value his
business on the basis of audited accounts for the purpose of sale of business or for admitting a new partner. (ii) Shareholder, who do not know about day to day administration of the company, can judge the performance of management from audited accounts. (iii) Shareholder can value their shares on the bases of audited financial statements.

2. For the Management: (i) It helps the management in detecting and preventing errors and frauds.
(ii) Claims due to fire, theft and accident can be estimated from the audited accounts

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(iii) Management gets advice on financial affair from the auditor who have expert’s knowledge. (iv) Because the audited accounts are uniformly prepared over the year, comparison of such statement becomes easier. (v) It helps in reviewing the system of internal control and check.

3. For the Creditors: (i) Long- term and short-term creditors can depend on audited financial statements while
taking decision to grant credit to business houses.

4. For the Government Bodies: (i) Taxation authorities depend on audited statements in assessing the Income Tax, sales
Tax and wealth Tax liability of the business, (ii) Audited accounts can be produced in the court to provide an evidence. (iii) Audited accounts are useful for the government while granting subsidies etc.

5. For Other: (i) It can be used by insurance companies to settle the claims arising on account of loss by
fire. (ii) In case of amalgamation and absorption, the purchasing company can calculate purchase consideration on the basis of audited accounts. (iii) It safeguards the interest of the workers because audited accounts are useful for settling trade disputes for higher wages and bonus.

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CLASSIFICATION OF AUDIT
There can be numerous ways to classify audit. The classification is meant to give understanding of approaches to look upon the exercise of audit. The classification of audit does not mean compartmentalization of audit. The same audit exercise will get different name or classification depending upon the basis used or approach followed:

(A) ON THE BASIS OF SCOPE:An audit examination can be general or specific. A general audit will cover all the areas of business. The audit can be independent or internal. On the other hand specific audit concentrates on a particulars areas, object or may be period. On the basis emphasis it can be further classified as: (i) Partial audit. (ii) Occasional audit. (iii) Interim audit. (iv) Cost audit. (v) Management audit. (vi) Performance audit. (vii) Standard audit. (viii) Audit in depth. (ix) Post and vouch audit. (x) Operational audit. (xi) Cash audit.

(B) ON THE BASIS OF NATURE OF ACTIVITY:The activities which are the subject matter of audit may be commercial or noncommercial. The nature of activity will determined the scope and approach of the audit.

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While the audit of profit motive organization can be called commercial audit, the audit of non-profit organization will fall under non-commercial audit e.g. Government audit.

(C) ON THE BASIS OF FORM OF ORGANISATION:On the basis of form of organization the audit may be classified as private and government. The method of appointment and reporting will differ considerably in these two type of audit.

(D) ON THE BASIS OF WHO CONDUCT THE AUDIT:On this basis the audit is classified into independent or internal audit. An independent audit is conducted by an independent, professionally qualified person who is not an employee of the organization, by hiring his services. On the other hand internal audit is conducted by the employees of the organization to enable better exercise of managerial control.

(E) ON THE BASIS OF LEGAL NECESSITY:On this basis the audit can be classified into statutory and non-statutory audit. Where law, through some act requires compulsory audit of an organization or activity, such audit is called statutory audit e.g. Company Act. Where audit is conducted without any legal necessity or requirement, the audit is called non-statutory.

(F) ON THE BASIS OF METHOD OF EXAMINATION:When the auditor and his staff is constantly engaged in the work during the whole year or period at regular or irregular intervals, the audit is known as continuous audit. On the other hand the audit conducted after annual closure of accounts is known as completed audit, final audit. When the audit is concerned with the item of balance sheet then it is called balance sheet audit.

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SOME OF THE IMPORTANT CLASSIFICATION IS DISCUSSED BELOW1. PRIVATE AUDIT: When the audit is not a statutory requirement, but is conducted at the
desire of owners, such audit is a private audit. The audit is conducted primarily for their own interest. Private audit is of following type: (i) Audit of sole trader’s accounts. (ii) Audit of accounts of partnership firms. (iii) Audit of accounts of individuals. (iv) Audit of institutions not covered by statutory audit.

2. GOVENEMENT AUDIT: Audit of government offices and departments is covered under this
heading. A separate department is maintained by government of India, known as account and audit department. Its working is strictly according to government rules and regulation.

3. INTERNAL AUDIT: It implies the audit of accounts by the staff of the business. The staff may or
may not have professional qualification for audit of accounts. The internal audit staff is permanent in nature and helps the business in early detection of errors and frauds.

4. COMPULSORY AUDIT: An audit by qualified persons which is compulsory requirement under law
is known as compulsory or statutory audit. The qualified chartered accountants, who are not connected with preparation of accounts or management of the concern, can be appointed as auditors. The following are the statutes covering the audit of various concerns: (a) Audit of Company. (b) Audit of accounts of trust (c ) Audit of accounts of co-operative societies.

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FUNCTIONS OF AUDITING Important functions of auditing can be summed up as follows: 1. Reviewing systems and procedures of business. 2. Examining documentary evidence to established the accuracy of recorded transactions. 3. Reviewing the system of accounting and internal control. 4. To verify the valuation and existence of assets. 5. To examine the mathematical accuracy of accounting statements. 6. To see whether the statutory requirements have been complied with. 7. Reporting as the extent, accounts exhibited truth and fairness. 8. To make recommendations for improvement in internal control and accounting system. 9. To verify the distinction between capital and revenue items.

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OBJECTS OF AUDITING
The principal objectives of auditing are changing with the advancement of business techniques. Earlier it was only to check the correctness of receipts and payments, which was extended to detection of frauds. The methods of auditing of accounts have improved the detection of frauds is simply incidental object. The main objective is not detection of frauds and errors, unless the auditor is appointed for only for this purpose.

Objects of an Audit

MAIN OBJECT Verification of accounts And financial statements

SUBSIDIARY OBJECT I. Detection and prevention fraud. II. Detection and prevention Of errors.

(A) MAIN OBJECT OF AN AUDIT
The main object of an audit is to verify and establish that at a given date balance sheet presents true and fair view of financial position of the business and the profit and loss account gives the true and fair view of profit or loss for the accounting period. It is to be established that accounting statements satisfy certain degree of reliability. It is required under Companies Act that whether the books of accounts are kept according to the Act and whether they show true and fair view of the state of affair of the Company. The auditor has to conduct an independent review of financial statement about the reliability: to form such an opinion. The auditor must examine the system of internal

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control and internal check, arithmetic accuracy of book of account, validity of transaction entered in the books and confirm the existence and value of assets and liability.

To judge the accuracy of the books of accounts, the auditor must (1) Assess the system of internal control;
(2) verify the accuracy of posting, balancing etc; (3) Confirm the validity of transaction and supporting documents; (4) Ascertain whether distinction has been made between Capital and revenue items; (5) Confirm existence of assets and liability. (6) ascertain all statutory requirements of maintenance of books and records have been complied with.

(B) SUBSIDIARY OBJECTS OF AN AUDIT

1. Detection and Prevention of Fraud
According to SAP-4issued by ICAI fraud refers to intentional misrepresentation of financial information by one or more individuals among management, employees or third parties, fraud may involve: (a) Manipulation, falsification or alteration of records or documents. (b) Misrepresentation of assets. (c) Suppression or omission of effects of transaction from records or documents. (D) Recording of transaction without substance. (e) Misapplication of accounting polices. When something is being done with an intent to deceive, to mislead or to conceal the truth, it is an art of fraud. It is false representation or entry which is made with some mischievous objectives intentionally to defraud certain persons. Frauds are more difficult

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to detect then unintentional errors. Detection of fraud is one of the principal functions of the auditor. Frauds may be divided into following categories:

FRAUDS
Misappropriation Of cash Misappropriation of goods Misappropriation of accounts

1. Embezzlement or Misappropriation of Cash: Misappropriation of cash is
usually done by theft of cash receipts, petty cash, cheques, negotiable instruments, showing fictitious payments to workers, creditors, purchases etc. misappropriation of cash is very easy. With the increase in the size of business, the opportunities of committing fraud also increase because the owners of the business have no direct control over the receipts and payments of cash. The transactions relating to the receipt of cash are committed from the records or recorded with the lesser amount in the cash books, there by all such cash or apart of it is pocketed by the cashier. Similarly false payments of cash or over payments of cash are shown in the cash book. A strict control system shall be adopted for receipts and payments of cash so that work of one clerk is automatically checked by another. This technique of audit is known as internal check. A example of misappropriation of cash can be quoted:

(1) Showing payment of wages to dummy workers in the wage sheet thereby
misappropriation cash involved there in. (2) Cash sales may not be recorded at all and money received there from may be misappropriated. (3) Certain false payments may be shown on the credit side of cash book or excess amount of payments may be shown.

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(4) Cash received from sale or return or V.P.P may be pocketed.

2. Misappropriation of Goods: The misappropriation of goods is easy in case of
those businesses which produce or deal in goods of high value and less bulky. Usually businessmen do not bother much for defalcation of goods as compared to misappropriation of money. This type of misappropriation is difficult to detect unless proper records are maintained. Defalcation of goods can done by: (a) Issuing false credit notes to customers for sales returns and such goods are misappropriated. (b) Goods may be stolen by employees from the godowns. Misappropriation of goods can be detected by through checking of records and physical verification of stocks as well as purchases and sales very carefully. 3. Manipulation of Accounts: This type of fraud is committed by upper level of management with the different objectives to mislead certain parties within or outside the business. This type of fraud is usually committed by managers, director, board of director etc. Mainly two type motives are behind such manipulation: (a) Showing low profits than the actual ones (1) To give a wrong impression about success of the business to competitors. (2) To reduce or avoid payments of income Tax. (3) To purchase share at a lower price in the market. (b) Showing more profits than what actually they are: (1) The managers may get more commission if such commission is calculated on the basis of profits earned.

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(2)To

sell

the

share

at

a

high

price

by

declaring

higher

dividend, thus is done when such person hold share of the business is shown better then what actually it is.

of the company.

(3) To mislead financial institutions for obtaining further credit, the financial position

Falsification of accounts may be resorted by using following devices: (i) Purchases or expenses may be inflated or suppressed. (ii) Sales or other incomes may be inflated or suppressed. (iii) Stock may be over or under valued. (iv) Omission of adjustment of expenses outstanding or prepaid expenses. (v) Depreciation on assets may be over or under charged or omitted altogether. (vi) Assets or liabilities may be over or under valued. (vii) Outstanding expenses of current year or prepaid incomes of previous year may not be adjusted to increase the profits.

II. Detection and Prevention of Errors:
Generally errors are the result of carelessness on the part of a person preparing the accounts. Sometimes errors may be the result of fraudulent manipulation of accounts. Auditor should be very careful because sometimes an accounting manipulation may appear to be an error. According to SAP-4, issued by ICAI. “an error is an unintentional mistake or misdescription in the books of accounts or records by way of (i) Clerical or mathematical mistake in record or data. (ii) Oversight or misrepresentation of facts or (iii) Misapplication of accounting policies. An error is generally taken to be innocent and not deliberate.

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CLASSIFICATION OF ERRORS
Errors of Principle Errors of Errors of Errors of Compensating omission commission duplication errors

1. Errors of Principle:
When principles of book keeping accountancy are not followed in the treatment and recording of items of a transaction it is known as error of principle. Following are the examples of such type of errors: (a) Item of income posted to a personal account like rent received credited to the personal account of the person making payment, it will reduced the profit and increase creditor in the balance sheet. (b) Item of expenses posted a personal account like rent paid to landlord posted to the debit of his account there by profits will increase as well as debtors in the balance sheet (c) Some other errors of principle are (i) Wrong provision for doubtful debts. (ii) Providing inadequate depreciation. (iii) Providing excess depreciation. (iv) Wrong provision for outstanding expenses or prepaid expenses. Such errors are not disclosed in the trail balance, debit and credit sides of transaction are same. Such errors can be detected by through checking of each and every transaction. Errors of principle affect the reliability of financial statement.

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2. Errors of Omission:
When a transaction is omitted fully or partially from books of accounts, such types of errors are known as error of omission. Usually it arises due to mistake of clerk. Where transaction is totally omitted from the books, it will not affect trial balance and hence becomes more difficult to detect. Such error can be detect only by careful scrutiny. Following are example when the transaction are fully omitted from the book of accounts: (i) Omission of purchases from purchases day book. (ii) Omission of sales from sales day book. (iii) Omitting the entry for charging depreciation in the books. (iv) Rent or interest paid for eleven months, the remaining amount which is unpaid or outstanding has not been recorded in the books.

3. Errors of Commission:
When entries made in the books of original entry or ledger are incorrect wholly or partially, such errors are the errors of commission. Usually these errors arise due to negligence in recording of some business transactions in the books of accounts. These errors may or may not affect trail balance, profit and loss account and balance sheet these errors may be intentional or otherwise. Following are the examples of error of commission: (a) Wrong recording in the book of original entry- wholly or partially. (b) Wrong totaling of book of original entry. (c) Wrong posting or posting to the wrong account. (d) Posting to wrong side of an account, instead of debiting an account it may be wrongly credited and vice versa. (e) Wrong subsidiary book used for recording a transaction.

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(f) Wrong carry forward of balances of accounts to the trail balance. While preparing trail balance, carry forward of balances of account from the ledger may not be correct. The balances of accounts may be carried forward with the wrong amount or on the wrong side of trail balance. (g) When transaction is posted twice in the book of original entry or posting to account in the ledger is made twice or balance of account is shown twice in the trial balance.

4. Errors of Duplication:
When a transaction is recorded twice and also posted twice in the ledger, such an error will not affect trail balance. Sometime supplier sends the invoice in duplicate and both the copies of the bill are recorded separately. It is more difficult to locate such errors. Only through checking and comparing of vouchers with the entries in the books of original entry will reveal such errors. While going through an account, will reveal errors of duplication, if two entries on the same side are appearing with same amounts.

5. Compensating Errors:
When an errors off sets the effect of another error, such errors are known as compensating errors. These errors do not affect agreement of trail balance, hence can’t be located by it. Following is the example of such error: (i) Sometimes under casting of one account is compensated by over casting of another account, such as X’s account is under totaled by Rs. 100 and Y’s account is over totaled by Rs. 100. These errors can be located by checking the total, posting and casting. Some of these errors may effect the profit of the year.

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HOW TO DETECT ERRORS
How an auditor can detect an error when he is called upon to do so although it is not his duty. If an auditor does so, he does it as an accountant not as an auditor. Location of an error depends on environment in the organization. The auditor may take following in to consideration while detecting an error: 1. If varies books are maintained on self balancing system, errors can be located by scrutiny of such books. 2. If the self balancing system is not used, then the trial balance should be checked and ledger accounts balances shall be compared with those shown in trial balance. It is possible some balances in the ledger might not have been transferred to trial balance. 3. Check the totals of trial balance. It is possible that there may be totaling mistake. 4. Compare the balances of accounts in trial balance with balances of accounts in the ledger. It is possible that some balances of accounts might not have been properly transferred to trial balance. 5 In case there is any difference in trial balance, see if there is any accounts having similar balance which is not taken to trial balance. Half the difference in trial balance, and compare it with balance of an account, as the accounts balance may be taken on the wrong side in trial balance. 6. Ascertain the nature of account. Asset accounts, expense accounts, reserve for discount on creditors accounts always have debit balance; ensure that these are shown in the proper column of trial balance. Similarly liabilities accounts, incomes account, capital account and reserves have credit balances and must be shown in credit column of trial balance. 7. If still there remain difference in trial balance, check the balances of ledger accounts with trial balance. 8. Examine the totaling and balancing of each account in the ledger and see the balances are carried forward to the next page.

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9. Total the list of creditor and debtor and compare it with the balance shown in the trial balance. 10. Verify the totals of subsidiary books and their posting to ledger. 11. Compare items of trial balance with the items of trial balance of previous year to see if any account balance is omitted. 12. An error of Rs. 1, Rs. 10, Rs. 100, Rs. 1000 may be due to wrong totaling. 13. If the difference is in rupees or paise, it may be due to wrong balancing or wrong posting. 14. See that all journal entries are posted to ledger. 15. If self balancing ledger system is maintained see that balances in control account tally with total of balances of personal accounts of the ledger. 16. Over and above all this, intensive and careful verification of subsidiary records, vouchers and ledger is the only remedy for locating an error.

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AUDITOR’S DUTY
(AUDITOR IS WATCHDOG, NOT A BLOOD HOUND)
In the famous case of Kingston cotton Mill Co. (1896) the above reference was made by the learned judge Lopse L.J. “An auditor is not bound to be detective or to approach his work with suspicion, or with the foregone conclusion that there is something wrong. He is a watch-dog but not a blood – hound. He is justified in believing tried servants of the company and is entitled to rely upon their representation provided he takes reasonable care”. The following conclusions can be drawn from the judgment:

(i) An Auditor is Watch Dog:
The auditor must take care of interest of the owner of the business. The watch dog is kept by the it’s owner to remain alert and inform the owner when ever any suspicion arises.

(ii) Auditor is not a Blood Hound:
He is fully justified in believing the tried servants of the company and is entitled to rely upon their representation provided he takes reasonable care. It is not the part of his duty to harm those who have been found guilty of committing fraud and errors. The detection of errors and frauds is an important part of auditor’s duty.

(i) Detection of Errors and Fraud:
The auditor has to ensure that there is no material misstatement in the financial statements arising from error and fraud he has to exercise certain degree of skill and care for detecting errors and fraud.

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The auditor has to decide the degree and levels of check and scrutiny to be applied for detection of errors and frauds. If he certifies the accounts as correct, to the best of his knowledge and belief, he can’t be held responsible for an error or fraud which is still there in the financial statements.

(ii) Prevention of Errors and Frauds:
The auditor cannot do anything directly to prevent errors and frauds. After completing the audit work, the auditor can advise his client by making suggestions regarding various ways to prevent error and frauds in future if he is asked for that. The suggestions can be: (a) Changes in accounting systems. (b) Improvement in internal control systems.

The auditor shall follow the following standards while performing his duties:
1. He shall assess the internal control system in force and verify its working. 2. It shall be ensured that accounting principles are followed while recording the business transactions. 3. It shall be examined whether policies of management have been followed while recording accounting transactions. 4. It shall be examined that various accounts have been prepared as per provisions of Companies Act. 5. It shall be checked whether Profit & loss account and balance sheet exhibit true and fair view of state of affairs of the concern. The auditor cannot check each and every financial transaction, test checks are applied on the material items, which are subjects to certain degree of risk. Frauds are committed which are difficult to be detected within a short period. The auditor is relieved of any misstatement due to errors and frauds as indicated in the audited financial statements. The degree of care, skill and diligence will be determined by the specific circumstances of each case.

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It can be concluded regarding position of auditor in regard to frauds and errors:

(a) If the auditor has carried out the audit as per generally accepted auditing principles, he
is not liable for mis-statement of financial information. (b) If any fraud or error is discovered during the course of audit, he should see that errors are corrected and information about fraud is reflected in his report. the fact must be brought to the notice of all concerned at the earliest. (c) As a watch dog he shall not unnecessarily sniff for errors or frauds, but if something wrong smells out, he shall not over look it carelessly. The verifications and checking must be widened to bring out any error or fraud. (d) We should not forget that it is the responsibility of management to prevent frauds and errors.

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QUALITIES OF AN AUDITOR
Only the qualified Chartered Accountants can be appointed as auditor of a limited company. He must have adequate skill and qualities to conduct his work efficiently. Above all he should be a man of integrity and character. The auditor must possess the following qualifications and qualities: 1. The auditor must have though knowledge of principles and practice of all aspects of accountancy. He must be familiar with all systems of accountancy in use. As he has to deal with different accountancy system, he must understand their method of preparation. 2. He has to be tactful because for certain transaction no or in adequate information may be available he has to extract such information tactfully from his clients. 3. He must have through knowledge of audit case laws as per the various cases decided by courts in and outside India. These decisions are helpful in conducting audits and determining the scope of his powers and duties. 4. He should have adequate knowledge of financial management, industrial administration and business organization. 5. An auditor must be honest i.e. he must not certify what he does not believe to be true and he must take responsible care and skill before he believes what he certifies is true. 6. While discharging his duties, he must act impartially and not influenced by others directly or indirectly. 7. He should be able to understand the technical details of business whose accounts he is going to audit. For this purpose he may make certain enquiries from the client as well as visit place of work of his client. 8. He must have up to date knowledge of companies Act and Mercantile Laws. 9. He must have though knowledge of principles of Economics and Legislations because these affects the business whose accounts he has audit. 10. He must be familiar with Principles and Practices of Cost accounting for performing cost audits. Economic

29

11. From time to time he should seek clarification on the matters which he is not able to understand from the information provided to him. 12. He should have high moral standards and should not accept and sign a report or statement which he does not believe to be true and fair. 13. He should be hardworking, systematic and methodical. 14. He must have adequate common sense. 15. He must have capacity to hear arguments of others. 16. He should not disclose the secrets of his client. 17. He should have adequate skill and courage to write audit report correctly clearly, concisely and forcefully.

30

31

RESEARCH METHODOLOGY
This chapter includes different methods on ways of study of the topic about the company.

(1) Collection of Data a) Primary Source:
This is the most authentic and accurate source of data Collection as it provides fresh and first hand information. Under this data is collected by personal interview of the concerned executives, daily customers of the concern. Direct Face- to -face questioning was held with the staff members, Sales vice president and daily customers.

b) Secondary Sources: This source provides second hand information. Information Collection through this source was extracted from companies Journals, pamphlets, brochures, manuals etc. These sources proved very fruitful and successful during the preparation of the report and completion of the report. Without this, the report could not be at the completion stage.

(2) Period of Study
Period of study of the practical training is from 15.05. 2007 TO 30.06.2007 which is very short duration of knowing the concept of auditing. However, data has been processed within two weeks after its collection. This all work has been conducted under the supervisions and guidance of Mr. N. Singh (Chartered Accountant) who provided me valuable suggestions in presenting an interpreting the data.

32

OBJECTIVE OF THE STUDY

(a). (b). (c). (d).

To know, how to conduct auditing. To know the impact of error on the profitability of concern. To Know the process of removal of errors. To know the necessary provisions which have been compiled with while conducting auditing statutory under law.

(e).

To study the factors influencing the financial well-being of the firm.

33

LIMITATIONS OF STUDY
1) TIME
Time was the main constraint study. As the study wa to be completed in a very short span of time i.e. only 4-6 Weeks & this time span was too compact to analyze such a wide & vast concept of financial analysis. As this concept Includes analysis in tune of comparisons, common size B/s, income statements, ratio analysis, fund flow, cash flow etc. hence owing to lack of time, collection of data in depth analysis of topic was very difficult in short period of time.

2) DETAILED INFORMATION
According to firm’s norms, ethics, strategies etc the financial Managers& executives were not allowed to disclose each & every information related to the topic.

3) DELAY
Due to business schedule of the financial incentives & officers there was delay in collection of data which further delayed completion of the analysis.

34

35

COMPANY’S PROFILE

M/S AROHI RUBBER INDUSTRIES was established in the year 1995 for the manufacture of rice rubber rolls, polishes, other rubber goods. The partnership firm came into existence and was registered under the name of, ‘M/S AROHI RUBBER INDUSTRIES on 04-04-95 as per the provisions of partnership Act. 1932. The line of activity of this concern is manufacturing of rice rubber rolls, polishes, other rubber goods. The unit is engaged in the manufacture of vide range of rice rubber rolls, polishes, other rubber goods and since its establishment, the firm has always endeavored to keep pace with good standards of quality. It is due to this only that today firm is one of the leading units for manufacturing high quality rice rubber rolls, polishes, other rubber goods in the city. The product of the firm enjoys a reputation of excellence. The management of the firm is vested in the hands of two individuals, who enjoy the privilege of being the partners of the firm: The industry is supported by a team of highly experienced and efficient personnel. The partners are having an equal share (50%) in the partnership business as per the partnership deed. The firms are employing around 50 workers directly and a no. of workers are employed on order basis casually. Workers are divided into three categories – skilled, semi – skilled and unskilled workers. There are adequate no. of supervisors, foreman ensuring the production of high quality goods in the factory and maintaining discipline within the premises.

36

HIGHLIGHTS OF THE COMPANY
1. Name 2. Status 3. Establishment Date : : : M/s. AROHI RUBBER INDUSTRIES Partnership firm 4th April 1995 M/s AROHI RUBBER INDUSTRIES 24-Dada Colony Industrial Area Jalandhar Punjab (India) 5. Telephone 6. Fax 7. Bankers 8. Auditors 9. Factory Address : : : : : 01810181Punjab National Bank N. Singh & Associates 24-Dada Colony Industrial Area Jalandhar City

4. Head Office Address :

37

OBJECTIVE OF THE INDUSTRIES

1.

Business Mission: The firm’s aim is steady and disciplined growth of the enterprise to maintain the lead position and to expand the present scale of business.

2.

Social Goal : Apart from securing economic goals the firm aims to fulfill social goal as well./ To provide greeter quality product at cheap rates for serving consumer, to reduce wastage to ensure proper utilization of society resources, to pay fair

remuneration to its workers, to participate in the nations struggle to reduce pollution are its priorities.

3.

Profitability: This firm to employ its present resources in the best possible way,. Keep a control upon cost in order to have handsome results along with maintenance of good quality of products.

4.

Growth: This firm is endeavoring to earn reasonable return on capital employed to finance and expansion of the concern.

5.

Image: By producing and supplying good quality products at reasonable prices in the firm aims to secure a favorable image in the minds of its customers.

38

PRODUCTION PROCESS

Procurement of raw rubber

Mixing with rubber chemicals

Formation of rubber sheets

Pressing of sheets

Cutting into need able sizes (Strap-making)

Fitting

Finishing

Manufacture of sponge rubber chapels

39

COMPANY’S POSITION

The Company is financial sound. All the expenditure including administrative, personnel and financial overheads are covered under a revenue account and different sources of income. Administrative overheads are payable within a year. All the assets are valued according to Reducing Installment method and depreciated within a year through which the value of assets is decreased. This depicts the real value of assets while selling them. The net profit of the company is Rs. 5134847 which is incurred by reducing out all the direct and indirect expenses.

The purchase of the company is Rs. 37561971 which is good and the sales are excellent. The company had adequate reserves and surpluses to cover the loss incurred in the future. The fixed assets are shown under current rate. The balance of the investments is valued at real and good management is made. The financial result of the company is increased up to the double to the previous year. The Net profit of the company is increased up to 1.18 per cent. Appropriation of the amount of the balance transferred to general reserve statutory reserve and other reserves is increased up to proportionate increase in the income of the company. The Current Liabilities balancing at is minimized and adequate according to the Accounting Rules and conventions. The net profit of the company is 18857.6 which are much better the previous year. The comp

40

DEPARTMENTS OF THE COMPANY
The main departments in the company are as follows: 1. Personnel Department It has to perform activities like maintaining records of employees, progress of their work, merit rating of employees, preparing job description etc. 2. Finance and Accounts Department. This department is the key of whole concern i.e. it is mainly concern with proper assignment of funds and accounts keeping on accounts, maintaining books of accounts, preparing statements of assets and liabilities etc. are other activities of specialized nature. All this office work performed by this special office or Department. 3. Marketing Department This Department deals with purchase, sales, market research, pricing related while performing these activities of this department has to depend on office service including preparing invoice, gate keeper, write pads and collecting data regarding market surveys etc.

41

Accounting Policies of the Company

1. System of Accounting The company maintains its accounts on accrual basis. 2. Fixed Assets Fixed assets are accounted for their original cost including freight, taxes, and incidental charges etc. 3. Investments Investments are valued at cost; profit and losses are recognized as income or expenditure Oil their transfer. 4. Inventory a) Raw material, Stores and spares, components are valued at cost b) Stock in process is valued at raw materials cost or reliable value whichever is lower. 5. Research and Development Expenses Expenses on Research and Development charged off as and when incurred.

42

43

FORM NO. 3CD
[SEE RULE 6G (2)]

STATEMENT OF PARTICULARS RECURRED TO BE FURNISHED UNDER SECTION 44 AB OF THE INCOME TAX ACT, 1961

PART -A 1. Name of the Assessee :
M/S AROHI RUBBER INDUSTRIES Sh. NUTAN KUMAR MEHTA Sh. RAJINDER SEHGAL

2. Address

:

M/S AROHI RUBBER INDUSTRIES BASTI SHEKH ROAD JALANDHAR CITY.

3. Permanent Account No. : 4. Status 5. Previous Year ended 6. Assessment Year : : :

AABFM7188G PARTNERSHIP 31st March, 2007 2007-2007

PART -B
NAME PROFIT SHARING RATIO

7. (a) If firm or association
of persons, indicate names of partners/members and their profit sharing ratios

a) Mr. Nutan Kumar Mehta b)Mr. Rajinder Sehgal c)Mrs. Jasbir Kaur d)Mrs. Veena Makin

25% 25% 25% 25%

44

(b) If there is any change in the partners/members or their profit sharing ratio, the particulars of such change. No .

8. (a) Nature of business or
profession. (b) If there is any change in the nature of business or profession, the particulars of such change. 9. (a) Whether books of account are prescribed under section 44AA, if yes, list of books so prescribed. (b) Books of account maintained. In cash books of accounts are maintained in a computer system, mention the books of generated by such computer system. (c) List of books of account examined

Rice Rubber Rolls, Polishes, other Rubber Goods - NO

- NO

– Cash Book, Ledger & Sale Book. -Yes - Cash Book, Ledger, Sale Book and PurChase & expenses.

10. Whether the profit or loss account includes any profits and gains assessable on presumptive basis? If yes, indicate the amount and the Relevant section (44\AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, -NO

45

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-à-vis the method employed in the immediately preceding previous year. (c) If answer to (b) above is in the affirmative, give details of such change, and the effect there of on the profit or loss.

-Mercantile

-NO

-N.A.

(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 there of on the

-N.A.

profit or loss. 12. (a) Method of valuation of closing
stock employed in the previous year. (b) Details of deviation, if any from the valuation described under section 145A and the effect there of on the profit or loss. …………….. - value of stock is taken as certified by the partner.

46

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, refunds of duty of customs or excise or refunds of sales tax, where such credits, drawbacks or refunds are admitted as due by the authorities concerned : (c) Escalation claims accepted during the previous year: (d) Any other item of income: (e) Capital receipt, if any: -NIL -NIL - as per annexure -I enclosed. -NIL -NIL -NIL

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 forms:(a) Description of asset/block of assets. (b) Rate of depreciation. (c) Actual cost or written down value, as the case may be. (d) Addition/deductions during the year with dates ; in the case of any addition of an asset, date put to use ; including adjustments on account of

47

(1) Modified value added tax credit claimed and allowed under the central excise rules, 1945, in respect of assets acquired on or after 1st march 1994, (2) Change in rate of exchange of currency, and (3) Subsidy or grant or reim-bursement, by whatever name called. (e) Depreciation allowable. (f) Written down value at the end of the year. 15. Amounts admissible under sec. 33AB, 33ABA, 33AC, 35, 35ABB, 35AC, 35CCA, 35CCB, 35D, 35E:(a) Debited to the profit and loss account. (b) Not debited to the profit and loss account. 16. (a) Any sum paid to an employee as bonus or commission for services rendered, where such sum was otherwise payable to him as profits or dividend.[ Sec. 36(1) (11)]. (b) Any sum received from employees towards contribution to any provided fund or super annuation fund or any other fund mentioned in sec. 2(24). - As per annexure 11 enclosed. -NIL -NIL -NIL

48

(c) And due date for payment and and the actual date of payment to the concerned authorities under sec. 36(1)(va). 17. Amounts 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. Track, pamphlet or the like published by a political party ; (d) Expenditure incurred at clubs:(1) As entrance fees and subscription (2) As cost for club services and facilities used; (e) (i) Expenditure by way of penalty or fine for violation of any law for the time being in force; (ii) Any other penalty or fine; (iii) Expenditure incurred for any purpose which is an offence or which prohibited by law; (f) Accounts inadmissible under sec. 40(a); (g) Interest, salary, bonus, commission or remuneration inadmissible under sec. 40(b)/40(ba) and computation -NIL -NIL -NIL -NIL -NIL -NIL -NIL -NIL -NIL -NIL

49

there of. (h) Amount inadmissible under sec. 40A (3) read with rule 6DD and computation thereof. (i) Prevision for payment of gratuity not allowable under sec. 40A (7); (J) Any sum paid by the assessee as an employer not allowable under sec. 40A (9). (k) Particulars of any liability of a contingent nature. 18. Particular of payment made to person specified under sec. 40A (2) (b). 19. Amounts deemed to be profits and gains under 33AB or 33ABA or 33AC. 20. Any amount or profit chargeable to tax under sec. 41 and computation thereof; 21. 1) In respect of any sum referred to in clause (a), (c), (d) or (e) of sec. 43B, the liability for which; A) Pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was a) Paid during the previous Year. ……………. -NIL -NIL -NIL - As per annexure1V Enclosed -NIL -NIL -NIL -As per annexure - 111 enclosed

50

b) Not paid during the pre vious year B) Was incurred in the previous year and was A) Paid on or before the due date for furnishing the return of income of the previous year under sec, 139(1)

…………….. a) C.S.T. Payable: Rs. 96,123/b) P.S.T. Payable: Rs. 24,983/c) Bonus payable: Rs. 52,730/d) Leave with wages: Rs. 27,343/-

b) Not paid on or before the aforesaid date 2) In respect of any sum referred to in clause (b) of sec. 43B, the liability for which:A) Pre-existed on the first day of allowed in the assessment of any preceding previous year; A) Nature of liability; b) Due date of payment under second proviso to sec. 43B; c) Actual date of payment d) If paid otherwise in cash, whether the sum has been realised within fifteen days of the aforesaid due date. B) Was incurred in the

-NIL

……….

-NIL

…………… …………… …………... …………… …………..

- a) Provident Fund

51

Previous year: a) Nature of liability; b) Due date of payment under second proviso to sec. 43B ; c) Actual date of payment; d) If paid otherwise than in cash, whether the sum has been realised within fifteen days of the aforesaid due date; * State whether sale tax, customs duty, excise duty or any other indirect tax, levy, cess, import etc. is passed through the profit and loss account. 22. A) Amount of modified value Added tax credits availed of or utilised during the previous year and its treatment in the profit and loss account and treatment of outstanding modified Value Added tax credits in the account. b) Particulars of income or expenditure of prior period credited or debited to the profit and loss account. 23. Details of any account borrowed on hundi or any amount due there on (including interest on the amount borrowed) repaid, otherwise

payable ESI

Rs. 5,668/Rs. 1,760/-

: 31-10-2005 : 20-04-2005 -N.A.

…………..

-MODVAT credit availed Input Rs. 10,61,318 Capital goods: Rs. 1,92,073/- MODVAT credit outstanding : Rs. 28,938/-NIL

-NIL

52

than through an account payee cheque.[section 69D] 24. A)* Particulars of each loan or deposit in an amount exceeding the limit specified in sec. 26988 taken or accepted during the Previous year:(i) Name, address and permanent account no. of the Ledger or depositor; (ii) Amount of loan or deposit taken or accepted; (iii) Whether the loan or deposit was squared up during the previous year; (iv) Maximum amount outstanding in the account at any time during the previous year ; (v) Whether the loan or deposit was taken or accepted otherwise than by an account payee cheque or an account payee bank draft. *(These particulars need not be given in the case of a Government company, a banking Company or a corporation Established by a central, state or Provinicial Act). B) Particulars of each repayment of loan or deposit in any amount -NIL …………. …………. ………… ………… ……….. - No fresh loan or deposits have been accepted during the year.

53

exceeding the limit specified in sec. 269T made during the previous year:i) Name, address, permanent account no. (if available with the assessee) of the payee; ii) Amount of the repayment; iii) Maximum amount outstanding in the account at any time of the previous year ; iv) Whether the repayment was made otherwise than by account payee cheque or account payee bank draft. 25. Details of brought forward loss or depreciation allowance, in the following manner, to the extent available Sr. Assessment No. Year Nature of loss/ as Allowance (in Rs.) …… ……. …….. Amount returned (in Rs.) ……… ……….. ……… Amount Remark …………. ………….. …………. ……………

as assessed

………………….NIL…………………………… 26. Sec. Wise details of deduction if any, admissible under chapter VIA. - As per Act.

54

27. (A) whether the assessee has deduction tax at source and paid the amount so deducted to the credit of the central Government in accordance with the provision of chapter XVII-B (b) If the answer to (a) above is in negative, then give the following details:Sr No. Particulars of head Under TDS …… ……….. Amount of TDS (Rs.) ……… Due date for remittance to Govt. …………

- in our opinion and as explained to and verified by us, TDS due was deducted and deposited in accordance with the provision of chapter XVII-B -N.A.

Details of payment date/

Remark

Amt.(Rs.) …………. …

…………….NIL………………….. 28. (a) In the case of the trading Concern, give quantitative details of principal items of goods traded: (i) Opening stock; (ii) Purchases during the previous year; (iii) Sales during the previous Year; (iv) Closing stocks (v) Shortage/excess, if any (b) In the case of manufacturing concern, give quantitative details ………. ……… ……………….. …No stock register is maintained/shown ………………. …….. ……….

55

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 Stocks; (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 may be given to the extant available. 29. In the case of a domestic company details of the tax on distributed profits under section 115-0 in the following form :(a) Total amount of distributed

to us by the assessee.

………… ………… ………… …………. ………… ………… …………. …………. ………….. ………… ………… ………… ………… …………

….N.A….

………..

56

profits; (b) Total tax paid there on; (c) Dates of payment with amounts. 30. Whether any audit was conducted under the central Excise Act,1944, if yes, enclose a copy of the report of such audit . 31. Whether any cost audit was carried out, if yes, enclose a copy of the report of such audit [See sec. 139(9)] 32. Accounting ratio with calculations as follows:(a) Gross profit/Turnover; Rs.52, 09,945.84 ----------------- =0.139 Rs. 3, 73, 63,903.00 (b) Net profit/turnover; (Profit before salary interest to partners) (c) Stock-in-trade/turnover; Rs.2, 62,460.63 ---------------=0.007 Rs.3, 73,63,903.00 Rs.70, 97,580.00 ------------------ =0.190 Rs.3, 73, 63,903.00 (d) Material consumed/Finished goods produced. ….detailed information not made availabl ….NO ……….. ………. ….NO…

57

ANNEXURE
PART—A

1. Name of the assessee 2. Address

: M/S AROHI RUBBER INDUSTRIES :
M/S AROHI RUBBER INDUSTRIES BASTI SHEKH ROAD JALANDHAR CITY.

3. Permanent Account No. : AABFM7188G 4. Status :
PARTNERSHIP

5. Previous Year Ended : 31st March, 2007. 6. Assessment year : 2007—2008 PART---B M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
Nature of Business SR. NO. Parameters Code Current year (Rs.)
23,78,021.01 -NIL-NIL19,34,902.08 12,12,129.14 151,28,489.00 206,53,541.23 373,63,903.00 52,09,945.84 --NIL-1,98,767.00 --NIL-85,175.96 13,39,259.80 2,005.63 --NIL--

0 1 1 2 Preceding Year (Rs.)
25,94,296.52 - NIL-NIL21,41,694.30 9,79,393.00 108,32,932.88 165,48,316.31 296,18,534.00 40,82,827.30 --NIL-1,63,936.00 --NIL-14,296.91 10,63,829.37 540.68 --NIL--

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Paid up share capital Share application money Reserve and surplus Secured loan Unsecured Loans Current Liabilities and provisions Total of Balance Sheet Gross Turnover Gross Profit Commission Received Commission Paid Interest Received Interest Paid Depreciation as per Books of account Net Profit (or Loss) before tax Taxes on Income paid/provided for in the books

58

Statement of depreciation allowable under the Income Tax act, 1961
12 Description Rate W.D.D Of Of As on Assets Dep. 01-04-05 p.a Building Electronic Fitting Car Plant & Machinery Tata 407 tempu Computer TOTAL 10% 3,08,409.00 15% 3,49,757.00 Addition during The year Before After 30-9-06 30-9-06 --NIL-21,713.00 --NIL-96,956.00 Deduc-tion During The year --NIL---NIL-DepreciAtion allowable W.D.V As on 31-03-2007

1. 2. 3. 4. 5. 6.

30,841.00 62,992.00

2,77,568.00 4,05,434.00

20% 4,32,260.00 --NIL-25% 29,24,931.00 4,02,678.5 25% 3,41,019.39 60% 5,536.00 --NIL---NIL--

--NIL---NIL-19,07,962.91 --NIL---NIL---NIL-20,04,919.91 --NIL---NIL--

86,452.00 3,45,808.00 10,70,397.00 41,65,175.00 85,255.39 3,322.00 2,55,764.00 2,214.00

43,61,912.39 4,24,391.5

--NIL-- 13,39,259.80 54,51,963.00

.

For AROHI RUBBER INDUSTRIES . PARTNER.

59

M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY Particulars of payments except in rule 6DD in excess of Rs. 20,000/-.
DECLARATION

We hereby declare that no payment exceeding Rs.20.000/- towards expenses have been made otherwise than by crossed cheque or bank draft during the accounting year 31st march, 2007.

For AROHI RUBBER INDUSTRIES, PARTNERS.

NOTE: “It is not possible for us to verify whether the payment in excess of Rs. 20,000/- as mentioned above, have been made otherwise than by crossed cheque and bank draft as the necessary evidence is not in the possession of the assessee.”`

60

M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
Particulars of payments made to persons specified under section 40A (2)(b).

Account Debited

Particulars (Paid to) Mr. Rajinder Sehgal Mr. Nuttan Kumar Mehta Mr. Jaspreet Singh Mr. Jasbir Singh Mrs. Veena Makin Mr. Narinderpal Singh Mr. Jaspreet Singh

Amount

1. Rent paid
2. Interest on partners capital account 3. ----do----4. ----do----5. ----do----6. Salary to partners 7. ---do----

48,000.00 71,357.00 39,926.00 38,207.00 35,965.00 48,000.00 27,000.00

For AROHI RUBBER INDUSTRIES, Partner

61

M/S AROHI RUBBER INDUSTRIES, JALNDHAR CITY. BALANCE SHEET AS ON 31 MARCH, 2007.

LIABILITIES Partner’s Capital Account
As per schedule annexed

AMOUNT
23,78,021.01

ASSETS Fixed Assets
As per schedule annexed

AMOUNT
54,51,963.00 48,472.13 70,97,580.00 812.69 95,983.22 8,618.00 77,72,382.00

SECURED LOANS
CITI Bank, Jalandhar Loan Account HDFC Bank Ltd., Jal Vehicle Loan account ICICI Bank Ltd., Jal Car Loan Account 1,53,680.34 81,221.74 17,00,000.00

CURRENT ASSETS
Cash in hand Closing Stocks (certified as to quantity and value by partners) With bank of India, Jalandhar in C/A With HDFC Bank, Jalandhar in C/A With Citi bank, Jalandhar in C/A Sundry Debtors(considered goods) (List enclosed)

UNSECURED LOANS
Miss Dalbir Kaur, Jalandhar Sh. Sardari Lal HUF, Jalandhar Mr. Gurcharan Singh, Jalandhar
CURRENT LIA & PROVISIONS

LOANS & ADVANCES
5,00,000.00 4,79,393.00 2,32,736.14 Central excise duty adjustable Central excise duty on capital adjustable Telephone security Insurance recoverable 29,606.60 1,44,616.00 3,000.00 507.00

Sundry creditors Cheque issued but not encashed Central Sales Tax Payable Sales Tax Payable TDS Payable

139,34,333.00 17,894.00 96,123.00 24,983.00 11,151.00 9,48,980.00 7,524.00

Expenses Payable
Electricity Exp. Telephone Exp. Provident Fund Bonus Payable

5,668.00 52,730.00

62

Leave with wages ESI TOTAL Rs.

27,343.00 1,760.00 -------------2,06,53,541.2 TOTAL Rs. 2,06,53,541.0

M/S AROHI RUBBER INDUSTRIES, JALANDAHR CITY
Manufacturing, Trading, Profit and Loss Account for the year ended 31 st March 2007. PARTICULARS To opening Stock To purchases To purchase of Rice Husk (Fuel) To Consumable storage To Fuel Expenses To Electricity Expenses To Wages Paid To Freight, Octroi & Cartage I/W To Oil & Lubricant To Gross Profit C/d
TOTAL To Salary paid to staff To Printing & Stationary To Bank charges and interest To Postage & Courier Exp. To Freight, octroi & Cartage To Rent Paid To Staff welfare exp. To Entertainment exp. To Electricity exp. To Machinery/Electricity repair & maintenance To Packing & Forwarding exp. To Fees, Duties, Taxes To Traveling & Conveyance exp. To Car Petrol & Repair exp. To Insurance charges To Telephone/Mobile exp. To commission exp. To Interest on Vehicle loan

AMOUNT 72,50,811.00 2,00,89,384.56 5,77,431.00
2,92,232.00 68,968.00 1,02,26,243.00 5,20,346.00 1,54,606.00 71,515.00 52,09,945.00 4,44,61,483.00 2,58,887.00 1,199.00 61,074.79 17,966.00 3,26,345.00 1,08,000.00 2,890.00 4,100.00 10,11,387.00 6,31,577.00 4,64,628.00 43,613.00 29,424.00 52.650.45 73,613.00 44,023.00 1,98,767.00 33,651.17

PARTICULARS By Sales By Closing Stocks

AMOUNT 3,73,63,903.00 70,97,580.00

TOTAL By Gross Profit B/d

4,44,61,483.00 52,09,945.84

63

To Medical exp. To Miscellaneous exp. To Charity & Donations To Service Tax paid To Sales Tax paid To advertisement exp. To Income Tax paid To Provident Fund To E.S.I. To Bonus Paid To Leave with wages To Tata Repair & Diesel To Salary to Partners To Depreciation written off To Interest to partners on Capital Accounts To Net Profit transferred to Capital Accounts

2,205.00 2,876.00 15,200.00 6,824.00 45,500.00 4,305.00 8,140.00 34,137.00 3,927.00 52,730.00 27,343.00 41,243.00 75,000.00 13,39,259.00 1,85,455.00 2,005.63 52,09,945.00

TOTAL

Rs.

TOTAL

Rs.

52,09,945.00

64

M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
SCHEDULE OF FIXED ASSETS ANNEXED TO AND FORMING PART OF BALANCE SHEET AS ON 31ST MARCH 2007.
Nature of Asset s Building Electric fitting Car P&M Tata 407 Tempo Computer
Total Rs.

W.D.V as On 01-04-06
3,08,409.00 3,49,757.00 4,32,260.00 29,24,931.0 3,41,019.39 5,536.00 43,61,912.39

Purchases During Year
--NIL-1,18,669.00 --NIL-23,10,641.41 --NIL---NIL-24,29,310.41

Sales Total as On Dur. 31-03-07 Year
-NIL- 3,08,409.00 -NIL- 4,68,426.00 -NIL- 4,32,260.00 -NIL- 52,35,572.41 -NIL- 3,41,019.39 -NIL- 5,536.00 -NIL- 67,91,222.80

Depreciation Written off Rate 10% 15%
20% 25% 25% 60%

Amount 30,841.00 62,992.00
86,452.00 10,70,397.4 85,255.39 3,322.00 13,39,259.8

W.D.V Value as On 31-03-07 2,77,568 4,05,434
3,45,808 41,65,175 2,55,764 2,214 54,51,963

65

M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
SCHEDULE OF PARTNER’ CAPITAL ACCOUNT ANNEXED TO FORMING PART OF THE BALANCE SHEET AS ON 31ST, 2007.
Name of the Partner Balance As on 1-04-06 Add Dur Year
-NIL-NIL-NIL-NIL-

Interest Accrued 8% pa
71,357.00 39,926.00 38,207.00 35,965.00

Salary Credited
48000 27,000 -NIL-NIL-

Share Net Profit
501.40 501.41 501.41 501.41

Total
10,46,198.38 5,75,506.55 5,16,289.54 4,86,026.54

Withrawal
2,28,000 18000 -NIL-NIL-

BALANCE

ON 31-03-07
8,18,198.38 5,57,506.55 5,16,289.54 4,86,026.54

Nuttan 9,26,339.98 Kumar Mehta Rajinder 5,08,079.14 Sehgal Jasbir 4,77,581.13 Kaur Veena 4,49,560.13 Makin

TOTAL

23,61,560.38

-NIL-

1,85,455.00

75,000

2,005.3

26,24,021,01

2,46,000

23,78,021.

66

M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
List of Sundry Debtors as on 31st March 2007. PARTICULARS M/S Ganesh Trading Co. M/S Arohi Rubber Ind. M/S Vishal Rubber Ind. M/S Gagan rubber Ind. M/S Durga Trading Co. M/S Ess Pee Exports M/S G.Desai & Company M/S Gutam Trading Co. M/S Mittal Rubber Ind. M/S Jai Enterprises M/S Jain rubber Mart M/S Minesh Trading Co. M/S Dinesh Trading Co. M/S Rishabh Trading Co. M/S S.J. Rubber Ind. M/S Dashmesh Trading Co. M/S Sudarshan Lal Jain & Sons co. M/S Arsh Trading Co. M/S S.R.S Trading Co. M/S Madan Rubber Ind. TOTAL Rs. AMOUNT 5,52,187.00 4,52,795.00 5,69,382.00 90,886.00 1,51,017.00 78,226.00 91,174.00 73,095.00 30,000.00 6,14,869.00 1,03,800.00 3,96,193.29 90,292.00 26,94,411.50 4,28,280.00 60,147.00 10,62,524.00 1,71,371.00 10,956.60 50,776.00 77,72,382.39

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M/S AROHI RUBBER INDUSTRIES, JALANDHAR CITY.
List of Sundry Creditors as on 31st March 2007

PARTICULARS M/S Aman Agencies, Jalandhar M/S Anmol Polymers Pvt. Ltd. Jalandhar. M/S Aroma Rubber Ind. M/S Arora Traders, Jalandhar M/S Ashoka Bearing Store, Jalandhar M/S Surya Enterprises M/S Azad Traders M/S Bansal Agro. Inds (Regt.) M/S Bansal Rubber M/S Besto Rubber Rolls M/S Bharat Petrolubes Pvt. Ltd. M/S Eastern Trading Co. M/S Electro Mech. (India) M/S First Flight Couriers (P) Ltd. M/S Goyal Traders M/S H.S. Trading Co. M/S Harish Bottle Store, M/S Harison Pipe Fitting Co. M/S Hindustan Rasyan (P) Ltd. M/S Hira Foundry & Engg. Works M/S Jai Shree Enterprises M/S K.B.K. Plascon (P) Ltd. M/S K.S. Plastic (India) Pvt. Ltd. M/S Kapil Trading Co. M/S Karkirpa Dyes & Chem. M/S Lalwani & Lalwani M/S Lov Kush Traders M/S Mahajan Traders M/S Nand Kishore & Co. M/S N.B.H. Engineers & Consultants. M/S Neochem Industries M/S P.S. Traders Rubber Rolls M/S Pal Traders Rubber Rolls M/S Panesar Engineering Corporation M/S Pankaj Sales Corp.

AMOUNT 1,957.00 13,47,050.00 2,36,876.74 61,850.00 36,135.00 3,500.00 8,028.00 3,500.00 79,924,00 2,418.00 11,863.00 24,99,635.80 27,840.95 1,752.00 21,480.00 96,344.50 5,20,245.00 9,221.00 9,67,802.02 68,600.00 1,02,684.50 13,932.00 29,237.00 6,67,547.00 1,01,846.40 2,10,280.00 92,014.50 38,660.50 20,345.00 19,500.00 4,590.00 16,46,796.50 30,841.00 4,000.00 1,26,760.00

68

M/S Paramount Enterprises M/S Paras Minerals & Alloys M/S Parbati Traders M/S Porrits & Spancer (Asia) Ltd. M/S Punjab Bijlee Center M/S Punjab Machinery Store (Regd.) M/S R.S Traders M/S Ram Lal & Sons M/S Rattan Singh & Jaswant Singh M/S Rohit Agencies M/S S.G. Oils & Chemicals M/S Rubber Goods Co. M/S Shri Ram Mineral Inds. M/S Sonu Rubber Industries M/S Star Trading Co. M/S Sunny Waste Cutting Suppliers M/S Uphar Petroleums M/S Vee Kay Electric Trading Co. M/S W & F Matal Wires Ltd. M/S Wadhawan Mill Store M/S Punjab Sales Corporation TOTAL Rs.

39,125.00 70,596.50 8,569.00 1,17,285.00 1,112.00 18,793.79 61,568.00 2,43,671.50 5,80,133.00 80,000.00 12,594.60 67,466.00 8,13,210.00 4,834.00 24,90,304.20 65,306.00 23,900.00 51,332.00 25,403.00 2,535.00 41,537.00 1,39,34,333.00

69

V.K RAJPUT & CO.
CHARTERED ACCOUNTANTS Bank Colony, Basti Bawa Khel, Jalandhar.

---------------------------------------------------------------------------FORM NO. 3CB
(See Rule 6G (1) (b) AUDIT REPORT UNDER SECTION 44 AB OF THE INCOME TAX ACT, 1961,IN THE CASE OF A PERSON REFERRED TO IN CLAUSE (b) OF SUB RULE (1) OF RULE 6G

1. We have examined the Balance sheet as at 31st March 2007 and profit and the loss
account for the year ended on that date, attached herewith of M/S AROHI RUBBER INDUSTRIES, Basti Shekh Road, and Jalandhar City. (Permanent account no. (AABFM7188G) 2. We certify that the Balance sheet and the profit and loss account are in agreement with the books of accounts maintained at the head office at Basti Shekh Road, and Jalandhar City and branches (nil). 3. (a) We report the following observations/comments/discrepancies /inconsistencies; if any; (i) Sundry Debtors and Creditors are subject to confirmation. (ii)No stock Register is maintained / shown to us by the assessee. (b) Subject to above: (A) We have obtain all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of the audit.

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(B) In our opinion, proper books of accounts have been kept by the head office and the branches (Nil) of the assessee so far as appears from our examination of books. (C) In our opinion and to the best of our information and according to explanations given to us, the said accounts, read along with notes on accounts enclosed thereon, if any, give a true and fair view: (i) In the case of Balance sheet, of the state of the affairs of the assessee as at 31 st March, 2007 and (ii) In the case of profit and loss account of the profit 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 our opinion and to the best of our information and according to the examinations given to us, the particulars given in the said Form No. 3CD and the Annexure thereto are true and correct.

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SUGGESTIONS

1.

STOCK REGISTER: The stock register was not maintained by the Company. The

Company will be more beneficial if they maintain stock register.

2. PROVIDENT FUND: The provident fund was not correct. So, the provident fund
record maintained by the company with proper care and avoid this mistake in future. . 3. PARTIES BALANCE CONFIRMATION: Maintain confirmation then the result will be more profitable. the parties balance

4.

SIGNATURE ON VOUCHER: There is no signature on the voucher by the managing

partners of the company, it is compulsory to take the sign of the managing partner. The company will become profit oriental company if they take into considered these points.

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FINDINGS

While in summer training reporting on auditing of M/S AROHI RUBBER INDUSTRIES I had faced so many problems and that problem made the auditing of M/S AROHI RUBBER INDUSTRIES so difficult. Certain findings are written below:1. Stock register was not maintained by the company. 2. There is no parties balance confirmation. managing partners is necessary on the voucher. 4. Provident fund record was not correctly prepared by the company. 3. The managing partners of the company does not sign the voucher. The sign of the

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CONCLUSION
In the earlier days the objective of audit was detection of frauds and now it is extended to determining true and fair view of financial statement as well as detection and prevention of frauds. The audit report should be prepared expressing a clear opinion on financial information. The report should be prepared as per the term and contents prescribed by law, regulation or agreement. An unqualified report means that auditor is satisfied in all material report of above. In case of qualified report, an adverse opinion is given regarding any or all of the above matters along with reasons.

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BIBLIOGRAPHY

Auditing Principles and Practices Pardeep Kumar Baldev Sachdeva Jagvant Singh Financial Accounting Jain and Narang Auditing Kamal Gupta Financial Management I.M. Pandey Others Books of accounts of the Company Company Manuals

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