CHAPTER – I

INTRODUCTION

1.1 INTRODUCTION OF AUDITING

The word ‘Audit’ is derived from the Latin word “Audire” which means to hear. An audit
is a simple form developed with the organized system of accounting. In early period person
appointed to check the accounts used to hear from the bookkeeper matter relating to the
transaction of the business.

In course of time the mode of audit changed according to accounting system of different
types of business. Auditing is a specialized function having complex, legal, economic
implications. Auditing is concerned with the verification of accounting data with determining the
accuracy and reliability of accounting statements.

It is not mechanical ticking of entries in books of accounts with the vouchers of the other
records. Auditing is the process of testing and weighting of evidence. It is analytical, critical and
investigative. It has its principle roots not in accounting which it reviews but in logic on which it
leans heavily for ideas and method. As well laid out and implemented audit programme helps in
auditor to arrive at proper conclusion regarding the accounting statements and they help him to
formulate his opinion.

An audit is a systematic and independent examination of books, accounts, statutory

records, documents and vouchers of an organization to ascertain how far the financial statements
as well as non-financial disclosures present a true and fair view of the concern. It also attempts to
ensure that the books of accounts are properly maintained by the concern as required by law.

Auditing has become such a ubiquitous phenomenon in the corporate and the public
sector that academics started identifying an "Audit Society". The auditor perceives and
recognizes the propositions before him/her for examination, obtains evidence, evaluates the same
and formulates an opinion on the basis of his judgment which is communicated through his audit
report.

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1.2 OBJECTIVE OF THE TRAINING

o Work situations.
o To get a practical knowledge about the auditing.
o To know how the auditor will audit the accounts.
o To know about prevent commission of errors and frauds.
o To know about detect error and fraud in accounts.
o To identify the audit process.

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 CHAPTER II

PROFILE OF THE AUDITOR

Name Of The Firm : CA.G.SARAVANAN,B.Com,F.C.A..,

Address : 105,1St Floor ,Gopal Building

Pollachi-6420001

Phone Number : 04259-228469

Mobile Number : +91 99440 51424,

E-Mail Id : Cagsaravanan@Gmail.Com

No Of Staffs : 3

Area Of Service : Income Tax, Sales Tax And PAN Card Service

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 CHAPTER III

ORGANISATION CHART

OFFICE CO-ORDINATORS

SENIOR STAFF

ASSISTANT STAFF 1 ASSISTANT STAFF 2

JUNIOR STAFF JUNIOR STAFF

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 CHAPTER IV

AUDITING – AN OVERVIEW

4.1 OBJECTIVES OF AUDITING

There are two main objectives of auditing.

1. Primary objective

2. Secondary / Incidental objective.

Primary Objective

As per section 227 of the Companies act 1956, the primary duty (objective) of the auditor
is to report to the owners whether the balance that gives a true and fair view of the company’s
state of affairs and the profit and loss account gives a correct figure of profit or loss for the
financial year.

Secondary Objective

It is also called as the incidental objective, as it is include to the classification of the main
objectives.

The incidental objectives of the auditing are:

 Detection and prevention of frauds ,

 Detection and prevention of errors.

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FEATURES OF AUDITING

 Audit is a systematic and scientific examination of the books of accounts of a

business.
 Audit is undertaken by an independent person or body of persons who are duly
qualified for the job.Audit is a verification of the results shown by the profit and
loss account and the state of affairs as shown by the balance sheet.
 Audit is a critical review of the system of accounting and internal control.
 Audit is done with the help of vouchers, documents, information and
explanations received from the authorities

ADVANTAGES OF AUDITING

A number of advantages can be derived from getting the accounts audited by a qualified
auditor such as:

 Early detection of frauds and errors

 Reliability of accounts
 Statements of various types of claims
 Securing loans from banks and other financial institution etc

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4.2 TYPES OF AUDIT

Different types of audit may be conducted with different objectives in view for the
purpose of classify the audit into the following types based on the objectives of each type of
audit.

1) Independent financial audit

2) Internal audit

3) Cost audit

4) Tax audit

5) Government audit

6) Statutory audit

Independent Financial Audit

Independent financial audit is generally conducted to ascertain whether the balance sheet
and the profit & loss a/c present a true and fair view of the financial position and working results,
respectively, of the enterprises under audit. The objective of an independent financial audit is
ascertain whether the financial statement of an enterprise or reliable. Now-a-days, these financial
statements are used by investors it rate creditors, banks and financial institutions, government
authorities etc.., and the decision to invest in a company. Is based primarily on the financial
position and working results of the company as shown by its financial statements. It is therefore,

Internal Audit

Internal audit is an audit conducted on behalf of the management of an enterprise with

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the objective of assistants the management to discharge its responsibilities effectively. An
internal audit may be conducted to ascertain whether the existing controls are adequate and
effective, e.g. whether the system of receiving goods into the stores ensures an adequate check
on the quality and quantity of the goods.

Cost Audit

This is an audit of cost accounting records. The charted institute of management

accountants in the UK defines it is "the verification of cost accounts and a check on adherence to
the cost accounting plan”. Thus, the cost auditor examines whether the cost statements are
properly drawn up and whether they present a true and fair view of the cost of production and
marketing of various products dealt in by the enterprises. In India, certain classes of companies
are required by the central government to compulsorily maintain cost accounting records. The
central government can require the audit of cost accounting records maintained by such as
company.

Tax Audit

In India, The income tax act 1961, provides for compulsory audit of the accounts of
certain income tax assesses (i.e.) persons liable to pay income tax whose turnover or receipts
exceed the specified limits. The objective of such audit is to assist the tax authorities in making
the correct income tax assess Rios of the accesses concerned. The tax auditor has to specifically
report on certain transactions. Which have an effect on the income tax liability of the accesses
concerned and are, thus, important to the tax authorities. His income tax act 1961 also contains
various other provisions where by audit reports are required to be submitted to get certain
deductions..

Government Audit

Government audit is conducted primarily to ensure that financial transactions of the

government are executed with proper sanctions and authorities, are correctly recorded, and
conform to the rules of financial propriety. As such it seeks to ensure that public funds are not
misused besides the government audit also examines the efficienus, economy and effectiveness

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of selected projects/programs run by government in India. The comptroller & auditor general of
India have been given the responsibility to conduct the audit of the central government and state
confront.

Statutory Audit

Where undertaking is formed under the statute or laws, audit for such undertakings is
made compulsory under the statutes that govern them. An audit undertaken under any statute or
law is called statutory audit. A qualified external auditor can conduct a statutory audit

4.3 TOOLS OF AUDITING

WORK DESCRIPTION

As I have been taught by the auditor and audit assistants that how to vouch the accounts
of hospitals, doctors, retail shops etc., In spite of their busy schedule they have helped me a lot
to learn more audit works by showing sample of vouching and auditing procedures for these
concerns.

VOUCHER

A small printed piece of paper that entitles the holders to a discount or that may be
exchanged for good or service. A Voucher a written document in support of a business
transaction. For Every entry made in the cash book there must be a proper voucher. Vouchers are
documents containing evidence of payment and receipts. When money is received generally a
printed receipt is issued to the payer but counterfoil or the carbon copy of it is preserved by the
cashier. The copy receipts are called debit vouchers, and they support the entries appearing on
the debit side of the cash book. Similarly when payment is made a receipt is obtained from the
payee. These receipts are known as credit vouchers. All the debit and credit vouchers are
consecutively numbered. For ready reference the numbers of the vouchers are noted against the
respective entries. A column is provided on either side of the cash book for this purpose.

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Payment Voucher

Receipt showing that a payment has been made [generally specifying the purpose of the
payment].

Expense Voucher

When a trader makes payment for the expenses incurred while carrying on his business,
he maintains a voucher for accounts purpose.

Receipt Voucher

When a trader receives cash from a customer he issues a receipt containing the date, the
amount and the name of the customer.

Account Voucher

A voucher is an accounting document representing an internal intent to make a payment

to an external entity, such as a vendor or service provider. A voucher is produced usually after
receiving a vendor invoice, after the invoice is successfully matched to a purchase order. A
voucher will contain detailed information regarding the payee, the monetary amount of the
payment, a description of the transaction, and more. In accounts payable systems, a process
called a "payment run" is executed to generate payments corresponding to the unpaid vouchers.
These payments can then be released or held at the discretion of an accounts payable supervisor
or the company controller.

SALES TAX

A tax imposed by the government at the point of sale on retail goods and services. It is
collected by the retailer and passed on to the state. Sales taxes are levied when a commodity is
sold to its final consumer. Retail organizations contend that such taxes discourage retail sales.
The question of whether they are generally progressive or regressive is a subject of much current

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debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will
tend to be regressive. It is therefore common to exempt food, utilities and other necessities from
sales taxes, since poor people spend a higher proportion of their incomes on these commodities,
so such exemptions make the tax more progressive. This is the classic "You pay for what you
spend" tax, as only those who spend money on non-exempt (i.e. luxury) items pay the tax.

PAN CARD

Permanent Account Number (PAN) is unique alphanumeric combination issued to all

juristic entities identifiable under the Indian Income Tax Act 1961. It is issued by the Indian
Income Tax Department under the supervision of the Central Board for Direct Taxes (CBDT)
and is almost equivalent to a national identification number. It also serves as an important ID
proof. The primary purpose of PAN is to bring a universal identification key factor for all
financial transactions and indirectly prevent tax evasion by keeping a track of monetary
transactions of high net worth individuals.

SALES RETURN

A sales return is merchandise sent back by a buyer to the seller, usually for one of the
following reasons:

 Excess quantity shipped

 Excess quantity ordered
 Defective goods
 Product specifications are incorrect
 Wrong items shipped

The seller records this return as a debit to a Sales Returns account and a credit to the
Accounts Receivable account; the total amount of sales returns in this account is a deduction
from the reported amount of gross sales in a period, which yields a net sales figure. The credit to
the Accounts Receivable account reduces the amount of accounts receivable outstanding. The

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Sales Returns account is a contra account. A seller can more closely control the amount of sales
returns by requiring a sales return authorization number before its receiving department will
accept a return. Otherwise, some customers will return goods with impunity, some of which may
be damaged and which can therefore not be re-sold. It is possible that a sales return will not be
authorized until a later period than the one in which the original sale transaction was completed.
If so, there will be an excessive amount of revenue recognized in the original reporting period,
with the offsetting sales reduction appearing in a later reporting period. This overstates profits in
the first period and understates profits in the later period.

PURCHASE RETURN

Purchases returns or returns outwards, are a normal part of business. Goods may be
returned to supplier if they carry defects or if they are not according to the specifications of the
buyer. A purchase return occurs when a buyer returns merchandise that it has purchased from a
supplier. If purchase was initially made on credit, the payable recognized must be reversed by
the amount of purchases returned. If the purchases in respect of the goods returned were made
for cash, then a receivable must be recognized to acknowledge the asset resulting from the
expected reimbursement to be received from the supplier in respect of the returned goods

SALES ACCOUNTING

In book keeping, accounting, and finance, Net sales are operating revenues earned by a
company for selling its products or rendering its services also referred to as revenue. They are
reported directly on the income statement as Sales or Net sales. Revenue is earned when goods
are delivered or services are rendered. The term sales in a marketing, advertising or a general
business context often refers to a contract in which a buyer has agreed to purchase some products
at a set time in the future. From an accounting standpoint, sales do not occur until the product is
delivered. A sale is a transfer of property for money or credit or accounts receivable and
a credit to the sales account. The amount recorded is the actual in double-entry bookkeeping, a
sale of merchandise is recorded in the general journal as a debit to cash monetary value of the
transaction, not the list price of the merchandise. A discount from list price might be noted if it
applies to the sale. Fees for services are recorded separately from sales of merchandise, but the

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book keeping transactions for recording "sales" of services are similar to those for recording
sales of tangible good

VAT

A value-added tax (VAT) or goods and services tax (GST) is a popular way of
implementing a consumption tax in Europe, Japan, and many other countries. All countries
except the United States have a value-added tax. It differs from the sales tax in that taxes are
applied to the difference between the seller-purchased price and the resale price. This is
accomplished by taking full tax on all sales, but refunding the tax difference to the sellers. The
VAT is an alternative to a sales tax and is meant to deal with a specific problem. While with a
sales tax, a business selling goods is responsible for making a subjective decision about the intent
of a buyer, the business may not be fully competent to make the decision.

If buyers intend to consume the goods themselves, then the seller must collect a tax on
the purchase price. If instead buyers intend the goods as capital goods, to be resold at a profit
after adding value to them, then the seller must not collect the tax. Additionally, sellers have an
incentive to claim that a sale is taxable in order to please customers; this slight conflict of interest
could, and probably would, result in an under-collection of tax.

CHECKING ACCOUNT

A transactional deposit account held at a financial institution that allows for withdrawals
and deposits. Money held in a checking account is very liquid, and can be withdrawn by using
cheque, automated cash machines and electronic debits, among other methods.

A checking account defers from other bank accounts in that it often allows for numerous
withdrawals and unlimited deposits, where as saving accounts sometimes limit both. Checking
accounts can include business accounts, student accounts and joint account along with many
other types of accounts which offer similar features.

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4.4 OBSERVATION FROM TRAINING

 Preparation of voucher
 Filing of tax with reference to pan card
 Verification by sales tax return along with bills
 Entering purchase details in MS-excel and verification in invoice

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 CHAPTER V

SWOT ANALYSIS

Strengths

 Long standing clients

 Quality staff
 Focused workforce
 Excellent Business Ethics
 Supportive management
 Cooperative environment
 Name basis with large percentage of clients
 Good Relationships with Tax officers
 Flexible work environment
 Controlled growth
 Organization gives opportunity for career path

Weaknesses

 Due to lack of audit staff only 2-3 audits can be carried at a time
 No Company Website
 More emphasis on business Taxation Services rather than audit
 Limited knowledge of markets outside Gujranwala
 Shared office, no separate departments in the office
 Dependability of staff
 Strict Policy for absenteeism among employees causing dissatisfaction

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Opportunities

 Create an interactive web-site

 Firm can get more audit services from clients if proper marketing techniques are applied
 Add additional high quality audit and tax services to drive additional business
 New more efficient staff
 Consolidation of offices
 Better Computer equipment and accounting soft ware’s for staff
 Hire 1 or 2 audit staff
 Growth markets

Threats

 Competition hiring staff

 Day by day increasing Competition in taxation and audit markets
 Turnover of customers to other firm’s
 Loss of audit clients due to lack of audit team members
 Firm might be outdated due to lack of technology and employee’s technological
orientation

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 CHAPTER – VI
CONCLUSION

The training program provided a practical approach on auditing practices and influenced
me immensely in setting goals. During the training I have involved in various work such as
verification of Journal book, Ledger book, Tally, Demand Draft, Voucher, Cheque book, PAN
card. Through this training have gained more knowledge in the field of accounting and auditing
which will help me in my future endeavoursTo conclude this institutional training has left me
with sufficient knowledge about the functions and the relative problems of the company.

 Definition of audit giving overall importance to Government audit and audit control.
 Details relating to objectives and functions of audit.
 Different types of audit and specialties in each case.
 The systems of audit existing in the Government set up.

Though it is a small concern it is earning more good will among the public that this
concern will shine very well believe that this concern will very well in future.

I express my sincere thanks to all the faculties and the company members who were
helping me for gaining more practical knowledge and experience.

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