PRODUCTION

 Verify the production records such as production slips / memos to ensure that the
records are properly maintained . Also verify the log books of machinery to check
the details of production . Check the production log books.

 Check the budgeted production of all the products with the actual result on a
monthly / annual basis. Ascertain the reason for a shortfall in the production if any
and comment upon it.

 Check the production capacity utilization of all the production plants and enquire
in to the reasons for lower capacity utilization and comment upon it.

 Check the system / procedure / method of recording the input and output.

 Check whether the Input / Output Norms have been determined of each process of
manufacture / process loss/ wastage (Accounted) losses and the Unaccounted loss
and gain.

 Check format of the Input and Output statement and ensure that all the relevant
data/information related to the following are shown separately.

o Opening stocks of RM / WIP}.

o Closing stock of RM / WIP . } Total Input

o RM issued. }

o Other material issued. }

o Accounted losses – various types (Norm v/s Actual)

o Finished goods (Norm v/s Actual )

o Unaccounted losses (Norm v/s Actual)

 Check the production slips with the entries in the excise record (RG-1).

 Comment upon the deviation in the norms set for Input / Output ie Norm v/s actual
position.

 Check the production schedules to verify whether the production has been carried
out as per the scheduled production.

 Check the details in respect of yield - Budgeted yield v/s actual yield in respect of
all the products and enquire in to the reason for lower yield and comment upon it.

PRODUCTION PLANNING AND CONTROL

 Study the system / method and the procedure of production planning and the
procedure for the preparation of weekly / monthly / annual production budgets.

 Check the status of orders received from the Marketing Department for production
of various products.
 Check the machine utilization status report and comment upon the idle time - reason
thereof and the steps to reduce idle time.

 Ensure that the log book in respect of all the plant machinery and equipments are
kept properly and up to date. Verify the machine log books and comment on the
discrepancies observed .

 Check that there is a proper lay out for free flow of materials.

 Ensure that the actual production is carried out as per Production Planning and
comment upon the deviation from the production planning figures.

 Carry out a study of machine efficiency and utilization to ensure that the machine
are utilized as per the laid standards of efficiency and utilization.

PURCHASES
 Check whether an Approved Vendor list of suppliers / authorized dealers has been
prepared and is updated on a regular basis. The Approved Vendor list should carry all
the items of purchases - Raw Material / Engineering / Consumables / Packing material
etc. The approved vendor list can be Vendor - item / Item -Vendor wise.

 Check whether a Purchase Manual has been prepared and approved. The Purchase
Manual should include policies / procedures / and all the matters relating to purchase
methodology.

 Find out the Rate Variations over a period of time in respect of every item of
purchases. The purchase register whether prepared Manually / Computerized would
indicate the item Code / Name of the item and purchases made of the item over a
period of time at varying / same rates with reference to the Purchase Order Number.

 Reasons for purchases made at varying rates should be obtained. Rate Variations
without a proper justification should be reported.

 A scrutiny of Purchase Orders should be carried out to ensure that comparative

statement of quotations are prepared and the order is placed on the lowest bidder
after considering factors like quality / delivery / payment terms / profile &
competence of the vendor.

 Check whether the comparative statements of quotations are duly approved by an

appropriate authority and dated.

 The comparative statements should be prepared on a landed cost criteria. All the
costs such as the basic price / taxes / duties/ insurance / P&F / freight & cartage /
interest etc should be indicated in the comparison and the final cost of comparison
should be the landed cost of the item.

 Ensure that a proper justification (Technical / Commercial) is given in writing on the

comparative statement wherever the purchases are made from a source not being
the lowest bidder.

 Ensure that a sufficient number (3 or 4) of quotations / offers are called from the
suppliers at the time of making a comparative statement.
 In case of single offer / quotation cases obtain reason s for placing the order on
specific parties.

 Ensure that in case of Repeat orders - fresh offers / quotations are called from the
competitive suppliers and a fresh comparative statement prepared. Further a Repeat
order should not be placed beyond 6 months from the date of the original purchase
order. A fresh order should be raised on the suppliers after 6 months have elapsed
from the date of the original PO.

 Ensure that a justification note is put in writing on every comparative statement

giving reasons for awarding the PO to a supplier.

 Carry out a scrutiny of Indents / Purchase requisitions to ensure that the purchase
orders are placed as per the requirements given in the Indents.

 Ensure that the quantity discounts / rebates offered by the suppliers as per the
terms given in the PO have been availed by the company.

 Obtain a list of Indents pending for conversion into PO and comment upon the old
pending indents.

 Obtain a list of POs pending for delivery of material and comment upon the old
pending PO where the due date of delivery of material has expired.

 Ensure that the Purchase Orders have been signed / authorized by authorities as per
the financial limits given in the Purchase Manual / Policy. Deviations should be
reported.

 In case of amendments to the PO ensure that the amendments are duly approved by
an appropriate authority and reasons for the amendment (Rate / Quantity ) are given
by way of a Note.

 Comment upon the possibilities of entering into 6 monthly / annual rate contracts
with the suppliers where the consumption trend or level is high.

 Examine whether there is a system of standard costing or Budgetory Control in

vogue in the Purchase Department. Also, check the Monthly Purchase variance
Report wherein all items above + 10% in value should be highlighted and reasons
thereof.

Checklists for Accounts Department

Cash Vouchers \ Bank Vouchers

 Check authorization of Cash Vouchers \ Bank Vouchers by a responsible person.

 Check supporting Bills / Invoices
 Check the correctness of the accounting head – expense / income
 Check for cash receipts signature /acknowledgement of cash recd.
 Check that all the relevant columns of the Cash/ bank vouchers have been properly filled in.
 Check that all the supportings to the Vouchers are crossed as cancelled after the payment.
 Check that payments are made only against original supportings.
 Purchase Vouchers

 Check authorization of Purchase Vouchers by a responsible person.

 Check the Purchase Voucher with the supporting documents like Bill / Invoice and the Goods Received Note(GRN).
 Check whether the rates given in the purchase invoices are as per the purchase Orders raised/amendments to the
Purchase Orders/ approved by an appropriate authority.
 Check whether payment has been made/Bill passed for rejected quantity of material as per the GRR.
 Check whether a proper accounting head - expense has been debited.
 Check that all the relevant columns of the Purchase Vouchers have been properly filled in.
 Check that the PV is passed as per the terms given in the Purchase Orders.
 Check that the purchase voucher is prepared only in respect of original Bills / Invoices.
 Photocopies of invoices \ duplicate invoices should not be passed.
 Check that the Bills / invoices are passed strictly as per the PO terms.

Journal Vouchers

 Check authorization of Journal Vouchers by a responsible person.

 Check the Journal vouchers with supporting Bills / Invoices /documents.
 Check that supporting documents are duly approved by an appropriate authority.
 Check the correctness of the accounting head - debit / credit.
 Check that all the relevant columns of the journal vouchers have been properly filled in.
 In case of contractors bills check that bills submitted by the contractors are supported by the Work Orders issued in
advance to the contractors. No bill should be passed unless supported by a/ WO and the value of the Bill should be
in agreement with the WO prepared. Check that the Work Orders are prepared in advance before the start of the
work.
 Check that the bills of the contractors are duly approved and certified for payment by the person responsible for
getting the work done i.e the user. All the bills must have “Approval” for payment in writing by the user on the face
of the bill.
 Check that all the supporting bills / invoices to a journal voucher are approved / certified for payment by the User
Department. The user Department should specifically put a remark on the bill for approval\ payment.
 In case of contract jobs relating to labour supply the bills are to be supported by attendance sheets duly certified by
the Time Office.
 In case of transporters bills - check the bills with the agreed rates and receipted copies of consignment notes.
 Check the measurement books in case of bills for civil work and ensure that the Measurement books are signed and
checked by the Engineer in charge of the Work.
 In case of running and final bills for civil work check that the civil engineer has checked and verified the
measurements and entries of all running and final bills are made in the Measurement Books.

Advance to Employees

 Check the Trial balance in respect of Advance to employees to ascertain the amount outstanding in the name of
each employee. Find out the date since when the advance is outstanding to be settled and make a list if employees
advances that have not been settled for a long period.
 Ensure that no further advance is given to an employee unless the previous outstanding advance is cleared by him.
 Advance to an employee may be towards - Travel / Official work\ loan or a salary advance. Ensure that the recovery
is made from the salary of the employee when the advance taken by the employee is not settled by him within a
reasonable period.
 Further check that the recovery of installments in respect of loan / salary advance is made correctly on monthly
basis from the salary of the employees.
 Check and make a list of employees who have left the company and their full and final settlements have not been
made but debit balances are still appearing in their names in the Advance to employees account.

Confirmation of Balances
 Confirmation of balances with the banks \ Lending institutions should be obtained on a monthly basis for the
purpose of preparation of bank reconciliation statements.
 Confirmation of balances with the Creditors / Debitors should be obtained on a six monthly basis. The balances in
the Creditors\ Debtors Ledger account should also be reconciled with the balances as per the party’s books on a six
monthly basis.

Debtors Ledger Trial Balance \ Debtors Ledger account

 Check that the balance shown by the Debtors Ledger Trial balance agrees with the balance shown by the Debtors
control account in the General Ledger Trial balance.
 Check the Agewise analysis of Sundry Debtors and comment upon it.
 Check the Debtors Accounts that are stuck up for long and are doubtful of recovery.
 Check the debtors accounts where legal cases have been filed / are to be filed and ascertain the progress in the
legal cases.
 Carry out a scrutiny of various Debtors Account in the debtors ledger and check for the following :-
o Match the Debit and Credit entries individually.
o Give the break up of the closing balance - Invoice wise.
o Ensure that there are no such cases where the payments have been received for later bills and the
earlier invoiced are unpaid.
o Give a break up of the closing balance as above in (b) including the details of any debits on account
of debit notes raised on the parties.
o Prepare a list of Debtors account showing closing credit balances.
o Tally each debit with a corresponding credit to locate any under payment / over payment for any
invoices.

Creditors Ledger Trial Balance/Creditors Ledger Account

 Check that the balance shown by the Creditors Ledger Trial Balance agrees with the balance shown by the Creditors
control account in the General ledger trial balance.
 Check the creditors account that are outstanding to be paid since long (unclaimed Creditors) and that can be
considered for a write back in the books of account.
 Carry out a scrutiny of various Creditors account in the creditors ledger and check for the following.
o Match the Credit and Debit entries correspondingly.
o Give the break up of the closing balance – Invoice wise.
o Ensure that there are no such cases when the payments have been made for later invoices and the
earlier bills are unpaid.
o Give a break up of the closing balance as above in i (b) including the details of any credits on
account of credit notes raised on the party.
o Prepare a list of creditors account showing closing debit balances alongwith the reasons for debit
balances. Comments or details should be taken from the auditee in respect of every single debit
balance.
o Tally each credit with a corresponding debit to locate any over payment /under payment for any
invoice.
 Check all the Creditors Ledger Trial balance as given below for above details.
- Suppliers
- Contractors
- Transporters
- Others

Outstanding Liabilities

Check that the outstanding liabilities pertaining to the earlier years have been adjusted in the books of account.
 Excise V/s Accounts Reconciliation

 Ensure that a reconciliation statement is prepared on a monthly basis to reconcile the modvat / Cenvat balance in
the excise with the accounts balances.
 Check if any old pending entry is appearing in the reconciliation statement.
 Check the unreconciled / reconciled difference in the balances shown by the excise records and the accounts
records.

TDS

 Check that all TDS deductions are deposited in time with the government - check the monthly TDS statement and
the actual date of deposit with the TDS challans.
 Check whether the TDS Returns are submitted in time with the Government.
 Check that the TDS deductions are made properly from all the payees wherever applicable.

Budget V/s Actual - Expenses

 Check the Budget V/s Actual position as on a particular date with the Budget statement for all the expenses - Fixed /
Variable overheads.
 Check the Variances between the Budget / Actual figures.
 Obtain comments on reasons for variances between the Budget V/s Actual.
 Analyse the variances between Budget / Actual in terms of percentage.

Scrutiny of Ledger Account - Expenses / Others

 Check that in case of expenses the distination between Capital and Revenue expenditure is properly made.
 Check that proper account head has been used to debit the expenses.
 Pick up a few entries from the ledger account and trace the entry to the Voucher and the supporting bills / Invoices
to ensure that the expense bills are properly approved / authorized and accounted for.

General Ledger Trial Balance / Revenue ledger Trial Balance

 Carry out a scrutiny of the General Ledger Trial balance/Revenue ledger Trial balance and comment on accounts that
need to be reconciled like inter office account / Inter unit account etc.
 In case of accounts like TDS Receivable / Interest Receivable/ Insurance claim Receivable / Margin money deposit
with banks ask for the break up / detailed statements of accounts and comment upon it.
 In case of Creditors / Debtors account check that the amount as given in the General ledger agree with the balance
shown by the Creditors ledger Trial balance/ Debtors ledger Trial balance.
 Check whether any special accounts like suspense account etc are appearing in the trial balance and carry out a
scrutiny.

 In case of other accounts carry out a review of the ledger of the account to locate any irregularity / reconciliation
matter.

Checklists for Fixed Asset Register

(1) Check that a Fixed Assets Register is maintained and updated at

all times ( Manual / Computerized ).
(2) Check that the Fixed Assets Register gives details of the fixed
assets - Quantity / No / Location / Identification Number / Depreciation /
Rate / accumulated depreciation / original cost / additions /deletions/
written down value.

(3) Check that the identification number given on the fixed asset
tallies with the number given in the FA Register.

(4) Check that for purchases as well as sale of fixed assets proper
authorization has been taken from the appropriate authorities

(5) Check that the discrepancies observed on physical verification

of fixed assets have been correctly adjusted in the books of account
after taking approval from the appropriate authority.

(6) Check the method and the procedure adopted for carrying out
the physical verification of fixed assets and ensure that verification
was carried out as per the generally accepted accounting practices and
procedures.

(7) Check that the physical verification sheets in respect of fixed

assets are properly prepared and duly signed by the persons
responsible for carrying out the physical verification. The name,
designation of employees and the date of carrying out the physical
verification should also be clearly mentioned in the physical verification
sheets.

(8) Check that the physical verification of Fixed Assets is carried

out by the Management at least once in 3 years.