Material Loan Ragister demonstrated to Ssupply Chain Management users

As per present Chart of Account, General Manufacturing facility (GMF), Herbal Plant and Sonata Limited has been mentioned under location. As per KPMG method whenever we will make any entry against mentioned Head we will must consider the specific location code for that entry. If there has anything more we will discuss again with KPMG. Thank you for your advice..

Material Loan scenario solution has been implemented and tested successfully by Costing. If you need a demo for that we can discuss this together on next working day in Sonata. Costing will provide a report format which will be developed only for material loan.

Material Loan demonstrated to SCM users: Points discussed are:

· New responsibility will be created for Material loan which will have access to create the lots and will be issued and receipt.

· Report format will be worked by inventory and costing and will be given for development.

If you have any questions on the Material Loan scenario, then please raise it by tomorrow. Else, we will consider it closed.

Costing UAT has been scheduled for Saturday from 1.30 pm to 5.30 pm. You are requested to join the session as an OPM user. Also you need to check the resource utilization report in OBIEE. Please check that report and give feedback.


You are requested to join the OPM report testing session which will be held on Saturday at 10 am.

What is performance of contract of sale

· The meaning of performance of contract of sale

· The rules as to delivery of goods

The performance of contract of sale implies delivery of goods, by the seller, and acceptance of the delivery of goods and payment for them by the buyer, in accordance with in contract. 

 

 

The parties are free to provide any terms they like in their contract about the time, place and manner of delivery of goods, acceptance there of and payment of the price. But if the parties are silent and do not provide any thing regarding these matters in the contract then the rules contained in the sale of Goods Act are applicable.

If the contract contains any special terms as to delivery and acceptance, these must be complied with. If there are no terms in the contract to this effect, delivery of the goods and payment of the price are concurrent conditions, that is , both these must take place at the same time as in, for instance, a cash sale over a shop over counter (sec.32).

Various Mode of forming incorporated company

Incorporation by Registration

The promoters must make a decision regarding the type of company i.e. a public company or a private company or an unlimited company, etc and accordingly prepare the documents for incorporation of the company. In this connection the Memorandum and Articles of Association (MA & AA) are crucial documents to be prepared.

Mode of forming incorporated company (Sec. 12)

Any 7 or more persons (2 or more in case of a private company) associated for any lawful purpose may form an incorporated company, with or without limited liability.

They shall subscribe their names to a Memorandum of Association and also comply other formalities in respect of registration. A company so formed may be :

a) A company limited by shares, or

b) A company limited by guarantee, or

c) Unlimited company

Scope of Audit

The scope of an audit of financial statements will be determined by the auditor having regard to the terms of the engagement, the requirements of relevant legislation and the pronouncements of the Institute. The terms of engagement cannot, however, restrict the scope of an audit in relation to matters which are prescribed by legislation or by the pronouncements of the Institute.

The audit should be organized to cover adequately all aspects of the enterprise as far as they are relevant to the financial statements being audited. To form an opinion on the financial statements, the auditor should be reasonably satisfied as to whether the information contained in the underlying accounting records and other source data is reliable and sufficient as the basis for the preparation of the financial statements. In forming his opinion, the auditor should also decide whether the relevant information is properly disclosed in the financial statements subject to statutory requirements, where applicable.

The auditor assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source data by:
(a) making a study and evaluation of accounting systems and internal controls on which he wishes to rely and testing those internal controls to determine the nature, extent and timing of other auditing procedures; and
(b) carrying out such other tests, inquiries and other verification procedures of accounting transactions and account balances as he considers appropriate in the particular circumstances.
The auditor determines whether the relevant information is properly disclosed in the financial statements by:
(a) comparing the financial statements with the underlying accounting records and other source data to see whether they properly summarize the transactions and events recorded therein; and

(b) considering the judgements that management has made in preparing the financial statements; accordingly, the auditor assesses the selection and consistent application of accounting policies, the manner in which the information has been classified, and the adequacy of disclosure.

The auditor’s work involves exercise of judgement, for example, in deciding the extent of audit procedures and in assessing the reasonableness of the judgements and estimates made by management in preparing the financial statements. Furthermore, much of the evidence available to the auditor can enable him to draw only reasonable conclusions therefrom. Because of these factors, absolute certainty in auditing is rarely attainable.

In forming his opinion on the financial statements, the auditor follows procedures designed to satisfy himself that the financial statements reflect a true and fair view of the financial position and operating results of the enterprise. The auditor recognizes that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any system of internal control, there is an unavoidable risk that some material misstatement may remain undiscovered. While in many situations the discovery of a material misstatement by management may often arise during the conduct of the audit, such discovery is not the main objective of audit nor is the auditor’s programme of work specifically designed for such discovery. The audit cannot, therefore, be relied upon to ensure the discovery of all frauds or errors but where the auditor has any indication that some fraud or error may have occurred which could result in material misstatement, the auditor should extend his procedures to confirm or dispel his suspicions.

The auditor is primarily concerned with items which either individually or as a group are material in relation to the affairs of an enterprise. However, it is difficult to lay down any definite standard by which materiality can be judged. The auditor is not expected to perform duties which fall outside the scope of his competence. For example, the professional skill required of an auditor does not include that of a technical expert for determining physical condition of certain assets.

Constraints on the scope of the audit of financial statements that impair the auditor’s ability to express an unqualified opinion on such financial statements should be set out in his report, and a qualified opinion or disclaimer of opinion should be expressed, as appropriate.

What needs before Expression of opinion by an Auditor?

The auditor must gather sufficient competent evidential matter as a basis for forming his opinion on :

(a) the truth and fairness of the accounts and also their compliance with the provisions of the related laws, rules and regulations;

(b) the proper keeping of the accounting records, and other records and related registers of the client.

These broad objectives may be amplified as follows :

To determine whether :

(1) all assets and liabilities are properly stated and classified on a basis consistent with that of the previous year;

(2) proper disclosure is made of securities for liabilities and of assets charged or secured;

(3) the client has complied with the provisions of the applicable laws and documents created under them, loan agreements and other documents to which he is a party;

(4) income and expenses are properly classified and disclosed and are properly matched. They relate to the period in which they are reported and have been determined on a basis consistent with that of the previous year;

(5) all contingencies and commitments are properly disclosed;

(6) no material omissions have been made in the financial statements;

(7) no material error or inaccuracy in reporting or disclosing income, expenses, assets and liabilities has been created in the financial statements;

(8) the books and records have been properly kept in accordance with the requirements of the client.

The expression of opinion on the overall balance sheet and profit and loss account involves initially forming an opinion on each of the balance sheet or profit and loss items; it is necessary first to decide what are the essential conditions or prerequisites for each balance sheet or profit and loss account item in order to give a true and fair view of the particular assets or liabilities or item of income or expense being represented. These conditions are well established and may be illustrated by reference to the areas of sundry debtors and sales revenues.

How to collect Audit Evidence?

The auditor should obtain sufficient appropriate audit evidence through the performance of compliance and substantive procedures to enable him to draw reasonable conclusions there from on which to base his opinion on the financial information.

Compliance procedures are tests designed to obtain reasonable assurance that those internal controls on which audit reliance is to be placed are in effect.

Substantive procedures are designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system.

They are of two types:
(i) tests of details of transactions and balances;
(ii) analysis of significant ratios and trends including the resulting enquiry of unusual fluctuations and items.

What are the techniques adopted by the Auditors?

For collection and accumulation of audit evidence, certain methods and means are available and these are known as audit techniques. Some of the techniques commonly adopted by the auditors are the following :

1. Posting checking

2. Casting checking

3. Physical examination and count

4. Confirmation

5. Inquiry

6. Year-end scrutiny

7. Re-computation

8. Tracing in subsequent period

9. Bank Reconciliation

The two terms, procedure and techniques, are often used interchangeably; in fact, however, a distinction does exist. Procedure may comprise a number of techniques and represents the broad frame of the manner of handling the audit work; techniques stand for the methods employed for carrying out the procedure. For example, procedure requires an examination of the documentary evidence. This job is performed by the procedure known as vouching which would involve techniques of inspection and checking computation of documentary evidence. As per SA-500 on Audit Evidence, basically audit procedures are broadly of two types viz. compliance procedures and tests of detail. Test of details are further comprised of substantive audit procedures and analytical review procedures. Vouching is a substantive audit procedure which involves audit techniques like casting, cross-casting, checking of posting, etc. On the other hand, verification of assets and liabilities is a substantive audit procedure which involves application of audit techniques like physical examination, confirmation from third parties, etc.

What are the methods of obtaining Audit Evidence?

The auditor obtains evidence in performing compliance and substantive procedures by one or more of the following methods:

1. Inspection
2. Observation
3. Inquiry and Confirmation
4. Computation and
5. Analytical review.

The timing of such procedures will be dependent, in part, upon the periods of time during which the audit evidence sought is available.

Inspection : Inspection consists of examining records, documents or tangible assets. Inspection or records and documents provides evidence of varying degrees of reliability depending on their nature and source and the effectiveness of internal control over their processing. Three major categories of documentary evidence which provide different degrees of reliability to the auditor are:

(i) documentary evidence created and held by the third parties;

(ii) documentary evidence created by third parties and held by the entity; and

(iii) documentary evidence created and held by the entity. Inspection of tangible assets provides reliable evidence with respect to their existence but not necessarily as to their ownership or value.

Observation : Observation consists of looking at a process a procedure being performed by the others. For example, the auditor may observe the counting of inventories by client personnel or the performance of internal control procedures that leave no audit trial.

Inquiry and confirmation : Inquiry consists of seeking appropriate information from knowledgeable person inside or outside the entity. Queries may range from formal written inquires addressed to third parties to informal oral inquires addressed to persons inside he entity. Responses to inquiries may provide the auditor with information which he did not previously possess or may provide him with corroborative evidence. Confirmation consists of the response to an inquiry to corroborate information in the accounting records. For example, the auditor normally requests confirmation of receivable by direct communication with debtors.

Computation : Computation consists of checking the arithmetical accuracy of source documents and accounting records or of performing independent calculations.

Analytical Review : Analytical review consists of studying significant ratios and trends and investigating  unusual fluctuation and item. Process of judgment formation by auditor : After the audit, the auditor issues his report which contains his opinion on the state of affairs the accounts are depicting. The opinion that the auditor expresses is the result of exercise of judgment by him on facts, evidence and circumstances he has come across in the course of audit. The judgment is formed on the under noted basis :

• Identification of the assertions to be examined.
• Evaluation of the assertions as to relative importance. 
• Collections of the necessary information or evidence about the assertions to enable him to give an informed opinion.
• Evaluation of the evidence as valid or not valid, pertinent or not pertinent, sufficient or not sufficient.
• Formulation of judgment as to fairness of the assertions under consideration.

How to determine the reliability of Audit evidence?

The reliability of audit evidence is influenced by its source — internal or external and by it nature–visual, documentary or oral. While the reliability of audit evidence is dependent on the circumstances under which it is obtained the following generalizations may be useful in assessing the reliability of audit evidence :

(i) External evidence (e.g., confirmation received from a third party) is more reliable than internal evidence.

(ii) Internal evidence is more reliable when related internal control is satisfactory.

(iii) Evidence obtained by the auditor himself is more reliable than that obtained from the entity.

(iv) Evidence in the form of documents and written representations is more reliable than oral representations. 

Best evidence : It is essentially a theoretical concept and normally not available in audit situations. Best evidence exercises compelling influence over the mind of the investigator or the auditor. Normally an auditor relies on prima facie evidence which is normally available and it is considered adequate in the absence of suspicious circumstances. In case of suspicious circumstances, however, the auditor should look for more compelling evidence and should attempt to obtain as much corroborative evidence as may be available. For example if there are reasons to suspect the figures of the creditors, the auditor should not only go for balance confirmation but also the statements of account received from the creditor, subsequent payments, tracing of the supplies received to the stock records, etc.

How validity of transactions are audited?

Validity of Transactions : It is also the function of audit to establish that payments have been made validly to persons who are shown to be recipients. For example, it must be verified  that  salaries  to  partners  were  paid  according  to  a  provision  contained  in  the partnership  deed  and  the  directors  fees  were  paid  according  to  the  provisions  in  that regard in the Articles of Association or the resolution passed by members of the company at a general meeting. For checking the validity of a transaction, it is usually necessary to refer to documentary evidence. It may exist in any of the following forms.

• The legal provisions, if any, having bearing on the accounts of the entity under audit.

•  The rules or regulations  governing the internal working  of the organisation, e.g., the Articles of Association, Partnership Deed, Trust Deed, etc.

•   Minutes  of the proceedings of a meeting of members  of the company , that of thedirectors or that of the Managing committee

•   Copy of  an  agreement, e.g., Managing Director’s agreement,  Lease Deed, vendor’s agreement, agency agreement, contract with an employee, etc.

  An  auditor  should  have  a  clear  and  precise  knowledge  of  legal  provisions  under  which the concern was registered or is functioning, as well as those which constitutes the basis of  various  transactions  entered  into,  more  particularly  the  provisions  as  regards maintenance and audit of its accounts. He should also study the rules, if any, framed for regulating the internal management of the entity; these may be embodied in some of the documents mentioned above. If he has any doubt on any legal point, by way of guidance, he should call for legal opinion. However, unless he is convinced of the reasonableness of the legal opinion, he should not act on it.

Evidence that matters to auditors?

Evidence of Transactions : Entries in the account books are usually made on the basis of some kind of documentary evidence. It generally exists in a variety of forms e.g., payee’s receipts,  suppliers’  invoices,  statements  of  account  of  parties,  minutes  of  Board  of Directors  or  of  the  shareholders,  contracts,  documents  of  title,  entries  in  subsidiary ledger,etc. The  process  of  verification  of  entries  in  the  books  of  account  with  the documentary  evidence  is  referred  to  as  vouching.  

Documentary evidence is of two types : (1) Internal; and (2) External. Documents which are part of the records of the concern, and have been prepared in the normal processes of accounting constitutes internal evidence, e.g., counterfoils of receipts, carbon copies of cash memos or invoices, wages books, etc. On the other hand, a document issued by a person with whom some business transaction had been entered into or who paid or was advanced an amount constitutes external evidence, e.g., a payee’s receipt, an invoice for purchases, a court decree, a lease agreement, a bank statement, etc. because these documents are issued by persons not belonging to the concern. External evidence, in respect of certain transactions, sometimes may have to be obtained directly by the auditors, e.g., certificate as regards bank balances, or confirmation balances of debtors and creditors, etc.   

The auditor, obviously, should endeavour in the course of his examination to get as much external  evidence  as  possible  since  such  evidence  ordinarily  provides  confirmation. When it is not possible to obtain external evidence and he is obliged to accept internal evidence, he should first satisfy himself on a careful consideration of the position whether the evidence which has been produced to him, can be reasonably assumed to have come into existence in the normal course of working of the business and that there exists a system of internal check which would act as a safeguard against its being altered subsequently.

External  evidence  should  be  preferred,  since  the  likelihood  of  its  being  duplicated  or fabricated  is  much  less.  This  is  because  it  requires  collusion  with  an  outsider  which, normally is not practicable. However, every evidence ‘whether internal or external’ should be  subjected  to  appropriate  scrutiny  and  corroboration  should  be  obtained,  if  possible. The auditor will always keep in mind the circumstances of the case and see whether the evidence is prima facie authentic and correct.