Submitted to : Submitted by:

Dr. Rashmi jain Ekta & Rupali

If it is the first year of the existence of the company , then:
 The Memorandum of Association and the Articles of Association should be examined by the
auditors.
 The Cashbook, Passbook, and Director’s Minute Book (a book in which the proceedings of
meetings are recorded ) should be examined to ascertain the number of shares, the various classes
of shares, the amount received thereon and the due from the shareholders.
 The contract between the vendors and the company should be examined by the auditor if some
shares have been allotted to the vendors.
If it is not the first year of a company, then:
 It should be observed that the share capital of the company should be same as in the previous
year unless there is some alteration or addition by fresh issue.
 The provisions of the Companies Act (Scheme 100-105) should be complied in case of reduction
of capital.
To verify the capital in a partnership firm:
 The auditor should properly examine the Partnership Deed.
 The Cashbook should have been properly recorded in the books of accounts.
The verification procedure relating to bills payable is as under:
 The auditor shall refer to Bills Payable Book and the Bills Payable
Account.
 The Bills paid should be checked with the entries passed in the
cashbook.
 Verify the Outstanding bills on the date of Balance Sheet by comparing
the balance on the Bills Payable Account and the bills not shown in the
Bills Payable Book.
 The auditor should ensure that bills paid during the date of Balance sheet
and the dates of his audit have been duly written in the books.
 The payment made for the matured bills should be evidenced by the
returned bills.
 The auditor shall also verify the unpaid bill’s amount.
The verification steps are:
 The auditor shall examine the Memorandum and Articles in order
to ascertain the borrowing powers of the company.
 The auditor shall properly check the Debenture Trust Deed- its
terms and conditions and the securities offered.
 The auditor shall ensure that the provisions of Companies Act,
SEBI guidelines and other listing requirements have been
complied with, wherever required.
 The auditor shall ensure that
a) Cash has been received, if debentures are issued at cash
b) Entries have been made in the books of account if debentures
are issued at a premium.
An auditor must satisfy himself that all liabilities for
outstanding expenses have been provided for in the Balance
Sheet:
 The auditor shall obtain a complete list of outstanding liabilities
from a responsible official which indicates the amount of
outstanding expenses under various heads.
 The auditor shall check the list carefully to ensure that expenses
for the entire year have been accounted for.
 The auditor shall obtain a certificate from the management that all
the outstanding liabilities, whether for goods purchased or
expenses incurred, have been included in the current year.
 The auditor should obtain the list of debtors duly certified.
 He should obtain the confirmation letters of the statement of accounts directly
from debtors. He should pay special attention to those balances for which
confirmations are not available.
 The sales ledger balance should be checked with the Debtor’s Ledger, Sales
Book, Sales Returns Book, Cash book, etc.
 He should see that the book debt balances do not include the amounts due in
respect of goods out on sale or return basis.
 He should see that the book debts shown in the Balance sheets are recoverable.
 He should see that adequate provision has been made for bad and doubtful
debts.
 In the case of company accounts the auditor should see that its debtors are
classified as prescribed by the Companies Act of 1956 and shown in the
Balance Sheet in the same order.
For verifying trade creditors, the auditor should proceed as under:
1. Obtain a list of trade creditors and cross check some balances in individual accounts to satisfy about the correctness of
listing, and the list should also be verified with the order register, invoice register goods received register and ledger.
2. Check the postings from the books of prime entry like purchase day book to the bought ledger,
3. Check the balances in the list with the confirmations of balances, which if practicable, should be directly obtained by the
auditor.
4. Check cut-off transactions such as goods received before the closing date and included in the closing stock (inventories)
but suppliers invoices received after the closing date, as a result of which no provision for the outstanding has been
made. If such transactions have been discovered, appropriate adjustments must be made to account for the goods which
relate to the period under audit.
5. Test check the ‘goods returned’ i.e., returns outwards to ascertain that they are supported by supplier’s credit notes.
Cross check with the supplier’s statement and satisfy that due credit for goods returned has been given.
6. If there are any outstanding balances for unduly long time, investigate into the reasons for the delay in settlement of such
accounts. If there are disputed balances, ascertains the reasons, and the action, the management proposes to take.
7. In order to have an overall view, compare the percentages of gross profits for two/three years and if there are material
fluctuations, investigate into the possibility of some purchase invoices or expenses having been omitted, or some fictitious
or expenses having been included.
8. For goods received on consignment, if such goods have been sold, check the consignors account has been appropriately for
the sale proceeds of the goods.
9. At the end of the verification of sundry creditors, a certificate should be obtained from a responsible official of the client
entity sating that liabilities that had accrued till the close of the accounting year have been fully accounted for.
 SECURED
Examine the borrowing power of the entity. If it is a company verify the information from the memorandum and articles of
association and see that the provision of section 293(1), if applicable have been met.
Examine the copy of the mortgage deed for verifying that amount of loan raised, the rate of interest, repayment terms and the
rights created in the property by the mortgage deed.
Keeping in view the legal position as stated above, the auditor should examine the copy of the mortgage deed on immovable
property, for verifying the loan amount, rate of interest. The terms of repayment, and the rights of the mortgagee in the
property.

 UNSECURED
Examine the loan agreement in order to ascertain the terms and conditions of the loan, the amount of loan, duration and nature
of loan etc.
If the loanee is a company, see applicable provisions of the companies act, 1956 in this regard e.g. section 293.
Check the calculations of interest payments, also confirm that instalments paid during the period under audit have been
reduced from the loan amount as shown in the balance sheet

 LOAN TAKEN FROM BANKS

Check the overdraft balance or loan balance with the bank’s statements of accounts/pass books. If these balances do not match with each
other, get a reconciliation made and identify the transactions which create the difference.
Check that assets hypothecated as securities in case of a company are duly registered with the registrar of companies and appropriately
recorded in the register of charges as required under section 125 of the companies act, 1956.