Revenue Expenditure :
(i) Wages:
In case of concerns employing a considerable number of workers, vouching of wages forms a very important part of the auditor’s job. He should first of all satisfy himself in regard to the efficiency of internal check system so far as it relates to the maintaining of wage records,preparation of wages sheets and payment of wages. Besides this, he should note the following points:
(i) the totals and calculations involved in the wage sheets should be checked.
(ii) He should check a few items, for example, deductions in the form of rent, fire insurance,provident fund, etc. and the method of deducting them should also be examined.
(iii) He should see that the amount of the cheque drawn for payment of wages tallies with the net amount as shown in the wages sheets.
(iv) Names of workers given in the wages sheets should be well compared with those given in the wages record like job cards, foremen’s register, etc.
(v) He should see that the wages sheets have been properly initialled by those responsible for their preparation.
(vi) He should carefully check the payments made to the casual labour.
2. Salaries :
For this, salaries book containing the details of the employee’s salary should be maintained. The auditor should take the following steps :
(i) He should compare the cheques drawn with the salaries book.
(ii) Any change in the salary list should be verified with an official source.
(iii) Special attention should be paid to the deductions in respect of provident fund, life insurance premium, income tax, etc.
(iv) Independent information as regards employees leaving the service of the concern should be obtained from the staff departments and compared with the salaries book to find out persons already left being included in the salaries book.
(v) He should ensure that the payment has been made to the correct person. This he can do by comparing the signature on the salaries book with the specimen signature of the employees.
3. Petty Cash :
Vouching petty cash is another problem for the auditor as normally there are no proper vouchers and therefore chances of misappropriation of cash exist. As a first step, the auditor should examine the soundness of internal check system in this regard and in case he finds it to be satisfactory, he should take the following steps :
(i) He should see that imprest system is being followed and if not he should recommend the same to the client.
(ii) He should check the payments made to the petty cashier with the entries in the cash book.
(iii) For those expense for which vouchers are not available he should ask the petty cashier to give a summary which should be duly signed by a responsible officer.
(iv) He should examine the totals and balances of the petty cash book.
(v) He should see that the petty cash book is periodically checked and initialled by some responsible official.
(vi) The auditor should, without notice and occasionally, count the cash in hand and agree it with the balances shown by the petty cash book.
4. Travelling expenses
These are paid for the travel in connection with the business. Where a fixed amount is payable,There is no difficulty in checking it. But in other cases, the auditor has to check very carefully. His duty in vouching such payments shall consist of:
(i) Vouching the cheque drawn according to the cash-book with the traveller’s receipts.
(ii) Checking the figures in some of the traveller’s accounts with the vouchers submitted by them.
(iii) Seeing that all unpaid commissions and expenses have been brought into account at the end of the financial period.
5. Insurance premiums
In case of new policies, the auditor should inspect the cover note or the receipt from the insurance company and in case the policy has been received, it should be examined. In case of renewals, the renewal receipt should be checked. If the number of policies is large, he should require a schedule of various particulars like number of the policy, the amount, the date of maturity, the amount of the premium payable etc. He should examine these particulars. In case some policy has lapsed, he should find out as to under whose authority it has been allowed to lapse.
6. Bank Charges
In order to vouch this item as shown in the cash book the auditor should tally the figures with the bank pass book and if necessary he should check their calculations.
7. Postage
The auditor should compare the postage book with the cash book and petty cash book and count the stamps in hand. He should see that postage includes only the postal expenses connected with the business and not with any private account.
8. Director’s Fee :
The auditor should take the following steps in vouching the payments under this head,
(i) Examine the articles to find out the fee payable to the directors.
(ii) The director’ s minute book, the attendance register should be examined to ascertain the number of meetings attended by them.
(iii) Examine the receipts obtained from directors for this payment.
(iv) Examine the resolutions of the shareholders to calculate the amount payable as director’s fee and compare this figure with the amount actually paid.
9. Cash Purchases
In vouching this item, the auditor should take the following steps :
(i) Test the entries in the cash book with the cash memos.
(ii) See that the goods paid for have actually been received which can be done by checking the entries in the goods inward book or purchases book.
(iii) See that only net amounts, that is, purchases minus trade discount, has been carried to the books of account.
10. Payments to Creditors
(i) The receipts issued by the creditors acknowledging the receipt of money should be checked.
(ii) The money paid should be compared with the money due as per the accounts of the creditors and the invoices received from them.
(iii) He should scrutinize the method of comparing the statement of accounts with their actual accounts.
(iv) Before passing an entry in this regard, he should refer to minutes, contracts and other documentary evidence in support of it.
11. Bills Payable
In this connection, the auditor should:
(i) Examine the duly cancelled returned bills as an evidence of the amount having been paid.
(ii) Inspect the bills payable book.
(iii) See the bank pass book and the banker’s advice in case the payments on certain bills have been made through the bank.
12. Freight and Carriage
The auditor should vouch the payment on this account with the help of the statements rendered by the shippers or carriers together with the receipts. He should also see that allowances in respect of rebates have been properly accounted for.
13. Rents Payable
The agreement with the landlords and receipts from them should be examined.
14. Payment of taxes
In order to vouch this item, the auditor should refer to the copy of the assessment order, assessment form, notice of demand and the receipted challan etc. The advance payment of income tax and interest allowed on it should also be verified. Payment of sales tax can be vouched by reference to the return submitted by the dealer and Treasury or bank receipt every month or quarter.
15. Commission
The conditions relating to the payment of commission should be examined with reference to the agreements between the client and the agents. The statements of account submitted by the agents should also be seen
