AUDIT OF SHARE CAPITAL

(Audit of Items of Financial Statements)

🎯 1. Audit Objectives

 ✔️Existence – share capital exists at period end

 📦 Completeness – all equity balances recorded

 💰 Valuation – equity balances properly valued

📝 2. General Audit Procedures

 🔍 Reconcile period-end share capital with:

o Authorised Capital

o Issued Capital

o Paid-up Capital

o (Compare with PY audited financials)

 📄 If NO change during the year

o Written confirmation from Company Secretary

 🔄 If change during the year

o Paid-up ≤ Authorised Capital

o Verify Authorised Capital from MOA

 Verify certified resolutions

o Board of Directors

o Shareholders

o (Increase / Decrease of capital)

 🆕 Fresh Issue during the year

o Compliance with Companies Act, 2013

o Return of Allotment filed

o Minimum subscription received

o Application money collected

o Separate bank account opened

o Underwriting commission (Sec 40)

📈 3. Issue of Shares

🚫 3.1 Issue at Discount (Sec 53)

 Shares cannot be issued at discount

 ❗ Exception

o Sweat Equity Shares (Sec 54)

 ❌ Shares issued at discount → Void

 🔄 Conversion of debt into shares

o Allowed if:

 Statutory resolution passed

 RBI guidelines complied

 ⚖️Penalty for non-compliance

o Company & officers liable

o Penalty = lower of:

 Amount raised OR

 ₹5 lakh

o Refund money + 12% interest p.a.

 🔍 Auditor to check

o Movement in share capital

o Minutes approving issue & price

o Whether issued to creditors on conversion

💎 3.2 Issue at Premium (Sec 52)

 Premium = Excess over nominal value

 Transferred to Securities Premium A/c

 No restriction on issuing at premium

 Treated as paid-up capital (for reduction)

 🔍 Auditor to verify

o Correct transfer to SP A/c

o Utilisation only for permitted purposes

🧾 3.3 Application of Securities Premium A/c

  Issue of fully paid bonus shares

 Writing off preliminary expenses

 Writing off commission / discount on issue

 Premium on redemption of:

o Preference shares

o Debentures

 Buy-back of shares (Sec 68)

 Prescribed class of companies (Sec 133)

👨‍💼 4. Sweat Equity Shares (Sec 54)

 Issued to employees / directors

 Issued:

o At discount OR

o For consideration other than cash

(Know-how, IP, value addition)

 ✅ Conditions to verify

o Special resolution passed

o Resolution specifies:

 No. of shares

 Current market price

 Consideration

 Eligible class of employees/directors

o Listed company → SEBI compliance

o Unlisted company → Prescribed rules

o Rank pari passu with equity shares

🔻 5. Reduction of Share Capital (Sec 66)

📌 Reasons

 Accumulated losses

 Unsound assets

 Excess paid-up capital

  Surplus capital not gainfully employed

🔍 Auditor to verify

 Special resolution duly passed

 Proposal circulated in advance

 Articles authorise reduction

 No default in deposits / interest

 Tribunal order obtained

 Registrar’s certificate received

 Correct accounting entries passed

 Schedule III (Part I) compliance

 Proper disclosure of asset revaluation

 🧮 Method of reduction

o Reduction of paid-up capital

o Cancellation of lost capital

o Paying off excess capital

 📚 Post-reduction compliances

o Register of Members updated

o Old share certificates cancelled

o New certificates issued (if required)

o Words “and reduced” added (if ordered)

o Tribunal conditions complied

o MOA suitably altered

 ❎ Exemption

o Buy-back under Sec 68 not covered by Sec 66

🔁 6. Buy-back of Shares (Sec 68)

 Auditor to ensure:

o Full compliance with Sec 68 provisions

📊 7. Disclosure Requirements (Schedule III – Part I)

For each class of share capital

  Authorised – number & amount

 Issued, subscribed & paid-up

 Subscribed but not fully paid

 Par value per share

 Reconciliation of shares outstanding

 Rights, preferences & restrictions

 Shares held by holding/subsidiary

 Shareholders holding >5%

 Shares reserved under options

 Shares allotted for non-cash consideration

 Bonus shares (last 5 years)

 Shares bought back

 Convertible securities details

 Calls unpaid (Directors/officers)

 Forfeited shares

 👥 Promoters’ shareholding

o Name

o No. of shares

o % of total shares

o % change during year

🧾 8. Additional Regulatory Disclosures

💸 Utilisation of Borrowed Funds / Share Premium

 Funds advanced/invested via intermediaries:

o Date & amount

o Intermediary details

o Ultimate beneficiaries

o Guarantees / security

o FEMA & PMLA compliance declaration

 Funds received from funding parties:

o Date & amount

 o Further lending / investment details

o Ultimate beneficiaries

o Guarantees / security

o FEMA & PMLA compliance declaration

🧠 AUDIT OF RESERVES & SURPLUS

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES

 ✅ Existence
→ Reserves & surplus exist at period end

 📦 Completeness
→ All reserves & surplus recorded in financial statements

 💰 Valuation
→ Balances properly valued and adjusted

🔍 2. BASIC VERIFICATION – OPENING BALANCE

 🔎 Trace opening balances of:

o Reserves

o Surplus

 📄 Match with:

o Previous year audited financial statements

🔁 3. MOVEMENT DURING THE YEAR

 🔄 Any addition / utilisation during the year?

 📊 Profit & Loss Account

o Trace movement of surplus / deficit

o As per Statement of Profit & Loss

 📑 Statement of Changes in Equity

o Verify movement in reserves

 Verify resolutions

o Board of Directors → Recommendation of dividend

 o Shareholders → Declaration of dividend

📌 4. DIVIDEND-RELATED VERIFICATION

 💸 Dividend declared / proposed?

 📘 As per AS-4 (Revised) / Ind AS 10

o Dividend declared AFTER balance sheet date:

 ❌ Not recognised as liability

 ✔ Disclosed in notes only

 🔍 Auditor ensures

o Correct accounting treatment

o Proper disclosure

💎 5. SECURITIES PREMIUM – SPECIAL CHECK

 ✔ Confirm shares issued at premium

→ Issue price > nominal value

 📝 Verify:

o Board resolution approving issue

 🔒 Utilisation check

o Securities Premium A/c used

o ONLY for permitted purposes

o As per Sec 52, Companies Act 2013

📑 6. DISCLOSURE REQUIREMENTS

(Schedule III – Part I)

🧾 Classification of Reserves & Surplus

 Capital Reserve

 Capital Redemption Reserve

 Securities Premium

 Debenture Redemption Reserve

 Revaluation Reserve

 Share Options Outstanding A/c

  Other Reserves

o Nature & purpose disclosed

o Amount shown separately

📊 Surplus (P&L Balance)

 Opening balance

 Additions & deductions during year

 Dividend / bonus shares

 Transfer to / from reserves

💼 Fund Concept

 Reserve represented by earmarked investments

 Shown as “Fund”

⚠️Negative Balance Treatment

 Debit balance of P&L

→ Shown as negative under “Surplus”

 Net negative figure

→ Still shown under “Reserves & Surplus”

🔄 Comparative Disclosure

 Additions / deductions since last balance sheet

 Disclosed under respective heads

✅ 7. FINAL AUDITOR CHECK

 ✔ Opening + Movement + Closing balances tally

 ✔ Proper authorisation via resolutions

 ✔ Correct accounting treatment

 ✔ AS / Ind AS compliance

 ✔ Complete Schedule III disclosure

🧠 AUDIT OF BORROWINGS

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES
  ✅ Existence
→ Borrowings represent valid claims of banks / lenders

 📦 Completeness
→ All borrowings recorded in books on a timely basis

 💰 Valuation
→ Liabilities recorded at correct amounts

 📑 Presentation & Disclosure

→ Proper classification and Schedule III compliance

🔍 2. EXISTENCE – VERIFICATION OF BORROWINGS

 Board Minutes Review

o Approval of new loans / bonds

o Authorisation of significant debt commitments

 📄 Loan Agreement Verification

o Interest rate

o Nature of borrowing

o Repayment terms

o Borrowing limits not exceeded

 📨 Balance Confirmations (SA 505)

o Independent confirmations from:

 Banks

 Financial institutions

 🧾 Other Creditors

o Lease liabilities

o Hire-purchase creditors

o Match with underlying contracts

 📜 Debentures

o Trust deed examination

o Redemption terms & dates

o Covenant compliance

 🔓 Retirement of Debt

o Discharge of charge on assets verified

  ✍️Written Representation

o All recorded borrowings are valid lender claims

🔁 3. COMPLETENESS – ARE ALL BORROWINGS RECORDED?

 📋 Borrowings Schedule

o Short-term & long-term classification

o Opening balance

o New loans taken

o Repayments during year

o Closing balance

 🔍 Search for Unrecorded Borrowings

o Board minutes

o Loan agreements

o Bank confirmations

o Subsequent cash disbursements

 📚 Ledger Tracing

o Closing balances traced to General Ledger

 Subsequent Events Review

o Loans near balance sheet date

o Correct period recognition ensured

 📬 Direct Confirmation Procedures

o Confirmation covers:

 Principal balance

 Interest rate

 Due dates

 Security / collateral

o Follow-up reminders for non-responses

o Reconciliation with books

💰 4. VALUATION – CORRECT MEASUREMENT

 📘 Accounting Policies
 o Appropriate and consistently applied

 🔗 Agreement Matching

o Loan balance vs loan payables

 🧮 Interest Computation

o Recompute interest

o Discount / premium on redemption

 📉 Amortisation Check

o Premium / discount amortised correctly

 🌍 Foreign Currency Loans

o Restatement at closing exchange rate

o Compliance with AS 11

 ⚠️Loan Covenants

o Covenant compliance checked

o Breach → Debt becomes CURRENT

o Waiver obtained?

 Written lender confirmation required

🧾 5. CLASSIFICATION & OTHER AUDIT CHECKS

 📆 Long-term vs Short-term

o Due dates examined

 🔄 Current Maturity of Long-term Debt

o Separately disclosed

 🚫 Restrictive Covenants

o Defaults properly disclosed

 🏦 Charges on Assets

o Creation & registration complied

o Statutory disclosures made

 📉 Decline in Security Value

o Loan secured only to market value

 Hire-Purchase Loans

o Outstanding balance verified

 o Security aspect examined

 👥 Related Party Borrowings

o Compliance with AS 18 / Ind AS 24

 🧾 Bills Discounted / Negotiated

o Correct reflection and disclosure

 📜 Borrowing Powers

o Within limits of MOA & AOA

 ⚖️Companies Act Compliance

o Sec 180 – Powers of Board

o Sec 185 – Loans to Directors

o Sec 186 – Loans & Investments

 🎯 Purpose of Borrowing

o Used for stated purpose

 Deposits (if any)

o RBI / authority directives complied

📑 6. PRESENTATION & DISCLOSURES – SCHEDULE III

📌 Long-Term Borrowings

 Bonds / Debentures

 Term loans:

o From banks

o From others

 Deferred payment liabilities

 Deposits

 Loans from related parties

 Finance lease obligations

 Other loans (nature specified)

Further disclosures

 Secured / unsecured

 Nature of security

 Guarantees by directors / others

  Interest rate & redemption terms

 Redeemed debentures (with reissue power)

 Repayment terms

 Period & amount of continuing default

📌 Short-Term Borrowings

 Loans repayable on demand:

o From banks

o From others

 Loans from related parties

 Deposits

 Other loans (nature specified)

 Secured / unsecured disclosure

 Guarantees disclosure

 Default in repayment (principal & interest)

 Current maturities of long-term borrowings

⚠️7. ADDITIONAL REGULATORY DISCLOSURES

 📊 Borrowings Against Current Assets

o Quarterly returns agree with books

o Reconciliation & discrepancies disclosed

 🚨 Wilful Defaulter

o Date of declaration

o Amount & nature of default

 Registration / Satisfaction of Charges

o Delays disclosed with reasons

 💸 Utilisation of Borrowed Funds & Share Premium

o Funds advanced via intermediaries:

 Date & amount

 Intermediary details

 Ultimate beneficiaries
  Guarantees / securities

 FEMA & PMLA compliance

o Funds received from funding parties:

 Receipt details

 Further utilisation

 Ultimate beneficiaries

 Guarantees

 FEMA & PMLA compliance

🧠 AUDIT OF TRADE RECEIVABLES

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES

 ✅ Existence
→ Trade receivables exist at period-end

 📦 Completeness
→ All receivables that should be recorded are recorded

 💰 Valuation
→ Receivables stated at realisable value

 📑 Presentation & Disclosure

→ Proper Schedule III disclosures made

🔍 2. EXISTENCE – DO RECEIVABLES REALLY EXIST?

🔐 Internal Controls

 Invoices not recorded more than once

 Receivables auto-posted from invoices to GL

📊 Ageing Report

 Obtain period-end AR ageing

 Trace totals to General Ledger

💸 Realisation Testing

 Collection invoice-wise?

o ✔ Yes → OK
 o ❌ No → Cash adjusted invoice-wise on FIFO basis

📌 Large Outstanding Balances

 Obtain reasons and justification

📨 Direct Confirmation Procedures

 Confirm balances directly with customers:

o All material balances

o Sample of smaller balances

 ❗ Management restricts confirmations?

o Auditor evaluates validity

o Modify nature / timing / extent of audit

 Timing of confirmation

o At balance sheet date OR

o Any reasonably close date

 📄 Forms of confirmation

o With balance stated

o Without balance (preferred)

 Control over confirmations

o Auditor controls selection

o Proper addressing & dispatch

o Replies returned directly to auditor

 🔄 Differences noted?

o Entity investigates & reconciles

 ❌ No response received?

o Perform alternate procedures:

 Match with subsequent receipts

 Detailed invoice examination

🔁 3. COMPLETENESS – ARE ALL RECEIVABLES RECORDED?

✂️Cut-off Testing (CRITICAL)

 Last few days’ invoices:

 o Goods dispatched before year-end

o Included in debtors

 After year-end dispatches:

o Not invoiced in current year

🧾 Invoice Testing

 Select invoices from ageing

 Verify:

o Correct amount

o Correct customer

o Correct date

🚚 Shipping / Dispatch Logs

 Match invoice date with shipment date

 Sales recorded in correct period

📆 Subsequent Period Invoices

 Check if relating to current period

📦 Bill-and-Hold Sales

 Goods billed but retained

 Verify whether sale has actually occurred

🔁 Sales Returns Review

 Large returns after year-end?

o Possible overstatement of sales

🎁 Discounts / Incentives

 As per policy / industry practice

📉 Credit Notes

 Proper authorisation

 Correct period recognition

 Linked to underlying invoices

💰 4. VALUATION – ARE RECEIVABLES RECOVERABLE?

🧮 Allowance for Doubtful Debts

 Review methodology
  Consistency with prior year

 Suitability for business environment

📊 Ageing Analysis

 Obtain AR ageing (Debit & Credit)

⚖️Litigated Debtors

 Obtain list

 Compare with previous year

🚩 Doubtful Debtors

 Identify unusual / old balances

 Discuss with management

 Perform further testing if disputes exist

✔️Adequacy of Provision

 Based on recoverability

📉 Bad Debts Analysis

 Movement schedule of:

o Provision

o Debts written off

 Compare bad debt % to sales (YOY)

❌ Write-offs

 Approved by appropriate authority

 Board approval (company)

📑 5. DISCLOSURE REQUIREMENTS

(Schedule III – Part I)

🌍 Foreign Currency Receivables

 Restated as per AS 11

👥 Related Party Receivables

 Disclosed as per AS 18 / Ind AS 24

⚖️Companies Act Compliance

 Sec 189 – Register of contracts

 CARO, 2020 reporting

📊 Trade Receivables Ageing Schedule

 Undisputed – considered good

 Undisputed – considered doubtful

 Disputed – considered good

 Disputed – considered doubtful

Age buckets

 < 6 months

 6–12 months

 1–2 years

 2–3 years

 3 years

 No due date specified?

→ Ageing from transaction date

🧾 Other Disclosures

 Unbilled dues (separately disclosed)

 Sub-classification:

o Secured – good

o Unsecured – good

o Doubtful

 Allowance for bad & doubtful debts (separate)

 Amounts due from:

o Directors

o Officers

o Firms / private companies where director is interested

✅ 6. FINAL AUDITOR CONCLUSION

 ✔ Existence supported by confirmations

 ✔ Completeness ensured via cut-off testing

 ✔ Valuation backed by ageing & provisioning

  ✔ Full Schedule III & statutory disclosures

🧠 AUDIT OF CASH & CASH EQUIVALENTS

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES

 ✅ Existence
→ Cash & cash equivalents exist at period-end

 📦 Completeness
→ All cash balances that should be recorded are recorded

 💰 Valuation
→ Cash balances stated at correct value

 📑 Presentation & Disclosure

→ Proper Schedule III disclosures

🔍 2. EXISTENCE & COMPLETENESS – CASH IN HAND

🎲 Surprise Cash Verification

 Cash checked by surprise

 No prior intimation to entity / staff

 Preferably conducted:

o On balance sheet date, and

o On any other day after year-end

💼 Multiple Cash Balances?

 Cashier / Petty cashier / Branch cashier

 Imprest balances with employees

 All balances verified simultaneously

 Prevents shortage adjustment by transfer

👤 Presence of Cashier

 Cashier present during counting

 Cash statement signed by cashier

 Denomination-wise details prepared

📒 Rough Cash Book

  Compare rough cash book with cash book

 Ensure correctness of postings

🧾 Temporary Advances / IOUs

 Included in cash?

 Verify:

o Approval by authorised official

o Proper accounting treatment

📊 Cash Sensitivity Analysis

 Monthly summary of:

o Cash receipts

o Cash payments

 Identify unusual variations

 Seek explanations from management

🏦 3. BANK BALANCES – VERIFICATION

📄 Bank Reconciliation Statements (BRS)

 Obtain BRS for ALL bank accounts

 Understand reconciliation process & frequency

 Ensure BRS signed by authorised person

🔎 Verification of BRS

 📘 Bank Book Balance

o Tally with bank confirmation / bank statement

 🧾 Cheques Issued but Not Presented

o Verify with subsequent bank statements

o Stale cheques (> 3 months):

 Remove from BRS

 Record as liability

 📥 Cheques Deposited but Not Credited

o Verify deposit slips

o Match with subsequent bank credits

 o Long delay?

 Seek explanation

 Verify revenue recognition

 🧮 Bank Charges / Credits Not Recorded

o Match with bank statement

o Ensure adjustments passed

o If material & unadjusted:

 Consider audit qualification

 ⚠️Unresolved Differences

o Entity investigates & reconciles

o Written clarification obtained from bank

📩 4. DIRECT CONFIRMATION PROCEDURE

 📨 Obtain confirmations from:

o Banks

o Financial institutions

 📋 Coverage of Confirmations

o Current accounts

o Deposit accounts

o EEFC accounts

o Cash credit accounts

o Restricted accounts:

 Dividend accounts

 Escrow accounts

 🎯 Emphasis on 100% confirmation

 ❌ No reply received?

o Perform alternate procedures:

 Agree balance with bank statement

 Online access verification

 Visit bank branch for confirmation

 🔄 Discrepancies noted?
 o Entity to reconcile

o Written explanations obtained

💰 5. VALUATION – CASH & CASH EQUIVALENTS

 🌍 Foreign Currency Bank Balances

o Restated at closing exchange rate

o As per applicable Financial Reporting Framework

 ✔ Ensure no unadjusted material differences remain

📑 6. DISCLOSURE REQUIREMENTS

(Schedule III – Part I)

🧾 Classification of Cash & Cash Equivalents

 Balances with banks

 Cheques / drafts on hand

 Cash on hand

 Others (nature specified)

🔒 Earmarked Bank Balances

 Unpaid dividend, etc.

 Disclosed separately

Margin Money / Security Deposits

 Against borrowings / guarantees

 Disclosed separately

🌐 Repatriation Restrictions

 On cash / bank balances

 Disclosed separately

⏳ Bank Deposits > 12 Months

 Disclosed separately

✅ 7. FINAL AUDITOR CONCLUSION

 ✔ Physical verification supports existence

 ✔ BRS supports completeness

  ✔ Confirmations support accuracy

 ✔ Foreign currency balances properly restated

 ✔ Schedule III disclosures complete

🧠 AUDIT OF INVENTORIES

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES

 ✅ Existence
→ Inventories physically exist at period-end

 📦 Completeness
→ All inventories owned by the entity are recorded

 ⚖️Rights & Obligations

→ Entity has legal ownership over inventories

 💰 Valuation
→ Inventories valued correctly as per GAAP

 📑 Presentation & Disclosure

→ Proper Schedule III disclosure

🔍 2. EXISTENCE – PHYSICAL VERIFICATION

📝 Inventory Count Planning

 Review management’s stock count plan

 Ensure consigned goods are clearly segregated

👀 Auditor’s Participation

 Auditor must attend physical stock count

🧮 Test Counts by Auditor

 Employees follow agreed procedures

 Proper supervision during count

 All items properly tagged

 Quantities correctly mentioned on tags

 Control over:

o Tags
 o Summary sheets

 Reconcile test counts with tags

 Differences:

o Identified

o Summarised

o Agreed with management

 🚨 Be alert for:

o Empty boxes

o Obsolete / damaged items

 ✂️Cut-off Testing

o Last 5–10 GRNs

o Last dispatch documents

 🚫 Ensure exclusion of:

o Third-party stock

o Damaged / obsolete inventory

 📋 Accounting of all stock sheets

 🔍 Investigate differences:

o Physical vs book stock

o Signed by responsible personnel

🔄 Inventory Systems

 Periodic system → Count at year-end

 Perpetual system → Interim counts acceptable

🏭 Inventory with Third Parties

 Confirm inventory lying with:

o Job workers

o Other third parties

🔁 3. COMPLETENESS – IS ALL INVENTORY RECORDED?

📊 Analytical Procedures

 Comparison with:
 o Industry averages

o Budgets vs actuals

o Prior years

 Trend analysis

 Inventory Turnover Ratio

→ COGS / Average inventory

 Vertical analysis
→ Inventory / Total assets

📦 Non-Financial Information

 Weight

 Measurements

 Quantities

✂️Cut-off Testing – Purchases & Sales

 Trace:

o Bills of lading

o GRNs

o Warehouse records

 Just before & after year-end

Tagged Inventory Tests

 Identify:

o Omitted transactions

o Invalid transactions

🧮 Clerical Accuracy

 Arithmetic accuracy of inventory lists

🔗 Reconciliations

 Physical stock ↔ Perpetual records

 Inventory ↔ GL control accounts

🚚 Third-party Inventories

 Warehouses / transporters / port authorities

📦 Consignment Goods

 Properly segregated from entity’s inventory

⚖️4. RIGHTS & OBLIGATIONS – OWNERSHIP

🧾 Vouch Purchases

 Purchase requisition

 Purchase order

 GRN

 Vendor invoice

 Payment evidence

📜 Consigned Goods

 Evaluate consignment arrangements

📑 Review Agreements

 Collateral agreements

 Consignment agreements

 Material purchase commitments

🧾 Invoice Verification

 Invoices raised in client’s name

📩 Confirmations

 Obtain confirmations for significant items

🏭 Inventory with Third Parties

 Written declaration on letterhead

 Signed by authorised personnel

💰 5. VALUATION – LOWER OF COST OR NRV

🧮 Costing Method

 FIFO / Weighted Average

 Assess consistency & reasonableness

🧱 Raw Materials & Consumables

 Cost includes:

o Purchase price

o Carriage inward
 o Non-refundable duties

 Standard costing

o Basis of standards

o Variance analysis

 Test cost with recent invoices

 Follow up damaged / obsolete items

Work-in-Progress (WIP)

 Stage of completion

 Basis of estimates

 Cost elements included

 Overhead allocation basis

 Exclude abnormal wastage

🏭 Finished Goods / Goods for Resale

 Review cost structure

 Overheads based on normal capacity

 NRV < Cost?

o Write-down required

 Corresponding RM / WIP also written down

⚠️Obsolete / Slow-moving / Damaged Inventory

 Inventory ageing analysis

 Replacement cost comparison

 Vendor price lists

 Inventory turnover ratio

 Verify adequacy of write-downs

Manufacturing Environment

 Verify overhead absorption

 Include only:
 o Direct materials

o Direct labour

o Production overheads

✔️Lower of Cost or NRV

 Ensure correctly applied

📑 6. DISCLOSURE REQUIREMENTS

(Schedule III – Part I)

📦 Classification of Inventory

 Raw materials

 Work-in-progress

 Finished goods

 Stock-in-trade

 Stores & spares

 Loose tools

 Others (specified)

🚚 Goods-in-Transit

 Disclosed separately

🧮 Mode of Valuation

 FIFO / Weighted Average

✅ 7. FINAL AUDITOR CONCLUSION

 ✔ Physical verification supports existence

 ✔ Cut-off & analytics ensure completeness

 ✔ Ownership established through documentation

 ✔ Valuation at cost or NRV, whichever lower

 ✔ Schedule III disclosures complete

🧠 AUDIT OF PROPERTY, PLANT & EQUIPMENT (PPE)

(Audit of Items of Financial Statements)

🎯 1. AUDIT OBJECTIVES

 ✅ Existence
→ PPE physically exists at period-end

 📦 Completeness
→ All PPE additions & deletions are recorded

 💰 Valuation
→ PPE valued correctly as per GAAP

 ⚖️Rights & Obligations

→ Entity has legal ownership over PPE

 📑 Presentation & Disclosure

→ Proper Schedule III disclosures

🔍 2. EXISTENCE – PHYSICAL VERIFICATION OF PPE

📝 Physical Verification Policy

 Verification conducted by:

o Entity’s own staff or

o Independent third party

 Frequency:

o Annually or

o Once in 2–3 years

👀 Supervision & Evidence

 Adequate supervision of verification team

 Physical verification report obtained

 Supported by proper working papers

Identification & Tagging

 Assets properly tagged

 Unique identification numbers assigned

 Asset numbers captured in verification sheets

🔄 Reconciliation

 Physically verified PPE

↔ Fixed Asset Register (FAR)

 Additions updated up to date of verification

⚠️Discrepancies
  Shortage / damaged / non-working assets identified

 Proper accounting as deletions

 Management approval obtained

 Depreciation stopped after deletion

🔁 3. COMPLETENESS – ADDITIONS & DELETIONS

📋 PPE Movement Schedule

 Opening balance

o Additions

 – Deletions

 = Closing balance

🔍 Verification Procedures

 Opening balances matched with PY audited FS

 Arithmetical accuracy checked

 List of additions obtained

 Closing balance tallied with books

➕ Verification of Additions

 Meets PPE recognition criteria?

o As per AS 10 (Revised)

 Nature of cost:

o Initial acquisition

o Replacement / improvement

 Spare parts / standby equipment:

o Capitalise only if PPE definition met

o Otherwise classify as inventory

 Exclude day-to-day servicing costs

 Test-check documents:

o Purchase invoice

o Installation certificate
 o Completion report

 Verify date of addition

 Authorisation:

o Approved by competent authority

 Internal controls:

o Competitive quotations

o Tender procedures

➖ Verification of Deletions

 Reason for deletion:

o Obsolete

o Damaged

o Replacement

 Mode of disposal:

o Sale

o Discard

 Management approval & discard note

 Sale process:

o Competitive quotations

o Basis of sale proceeds

 Accounting treatment:

o Remove original cost

o Remove accumulated depreciation

o Recognise gain / loss on disposal

💰 4. VALUATION – PPE

📉 Depreciation

 Charged on all depreciable PPE

 Non-depreciable assets excluded (e.g. land)

🧮 Depreciation Method

 Reflects pattern of economic benefits

  Methods:

o Straight Line Method (SLM)

o Diminishing Value Method (WDV)

o Units of Production Method

⚠️Impairment

 Management assessment performed

 As per AS 28 – Impairment of Assets

⚖️5. RIGHTS & OBLIGATIONS

🧾 Ownership Verification

 PPE purchase invoices in entity’s name

🏠 Land & Building

 Verify conveyance / sale deed

 Confirm legal ownership

📜 Title Deeds

 Inspect original title deeds

🏦 PPE Given as Security

 Obtain lender confirmation

 Verify title deeds held by lenders

📕 Register of Charges

 Verify charges created on PPE

📑 6. DISCLOSURE REQUIREMENTS

(Schedule III – Part I)

Classification of PPE

 Land

 Buildings

 Plant & Equipment

 Furniture & Fixtures

 Vehicles

 Office Equipment
  Others (specified)

📄 Assets under Lease

 Disclosed separately

🔄 Reconciliation Statement

 Gross & net carrying amounts

 Opening to closing balance

 Additions / disposals / revaluation

 Depreciation & impairment

📉 Revaluation / Write-off Disclosures

 Change ≥ 10% disclosed

 Notes required for first 5 years

✅ 7. FINAL AUDITOR CONCLUSION

 ✔ Physical verification supports existence

 ✔ Additions & deletions complete and authorised

 ✔ Depreciation & impairment correctly charged

 ✔ Ownership rights properly established

 ✔ Schedule III disclosures complete

🧠 AUDIT OF PPE – ADDITIONAL REGULATORY INFORMATION

📌 1. TITLE DEEDS OF IMMOVABLE PROPERTY

🏠 When is disclosure required?

 Title deeds NOT held in company’s name

 ❌ Exception:

o Leasehold properties with valid lease deeds

🧾 Applicable to

 PPE:

o Land

o Building

 Investment Property
  PPE retired from active use & held for disposal

 Other immovable properties

📑 Mandatory Disclosures

 Description of property

 Gross carrying value

 Name in which title deed is held

 Whether holder is:

o Promoter

o Director

o Relative

o Employee

 Property held since (date)

 Reason for not being held in company’s name

 Whether property is under dispute

⚠️Special Note

 If jointly held:

o Disclose only the company’s share

📐 2. REVALUATION OF PPE

📌 When applicable?

 PPE revalued during the year

🧮 Disclosure Required

 Whether valuation done by:

o Registered Valuer

 As per:

o Companies (Registered Valuers & Valuation) Rules, 2017

3. CAPITAL WORK-IN-PROGRESS (CWIP)

📊 CWIP AGEING SCHEDULE

 Classification:

o Projects in progress
 o Projects temporarily suspended

 ⏳ Ageing Buckets

o Less than 1 year

o 1–2 years

o 2–3 years

o More than 3 years

 ⚠️Key Check

o Total CWIP must tally with Balance Sheet

📅 CWIP COMPLETION SCHEDULE

📌 Applicable when

 Project completion is overdue, OR

 Project cost has exceeded original plan

🧾 Disclosure Required

 Expected completion period:

o < 1 year

o 1–2 years

o 2–3 years

o 3 years

⛔ Suspended Projects

 Projects where activity is suspended:

o Disclosed separately

✅ 4. AUDITOR’S FOCUS AREAS

 ✔ Consistency between CWIP schedules & books

 ✔ Proper classification of suspended projects

 ✔ Adequate explanations for:

o Delays

o Cost overruns

 ✔ Correct linkage with PPE disclosures

 ✔ Compliance with Schedule III & latest regulatory amendments

 🧠 AUDIT OF INTANGIBLE ASSETS

(Audit of Items of Financial Statements)

🎯 1. EXISTENCE (at Period End)

🧩 Nature of Intangible Asset

 Identifiable

 Non-monetary

 No physical substance

🔍 Auditor Verifies Active Use

 Used for:

o Production / supply of goods or services

o Rental to others

o Administrative purposes

📌 Illustrative Examples

 Software

o Verify active usage

o Verify sales / services generated using software

 Designs / Drawings

o Verify production records

o Confirm goods produced & sold

❌ Not in Active Use?

 Asset deleted after management approval

 Amortisation stopped from date of deletion

🔁 2. COMPLETENESS (Additions & Deletions)

📋 Movement Schedule Verification

 Opening balance

o Additions

 – Deletions
  = Closing balance

➕ Verification of Additions

 Meets recognition criteria as per AS 26

 ❌ Do NOT capitalise:

o Research costs

o Research phase of internal projects

🧪 Development Phase

 Verify date of commercial / economic use

 Link capitalisation date with:

o Usage evidence

o Revenue generation / operational deployment

Authorisation & Controls

 Approval by competent authority

 Proper tender / quotation procedures

➖ Verification of Deletions

 Reason & rationale obtained from management

 Disposal approval & discard note verified

 Sale process examined:

o Quotations / tenders

 Accounting treatment verified:

o Original cost removed

o Accumulated amortisation removed

o Gain / loss on disposal recorded

💰 3. VALUATION

📉 Amortisation

 Charged on ALL intangible assets

 Method reflects pattern of economic benefits

⚠️Impairment Testing
  Management assessment verified

 As per AS 28 – Impairment of Assets

 Recoverable amount determined

 Impairment loss recognised where required

⚖️4. RIGHTS & OBLIGATIONS

🧾 Ownership Verification

 Purchase invoices in company’s name

 Contracts grant legal ownership to entity

✔️Auditor Ensures

 Entity has:

o Legal title

o Control over the intangible asset

📑 5. DISCLOSURES – SCHEDULE III (PART I)

🧠 Classification under “Intangible Assets”

 Goodwill

 Brands / Trademarks

 Computer software

 Mastheads & publishing titles

 Mining rights

 Copyrights, patents & IPR

 Recipes, formulae, designs & prototypes

 Licences & franchises

 Others (specified)

🔄 Reconciliation Disclosure

 Opening → Additions → Disposals → Closing

 Separately disclose:

o Revaluation changes (≥10%)

o Impairment losses / reversals

📉 Capital Reduction / Revaluation

 Reduced / increased figures shown

 Impact disclosed for first 5 years

🧾 6. ADDITIONAL REGULATORY DISCLOSURES

Intangible Assets Under Development

📊 AGEING SCHEDULE

 < 1 year

 1–2 years

 2–3 years

 3 years

Applicable to

 Projects in progress

 Projects temporarily suspended

📅 COMPLETION SCHEDULE

 Required if:

o Completion is overdue OR

o Cost exceeds original plan

 Expected completion period:

o < 1 year

o 1–2 years

o 2–3 years

o 3 years

⚠️Special Notes

 Suspended projects disclosed separately

 Total must tally with balance sheet

🧠 AUDIT OF TRADE PAYABLES & OTHER CURRENT LIABILITIES

(Audit of Items of Financial Statements)

🎯 1. EXISTENCE (As at Period End)

🔐 Internal Controls

 Invoice recorded only once

 AP auto-recorded at time of expense booking

📊 Ageing Report

 Obtain AP ageing

 Trace balances to General Ledger

 Investigate differences

 Scrutinise large / unusual journal entries

📨 Direct Confirmation – Trade Creditors

 Confirmations required for:

o All significant balances

o Vendors with material purchases

(even if closing balance = NIL)

 Date of confirmation

o Balance sheet date OR

o Any reasonably close date

 Forms of confirmation

o With balance (positive)

o Without balance (preferred)

 Auditor’s control

o Client unaware of sample

o Auditor controls dispatch & receipt

o Undelivered replies returned to auditor

 Differences in replies

o Entity investigates & reconciles

o Auditor plans further procedures

 No reply received?

o Perform alternate procedures:

 Verify subsequent payments

  Agree balances with vendor invoices

 Detailed analysis of payable balance

👥 Related Party Payables

 Proper authorisation

 Arm’s length pricing ensured

📈 Analytical Review

 Trend: Purchases vs Payables

 Unusual fluctuations explained by management

🔁 2. COMPLETENESS

✂️Cut-off Procedures (MOST IMPORTANT)

 Test last 5 purchase invoices

 Goods received before year-end:

o Included in payables

o Risks & rewards transferred

🧾 Purchases & Expense Testing

 Sample testing from AP ledger

 Match invoice date with:

o GRN

o Gate entry

 Review post year-end invoices relating to PY

📆 Subsequent Expense Vouchers

 Review material expenses after balance sheet date

💰 Advances from Customers

 Customer-wise ageing & nature

 Identify disputes / additional liabilities

 Verify supporting documents

⚖️Statutory Dues Liabilities

 GST, TDS, PF, ESI, Professional Tax, etc.

  Reasonableness check with:

o Sales

o Purchases

o Employee benefit expenses

 Verify subsequent challans

 Differences explained & documented

 Consider CARO 2020 reporting

💰 3. VALUATION

Old / Long-Outstanding Creditors

 Review write-back policy

 Compare with previous year

 Senior management approval required

⚠️Disputed Liabilities

 Obtain ageing

 Compare with prior year

🌍 Foreign Currency Payables

 Restated as per AS 11

🏭 MSME Liabilities

 Identify:

o Principal unpaid

o Interest unpaid

 Review management identification process

📑 4. DISCLOSURES – SCHEDULE III (PART I)

🏭 MSME Disclosures

 Principal amount outstanding

 Interest due & unpaid

 Interest paid during the year

 Interest accrued & unpaid

  Further interest payable
→ Sec 23 of MSMED Act

📊 Trade Payables Ageing Schedule

 MSME

 Others

 Disputed dues – MSME

 Disputed dues – Others

Age buckets

 < 1 year

 1–2 years

 2–3 years

 3 years

📦 Unbilled Dues

 Disclosed separately

🧾 Other Current Liabilities – Classification

 Current maturity of lease liabilities

 Interest accrued but not due

 Interest accrued & due

 Income received in advance

 Unpaid dividends

 Share application money pending allotment

 Unpaid matured deposits / debentures

 Others (specified)

✅ EXAM GOLD POINTS (DO NOT MISS 🔥)

 ⭐ Confirm NIL balance vendors

 ⭐ “Without balance confirmation” preferred

 ⭐ Cut-off = KEY to completeness

  ⭐ MSME disclosures = ICAI favourite

 ⭐ Ageing schedule = mandatory disclosure

🧠 AUDIT OF LOANS & ADVANCES / OTHER CURRENT ASSETS

(Audit of Items of Financial Statements)

🎯 1. EXISTENCE (As at Period End)

📨 Direct Confirmation

 Circularise balances

 Confirm:

o Principal amount

o Interest (if any)

 Confirmation to include:

o Key terms of loan agreement

📒 Ledger Verification

 Obtain list of loans & advances

 Compare with ledger balances

📄 Loan Agreements

 Verify loan agreements & acknowledgements

 Examine security documents (if any)

 Check regular recovery of instalments

🔁 2. COMPLETENESS

Authorisation

 As per:

o MOA / AOA

 Within powers of:

o Directors / Partners / Trustees

 Board approval verified through minutes

👥 Related Party Loans

 Proper authorisation obtained

  Loans at arm’s length and reasonable terms

🧾 Statutory Balances

 GST input tax credit:

o Compare returns with books

o Investigate variances

🔐 Acknowledgement & Security

 Balance acknowledged by borrower

 Deposited security verified

💰 3. VALUATION

📉 Allowance for Doubtful Loans

 Review company’s provisioning methodology

 Compare with previous year

 Assess appropriateness

📊 Ageing Analysis

 Obtain ageing report

 Identify:

o Doubtful balances

o Loans under litigation

❌ Bad Loans / Write-offs

 Review movement schedule

 Authorised by senior management

 Verify:

o Provision created vs write-off made

🌍 Foreign Currency Loans

 Restated as per AS 11

📑 4. DISCLOSURES – SCHEDULE III

(Companies Act, 2013)

🧾 Long-Term Loans & Advances

 Capital advances
  Loans to related parties

 Others (nature specified)

Sub-classification

 Secured – considered good

 Unsecured – considered good

 Doubtful

 Allowance for bad & doubtful loans:

o Disclosed separately

👤 Loans Due From

 Directors / Officers

 Firms / Private companies where:

o Director is partner / member

Short-Term Loans & Advances

 Related party loans

 Others (nature specified)

⚠️5. ADDITIONAL REGULATORY DISCLOSURES

🚨 Loans to Promoters / Directors / KMP / Related Parties

 Loans:

o Repayable on demand OR

o No specified repayment terms

📊 Mandatory Disclosure Table

 Type of borrower:

o Promoters

o Directors

o KMPs

o Related Parties

 Amount outstanding

 % of total loans & advances

✅ EXAM SMART POINTS (REMEMBER 🔑)

 ⭐ Confirm principal + interest

 ⭐ Authorisation via MOA / AOA + Board minutes

 ⭐ Ageing + provisioning = valuation backbone

 ⭐ Related party & promoter loans = high-risk area

 ⭐ New Schedule III disclosure table is frequently tested

🧠 AUDIT OF PROVISIONS

(Presentable Mind Map – AS 29 Oriented)

🎯 1. AUDIT OBJECTIVES

 Identify all provisions at year-end

 ✔ Existence & Completeness

 ✔ Valuation & Measurement

 ✔ Proper Disclosure

o AS 29

o Schedule III

🔍 2. EXISTENCE & COMPLETENESS

📌 Core Question

Does a present obligation exist as at the balance sheet date?

🔗 Audit Trail

 Provision appearing in books

→ Trace to ledger balances

 Inspect:

o Customer agreements

o Legal contracts

o Warranty terms

 Identify:

o Legal claims
 o Warranty obligations

o Ongoing litigations

Management Responsibility

 Has management considered ALL obligations?

o ✔ Yes → Existence & completeness satisfied

🧾 Key Audit Evidence

 Legal notices / court cases

 Warranty policies

 Board minutes

💰 3. VALUATION OF PROVISIONS

📊 Audit Flow

 Provision identified
→ Obtain management working
→ Examine basis of estimation

❓ Is estimation complex?

 ✔ Yes →

o Obtain expert / actuarial report

o Evaluate:

 Assumptions

 Source data

 Reasonableness

✔ Conclusion

 Amount reasonable?
→ Valuation appropriate

📌 Common Examples

 Warranty provisions → Actuarial valuation

 Legal disputes → Lawyer’s assessment

o Probable / Possible / Remote

👨‍🔬 4. USING EXPERT’S WORK (SA 500)

🔍 Auditor Evaluates
  Competence of expert

 Independence

 Methodology used

 Assumptions & input data

✔ Can auditor rely on expert?

 Conclusions reasonable

 Evidence relevant & reliable

📝 Additional Safeguards

 Written management representation obtained

🧾 5. CLASSIFICATION OF PROVISIONS

⏳ Based on Timing of Settlement

 12 months → Long-term Provision

 ≤ 12 months → Short-term Provision

📂 Examples

 Long-term:

o Employee benefits

o Other long-term obligations

 Short-term:

o Employee benefits

o Other current obligations

⚖️6. PROVISION vs CONTINGENT LIABILITY

🧠 DECISION MIND MAP

 Obligation identified
→ Probability of outflow?

Probability Accounting Treatment

Probable ✔ Recognise provision

Possible 📑 Disclose contingent liability

Remote ❌ No recognition / disclosure

📑 7. DISCLOSURES – AS 29

🔄 For EACH class of provision

 Opening balance

 Additions during year

 Amounts used

 Unused amounts reversed

 Closing balance

📝 Mandatory Notes

 Nature of obligation

 Expected timing of outflows

 Uncertainties involved

 Expected reimbursements (if any)

📌 8. CONTINGENT LIABILITY DISCLOSURES

 Brief description

 Estimate of financial effect (if practicable)

 Uncertainties involved

 Possibility of reimbursement

⚠️If disclosure not practicable →

Reason must be stated

⚠️9. ADDITIONAL REGULATORY DISCLOSURES

🏠 Benami Property

 Proceedings under Benami Act?

o Disclose:

 Property details

 Amount involved

 Beneficiaries

 Status of proceedings

 Company’s view

🚫 Struck-off Companies
 Transactions with struck-off entities?

o Disclose:

 Nature of transaction

 Outstanding balance

 Relationship