📘 MODULE 5 – WHAT YOU ACTUALLY DO IN PRACTICE

(Company Statutory Audit Focus)

Under framework of
👉 Companies Act, 2013

You will NOT initially:

❌ Decide opinion
❌ Sign audit report
❌ Handle litigation

You WILL:

✔ Execute fieldwork
✔ Gather evidence
✔ Raise queries
✔ Prepare working papers

🔶PART 1️⃣ LEDGER SCRUTINY (Foundation Skill)

📘 LEDGER SCRUTINY (FOUNDATION SKILL IN COMPANY AUDIT)

Ledger scrutiny = Systematic review of ledger accounts to identify:

✔ Unusual trends
✔ Abnormal fluctuations
✔ Suspicious transactions
✔ Cut-off issues
✔ Compliance gaps

Before touching vouchers, you read the story hidden in numbers.

🔶 WHY LEDGER SCRUTINY IS POWERFUL?

Because:

80% of audit red flags can be identified by intelligent ledger reading.

It helps you:

 Focus on high-risk entries

 Reduce unnecessary vouching

 Identify fraud indicators

 Ask better audit queries

🔷 WHAT TO LOOK FOR DURING LEDGER SCRUTINY

Let’s break each indicator with practical examples.

1️⃣ UNUSUAL ENTRIES

🔎 Example – Consultancy Expense

April–December: ₹2 lakh
March: ₹18 lakh

Questions you must ask:

 Why spike in March?

 Was service actually rendered?

 Is this year-end profit manipulation?

 Agreement available?

 TDS deducted?

Possibilities:

✔ Genuine late billing

✔ Backdated invoice
✔ Profit suppression attempt

Ledger scrutiny alerts you before vouching.

2️⃣ ROUND FIGURES (Fraud Indicator)

🔎 Example

“Miscellaneous Expense – ₹5,00,000”

“Commission – ₹10,00,000”
“Advance – ₹20,00,000”

Round numbers often indicate:

 Manual adjustment

 Unsupported entry

 Possible manipulation

You must:

✔ Check supporting documents

✔ Verify narration
✔ Check bank entry
3️⃣ NEGATIVE BALANCES

🔎 Example – Debtors Ledger

Customer A balance = (-₹2,50,000)

Meaning:

Customer overpaid OR misclassification.

Check:

✔ Is it advance from customer?

✔ Should it be shown under liabilities?

Misclassification impacts presentation.

🔎 Example – Cash Ledger Negative

Cash balance shows negative ₹1 lakh on certain date.

Impossible physically.

Indicates:

✔ Backdated entries
✔ Cash manipulation
✔ Accounting error

Immediate red flag.

4️⃣ YEAR-END ADJUSTMENTS

Most frauds happen in March.

🔎 Example – Revenue Ledger

Large invoices dated 30 & 31 March.

Check:

✔ Dispatch date
✔ E-way bill
✔ GST reporting

Possibility of revenue inflation.

🔎 Example – Expense Ledger

Provision entry ₹25 lakh on 31 March.

Check:
✔ Basis of provision
✔ Supporting calculation
✔ Is it genuine liability?

May be profit smoothing.

5️⃣ SUSPICIOUS NARRATION

🔎 Example

“Being adjustment entry.”

“Being correction.”
“Being miscellaneous entry.”

These narrations mean nothing.

You must:

✔ Ask for explanation

✔ Obtain supporting documents

🔷 ADVANCED LEDGER SCRUTINY TECHNIQUES

A️⃣ TREND COMPARISON

Compare:

FY 24 vs FY 25

Example:

Commission Expense:

FY 24 – ₹8 lakh
FY 25 – ₹35 lakh

Sales increased only 5%.

Why 300% increase in commission?

Possible:

✔ Related party diversion

✔ Inflated expense

B️⃣ RATIO LINKING

Example:

Raw material cost % of sales:

Last year: 60%
Current year: 45%

Major drop.

Check:

✔ Inventory overvaluation
✔ Purchase suppression

C️⃣ HIGH-VALUE ENTRIES

Filter ledger for:

Transactions above ₹5 lakh.

Focus there first.

Risk-based approach.

🔷 PRACTICAL MINI CASE – FULL LEDGER SCRUTINY

ABC Pvt Ltd

Turnover ₹10 crore

You review:

1. Sales Ledger

 March sales unusually high

 5 new customers added in March

Query:

✔ Customer existence
✔ Dispatch proof

2. Purchase Ledger

 Vendor “XYZ Traders” ₹40 lakh

 New vendor

 All purchases in last month

Check:

✔ GSTIN validity
✔ Bank transfer proof

Possible fake vendor.

3. Loans & Advances

 Advance ₹25 lakh to director’s relative

Check:

✔ Board approval
✔ Related party disclosure

4. Cash Ledger

 Cash withdrawal ₹10 lakh

 No clear narration

Ask:

✔ Purpose
✔ Supporting bill

🔷 HOW TO DOCUMENT LEDGER SCRUTINY

Working paper must show:

✔ Ledger reviewed
✔ Red flags identified
✔ Queries raised
✔ Conclusion

Example documentation:

“Reviewed Consultancy Expense ledger. Noted ₹18 lakh entry in March. Agreement verified. TDS deducted.
Considered reasonable.”

🔷 COMMON BEGINNER MISTAKES

❌ Only scanning totals

❌ Ignoring narration
❌ Not comparing prior year
❌ Missing negative balances
❌ Not checking related parties

Avoid mechanical reading.

🔷 WHAT LEDGER SCRUTINY BUILDS IN YOU

✔ Analytical mindset
✔ Fraud awareness
✔ Professional skepticism
✔ Risk identification ability
This skill separates strong auditors from average ones.

📊 SUMMARY – LEDGER SCRUTINY CHECKPOINTS

Indicator What It Signals

March spike Cut-off risk

Round figure Possible adjustment

Negative balance Misclassification

Unusual narration Lack of transparency

Sudden increase Possible manipulation

🎯 PROFESSIONAL INSIGHT

Before checking 100 vouchers,

read the ledger for 30 minutes carefully.

You will know where to focus.

Strong auditor reads story in numbers.

Weak auditor reads only invoices.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why are March entries high-risk in audit?

2️⃣ Why are round figures considered red flag?
3️⃣ If negative debtor balance found, how will you treat it in financial statements?

📘 PART 2 VOUCHING – PURCHASES (DETAILED PRACTICAL EXECUTION)

In manufacturing/trading companies, purchases directly impact:

✔ Cost of goods sold

✔ Inventory valuation
✔ Profit
✔ GST input
✔ Working capital

Weak purchase audit = Wrong profit.

🔶 OBJECTIVES OF PURCHASE VOUCHING

You must ensure purchases are:

1️⃣ Genuine (Not fake)

2️⃣ Authorized
3️⃣ Correctly valued
4️⃣ Recorded in correct period (Cut-off)
5️⃣ Properly classified
6️⃣ GST compliant

Now we break each with practical examples.

🔷 1️⃣ GENUINENESS OF PURCHASE

🔎 Practical Example

Purchase Invoice:

Vendor: XYZ Metals

Amount: ₹8 lakh
Date: 28 March

You verify:

✔ Invoice copy
✔ Vendor GSTIN validity
✔ Purchase order
✔ GRN (Goods Received Note)
✔ Entry in purchase ledger
✔ Payment through bank

🔥 Red Flag Situation

Invoice exists.
Payment made.
But:

No GRN available.
No stock entry.

Possible:

✔ Fake purchase
✔ Accommodation entry
✔ GST credit fraud

You must investigate.

🔷 2️⃣ CUT-OFF TESTING (VERY IMPORTANT)

Cut-off errors manipulate profit.

🔎 Scenario

Invoice dated: 28 March

Goods received: 5 April

Recorded in March purchases.

Error:

Expense overstated in current year.

Profit understated.

You must suggest reversal.

🔎 Reverse Scenario

Goods received 29 March.

Invoice dated 3 April.
Not recorded in March.

Purchases understated.
Profit overstated.

You must check GRN register near year-end.

🔷 3️⃣ AUTHORIZATION CHECK

Every purchase should have:

✔ Approved purchase order

✔ Authorization by designated officer

🔎 Example

Large purchase ₹25 lakh from new vendor.

Check:

✔ Who approved?
✔ Board resolution if required?
✔ Related party involved?

If director purchased from his own firm → Disclosure required.

🔷 4️⃣ VALUATION CHECK

Ensure purchase price correct.

🔎 Example

Invoice:

Quantity: 100 units

Rate: ₹8,000
Total: ₹8 lakh

Recalculate:

100 × 8,000 = ₹8 lakh.

Check discount, freight, GST.

Incorrect calculation → Inventory valuation impact.

🔷 5️⃣ GST VERIFICATION

Purchase ₹8 lakh + GST ₹1.44 lakh.

Check:

✔ GSTIN of vendor valid

✔ Invoice uploaded in GSTR-2B
✔ ITC claimed in GSTR-3B
✔ GST payable reconciled

If GST credit claimed but vendor not filed return → Risk.

🔷 6️⃣ PAYMENT VERIFICATION

Trace purchase to payment.

🔎 Example

Invoice ₹8 lakh.

Payment:

Bank transfer ₹8 lakh on 15 April.

Check:

✔ Bank statement
✔ No round-tripping
✔ No payment to related party disguised as vendor

🔥 HIGH-RISK PRACTICAL SCENARIOS

🔴 Scenario 1 – Fake Vendor Fraud

Ledger shows:

Vendor: M/s Bright Traders

Purchase ₹40 lakh in March

You check:

✔ GSTIN invalid
✔ Address fake
✔ Payment transferred to director’s relative

Fraud detected.

Action:

✔ Raise query
✔ Report to management
✔ Consider fraud reporting

🔴 Scenario 2 – Bill Booking Without Goods

Company books purchase ₹50 lakh to reduce profit.

No goods received.

No stock entry.

Inventory inflated.

Profit manipulated.

Major misstatement.

🔴 Scenario 3 – Related Party Purchase

Vendor belongs to director’s brother.

Check:

✔ Related party disclosure

✔ Arm’s length pricing
✔ Board approval

Non-disclosure leads to reporting issue.

🔷 SAMPLING APPROACH (AS ARTICLE)

You will:

✔ Select high-value invoices

✔ Select March transactions
✔ Select new vendors
✔ Select unusual narration entries
Risk-based sampling, not random blindly.

🔷 PRACTICAL WORKING PAPER FORMAT

Title: Purchase Vouching – FY 2024-25

Sample Selected: 20 invoices above ₹5 lakh

Procedure:

✔ Verified invoice copy

✔ Checked GRN
✔ Verified GSTIN
✔ Traced payment

Findings:

Invoice No. 458 dated 28 March – goods received 5 April.

Adjustment of ₹8 lakh required.

Conclusion:

Purchases fairly stated after adjustment.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only invoice

❌ Ignoring GRN
❌ Not checking cut-off
❌ Not validating GSTIN
❌ Not tracing payment

Avoid mechanical checking.

🔷 FULL MINI CASE – COMPLETE ANALYSIS

ABC Pvt Ltd

Turnover ₹12 crore
Purchases ₹7 crore

During audit you find:

✔ 5 March invoices totaling ₹60 lakh

✔ Goods received in April
✔ No adjustment passed

Impact:

Purchases overstated ₹60 lakh

Inventory overstated ₹60 lakh
Profit understated ₹60 lakh

Materiality ₹25 lakh

Opinion impact:

Qualified (if not adjusted).

📊 SUMMARY TABLE

Risk Area Audit Procedure

Fake vendor GST validation + bank tracing

Cut-off Check GRN near year-end

Overpricing Rate comparison

Related party Disclosure verification

GST fraud GSTR-2B reconciliation

🎯 PROFESSIONAL INSIGHT

Purchase audit directly affects:

✔ Profit
✔ Inventory
✔ GST
✔ Working capital

Strong auditor always:

Checks cut-off first.

Most profit manipulation happens at year-end.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why is GRN more important than invoice for cut-off testing?
2️⃣ How can fake vendor fraud be detected during purchase vouching?
3️⃣ If purchase recorded but payment not made for 2 years, what risk arises?

📘 PART 3 VOUCHING – SALES (Revenue Audit in Practice)

Revenue is high-risk because:

✔ Direct impact on profit

✔ Management incentive to inflate
✔ Impacts GST, tax, banking limits
✔ Often manipulated at year-end

Governed conceptually by SA 240 (fraud risk) and SA 315 (risk assessment).

🔶 OBJECTIVES OF SALES VOUCHING

You must ensure sales are:

1️⃣ Genuine (Actually happened)

2️⃣ Complete (Nothing suppressed)
3️⃣ Correctly recorded (Right amount)
4️⃣ Recorded in correct period (Cut-off)
5️⃣ Properly taxed (GST compliance)
6️⃣ Correctly classified (Revenue vs Other Income)

🔷 1️⃣ GENUINENESS OF SALES

🔎 Practical Example

Invoice No. 458

Date: 30 March
Amount: ₹12 lakh

You verify:

✔ Sales invoice copy

✔ Customer name & GSTIN
✔ Dispatch document (Delivery challan / LR copy)
✔ E-way bill
✔ Entry in sales ledger
✔ Entry in GST return (GSTR-1)

If no dispatch proof → Possible fake sale.

🔴 Fraud Scenario – Bogus Sales

Company shows:

Sales ₹2 crore on 30 March.

But:

 No dispatch

 No transporter proof

 No customer confirmation
Purpose: Inflate revenue to show profit.

You must question.

🔷 2️⃣ COMPLETENESS OF SALES

Completeness means:

All sales actually made are recorded.

Risk:

Company suppresses sales to reduce tax.

🔎 Practical Testing

✔ Compare sales ledger with GST turnover

✔ Compare e-way bill data with sales register
✔ Review dispatch register
✔ Analytical comparison with prior year

🔎 Example

Books show sales ₹10 crore.

GSTR-1 shows ₹10.5 crore.

₹50 lakh difference.

Possibility:

✔ Sales omitted in books

✔ Wrong classification

Red flag.

🔷 3️⃣ CUT-OFF TESTING (MOST IMPORTANT)

Revenue must be recorded when:

Control of goods transferred.

🔎 Scenario 1 – Revenue Overstatement

Invoice dated: 30 March

Dispatch date: 2 April

Revenue recorded in March.

Incorrect.

Revenue overstated.
Profit inflated.

Adjustment required.

🔎 Scenario 2 – Revenue Understatement

Goods dispatched 29 March.

Invoice raised 3 April.

Not recorded in March.

Revenue understated.

Profit understated.

How to Test Cut-off?

✔ Check invoices 5 days before & after year-end

✔ Verify dispatch dates
✔ Match with transporter proof

🔷 4️⃣ GST VERIFICATION

For sales:

✔ Output GST charged correctly

✔ GSTIN of customer valid
✔ Reported in GSTR-1
✔ Included in GSTR-3B

🔎 Practical Example

Sales ₹12 lakh + GST ₹2.16 lakh.

Check:

✔ Tax rate correct

✔ GST payable matches ledger
✔ Reported in GST return

Mismatch may indicate tax evasion.

🔷 5️⃣ RATE & QUANTITY CHECK

Verify:

✔ Quantity sold
✔ Rate per unit
✔ Discount applied
🔎 Example

Invoice:

100 units × ₹12,000 = ₹12 lakh.

Recalculate.

Check for unauthorized discount.

🔷 6️⃣ RELATED PARTY SALES

If sale to director’s relative:

✔ Check disclosure
✔ Verify pricing at arm’s length

Non-disclosure leads to reporting issue.

🔷 7️⃣ DEBTOR CONFIRMATION LINK

After sales vouching:

✔ Confirm outstanding balances

✔ Check subsequent receipts

Ensures sale genuine and recoverable.

🔷 PRACTICAL MINI CASE – COMPLETE SALES ANALYSIS

ABC Pvt Ltd

Turnover ₹12 crore

You review:

March sales = ₹4 crore

Previous months average ₹1 crore

Unusual spike.

You test:

✔ 25 March invoices
✔ 30–31 March dispatch
✔ 5 April invoices

Findings:

₹1.5 crore invoices dated 30 March

Dispatch 3 April.

Revenue inflated.
Materiality ₹25 lakh.

Impact:

Qualified or Adverse (depending on magnitude).

🔷 COMMON SALES FRAUD METHODS

Fraud Type How It Happens

Bill without dispatch Inflate revenue

Early recognition Improve profit

Suppressed sales Reduce tax

Circular sales Show fake turnover

Backdated invoices Manage profit

Ledger scrutiny helps detect these.

🔷 WORKING PAPER DOCUMENTATION

Title: Sales Cut-off Testing

Sample: 20 invoices near year-end

Procedure:

✔ Verified invoice
✔ Checked dispatch proof
✔ Checked GST reporting

Finding:

Invoice 1458 ₹12 lakh recorded 30 March; dispatched 2 April.

Adjustment required.

Conclusion:

Revenue fairly stated after adjustment.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only invoice

❌ Ignoring dispatch date
❌ Not checking GST return
❌ Not performing analytical review

Avoid mechanical checking.

🔷 SALES AUDIT RISK IMPACT

Revenue manipulation affects:

✔ Profit
✔ Tax
✔ Bonus
✔ Banking limits
✔ Valuation

Therefore revenue is presumed high fraud risk under SA 240.

📊 SUMMARY TABLE

Objective Audit Procedure

Genuineness Invoice + dispatch proof

Completeness GST reconciliation

Cut-off Test near year-end

Tax compliance Match GST returns

Recoverability Debtor confirmation

🎯 PROFESSIONAL INSIGHT

Strong auditor:

Focuses on March sales first.

Weak auditor:

Checks random sales in middle of year.

Revenue cut-off testing is critical skill.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why is revenue considered high fraud risk?

2️⃣ How does cut-off testing prevent profit manipulation?

📘 PART 4 BANK RECONCILIATION CHECKING (BRS Audit)

Cash & Bank are:

✔ Highly liquid
✔ Easily manipulable
✔ Directly linked to fraud
✔ Frequently misused

If bank audit weak → Entire audit weak.

🔶 OBJECTIVE OF BANK RECONCILIATION CHECKING

Ensure:

1️⃣ Bank balance in books is correct

2️⃣ No fictitious entries
3️⃣ No concealed overdraft
4️⃣ No window dressing
5️⃣ All transactions recorded

🔷 WHAT IS BANK RECONCILIATION STATEMENT (BRS)?

BRS reconciles difference between:

Bank balance as per Books

VS
Bank balance as per Bank Statement

Difference may arise due to:

✔ Cheques issued but not presented

✔ Cheques deposited but not cleared
✔ Bank charges not recorded
✔ Direct deposits
✔ Interest credited

🔷 STEP-BY-STEP PRACTICAL PROCEDURE

1️⃣ Obtain Bank Statement (Independent Source)

Always obtain:

✔ Direct bank statement (preferably independently confirmed)

✔ Not only management printout

Why?

Independent evidence more reliable.

2️⃣ Compare Closing Balance

Check:

Bank balance as per books

VS
Bank balance as per bank statement

If difference exists → Review BRS.

3️⃣ Verify BRS Prepared

Ensure BRS:

✔ Prepared as on 31 March
✔ Signed by responsible person
✔ Properly calculated

If BRS not prepared → Weak internal control.

4️⃣ Check Old Unreconciled Items

This is most important.

🔎 Practical Example 1 – Old Cheque Issued

Cheque issued ₹5 lakh

Dated: 10 January
Still not cleared as of 31 March

Questions:

✔ Was cheque actually given?

✔ Was it cancelled?
✔ Why not reversed?

Risk:

Company shows higher bank balance than reality.

Possible window dressing.

🔎 Example 2 – Deposit Not Cleared

Cheque deposited ₹7 lakh

Not cleared for 2 months

Ask:

✔ Was cheque dishonored?

✔ Should debtor balance be restored?

Old deposits may hide bad debts.

🔷 5️⃣ Check Unusual Entries in Bank Statement

🔎 Example – Direct Bank Charges

Bank charges ₹25,000

Not recorded in books.

Liability understated.

🔎 Example – Loan EMI Deducted

Bank auto-debited EMI ₹3 lakh

Not recorded in books.

Loan balance wrong.

🔎 Example – Large Cash Withdrawal

Cash withdrawal ₹15 lakh

Ask:

✔ Purpose?
✔ Supporting vouchers?

Possible misappropriation.

🔷 6️⃣ Confirm Bank Balance (External Confirmation)

In statutory audit:

Obtain bank confirmation directly from bank.

Confirms:

✔ Balance
✔ Loan outstanding
✔ Security given
✔ Guarantees issued

Protects auditor.

🔷 HIGH-RISK SCENARIOS IN PRACTICE

🔴 Scenario 1 – Window Dressing

Company takes short-term loan on 30 March.
Repays on 2 April.

Shows strong year-end bank balance.

You check:

✔ Bank statement after year-end

✔ Sudden inflow near year-end

Red flag.

🔴 Scenario 2 – Concealed Overdraft

Bank statement shows negative balance.

Books show positive.

Management adjusting BRS artificially.

Major misstatement.

🔴 Scenario 3 – Cheque Kiting

Company transfers funds between two banks at year-end to inflate balance.

Check:

✔ Transfers near year-end

✔ Clearing dates

🔷 MINI PRACTICAL CASE

ABC Pvt Ltd

Bank balance as per books: ₹1.2 crore
Bank statement balance: ₹90 lakh

Difference: ₹30 lakh

BRS shows:

Cheques issued ₹20 lakh

Cheques deposited ₹10 lakh

You test:

✔ Check clearing dates in April

✔ Verify cheques actually cleared

If not cleared even in April → Suspicious.

🔷 DOCUMENTATION FORMAT
Title: Bank Reconciliation Testing

Procedure:

✔ Obtained bank statement

✔ Verified BRS as on 31 March
✔ Tested 10 high-value reconciling items
✔ Checked post-year-end clearing

Finding:

Cheque dated 10 Jan ₹5 lakh not cleared till May.

Management reversed entry.

Conclusion:

Bank balance fairly stated after correction.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only closing balance

❌ Not reviewing old reconciling items
❌ Ignoring post-year-end clearing
❌ Not obtaining bank confirmation
❌ Ignoring loan covenants

🔷 LINK WITH FRAUD RISK

Bank is primary fraud area:

✔ Misappropriation
✔ Unauthorized payments
✔ Concealed loans
✔ Circular transactions

Strong bank audit reduces detection risk significantly.

📊 SUMMARY TABLE

Risk Area Audit Focus

Old cheques Possible manipulation

Direct debits Expense understatement

Large withdrawals Misappropriation risk

Year-end transfers Window dressing

Loan balances Disclosure accuracy

🎯 PROFESSIONAL INSIGHT

Bank reconciliation is not clerical checking.

It reveals:

✔ Fraud
✔ Window dressing
✔ Liquidity problems
✔ Control weakness

Strong auditor always:

Checks post-year-end bank statement.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why are old unreconciled items risky?

2️⃣ What is window dressing in bank context?
3️⃣ Why must post-year-end bank statement be reviewed?

📘 PART 5 TDS CHECKING (Company Statutory Audit – Practical Approach)

TDS errors may not always change profit materially, but they create:

✔ Statutory non-compliance
✔ Interest & penalty liability
✔ Disallowance under Income-tax Act
✔ Reporting requirement under audit report

As an article / practitioner, you must be technically sharp here.

🔶 OBJECTIVE OF TDS CHECKING

Ensure:

1️⃣ TDS correctly deducted

2️⃣ TDS deposited within due date
3️⃣ TDS returns filed correctly
4️⃣ Liability properly disclosed
5️⃣ No exposure to disallowance / penalty

🔷 STEP-BY-STEP PRACTICAL EXECUTION

1️⃣ Identify Payments Subject to TDS

Common areas:

✔ Consultancy / Professional fees

✔ Contractor payments
✔ Rent
✔ Salary
✔ Commission
✔ Interest

🔎 Practical Example

Consultancy Expense: ₹15 lakh

First question:

Is this payment liable for TDS?

Yes — professional services.

Now check:

✔ Applicable section
✔ Correct rate

2️⃣ CHECK WHETHER TDS DEDUCTED

Invoice: ₹15 lakh

TDS rate assumed 10%

Expected TDS = ₹1.5 lakh

Check ledger:

Consultancy Expense ₹15 lakh

TDS Payable ₹1.5 lakh
Net payment ₹13.5 lakh

If no TDS deducted → Major compliance issue.

🔷 3️⃣ VERIFY TDS DEPOSIT

Check:

✔ Challan (CIN number)

✔ Date of deposit
✔ Amount deposited
✔ Due date compliance
🔎 Practical Example – Late Deposit

TDS deducted: 10 January

Due date: 7 February
Actual deposit: 20 March

Delay.

Interest liability arises.

Check:

✔ Whether interest provided in books

✔ Whether disclosed under statutory dues

🔷 4️⃣ VERIFY TDS RETURN FILING

Check:

✔ 26Q / 24Q filed

✔ Correct PAN of deductee
✔ Amount matches books
✔ No default notice

Mismatch between books & return is red flag.

🔷 5️⃣ CHECK TDS PAYABLE LEDGER

TDS payable should not remain outstanding for long period.

🔎 Example

TDS payable ledger shows ₹8 lakh outstanding for 6 months.

Risk:

✔ Non-deposit
✔ Interest liability
✔ Prosecution risk

You must raise query.

🔷 PRACTICAL RISK SCENARIOS

🔴 Scenario 1 – TDS Not Deducted

Consultancy ₹15 lakh

No TDS deducted.

Impact:
✔ Expense may be disallowed (tax impact)
✔ Penalty & interest
✔ Non-compliance reporting required

If material → May impact audit reporting.

🔴 Scenario 2 – Wrong Rate Applied

Payment to contractor ₹20 lakh.

TDS deducted at 1% instead of 2%.

Short deduction ₹20,000.

Check cumulative effect.

🔴 Scenario 3 – TDS Deducted but Not Deposited

TDS payable ₹12 lakh shown as liability.

Not deposited for 8 months.

Serious statutory non-compliance.

Must report under statutory dues section.

🔷 LINK WITH AUDIT REPORTING

Even if amount immaterial for profit:

Statutory non-compliance may require reporting under:

“Undisputed statutory dues not deposited for more than six months.”

Therefore, TDS checking impacts audit report beyond numbers.

🔷 PRACTICAL MINI CASE

ABC Pvt Ltd

Turnover ₹10 crore

Audit findings:

Consultancy ₹20 lakh

TDS deducted ₹2 lakh
Deposit delayed by 4 months
Interest ₹12,000 not provided

Materiality ₹25 lakh

Interest small → Financial opinion may remain clean.

But statutory reporting must mention delay.

🔷 ADVANCED ANALYTICAL CHECK

Compare:

Total professional fees ₹40 lakh

TDS deducted ₹1 lakh

Mismatch — should be around ₹4 lakh.

Possibility:

✔ TDS not deducted fully

✔ Payments misclassified

Ledger scrutiny supports TDS checking.

🔷 DOCUMENTATION FORMAT

Title: TDS Compliance Testing

Procedure:

✔ Selected 15 high-value payments

✔ Verified TDS applicability
✔ Checked challan & due date
✔ Reconciled with TDS return

Findings:

2 payments where TDS deducted but deposited late.

Interest ₹18,000 not provided.

Conclusion:

TDS generally compliant except minor delay.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only challan amount

❌ Ignoring due date
❌ Not reconciling with TDS return
❌ Not checking PAN correctness
❌ Ignoring interest provision

🔷 WHY TDS CHECKING BUILDS PRACTICE STRENGTH

Because it:

✔ Enhances tax knowledge

✔ Improves compliance review skill
✔ Connects accounting with tax
✔ Prepares you for advisory practice

📊 SUMMARY TABLE

Risk Area Audit Action

No deduction Check applicability

Late deposit Compute interest

Wrong rate Recalculate

Outstanding TDS Raise compliance query

Return mismatch Reconcile with books

🎯 PROFESSIONAL INSIGHT

TDS may seem small, but:

Repeated non-compliance indicates weak governance.

Strong auditor checks compliance rigorously.

Weak auditor ignores “small tax issues.”

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why can TDS non-compliance impact audit report even if amount small?
2️⃣ If TDS deducted but not deposited for 8 months, what are risks?

📘 PART 6 GST RECONCILIATION (Company Statutory Audit – Practical Mastery)

In today’s environment, GST reconciliation is not optional.

Mismatch between books and GST returns can indicate:

✔ Revenue suppression
✔ Revenue inflation
✔ Fake purchases
✔ Wrong ITC claim
✔ Tax evasion
✔ Cut-off manipulation

As a CA in practice, GST reconciliation builds strong analytical control.

🔶 OBJECTIVE OF GST RECONCILIATION

Ensure:

1️⃣ Sales as per books = Sales as per GSTR-1

2️⃣ Purchases as per books = ITC claimed in GSTR-3B
3️⃣ GST payable as per books = GST paid
4️⃣ No unexplained differences
5️⃣ Proper classification (taxable, exempt, export, etc.)

🔷 STEP-BY-STEP PRACTICAL APPROACH

1️⃣ SALES RECONCILIATION

(Books vs GSTR-1)

🔎 Practical Example

Books show:

Sales = ₹10 crore

GSTR-1 shows:

Sales = ₹9.5 crore

Difference = ₹50 lakh

This is major red flag.

Possible Reasons:

✔ Sales not reported in GST

✔ Credit note not adjusted
✔ Export misclassified
✔ Wrong place of supply
✔ Manual accounting error

You must investigate.

Audit Action:

✔ Obtain month-wise sales summary

✔ Obtain GSTR-1 summary
✔ Prepare reconciliation sheet
✔ Identify invoice-level differences

If ₹50 lakh sales omitted in GST → Tax liability exposure.

If ₹50 lakh extra in books → Revenue inflation risk.

🔷 2️⃣ PURCHASE RECONCILIATION

(Books vs GSTR-3B / 2B)

🔎 Practical Example

Books show purchases ₹7 crore.

ITC claimed ₹1.2 crore.

But GSTR-2B shows eligible ITC ₹1 crore.

₹20 lakh excess ITC claimed.

Risk:

✔ ITC reversal
✔ Interest
✔ Penalty

Audit Action:

✔ Match purchase ledger with GSTR-2B

✔ Identify vendors not appearing in 2B
✔ Check blocked credit
✔ Verify reversal entries

🔷 3️⃣ GST PAYABLE RECONCILIATION

🔎 Example

Books show:

Output GST ₹1.8 crore

Input GST ₹1.2 crore
Net payable ₹60 lakh

GSTR-3B shows payable ₹55 lakh.

₹5 lakh difference.

Ask:

✔ Was ITC wrongly adjusted?

✔ Was some liability omitted?

🔷 4️⃣ CUT-OFF & TIMING DIFFERENCES

GST and books may differ due to:

✔ Advance receipt timing
✔ Credit notes issued
✔ Debit notes
✔ Month-end adjustments

You must separate:

Genuine timing difference

vs
Misstatement

🔷 PRACTICAL HIGH-RISK SCENARIOS

🔴 Scenario 1 – Revenue Suppression

Books show ₹8 crore sales.

GSTR-1 shows ₹9 crore.

Meaning:

₹1 crore sales not recorded in books.

Profit understated.

Major misstatement.

🔴 Scenario 2 – Revenue Inflation

Books show ₹12 crore sales.

GSTR-1 shows ₹10 crore.

₹2 crore recorded in books but not in GST.

Possible:

✔ Fake revenue entry

✔ Cut-off manipulation

Serious risk.

🔴 Scenario 3 – Fake Purchase & ITC Fraud

Vendor invoice ₹50 lakh.

ITC claimed ₹9 lakh.

But vendor not filing GST return.

ITC invalid.

You must check vendor compliance.

🔷 PRACTICAL MINI CASE – FULL ANALYSIS

ABC Pvt Ltd

Turnover ₹12 crore

Audit findings:

Books sales ₹12 crore

GSTR-1 ₹11.2 crore

₹80 lakh difference.

Investigation reveals:

Credit notes of ₹30 lakh not adjusted in GST

Balance ₹50 lakh missing in GSTR-1

Materiality ₹25 lakh

₹50 lakh material.

Opinion impact:

Qualified (if not corrected).

🔷 DOCUMENTATION FORMAT

Title: GST Reconciliation – FY 2024-25

Procedure:

✔ Obtained monthly sales summary

✔ Compared with GSTR-1
✔ Reconciled differences
✔ Checked ITC with GSTR-2B

Finding:

Difference ₹50 lakh in March.

Management revised return.

Conclusion:

GST reconciliation satisfactory after correction.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only annual totals

❌ Ignoring month-wise reconciliation
❌ Not checking 2B vs books
❌ Not reviewing credit notes
❌ Ignoring advance adjustments

🔷 WHY GST RECONCILIATION IS POWERFUL AUDIT TOOL

Because:

✔ It independently verifies turnover

✔ It validates purchase genuineness
✔ It detects suppression or inflation
✔ It links accounting with statutory compliance

Strong GST reconciliation reduces fraud risk significantly.

📊 SUMMARY TABLE

Area Risk Audit Action

Sales mismatch Revenue suppression/inflation Invoice-level reconciliation

ITC mismatch Excess credit claim Match with 2B

GST payable mismatch Tax exposure Recalculate liability

Credit note errors Wrong turnover Month-end testing

🎯 PROFESSIONAL INSIGHT

In modern audits:

GST reconciliation is more powerful than ledger scrutiny.

Government portal data acts as third-party evidence.

Use it intelligently.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why is GST reconciliation strong third-party evidence?

2️⃣ If books show higher sales than GSTR-1, what risks arise?
3️⃣ If ITC claimed exceeds 2B, what impact on audit opinion may occur?

📘 PART 7 FIXED ASSET VERIFICATION (Company Statutory Audit – Practical Depth)

Fixed Assets impact:

✔ Total assets
✔ Depreciation expense
✔ Profit
✔ Borrowing limits
✔ Net worth

Errors here distort both Balance Sheet and P&L.

🔶 OBJECTIVE OF FIXED ASSET AUDIT

Ensure:

1️⃣ Existence (Asset physically exists)

2️⃣ Ownership (Company owns it)
3️⃣ Valuation (Correct cost)
4️⃣ Proper capitalization
5️⃣ Correct depreciation
6️⃣ Proper disclosure

Now we go practically step-by-step.

🔷 1️⃣ OBTAIN FIXED ASSET REGISTER (FAR)

FAR should contain:

✔ Asset description
✔ Location
✔ Date of purchase
✔ Cost
✔ Depreciation rate
✔ Accumulated depreciation
✔ WDV

If FAR not maintained → Major control weakness.

🔎 Example

Machine A
Cost ₹40 lakh
Purchased 15 October
Depreciation rate 15%

You verify all fields.

🔷 2️⃣ VERIFY PURCHASE DOCUMENTS

Check:

✔ Vendor invoice
✔ GST paid
✔ Payment proof
✔ Capitalization entry
🔎 Practical Example

Invoice shows:

Machine cost ₹40 lakh

Freight ₹2 lakh
Installation ₹1 lakh

Total cost capitalized = ₹43 lakh

Correct treatment.

If freight wrongly expensed → Asset understated.

If repair cost capitalized → Asset overstated.

🔷 3️⃣ CHECK CAPITALIZATION DATE

Depreciation depends on usage date.

🔎 Scenario 1 – Correct Capitalization

Machine delivered 10 October

Installed 20 October
Ready for use 25 October

Capitalization date: 25 October

Depreciation from that date.

🔎 Scenario 2 – Premature Capitalization

Machine delivered 28 March

Installation pending
Not ready for use

Capitalized in March.

Incorrect.

Depreciation overstated.

Profit understated.

Adjustment required.

🔷 4️⃣ RECALCULATE DEPRECIATION

Check:
✔ Rate as per Companies Act schedule
✔ Method (SLM/WDV)
✔ Pro-rata calculation
✔ Useful life

🔎 Practical Example

Cost ₹40 lakh

Rate 15%
Purchased 15 October

Depreciation for 5.5 months:

₹40,00,000 × 15% × (5.5/12)

Recalculate independently.

If management charged full year depreciation → Excess expense.

🔷 5️⃣ PHYSICAL VERIFICATION

For major assets:

✔ Inspect plant
✔ Verify asset tag
✔ Confirm existence
✔ Check condition

🔎 Practical Example

FAR shows:

Machine B ₹60 lakh.

During site visit:

Machine not found.

Ask:

✔ Sold?
✔ Scrapped?
✔ Misappropriated?

If not recorded → Asset overstated.

🔷 6️⃣ CHECK DISPOSAL OF ASSETS

If asset sold:

✔ Verify sale invoice

✔ Remove from FAR
✔ Calculate gain/loss
✔ Adjust accumulated depreciation

🔎 Example

Machine cost ₹40 lakh

Accumulated depreciation ₹20 lakh
WDV ₹20 lakh

Sold for ₹25 lakh.

Gain ₹5 lakh must be recorded.

If ignored → Profit misstated.

🔷 7️⃣ IMPAIRMENT TESTING

If asset idle or obsolete:

Check:

✔ Whether recoverable value lower than carrying value

✔ Provision required

🔎 Practical Example

Machine cost ₹50 lakh

Demand fallen
Market value ₹30 lakh

Impairment ₹20 lakh required.

If not provided → Asset overstated.

🔷 HIGH-RISK SCENARIOS

🔴 Scenario 1 – Capitalizing Repairs

Major repair ₹10 lakh capitalized.

But it does not increase useful life.

Should be expense.

Profit artificially increased.

🔴 Scenario 2 – Fake Asset Purchase

Invoice ₹30 lakh.

Payment made.

No physical asset.

Fraud.

🔴 Scenario 3 – Asset Purchased from Related Party

Machine bought from director’s firm.

Check:

✔ Fair value
✔ Disclosure
✔ Approval

🔷 MINI PRACTICAL CASE – FULL ANALYSIS

ABC Pvt Ltd

Total Fixed Assets ₹6 crore

Audit findings:

✔ Machine ₹40 lakh capitalized on 30 March

✔ Not installed till May
✔ Depreciation charged ₹6 lakh

Misstatement:

Depreciation overstated
Asset premature capitalization

Materiality ₹25 lakh

If adjustment ₹10 lakh → Below materiality but needs correction.

If multiple such cases aggregate above materiality → Qualification possible.

🔷 DOCUMENTATION FORMAT

Title: Fixed Asset Verification – FY 2024-25

Procedure:

✔ Obtained FAR
✔ Tested 15 high-value assets
✔ Verified invoice & payment
✔ Recalculated depreciation
✔ Physically inspected 5 major machines

Finding:

Machine purchased 30 March not ready for use.

Depreciation ₹6 lakh reversed.
Conclusion:

Assets fairly stated after adjustment.

🔷 COMMON BEGINNER MISTAKES

❌ Checking only FAR totals

❌ Not recalculating depreciation
❌ Ignoring capitalization date
❌ Not physically verifying
❌ Ignoring disposal entries

🔷 WHY FIXED ASSET AUDIT IS CRITICAL

Because it affects:

✔ Net worth
✔ Profit
✔ Borrowing capacity
✔ Investor perception

Overstated assets = Overstated financial strength.

📊 SUMMARY TABLE

Risk Area Audit Focus

Premature capitalization Check ready-for-use date

Wrong depreciation Recalculate

Capitalized repairs Review nature of expense

Non-existent asset Physical inspection

Disposal not recorded Check gain/loss

🎯 PROFESSIONAL INSIGHT

Fixed asset audit tests both:

✔ Accounting knowledge
✔ Business understanding

Strong auditor questions:

“Is this asset really generating economic benefit?”

Weak auditor just recalculates totals.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why is capitalization date critical for depreciation?

2️⃣ How can capitalizing repair expense manipulate profit?
3️⃣ If asset physically not found but in books, what audit impact?

📘 PART 8 DRAFTING AUDIT QUERIES

(Where You Actually Think Like an Auditor)

Ledger reading identifies issue.

Audit query converts doubt into documented evidence.

Weak auditor asks vague questions.

Strong auditor asks structured, amount-specific, evidence-based queries.

🔶 OBJECTIVE OF AUDIT QUERY

Audit Query should:

1️⃣ Highlight specific observation

2️⃣ Mention amount involved
3️⃣ Ask for documentary support
4️⃣ Record management response
5️⃣ Help conclude audit

Query = Evidence of professional skepticism.

🔷 STRUCTURE OF A GOOD AUDIT QUERY

Every query must include:

✔ Clear observation
✔ Amount involved
✔ Ledger reference
✔ Specific information required
✔ Deadline for response

Avoid emotional or accusatory language.

🔶 PRACTICAL EXAMPLES (DETAILED)

🔎 1️⃣ Commission Expense Increased 40%

❌ Weak Query
“Why commission increased?”

Too vague.

✔ Strong Query

Observation:

Commission expense increased from ₹10 lakh (FY 24) to ₹14 lakh (FY 25), increase of ₹4 lakh (40%).

Request:

 Provide agreement with commission agents.

 Provide calculation basis.

 Provide TDS compliance details.

 Confirm whether any related party involved.

Now management must respond with documents.

You evaluate reply.

🔎 2️⃣ Debtors Ageing Above 180 Days

❌ Weak Query

“Why debtors old?”

✔ Strong Query

Observation:

Trade receivables ₹3 crore.

Debtors above 180 days = ₹65 lakh (22% of total).

Request:

 Provide detailed ageing.

 Provide subsequent receipt details.

 Confirm provision requirement.

This query directly links to doubtful debt provision.

🔎 3️⃣ GST Turnover Difference

Books Sales = ₹12 crore

GSTR-1 Sales = ₹11.5 crore
Difference ₹50 lakh
✔ Strong Query

Observation:

Difference of ₹50 lakh between sales as per books and GSTR-1 for FY 2024-25.

Request:

 Provide reconciliation statement.

 Identify invoice-level differences.

 Confirm tax liability impact.

Clear and technical.

🔎 4️⃣ Suspicious March Entry

Consultancy ₹18 lakh booked on 31 March.

✔ Strong Query

Observation:

Single consultancy entry ₹18 lakh booked on 31 March (Voucher No. 1458).

Request:

 Provide service agreement.

 Provide proof of service delivery.

 Confirm period of service.

 Provide TDS compliance.

Links to cut-off risk.

🔎 5️⃣ Fixed Asset Capitalization

Machine ₹40 lakh capitalized on 30 March.

✔ Strong Query

Observation:

Machine capitalized on 30 March 2025 for ₹40 lakh.

Request:

 Provide installation certificate.

 Confirm date asset ready for use.

  Provide depreciation working.

Directly tests capitalization correctness.

🔷 ADVANCED QUERY EXAMPLES (PRACTICE-LEVEL)

🔴 Related Party Transaction

Observation:

Loan of ₹25 lakh given to M/s ABC Traders.

Request:

 Confirm whether ABC Traders is related party.

 Provide board approval.

 Provide disclosure in notes.

🔴 Large Cash Withdrawal

Observation:

Cash withdrawal ₹15 lakh dated 28 March.

Request:

 Provide purpose and supporting documents.

 Confirm approval authority.

🔷 HOW TO HANDLE MANAGEMENT REPLIES

Query must not end with reply.

You must:

✔ Attach reply
✔ Evaluate evidence
✔ Record auditor conclusion

Example:

Management reply: “Commission increased due to new agent.”

You verify agreement and TDS.

Conclusion:

“Commission appears genuine and supported.”

Documentation complete.
🔷 PRACTICAL MINI CASE – FULL QUERY SHEET

ABC Pvt Ltd – Audit FY 2024-25

Query No. 3
Observation: Debtors above 180 days ₹65 lakh.
Reply: ₹40 lakh received in April; ₹25 lakh disputed.
Conclusion: Provision of ₹10 lakh required. Management agreed.

Query No. 7
Observation: GST turnover mismatch ₹50 lakh.
Reply: Credit notes not adjusted.
Conclusion: Revised return filed.

Proper documentation protects you.

🔷 COMMON BEGINNER MISTAKES

❌ Vague questions
❌ No amount mentioned
❌ No documentary request
❌ No conclusion recorded
❌ Verbal discussion only

Always keep written trail.

🔷 WHY QUERY DRAFTING BUILDS PRACTICE STRENGTH

Because it:

✔ Improves analytical ability

✔ Sharpens technical thinking
✔ Protects from liability
✔ Builds client respect

Clients take you seriously when queries are structured.

📊 SUMMARY – STRONG QUERY FEATURES

Weak Query Strong Query

“Explain this” “Explain ₹50 lakh difference between books & GSTR-1”

No amount Amount specified

No document asked Specific documents requested

No conclusion Auditor evaluation recorded

🎯 PROFESSIONAL INSIGHT

Audit query is not confrontation.

It is:

Professional communication.

Strong auditor asks clear, technical, documented queries.

Weak auditor fears asking uncomfortable questions.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why must amount be mentioned in audit query?

2️⃣ Why is verbal explanation insufficient?
3️⃣ How does strong query drafting reduce audit risk?

📘 PART 9 WORKING PAPER PREPARATION (Execution-Level Mastery)

Governed by SA 230 – Audit Documentation

Remember the golden rule:

If it is not documented, it is presumed not done.

Working papers are:

✔ Evidence of work performed

✔ Evidence of professional judgment
✔ Protection in litigation
✔ Basis for partner review

🔶 OBJECTIVE OF WORKING PAPER

For every audit area, your working paper must clearly show:

1️⃣ Objective
2️⃣ Risk identified
3️⃣ Procedure performed
4️⃣ Sample selected
5️⃣ Evidence obtained
6️⃣ Findings
7️⃣ Conclusion
8️⃣ Prepared by & Reviewed by

Now let’s see this practically.

🔷 STRUCTURE OF A STRONG WORKING PAPER

1️⃣ TITLE

Example:

“Sales Cut-off Testing – FY 2024-25”

2️⃣ OBJECTIVE

Example:

“To verify that revenue is recorded in correct accounting period.”

Clear and precise.

3️⃣ PROCEDURE PERFORMED

Example:

 Selected 20 invoices dated between 25 March and 5 April.

 Verified dispatch date.

 Matched with e-way bill.

4️⃣ SAMPLE SELECTED

Example:

Invoice Nos. 1458, 1462, 1471…

Total sample value ₹1.8 crore.

Always mention selection basis:

“High-value & year-end transactions.”

5️⃣ FINDINGS

Example:

Invoice No. 1458 ₹12 lakh dated 30 March.

Dispatch on 2 April.

Revenue recorded prematurely.

Adjustment required.
6️⃣ CONCLUSION

Example:

“Revenue overstated by ₹12 lakh. Management passed adjustment. Cut-off appropriate after correction.”

This is strong documentation.

🔴 WHAT NOT TO WRITE

❌ “Checked sales – OK.”

❌ “Verified invoices.”
❌ “Examined and found correct.”

These are meaningless.

No evidence of what was done.

🔷 PRACTICAL EXAMPLES BY AREA

🔎 1️⃣ PURCHASE VOUCHING WORKING PAPER

Title: Purchase Testing – FY 2024-25

Objective:

To verify genuineness and cut-off of purchases.

Procedure:

Selected 15 purchase invoices above ₹5 lakh and 5 year-end invoices.

Sample Value:

₹1.2 crore (18% of total purchases).

Findings:

Invoice No. 784 dated 28 March ₹8 lakh.

Goods received 5 April.
Entry reversed.

Conclusion:

Purchases fairly stated after adjustment.

🔎 2️⃣ BANK RECONCILIATION WORKING PAPER

Title: Bank Reconciliation Verification

Objective:

To verify accuracy of bank balance.

Procedure:

 Obtained bank statement directly from bank.

 Verified BRS as on 31 March.

 Tested 10 reconciling items.

Findings:

Cheque dated 10 January ₹5 lakh not cleared till May.

Entry reversed.

Conclusion:

Bank balance fairly stated after correction.

🔎 3️⃣ FIXED ASSET WORKING PAPER

Title: Fixed Asset Verification

Objective:

To verify existence and correct depreciation.

Procedure:

 Tested 10 high-value assets.

 Verified invoice & capitalization date.

 Recalculated depreciation.

Findings:

Machine capitalized 30 March not ready for use.

Depreciation overstated ₹6 lakh.

Conclusion:

Depreciation adjusted. Assets fairly stated.

🔎 4️⃣ GST RECONCILIATION WORKING PAPER

Title: GST Sales Reconciliation

Objective:

To reconcile turnover as per books with GSTR-1.

Procedure:

Compared month-wise turnover for FY 2024-25.

Findings:

Difference ₹50 lakh in March due to unreported credit notes.

Conclusion:

Revised return filed. Reconciliation complete.

🔷 AGGREGATION SHEET (VERY IMPORTANT)

You must maintain:

“Summary of Misstatements”

Example:

Issue Amount

Inventory overvaluation ₹18 lakh

Debtor provision ₹7 lakh

GST interest ₹5 lakh

Total ₹30 lakh

Materiality ₹20 lakh.

This sheet supports reporting decision.

🔷 REVIEW EVIDENCE

Each working paper must have:

✔ Prepared by
✔ Date
✔ Reviewed by
✔ Review date
✔ Cross-reference to financial statements

Without review sign → File incomplete.

🔷 PROFESSIONAL JUDGMENT DOCUMENTATION

Example:

“Materiality determined at ₹20 lakh (approx. 2% of turnover).”

Always document reasoning.

🔷 COMMON BEGINNER MISTAKES

❌ No objective mentioned
❌ No sample basis mentioned
❌ No conclusion recorded
❌ No cross-reference
❌ No review sign

These weaken audit defensibility.

🔷 PRACTICAL MINI CASE – WEAK vs STRONG

Weak Documentation

“Checked purchases and found correct.”

No evidence.

Strong Documentation

“Selected 15 purchase invoices totaling ₹1.2 crore (18% of purchases). Verified invoice, GRN, GSTIN and
payment. Noted one cut-off error of ₹8 lakh. Entry reversed. Purchases fairly stated after adjustment.”

This protects you.

🔷 WHY WORKING PAPER DISCIPLINE BUILDS STRONG PRACTICE

Because:

✔ Partner relies on your documentation

✔ Regulators inspect file
✔ Courts examine documentation
✔ Future year audit refers to it

Working paper = Audit memory.

📊 SUMMARY – WORKING PAPER MUST SHOW

Element Mandatory?

Objective Yes

Procedure Yes

Sample Yes

Finding Yes

Conclusion Yes

Sign & Date Yes

🎯 PROFESSIONAL INSIGHT
Audit quality is judged by file quality.

Strong auditor writes:

Clear, logical, evidence-based working papers.

Weak auditor writes:

Tick marks and short notes.

In practice, documentation is your shield.

🧠 THINK LIKE PRACTITIONER

Answer clearly:

1️⃣ Why must sample basis be documented?

2️⃣ Why is conclusion more important than procedure?
3️⃣ How does strong working paper reduce professional liability?

📘 PART 10 WHAT YOU MUST DEVELOP DURING ARTICLESHIP

(Foundation for Future Practice)

Articleship is not clerical training.

It is:

✔ Risk-thinking training
✔ Judgment development
✔ Documentation discipline
✔ Pressure management

If you build these correctly, practice becomes natural.

🔶 1️⃣ PROFESSIONAL SKEPTICISM

(The Auditor’s Core Weapon)

📌 Meaning

Professional skepticism = Questioning mind + alertness to red flags.

It means:

Do not accept explanation blindly.

Ask: “What evidence supports this?”
🔎 Practical Example 1

Management says:

“Debtors ₹80 lakh are fully recoverable.”

You ask:

✔ Any subsequent receipt?

✔ Ageing report?
✔ Legal notices?

You do not accept verbal comfort.

🔎 Example 2

Large March revenue entry ₹1.5 crore.

Instead of assuming genuine, you check:

✔ Dispatch date
✔ Transport proof
✔ GST reporting

This is skepticism.

Without Skepticism:

You become book-checker.

With Skepticism:

You become auditor.

🔶 2️⃣ DOCUMENTATION HABIT

(Your Legal Protection)

You must develop habit to:

✔ Write complete working papers

✔ Record conclusions
✔ Cross-reference evidence

🔎 Practical Example

Weak Article:

“Checked and found OK.”

Strong Article:

“Tested 20 invoices near year-end. 2 invoices recorded before dispatch. Adjustment passed.”
Documentation discipline builds credibility.

🔶 3️⃣ RISK IDENTIFICATION SKILL

(Think Before Testing)

Before checking vouchers, ask:

Where can misstatement occur?

🔎 Practical Example

Manufacturing company:

High inventory
Credit sales
Raw material import

Risk areas:

✔ Inventory valuation
✔ Forex fluctuation
✔ Debtor recoverability

You focus there.

Risk-based thinking saves time and improves audit quality.

🔶 4️⃣ COMMUNICATION CLARITY

(Professional Query Drafting Skill)

You must learn to:

✔ Write precise audit queries

✔ Mention amounts
✔ Avoid emotional language
✔ Follow up professionally

🔎 Weak Communication

“Why expense increased?”

🔎 Strong Communication

“Commission expense increased from ₹10 lakh to ₹14 lakh (40%). Provide agreement and TDS compliance
details.”

Clear communication builds authority.

🔶 5️⃣ TIME MANAGEMENT

(Practice Survival Skill)

Audit has deadlines:

✔ Financial statement approval

✔ Bank loan submission
✔ ROC filing

You must:

✔ Plan testing
✔ Complete high-risk areas first
✔ Avoid wasting time on low-risk accounts

🔎 Practical Example

Inventory ₹5 crore
Stationery ₹50,000

Spend more time on inventory.

Not equal time on both.

This is smart time allocation.

🔶 6️⃣ PRESSURE HANDLING

Clients may say:

“Sir please don’t qualify.”

“Sir loan sanction pending.”

You must:

✔ Remain calm
✔ Document issues
✔ Escalate to partner

Emotional stability is key.

🔶 7️⃣ BUSINESS UNDERSTANDING

Strong auditor understands:

✔ How company earns profit

✔ Cash flow cycle
✔ Industry risk

Example:
Trading company with low margins.

Sudden margin increase → investigate.

Understanding business improves analytical review.

🔶 8️⃣ ETHICAL BACKBONE

Articleship is where you learn:

✔ Independence
✔ Integrity
✔ Confidentiality

Never:

❌ Modify numbers under pressure

❌ Ignore fraud
❌ Hide misstatements

Your signature in future depends on this backbone.

🔶 PRACTICAL MINI CASE – ARTICLE VS FUTURE PRACTITIONER

ABC Pvt Ltd

Turnover ₹12 crore

Issue:

Inventory difference ₹30 lakh

Materiality ₹20 lakh

Article without skepticism:

“Minor difference.”

Strong article:

✔ Aggregates misstatements
✔ Calculates impact
✔ Prepares summary sheet
✔ Discusses with senior

Partner confidently modifies opinion.

That is growth.

🔶 WHAT ARTICLES WHO BECOME STRONG PRACTITIONERS DO DIFFERENTLY

✔ They ask “why” repeatedly

✔ They document clearly
✔ They read financial statements fully
✔ They compare prior year
✔ They calculate ratios
✔ They think about reporting impact

They don’t just tick vouchers.

📊 SKILL DEVELOPMENT SUMMARY

Skill Why Important

Skepticism Detect fraud

Documentation Legal protection

Risk thinking Efficient audit

Communication Professional authority

Time management Meet deadlines

Ethics Long-term career

🎯 PROFESSIONAL INSIGHT

Articleship is rehearsal for signing.

Every ledger you check today trains your future judgment.

Strong article becomes confident partner.

Weak article remains dependent.

🧠 THINK LIKE FUTURE PRACTITIONER

Answer clearly:

1️⃣ Why is skepticism more important than technical knowledge alone?

2️⃣ How does poor documentation increase liability?
3️⃣ Why must risk identification happen before vouching?