Month: December 2021

Management Notes

E-Applications in internal control and check

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Relevant auditing standards

References will be made throughout this article to the most recent guidance in standards:

  • ISA 300 (Redrafted) Planning an Audit of Financial Statements
  • ISA 315 (Redrafted) Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment
  • ISA 330 (Redrafted) The Auditor’s Responses to Assessed Risks.

Internal controls in a computer environment

The two main categories are application controls and general controls.

Application controls

These are manual or automated procedures that typically operate at a business process level and apply to the processing of transactions by individual applications. Application controls can be preventative or detective in nature and are designed to ensure the integrity of the accounting records.

Accordingly, application controls relate to procedures used to initiate, record, process and report transactions or other financial data. These controls help ensure that transactions occurred, are authorised and are completely and accurately recorded and processed (ISA 315 (Redrafted)).

Application controls apply to data processing tasks such as sales, purchases and wages procedures and are normally divided into the following categories:

(i) Input controls

Examples include batch control totals and document counts, as well as manual scrutiny of documents to ensure they have been authorised. An example of the operation of batch controls using accounting software would be the checking of a manually produced figure for the total gross value of purchase invoices against that produced on screen when the batch-processing option is used to input the invoices. This total could also be printed out to confirm the totals agree.

The most common example of programmed controls over the accuracy and completeness of input are edit (data validation) checks when the software checks that data fields included on transactions by performing:

  • Reasonableness check, eg net wage to gross wage
  • Existence check, eg that a supplier account exists
  • Character check, eg that there are no alphabetical characters in a sales invoice number field
  • Range check, eg no employee’s weekly wage is more than $2,000
  • Check digit, eg an extra character added to the account reference field on a purchase invoice to detect mistakes such as transposition errors during input.

When data is input via a keyboard, the software will often display a screen message if any of the above checks reveal an anomaly, eg ‘Supplier account number does not exist’.

(ii) Processing controls

An example of a programmed control over processing is a run-to-run control. The totals from one processing run, plus the input totals from the second processing, should equal the result from the second processing run. For instance, the beginning balances on the receivables ledger plus the sales invoices (processing run 1) less the cheques received (processing run 2) should equal the closing balances on the receivable ledger.

(iii) Output Controls

Batch processing matches input to output, and is therefore also a control over processing and output. Other examples of output controls include the controlled resubmission of rejected transactions, or the review of exception reports (eg the wages exception report showing employees being paid more than $1,000).

(iv) Master files and Standing data controls

Examples include one-for-one checking of changes to master files, eg customer price changes are checked to an authorised list. A regular printout of master files such as the wages master file could be forwarded monthly to the personnel department to ensure employees listed have personnel records.

General controls

These are policies and procedures that relate to many applications and support the effective functioning of application controls. They apply to mainframe, mini-frame and end-user environments. General IT controls that maintain the integrity of information and security of data commonly include controls over the following:

  • Data centre and network operations
  • System software acquisition, change and maintenance
  • Program change
  • Access security
  • Application system acquisition, development, and maintenance (ISA 315 (Redrafted))

‘End-user environment’ refers to the situation in which the users of the computer systems are involved in all stages of the development of the system.

(i) Administrative controls

Controls over ‘data centre and network operations’ and ‘access security’ include those that:

  • Prevent or detect errors during program execution, eg procedure manuals, job scheduling, training and supervision; all these prevent errors such as using wrong data files or wrong versions of production programs
  • Prevent unauthorised amendments to data files, eg authorisation of jobs prior to processing, back up and physical protection of files and access controls such as passwords
  • Ensure the continuity of operations, eg testing of back – up procedures, protection against fire and floods.

(ii) System development controls

The other general controls referred to in ISA 315 cover the areas of system software acquisition development and maintenance; program change; and application system acquisition, development and maintenance.

‘System software’ refers to the operating system, database management systems and other software that increases the efficiency of processing. Application software refers to particular applications such as sales or wages. The controls over the development and maintenance of both types of software are similar and include:

  • Controls over application development, such as good standards over the system design and program writing, good documentation, testing procedures (eg use of test data to identify program code errors, pilot running and parallel running of old and new systems), as well as segregation of duties so that operators are not involved in program development
  • Controls over program changes: To ensure no unauthorised amendments and that changes are adequately tested, eg password protection of programs, comparison of production programs to controlled copies and approval of changes by users
  • Controls over installation and maintenance of system software: Many of the controls mentioned above are relevant, eg authorisation of changes, good documentation, access controls and segregation of duties.
Management Notes

Payment to Creditors

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The term creditor can mean different things depending on the situation, but it typically means a financial institution or person who is owed money.

If you’re the person who owes the money to a creditor, you may be referred to as a debtor or borrower.

Once a borrower and lender agree on terms for financing and sign a loan agreement, they’re entering into a contract. That contract often specifies the repayment agreement terms of the loan and the expected payment amounts.

You may hear the terms lender and creditor used interchangeably. The same goes for borrower and debtor. But you’ll more likely hear creditor and debtor used during legal proceedings where a creditor is trying to collect on an outstanding balance, such as during a bankruptcy case.

There are several types of creditors, such as real creditors, personal creditors, secured creditors and unsecured creditors.

Personal creditors: These are friends or family you owe money.

Real creditors: A real creditor is a financial institution, such as a bank or credit card issuer, that has a right to be repaid.

Secured creditors: These lenders have a legal right often through a lien to property you used as collateral to secure the loan.

Unsecured creditors: A credit card issuer is a good example of this type of creditor. You may owe money, but it’s unsecured debt, meaning you haven’t agreed to give the creditor any property such as a car or home as collateral to secure your debt.

Ex.

Auto loans: Similar to a mortgage, an auto loan is a loan that someone takes out in order to purchase a vehicle.

Mortgage: A mortgage is a loan you take out from a financial institution to purchase a house. In this case, the creditor would be the financial institution that provides the borrower with the mortgage loan.

Credit cards: Credit cards offer a revolving credit line with a specified credit limit. The credit card issuer that extended the credit line could be the creditor if you have an outstanding balance.

Student loans: Students who cannot afford the cost of tuition on their own can apply for financial aid, including student loans to cover expenses such as tuition, housing and books. When the time comes to repay the student loan, payments are made to the creditor.

Personal Loans: A personal loan is a loan often unsecured that can help you pay for a big project like home improvements or to consolidate debt. If you have an outstanding balance on the personal loan, the creditor is likely the lender that issued the loan.

The company can make the payment to creditors journal entry by debiting the payables account and crediting the cash account.

  • If we pay creditor through cheque, then the journal entry will be

Creditor A/C Dr

To, Bank A/C

(Being creditors paid through cheque)

  • If we pay creditor through cash, then the journal entry will be

Creditor A/C Dr

To, Cash A/C

Account Debit Credit
Payables ₹₹₹
Cash ₹₹₹

Payable account here can be accounts payable, note payable, loan payable, or other types of payables depending on the type of debts the company has as well as the name of the ledger account in the chart of accounts for the credit it owes.

For example, when the company borrows the money from the bank, it may record the debt as note payable or loan payable for the liability it owes to the bank. On the other hand, if the company purchases goods on credit from its supplier, it may record the liability as the accounts payable or the trade payable depending on which one it deems.

Management Notes

Voucher, Voucher Entry and Types of Vouchers

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Voucher is a fundamental document in accounting that acts as proof of a financial transaction. It records essential details such as the date, parties involved, amount, and nature of the transaction. Vouchers ensure that every transaction has valid authorization and proper documentation, which helps maintain accuracy and transparency in financial records.

In traditional accounting, vouchers are physical documents that support entries in the books of accounts, while in computerized systems like TallyPrime, vouchers are electronic input forms used to record different business transactions. When a voucher is entered in TallyPrime, it automatically updates the relevant ledgers, trial balance, and financial statements, thereby saving time and reducing manual errors.

There are several types of vouchers, such as payment vouchers, receipt vouchers, sales vouchers, purchase vouchers, contra vouchers, journal vouchers, debit notes, and credit notes. Each voucher serves a specific purpose, like recording receipts, payments, adjustments, or stock movements.

Vouchers are significant as they not only provide an audit trail but also ensure compliance with accounting standards and legal requirements. By serving as authentic evidence, vouchers play a crucial role in internal control, financial accuracy, and decision-making in business operations.

Role of Vouchers in Accounting:

  • Source Document for Transactions

Vouchers serve as the primary source document for recording business transactions. They capture all key details, including date, amount, parties involved, and purpose of the transaction, ensuring nothing is overlooked. Since they validate the occurrence of a transaction, they act as the backbone of the accounting process. Without vouchers, entries in the books of accounts would lack evidence, reducing reliability and making financial data questionable for decision-making and audits.

  • Ensuring Accuracy in Accounts

Vouchers help ensure accuracy in recording transactions by minimizing errors and omissions. When a voucher is prepared and cross-verified with supporting documents like invoices or receipts, it confirms the correctness of figures and details. This prevents duplication or misclassification of entries in ledgers. Accurate vouchers also facilitate proper posting in accounting software like TallyPrime, where financial statements are automatically updated. Thus, vouchers safeguard the credibility of accounts by promoting consistency and precision.

  • Supporting Internal Control

Vouchers act as a critical tool of internal control in accounting. Since each voucher must be approved and authorized by designated personnel, it ensures accountability and prevents unauthorized financial activity. For example, a payment voucher requires managerial approval before disbursement, which reduces the risk of fraud or mismanagement. Vouchers also help in segregation of duties, where different individuals prepare, verify, and authorize them, thereby strengthening the overall internal control system of the organization.

  • Legal and Audit Compliance

Vouchers are essential for meeting statutory and audit requirements. During an audit, vouchers provide auditors with concrete evidence of transactions recorded in the books of accounts. They help businesses comply with tax laws, corporate regulations, and accounting standards by maintaining transparency. Since vouchers record details like GST, TDS, or other statutory deductions, they ensure regulatory adherence. Without vouchers, organizations may face legal disputes, penalties, or disallowances of expenses during audits or inspections.

  • Facilitating Transparency

Vouchers promote transparency in financial reporting by providing a clear and documented record of each transaction. Since they can be traced back to original supporting documents like bills, cheques, or invoices, they eliminate doubts about the authenticity of entries. Transparent voucher recording also builds stakeholder confidence, as managers, investors, and auditors can verify financial data easily. In this way, vouchers not only safeguard against disputes but also strengthen the trustworthiness of organizational accounts.

  • Simplifying Audit Trails

One of the most important roles of vouchers is creating a reliable audit trail. Each voucher links transactions with relevant supporting documents, making it easier to trace financial activities step by step. This traceability helps auditors and accountants understand the origin, authorization, and posting of transactions. An organized voucher system reduces the chances of missing information during audits. It ensures accountability and provides a strong foundation for detecting fraud, discrepancies, or financial irregularities.

  • Aiding Management Decisions

Vouchers provide management with authentic and organized financial information that aids decision-making. For example, purchase vouchers show the company’s spending patterns, while sales vouchers highlight revenue streams. By analyzing vouchers, managers can evaluate cash flows, identify cost-saving opportunities, and control unnecessary expenses. Vouchers also help prepare accurate financial reports, which guide strategies related to budgeting, investments, and resource allocation. Thus, vouchers indirectly influence better planning and efficient decision-making in business operations.

  • Record-Keeping and Reference

Vouchers act as permanent records for future reference. They serve as documentary evidence whenever disputes arise with suppliers, customers, or employees. For instance, a payment voucher with signatures and receipts can resolve payment disputes. In computerized systems, vouchers stored digitally can be retrieved quickly for analysis. These records also help track historical financial activities, supporting comparative studies and financial planning. Overall, vouchers ensure systematic record-keeping and provide reliability to financial documentation in accounting.

Types of Vouchers:

1. Payment Voucher

A payment voucher is used to record all business payments made through cash, cheque, or bank transfer. It ensures proper tracking of outflow of funds. Examples include payment to suppliers, rent, salaries, or loan repayments. Each payment entry is supported by receipts or bills to verify the transaction. Payment vouchers help maintain cash flow records and prevent errors or duplication. In TallyPrime, users can select the “Payment Voucher” option and specify ledger accounts like “Bank” or “Cash” and corresponding expense accounts. This voucher is essential for businesses to control expenses and provide an audit trail for payments.

2. Receipt Voucher

Receipt vouchers record money received in the business, whether in cash, cheque, or bank transfers. They capture inflows from customers, loans, advances, or investments. For example, if a customer pays ₹1,00,000 for a sale, it is entered through a receipt voucher. Supporting documents like bank slips or receipts validate the entry. In TallyPrime, receipt vouchers are created by choosing “Receipt” and linking accounts such as “Bank” and “Debtors.” Proper maintenance of receipt vouchers ensures accurate cash flow tracking, reduces chances of misappropriation, and provides transparency. They help reconcile bank balances and strengthen financial reporting.

3. Contra Voucher

A contra voucher is used for transactions involving internal fund transfers within the business. It records transactions where cash is deposited into a bank account, withdrawn from a bank, or transferred between two bank accounts. For instance, depositing ₹20,000 cash into the company’s bank is a contra entry. Since both debit and credit are internal accounts, there is no impact on external parties. Contra vouchers are crucial for maintaining accurate cash and bank balances. In TallyPrime, users can select the “Contra” voucher and update ledger accounts like “Cash” and “Bank.” This prevents confusion and maintains internal financial clarity.

4. Journal Voucher

Journal vouchers are used for adjustments, provisions, and non-cash transactions. They include entries such as depreciation, outstanding expenses, prepaid expenses, or accruals. For example, recording depreciation of ₹10,000 at year-end is done using a journal voucher. These vouchers do not involve immediate cash or bank movement but are vital for proper financial statements. In TallyPrime, the “Journal” voucher option is used where debit and credit accounts are specified. Journal vouchers ensure compliance with accounting standards and accurate reflection of business performance. They help in fair reporting by adjusting books for non-cash and period-end entries.

5. Sales Voucher

Sales vouchers record the sales of goods or services, either on cash or credit. They serve as proof of revenue earned by the business. For instance, selling products worth ₹80,000 to a customer is entered through a sales voucher. Supporting documents like invoices or bills are attached. In TallyPrime, users select the “Sales” voucher, where customer and sales ledger accounts are updated along with inventory items. Sales vouchers are important as they maintain revenue records, track customer transactions, and calculate GST or other applicable taxes. They also help generate accurate profit and loss statements for business analysis.

6. Purchase Voucher

Purchase vouchers record all purchases made by the business, whether raw materials, goods, or services. They can be cash or credit purchases. For example, buying raw materials worth ₹60,000 is entered through a purchase voucher. Supporting invoices or supplier bills are attached for verification. In TallyPrime, “Purchase Voucher” is used where supplier accounts and purchase ledgers are debited and cash/bank accounts credited. Purchase vouchers help track expenses, manage supplier payments, and calculate input GST. Maintaining accurate purchase vouchers also aids in inventory management, cost analysis, and ensures transparency in the procurement process.

7. Debit Note Voucher

A debit note voucher is used when goods purchased are returned to the supplier due to defects, excess supply, or mismatches. For instance, if goods worth ₹10,000 are returned, a debit note voucher records the reduction in purchase and liability. It reflects that the supplier’s account is debited. In TallyPrime, users select “Debit Note” and update supplier and purchase accounts. Debit note vouchers help businesses manage returns effectively, adjust inventory, and claim input tax credit adjustments. They also serve as formal communication to suppliers about reduced obligations, ensuring accurate financial and vendor records.

8. Credit Note Voucher

Credit note vouchers are used when customers return goods due to damage, defects, or other reasons. For example, if a customer returns products worth ₹8,000, a credit note voucher is created to adjust sales and reduce receivables. In TallyPrime, “Credit Note” is used to update customer accounts and sales ledger. These vouchers maintain accurate sales records, adjust taxes, and handle inventory corrections. Credit notes also serve as formal communication to customers acknowledging their returns. They ensure transparency, customer satisfaction, and accurate revenue reporting by reducing overstated sales figures in financial statements.

9. Memo Voucher

A memo voucher is a temporary or non-accounting voucher used for recording transactions that are provisional in nature. These entries do not affect accounts until converted into regular vouchers. For example, recording pending expenses, such as a possible electricity bill of ₹5,000 not yet received, can be done using a memo voucher. In TallyPrime, memo vouchers can later be converted to actual vouchers when confirmed. They help businesses make provisional entries, track pending obligations, and avoid missing transactions. Memo vouchers ensure flexibility in accounting while maintaining control over uncertain or temporary entries.

10. Reversing Journal Voucher

A reversing journal voucher is used to record period-end adjustments that are automatically reversed at the start of the next accounting period. For example, accrued salaries for December may be recorded as an expense and then reversed in January once actual payment is made. In TallyPrime, users can select “Reversing Journal” to create such entries. This prevents duplication of expenses and maintains accuracy in financial statements. Reversing journal vouchers are essential for businesses to manage accrual accounting, handle temporary adjustments, and ensure smooth financial closing without affecting subsequent accounting periods.

Tabular summary of Voucher Types in TallyPrimewith their purpose and usage:

Voucher Type Purpose Usage in TallyPrime
Payment Voucher Records all outgoing payments (cash, cheque, bank). Used to pay suppliers, employees, or service providers and maintain proper expense records.
Receipt Voucher Records all incoming payments to the business. Used for customer receipts, loan received, or income received via cash, cheque, or transfer.
Contra Voucher Records internal fund transfers within the business. Used for bank-to-cash, cash-to-bank, or bank-to-bank transactions.
Journal Voucher Records adjustments, provisions, or error rectifications. Used for depreciation, accruals, or non-cash entries.
Sales Voucher Records sales of goods or services. Used to generate invoices for cash and credit sales.
Purchase Voucher Records purchases of goods or services. Used for both cash and credit purchases from suppliers.
Debit Note Voucher Records purchase returns or excess payments to suppliers. Used to reduce payable amounts to vendors.
Credit Note Voucher Records sales returns or allowances to customers. Used to reduce receivables from customers.
Stock/Inventory Voucher Records stock movements, adjustments, or production. Used to track inventory levels, transfers, and consumption.
Delivery/Receipt Note Voucher Records delivery of goods to customers or receipt from suppliers. Used as proof of delivery/receipt and for inventory reconciliation.
Management Notes

Position of an Auditor as regards the Valuation of Assets

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An auditor may rely on the directors of the company or on the certificates of other professional in respect of valuation of the assets, provided he uses reasonable care and skill. In matters relating to valuation of assets the auditor must adhere to the generally accepted principles of valuation, commercial practices and accounting standards.

The auditor should ensure that adequate depreciation has been charged on assets before determining the current value. The auditor should state the basis of valuation of assets in the Balance Sheet as certified by the directors or engineers, architect etc. as the case may be.

Valuation means estimation of various assets and liabilities. It is the duty of Auditor to confirm that assets and liabilities are appearing in the balance sheet exhibiting their proper and correct value. In the absence of proper valuation of assets and liabilities, they will exhibit either overvalued or under-valued.

It is therefore required for an Auditor to exercise reasonable care and skill to analyze the basis of valuation from technical experts and satisfy himself that assets shown in Balance-sheet are properly valued accordance with the generally accepted conventions and accounting principles.

Components of Valuation

Methods of valuation of assets are as hereunder:

  • Book Value: This is the value as appearing in the books of accounts; the cost price less depreciation.
  • Cost Price: This is the cost price paid at the time of acquisition of assets plus the freight charges, octroi charges, and commissioning and installation charges, etc. to bring that asset in usable condition.
  • Realizable Value: A Value which can be realized from the sale of assets.
  • Market Value: A value which the asset can fetch at the time of sale.
  • Replacement Value: A value on which an asset can be replaced.
  • Conventional Value: It means the cost price less depreciation written off ignoring any kind of fluctuation in the price.
  • Scrap Value: If the asset is not in working condition and sold as scrap, then the sale value of asset is scrap value.

Basis of Valuation

Auditor should ensure that the basis of valuation is correct and reliable. He should keep in mind the process of valuation which is as follows:

  • Original cost
  • Expected working hours of the assets
  • Wear and tear expenses
  • Scrap value
  • Chances of asset become obsolete

Fixed asset is valued at cost price less depreciation and current assets should be valued at cost or market price whichever is less.

Vouching, Verification and Valuation

In vouching, accounting entries are checked with the bona-fide vouchers.

  • Verification proves the existence, ownership and title of assets.
  • Valuation certifies the correct value of asset.
  • Vouching is done after original entry in the books of accounts.
  • Verification and valuation are done at the end of the financial year.
  • Vouching is done by Senior Auditor and Audit Clerk.
  • Verification and valuation are done by the Auditor
  • Bonafide vouchers are sufficient evidence for vouching
  • For Valuation Auditor has to depend upon certification from owner/partner/director.
  • Verification is done by physical verification, title deeds and receipt of payment, etc.

Verification and Valuation of Copyright

Copyright

Copyright provides legal protection and legal rights to an author by which the publication of his work by another is prohibited. Copyright remains with the author for lifetime and even 50 years after his death.

Verification of Copyright

  • The Auditor should examine the agreement between the author and the publisher.
  • If there are numbers of copyright with the same publisher. Auditor should ask for the schedule of copyrights.

Valuation of Copyright

Copyrights lose their value over a passage of time; hence the value of copyright is not stable. In case where the sale of publication is very low or nil, value of copyright should be written off.

Value of copyright in the Balance-sheet will be shown as cost less the value written off.

Verification and Valuation of Fixed Assets

Verification of Freehold Land and Building

  • Auditor should examine the title deed of the land and building.
  • Land and building shown in the books should be according to the title deed.
  • Profit or loss on sale of it should be duly adjusted in the account.
  • Any addition to it should be carefully examined by the Auditor.

Verification of Mortgage Property

  • The Auditor should confirm that there should be no second or third mortgage on it.
  • The Auditor should obtain certificate from mortgagee that title deed is in his possession.
  • The Auditor cannot be held responsible if there is any defect of title. The Auditor can only verify that title deed apparently in order and in the name of client.
  • If Auditor feels necessary he can obtain certificate from legal advisor about the validity of title deed of the client.

Valuation of Building

  • Building should always be valued at cost less.
  • Although the market value of building may be much higher than the cost, still depreciation on building should be provided.
  • Depreciation will be provided even if building is not in use.
  • Market or releasable value should not be taken into account because both are fluctuating.

Verification of Freehold Land

  • Freehold land is a non-depreciable asset, hence it will be shown at cost.
  • Cost includes legal charges, registration fees, purchase price and broker commission, etc.
  • Payment made to improvement trust or Municipal Corporation for water, sewerage, road, development charges, etc. it will also be included in the cost of the freehold land.
  • If the basis of valuation of it is market value or realizable value, it should be clearly mentioned in the balance sheet.

Verification of Building under Construction

  • Auditor should verify the architect certificate and contractor receipt for the amount paid.
  • Auditor should obtain a certificate from a responsible officer to that effect, if the staff of client is also engaged in its construction.

Verification of Leasehold Property

There should be separate accounting for freehold and leasehold property. Leasehold property is acquired for fix duration on lease.

  • Inspection of lease agreement for value and duration.
  • Lease agreement should be registered with the registrar.
  • Terms and condition of the lease should be properly complied for.
  • The Auditor should examine the last receipt of rent to ensure the lease agreement is in continuation without any break due to nonpayment of rent.
Management Notes

E-Auditing Meaning, Uses and Limitations

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Electronic auditing, or e-auditing, is computer-assisted auditing that uses electronic records to complete part or all of your audit. This follows similar procedures as a traditional audit but using electronic means to remotely perform the audit. E-auditing is also known as Remote Auditing.

For any number of reasons, having an assessor physically inside your walls for an assessment can prove needless with certain types of audits. Of course, it’s preferable, if not mandatory, depending on the nature of the audit, but we’re also moving into a period of time where technology has enabled new types of audits that often don’t require their presence.

An e-audit is a systematic, independent, and documented process to obtain evidence through electronic means to determine the extent of conformity to the audit criteria.  The use of e-auditing is increasing because so much of the technology we use in our daily lives connecting with friends on Skype, finding jobs through LinkedIn, or attending online classes is done over the Internet. These activities become a gateway to enhancing and applying online communication techniques. The more familiar we become with technology, the less anxious we feel about its interactive uses.

Validating an e-audit relies on the technology used and the auditor’s skill to facilitate a virtual meeting while coordinating with the remote location to find nonconforming evidence. This coordination of events is not an easy task without technical grounding in information technology and facilitation skills. Realistically speaking, a fair amount of registration auditors is limited in this area due to their intense travel schedules. At best, they are passive listeners in “all hands” online meetings. This is not a reason to stop conducting internal audits virtually. Note that ISO 9001:2015 itself and its requirement to understand the context of the organization seems to be a tacit endorsement of the e-auditing process.

ISO 9001:2015 provides an illustration of how complex businesses have become to compete in a global market to offer affordable products. For example, products that contain batteries often make headlines.

Uses

Tracking Ability

Most paperless audit systems offer reporting and tracking abilities throughout the auditing process. Managers from the company being audited as well as the auditing firm’s management can easily track and monitor each step in the review process. This increased tracking may help streamline resource requirements and helps manage the auditing timeline. Tracking and time management can be essential, especially for public companies with SEC-mandated reporting deadlines.

Accessibility

Companies that opt for a paperless audit can provide increased accessibility to financial documents and statements for auditing personnel. Increased accessibility can decrease the amount of time required by accounting and financial staff to provide documents to auditors. Depending on security requirements, accessibility may allow auditors to conduct their review from outside the business facility.

Less Waste

Reducing the need for duplicate copies of financial documents, storage facilities and office supplies can reduce the amount of waste both companies generate. Paperless audits use less paper, ink toner, electricity and office supplies than a traditional paper-bound audit. The reduction in paper and associated supplies can offer cost savings and an ecological benefit. This green focus may be important for companies that want to promote their company as being environmentally-friendly.

Increased Security

Physical documents are more difficult to secure than electronic documents. Electronic data and documents can be secured through passwords and other digital security methods. An electronic tracking system can also notate who has reviewed each data element for security review purposes. Physical documents can be copied, lost, or placed in an unsecure location. A paperless audit increases the security of a company’s financial system.

Limitations

Different Filing Requirements

The Internal Revenue Service and other government agencies may have different rules for electronic record keeping than for paper record keeping. Business owners should find out how to store audit reports and for how long they must store them prior to agreeing to an electronic audit. In addition, although electronic audits are often called “paperless,” some paperwork may need to be printed to fulfill government record-keeping rules.

Requires Technology

Auditors must be comfortable using computer software to create audit reports. If an auditor is not familiar with computers or with the software he is expected to use, he may have a steep learning curve. Auditors also must be familiar with using email or websites and uploading attachments, while business owners must be able to retrieve audit reports from their email or by going to a website.

Changing Over Systems

If a business relied on paper audits before, it has to switch over to an electronic system before it can begin taking advantage of paperless audits. This may take weeks or months, depending on how computer-based the business was before it switched over. In addition, some personnel may require training to access or use the new system. Thus, it can take a year or more for a business to switch over to a paperless system.

Security Considerations

If an auditor is going to use computers or other technology to prepare an audit, she must consider security factors that auditors who create paper reports don’t have to consider. Audits often refer to sensitive information, such as a business’ finances or tax requirements. Auditors must be able to send this information securely; only employees of the company who need to know the information in the report should be able to access audit reports online or via email.

Management Notes

Forensic Audit

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Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.

Forensic audit investigations are made for several reasons, including the following:

Corruption

In a forensic audit, while investigating fraud, an auditor would look out for:

Bribery: As the name suggests, offering money to get things done or influence a situation in one’s favor is bribery. For example, Telemith bribed an employee of Technosmith company to provide certain data to aid Telesmith in preparing a tender offer to Technosmith.

Conflicts of interest: When a fraudster uses his/her influence for personal gains detrimental to the company. For example, if a manager allows and approves inaccurate expenses of an employee with whom he has personal relations. Even though the manager did not directly financially benefit from this approval, he is deemed likely to receive personal benefits after making such inappropriate approvals.

Extortion: If Technosmith demands money in order to award a contract to Telemith, then that would amount to extortion.

Forensic Audit Procedures

Forensic Auditors go much beyond the financial reporting standards and internal control lapses. They try to understand the intent. Fraudulent intent is very important to prove the fraud in the courts of laws. There are four primary stages of any forensic accounting engagement

  • Plan the investigation: It is necessary to understand the exact question of the client. The forensic auditor plans his investigation to achieve audit objectives. Objectives could be assessing exact number of frauds, executives involved in manipulating company financials etc.
  • Collecting Evidence: Forensic Auditors collect the accurate evidence of financial manipulations. Evidences should substantiate the financial damage assessments based on accounting records.
  • Reporting: Since there is no template, forensic audit reports differ in format but have the same objectives. A good forensic audit report clearly documents the findings of the investigation and refers the evidences collected during the process.
  • Court Proceedings: Forensic Auditor are expert witnesses. In the court proceedings he needs to explain the importance of evidences. They should simplify the complex accounting issues.
Management Notes

Safeguard Data Automated Backup and Recovery

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Automated Backup

This feature allows the user to safeguard his company data. The Automated Backup or Auto Backup is a capability that automatically takes data backup in the background without any disturbance or affecting your work.

Auto Backup can be carried out by executing the following steps:

Go to Company Creation/Alteration screen of the required company.

Set Yes to Enable Auto Backup as shown:

  • Save the Company Creation/Alteration screen.

The data backup is stored in the data folder of the respective company.

E.g.: A company titled ABC Company has a folder 10009 located in C:\Tally.ERP9\Data. On enabling Auto Backup feature the backup file ABK.900 is created in C:\Tally.EPR9\Data\10009

Restoring Auto Backup Data

To restore the auto backup taken execute the following steps:

From the Gateway of Tally

  • Press Ctrl + Alt + K.
  • Restore Company on Disk screen appears.
  • The Source field displays the data path of the company under Select Auto Backup to Restore screen. Press Enter.
  • The List of Auto Backup(s) will list all the companies enabled for Auto Backup.
  • Select the required company and press Enter.

  • The List of Auto Backup Versions screen appears listing the backup versions.

  • Select the required version from the list and press Enter.
  • The selected version of data backup is restored to the respective company folder.
  • The auto backup utility prompts the user to overwrite the existing company.
  • Press Y or click Yes to proceed with restoring the data.
  • Press Alt + F1 to Shut the existing company.
  • Select the restored company.
Management Notes

Tally ERP 9 Auditors Edition Introduction, Features, Characteristics

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Tally is an ERP accounting software package that is used to record day to day business data of a company. The latest version of Tally is Tally ERP 9.

It is one of the most financial accounting systems used in India. For small and medium enterprises, it is complete enterprise software. It is a GST software with an ideal combination of function, control, and inbuilt customisability. It is the best accounting software. This software can integrate with other business applications like Inventory, Finance, Sales, Payroll, Purchasing, etc.

Features of Tally

  • Tally is also called multi-lingual tally software because Tally ERP 9 supports multi-languages. In Tally, accounts can be maintained in one language, and reports can be viewed in other languages.
  • Tally is largely considered the best because it is easy to use, has no codes, robust and powerful, executes in real-time, operates at high speed, and has full-proof online help.
  • Using the Tally, you can create and maintain the accounts up to 99,999 companies.
  • Tally has the synchronization feature, so the transaction which is maintained in multiple locations offices can be updated automatically.
  • Tally is used to generate consolidated financial statements as per the requirements of the company.
  • Using the feature of payroll, you can automate the employee records management.
  • Tally can manage single or multiple groups.
  • The feature of Tally customization makes the software suitable for distinctive business functions.
  • Tally software is used to handle financial and inventory management, invoicing, sales and purchase management, reporting, and MIS.

Characteristics:

Separate Tracking:

This software helps to track the trading and non-trading accounts. It helps users to get the receipts, new bills and payments without any hassles.

Interest Calculation:

Tally software has a different transaction method that helps to customize the transaction process. The user can get a detailed report, after the transaction completion. The final report helps to get the balance amount that ought to receive.

Audit, Control and Budgeting:

Tally audit enables the user to have unlimited budgets and periods. With this support, a user can correct mistakes easily. A user can gain robust access control with high security.

Voucher Entry:

Using this software helps to identify the various business transaction details. Tally Classes in Chennai makes you more comfortable in accounting, use this opportunity and get a job in this field.

Billing details:

Tally accounting software enables users to handle billing information. It helps to allocate the payments regarding overdue and invoices. This helps to split the customers easily using billing data.

Interesting in Ledgers:

This software inculcates the multiple ledgers including Purchase Ledger, General Ledger and Sales Ledger. This ledger helps to create records and enter data simultaneously.

Advantages of Tally

Payroll management: Several calculations that need to be made while disbursing salary to employees. Tally is used to maintain the financial record of the company that includes net deduction, net payment, bonuses, and taxes.

Data reliability and security: In Tally, the entered data is reliable and secure. There is no scope of entering the data, after being entered into the software.

Management in the banking sector: Banks use Tally to manage various user accounts, and also calculate interests on deposits. Tally support ensures ease in the calculation and makes banking simpler. Tally Support can make the calculation easy and banking simpler.

Ease of maintaining a budget: Tally is used to maintain the budget. Tally is used to help the companies to work and manage expenses by keeping in mind the total budget which is being allotted.

Regulation of data across geographical locations: Tally software is used to manage the data of an organization globally. Tally can bring together all branches of the company and makes the common calculation for it at large. So no matter which location a company’s employee has access, it will be uniform throughout.

Simple tax returns filing: Tax GST is used to ensure that the company complies with all GST norms. Tax GST takes care of service tax returns, excise tax, VAT filing, TDS return, and profit and loss statement for all small businesses.

Remote Access of Data: In Tally, employees can access the financial data using the unique User ID and password. The logging and access of data can be done by sitting at the comforts of one’s office or house.

Audit tool for compliance: It acts as an audit tool. It is used to carry out regular audits of companies. It does a thorough compliance check towards the financial year beginning and ensures that all the monetary transactions are smoothly being carried out.

Quick Access to Documents: Tally can save all invoices, receipts, bills, vouchers in its archive folder. Using the Tally, we can quickly access any of the previously stored documents. We can immediately retrieve all the billing related files.

Management Notes

Tally.Net: Features, Requirements for remote connectivity Access information via SMS

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Tally.NET is a technology within Tally. ERP 9 which powers revolutionary capabilities such as continuous upgrades & updates, central consolidation of branch data, central deployment of Customisation, instant support from within your Tally. ERP 9 and many more that enhances your business performance.

Tally.NET Services

On a broad level, Tally. ERP 9 comprises of:

  • The product itself
  • A set of capabilities (enabled via the Internet) by a service called Tally.NET

This ‘two component’ architecture was chosen as this delivers an unparalleled model of a host of services as below:

(Tally.NET Services Annual Subscription is included in your Tally. ERP 9 for the first one year. Subsequently you are advised to subscribe to avail the following services at a nominal charge of 20% of the then prevailing product price)

(a) Remote Access Services

Your business data stays with you locally, and is never stored on Tally.NET servers or on systems accessing that data via Remote Access.

(b) Integrated Support Services: Support Centre

Integrated within Tally. ERP 9 and Shoper 9, this new feature enables the users to report and track their queries from within the product. You can directly target the query to your regular Tally Service Provider (or any other Tally Service Provider, if you are making your first query) and get responses quickly. These can even be reported and viewed remotely. You can then use the reference number to escalate the issue to Tally’s Customer Centre in case you need to.

Over time, this capability will be extended to cover your Chartered Accountant or other business associates & friends using Tally. ERP 9 to broaden the horizon of your support ecosystem.

You can also access all the conversations centrally. This will simplify the process of having a summary view of the kinds of issues people in your company raise which will help you identify gaps of knowledge or other persistent system issues.

(c) Self-service using Control Centre

The Control Centre enables users to centrally configure and administer Site/ User belonging to an account. Thus, the Control Centre acts like an interface between the user and Tally. ERP 9 installed at different sites.

With the Control Centre you save time, travel and communication costs, manage Tally. ERP 9 installations efficiently and effectively because it enables you to:

  • Manage Licenses
  • Perform Central Configuration
  • Manage Users
  • Manage Company Profile
  • Manage Accounts
  • Change Passwords
  • Maintain Activity History

(d) Self-service using Knowledge Base

Tally has compiled a large selection of articles for users to understand the product and its applications. Users can access the Knowledge Base and search from available topics at their convenience.

(e) Software Assurance Services

Get instant product updates and upgrades as and when they happen

(f) Data Synchronisation Services

Now exchange data with ease between two or more Tally licenses (implemented at different locations)

Requirements for remote connectivity Access information via SMS

You can securely access your Tally. ERP 9 from anywhere to record transactions, or view reports when working from a client’s office, or other remote locations. All you need at the remote location is a Tally. ERP 9 installation, and an internet connection. In your office you need to have a valid Tally. ERP 9 license, an active TSS, an internet connection, and your company connected to Tally.NET services. Server and remote systems must have the same release of Tally ERP 9.

Security and Control: You have complete control on who can access your companies, and which features are available to the user. Further, your data will always be in your computer. Whenever a user connects to your company, based on the access permissions you have provided, the user can access the required features. If your employee is at a client’s place and want to print an invoice or purchase order placed by the client, it can be done. However, the employee will not view your financial reports unless you have given the permission. If you want to check your financial reports when you are away from your office, you can use any computer with a Tally. ERP 9 installation and view the reports.

Anywhere, Any Tally. ERP 9 Installation: You can access your Tally. ERP 9 companies from anywhere using even a Tally. ERP 9 in Educational Mode, and an internet connection. When your employees are at clients’ locations, they can view the stock availability and commit delivery dates to the clients, or check the pending receivables from the clients. This will ensure availability of the latest details at that moment.

Audit Accounts: You can allow your auditor to do verification of your books using remote access. For this, you just need to allow remote access to your company for the auditor’s Tally.NET ID. Like you or your employees logging in to the company, auditor also can log in and do the work.

Print Reports and Vouchers: Users can open a voucher or report, and print it at the remote location. When your employee is at a client’s place to collect receivables, after collection a receipt can be recorded and a voucher can printed for the client.

Record or Alter Vouchers: The user with the required permissions can create or alter vouchers. If you or your employee meets a supplier, and strike a favourable deal, a purchase order can be raised immediately from your Tally. ERP 9 company.

Easy Setups: Connect your company, and allow users to access your company from anywhere. Note that only users with valid Tally.NET IDs are allowed to access your company remotely. Your account ID (e-mail ID used to activate your license) is a valid Tally.NET ID. You can create Tally.NET IDs for users who need to log in to Tally. ERP 9 remotely, allow access to these IDs. Similarly, you can allow your accountants or auditor who have their Tally.NET IDs to log in remotely.

Management Notes

Deemed owners, Composite rent

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Deemed owner is an owner by implication, he may not be the person under whose name property is registered. Some instances in which a person who is not the owner of the property is considered to be the owner for the purpose of tax levy are

1) An individual who transferred his property without adequate consideration to his or her spouse (otherwise than in connection with an agreement to live apart) his minor child (not being married daughter) is deemed to be owner of that property.

If an individual transfers another asset and his spouse or minor child purchase house property from that asset, then such individual is not treated as deemed owner.

2) If property is allotted by company/co-operative society to its shareholders/members, then technically the company/cooperative society may be the owner. But the shareholder/member to whom property is allotted is deemed to be owner of property.

3) If buyer has taken the possession of the property without getting the sale deed registered is deemed to be owner of the property.

A person who is allowed to take or retain possession of any building (or part thereof) in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, is also deemed as the owner of that building (or part thereof).

4) A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building (or part thereof) by virtue of any such transaction as is referred to in section 269UA(f) [i.e. if a person takes a house on lease for a period of 12 months or more, Persons who purchase properties on the basis of Power of Attorney]

Composite Rent

When the total amount i.e. rent of the building along with the hire charges for other assets such as furniture or service charges for certain services such as security, lift, etc. is received by the owner of the building; such amount so received is defined as Composite Rent.

Tax Treatment of Composite Rent:

The taxability of Composite Rent can be well understandable by considering Two cases mentioned below:

Case1: Where Total amount is inseparable

Where composite rent consists of rent for the building & hire charges for other assets & the two rents are inseparable, then the entire amount is chargeable under the Business Income or Other Sources, as case may be.

Case2: Where Total amount are separable

Where composite rent consists of rent for the building & hire charges for other assets & the two rents are separable, then rent of the building is taxable under the head Income from House Property whereas hire charges of other assets is charged to tax under Other Sources.

Also, if the composite rent is the mixture of rent of the building & also includes service charges for some services, then the total amount is spilt into rent & service charges. Rent gets taxable under House-Property & Service charges under Business Income.

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