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Audit of Provident Funds Session II: The Beginning Presenter: Altaf Noor Ali Chartered Accountant 2 nd Session: 11.30 -1pm = 90 min First day on the field work…what it should be like? Audit of Bank Accounts Nature of Receipts and Payments Audit Objectives and Program

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Audit of Provident Funds Session II: The Beginning

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Auditof Provident FundsSession II: The Beginning

Presenter:

Altaf Noor Ali

Chartered Accountant


2nd Session: 11.30 -1pm = 90 min

  • First day on the field work…what it should be like?

  • Audit of Bank Accounts

    • Nature of Receipts and Payments

    • Audit Objectives and Program

    • Obtain bank statements and reconciliation

    • Scanning receipts and payments during the period

    • Send bank confirmations

  • Audit of Current Account

    • Nature of Current Account

    • Audit Objectives and Program

    • Deduction of monthly contributions from employees [and salary reconciliations]

    • Receipts and payments made on behalf of provident fund [final settlements, withdrawals, recoveries of members’ loans, etc]

    • Reconciliation and adjusting entries [example: return on investments]

  • Conclusion


First day on the field work…what it should be like?


Provident Fund Audit: The First Day

  • Reach early. Bring wpf. Follow-up others…

  • Get to know your surroundings. Get to know people around you

  • Review pre-audit meeting minutes

  • Obtain trial balance

    [Review chart of accounts, check opening balances]

  • Obtain ledger [Audit adjustments will be made later]

  • Scan ledger and have a discussion. Prepare notes

  • Obtain bank statements

  • Send bank confirmations

  • Obtain permission to communicate with legal adviser

  • Brief audit team, coordinate with your supervisor


Provident Fund Audit: Important Features

  • Audit of p/f is different from other audits, requires knowledge

    • Cash transactions = None

    • Physical verification on reporting dates = May be none

    • Applicability of Accounting and Auditing standards

  • Transactions may be recorded and routed differently

    [for final settlement, investments, loans to members]

  • No accounting manual or formal investment policy

  • How can auditor add Value

    [Improve quality of book keeping, prepare system notes]

  • Go systematically: Document Matters to Follow-up

    [Write things to do. From last year. For current period]


Provident Fund Audit: Quality of Accounting

  • Quality of Accounting directly affects the progress of audit.

  • Accountants have different style of recording. Some are brilliant. Most take short-cuts and do not record and enter transactions properly.

  • Do expect to find incomplete narration, recording, errors, etc. if not pointed in last management letter.


Nature of Bank Accounts


Provident Fund Audit: Bank A/c: Nature of Receipts

  • Employee/Employer Contribution

  • Recovery of Loan installments from Members

  • Return on Investments [Dividends, tfcs, cfs etc]

  • Maturity of TFCs and DSCs

  • Disposal of Investments through Stock Broker

  • Bank Profit


Provident Fund Audit: Bank A/c: Nature of Payments

  • Final Settlement of Members

  • Permanent Withdrawals

  • Loans to Members

  • Investments made during the year

  • Bank charges


Audit of Bank Accounts


Provident Fund Audit: First Procedure

  • The first step in a p/f audit is to get hold of Bank Ledger Account, Bank Receipt Vouchers and Bank Payment Vouchers.

  • Obtain bank statement of the period.

  • Match the balance of bank account with that of bank statement. If they do not match, get a reconciliation.

  • Prepare proposed entries to be made.


Provident Fund Audit: Bank Accounts: Audit Objective

  • There is proper control over the bank account[s]; appropriate procedures are in place.

  • All transactions have been properly accounted for.

  • No transactions are beyond the applicable rules and regulations.

  • There are no unexplained entries in the bank accounts or bank statement.


Provident Fund Audit: Bank Accounts: Audit Program 1

  • Any new bank account opened during the year?

  • Check opening balance of the bank statement.

  • Obtain bank reconciliation statement. Compare balances and entries. Verify.

  • Scan ledger account to make sure that there are no unexplained entries in the bank accounts or bank statement.


Provident Fund Audit: Bank Accounts: Audit Program 2

  • Bank Receipt Vouchers and Bank Payment Vouchers have been recorded and entered in proper accounts. Where corrections were required, they were made through Journal Vouchers.

  • All vouchers were authorised and supported with proper evidence.


Provident Fund Audit: Bank Reconciliation: Audit Program 3

  • Receipts: All transactions in bank statement have been properly recorded in Bank Account. [profit relating to the period credited after reporting date]

  • Receipts: Cheques deposited to the Bank after the reporting date were cleared subsequently.

  • Payments: Unpresented cheques were cleared.

  • Debits in Bank Account for adjustments: Payments recorded in the Bank Account. [bank charges]


Provident Fund Audit: Some Good Practices

  • Receipts: Attach bank deposit slips to the vouchers.

  • Receipts: Route sale of investments through ‘Investment Disposal Account’

  • Payments: Route loans to members, permanent withdrawals, and final settlements through respective ‘Control Accounts’.


Audit of Current Accounts


Provident Fund Audit: Current A/c: Most Important

  • The Employer maintains an account of p/f in its books.

  • The debit balance of this account should tie with the credit balance appearing in the books of the p/f….and vice-versa.

  • Any adjustment made in one account will be required in other account as well.


Provident Fund Audit: Current A/c: First Procedure

  • Obtain from the Employer an account of p/f appearing in its books.

  • Match its balance with the balance appearing in the books of the p/f.

  • In case the balance does not match prepare a reconciliation and locate the reason for difference.

  • Debit balance indicates receivable, credit balance indicates payable. Check clearance.


Provident Fund Audit: Current A/c: Nature of Transactions

Event 1: Employer remits payroll contribution to p/f

Debit = Bank A/c

Credit = Employer Current A/c

Event 2: Employer makes final payment to a member

Debit = Member A/c

Credit = Employer Current A/c

[Same entry for payments on behalf of p/f e.g. loan, permanent withdrawal]

Event 3: For recoveries of member loans

Debit = Employer Current A/c

Credit = Member Loan A/c

Event 4: Dividend by error deposited in employer account

Debit = Employer Current A/c

Credit = Dividend Income A/c


Audit of Provident Funds Conclusion

First Learn. Then Apply.

First Account. Then Audit.

End of Session Two

Thank You.


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