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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

Auditof Provident FundsSession II: The Beginning

Presenter:

Altaf Noor Ali

Chartered Accountant

2 nd session 11 30 1pm 90 min
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
provident fund audit the first day
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
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
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.
provident fund audit bank a c nature of receipts
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
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
provident fund audit first procedure
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
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
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
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
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
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’.
provident fund audit current a c most important
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
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
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
Audit of Provident Funds Conclusion

First Learn. Then Apply.

First Account. Then Audit.

End of Session Two

Thank You.

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