| CONTENTS
CHAPTER 1
INTRODUCTION: Banking is an important sector of the economy of any country and for the development of the economy a healthy banking system is a must. After the liberalization of the economy, the banking system has undergone a total change in India. There is hard competition in the banking industry to survive in the current circumstances. With the purpose to have better financial discipline & to ensure uniformity in accounting norms RBI introduced the concept of asset classification & income recognition as per the recommendations of Narasimhan Committee. It was also suggested to classify the advances given by banks into Performing & Non Performing Advances (N.P.A.).
Banks and Financial Institutions lend money against hypothecation and pledge of stocks, book debts and securities. Banks have to closely monitor the activity of borrower to ensure that the money lended by bank is secure & there is adequate margin for recovery of loan.
To ensure the safeguard of the advances given and to identify the probable N.P.A. at an early stage, the Banks and Financial Institutions approach external Auditor to carry out an independent examination of these hypothecated and pledged stocks, book debts and securities. The role of the Auditor assumes a great importance, as he is an independent and neutral party whose report is looked upon with respect and credibility.
CHAPTER 2 STOCK & RECEIVABLE AUDIT WHAT IS STOCK AUDIT? Stock or Inventory means the assets: These goods are normally stored in the godowns, which are generally located near the factory. Audit is an independent check on the functions of the management, which has some value in the eyes of law and the taxation authority. Audit refers to thorough check of the entire system so that it facilitates Prevention and early Detection of frauds. Stock & Receivables Audit is one of the most important aspect of the overall exercise of audit of any organization. In stock and receivable audit, auditor ensures himself about the quantity, quality, composition and actual value of the stock & the debtors. The stock audit covers examination of aspects such as reasonableness of the valuation of the security, routing of sale proceeds of hypothecated stocks largely through the borrowers account, maintenance of the prescribed margins, accuracy of the stock statements, reasonableness of the composition and age of hypothecated stock and their insurance, quality and age of the receivables etc. The main object of such audit is NEED FOR STOCK AUDIT: The simple reason for audit and physical verification of the stock and securities is that it acts as a safeguard against occurrence of both, the Internal and External Frauds. The other reasons are listed below: - 3. To find out whether the stocks and securities can get degraded. 6. To find out whether the stocks are in realisable conditions. 7. To find out whether stock is owned by the party. 8. To find out whether borrower has adhered to other terms and conditions as per the sanction letter SCOPE OF STOCK AUDIT: The scope of stock audit almost covers all the aspects, which has any bearing on the working capital profile of the borrowers as well as security & liquidity in view of banker. It encompasses the following aspects: RESPONSIBILITY OF THE STOCK AUDITOR The responsibility of an auditor is always towards the authority that has employed them and the authority, which regulates the profession. In case of stock audit the auditor is employed by the bank or the financial institution. They place reliance on the audit report and acts accordingly, due to which the auditors are responsible to them. As there is no guidance note or standards prescribed for stock audit, the auditors should conduct the audit based on the generally accepted auditing practices and to the best of his judgment and ability CHAPTER 3 VERIFICATION OF STOCK AND DEBTORS
Stocks and Debtors are two very important areas requiring attention of not only auditors, but also the management because they are the essence of every business activity and they provide the true indication of strength and vitality of a business. The primary objective of verification, from any point of view, is to ascertain whether they are realizable in cash for the value stated. The best symptom for this is a good, healthy, regular movement of both.
A. VERIFICATION OF STOCK:
There are several guiding as well as mandatory principles prescribed through the various pronouncements such as Standard Auditing Practices viz., SAP's, issued by the ICAI. Various International Bodies also prescribe such standards. However, within the framework of all such guiding principles, the verification of stocks boils down to the following: Quantities and Rates. The thrust of any stock verification process is to verify the system followed or the procedure adopted to compile the quantities of stocks as on a given date and the rate applied for evaluation. The audit objectives remain the same though the accounting procedures vary from business to business, country to country, and product to product. A standard checklist can be effectively used provided it is customized to suit each individual case so as to cover its peculiarities and specific considerations. Due attention to exceptions such as damaged, unrealizable, scrap, unserviceable, and obsolete stocks is also expected to be given. Stock in transit must be reconciled to ensure that there are no duplications or omissions.
B. VERIFICATION OF DEBTORS:
As in the case of stocks, there are several guiding as well as mandatory principles laid down by the various pronouncements through standard auditing practices laid down by the ICAI as well as the various International Bodies. Here again the thrust of the verification procedures is on the accounting procedures relating to credit sales and collections. Verification procedures also include independent confirmation of balances and reconciliation of accounts.
C. PROCEDURE FOR VERIFICATION OF PLEDGED STOCKS
3. Examine the layout of the godown where stocks are stored.
D. PROCEDURE FOR VERIFICATION OF HYPOTHECATED STOCK
8. Prepare the age-wise list of the stocks in the following manner: -
# More than 12 Months Old
# More than 6 Months Old and Less than 12 Months Old
# More than 3 Months Old and Less than 6 Months Old
# More than 1 Month Old and Less than 3 Months Old
# Less than 1 Month Old
9. Bifurcate the stocks into paid and unpaid and ensure that only paid stocks are taken for the purpose of calculation of drawing power.
In case of unpaid stock, the Bank/Financial Institution should not provide any assistance or credit facility to that extent.
10.Check whether the Insurance policies covers the below mentioned risks: a. Fire b. Marine c. Other Natural Calamities If the policy taken by the borrower does not cover any or all the risk mentioned above the stock has to be insured against all the risks. Non-compliance of coverage of all the risks by the insurance policy can cause a big probable loss to the Bank/Financial Institution.
This may happen because the borrower does not want to pay the premium for covering all the risk. And in the event of say, occurrence of fire, destroying all the hypothecated stock, than it will be the Bank/Financial institution, who will be the sufferer.
11. In case of excisable items, the excise records should be thoroughly checked.
12. Also verification of the Production register should be done.
13. Details of the stock as regards to quantity, quality, life, date of purchase and price must be verified.
14. Check whether goods require any specialized preservation, and if so, then proper arrangement should be made for facilitating such storage.
15.Check the method, which has been employed for ascertaining the final value of closing stock.
16. Check whether borrower follows the method consistently or not.
17. Verify the movement of stock.
18. Check the work in progress and its basis of valuation and percentage of completion.
19. It should be ensured that the Insurance Policy value is sufficient to cover the amount of the stocks at any point of time.
20. Check whether all the insurance policies are in force.
E. PROCEDURE FOR VERIFICATION OF HYPOTHECATED BOOK DEBTS
1. Sundry Debtors may be classified as sound i.e. fully realizable or doubtful.
2. Prepare the age-wise list of the Book debts in the following manner.
# More than 12 Months Old
# More than 6 Months Old and Less than 12 Months Old
# More than 3 Months Old and Less than 6 Months Old
# More than 1 Month Old and Less than 3 Months Old
# Less than 1 Month Old
3. Verify whether the stipulated margin is maintained against book debts.
4. If there is any payment towards the Book Debts than it must be paid directly in the bank branch.
5.Examine the statement of Debtors to ascertain whether there is undue concentration of Debts involving large amount from a few parties. If so, examine whether limits for individual debtors have been fixed and whether the limits are adhered to.
6.Compare the statement of Book Debts with the Debtors ledger to ascertain the genuineness of the debt, aging of debt, & cases of non-realization of long outstanding debts.
CONFIRMATIONS
Confirmation of Accounts Receivables including loan from financial institutions or bank is a generally practiced auditing procedure to obtain External Audit evidence
"The auditor should obtain direct confirmations from third party".
The entire process is as follows:
The date of request of confirmation is also very important.
The date may be as follows:
Generally the confirmation request should be sent approximately a week before the date specified in the request if the debtor is in a foreign country. The auditor should first obtain a schedule of accounts receivable .The auditor should also determine that the totals are correct, investigate credit balances and compare all or a selected sample of account balances with the account balances in the ledgers.
Selection of Accounts for confirmation should be on following basis:
Specimen Confirmation Statement [Client's Letterhead]
To [Date] [Name & Address of Customer]
Dear Sir,
Our auditors [name and address] are conducting an audit of our financial statements. Please examine the accompanying statement and either confirm its correctness or report any differences to our auditors.
Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply.
For XYZ Ltd.
(___________) Director
Confirmation: The balance receivable from us of [amount] as of [date] is correct except as noted below:
_____________ [Debtor's name]
Date ____________
Note: This confirmation is to be posted directly to the auditors as per the stamped envelope enclosed. CHAPTER 4 PROCEDURE OF STOCK AUDIT STEPS TO BE TAKEN FOR AN EFFECTIVE STOCK AUDIT: - (A) Before making visit to party: (1) Get the Name, Address, Telephone No., and Fax No. of the party. (2) Get the bank account nos. and full banking details of the party. (3) List down the various kinds of facilities enjoyed by party and the limits thereof. (4) List down the date of sanction, sanction limit, drawing power & current balance in the account. Obtain a copy (Xerox) of the original sanction letter and the latest review note. (5) See whether the party is regularly submitting the statement of stock & book debts. (6) See whether the insurance policy has been issued in the favour of bank or not. (7) See the amount of insurance policy & date of expiry. (8) Go through previous visit record made by branch manager, advance officer or any other officer of the branch. (9) Check whether the interest on overdraft or cash credit facility has been regularly paid. Same is in the case of installment payments of term loan. (10) See whether the operation of account is satisfactory or not. (11) Get an appointment before visiting the party's office. (B) At the party office (1) Check whether the party has maintained the stock register. (2) Check whether other books of account have been maintained by the party i.e. cashbook, bank passbook, purchase book, sales book, debtors ledger & creditor ledger etc. (3) Bank nameplate stating " Hypothecated to Name of Bank/ Financial Institution" should be affixed on the wall in stock premise e.g. "Hypothecated to Corporation Bank". (4) If there is damaged stock, then it should not be taken into account for calculation of drawing power. (5) Stock must be in sufficient quantity to cover the advance given by the bank. (6) Stock should be kept in proper condition. (7) Stock must be kept in the premises, which should be free from water leakages, fire, & other hazards etc. so that damage to stock does not occur. (8)Fire-fighting equipment must be available in stock premises and it should be regularly checked to preserve its utility. (9) Specify the name of the person who has attended the auditor. (C) Photocopies of following should be obtained from party: year & preceding 3 months before date of inspection. No. 32 & 18, partnerships deed, Trust deed & its byelaws as may be applicable. Balance Sheet and Profit & Loss Account must be audited by a Chartered Accountant. Stock Audit is conducted in two Parts i.e. I) IN HOUSE AUDIT: c) Check creation of charge wherever required. d) Thoroughly check the operation of the Account during last 5/6 months. e) Whether interest is being served in time and stipulated installments are paid on the due dates in case of Term loans. f) Stock Statements are being submitted regularly and drawing power is calculated accordingly. g) Scan through the previous Audit report, if available, as also last annual report of the bank with specific reference to the Auditor's Report. h) Verification of operations in the account with respect to the projections / QIS statement. i) Check the adequacies of Insurance cover and whether it is endorsed in favour of the Bank .In case of Pledge of goods kept in the godown, ascertain whether the keys of the godown are with the branch. II) Physical Verification of Stock: - The auditor should physically verify the inventories in order to satisfy himself about their quantities. The timing and extent of inventory checking is decided on the basis of clients inventory system and the effectiveness of internal control system Thus there are two major steps in checking of inventory: - Planning is very important. Basically the primary responsibility of conducting the physical verification is that of the client Planning is to be based on following aspects: - Locations of inventory: The client's plan should indicate the location of inventory. Inventory is usually located at the following: - The Auditor should be personally present when the stock inspection is taking place and supervise the entire process. Audit Programme for Physical Verification: - The auditor should prepare in advance his audit program for verification. This includes the following steps: - 1) Name of the person contacted & his designation. 2) Banks/ Financial Institutions name board is prominently displayed. 3) Checking of layout of the godown to ascertain quantity of stock, which can be stored. 4) Whether adequate Security arrangements are made at the godown. 5) In case of manufacturing Unit ascertain licensed capacity, installed capacity & actual capacity. Possibly try to understand the reasons for under-utilised capacity & verify that stock holdings are commensurate with the installed capacity. 6) Determine the methods of valuation for Raw material, Work in progress & Finished goods. 7) Advance payments to suppliers if any & volume of unpaid Stock should be ascertained. 8) Reasons of sudden increase in stock, if any during particular period, as also abnormal increase in stock of finished goods should be looked into. 9) Dead and obsolete stock should be kept separately and should not be included for the purpose of arriving at the drawing limits. 10) Whether the borrower maintains account with any other Bank. 11) Shortage in inventory if observed frequently should be questioned. 12) Any shortage observed in case of delivery and dispatch of stock to any specific customer, or conversely shortage in material received from a specific supplier should be questioned. 13) Check for Purchase bills/Inward Documents, Average level of stock maintained during last 1/2 year, Dispatch and Sales invoices, unexplained trends in Sales & Purchases, Inventory valuation norms/method. 14) Examine movement of high value items. 15) Verify frequent alterations in the Sales and purchases invoices and also all cancelled documents. Restrictions on Auditor: - Sometimes, the stock of the client is stored at a public warehouse or sometimes it is in transit or sent on consignment. In such cases it is not possible for the auditor to physically verify the stock. In that case, the auditor may obtain a confirmation of the stock from the consignee or from the public warehouse. CHAPTER 5 VERIFICATION OF SECURITIES What the term 'Securities' denotes? According to Section 2 (h) of Securities Contracts (Regulation) Act, 1956, the term 'securities' include-
The physical as well as demat securities shall be in the form of:
Registers maintained by Bank:
In order to maintain the record of purchase and sale they maintain a vault register and give each certificate a specific security code number based on which category they belong to. Category wise details of code number is as follows:
Code Number Category
Whenever securities, scrips are required to be deposited or withdrawn permanently, the same are recorded in this register. It mentions date of receipt or withdrawal, particulars of securities, certificate numbers, number of scrips, face value, withdrawal memo number. Entries are initiated by joint custodian and Chief Manager.
Securities, scrips which are required to be sent for redemption are entered in this register. Moreover, whenever bank opts for acquiring a jumbo certificate in common in exchange of holding large number of certificates of scrips, securities withdrawn are entered in this register, say if bank is holding 10,000 shares of certain company and it has 10,000 scrips in number, then it can opt for 1jumbo certificate in common for all these 10,000 shares of that company. Withdrawals when made, date, security code, company with whom it is being lodged, face value, purpose of withdrawal is mentioned in the register. Entries are initiated by joint custodian and Chief Manager. Entries of both receipt and withdrawal are made in the same register on deposit or withdrawal sides respectively.
A scrip when handed over to respective holder branch for collection of interests are entered in this register. Register gives details of security code, description of securities, bank to be lodged with, due date for interest, face value, purpose of withdrawal, date of scrips returned to custodian, number of scrips. Entries are initiated by joint custodian and Chief Manager.
Whenever any security is withdrawn from custody for whatsoever purpose redemption, interest collection etc., a withdrawal memo is being issued specifying the security code number, description of security, face value, date of withdrawal from safe custody. It is issued under the authority of Chief Manager.
Following are the computerized statements available:
This statement contains specification of all the securities held by the Bank whether in physical form or demated form. This list is inclusive of securities sent for demat, redemption, ex-custody etc.. The list specifies security code, description of security, face value, and book value. In short it gives details total investment made by the Bank.
This statement is a kind of passbook issued by depository. It gives the details of shares demated, shares pending for demat, demat scrips that are redeemed. It gives details of ISIN code, description of securities, quantity of securities etc..
At times branches do not physically handover scrips to custodian, but instead they submit a statement called SCR giving specification of scrips in which money is vested, date of purchase etc.. SCOPE OF AUDIT:
Reporting should be done on the following:
The auditor has to physically verify securities and check the following points.
(A) WHEN THE ORIGINAL SECURITIES ARE IN CUSTODY OF CLIENT
(B) WHEN THE ORIGINAL SECURITIES ARE IN CUSTODY OF ANOTHER PERSON i.e. BANK/ FINANCIAL INSTITUTION
In this case, the auditor will have to obtain a certificate from the holder of the securities that they are holding them on behalf of the client and the same are kept in safe custody.
(C) WHEN THE ORIGINAL SECURITIES ARE SENT BACK TO THE COMPANY FOR SURRENDER/ TRANSFER/ CHANGE IN NAME ETC.
In this case the auditor will have to check up the correspondence with the Company and the acknowledgement of the company that it has received the original security.
CHAPTER 6
ANALYTICAL REVIEW PROCEDURE (RATIO ANALYSIS)
Apart from the audit procedures discussed above an auditor has to apply certain analytical procedures to review the financial soundness of the business of the borrower. The most common analytical procedure is Ratio Analysis. Ratios are useful tools for review of performance and state of affairs of the organization. Ratios calculated over a period of time can reveal trends based on which meaningful conclusions can be drawn.
At planning stage Ratios give a sense of direction to the Auditor for areas to be covered for audit, during field work they help him draw inferences and identify the main points to be dealt in report while after completion of the audit ratios help the Auditor to re-inforce / establish his inferences and conclusions in his report. Ratios may be classified on the basis of their sources as follows:
1. Balance sheet ratios. 2. Income statement ratios. 3. Mixed ratios-these ratios contain figures from more than one financial statement.
Some of the more common ratios, their classification, method of computation, and the attribute measured are shown in the following list:
Ratios Formula Purpose
Liquidity ratios - Measures the entity's ability to meet its short-term obligations, and provide an indication of the Company's solvency.
Current ratio Current assets Indicates whether Current liabilities short-term creditors can be met with current assets
Quick ratio or Current assets – Inventory Measures the entity's Acid ratio Current liabilities ability to pay off short-term creditors without relying on the sale of inventories.
Leverage ratios - Measure the extent to which the entity is financed by debt and provide a measure of the risk of the entity borne by the creditors.
Debt ratio Total debt Indicates percentage Total assets of total funds provided by creditors; high ratios when economy is in downturn indicate more risk for creditors. Times interest Earnings before interest and taxes earned Interest charges Measures extent to which earnings can decline and still provide entity with ability to meet annual interest costs; failure to meet this obligation may result in legal action by creditors, possibly resulting in bankruptcy Long-term debt Long-term debt Indicates the proportion of To equity Shareholders equity the entity financed through long-term debt vs. owners' equity.
Active ratios - Measure how effectively an entity employs its resources.
Inventory turnover Cost of goods sold Estimates how many Average inventory times a year inventory is sold.
Age of inventory 360 days Indicates number of Average Accounts receivable days of inventory on hand at year-end, Accounts receivable Net Credit sales Estimates how many Average account receivable times a year, account receivable are collected
Age of accounts 360 days Indicates the age of accounts Accounts receivable or number of days receivable turnover sales not collected
Total Asset turnover Net sales Estimates volume of sales Total assets based on total assets Profitability ratios – Measure how effectively the entity is being managed.
Sales to total assets Net sales Indicates the ability of an Total assets Entity to use its assets to generate sales.
Gross margin Gross margin Provide a percentage Net sales relationship based on sales
Profit margin on sales Net income Indicates the return a Net sales Company receives on sales.
Net operating margin Operating income Indicates management's Net sales effectiveness at using Entity's assets to generate operating income.
Return on total assets Net income + Interest income Indicates the Total assets return a company receives for its assets. Return on common Net income – Preferred dividends Indicates return on Shareholders equity Average stockholders equity investment to common shareholders
Illustration 1
Facts
A company had sales (all credit) for the year of Rs.1, 20,000. Its accounts receivable at year-end amounted to Rs.20, 000. Its day's sales in account receivable is computed as follows:
1. Sales Rs.120,000 2. Accounts receivable Rs.20,000 3. Average daily sales (Sales Rs.120,000/360 days Rs. 333 4. Days sales in accounts receivable [Accounts receivable / Average daily sales (Rs.20,000 / Rs.333)] 60
In the previous year, the day's sale in account receivable was 45.
Analysis
The company is not collecting its receivables as rapidly as it did in the previous year. This increase in the day's sales accounts receivable indicates a possible problem in the collectibility of the receivables.
Auditing Procedures
The auditor may consider doing some or all of the following:
2. Obtain credit reports on significant past due accounts.
3. Analyze year-end sales to determine any unusually large sales. Determine the nature of these and sales and ascertain that they were recorded in the proper accounting period.
ILLUSTRATION 2
Facts
A company has cost of sales for the year of Rs.1,08,000. Its inventory amounted to Rs.20,000 at the beginning of the year and Rs.16,000 at the end of the year. Its inventory turnover is determined as follows:
1. Average inventory Beginning balance Rs.20,000 Ending balance Rs.16,000
Average Inventory 20000+16000 = Rs 18000 2
NOTE: A better indication of the average inventory may be obtained by using month-end inventories, if available.
2. Cost of sales Rs.108,000
3. Cost of sales/ Average inventory = Inventory turnover
= Rs 108,000 = 6 Rs 18,000
In the previous year, the inventory turnover was 4.
Analysis
An increase in the inventory turnover ratio may occur because of improved purchasing, production, and pricing policies. It may also be caused by one of the following:
2. Unrecorded purchases.
5. Error in computing the inventory.
Auditing Procedures
There are no specific auditing procedures when the high turnover is caused by insufficient inventory because of a poor credit rating. In that situation, however, the auditor might want to obtain a credit report on the client and should approach the audit with more skepticisms than usual.
If the auditor believes the high turnover is caused by other than a poor credit rating, he or she may do the following:
ILLUSTRATION 3
Facts
Following is the trend statement of selected income and expense item!
Year 1st 2nd 3rd 4th 5th Sales 100 116 133 151 168 Selling expenses100 115 132 150 175
Analysis
Sales have increased at a steady rate over the 5-year period, and selling expenses matched this increase for the first 4 years. In the fifth year, however, the increase in selling expenses was disproportionate to previous years' increases and to the current year's increase in sales. The increase may have been caused by one of the following:
3. Recording of non-business expenses. Auditing Procedures
If a trend statement indicates a disproportionate increase in an expense, the auditor should apply additional substantive tests to this expense. To determine the reason for the disproportionate increase in selling expenses in the preceding examples, the auditor may review invoices for major expense items in order to answer the following:
CHAPTER 7 Internal Control Questionnaire.
Sales & Debtors
Internal Control Questionnaire.
List of documents to taken as working papers
Annexure1
Specimen Confirmation Statement [Client's Letterhead]
To [Date] [Name & Address of Customer]
Dear Sir,
Our auditors [name and address] are conducting an audit of our financial statements. Please examine the accompanying statement and either confirm its correctness or report any differences to our auditors.
Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply.
For XYZ Ltd.
(___________) Director
Confirmation: The balance receivable from us of [amount] as of [date] is correct except as noted below:
_____________ [Debtor's name]
Date ____________
Note: This confirmation is to be posted directly to the auditors as per the stamped envelope enclosed.
Annexure 2
Specimen Confirmation of Stock on Consignment / from public warehouse [Client Letterhead]
[Name and Address of consignee / Public warehouse] [Date]
Dear Sir,
Our auditors [name and address] are conducting an audit of our inventories.
Please confirm to them our merchandise [consigned to you / Stored in on your premises] as of [date] as described below:
Description Quantity
Your prompt attention will be appreciated. A stamped envelope is enclosed for your reply.
Very truly yours, For XYZ Ltd.
(_____________) Director Confirmation: -
The merchandise listed above is all that is held by me as of [date] except as noted below
Description Quantity
[Consignee /Keeper of Public Warehouse] [Date]
Annexure 3
(Client's Name & Address)
SPECIMEN INSPECTION REPORT STOCK AND BOOK DEBTS
1) Bank: Branch: Zone:
2) Name of the account:
I) Office:
Ownership / Rented:
II) Factory & Go down:
Ownership / Rented:
5) Constitution:
6) Name of the Partners /directors:
8) Inspected by:
Attendant:
Latest Sanction : Authority : Date:
(a) Address:
(f) Whether rented in borrower's name:
(Preferably on the last day of the previous month)
(a)
Whether trade discount, if any, allowed is deducted while arriving at the price of stocks as mentioned in the stock statement checked with purchase bills. :
Comments on verification and reconciliation of stock (quantity and value) as per stock statement and as per actual record such as purchase register, etc.:
(f) Whether book – debts of associate / sister concerns are included in statement:
(g) Whether sales bills are accompanied by copy of lorry receipt / receipt challans:
(h) Whether bills discounted are included in book-debts statement:
(j) Whether accommodation bills are observed: (k) Whether party wise book – debt accounts / registers are maintained properly and kept up – to – date? :
* Book – Debts outstanding for 60 days is ___________ * Outstation Customers are _______________
16) Other conditions whether satisfied:
Skilled : Unskilled : Office staff :
No of shifts : Working hours :
whether the plant and machine is maintained properly and found in working condition?
(as per latest balance sheet as on .)
(as per latest balance sheet as on )
26) Was there any instance of breakdown of plant and machinery causing hindrance in progress of the unit during last six months?
Current Ratio: Debt – Equity Ratio:
Debtor's Turnover Ratio:
Annexure 4
Specimen of Management Representation Letter [Client's Letterhead]
[Date ]
To, [Name ] Chartered Accountants,
We are providing this letter in connection with the Stock Audit for the period _________________ for the purpose of expressing an opinion as to whether the stock records have been properly maintained or not and whether they are in conformity with the generally accepted accounting principles.
We confirm to the best of our knowledge and belief as under:
8) We further state as under:
Accounting Policies:
The Financial statements are prepared on accrual method of accounting.
9. The Insurance for building and furniture is Rs. -------, Plant & Machinery Rs. -------- Stock in process Rs. ------ & for other items Rs --------, which will be expiring on --------. 10. a) The Installed capacity of the company is ---- millions pieces. b) Actual production for the year ended 31.03.2001 on -------- was --------- pieces
b) Total quantity cleared during the month ---------- to ------- was ---------- pieces and the value for the same was Rs. --------- c) Actual production for the year ended 31.03.2000 was ------ pieces.
13. Insurance Policy.
14. Godown.
Tele/Fax/E-mail.
(If leased/ rented obtain lease/ rent agreement)
a) Address along with Tele/Fax/E-mail
b) Ownership/Rented (Obtain copy of Rent/ Leased agreement if taken on Lease/ Rent)
c) Period of Rent/ Lease agreement
d) Monthly Rent/ Lease
e) Name & Address of Owner (when it is rented / leased) Tele/Fax/E-mail
a) Address along with Tele/Fax/E-mail
b) Ownership/Rented (Obtain copy of Rent/ Leased agreement if taken on Lease/ Rent)
c) Period of Rent/ Lease agreement
d) Monthly Rent/ Lease
e) Name & Address of Owner (when it is rented / leased) Tele/Fax/E-mail
18. The Total Value of the following items is as under:
I Raw Material
i. Average Stock as per Project report for the year ended 31.03.2001
ii. Average stock of Last 12 months.
iii. Value of Stock on date of physical Verification.
iv. Comparison of last 12 months Stock as per records & as per Statement ( reason for discrepancies)
II Work In Progress
i.
ii.
iii.
iv.
III Finished Goods
i.
ii.
iii.
iv.
19. Ratios. For the year For the year For the year ended 31.03.2001 ended 31.03.2000 ended 31.03.1999
For [Borrower's Name]
(_________) Director/ Partner/ Proprietor |
11 September 2009
INSPECTION MANUAL OF STOCK, BOOK DEBTS & SECURITIES
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