AUDITING

Audit overviewPosting checkingTesting the existence and effectiveness of management controls that prevent financial statement misstatementCasting checkingPhysical examination and countConfirmationInquiryObservation

•inspection •Year-end scrutiny •Re-computation •Tracing in subsequent period •Bank reconciliation•Vouching•Verification of existence, ownership, title and value of assets and determination of the extent and nature of liabilities

Auditing is all about evidence

The auditor gathers evidence to determine if the client's processes are working correctly, its financial data are recorded and presented correctly, and its financial statements as a whole are fairly presented.

This implies that--the process of auditing is to gather

and evaluate evidence to test assertions

the audit process is systematicthe auditor must be independent

of the entity audited and the process followed in gathering evidence must be unbiased

Systematic process: Auditing is a systematic and scientific process that follows a sequence of activities, which are logical, structured, and organized.

Three party relationships: The audit process involves three parties, that is, shareholders, managers, and the auditors..

Features of an Audit

Subject matter: Auditors give assurance on a specific subject matter. However, the subject matter may differ considerably, such as – data, systems or processes and behavior such as – data, systems or processes

Evidence: Auditing process, requires collecting the evidence, that is, financial and non-financial data, and examining thereof.s and behavior

allocation

A budget is a financial plan used to estimate revenues and expenditures for a specific period of time. It is a management and planning tool, not just an accounting document. It assists in the allocation of resources. A budget allocation is the amount of funding designated to each expenditure line.

Definition

Budgets are usually developed for 12-month periods. When developing a budget, revenues are usually estimated first to determine the level of resources that will be available in the upcoming budget year. Based on the estimated resources, expenditure limits, also called budgetary allocations, are assigned to each budget category.When developing budgetary allocations, all needs of the organization are taken into account and decisions are made where best to allocate available money.

Developing Budgetary Allocations

Budgets are usually divided into departments and program units. This allows for easier identification of the resources allocated to specific programs and functions.Each category can be made of several budget allocations, referred to as line items, for the specific needs necessary to support the program or overall department operation.

Budget Category Allocations

Budgetary allocations should be routinely monitored to ensure the amounts budgeted are sufficient to meet expenditures. It is important to have a tracking system in place for all purchase orders and bills. The purchase orders and bills should be matched regularly against the budgetary allocation to ensure sufficient funds exist for the remainder of the budget year

Monitoring Budgetary Allocations

Inventory management

In accounting language, inventory may mean the stock of finished goods only. In a manufacturing concern, it may include raw materials, work- in – progress and stores etc.

Meaning and Nature of Inventory:

The term inventory refers to assets, which will be sold in future in the normal course of business operations. The assets, which the firm stores as inventory in anticipation of need, are raw material, working progress, and finished goods.

Definition:

Raw Material: Raw material from a major input into the organization. They are required to carry out production activities uninterruptedly. The quantity of raw materials required will be determined by the rate of consumption and the time required for replenishing the supplies.

Inventory includes the following things:

Work in progress: The work in progress is that stage of stocks which are in between raw materials and finished goods. The quantum of work in progress depends upon the time taken in the manufacturing process. The quantum of work in progress depends upon the time taken in the manufacturing process.

Consumables: These are the materials which are needed to smoother the process of production but they act as catalysts. Consumables may be classified according to their consumption add critically.

Finished goods: These are the goods, which are ready for the consumers. The stock of finished goods provides a buffer between production and market, the purpose of maintaining inventory is to ensure proper supply of goods to customersSpares: The stock policies of spares fifer from industry to industry. Some industries like transport will require more spares than the other concerns. The costly spare parts like engines, maintenance spares etc.,

objectives•To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any time and the customers demand should also be met.•To avoid both over – stocking and under – stocking of inventory.•To maintain investment in inventories at the optimum level as required by the operational and sales activities.•To keep material cost under control so that they contribute in reducing the cost of production and overall costs.•To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchases.•To minimize losses through deterioration, pilferages, wastages and damages.