Page 196 - CA Inter Audit PARAM

CA Ravi Taori
QNO P&L (Scrap Sale) Old Course -- (SM17/SM20/SM21)
AIFS.67 #Unique
Sale of Scrap.
Answer ➢ Sale of Scrap:
• Controls
• Review the internal control as regards generation, storage and disposal of scrap.
• Ensure that there exists a proper control procedure to identify scrap and good units
and they are not mixed up and sold as scrap.

• Records
Check whether the organization is maintaining reasonable record for generation of Scrap.

• Analytical Procedures
Analyze the raw material used, production and generation pattern of scrap and compare
the same with figures of earlier year.

• Rates
Check the rates at which scrap has been sold and compare the rate with previous year.

• Documents
Vouch sales, with invoices raised, advertisement for tender, rate contract with scrap
dealers.

QNO Multiple Items (From Old Course Vouching & Verification) Old Course -- (N21R/M22R/M23E)
AIFS.77 #Unique
Explain how you will verify the items given while conducting an audit of an entity :
(a) Recovery of Bad debts written off
(b) Receipt of Insurance claims
(c) Payment of Taxes
(d) Sale proceeds of scrap material
Answer (a) Recovery of Bad Debts written off:
Recovery of bad debts written off is verified with reference to relevant correspondence and proper
authorisation.
(i) Ascertain the total amount lying as bad debts and verify the relevant correspondence with the trade
receivables whose accounts were written off as bad debt.
(ii) Ensure that all recoveries of bad debts have been properly recorded in the books of account.
(iii) Examine notification from the Court or from bankruptcy trustee. Letters from collecting agencies or
from account receivables should also be seen.
(iv) Check Credit Manager’s file for the amount received and see that the said amount has been deposited
into the bank promptly.
(v) Vouch acknowledgement receipts issued to account receivables or trustees.
(vi) Review the internal control system regarding writing off and recovery of bad debts

(b) Receipt of Insurance Claims:
Insurance claims may be in respect of fixed assets or current assets. While vouching the receipts of insurance
claims-
(i) The auditor should examine a copy of the insurance claim lodged with the insurance company
correspondence with the insurance company and with the insurance agent should also be seen.
Counterfoils of the receipts issued to the insurance company should also be seen.
(ii) The auditor should also determine the adjustment of the amount received in excess or short of the
value of the actual loss as per the insurance policy.
(iii) The copy of certificate/report containing full particulars of the amount of loss should also be verified.
(iv) The accounting treatment of the amount received should be seen particularly to ensure that revenue
is credited with the appropriate amount and that in respect of claim against asset, the Statement of
Profit and Loss is debited with the short fall of the claim admitted against book value, if the claim was
lodged in the previous year but no entries were passed, entries in the Statement of Profit and Loss
should be appropriately described.

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