Points that should be kept in mind while verifying the items brought in the ledger of a trading concern:
It is the first and foremost duty of an auditor to satisfy him with the internal check system in operation in regard to purchase. He should specially make investigations into the procedure of placing orders, receiving goods, examining invoices and maintaining records in regard thereto. If the system of internal check in operation is efficient and effective, he can conveniently proceed with the vouching of Purchases Book.
(1) He should keep in mind the following points while checking invoices:
ADVERTISEMENTS:
(i) The invoice is in the name of his client.
(ii) The data given in the invoice relate to the period under audit.
(iii) The invoice relates to the business in which the concern deals.
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(iv) The invoice is initialed by some responsible person who has checked it.
(v) The invoice is entered in the name of supplier in the Purchases Book.
(vi) The trade discount has been deducted from the amount of the invoice and then, only net amount has been entered.
(2) Often business houses maintain Goods Inward Book for recording receipt of goods purchased and received in the premises. Such records should be checked with the invoices. This will avoid the inclusion of fictitious invoices or the duplicates as ‘original’ ones.
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(3) Sometimes, invoices are suppressed to manipulate accounts and purchases are shown at fewer figures than the actual ones. The auditor should, therefore, compare the Goods Inward Book and the Stock Sheets with the Purchases Book, specially for goods received during the last two or three weeks of a financial year and during a few weeks of the beginning of the next financial year.
(4) It should be seen that no invoice has been entered twice in the books.
(5) It has to be examined that capital purchases have not been written as revenue purchases in the financial book.
(6) He should examine costs and balances of the Purchases Book, and postings to the respective ledger accounts should also be checked.
(7) If for a purchase, proper voucher is not available, he should ask for a duplicate. If it is not supplied, he may mention the fact in his report.
(8) If the invoice contains several pages, its total should be checked with reference to the totals given on separate pages.