However looking to the basic difference in cost audit and financial audit as

However looking to the basic difference in cost audit

This preview shows page 10 - 13 out of 18 pages.

when to be done and by whom to be dome are adequately takes care of. However, looking to the basic difference in cost audit and financial audit as allocation and apportionment of expenses, statutory requirement etc. should require special consideration. Cost audit, in order to be effective, should be completed at one time as far as practicable. Based on above factors a set of procedures and instructions are evolved which may be termed the cost audit programme. Matters to be included in the Cost Audit Programme may be divided into following two stages: (i) Review of Cost accounting record: This will include: Method of costing in use Method of accounting for raw material, stores and spares, wastage System of recording wages, salary, etc. Basic of allocation of overheads to cost centres and absorption by product and services Treatment of expenses on finance, R&D, royalty, etc. Method for depreciation accounting Method of stocktaking and valuation System of budgetary control
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FINAL EXAMINATION : NOVEMBER, 2005 50 (ii) Verification of cost statement and other data: This will mainly cover: Licensed, installed and utilized capacity Operating and financial ratio Production data Consumption of material and actual expenses Sales realization Abnormal non-recurring and special cost Reconciliation with financial books Some other factors which need to be brought into cost audit programme includes system of cost accounting, range of products, areas to be covered etc. indicating allocation of manpower and the time to be taken for computing the audit. (b) Audit of Indirect Taxes: Same areas of concern in an audit of indirect taxes would be: (i) Non availment or short / excess availment of control or expert incentives. (ii) Goods imported duty free or payment at concessional rates without properly complying with conditions. (iii) Valuation Issues – valuation not in line with customs rules. (iv) Applicability of the relevant control excise exemptions. (v) Valuation of goods not removed in normal course using valuation methods not in line with Central Excise Valuation Rules. (vi) Ignoring Liability under Service Tax on services provided or availed. (vii) Procedural non-compliance. (viii) Passing on of duty suffered on imported goods and of locally manufactured goods in excess of actual. Question 6 Answer the following: (a) As a tax auditor, which are the accounting ratios required to be mentioned in the report in case of manufacturing entities? Explain in detail any one of the above ratios and how does it help the tax auditor in his analytical review. (8 Marks) (b) What are the steps to be taken by an auditor for the audit of re-insurance ceded? (8 Marks) Answer (a) The ratios which are to be calculated for manufacturing entities are: Gross profit / Turnover
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PAPER – 3 : ADVANCED AUDITING 51 Net Profit / Turnover Stock-in-trade/Turnover Material consumed / Finished goods provided Ratio analysis constitutes a substantive auditing procedure designed to obtain evidence as to the completeness, accuracy and validity of the data produced by the accounting system. Such assessment is necessary in organisation having large volumes of
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  • Spring '18
  • Rajit
  • Financial audit

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