Audit of Provident Funds Session II: The Beginning

1. 1 Audit of Provident FundsSession II: The Beginning Presenter: Altaf Noor Ali Chartered Accountant

2. 2 2nd Session: 11.30 -1pm = 90 min First day on the field work�what it should be like? Audit of Bank Accounts Nature of Receipts and Payments Audit Objectives and Program Obtain bank statements and reconciliation Scanning receipts and payments during the period Send bank confirmations Audit of Current Account Nature of Current Account Audit Objectives and Program Deduction of monthly contributions from employees [and salary reconciliations] Receipts and payments made on behalf of provident fund [final settlements, withdrawals, recoveries of members� loans, etc] Reconciliation and adjusting entries [example: return on investments] Conclusion

3. 3 First day on the field work�what it should be like?

4. 4 Provident Fund Audit: The First Day Reach early. Bring wpf. Follow-up others� Get to know your surroundings. Get to know people around you Review pre-audit meeting minutes Obtain trial balance [Review chart of accounts, check opening balances] Obtain ledger [Audit adjustments will be made later] Scan ledger and have a discussion. Prepare notes Obtain bank statements Send bank confirmations Obtain permission to communicate with legal adviser Brief audit team, coordinate with your supervisor

5. 5 Provident Fund Audit: Important Features Audit of p/f is different from other audits, requires knowledge Cash transactions = None Physical verification on reporting dates = May be none Applicability of Accounting and Auditing standards Transactions may be recorded and routed differently [for final settlement, investments, loans to members] No accounting manual or formal investment policy How can auditor add Value [Improve quality of book keeping, prepare system notes] Go systematically: Document Matters to Follow-up [Write things to do. From last year. For current period]

6. 6 Provident Fund Audit: Quality of Accounting Quality of Accounting directly affects the progress of audit. Accountants have different style of recording. Some are brilliant. Most take short-cuts and do not record and enter transactions properly. Do expect to find incomplete narration, recording, errors, etc. if not pointed in last management letter.

7. 7 Nature of Bank Accounts

8. 8 Provident Fund Audit: Bank A/c: Nature of Receipts Employee/Employer Contribution Recovery of Loan installments from Members Return on Investments [Dividends, tfcs, cfs etc] Maturity of TFCs and DSCs Disposal of Investments through Stock Broker Bank Profit

9. 9 Provident Fund Audit: Bank A/c: Nature of Payments Final Settlement of Members Permanent Withdrawals Loans to Members Investments made during the year Bank charges

10. 10 Audit of Bank Accounts

11. 11 Provident Fund Audit: First Procedure The first step in a p/f audit is to get hold of Bank Ledger Account, Bank Receipt Vouchers and Bank Payment Vouchers. Obtain bank statement of the period. Match the balance of bank account with that of bank statement. If they do not match, get a reconciliation. Prepare proposed entries to be made.

12. 12 Provident Fund Audit: Bank Accounts: Audit Objective There is proper control over the bank account[s]; appropriate procedures are in place. All transactions have been properly accounted for. No transactions are beyond the applicable rules and regulations. There are no unexplained entries in the bank accounts or bank statement.

13. 13 Provident Fund Audit: Bank Accounts: Audit Program 1 Any new bank account opened during the year? Check opening balance of the bank statement. Obtain bank reconciliation statement. Compare balances and entries. Verify. Scan ledger account to make sure that there are no unexplained entries in the bank accounts or bank statement.

14. 14 Provident Fund Audit: Bank Accounts: Audit Program 2 Bank Receipt Vouchers and Bank Payment Vouchers have been recorded and entered in proper accounts. Where corrections were required, they were made through Journal Vouchers. All vouchers were authorised and supported with proper evidence.

15. 15 Provident Fund Audit: Bank Reconciliation: Audit Program 3 Receipts: All transactions in bank statement have been properly recorded in Bank Account. [profit relating to the period credited after reporting date] Receipts: Cheques deposited to the Bank after the reporting date were cleared subsequently. Payments: Unpresented cheques were cleared. Debits in Bank Account for adjustments: Payments recorded in the Bank Account. [bank charges]

16. 16 Provident Fund Audit: Some Good Practices Receipts: Attach bank deposit slips to the vouchers. Receipts: Route sale of investments through �Investment Disposal Account� Payments: Route loans to members, permanent withdrawals, and final settlements through respective �Control Accounts�.

17. 17 Audit of Current Accounts

18. 18 Provident Fund Audit: Current A/c: Most Important The Employer maintains an account of p/f in its books. The debit balance of this account should tie with the credit balance appearing in the books of the p/f�.and vice-versa. Any adjustment made in one account will be required in other account as well.

19. 19 Provident Fund Audit: Current A/c: First Procedure Obtain from the Employer an account of p/f appearing in its books. Match its balance with the balance appearing in the books of the p/f. In case the balance does not match prepare a reconciliation and locate the reason for difference. Debit balance indicates receivable, credit balance indicates payable. Check clearance.

20. 20 Provident Fund Audit: Current A/c: Nature of Transactions Event 1: Employer remits payroll contribution to p/f Debit = Bank A/c Credit = Employer Current A/c Event 2: Employer makes final payment to a member Debit = Member A/c Credit = Employer Current A/c [Same entry for payments on behalf of p/f e.g. loan, permanent withdrawal] Event 3: For recoveries of member loans Debit = Employer Current A/c Credit = Member Loan A/c Event 4: Dividend by error deposited in employer account Debit = Employer Current A/c Credit = Dividend Income A/c

21. 21 Audit of Provident Funds Conclusion First Learn. Then Apply. First Account. Then Audit. End of Session Two Thank You.