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There are three types of auditors: internal, governmental, and external (i.e., independent
auditors or @  
@ @@   anternal auditors are employees of the organization
whose activities are being examined and evaluated during an independent audit. The primary
purposes of   
  are to review and assess a company's policies, procedures, and
records and to review and assess a company's performance given its plans, policies, and
procedures. Therefore, internal auditors review financial records and @@   systems,
assess compliance with company policies, evaluate the efficiency of company operations, and
assess the attainment of company goals.

Governmental auditors include accountants employed by the U.S.  


 @@   
@ (GAO). The GAO serves as the accounting and auditing branch of Congress. These
governmental accountants perform accounting and auditing tasks for the entire federal
government. an addition, most states have their own accounting and auditing agencies, which
resemble the GAO. Because the GAO and its state counterparts are separate agencies from the
departments and agencies they audit, they are similar to external auditors. Consequently,
federal and state departments and agencies often have their own internal auditors, who provide
internal auditing services similar to those described above. Moreover, GAO auditing largely has
the same focus as internal auditing: examining financial records, assessing compliance with
laws and regulations, reviewing efficiency of operations, and evaluating the achievement of
objectives.

an contrast, the independent auditor is not an employee of the organization being audited or an
employee of the government. He or she performs an examination with the objective of issuing a
report containing an opinion on a client's financial statements. The attest function of external
auditing refers to the auditor's expression of an opinion on a company's financial statements.
Generally, the criteria for judging an auditor's financial statements are generally accepted
accounting principles. The typical independent audit leads to an attestation regarding the
fairness and dependability of the statements. This is communicated to the officials of the audited
entity in the form of a written report accompanying the statements.

anvestors and lenders are the primary users of financial statements and they rely on financial
statements to make decisions such as whether to buy  @or lend money, and
extend @ By conducting audits, external auditors make financial statements consistent and
meaningful. To assess a company's position accurately, investors and lenders need credible
financial information on a company's sales, profits,  value, and so forth. Companies usually
have their own accountants and managers prepare their financial information, which could bring
about a @ 
@     Hence, users of financial statements demand the services of
independent auditors to verify the accuracy of company information and lend credibility to the
financial information, which is called attestation. Since individual users cannot verify information
contained in financial statements, auditing by external accountants reduces the number of
mistakes in financial statements and prevents companies from issuing fraudulent statements. an
addition, the Auditing Standards Board in 1997 issued its statement "Consideration of Fraud in a
Financial Statement Audit," which requires greater effort on the part of external auditors to
ensure that financial statements are free from fraud and misstatements
an order to compare and contrast the roles and responsibilities of external and internal auditors,
as well as discuss the vast amount of career opportunities that comes with becoming an
external or internal auditor, we must first define what they mean. The anstitute of anternal
Auditors (aaA) describes an internal auditor as ³one who performs an independent, objective
assurance and consulting activity designed to add value and improve an organization¶s
operations. An internal auditor helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the effectiveness of risk management,
control, and governance processes.´ an contrast, an external auditor is defined as performing a
periodic or specific purpose audit to determine, among other things, whether the accounting
records provided are accurate and complete, prepared in accordance with the provisions of
GAAP, and examine financial statements prepared from the accounts present fairly an
organization¶s financial position, and the results of its financial operations. Now that we know
the difference between what an external auditor does versus an internal auditor, we may begin
to describe the roles and responsibilities each has in the accounting field.

External auditors have a great influence on the audit of internal controls through their
audit activities, including conferring with management and their recommendations for
improvement to internal controls. They provide important feedback on the efficiency of the
internal control system. Specifically, external auditors examine on a test basis, transactions and
records that support accompanying financial statements and the associated disclosures. They
review the accounting principles applied and considerable estimates made by management,
and evaluate the overall presentation of an organization¶s financial statements. Before an
external auditor can conduct his responsibilities, however, they must comply with the generally
accepted auditing standards. The most important being the independence the auditor must
have in relation to the organizations he/she is auditing, and attaining the adequate training and
proficiency to perform an audit.

anternal auditors, on the other hand, evaluate and provide reasonable assurance of risk
management and decide if internal control systems are implemented as intended to allow the
organization¶s goals to be met. They report on deficiencies in the internal controls, issues
involving risk management, and provide recommendations on how to improve in these areas.
Security is also an area of expertise an internal auditor may have when employed by an
organization. An internal auditor examines the security involving sensitive information that must
be kept inside the organization. Other responsibilities include communicating with management
and external auditors, constantly continuing their education, and provide support to an
organization¶s anti-fraud controls.

So far, the major differences between internal and external auditors are the amount of
experience and expertise each holds. anternal auditors seem to obtain knowledge specifically
about the organizations to which they are employed. This knowledge and experience may be
carried with them from job to job, however, different organizations employ different accounting
methods that could be tremendously different than that of the one they previously worked for.
External auditors have specific guidelines and laws to abide by, which requires them to obtain
vast amounts of knowledge of many different types of accounting methods, controls, and more
importantly, uncommon entities and environments.

Upon discussing the roles and responsibilities of external and internal auditors, we can
bring to light the many career opportunities that are available to both professions. First, external
auditors have an immeasurable advantage over internal auditors when it comes to employment
prospects. As stated earlier, external auditors seem to have the knowledge and expertise that
can enable them to move from different accounting fields more easily than of an internal
auditor. External auditors can become private CPA¶s with less difficulty, work as an internal
auditor for a diverse amount of organizations, and progress in a firm more rapidly. These
assumptions may not hold true to all external auditors, however, the roles and responsibilities
involved in each profession seem to set a higher standard for external auditors.

According to www.bls.gov, ³employment of accountants and auditors is expected to


grow by 18 percent between 2006 and 2016, which is faster than the average for all
occupations. This occupation will have a very large number of new jobs arise, almost 226,000
over the projections decade. An increase in the number of businesses, changing financial laws,
and corporate governance regulations, and increased accountability for protecting an
organization¶s stakeholders will drive growth.´ After taking a glimpse at today¶s economy, the
previous statement may not hold much truth, but it is undoubtedly accurate in that the
accounting profession will continue to grow, specifically auditing.

The next statement, made by the same website, must be presented when discussing
career opportunities of auditors. ³An increased need for accountants and auditors also will arise
from changes in legislation related to taxes, financial reporting standards, business investments,
mergers, and other financial events. As a result of accounting scandals at several large
corporations, Congress passed the Sarbanes-Oxley Act of 2002 in an effort to curb corporate
accounting fraud. This legislation requires public companies to maintain well-functioning
internal controls to ensure the accuracy and reliability of their financial reporting. at also holds
the company¶s chief executive personally responsible for falsely reporting financial information.´

The growth of the accounting industry as a whole is something that cannot be


overlooked. When considering the amount of fraud that has occurred over the years, it is
impossible not to project an enormous need for more auditors over the next decade. For
example, the Bernie Madoff Ponzi scheme will require hours upon hours, days upon days, and
months upon months to unravel the damage he and his ³investment firm´ has done. There will
be a countless number of external auditors working with the internal auditors from his failed
investment firm to find out what exactly happened, and to try and recover monies for the duped
investors. As another example is the Texas-based Stanford anvestment Firm that is now being
investigated for also engaging in a Ponzi scheme. This type of fraud is the most perilous to
investors due to its nature.

Fraud and changes in law due to fraud are the main reasons of the enormous growth in
the accounting industry, specifically auditing. at is the personal responsibility of internal and
external auditors alike to actively investigate for fraud in their organization or their client¶s
organization. To not be proactive in detecting fraud is to only do half of their job. Auditors are
required to analyze and interpret financial statements, internal controls, and so much more,
hence detecting fraud should be one of the requirements in any engagement or employment in
an organization as an auditor.

To emphasize the importance of detecting fraud, and its role in employment opportunities,
specifically for internal auditors, the following quote is taken from an article related to a study
titled, ³The amportance of anternal Audit in Fraud Detection´ by Paul Coram, Colin Ferguson, and
Robyn Moroney. ³an recent years the importance of good corporate governance has received
significant public and regulatory attention. A crucial part of an entity¶s corporate governance is
its internal audit function. At the same time, there has been significant public concern about the
level of fraud within organizations.´ an their study, they ³assess whether organizations with an
internal audit function are more likely to detect fraud.´ Their findings suggested that ³internal
audits add value through improving the control and monitoring environments within
organizations to detect fraud, and that keeping the internal audit function within the organization
is more effective than completely outsourcing that function.´

This study leads me to believe that the roles, responsibilities, and career opportunities for
internal and external auditors will expand at a rapid pace, and there is no reason to think
otherwise. With the amount of financial corruption throughout our society growing year after
year, it is not incorrect to say that auditors, external and internal, are basically the financial
world¶s police. Basically, auditing is going be a depression-proof profession due to the nature of
fraud, and the ever-expanding companies worldwide. Hopefully accounting students looking for
a profession out of college look into becoming auditors, and continue to solidify the assumption
that they really can police the financial world ethically and morally.

an conclusion, external and internal auditors are the same in that they have an extremely
important job to protect investor¶s life savings. They are different, however, in that external
auditors should have a broader range of knowledge than do the internal auditors. Regardless,
accounting a quite possibly one of the greatest professions to enter into today, and auditing is
only the tip of the ³accounting iceberg´.

Question No.4

VOUCHaNG OF THE RECEaPT SaDE OF CASH BOOK



   @

Balance in last year audited balance sheet.


Mechanism
Opening balances of cash and bank balances should be vouched with closing balances of last year
audited balance sheet. Cash flow statement prepared of pervious year provides movement of cash
in different periods and net effects at closing balance.
CASH SALES
Supporting Evidences
1. Carbon copy of cash memos/sales invoices/sold notes (tour copies).
2. Sales manual for discount policy.
Mechanism
Auditor should take care of all the memos held by all the parties rather checking one or two memos.
af the auditor does not do so, he will be held liable for any fraud, which remained undetected.
Chronological order of memos is a must. af memos are kept -in files haphazardly, it is a sure sign of
missing some vouchers. Cancelled cash memos cannot be separated on the grounds that it has no
concern with records. Even cancelled memos should be filled up because auditor may demand even
evidences of those transactions, which were mutually barred.
Distinction should be made between cash discounts and trade discounts because trade discounts
should be entered in books at net value of sales. Sales manual should be very carefully viewed to
see the discount policy of organization.
RECEaPT FROM DEBTORS OR THOROUGH CREDaT SALES
Supporting Evidences
1. Counterfoils of the receipts issued to the debtors.
2. Sales invoices.
3. Debtor¶s account.
4. Bank reconciliation statements.
Mechanism
Vouch all cash*receipts from debtor with counterfoils or ‡with copy of invoice. af carbon copy is
available rather counterfoil then amount should be reconciled with cash book and with customer¶s
record.
G   at is a type of fraud committed by cashier at the time
of receiving money for past sales. Amount received from one debtor is not transferred to his account
and is used for personal purposes. Amount received from second debtor will settle the account for
fist debtor and so on. After satisfying the need cashier again settles all the accounts as should be, so
such fraud is often difficult to detect.
How to detect such fraud? These practices of cashier can be located and overcome by
watching efficiency level of internal control. The more access of cashier towards ledgers, the more
will be teeming and lading.
Such teeming and lading process can be avoided by receiving crossed cheques and by appointing
separate persons for cash receipt and for ledger maintenance.
Auditor would sec debtor¶s account more carefully where part payments are involved. Statements of accounts should be sent to
debtors/customers to confirm balances in books of accounts with customer¶s record and any discrepancy will automatically be
highlighted.

Amounts and rates of discounts should carefully be scrutinized. Any abnormal figure should be confirmed from responsible officer. af
customers are regularly ‡ depositing the money into bank account then checking of bank reconciliation statement prepared on
periodical basis would detect any difference of amount as may be.

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1. Fixed deposit receipt if interest on fixed deposit.

2. Rank pass book for interest on the other accounts.-

3. Agreement with, borrowers.

" @# $

af company has deposited money in fixed deposit account then bank TDR (term deposit receipt) should be checked to confirm rate
of interest and principal amount.

Bank pass book is the evidence to confirm interest amount on deposits in other accounts. Sometimes loans are granted to sub-
branches and to subsidiary companies, agreements in this context are the proof for confirming interest received.

anterest on particular fund should properly be credited to it, with .exact amount,   interest on provident fund must be credited to
that fund only

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1. Counterfoil of dividend warrants.

2. Letter covering the check.

3. Tax deduction certificate.


" @# $

Auditor should carefully see the dividend amount in comparison of amount on counterfoils (detached from dividend warrants). Letter
covering the check is also a source of confirming amount.

On amount of dividend, withholding tax is deducted on behalf of the tax department. Exact amount of dividend can also be vouched
through tax deduction certificate. ³

Broker¶s record ran be helpful while inspecting to sec either investment was sold at ex-dividend or
cum-dividend.

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Dividend warrant from official receiver

" @# $

Sometimes in companies where client invested money become bankrupt then official receiver on order of court manages the estate
and proper dividend warrants are issued to investor. af after disposing all assets, the dividend could, not be paid then court settles
that how much even-investor will receive from total claim, 50 paisa in a rupee etc.

an such case auditor has to rely only on the dividend warrant received from official receiver or assignee.

! !%ü

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1. Lease deeds and agreements.

2. Rent rolls (if maintained).

3. Receipt from landlord.

4. Counterfoils of receipts to tenants.

" @# $

Partitioning of rent account requires great care. Rent income and accrued figures should carefully be apportioned and transferred to
income statement and balance sheet respectively.

Lease deed or lease agreement clearly depicts period, rate and amount of rent, so it should carefully be examined, it should also be
considered that when lease period will expire and where repair charges lie from both the parties.

af many properties are rented out then, list of properties or rent rolls should be watched. Sometimes auditors consider suitable to
compare amount shown in books (receipt from landlord) with µcounterfoil of the receipt issued to tenant¶.

!%" '!üü"(!%ü

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1. Bills receivable book.

2. Cash book and pass book.

" @# $
Auditor should examine bills receivable book in contrast to cash book and pass book. All the amounts of these books should be
tallied. Due date (maturity) and amount of bill requires auditor¶s attention.

af bill is maturing in current accounting period, amount received should immediately be posted to both cash book and bills receivable
book so that cashier is not misappropriating the amount due to different maturity dates for different bills.

Whereas bills maturing in next year and discounted .with bank should not have effect the balance sheet and note should be given
under/ balance sheet.

Sometimes bill gets retired but cashier records entry on due date and uses the money in between so auditor should take utmost
care of time span of bill and date when cash received actually.

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1. Principal¶s account (for which business is an agent).

2. Agreements with parties.

3. Counterfoils of receipts.

" @# $

Sometimes business acts as a stand alone business and as an agent at the same time. Commission is the reward for agency
services rendered to different parties (principals). Amount of commission can be confirmed from accounts maintained by principal.

Agreements with agent can also make clear the rate and amount of commission so these agreements should be studied thoroughly.
Cash received and calculations made for, commission can be vouched with counterfoils of receipts received.

Examine whether distinction is made between commission and dcommission (extra commission for assuring parties that
if debtor will not make payment we will bear bad debts).

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   @ 

1. Broker¶s sold note.

2. Bank advice.

" @# $

Cash received on investment sold (bonds, shares etc.) should be scrutinized with sold note issued by broker and records of broker
may behelpful for further confirmations.

Often securities are sold at cum-dividend or ex-dividend. Audit has to take for partitioning of capital and revenue part. af dividend is
cum then proportional amount of dividend should be charged to revenue and capital part of investment should be deducted from
investment balance sheet.

af banks are rendering their services while selling investment then bank advice is the source of vouching and the amount should be
apportioned: principal amount of investment, dividend and bank¶s commission.

'! !%ü

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1. Register s of subscribers
2. Counterfoils of receipts.
" @# $

an case of non-trading concerns like clubs, schools, hospitals and welfare institutions, subscription is-the main source of income so
auditor has attend this amount in depth.

Subscription register and counterfoils of receipts are the only evidences for comparison so amounts on these should be in
agreement Unearned, earned and subscription in arrear must be treated at merit and only amount received from these should be in
Cash Book.

'!"(!%ü

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1. Accounts of insurance company.

2. Original insurance policy (for confirmation of claim).

" @# $

Often businesses claim the amount from insurance company what id fake, so role of auditor becomes, more critical. ansurance
company normally relies on audited information so any surpassed error and fraud may cause death to business.

Original insurance policy may be the key for vouching of insurant) claims. Terms and conditions, type of risk, amount of claim and
other information will be transparent clear to confirm amount of insurance.

Accounts and records of insurance company are the documents, which should be vouched with Cash Book.

)*ü 

   @ 

1. Minute book of board of directors.

2. Auctioneer¶s account.

3. Sale contract.

" @# $

No fixed asset can be disposed of without the prior permission of directors so any indication of sale of fixed asset should be checked
from minute book of director¶s meeting. af goods are sold through auction then accounts of auctioneer help in confirming amount;
otherwise sales can only be vouched with sales contract where all facts regarding sale are properly shown.

Auditor should see that profit on sold assets is kept separate and transferred to capital reserve or not. He is also responsible to care
that book value of fixed assets is credited in concerned account.

"'! 

   @ 


1. Contracts and related documents.
  Counterfoils of receipts.
" @# $

af any other amount is received, that can be vouched with concerned document, contract or any-other such evidence that is
considered fit for particular transaction.