Reading The Sales Ledger Account

There is a certain procedure for reading sales ledger.

1. In-Depth Checking:
Sale of goods is the main source of income for business. Therefore, checking of sales
account has to be indepth and thorough. However, it may not be possible for the auditor to
check each and every transaction. It should be done on sample basis.
2. Verification Of Posting:
Entries in the sales ledger maybe posted from Cash Book, Sales Day Book, Sales Return
Book, the Debit/Credit Note Register, Debtors A/c, Bills Receivable A/c etc. Auditor should
check whether the posting is done on the correct side of account and correct amount.
Auditor should also check that the entries are posted in the sequence of the dates. He
should also see that entries relating to the relevant period only are recorded.
3. Totals and Casting:
After checking the postings, the auditor should also check the totals of each account and
casting also. He should also check whether the accounts are properly carried forward and
brought forward.
4. Verification of Balances:
The Auditor should obtain a summary of balances of sales ledger and verify the balances in
the ledger.
5. Cross-Checking:
Cross-checking of the entries can be done by checking the other account. While crosschecking, the amount and the side in which the entry is made , should be checked.
6. Quantity and Rates:
Amount of sales should be checked with the quantity and rates applicable. Quantity in the
books should be checked with the physical quantity actually sold. Amounts should also be
checked with the sales vouchers.
7. Sales to Group Concerns:
Auditor should check whether total sales to group concerns during the year exceed Rs.
5000. If they exceed he has to report whether rates charged are reasonable as compared to
rates charged in the market for similar items.
8. Checking Receipt against Bills:
The Auditor should check all the bills against its receipts. Debit notes and credit notes
should also be checked against the bill or receipt.
9. Book Entries:

The auditor should see that the organization has not made mere book entries. Sometimes to
show profits organizations make large sales at the end of year and these sales are returned
just at the beginning of the next year. Auditor should see that there are no such entries in
the books.

SA : 200 BASIC PRICIPLES GOVERNING AN AUDIT

This Standard describes the basic principles which govern the auditors professional
responsibilities and which should be complied with whenever an audit is carried out. They
guide the auditor as to conduct an audit and give an audit report. For complying with these
principles proper application of auditing procedures and reporting practices is necessary.
These basic principles are as follows.
1. Integrity Objectivity and Independence:
Integrity requires that an auditor should be honest, frank and sincere in his work. He should
not hide any fact, which he may come across during the course of his audit work. Objectivity
means his impartial behaviour. It means that while performing his auditor should not
influenced by his/her own whims and fancies. Independence means auditor should not be
influenced by certain factors. He should not get influenced or pressurized from the client.
2. Confidentiality:
Confidentiality means that the auditor should keep the information of the client with himself
and should not disclose it anywhere outside. Principle of confidentiality states that he should
not disclose information obtained by him during the course of his audit work to anyone else
except with the permission of the client or as required by any law.
3. Skill and Competence:
The auditor should have adequate training, experience, and competence in auditing. He
should be a C.A and have practical experience . He should be aware of recent developments
in the field of auditing, such as, statement of ICAI, changes in company law, decisions of
courts etc.
4. Work Performed By Others:
The auditor should carefully direct, supervise and review the work of his assistants. He
should satisfy himself that the work done by internal auditor, or another auditor (branch
auditor) or a joint auditor is reliable.
5. Working Papers:
Auditor should maintain working papers of important matters prove that the audit as carried
out with due care.
6. Planning:
The Auditor should plan his audit work. He should prepare an Audit Programme to complete
the audit efficiently and in time.
7. Audit Evidence:
The report of the auditor should be based on the audit evidence obtained in the course of
audit. The evidence may be obtained through , vouching of transactions, verification of
assets and liabilities, ratio analysis etc.

8. Evaluation of Accounting System and Internal Controls:

The auditor should ensure that all the transactions have been properly recorded. He should
study and evaluate the internal controls.
9. Opinion and Report:
The auditor should arrive at his opinion on the accounts on the basis of audit evidence and
submit his report. The opinion may be qualified or unqualified or adverse. The content and
form of audit report should be as required by law.

SA : 200A :OBJECTIVE AND SCOPE OF AUDIT OF FINANCIAL STATEMENTS

This Standard describes the overall objective and scope of the audit of general purpose
financial statements of an enterprise by an independent auditor. The term General Purpose
Financial Statements includes balance sheet, statement of profit and loss and other
statements and explanatory notes which form part thereof, issued for the use od
shareholders/members, creditors, employees and public at large.
Objective Of An Audit:
The objective of an audit of financial statements is to enable an auditor to express an
opinion on such financial statements. The auditors opinion help in the determination of the
true and fair view of the financial position and operating results of an enterprise However,
the user should not assume that the auditors opinion is an assurance as to the future
viability of the enterprise or the efficiency or effectiveness with which the management has
conducted the affairs of enterprise.
Responsibility Of an Auditor:
While the auditor is responsible for forming and expressing his opinion on the financial
statements, the responsibility for their preparation is that of the management of the
enterprise. Managements responsibilities include the maintenance of adequate records and
internal controls, the selection and application of accounting policies and the safeguarding of
the assets of the enterprise. The audit of the financial statements does not relieve
management of its responsibilities.
The scope of an audit of financial statements will be determined by the having regard to the
terms of the engagement, the requirements of relevant legislation and the pronouncements
of the Institute. The auditor should cover adequately all the relevant aspects of the financial
statements of the enterprise. His work should cover all the material items at individual level
or group level. Material items are those which might influence the decisions of the user of
the financial statements. Auditor has to decide what is material on the basis of his
professional experience and judgement.

SA : 230: AUDIT DOCUMENTATION

1. SA 200, Basic principles Governing an audit states that the auditor should document
matters which are important in providing evidence that the audit was carried out in
accordance with the basic principles.
2. Documentation refers to the working papers prepared or obtained by the auditor or
retained by him, in connection with the performance of his audit.
3. Working Papers:
Aid in the planning and performance of the audit;
Aid in the supervision and review of the audit work; and
Provide evidence of the audit work performed.
4. The form and content of working papers generally depends on the following factors;
The nature of the engagement
The form of the auditors report
The nature and complexity of the clients business
The nature and condition of the clients records and degree of reliance on internal controls.
5. Working Papers:
Should be properly designed and organized
Should be sufficiently complete and detailed
Should include all matters requiring exercise of judgement along with auditors conclusion
6. In the case of recurring audits, working paper files may be classified as permanent audit
files and current audit files.
7. Permanent Audit Files include:
Information relating to legal and organizational structure of the entity e.g. Memorandum
and articles of association .
Extracts or copies of important legal documents, agreements and minutes relevant to the
audit.
A record of the study and evaluation of the internal controls related to the accounting
system.
Copies of audited financial statements for previous years
Analysis of significant ratios and trends etc

8. The Current File normally includes:

Correspondence relating to acceptance of annual reappointment
Extracts of important matters in the minutes of Board Meetings and General Meetings, as
are relevant to the audit
A record of the nature, timing and extent of auditing procedures performed, and the results
of such procedures
Evidence that the work performed by assistants was supervised and reviewed
Copies of communications with other auditors, experts and other third parties
Copies of letters or notes concerning audit matters communicated to or discussed with the
client
9. Ownership and Custody of Working Papers:
Working papers are the property of the auditor. The auditor may, at his discretion, make
portions of or extracts from his working papers available to his client
The auditor should take adequate steps to maintain the safe custody and confidentiality of
the working papers
There are no specific rules relating to the retention of working papers. The Expert Advisory
Committee of the ICAI has suggested that an auditor should retain his records relating to
audit for a minimum period of 10 years

SA : 320 : AUDIT MATERIALITY