ahmad final audit

8/3/2019 Ahmad Final Audit

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VOUCHING OF LOANS

2011

30th MAY

AUDIT REPORT


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Vouching of Loans

UNIVERSITY OF CENTRAL PUNJAB Page 2

VOUCHING OF LOANS

REPORT

Submitted To:Prof. Imran Shehzad

Submitted By:

Ahmad Zubair (L3F09BCOM2528)

UsmanTahir (L3F09BCOM2530)

UmairIlyas (L3F09BCOM2531)

Submission date:

30/05/2011


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Contents

LOAN: ______________________________________________________________________ 4

TYPES OF LOAN: ______________________________________________________________ 4

Open-Ended and Closed-Ended Loans __________________________________________________ 4

Secured and Unsecured Loans ________________________________________________________ 5

Conventional Loans ________________________________________________________________ 5

How Does Having Co-Signer for My Loan Affect My Credit Score? ______________________ 5

Credit Score ______________________________________________________________________ 5

Co-Signer _________________________________________________________________________ 6

Risk _____________________________________________________________________________ 6

What Is A Loan Audit? ______________________________________________________________ 6

VOUCHING: __________________________________________________________________ 7

The Technique of Vouching In the Audit ___________________________________________ 7

CHARTS OF ACCOUNTS: ________________________________________________________ 8

Audit Work Program Long term loans and advances _________________________________ 9

EXAMPLES OF VOUCHING OF LOANS ____________________________________________ 15

Vouching/verifying the Borrowings from Bank. _________________________________________ 15

Vouching/verifying the Contingent Liabilities. __________________________________________ 15

Vouching/verifying the Trade Creditors. _______________________________________________ 15

MCQS FOR ASSIGNEMNT ______________________________________________________ 17

Bibliography ________________________________________________________________ 19


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Vouching of Loans


LOAN:A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of

financial assets over time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the principal,

from the lender, and is obligated to pay back or repay an equal amount of money to the lender at

a later time. Typically, the money is paid back in regular installments, or partial repayments; in

an annuity, each installment is the same amount.

The loan is generally provided at a cost, referred to as interest on the debt, which provides an

incentive for the lender to engage in the loan. In a legal loan, each of these obligations and

restrictions is enforced by contract, which can also place the borrower under additional

restrictions known as loan covenants. Although this article focuses on monetary loans, in

practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks for financial institutions. For otherinstitutions, issuing of debt contracts such as bonds is a typical source of funding.

TYPES OF LOAN:

There are many different types of loans you can take out. When youre looking to borrow

money, its important that you know your options.

Open-Ended and Closed-Ended Loans

Open-ended loans are loans that you can borrow over and over. Credit cards and lines of credit

are the most common types of open-ended loans. With both of these loans, you have a credit

limit that you can purchase against. Each time you make a purchase, your available credit

decreases. As you make payments, your available increases allowing you to use the same credit

over and over.

Closed-ended loans cannot be borrowed once theyve been repaid. As you make payments on

closed-ended loans, the balance of the loan goes down. However, you dont have any available

credit you can use on closed-ended loans. Instead, if you need to borrow more money, youd

have to apply for another loan. Common types of closed-ended loans include mortgage loans,

auto loans, and student loans.


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Secured and Unsecured Loans

Secured loans are loans that rely on an asset as collateral for the loan. In the event of loan

default, the lender can take possession of the asset and use it to cover the loan. Interests rates for

secured loans may be lower than those for unsecured loans. The asset may need to be appraised

before you can borrow a secured loan.

Unsecured loans dont have asset for collateral. These loans may be more difficult to get and

have higher interest rates. Unsecured loans rely solely on your credit history and your income to

qualify you for the loan. If you default on an unsecured loan, the lender has to exhaust collection

options including debt collectors and lawsuit to recover the loan.

Conventional Loans

When it comes to mortgage loans, another term conventional loan is often used.Conventional

loans are those that arent insured by a government agency like the Federal HousingAdministration (FHA), Rural Housing Service (RHS), or the Veterans Administration (VA).

Conventional loans may be conforming, meaning they follow the guidelines set forth by Fannie

Mae and Freddie Mac. Non-conforming loans dont meet Fannie and Freddie qualifications.

Loans to Avoid

Certain types of loans should be avoided. Payday loans are short-term loans borrowed using your

next paycheck as guarantee for the loan. Payday loans have notoriously high annual percentage

rates (APRs) and can be difficult to pay off. If youre in a financial crunch, seek alternatives

before taking out a payday loans.

Advance-fee loans arent really loans at all. In fact, theyre simply scams to get money from you.

Advance-fee loans use different tactics to convince borrowers to send money to obtain the loan.

Once the money is sent (usually wired), the lender typically disappears without ever sending

the loan.

How Does Having Co-Signer for My Loan Affect My Credit Score?

Credit Scoreo When you apply for a loan, the bank will check your credit score, as well as your credit history.

Your credit history involves how often you pay bills on time, how much money you have in

savings, how long you've had your current job, what your current debt is, etc. Basically, banksuse your credit history as a way to decide how likely it is that you will pay back your loan.


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o If your credit score isn't good enough, then a bank will turn you down for a loan and you won'tbe able to get them to loan you money. One option to temporarily improve your score is to get a

co-signer on your loan.

Co-Signer

o A co-signer on a loan is added insurance for a bank. If you are not able to get a loan by yourself(usually due to bad or no credit), then you can ask someone to co-sign with you. Effectively thatperson is saying that he is vouching for you, and if he has a much better credit score than you do,

it will make the bank or lending institution reconsider whether to approve you for a loan. If you

do receive a loan due to a co-signer, then the loan will begin showing on your credit history and

positively affect your credit score---though not as much as having a loan without a co-signer---ifyou make all payments in full on time. Of course, a co-signer is doing more than just vouching

for you; if your payments fall behind, then the loan falls on the co-signer's shoulders as well.

Risko If you receive a loan through having a co-signer but then begins missing payments that will not

only affect your credit score, but also the credit score of your co-signer. Since both parties names

are on the loan, it's as though the loan was given to both of you. This is why a person shouldconsider carefully whether to co-sign a loan. If you can't keep up your end of the loan agreement,

then the co-signer's credit score and history can quickly be ruined. However, if you can keep up

with payments and everything goes well, then both your credit score, and that of the co-signer

will improve (somewhat) since both your names are on a loan that's being paid back. However,having a co-signer could negatively affect your future loans, since banks aren't inclined to trust

someone who's needed co-signers. This is something both parties should consider when applying

for a loan

What Is A Loan Audit?

A loan audit, simply put, is a review of your mortgage documents to ensure that they comply

with all relevant local, state, and federal laws. A borrower must receive certain notices on aspecifically defined time frame depending on the type of mortgage applying for. If the lender

fails to provide these notices then you have a right to rescind your loan in many cases and could

be entitled to a refund of your payouts.

Its not a difficult process getting a loan audit. Your loan auditor should tell you right up fronthow long you can expect to wait to get your results in and how long the entire process should

take beginning to end. Thats not to say you can know for sure the exact length of your situation

(they all vary), but a general idea is a good start. If you think you may need a loan audit then

contact an attorney and request one.


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Vouching of Loans


VOUCHING:

Vouching generally means Providing evidence or assurance.

The act of examining vouchers is referred to as vouching. It is the practice followed in an audit,

with the objective of establishing the authenticity of the transactions recorded in the primary

books of account. It essentially consists of verifying a transaction recorded in the books of

account with the relevant documentary evidence and the authority on the basis of which the entry

has been made; also confirming that the amount mentioned in the voucher has been posted to an

appropriate account which would disclose the nature of the transaction on its inclusion in the

final statements of account.

The Technique of Vouching In the Audit

At the time of conducting the vouching the following points must be borne in mind:

In order to ensure that valuable time is not lost in vouching, the client should produce tothe auditor all the vouchers arranged in the order in which entries appear in the books of

account.

The auditor must satisfy himself that the dates given on the vouchers which are recordedin the books fall in the year under review.

Satisfaction must be made in respect of the head of account debited or credited from theavailability documentary evidence.

While examining the documentary evidence it should be carefully seen that thetransaction pertains to the business. Care must be given to those vouchers which are in

the personal names of the partners, managers, secretary and directors.

Every voucher has been passed by the authorized official. Attention should also be paid to the point where the voucher bears proper revenue stamp. Complete notes should be taken in respect of such items as require further clarifications

or evidence.

Attention should also be paid to the amount to ensure that it agrees both in words andfigures.

Any alternation particularly in respect of the figure on the receipts and vouchers must befully inquired into.
http://www.businessdictionary.com/definition/evidence.htmlhttp://www.businessdictionary.com/definition/assurance.htmlhttp://www.businessdictionary.com/definition/assurance.htmlhttp://www.businessdictionary.com/definition/evidence.html


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CHARTS OF ACCOUNTS:

Current Liabilities

2000 Accounts Payable

2300 Accrued Expenses

2310 Sales Tax Payable

2320 Wages Payable

2330 401-K Deductions Payable

2335 Health Insurance Payable

2340 Federal Payroll Taxes Payable

2350 FUTA Tax Payable

2360 State Payroll Taxes Payable

2370 SUTA Payable

2380 Local Payroll Taxes Payable

2390 Income Taxes Payable

2400 Other Taxes Payable

2410 Employee Benefits Payable

2420 Current Portion of Long-term Debt

2440 Deposits from Customers

2480 Other Current Liabilities

Long-term Liabilities

2700 Notes Payable

2702 Land Payable

2704 Equipment Payable

2706 Vehicles Payable

2708 Bank Loans Payable

2710 Deferred Revenue

2740 Other Long-term Liabilities


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Audit Work Program Long term loans and advances

AUDIT WORK PROGRAM LONG TERM LOANS AND ADVANCES

Audit Program

(d) Long term loans and advances

WP Ref.:

Prepared

by:

Date:

Reviewed

by

Date

Client:

Period:

Subject: Long term loans and advances

Amount in

Rs.

Account balances:

Long term loan and advances

Provision against long term loan and advances

Classes of transactions:

Interest income


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S. No. Audit Objectives Assertions Risk Assessment

IR CR ROSM

1. Long term loans and advances are

completely and accurately recorded CA

2. All recorded long term loans and

advances actually exist. E


recorded at appropriate values and all bad

and doubtful balances have been

provided for/ written off. V

4. Long term loans and advances recorded

are the right of the company. R

5. Long-term loans and advances to

associated undertaking were in

accordance with legal requirements.

Laws &

Regulation


presented and all disclosures have been

given in accordance with the Fourth

Schedule of the Companies Ordinance,

1984 and relevant IASs.

OCAL

RVU

S. No. Audit Procedures Objective Done by W. P. Ref.

Test of Controls

1. Assess the reasonableness of design of

system of internal control by enquiring

relevant client personnel and

documenting the same (if not a

documented system manual has been

developed by the client). A walk through

test would be necessary to confirm the

understanding as documented. Identify

the preventive (exercised before

ALL


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incurrence of transactions and event) and

detective (exercised after incurrence of

transactions and event) controls

established by management to support its

assertions.

2. Check on sample of selected transactions

covering the whole period that all

preventive controls are exercised on all

transactions.

ALL

3. Check that proper subsidiary records have

been maintained and entries are made in

the same on prompt and consistent basisand the same is reconciled with general

ledger.

ALL

4. Check on a sample of transactions that

detective controls are appropriately been

exercised and in case of any detection of

error/ fraud, proper steps have been taken

to avoid recurrence of the same.

CE

5. For sample of disbursements made duringthe year: -

(a) Check approval of appropriate level

of management.

(b) Check that the employee has

fulfilled all formalities necessary before

disbursement of loans.

EV


6. Ensure that management does not

override the designed controls by


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Enquiring from the designated

staff person

Remain skeptical duringperforming test of design and test of

effective operation

7. Document the conclusion after

performing test of controls and required

level of assurance from substantive

procedures.

N/A

Analytical Procedures

1. Compare current year balances and

expense with last year balances and

ensure that any significant variation

should be properly and logically

reasoned.

CEA

Test of Details

1. Obtain a employee-wise movement

schedule of principal amount of loans and

advances and interest thereon and tracethe opening balances from the general

ledger, subsidiary records, and last year

working papers. Check casting and cross

casting of the schedule.

CE

2. For disbursements made during the year

check disbursements of funds with

disbursement register and bank statement.

E


3. For a sample of repayments made during EVR


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the year: -

(a) Ensure that amount and date of

repayment was accordance withrepayment schedule or agreement.

(b) Check receipt of funds with receipt

records and bank statement.

(c) Recovery of interest is in

accordance with the policy (i.e. along

with principal or after recovery of full

principal, as the case may be).

4. Circularize confirmations to selected

parties. Match replies with the amounts

outstanding against each party.

CER

5. Obtain age-analysis of long-term loans

and advances and perform the following:-

(a) Verify that loans have been

classified in correct categories.

(b) Current maturity has been

appropriately calculated and separately

disclosed.

(b) Consider the value of securities

available against each loan for the

purpose of calculation of provision for

doubtful loans and advances.

VK

6. Check subsequent recovery of loans etc. EV

7. Ensure that all loans and advances toassociated undertakings are granted after

due compliance with legal requirements.

Laws etc.



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8. Ensure that none of the loans and

advances are impaired or therecoverable

amount of a loan or advance is not less

than its carrying amount. If the carrying

amount of a loan/ advance is more than

its recoverable amount, then same should

be reduced to recoverable amount

recognising the reduction as impairment

loss

V

9. For items stuck-up for considerable

period of time, inquire about its status

from the management. Compute

provisions if required and ask for

management representations.

V

10. Ensure that loans and advancesshould be

measured at amortised cost using the

effective interest rate method.

11. Re-perform calculation of interest income

on test basis: -

(a) Verify rate of interest fromagreement/ policy.

(b) Check the number of days for

which interest is to be charged.

OATE

12. Test check loan agreement and legal

documents to verify the terms and

conditions of the advances

RU

13. Ensure that closing balances as per our

working paper file are in match withgeneral ledger.

CE


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EXAMPLES OF VOUCHING OF LOANS

Vouching/verifying the Borrowings from Bank.

Borrowings from a bank: Borrowings from a bank may be either in the form ofOverdraft limits;

or short term or medium term or long term loans. The audit

Procedures which an auditor may adopt are outlined below:

Ensure that balance as per books of the client and the bank statement tally. InCase of difference

between the two amounts, reconciliation statement preparedby the client should account for

reasons.

Examine whether borrowings from the bank have been duly authorized.

Examine documents to ensure that statutory requirements, if any, with regardsto creation and

registration charges have been met.

Examine the loan agreement and ensure that the terms therein have been dulyComplied

withAscertain the purpose for which loan has been raised and examine whether end Use of the

funds have been accordingly made.

Vouching/verifying the Contingent Liabilities.

Contingent Liabilities

(i) Review minutes of the meetings of the Board of Directors or other similar bodies.

(ii) Review contracts, agreements and arrangements.

(iii) Review list of pending law suits and obtain a certificate and opinion of the lawyerdealing

with the cases.

(iv) Review of records relating to contingent liabilities maintained by the company.

(v) Review of terms and condition of grants and subsidy availed.

(vi) Obtain representation from the management.

(vii) Ensure that proper disclosure is made of all the contingent liabilities.

Vouching/verifying the Trade Creditors.

Trade creditors:


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Theadequacy of cut off procedure to ensure that transaction of nextperiod is not accounted and

all transactions of year end are accounted.

Check posting in the bought ledger from books of prime entry.

Compare the balances in the schedule of creditors with balances in boughtledger.

Compare the balances with the confirmation or statement of account receivedfrom trade

creditors.

Pay special attention to long outstanding items and enquire about the reason therefore.

Verify subsequent payments and reversal entries in the bought ledger of yearend entries.

See that trade creditors are classified and shown in the balance sheet as perrequirement of

Schedule VI of the Companies Act. 1956.


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MCQS FOR ASSIGNEMNT

1) What is a loan?a) Debtb) Creditorc) Account receivablesd) Bad debts

2) How many types of loan discussed in the topics?a) 1b) 3c) 5d) 4

3) What does word vouching refer to?a) Make suretyb) Written documentc) An accountd) Providing evidence

4) Credit cards and lines of credit are examples of which type of loan.a) Open-Ended and Closed-Ended Loansb) Secured and Unsecured Loansc) Conventional Loans

5) Borrowing from a bank either in form ofa) Overdraft limitsb) Short termc) Medium termd) Long term loanse) All of them


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6) In a legal loan, each of these obligations and restrictions is enforced by contract, whichcan also place the borrower under additional restrictions known as?

a) Loan barriersb) Loan return restrictionsc) Loan covenants

7) The loan is generally provided at a cost, referred to asa) Profitb) Interestc) Over amountd) Charges

8) Which type of loan cannot be borrowed once they are repaid?a) Closed-ended loansb) Openended loansc) Conventional Loans

9) Which of following comes under head of close ended loans?a) Mortgage loansb) Auto loansc) Student loansd) All of them

10)Is it true that interest rate of secured loans is lower than unsecured loans?

a) Yesb) No


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Bibliography

http://en.wikipedia.org/wiki/Loan [Online] // wikipedia. - feb 22, 2002. - may 21, 2011.

www.about.com [Online] // About. - august 13, 2002. - may 21, 2011.

www.blurtit.com [Online] // Blurt. - august 09, 2002. - may 21, 2011.

www.friendsmania.com [Online] // friendsmania. - Audit notes, march 22, 2009. - may 21,

2011.

www.icai.org [Online] // ICAI. - pcc compsuggans, december 17, 2006. - may 21, 2011.

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