There are innumerable types of business and all of them have accounts prepared and most of them have their accounts audited. Every type of business has its audit problems but the sheer number of different types of makes it impossible to discuss these problems in other than a general way. For exam purposes it is normally possible to apply a general approach to an audit which will conform to the specialised guidelines giving a general knowledge about the enterprises and some imagination.
These guidelines were given at the beginning of this lesson.
Insurance premiums received
This pertains to insurance companies. A premium is money paid to an insurance company to provide a cover against a risk.
- Obtain the authority for accepting the cover. This should be from the appropriate official and if necessary from a BOD resolution.
- Obtain copies of the policies given and check.
- Various insurance covers
- Date when insurance premiums are due
- Penalties for default
These should be in accordance with the insurance company’s policies regarding insurance covers.\
3.Calculate the premiums and compare this amount to the amount received...
- Check the period which relates to the premiums received and check that the premiums received is correctly shown.
- Check the recording of the premium in the ledgers
- Obtain copies of standing orders from the insured and ensure that entries therein agree with those in ledgers and check for:
- Schedule of standing order
- Number of policies
- Date due
- Any defaults-check the entries in the ledger for this.
- 4.Obtain bank reconciliation and compare it to the cash book and check the insurance statement for proper recording of this item.
This relates to clubs or non-profit making organisations.
- Obtain authority for admitting the members whose subscriptions are being audited. The auditor should obtain the constitution of the club or organisation.
- The auditor should obtain the constitution of the club and check
- Maximum number of members and the type of members
- The subscription from each member
- Provision for default
The auditor should then check the actual number of members and the rates they have paid.
- Obtain the ledger and ensure that subscriptions paid have been entered properly both in amount and the period to which they relate. He should compare the amount in the ledgers with the rates, which should be paid by each member in the various categories.
- Obtain the cash book and compare it to the bank statement. Ensure that there is good reason for variances. Check that it is properly recorded in the income statement.
Hire Purchase Installments received
- Authority from the BOD minutes or AGM or proper official with the authority for granting hire purchase terms to customers.
- Obtain Hire purchase agreement and check for:
- Value of asset
- Hire purchase price
- Hire purchase installment
- Provision for default
Ensure the hire purchase terms are in agreement with the policy of the organisation
- Find out the amount of installments and when they should be paid and get the ledger recording of these installments. Ensure that capital payments are separated from revenue payments. The auditor should calculate the amounts and compare them to those that are recorded.
- Check the recording of these items in the cashbook and the bank statement to ensure that the two are in agreement. Check the profit and loss account for proper recording.