Checklist for verifying the maintenance of accounting records and preparation and presentation of financial statements as per Accounting standards is given below. I hope that it will be found in order and useful while executing audit function of company auditees.
Checklist for Compliance Of Accounting Standards
1. Auditee :
2. Financial Year :
3. Audit Representatives : i) ii)
4. Second Person Review :
|S.no.||Particulars||Reply of audit team
|AS-1||Disclosure of accounting policies|
|1||Have you obtained list of all significant accounting policies adopted in preparation and presentation from management?|
|2|| Have you checked the consistancy of accounting policies being followed?|
|3|| Did you Enquire about changes in accounting policies, if any?|
|4||Whether such changes result in any material effect in the current period or later period?|
|5||Whether fundamental accounting assumptions are followed?|
|6||Whether all accounting policies are disclosed at one place in financial statements?|
|AS-2||Valuation of inventories||Reply of audit team
|1|| Have you verified accounting policy followed for valuation of inventory and cost formula used?|
|2|| Have you verified the process for determination of Cost or Net Reallisable Value?|
|3||Whether there is any change in method of valuation?|
|4||Have you done physical verification correctly ?|
|AS-3||Cash Flow Statements||Reply of audit team
|1||Have you ensured classification of cash flow statement in operating, investing and financing activities?|
|2||Have you checked method adopted for reporting of cash flow from operating activities and its consistancy thereof?|
|3||Whether cash flows arising from transactions in foreign currency are reported in enterprise's reporting currency or not?|
|4|| Is effect of changes in exchange rates on cash and cash equivalentsheld in foreign currency reported as a separate part of the reconcilliation of changes in cash and cash equivalents during the period?|
|5||Is reconcilliation of components of cash and cash equivalents obtained or not?|
|6||Whether proper disclosure (together with commentary by management) of amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it, made or not|
|AS-4||Contingencies and Events ocurring after the balance sheet date||Reply of audit team
|1|| Is there any contingent loss, which should be provided for by a charge in statement of profit and loss?|
|2||Is there any contingent gain and its accounting thereof|
|3|| Is there any major event occuring after Balance Sheet date, which indicate the fundamental assumption of going concern is not appropriate|
|4||Is there any dividend declared or proposed after Balance Sheet date which relate to audit period|
|5||Whether disclosure has been obtained from approving authority of those events occuring after Balance Sheet date that represent material changes and commitments affecting financial position of enterprise?|
|6||Whether disclosure of nature, uncertainity affecting future outcome and estimate of financial effect in respect of contingancies done or not|
|7||Whether disclosure of nature and estimate of financial effect for events occuring after Balance Sheet date done or not|
|AS-5||Net Profit or Loss for the period, Prior Period Items and Change in accounting Policies||Reply of audit team
|1||Are the prior period income/expenses disclosed separately in the profit &loss account in a manner that their impact on the current profit / loss is perceived clearly ?|
|2||Has there been any extraordinary event occurring during the reporting period? Is it disclosed separately in the profit & loss account so as to understand its impact ?|
|3||Is there any change in accounting estimate which has material financial impact either in the current period or in future periods ?|
|4||Whether the effect of change in accounting estimate disclosed properly as mentioned in AS ?|
|5||Is there any change in accounting policy? If yes then whether the material impact is disclosed in the financial statements?|
|AS-6||Depreciation||Reply of audit team
|1|| Enquire about the method of depreciation applied.|
|2|| Whether there is any change in method of depreciation? If yes, the same has been effected with retrospective effect or not.|
|3||Whether the useful life of asset has been reviewed periodically?|
|4|| Is there any extension becoming integral part of any asset? If yes, the method of depreciating the same has been checked or not.|
|5||Is there any change in historical cost of an asset? If yes, depreciation has been charged prospectively or not.|
|6|| Whether provision for depreciation has been effected for revalution done, if any?|
|7||Whether separate disclosure for any material surplus or defeciency arising on sale or disposal of asset has been done?|
|8||Whether following disclosures have been made-|
- Historical cost
- Total depreciation for the period
- The related accumulated depreciation
- Depreciation method used
- Depreciation rates or useful life of asset, if different from that specified in statute
|AS-7||Construction Contracts||Reply of audit team
|1||Have you checked that while calculating contract cost AS has been followed properly ?|
|2||Have you verified that the costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics and the allocation is based on the normal level of constrcution activity?|
|3||Have you verified that the costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract?|
|4||Can the outcome of a construction contract be estimated reliably? |
|5||If yes, then whether the associated contract revenue and contract costs recognised as revenue and expenses respetively by reference to the stage of completion of the contract at the reporting date?|
|6||If it is expected that the contract expense will exceed contract revenue, then whether the expected loss is recognised immediately ?|
|7||Have you ensured that an enterprise has disclosed :|
i) the amount of contract revenue recognised as revenue in the period;
ii) the methods used to determine the contract revenue recognised in the period;and
iii) the methods used to determine the stage of completion of contracts in progress.
|8||Have you ensured that any contingencies are disclosed in accordance with AS-4 ?|
|AS-9||Revenue Recognition||Reply of audit team
|1|| Have you ensured that revenue is recognised only when there is certainity to its collection?|
|2||Have you ensured that following conditions have been fulfilled in case of performance in sale transaction:|
- Transfer is done at a price
- All significant risks and rewards have been transferred.
- There is no significant uncertainity regarding collection of price.
|3|| Have you ensured the following in case of performance in rendering of services:|
- Method of recognising revenue is either completed service contract method or proportionate completion method.
- There is no significant uncertainity regarding amount of consideration.
|4||Whether revenue arising from royalty, interest and dividend is recognised when there is no significant uncertainity as to measurability and collectibility.|
|5||Whether proper disclosure has been made for the cases where revenue recognition was postponed?|
|AS-10 ||Accounting For Fixed Assets||Reply of audit team
|1||Whether the gross value of fixed asset is shown at cost or revalued amount, including other costs directly relating to the asset?|
|2||Whether fixed assets acquired in an exchange of another asset or securities have been recorded at fair market value?|
|3||Any subsequent expenditure has been added to value only when there is increase in future benefits arising from it.|
|4|| Whether all material items retired from active use and held for disposal have been shown at lower of realisable and book value and disclosed separately?|
|5|| Whether any gain/loss on disposal has been transferred to P&L?|
|6|| Have you ensured the following in case of revaluation of asset:|
- Revalued book value does not exceed the realisable value.
- No part of accumulated depreciation is transferred to P&L?
- Any increase forms part of owner's capital except to the extent earlier debited(decrease) to P&L?
- Any decrease is transferred to P&L except to the extent it is adjustable against earlier created revaluation reserve.
- On disposal of revalued asset, any loss arising should be charged to P&L except when there stands a credit in reserve for that asset.
|7|| Have you ensured that asset is recorded at cash value in case of asset owned under hire purchase and the same has been disclosed?|
|8|| In case of asset jointly owned, only pro rata value should be recognised in Balance Sheet.|
|9||Following disclosures should be ensured:|
- Gross and net book value, indicating addition, disposal, acquisitions or other movements.
- Expenditure incurred on acquisition or construction.
- Revalued amount of asset, the method and indices of revaluation, year of appraisal, if any external valuer was involved.
|AS-11||The Effects of Changes in Foreign Exchange Rates||Reply of audit team
|1|| Whether initial recognition of foreign currency transaction has been made at rate as on transaction date?|
|2|| Whether following rules have been followed for recognition on Balance Sheet date:|
- Foreign currency monetary items should be shown at closing rate.
- Non-monetray items, carried at historical cost should be reported at spot rate.
- Non-monetray items, carried at fair value should be reported at the rate when the valuation was done.
|3||Have you ensured that any difference arising on account of such valuation has been charged to profit/loss.|
|4|| Is there any integral or non-integral foreign operation?|
|5||Following principles should be followed for non-integral foreign operations:|
- Assets and liabilities are valued at closing rate.
- Incomes and expenses are valued at spot rate.
- All resulting gain/loss are accumulated in translation reserve untill disposal.
|6|| Have you ensured the following i.r.o. forward exchange contracts:|
- Premiun/discount arising on inception of contract has been amortised as income/expense over the life of contract.
- Profit/loss arising on cancellation or renewal of contract is recognised as inocme/expense for the period.
|7||Have you ensured that following disclosures have been made:|
- Amount of exchange difference included in P&L
- Net exchange difference accumulated in translation reserve and its reconcilliation.
- Reason for a difference in reporting currency and the currency of the country where the enterprise is domiciled.
|8|| In case of change in classification of a foreign operations, following additionnal disclosers are required:|
- Nature of change
- Reason for change
- Impact of change on shareholder's funds
- Impact on net profit/loss with retrospective effect.
|AS-12||Accounting for Government Grants||Reply of audit team
|1|| Whether the grants are recognised after obtaining reasonable assurance for their reciept and compliance of the conditions attached threwith?|
|2||Whether proper traetment of grants for depreciable or non-depreciable assets has been followed?|
|3||In case of grant for specific asset, grant is shown as deduction from cost of asset or not?|
|4|| Have you ensured that all revenue grants are transferred to profit and loss on a systematic basis?|
|5|| Whether grant in non-monetary asset form have been recognised at cost or nominal value?|
|6||In respect of any grant received towrads previous period expenses, then whether the same has been disclosed as required by AS-5?|
|7||Whether the contingancy or refund, if any have been recognised as per AS-4 and AS-5 respectively?|
|8||Whether following disclosures have been made:|
- Policy adopted for grants
- Method of presentation
- Nature and extent of grant recognised
|AS-13 ||Accounting for Investments||Reply of audit team
|1||Have you ensured that investments are classified as Long-term investments and Current Investments?|
|2||Have you ensured that the cost of investment includes acquisition charges such as brokerage,fee and duties ?|
|3||Whether the investment is acquired by issue of shares or other securities?|
|4||If yes then whether the cost of investment is taken to be the fair value of the security issued ?|
|5||Have you ensured that pre-acquisition income is reduced from the cost of investment?|
|6||If right shares were issued, have you ensured they have been correctly treated as per the accounting standard ?|
|7||Whether carrying amount of current investments is lower of cost and fair value and that of long term investments is at cost ?|
|8||Is there is permanent diminution in the cost of long-term investment , if yes whether carrying amount has been changed accordingly?|
|9||Have you ensured that any reduction in the carrying amount of the current or long term investments and any reversals of such reduction are charged or credited to the Statement of Profit and Loss ?|
|10||Have you ensured that on disposal of an investment, the difference between the carrying amount and net disposal proceeds are charged or credited to the Statement of Profit and loss ?|
|11||Whether there is any case of re-classification, if yes whether re-classification is done correctly?|
|12||Whether disclosure is made for :|
i) accounting policy for determination of carrying amount of investments.
ii) classification of investments.
iii) Gross income from investments should be bifurcated as income from long term investments and from short term investments.
iv) profit & loss on disposal of investments and changes in the carrying amount of such investments.
v) significant restrictions if any.
vi) aggregate book and market value of quoted and unquoted investments.
|AS-14 ||Accounting for Amalgamation||Reply of audit team
|1||Whether amalgamation satisfies all the conditions laid down in AS-14 ?|
|2||Whether pooling of interest method is used in case of amalgamation in the nature of merger ?|
|3||If at the time of amalgamtion the transferor and transferee company have conflicting accounting policies then whether the effect of any such change is reflected in the financial statements as per AS-5 ?|
|4||Whether purchase method is used in case of amalgamation in the nature of purchase ?|
|5||When securities are included in the consideration paid, whether they have been considered at fair value ?|
|6||Whether the difference between the consideration paid and net assets acquired is transferred to Goodwill/ Capital reserve arising out of amalgamation?|
|7||Have you ensured that in case of amalgamation in the nature of purchase the identity of the reserves created by the transferor company in pursuant to statutory requirements are not changed in the books of the transferee company ?|
|8||Whether goodwill arising on amalgamation amortised over a justified period ?|
|9||For all amalgamations whether the following disclosures are made ?|
i) name and general nature of business of the amalgamating companies.
ii) effective date of amalgamation for accounting purposes.
iii) the method of accounting used to reflect the amalgamation.
iv) particulars of the scheme sanctioned under a statute.
|10||For amalgamations under the pooling of interest method whether the following disclosures are made ?|
i) description and number of shares issued, together with the percentage of each company's equity shares exchanged to effect the amalgamation .
ii) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.
|11||For amalgamations under the purchase method whether the following disclosures are made ?|
i) consideration for the amalgamation and a description of the consideration paid or contingently payable.
ii) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.
|12||When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party, whether disclosure is made in accordance with AS-4 ?|
|AS-15 ||Employee Benefits||Reply of audit team
|1||How have you classified employee benefits into long term, short term, retirement or post retirement employee benefits?|
|2||"How have you ensured that the enterprise has recognised all shortterm|
employee benefits expected to be paid in exchange for service rendered to the enterprise during an accounting period as per AS 15?"
|3||Have you obtained actuarial valuation reports of gratuity, pensions, leave encashment and medical as on balance sheet date?|
|4||Have you verified accounting for ESOP under the intrinsic value method as prescibed by the guidance note on Employee Share based Payments issued by ICAI?|
|5||Have you reviewed the most recent valuation at the Balance Sheet date and updated the same to reflect any material transactions and other material changes in circumstances (including changes in interest rates) between the date of valuation and the Balance Sheet date?|
|6||Have you ensure that the entity has recognised a liability for other long-term employee benefits as per AS 15?|
|7||Have you inquired whether any termination benefit is paid or payable during the year and is recognised as an expense?|
|AS-16 ||Borrowing Costs||Reply of audit Team|
|1||How have you verified whether there is any qualifying asset such as manufacturing plants, power generation, and inventories that require substantial period of time to get them ready to their intended use or sale?|
|2||Are there any borrowing costs which are directly attributable to acquisition, construction or production of qualifying assets ?|
|3||If yes, whether such borrowing costs are allocated to the value of the assets and not charged to revenue ?|
|4||Is there any income arising from temporary investment of such borrowing ?if yes then whether that income is deducted from borrowing cost ?|
|5||Have you applied the capitalisation rate for determining the amount of borrowing costs ?|
|6||Have you verified that the amount of borrowing costs capitalised does not exceed the total borrowing costs ?|
|7||Is there any suspension / interuption in active development of the qualifying asset ?|
|8||If yes then whether it is avoidable or unavoidable. If avoidable then whether capitalisation of borrowing costs suspended during that period ?|
|9||Have you ensured that the capitalisation ends when substantially all the activities necessary to prepare the qualifying assets for its intended use / sale are complete ?|
|10||Whether financial statements disclose the accounting policy adopted for borrowing costs and the amount of borrowing costs capitalised during that period ?|
|AS-17 ||Segment Reporting||Reply of audit Team|
|1||While identifying the reportable segments have you determined which are the primary and secondary segment reporting formats?|
|2||Have you verified that if the result of a segment includes interest or dividend income, its segment assets include the related receivables, loans, investments, or other interest or dividend generating assets?|
|3||Have you verified that segment revenue includes only that portion of enterprise revenue which is directly attributable to a segment or portion of revenue attributable to particular segment or revenue from transactions with other segments?|
|4||Have you ensured that a business segment or a geographical segment which is not a reportable segment as above has been designated as a reportable segment despite its size at the discretion of the management of the entity?|
|5||Verify that segment revenue, expense, assets and liabilities are determined before intra enterprise balances and intra-enterprise transactions are eliminated as part of preparation of final financial statements of the entity as a whole ?|
|6||Have you ensured that segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the entity as a whole ?|
|7||Have you ensured that changes in accounting policies adopted for segment reporting that have a material effect on segment information are disclosed ?|
|AS-18 ||Related Party Disclosures||Reply of audit Team|
|1||Have you obtained the list of related party duly signed by auditee and its verification note from the management?|
|2||Have you ensured that disclosure of all the transactions with such parties in the balance sheet?|
|3||Have you co related the transaction recorded in register maintained u/s 189 of Companies Act, 2013? Have you obtained certified summary of such transactions from Company Secretary of the company?|
|AS-19||Leases ||Reply of audit Team|
|1||Have you ensured that the lease agreement transfers the right to use the assets ?|
|2||Are the costs directly attributable to activities performed by the lessee for a finance lease, included as part of the amount recognised as an asset under the lease ?|
|3||In case of finance lease is the depreciation as per AS-6 ?|
|4||Have you verified that the lease income & lease expenses from operating lease recognised in the Statement of Profit and Loss on a straight-line basis over the lease term? |
|5||Have you ensured that the costs, including depreciation incurred in earning the lease income recognised as expenses? |
|AS-20||Earnings Per Share ||Reply of audit Team|
|1||Have you verified the calculations based on the movement in share capital during the year?|
|2||Have you ensured that the entity presents basic and diluted earning per share on the face of the Statement of profit and loss for each class of equity shares that has a different right to share in the net profit for the period ?|
|3||Have you verified that the purpose of calculating diluted earning per share, is the amount of net profit or loss for the period attributable to equity share holders adjusted by the following:—|
(i) Any dividends on dilutive potential equity shares, which have been deducted in arriving at the net profit attributable to equity share holders
(ii) Interest recognised in the period for the dilutive potential equity shares
(iii) Any other changes in expenses or income that would result from the conversion of the dilutive potential equity shares?
|AS-21||Consolidated Financial Statements||Reply of audit Team|
|1||Have you ensured that the Standard is applied in preparing and presenting consolidated financial statements for a group of entities under the control of a parent including all subsidiaries whether domestic or foreign?|
|2||Ensure that the consolidated financial statements include :|
i) Consolidated Balance Sheet,Consolidated Statement of Profit & Loss and notes, other statements and explanatory material that form an integral part thereof;
ii) Consolidated Cash Flow Statement in case a parent presents its own Cash Flow Statement.
|3||Have the reasons for not consolidating a subsidiary been disclosed in the consolidated financial statements?|
|4||Have the intra-group balances and transactions and resulting unrealised profits been eliminated from the statements and unrealised losses are eliminated only if the cost cannot be recovered?|
|5||Have the consolidated financial statements been presented only from the date on which holding-subsidiary relationship came into existence?|
|6||Have the financial statements used in consolidation of parent and subsidiaries drwan upto the same reporting date and pertaining to uniform accounting policies?|
|7||If no, are adjustments made for the effect of significant transactions or other events that occur between those dates and the date of the parent's financial statements?|
|8||Have you ensured that investment in an enterprise is accounted in accordance with AS-13 from the date that enterprise ceased to be a subsidiary and does not become an associate?|
|9||Do the consolidated financial statements disclose the list of all subsidiaries including its name, country of incorporation, proportion of ownership interest and,if different,the proportion of voting power held?|
|AS-22||Accounting for taxes on Income ||Reply of audit Team|
|1||How have you verified that deferred tax asset have been recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax asset can be realised?|
|2||Have you reviewed previously unrecognised deferred tax assets at the Balance Sheet date subject to consideration of prudence?Is the carrying amount of deferred tax asset written down subject to the consideration of prudence?|
|3||Have you ensured that the entity has a legally enforceable right to setoff assets against liabilities representing current tax?|
|AS-23||Accounting for Investments in Associates in Consolidated Financial Statements ||Reply of audit Team|
|1||Has a list of entities over which the reporting entity exercises significant influence been prepared?|
|2||Have you checked that investments in associates are not accounted under the "equity method"if the following conditions have been satisfied?|
i) the investment is held exclusively with a view to its subsequent disposal in the near future.
ii) the associate operates under severe long term restrictions that significantly impair its ability to transfer funds to the investor.
|3||Has goodwill/capital reserve been computed on the investment in an associate as the difference between cost of acquisition & the entity's share of the equity of the associate?|
|4||Has the goodwill/capital reserve computed above been included in the carrying amount of the investment in the associate?|
|5||Do the consolidated financial statements disclose appropriate listing and description of associates including the proportion of ownership interest?|
|AS-24 ||Discontinuing Operations||Reply of audit Team|
|1||Whether any major line of business/ Area of operation is discontinued ?|
|2||Has the enterprise measured the changes in the assets and liabilities and revenue expenses relating to discontinuing operation as set out in other accounting standards ?|
|3||Whether prior period figures restated to segregate assets, liabilities, revenue, expenses and cash flow of continuing and discontinuing operations as disclosed in current year?|
|4||Adjustment to previous year figures for discontinued operations ?|
|AS-25 ||Intangible Assets||Reply of audit Team|
|1||Whether all criterion met by the asset to become an intangible asset ?|
|2||Have you checked the accounting treatment ?|
|3||Have you ensured that the entity has not recongnised internally generated goodwill as an asset?|
|4||Whether research phase is properly distinguish from development phase?|
|5||Whether intangible asset is amortised as per method presribed in AS ?|
|6||Have you reviewed amortization period/method ?|
|7||Whether there is a case of revaluation of asset if yes, whether impairement testing has been done on that revaluation?|
|8||Has an intangible asset been derecognised on disposal or when no future economic benefits are expected from its use and subsequent disposal ?|
|9||Whether disclosure has been made properly ?|
- useful life or the amotisation rates
- amortisation methods used
- gross carrying amount and accumulated depreciation at the beginning and at the end of the period
- a reconciliation of the carrying amount at the beginning and at the end of the period providing details therof.
|AS-26||Financial Reporting of Interest in Joint Venture ||Reply of audit team
|1||Whether there is a contractual arrangment whereby two or more parties undertake an economic activity, which is subject to joint control ?|
|2||In evaluating whether an entity has joint control over a venture , verify whether the contractual arrangement provides protective rights or participating rights to the entity ?|
|3||Whether contractual agreement consists all the important information ?|
|4||Have you ensured that the venture has accounted interest in jointly controlled entity as an investment in accordance with AS-13 in its separate financial statements ?|
|5||Have you ensured that the venturer discloses facts prescribed as per AS ?|
|AS-27||Impairement of Assets ||Reply of audit team
|1||Has the entity assessed at the balance sheet date whether there is any indication that indicates impairement of an asset ?|
|2||Whether Net selling price and Value in use of asset has been calculated correctly ?|
|3||Have you ensured that carrying cost of asset is calculated after deperciaton ?|
|4||Whether impairement testing is done properly?|
|5||Have you checked the accounting treatment of impairement loss?|
|6||Whether there is revaluation of impaired asset ?|
|7||Whether there is any case of reversal of impairment loss, if yes whether that is done as prescribed in AS ?|
|AS-28||Provision, Contingent Liability and Contingent Assets ||Reply of audit team
|1||Whether conditions for making provison are fulfilled ?|
|2||In cases there is a doubt as to whether a past event has occurred or not or whether a present obligation has arisen, has the entity resloved the doubt by taking account of all available evidence ?|
|3||Have you checked that contingent assets are not recongnised in the financial statements unless the realisation of income is virtually certain ?|
|4||Have you reviewed that provison for restructing costs is recongnised only when the recognition criteria for provisions mentioned in AS ?|
|5||Have you reviewed the old provision and if there is any need to adjust the provison, whether the provision has been adjusted correctly ?|