Provision and accruals, Auditing

Provision and Accruals

Previous to we consider the audit procedures along with regard to accruals and provisions, it is essential to clarify the meaning of two words in general use that tend to confuse students.

a) Provision: this is any amount retained like reasonably essential for the reason of giving for any liability or loss that is likely to be incurred or is certain to be incurred although uncertain as to amount or as to the date on that it will arise.  Thus a provision is a debit such to the profit and loss accounts that decrease profit and hence future dividends.  Therefore it is for a likely or certain further for future payment and the amount or else the date of payment is uncertain.

b) Reserve: this is such part of shareholders funds not accounted for through the nominal value of mattered share capital or through the share premium account.

The need to create provisions must receive serious consideration through the directors and also through the auditors. Review of post balance sheet events frequently casts lights on the amount of the provision needed. The auditor's duty is to confirm that any provisions set up are required for the main reason for which they were set up and such any provisions that are no longer required are transferred back to loss and profit account.  Considerable attention requires to be paid to accruals as similar to prepayments they are not checked through the double entry system and hence open themselves to distortion of the accounts through the senior management.

The auditor must ensure about that last year's accruals are written back.  Accruals do not change much from year to year and consequently comparison of last year's and this year's listing is an important audit procedure and any such are substantially greater or smaller would call for analysis.

Posted Date: 1/28/2013 12:50:14 AM | Location : United States







Related Discussions:- Provision and accruals, Assignment Help, Ask Question on Provision and accruals, Get Answer, Expert's Help, Provision and accruals Discussions

Write discussion on Provision and accruals
Your posts are moderated
Related Questions
Detail work on stocks - Audit of Current Assets Detail work on stocks is imperative in an audit, since there are other review tests that are equally important and these includ

Types of audits So far we have tended to think in terms of the audit of limited companies, and indeed, the emphasis throughout this text will be on such companies incorporated

The Use of Engagement Letters There is a contractual relationship among an accountant and his client. The accountant must therefore make sure that at the time he decided to exe

As a senior in a professional services firm, you have been assigned to plan the financial statement audit of a private company named Toy Local Corporation (TLC). In addition, the p

Normal audit risk Indications that an audit is a normal risk audit are: (1) The client having management and staff who are competent and have integrity; (2) Where the client h

What are the are the advantages and disadvantages of auditing an IT firm

Benefits of Internal Audit are following: It is in-expensive. No charted accounted is needed to audit internally. Faults will be removed before preparing financial stateme

With internal audit we always require to be careful of any manipulations within the company itself. Errors and frauds within the company cannot be denied /overlooked at any cost.

how do internal controls affect or improve the goals of a bussiness firm

Types of Transaction - Related Party Fundamentally two types of transactions which arise between a related party and a company as: A. It is usual for members of a collectio