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
Transferee Liability - A person may be held LIABLE for another taxpayer's delinquent taxes if: 1. The transferee received assets of the transferor-taxpayer; and 2. The transf


Buyers - Disclosure and Presentation This case (case of Aluminium Industries vaassen B V v. Romalpa Aluminium Ltd) are simply relevant whether creditors involve a material amo

Beneficial Ownership and Existence Existence Existence of buildings and Land is not hard to display. You may even be sitting in such building.  Conversely, the audito

Describe the management system within your case study business. Assess the risk of fraud in this business, and suggest methods for detection Management system in this ca

problems associated with intangible asset audit

Auditors Procedures After Stock Taking It is particularly a follow up exercise and it includes: 1) Checking the cut off along with the details of last numbers of stock move

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

Concept of Audit Evidence The auditing is an evidence gathering exercise.  It is an exercise continued out to confirm the assertions made through the management in carrying ou

IAS 40 Investment Properties Audit work common to all kinds of land and building will be used to establish ownership, existence and price. IAS 40 requires such companies may a