Audits are a necessary part of any business, especially those that operate to tight regulations

and standards. Whether conducted in-house or by visiting auditors, audits take up considerable
amounts of time and require a lot of paperwork. At least, that’s how it used to be - software
changes everything, and the benefits of using audit software is undeniable.

An audit of computerized accounts, also known as auditing in a computer-based environment, is

a process that involves reviewing a client's financial statements to consider the impact of
information technology (IT). The audit process typically includes the following steps:
Initial review: Planning the audit
Internal controls: Reviewing and assessing the internal controls
Compliance testing: Testing the internal controls
Substantive testing: Testing the detailed data
Reporting: Presenting the conclusions and findings

Some aspects of auditing in a computer-based environment include:

Application controls
These controls are manual and computerized, and ensure the accuracy and completeness of
accounting records.

Input controls
These controls are designed to ensure that input is complete, accurate, authorized, and timely.

Processing controls
These controls ensure that data input is processed correctly, and that data files are updated
accurately and in a timely manner.

Auditing through a computer can involve accessing, testing, analyzing, and reporting electronic
data. Auditors can also audit around the computer by accessing source documents and output
listings

Computer Auditing
Computer auditing is the method to do data analytic all transactions of an enterprise such as of
financial transaction, manufacturing transaction, computer logs, etc. If you enter this field, be
prepared to study accounting, Information Technology, business law, fraud detection, and critical
thinking in order to track the financial or business information of corporations and individuals. In
the past, auditors were associated with terms like "live in the far corner of the building" or "Paper
Crunchers", but that perception is changing as modern auditors are recognized as integral parts
of business management.
Auditors provide business owners and executives with important financial data and
interpretations and explanations of that data. If you choose to study computer auditing, you
should be ethical, detail-oriented and comfortable working with numbers.
Electronic auditing
Electronic auditing, also known as e-auditing, is the process of using electronic records and
software to perform an audit. It can be used to complete all or part of an audit.

Electronic auditing can help organizations:

Improve accuracy and efficiency

Electronic audits can provide more control over the auditing process, which can help
organizations maintain accuracy and efficiency.

Detect inconsistencies
Electronic audit systems can detect inconsistencies and unusually high figures, which can
provide more reliable results than manual audits.

Provide real-time feedback

Electronic audits can provide companies with accurate, real-time feedback about their
performance.

Save time and reduce travel

E-auditing can save time and reduce travel compared to traditional auditing.

Some objectives of electronic auditing include: Determining if computer systems safeguard

assets, Maintaining data integrity, Achieving organizational goals effectively, and Consuming
resources efficiently.

Benefits of Computer Auditing

Computerized auditing, also known as Computer Assisted Auditing Techniques (CAATs), can
have many benefits, including:

Improve the accuracy of data captured during an audit

Paper audits are not only time-consuming but restrict you to writing notes or completing a
checklist without being able to provide accompanying evidence. In addition, there's significant
scope for human error and bias, as a description of a non-conformance can be as detailed (or
as vague) as you choose.

Audit management software means you can capture evidence in real time and attach any type
of common file, including videos, photos and sound recordings.

The advantage of being able to attach evidence is that non-conformances can be viewed the
same way by everyone –there's no need for interpretation. This process also eliminates the
need to make lengthy notes to describe an issue, once more saving considerable amounts of
time.
Faster: Computer-assisted audits allow for easier, faster audits: they minimize the time spent at
the audit location. Audits may sometimes be conducted entirely on the basis of electronic
documents without any visits to the company's premises.

Real-time evidence: Audit software can capture evidence in real time.

Compliance: Audit software can help demonstrate compliance throughout the audit trail.

Data integrity: Computerized auditing can perform data integrity checks to verify that electronic
data is complete and accurate.

Confidence: Auditors can be more confident in the results and reports of computerized auditing.

Insights: Computerized auditing can provide better insights for detecting inconsistencies or
compliance risks.

Confidentiality of data:
To maintain the confidentiality of data in electronic auditing, you can:
Protect data: Prevent unauthorized access, use, disclosure, modification, or destruction of data.
Use encryption: Encrypt data at rest or in transit.
Restrict access: Limit access to confidential data to those with a demonstrated business need.
Use authentication: Use authentication to ensure the confidentiality and integrity of reports and
results.
Follow policies: Follow the data retention and disposal policies of the organization and system.
Anonymize or redact: Anonymize or redact any sensitive information that could identify users,
the system, or vulnerabilities.
Store securely: Store data in a safe and accessible location.
Label and organize: Label and organize data according to the audit criteria, objectives, and
evidence.
Transcribe or summarize: Transcribe or summarize data as soon as possible.
Check for accuracy: Check for accuracy and consistency of data.

Specific problems of edp audit:

Electronic data processing (EDP) refers to the use of computer systems to process and manage
data
Electronic data processing (EDP) refers to the use of computers and related systems to perform
a wide range of activities involving the processing of electronic data. This includes tasks such as
data entry, data storage, data retrieval, data analysis, and data communication. EDP systems
are used in a variety of settings, including businesses, government agencies, and educational
institutions, to support the efficient handling of information and data.

EDP systems can be used for a variety of purposes, such as maintaining financial records,
processing payroll, managing inventory, tracking customer orders, and analyzing data for
decision-making. EDP systems can also be used to support communication and collaboration,
such as through email and other messaging systems.

EDP systems typically consist of hardware, such as computers and servers, and software, such
as operating systems, application programs, and databases. They may also include networks,
such as local area networks (LANs) and wide area networks (WANs), to support the exchange
of data between different systems and devices.

Some of the limitations of EDP systems include:

Cost: EDP systems can be expensive to implement and maintain, particularly for small
organizations or those with limited resources.
Complexity: EDP systems can be complex and require specialized knowledge and skills to set
up and operate effectively.
Dependence on technology: EDP systems rely on technology, and if something goes wrong with
the hardware or software, it can disrupt the system and cause problems.
Data quality: EDP systems depend on the quality of the data inputted into the system. If the data
is incorrect or incomplete, it can lead to errors or incorrect results.
Security risks: EDP systems can be vulnerable to security risks, such as hacking or data
breaches, which can compromise the confidentiality and integrity of data.
Privacy concerns: EDP systems can collect and store large amounts of personal data, raising
concerns about privacy and the protection of personal information.

Techniques of audit of EDP output:

Here are some techniques used to audit EDP output:
Application controls: Auditors determine the risk of material misstatement in financial statements
by ascertaining, recording, and evaluating application controls.
Sampling: Auditors use sampling to draw conclusions about entire populations based on a
subset of data.
Tests of details of transactions and balances: Auditors perform tests of details of transactions
and balances.
Analytical procedures: Auditors perform analytical procedures.
Tests for general controls: Auditors perform tests for general controls.
Re-performing calculations: Auditors re-perform calculations performed by the entity's
accounting system.
Computer-aided audit tools (CAATs): Auditors use CAATs for data analysis, fraud detection,
analytical tests, data analysis reports, continuous monitoring, and curb stoning in surveys.

Other techniques used in auditing include:

Checking, Vouching, Counting, Observation, Confirmation, Recalculation, Reperformance, and
Inquiry

Involvement of auditor at the time of setting up the computer system:

The auditor's role in systems development is to perform an independent review of systems
development and acquisition activities. The auditor's role in program modification is to perform
an independent review of the procedures and controls used to modify software programs
Auditors are involved in the design and development of computer systems in a number of ways,
including:
Reviewing design and development
Auditors review the design and development of new data processing systems and applications.
Reviewing controls
Auditors review general controls in data processing systems to ensure they are designed
according to management direction and legal requirements. They also review application
controls to assess their reliability.
Auditing through the computer
Auditors use computers to test processing logic and controls, and the records produced by the
system.
Monitoring control systems
Computer systems auditors design and monitor control systems to ensure the accuracy and
security of data.
Reviewing computing environment
Computer systems auditors review an organization's computing environment and the use of
their computer facilities.

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Audit of Banking
An audit of banking is a routine examination of the

services provided by the organisation to ensure their

compliance with the standard and laws of the industry. It

helps to uncover the breaching of laws and regulations

of the financial institutions.

Share

Banks and banking institutions play an essential role in developing a country. The banks are

economic agents, and as with various other sectors, they are also exposed to risky operations. In

an audit of banking, a bank auditor reviews the services of the banking sectors. An accounting

specialist is designated with the title of a bank auditor who reviews the process. Credit union or

bank audits can either be external audits or internal audits. Its goal is to provide a self-standing

evaluation of the bank’s activities, information systems and controls. Tests are carried out on the

systems, findings are generated, and auditors recommend the bank’s corrective actions.

Audit of Banking
An audit of banking is an activity that is executed to inspect the financial persistence of an

institution to ensure that the rules and regulations are followed as directed by the statutes. A

bank auditor is assigned to audit banking companies.

The aim of an audit of a banking company is rooted in compliance. The target of a bank audit is

to review whether the financial activities of the institutions are legal, fair, and complete. The main

objective of the bank audit is to conduct an independent inspection of the bank’s performance, its

information systems and control.

The system has to undergo various examinations to generate the findings, and auditors can

suggest some possible reformative actions that the institution should take to perform better.

Regulatory and financial reports are inspected to determine if they were appropriately filed or not.

Tests are taken to identify incomplete, inaccurate or unauthorised transactions. A method of test

known as control testing is used to relate if the bank is being operated appropriately and

effectively.

Types of Bank Audits

There are many types of bank audits: risk-based internal audit, statutory audit and tax audit,

stock audit, credit audit, RBI inspection system audit, forensic audit, concurrent audit, snap audit,

and foreign exchange.

 ● Risk-based internal audits provide reasonable assurance to top management and the

Board about the effectiveness and adequacy of the risk management and control

framework in the institutions’ operations

● A statutory audit is carried out by chartered accountants instructed by a statute or law to

ensure that the books of accounts presented to different regulators and the public are fair

● RBI inspection of bank branches empowers the Reserve Bank of India to supervise and

inspect commercial banks

● Credit audit can bring out the spaces in the processing and sanctioning loans and

monitoring loan accounts and wrong documentation

● According to the bank’s stock audit policy, the bank’s external auditors shall inspect

assets charged to the bank once or twice a year as desired by the bank

● A forensic audit examines a company’s financial records to derive evidence from them

and use it in a court of legal proceedings

● The forensic auditor’s report can help prosecute the parties involved in embezzlement,

fraud, or other financial misappropriations

There are many more different types of audits than the ones mentioned above. The banking

audit unveils the violation of rules or regulations of different financial institutions and failures in

compliance with the institution’s policies. Bank auditors look for the primary set of issues to
develop profiting proposals. Their discoveries are then documented and noted on a file by the

bank.

Statutory Audit of Banks

A statutory audit of banks is a type of banking that ensures that the financial statements and

books of account conferred to the regulators and the public are fair and precise. Statutory

auditors must ensure that the audit reports are compliant with the requirements mentioned in the

following standards.

The standard of auditing 700 involves forming an opinion on financial statements, the standard of

auditing 705, which includes modifications to the opinion in the self-reliant auditor’s report and

the standard of auditing 706 that emphasises the matter paragraphs and further matter

paragraphs in the unconventional auditor’s report.

Statutory auditors are usually given a time frame within which they have to audit the bank’s

branches allocated. An auditor should accept the appointment immediately and send a formal

intimation to the branch manager about the information necessary to conduct and complete an

audit. The assigned auditor should ensure that their report qualifies for advances, interest

expenses, deposits, etc. The essential elements to verify in a statutory audit of a bank are

tax-related objects, verification of cash procedures and loan accounts.

What are the types of bank audits?

Bank audits are conducted to assess the financial health, internal controls, and compliance of a

bank. There are various types of bank audits performed by different entities to ensure the bank's

operations are in accordance with the relevant regulations and guidelines. Some of the common

types of bank audits include:

Statutory Audit: Statutory audits are mandated by law and are conducted to ensure that the

financial statements of the bank provide a true and fair view of its financial position. These audits

are usually conducted by external auditors who are independent of the bank and its

management.

Internal Audit: Internal audits are conducted by the bank's internal audit department or

outsourced to an external firm. The objective is to assess and evaluate the bank's internal

controls, risk management processes, and operational efficiency. Internal audits help identify

weaknesses and suggest improvements in the bank's operations.

Regulatory Audit: Regulatory audits are conducted by the bank's regulatory authorities or central

banks to ensure that the bank complies with the banking laws, regulations, and guidelines. These
audits focus on areas such as capital adequacy, liquidity, loan classification, and adherence to

anti-money laundering (AML) and know-your-customer (KYC) requirements.

Compliance Audit: Compliance audits assess the bank's adherence to internal policies and

procedures as well as external regulatory requirements. It ensures that the bank is following its

own rules and the relevant laws and regulations governing the banking industry.

Information Technology (IT) Audit: IT audits evaluate the bank's IT infrastructure, data security,

and information systems. The objective is to identify vulnerabilities and ensure the confidentiality,

integrity, and availability of sensitive data.

Asset Quality Review (AQR): An AQR is a detailed assessment of a bank's asset quality,

particularly its loan portfolio. It is often conducted during periods of financial stress to identify

potential risks and assess the bank's ability to withstand economic downturns.

Special Purpose Audit: Special purpose audits may be conducted to address specific issues or

concerns, such as fraud investigations, mergers and acquisitions, or other unique circumstances

that require in-depth examination.

Risk-based Audit: Risk-based audits focus on areas that pose the highest risk to the bank. The

audit scope is determined based on a risk assessment, allowing auditors to concentrate on

critical aspects of the bank's operations.

Each type of bank audit serves a specific purpose and provides valuable insights into different

aspects of a bank's operations, governance, and compliance. These audits collectively help

maintain the stability and trust in the banking system and ensure that banks operate in a sound

and transparent manner.

Process of Audit
The audit of banking involves various stages to complete the procedure successfully.

● The first stage is the initial consideration by the statutory auditor by the declaration of

Indebtedness, engagement risks, team discussion

● The second stage is to identify the risk of misstatement and access the risk management

● The third stage is understanding the institution’s environment and control system to

process the next step, accounting

● The next steps are team discussions to plan an overall strategy to develop an audit plan

● Reviewing the previous year’s audit reports and internal inspection reports is very

beneficial

What is a Nonprofit Audit?

A nonprofit audit is a comprehensive review of an organization’s records, reports,

transactions, policies, and procedures. When a nonprofit audit is conducted by an

independent auditor, its goal is to assess the organization’s overall health and ensure

compliance with federal, state, and general financial regulations.

While the term “audit” is mostly used in a financial sense, there are several different types

of audits your nonprofit could conduct. Here is an overview of the most common audit

categories

Types

Independent financial audit. This type of nonprofit audit occurs when a third-party auditor or

auditing firm examines your organization’s financial statements, transactions, accounting

practices, and internal controls. They provide an objective perspective on your

organization’s financial health and compliance.

IRS financial audit. Since nonprofits don’t pay federal income tax like individuals and

businesses do, the IRS doesn’t audit them often. However, that doesn’t mean a federal

audit or compliance check is out of the question for your organization. In most cases, the

IRS will audit nonprofits if they don’t file required forms or a reporting discrepancy is

discovered, which is why it’s critical to complete your organization’s annual Form 990 and

employer tax forms carefully and on time.

Internal financial audit. These audits are conducted by your organization’s management

team. Although they can’t be completely objective, they allow your organization to take a

step back from everyday tasks and consider opportunities for large-scale improvement in

your financial strategy going forward.

Compliance audit. Financial audits are not the only types of audits your nonprofit may

encounter. Compliance audits review your organization’s adherence to regulations and

requirements set by federal, state, and local governments, as well as your organization’s

bylaws and other policies.

Operational audit. This type of audit assesses your nonprofit’s internal systems,

productivity, staffing, and management practices to determine strengths and areas for

improvement. They can be holistic or specific to one area of your organization’s operations,

such as technology or human resources.

Does My Nonprofit Need to Conduct a Financial Audit?

It depends. There are four main reasons why your nonprofit might be required to undergo

an independent financial audit for compliance purposes, which are as follows:

Four reasons why your organization may have to conduct a nonprofit audit

Audits are written into your organization’s bylaws. Upon establishing your nonprofit, the

founders may have specified that the organization would need to conduct regular audits to

ensure financial security and transparency from the start.

Your nonprofit receives more than $750,000 in federal funding per year. This includes

federal funding passed through the state in which your organization operates.

State laws require your organization to conduct an audit. Most states stipulate that

nonprofits whose total annual funding exceeds a certain threshold (often $500,000) must

conduct an independent audit.

A grant application asks for an audit report. Before they invest in your organization, most

grantmakers want to see financial proof that you’ll manage the grant well. Some funders

will accept copies of past tax returns or financial statements, but others will specifically

request an independent audit.

Even if your nonprofit isn’t required to undergo an audit, it can still be worthwhile to conduct

one just to get a better understanding of your organization’s financial situation. At the very

least, establishing internal review procedures will help protect your nonprofit from risks and

promote financial responsibility.

What Are the Steps in Auditing a Small Nonprofit Organization

Process

Auditing a small nonprofit organization requires planning and preparation. The entire

process, from selecting a nonprofit auditor to implementing the audit's findings, can take

anywhere between 8-20 weeks.

Here are some steps you can follow to audit your nonprofit organization:

1. Select an auditor

‍The first step to auditing a small nonprofit is to select the auditor that is right for your

organization. The auditor should be independent and have the necessary qualifications for

conducting such an audit.

During your search for an auditor, ask your top contenders for a request for proposal

(RFP). An RFP should include the types of services they offer, fees associated with their

services, and the timeline for the audit.

Additionally, it's a good idea to work with auditors who specialize in the nonprofit industry.

These folks understand the intricate “ins and outs” of a 501c3 organization.

Once you review the RFPs from your varying choices, select an auditor that best meets

your needs.

2. Sign an Engagement Letter‍

‍Generally, the auditor will be responsible for providing an Engagement Letter. An

Engagement Letter outlines the terms of the audit, including the nonprofit audit cost and

timeline.
Audits can cost anywhere from a few thousand for a small nonprofit to $20,000 for larger

foundations.

3. Begin the audit prep work

‍Once the Engagement Letter is signed, you'll need to do some preparation before your

audit can begin.

Auditors will generally send a PCB (Pull by Client) list of additional documents and

information they will need to complete the audit. Items an auditor may ask you to prepare

could include financial statements, bank reconciliations, payroll documents, details of any

grants received, etc.

Before you provide this information to your auditor, ensure the following has been

completed:
All bank accounts have been reconciled

You've reviewed any uncleared transactions

Ensure none of your vendors have negative or zero balances

Check for any outstanding payments from your members/patrons, etc.

Deposit any large funds

Double-check statements and records for coding errors

Review capitalization

Take a look that your account balances are up-to-date

Review all of your accounts receivable and payable

4. Conduct the audit

‍Once the auditor has all of the necessary documents and information, they will start to

conduct the audit. This process might involve reviewing your financial statements,

interviewing staff members and key stakeholders, examining internal controls, and

assessing risk areas in your organization.

Auditors will provide nonprofits with a report outlining the audit results. Nonprofits should

review this report carefully and make sure all discrepancies or issues highlighted by the

auditor have been addressed properly.

5. Implement the findings

After you've reviewed the audit report, it's time to implement any changes or improvements

that have been suggested. This could involve updating your policies and procedures,

increasing internal controls, or instituting new processes.

By taking the necessary steps for auditing a small nonprofit organization, nonprofits can

ensure compliance with applicable laws and regulations, reduce the risk of fraud or other

financial irregularities, and improve their overall financial health.

Audit of Insurance Companies

Audits of insurance companies are those companies that assure the insurance policies.

They check and evaluate whether the insurance rates and the premiums faculties are

included in the insurance or not. It also ensures that all insurance companies follow all the

laws. All types or previous claims on the insurance company are also considered in the

Audit of insurance. It verifies whether the company has excluded previous claims or not.

Along with all these functions, the Audit of Insurance companies also maintains the

relationship between the various policyholders and insurance companies. It provides

guidance to the insurance companies on how they can attract more customers and how

they can satisfy their customers.

Government audit

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Government Audit - What, How, and Why?

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Government Audit - What, How, and Why?

This article is the first of many on special audits. And today's topic of discussion is

"Government Audit".

Government audit is practically as old as governments itself. And it has been increasing its

scope with every development of the political, social and economic sectors of the country.
In this article, we shall see how government audit is defined, how it originated and

developed over the years and why there is the need for government audit in an economy.

What is the definition of Government Audit?

I could be sassy and begin the article by giving you a definition something like this:
Government auditing is the objective, systematic, professional and independent

examination of financial, administrative and other operations of a public entity made

subsequently to their execution for the purpose of evaluating and verifying them,

presenting a report containing explanatory comments on audit findings together with

conclusions and recommendations for future actions by the responsible officials and in the

case of examination of financial statements, expressing the appropriate professional

opinion regarding the fairness of the presentation.

Government audit serves as a mechanism or process for public accounting of government

funds. It also provides public accounting of the operational, management, programme and

policy aspects of public administration. Not only that, it also ensures accountability of the

officials administering them.

The main objective of audit is a combination of ensuring accountability of administration to

legislature and functioning as an aid to administration. However, criticism of administrative

actions wherever warranted is inherent in auditorial function. This has to be understood

and appreciated in a proper spirit, and that the criticism is made in a constructive spirit
 In India, the function of audit is discharged by the independent statutory authority of the

Comptroller and Auditor General through the agency of the Indian Audit and Accounts

Department. Audit is a necessary function to ensure accountability of the executive to

Parliament, and within the executive of the spending agencies to the sanctioning or

controlling authorities.

3 c,s of auditing
For some companies and departments, the "A" word is dreaded and met with suspicion or even
resentment. But audits, especially internal audits, are tools managers can and should use to
drive improvement and support positive change. There are many reasons that a company
should perform an internal audit. In the food and beverage industry, GFSI standards require
internal audits. In other industries, companies may have internal requirements, and internal
audits are a great way to perform health checks regarding quality and safety systems.

The benefits of performing internal audits are numerous, from identifying gaps in lines and
processes to highlight training issues to uncovering culture gaps within the system. By
identifying these issues, manufacturers are better able to prepare for external audits. However,
internal audits are only valuable tools if companies can incorporate the 3 C’s of Internal
Auditing: Communication, Culture, and Coordination. Let’s dive into ways to make internal
audits more successful.

1. Communication
No one likes a surprise on the line, and that includes a surprise internal audit. The premise
behind a surprise audit, whether internal or external, is to get an accurate and truthful snapshot,
taken at random. But internal audits can accomplish excellent results without being sudden and
unexpected. To meet your goal of getting an accurate snapshot while maintaining good
relationships with everyone involved. Here are a few methods and tools for creating clear
communication to make the most out of your internal auditing process:

Internal Audit Schedule - Create an internal audit schedule document that helps auditors,
management, and operators plan out the year

Audit Management Software - Implement Audit Management software that can automate
notifications so that everyone receives timely reminders of upcoming audits, follow-up corrective
actions, etc.
Auditing Documents - Utilize an auditing document or set of documents that includes applicable
SOPs, company guidelines, etc., and provide them to line operators and even employees before
the audit, so they know what to expect.

Discuss Problems Directly - When conducting the audit, it is invaluable to have frank
discussions with employees working with the processes, machines, and products every day.
When auditors discover gaps in quality, discussing problems with employees can often find
solutions from the workers who know the equipment best.

Coordination
Coordination can reduce misunderstandings, unnecessary stress, and conflict by identifying the
best times for launching an internal audit. This can be as simple as creating a schedule to
manage audits using planned dates based on what is happening in that individual facility at
different times of the year. For instance, if management knows an external audit is happening
one month, it probably is not a good idea to have an internal audit at the same time. Instead,
auditors can schedule internal audits to be light and preparatory for the external audit. By
coordinating the best times and days to do internal audits with supervisors, line leaders, and
anyone else involved in the audited processes, the whole process can be much less stressful
and, thus, more successful. A few things to keep in mind when coordinating your internal audit:

Timing is Key - Make sure that you are coordinating with the key people involved. Auditors
should take care to be mindful of timing when coordinating the audit schedule with people.

Don’t be Afraid to Reschedule - Even the best-laid plans may need rescheduling. If operators
are having a terrible day, it might not be the greatest time to go out and do the audit. Maintaining
a flexible window to coordinate for possible rescheduling is respectful and ultimately will
probably result in a better audit than forcing the audit on a bad day.

Be Understanding - There are a lot of variables at play on any given day---be understanding
towards your team and the ways that they may need to be supported or adjust to make the most
out of your internal audit.

3. Culture
Changing the culture and shifting feelings about internal audits from negative to positive begins
with talking to people and seeking buy-in before, during, and after the audit. Auditors will have
greater success when starting the approach with a positive attitude and a sense of wanting to
help—the goal is to identify solutions and make the everyday experience better for people.
Many employees have a lot to say—but may not feel like anyone is listening. Auditors can often
identify great solutions and even discover unseen issues impacting quality by talking to the
people doing the work and experiencing the processes. Deep and sincere listening promotes a
more positive culture shift.

What are Audit Procedures?

Audit procedures are the techniques, processes, and methods that auditors use to obtain
reliable audit evidence, which enables them to gain a sound judgment about an organization’s
financial status. Audit procedures are conducted to help determine whether or not a company’s
financial statement is credible and factual. The regular implementation of these procedures
helps establish a business’s financial reputation and strengthen its trustworthiness in the eyes of
its customers, the market, and potential investors.

Audit Procedure Methods

There is no definitive structure when it comes to auditing; its whole process would depend on
the auditor, the company to be audited, and the purpose of the audit. Learn more about the two
main methods of audit procedures below:

Substantive audit procedures

Substantive methods are audit processes that provide actual physical evidence including paper
trails such as financial statements, books of accounts, or transaction records. This also includes
other important documents such as registry for land or deed/agreement for the building rent.
Essentially, substantive methods include any tangible proof that not only provides a conclusive
understanding of the circumstances, but also has a high level of accuracy.

Analytical audit procedures

While the substantive method uses apparent proofs as an audit basis, analytical methods take
this a step further. Analytical methods pair financial data with non-financial data and determine
the correlation between them. Comparison of previous trends vs current trends, as well as
evaluation of the difference between the client’s record and the substantive evidence, are also
considered analytical methods.

What are the Types of Audit Procedures?

During the planning phase of an audit for a company, it is a requirement to perform a risk
assessment to understand the environment of the organization, as well as to recognize its
weaknesses and to identify the best set of audit procedures to use. Audit procedures include
inquiry, confirmation, observation, inspection, recalculation, and reperformance. Know more
about each of them:

Inquiry
One of the simplest types of audit procedures is inquiry. This procedure involves auditors
collecting verbal evidence through formal or informal inquiry from the people in the organization.
Although relevant, this type of evidence isn’t strong enough to stand alone and would need
other supporting documents or proofs to be considered valid.

Confirmation
Similar to inquiry, confirmation also asks for explanations regarding the transactions of an
organization. The main difference, however, is that auditors would validate them through direct
communication with a third party or other external sources that an organization has relationships
with. Examples of these third parties are banks, suppliers, or customers.
Observation
With this type of audit process, auditors usually try to confirm that existing business procedures
or measures are being implemented by the organization. This type of procedure gives auditors
an idea on how internal processes work, and if they can affect the operations of the organization
as a whole.

Inspection of documents
Inspection of documents is the process of gathering and examining transactions through
recorded information. This can be performed using two ways—vouching and tracing.

Vouching is where auditors manually check the details of supporting documents to verify the
transaction records. Meanwhile, tracing is the process of validating transactions by tracking their
connections to the source document.

Inspection of physical or tangible assets

Inspection of tangible assets is the procedure where auditors physically examine the company’s
assets including properties such as land, building, vehicles, equipment, or inventory. This
process doesn’t only confirm the existence of the asset, but also helps in determining whether it
suffered defects or impairment, which affect its value.

Auditors can make a list of all the fixed assets of a company or use this asset register checklist
for the inspection.Recalculation
This audit process is fairly straightforward. In recalculation, auditors recompute the transactions
themselves and compare them to the initial financial statement or calculation of the company.
Auditors can then identify if they are balanced, or further investigate if there are any differences
or discrepancies found.

Reperformance
Reperformance is simply just auditors independently repeating the audit procedures or internal
controls the company has also performed. Audit evidence obtained using this procedure is
considered more reliable than evidence indirectly gathered, because it’s a first-hand experience
and direct form of evaluation.

Auditors can always perform their audits using multiple procedures. For example, aside from
just checking supporting documents, they can also inspect physical assets or ask other related
third parties for confirmation of existing transactions. By performing various audit procedures,
auditors can strengthen the credibility of the audit result and reduce the chance of
miscalculations and discrepancies.

Audit procedures are a set of methods used to gather evidence and perform an audit:

Analytical procedures
Involves studying the relationships between financial and non-financial data to evaluate financial
information.

Confirmation
A required procedure for accounts receivable that provides evidence for assertions about
existence, rights, and obligations.

Observation
Involves confirming that the organization is implementing existing business procedures and
measures.

Inquiry
Involves seeking financial and non-financial information from knowledgeable people within or
outside the entity.

Reperformance
Involves the auditor independently repeating an activity that the audit client has done.

Inspection
Involves examining records or documents, and applying accounting policies.

Recalculation
Involves performing a calculation to check its accuracy, and comparing the result with the
number recorded in the general ledger.

Inventory
Involves comparing a company's financial records to its stock records to ensure all data is
correct.

Types of special audit

Fraud Audit - Investigates financial irregularities or fraud, often for legal purposes. This includes
embezzlement, misappropriation of funds, kickbacks, and other forms of financial fraud.
Compliance Audit - Ensures adherence to specific laws, regulations, or industry standards. It
ensures that the organization complies with legal requirements and industry standards.
Cost Audit – Find discrepancies in the cost sheets or cost records of the organization.
Information Systems Audit - Evaluates the controls, functioning, and security measures of an
organization's information systems and software.
Tax Audit - Reviews an organization's financial information and income tax return for compliance
with tax laws.
Compensation Audit - Annually analyzes the workers' compensation, including wages, salary,
bonuses, incentives, etc.
Royalty Audit – Investigates the payment of license fees and royalties by the licensee to the
licensor.
Control Audit - Examines and evaluates an organization's internal control systems, including
policies, guidelines, standards, etc.
Construction Audit - Reviews financial aspects and costs of construction projects.

Remaining audit see poojas PDF and for tax audit see downloads pf crom

Share capital
complete authorised capital for public subscription at one time. Relying upon its necessity, it
may circulate share capital but in any scenario, it should not cross more than the amount of
authorised capital.
Issued Capital: It is that portion of the authorised capital which is usually circulated to the public
for subscription comprising the shares assigned to the merchants and the endorsers to the
enterprise’s memorandum. The authorised capital which is not proffered for public consent is
called as ‘unissued capital’.
Subscribed Capital: The subscribed capital is referred to as that part of issued capital that is
subscribed by the company investors. It is the actual amount of capital that the investors have
taken.
Called up Capital : The amount of share capital that the shareholders owe and are yet to be
paid is known as called up capital. It is that part of the share capital that the company calls for
payment.

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Home Companies Act 2013

Companies Act 2013Corporate LawSharesThe Companies (Share Capital and debenture)
Rules
Shares and share capital of the company
August 13, 202421779 0

This article is written by Aadrika Malhotra. It talks about the concept of share capital in a
company with a detailed analysis of how share capital helps raise company profits. Share
capital is typically divided into equity share capital and preference share capital, depending on
factors such as voting rights and dividends. This article delves into each type, outlining their
characteristics and the associated liabilities for shareholders.

Table of Contents
Introduction
An overview of shares
Certificate of shares
Estoppel to the title
Estoppel to the payment
Issuance of duplicate certificates
Penal provision
Share capital in Company Law : an overview
Authorised capital
Issued capital
Subscribed capital
Paid-up capital
Called-up capital
Kinds of share capital in Company Law
Equity shares
Preference shares
Kinds of preference shares
Cumulative and non-cumulative preference shares
Convertible and non-convertible preference shares
Redeemable and irredeemable preference shares
Participating and non-participating shares
Other types of share capital in Company Law
Sweat Equity Shares
Employee’s Stock Option Scheme
Bonus Issue
Conditions
Restriction on Issuing Bonus Share
Rights Issue
Compliance with rights issue
Voting rights
Issue of shares at premium
Allotment of shares
Procedure for allotment of shares
Calls and forfeiture of shares
Calls on shares
Calls in advance
Calls in arrears
Reduction of share capital and dematerialization
Transfer and transmission of shares
Buy-back of shares
Advantages and disadvantages of buy-back
Rights of shareholders
Liabilities of shareholders
Conclusion
Frequently asked questions (FAQs)
Are share capital and equity the same?
What is the time limit for share allotment?
Can the share capital be withdrawn?
Can a company issue more shares than its authorised share capital?
What is the difference between share and stock?
What is the difference between reserve capital and capital reserve?
References
Introduction
The Companies Act, 2013 (‘the Act’) details all laws related to companies and their functioning
in India, including shares and share capital. A company is a form of organisation whose capital
is contributed largely by its shareholders, who are the real owners of the company. This capital
is the amount that is invested in the company to carry out the company’s activities. Since a
company is an artificial person, all operations of the company are dependent upon its AOAs and
MOAs that are signed with it. It has a corporate legal entity distinct from its shareholders and
members, which means that the liability of the shareholders for the company depends a lot on
shares. All companies limited by shares must have a share capital, and this share capital cannot
be generated by the company on its own and has to be collected by several people. Although
the issuance of share capital is not necessary for a company to be incorporated, it is crucial for
running the business based on capital.

An overview of shares
Shares in a company show the percentage of ownership of a person or member in that
company, which is a single unit that is further divided into several units with their own price. All
of these units are of a specific amount, and when someone purchases these units, they also
purchase certain defined units of the share capital of the company, which makes that person a
shareholder in the company. The term share has been defined under Section 2(84) of the Act,
which means a share in the share capital of the company and includes stock. It signifies the
interests of the shareholders in the company, measured for the purposes of liability and
dividends. A share, debenture, or any interest held by a member of a company is deemed
movable property and can be transferred as stipulated in the company’s articles of association.
A member has the option to transfer any “other interest” in the company following the
procedures outlined in the articles.

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Certificate of shares
A share certificate is a document that is attested by the company and acts as legal proof of the
ownership of shares. There is a difference between the share that makes up the share capital
and the share certificate. This certificate can either be a part of the company’s share capital or
be owned by the shareholder while still being part of the company. Section 44 of the Act
mentions that shares are movable properties and are transferable. This differs from a share
certificate which under Section 46 is stated as a certificate under the common seal that specifies
the shares held by members of the company. It is issued under the company’s seal, signed by
two directors, a managing director and a company secretary. It is the prima facie evidence that
the title acts as estoppel to the title and an estoppel to the payment.

Estoppel to the title

A share certificate, after it is issued to the shareholders, binds the company in two ways: either
as a declaration by the company to the entire world about whose name the certificate is made
under or to whom the certificate is given. The company here is thereby estopped from denying
the title of the shares under the share certificate to the shareholder.

Estoppel to the payment

If the certificate states the shareholder has paid in full for all shares under that particular share
certificate, the company is estopped as against a bona fide purchaser of the shares, i.e., the
shareholder, from alleging that the shareholder has not paid the shares in full. If the statement in
the certificate is not true, there will be no estoppel against the company.

Section 56(4) states that every company, unless prohibited by law, must deliver all certificates
within a period of two months from the date of incorporation for the subscribers to the
memorandum of the company and within two months from the date of allotment if any shares
are allotted by the company. The issuance of share certificates shall be done in pursuance of a
resolution issued by the Board, and if the letter of allotment is lost, the company may register
the transfer of those on terms of indemnity as the Board may deem fit. Such certificate shall be
issued with the company seal and shall be affixed by either two directors duly authorised by the
Board of Directors or the secretary as authorised by the Board.

The share certificate shall contain particulars such as the name of the person and the date of
issue, which shall be recorded in the registrar of members. These share certificates and
documents have to be maintained as per the following requirements:

All blank forms that are used for the share certificates are to be printed by the board in a
resolution. The form shall be machine-numbered, and the engravings on the forms will be kept
under the custody of the secretary and the board.
The committee of the board, the company secretary, or the director assigned by the board shall
be responsible for the maintenance and safe custody of the documents related to the issuance
of share certificates and blank documents.
All of these documents shall be preserved with care for at least thirty years, and they should be
preserved forever if any of these cases are disputed before the Board. All share certificates that
were surrendered by the shareholders are supposed to be destroyed within three years, as
passed by the resolution by the Board.
Issuance of duplicate certificates
Section 46 of the Act, read with Rules 6 of the Companies (Share Capital and Debentures)
Rules, 2014, states that duplicate share certificates can be issued to the shareholders if the
original share certificate is lost or misappropriated. If the share certificate has been lost or
misplaced, the shareholder must inform the company of the loss through a letter sent at the
email address of the company or by post. The letter must detail the name, address, folio number
and share certificate number.

Once the company receives the letter, it should freeze the transfer of shares for at least thirty
days to avoid fraud. After the company registration procedure is completed, the shareholder will
be guided to issue a duplicate certificate once the identity of the shareholder is established. The
following documents are required to issue a duplicate share certificate:

Agreement to guarantee out-of-court stamp paper,

Affidavit on non-judicial stamp paper,
FIR with the complete data about the lost share certificate, including the name of the
shareholder, folio number, share certificate number, and the number of shares.
Advertisement about the lost certificate.
Penal provision
M&A
Section 447 of the Act provides the penalty for the issuance of false shares by the company with
an intention to defraud the public. The fine for such fraud shall be imprisonment for a term not
less than six months extending to ten years with a fine of not less than the amount involved in
the fraud.

Share capital in Company Law : an overview

Share capital refers to the capital raised by the company by issuing common or preferred stock,
as the case may be. It is not important for a company to have a share capital; the case might be
that it is a company limited by guarantee. The amount contributed by the shareholders is
dependent on them, and they can buy shares divided into equal amounts. Simply put, share
capital is the total value of funds raised by a company through the issuance of shares to its
shareholders.

Authorised capital
The Memorandum of Association of a company states the amount and division of share capital
in the company. This amount is called the authorised or nominal capital of the company as per
Section 2(8) of the Act.

Issued capital
Section 4(1)(e)(i) of the Act mentions that this share capital is present in the capital clause of the
memorandum, which can be issued depending upon the requirements. The portion of this share
capital that is issued to the public is known as the ‘issued capital,’ which is distributed from time
to time through subscriptions.

Subscribed capital
The part of the issued capital that is subscribed by the public is called the ‘subscribed capital’,
which, as per Section 2(86) of the Act, is the part of the share capital that is subscribed by the
members for the time being. The minimum subscription requirement presently is ninety percent
of the issued capital, and the company has flexibility in calling the subscribed capital.
Paid-up capital
The actual amount that the company receives from the subscribed capital is called the ‘paid-up
capital’ as per Section 2(64) of the Act, and the capital that forms the ‘uncalled share capital’
can be set aside as ‘reserve share capital.’

Called-up capital
The part of the subscribed capital that the company calls up for payment is called the ‘called-up
capital’ as per Section 2(15) of the Act.

The simple formula for this paid-up capital can be:

Paid-Up Capital = Number of Equity Shares Issued * The Face Value Called Up

For example, let’s say that ABC has an authorised share capital of Rs 10 lakh, which is divided
into equity shares worth Rs 1 lakh with a face value of Rs 10 per share. Here, let’s assume that
the shareholders fully pay for 50,000 equity shares at the decided face value. To calculate the
paid-up capital, we would have to follow the formula as follows:

Paid-Up Capital = Number of Equity Shares Issued * The Face Value Called Up

Paid-up capital = 50,000 shares * 10 rupees per share

Paid-up capital= Rs 5 lakh

This capital is reported in the balance sheet of companies in the shareholders’ equity section in
separate line items depending upon the sources, like common stock, preferred stock, and
additional paid-in capital. Common stock and preferred stock shares are reported in accounts at
their par value at the time of sale, and the amount received in excess of this par value is called
the additional paid-up capital. The share capital amount reported by a company includes only
those payments made directly by the company and later sales and purchases or the rise or fall
of these shares have no effect.

Kinds of share capital in Company Law

Section 43 of the Act mentions the two types of share capital that a company can have:

Equity share capital

With voting rights
With differential rights as in dividends, voting, or any other in accordance with the rules
prescribed.
Preference share capital ,unless otherwise specified by the company’s Articles of Association
(AOA) or Memorandum of Association (MOA).
Equity shares
Equity share capital means all share capital that is not preference share capital, which
represents ownership in a company. All equity shareholders are eligible to voting rights in the
company and are eligible for a share of the company’s profits, thus bearing a high risk with the
possibility of higher returns as well. The dividend that the shareholders get is not fixed in equity
shares, and the company might not give any profits to its equity shareholders even if it has
them. Though, as per Section 43(a) and Section 50(2), all equity shareholders get a right to vote
on every resolution that is passed in the company, and their voting can be determined by the
pool of paid-up capital until otherwise provided by the AOA and MOA.

Equity share capital is divided on the basis of differential (dividend) and voting rights, with the
former providing the shareholders with much fewer voting rights. Long term, small investors can
reduce their voting power to make up for the difference and seek higher dividends. Rule 4 of the
Companies (Share Capital and Debentures) Rules, 2014 lays down the conditions for the
issuance of equity shares:

The AOA of the company is responsible for the issuance of equity shares with differential rights,
such as dividends.
The shares are issued by the passing of a resolution at a general meeting of the shareholders,
where if the equity shares are listed on a stock exchange, the issuance of shares will be
decided upon by the shareholders through a postal ballot.
The equity shares that provide differential rights should not exceed more than 26 percent of the
total post-issued paid-up capital shares.
The company giving out the equity shares must have a consistent track record of distributable
profits for at least three years and should not have defaulted in filing facial statements or returns
for those three years and the three years preceding the year the shares are issued.
The company should not have defaulted on the payment of its dividends, repayment, or
redemption of preference shares to its shareholders.
The company should not have defaulted on the payment of dividends, preference shares, and
the repayment of loans taken from a public or private institution or a bank that requires statutory
payments.
The company should not have been penalised by any court or tribunal for at least the last three
years under the Companies Act passed by the Central Government or SEBI that pose sectoral
restrictions.
Companies that have their equity shares listed on a stock exchange can have their shares
issued by postal ballot with the shareholders’ approval. Section 102 talks about the statement to
be annexed to a general meeting talking about the issuance of these shares. Though the
company cannot cover its existing differential rights for its shares with voting rights or the other
way around.

Preference shares
Preference shares are the shares where the shareholders get preferential rights related to the
capital they hold and a dividend over equity shares. Preference shares are shares with a fixed
rate of dividend and preferential rights over ordinary equity shares. People who buy preferential
share capital get priority in dividend declarations, and at the time of winding up, they are the first
ones to receive money. They have the right to vote only when the matter directly or indirectly
affects them. This dividend may be a fixed amount that is payable to the shareholders to give
them preference over the equity shareholders and to give them a higher claim over the assets of
the company without the privilege of voting rights.

Preference shareholders can only vote on resolutions that directly concern them or affect their
rights as preference shareholders or the winding up of the company. If the preference dividend
is not paid for two years or more, the preference shareholders will get the right to vote on every
resolution.

Share capital audit

A share capital audit is a process that verifies the accuracy of a company's share capital, which
is part of its equity. A company's share capital can include common or preferred shares, and it
can change when the company issues or repurchases shares.

Here are some things that are typically included in a share capital audit:
Changes in share capital
Ensuring that any changes in share capital are recorded and reflected in the financial
statements
Reconciling share amounts
Reconciling the amounts of shares issued to underlying records to confirm they are accurate
Classifying shares
Ensuring that shares are classified as a financial liability or an equity instrument in accordance
with the contractual arrangements
Agreeing to shareholding agreements
Ensuring that the authorized share capital and nominal value disclosures agree with the
underlying shareholding agreements
Examining underlying agreements
Verifying that the underlying agreement has been properly approved
Separating shares issued for consideration
Treating shares issued for consideration other than cash separately from those issued against
cash

A share capital audit report may include information such as stock exchange compliances,
shareholding pattern, and compliance report on corporate governance