Audit of Hotel

Hotel Industry in India

Understanding Hotel Industry

CHAPTER 1

Hotel industry is foremost among various industries that reflect the economic activity in an
economy. It mirrors true social, cultural and economic growth and maturity of a country. The
Hotel industry is directly related to the Travel and Tourism industry. India is a very vast country
with geographical diversity, ranging from snowcapped mountains to deserts to vast coastlines,
complemented by rich culture and heritage, fairs and festivals, monumental attractions, etc. For
sheer diversity, no other tourist destination probably comes close to India. Therefore, there is a
tremendous potential for growth of tourism industry in India. The earlier setbacks in global
tourism have strengthened the Department of Tourism's resolve to promote India's tourism
through aggressive marketing strategies through its campaign 'Incredible India'. The 'marketing
mantra' for the Department of Tourism is to position India as a global brand to take advantage of
the burgeoning global travel and trade and the vast untapped potential of India as a tourist
destination. In 2009, the domestic market in India recorded 650 million travelers as compared to
only about 5 million international travelers, indicating the dominance of domestic travel in the
country. The foreign tourist arrival during the period January October 2010 was 4.32 million
with a growth rate of 9.9 per cent.

1. Technical Guide on Audit in Hotel Industry

India is fortunate to have a domestic market that supports the growth of the travel industry even
when the world economy is experiencing a downturn. However, domestic travel has probably
never been given its due. Even today, it is the statistics on the foreign travelers that garner
attention; though, it is the less represented domestic segment that forms the major component of
revenue generated by the Indian travel industry. The domestic demand for hotels in India has
historically been higher than the demand from foreigners. Though a large portion of domestic
demand originates from commercial activity, an increasing number of Indians are taking annual
holidays, both within the country and overseas. Many States within India such as Kerala,
Rajasthan, Goa have started focusing their efforts on the Indian traveler. The current count of
hotel rooms in India is 130,000, and the country is expected to require an additional 50,000
rooms over the next two to three years, according to World Travel and Tourism Committee
(WTCC) estimates. The World Travel and Tourism Council (WTTC) has predicted that India has
the potential to become the number one tourist destination in the world with the demand growing
at per cent per annum and will receive 25 million tourists by the year 2015. Other than hotels,
there are lots of standalone restaurants which are also contributing to economic activity and there
are branded chains of restaurants which are claiming prominence across India. Similarly,
standalone SPA, medical tourism, etc., are driving the demand and need for expansion of hotel
room requirements.

2. Factors affecting Hotel Industry

There are various factors which affect the growth of the Hotel industry, viz., economic, political,
competition , substitutes, strength of suppliers and of course employees.

2.1 Economic Factors

Various key economic factors like interest rates, taxation changes, economic growth, inflation
and exchange rates affect the Hotel industry as much as any other business. However, even
global recession which has even though not affected India much had major impact in hotels as
foreign tourist arrival dropped considerably. Hence, economic circumstances of not only India
but global economic factors also affect the industry performance. This phenomenon has been
witnessed even in the past like during the 1997 Asian economic crisis.

2.2 Political factors

Political stability in the country is considered important for the growth of any industry in the
country. The political stability is even more necessary for the growth of Hotel industry. In the
past Afghan war, Mumbai terror attacks, etc., have forced foreign countries to bring in travel
adversaries which poorly affected the Hotel industry.
2.3 Competition

Competition drives both the supply of the rooms and also creates demand for rooms through
advertisements by competitors. Whereas competition leads to reduction in prices in the short run,
it also leads to improvement in quality of service / product and also bring in healthier impact in
the Industry by forcing players to reposition the brand / quality of service in the long run.

2.4 Substitutes

Of late due, to ever raising room rates especially in five star Hotels category, lots of substitutes
have emerged to cater to travellers who spend considerable amounts on Hotel stays. For instance,
video conferencing has obviated the need for businessmen to travel long distances, stay in hotels
and have face-to-face meetings. Similarly, most corporates have started

3. Technical Guide on Audit in Hotel Industry

using own guesthouses / shared service apartments resulting in reduction in the Hotel capacity.
3.1 Strength of Suppliers

The existence of reliable sources that could provide timely and high quality goods and services at
competitive rates, is a very important factor for growth of the Hotel industry. The existence of
such sources is of even greater necessity for purchase of perishable goods that need to be
procured on a daily basis. In the scenario where outsourcing of certain services (like back of the
house cleaning services, Kitchen Stewarding) is gaining wider acceptance for the purpose of
converting fixed overheads into variable overheads, the strength of suppliers in terms of their
ability to provide consistently timely services, assumes great significance.

3.2 Employees

Employees are always considered as the key asset in a service-oriented industry. The quality and
competence of employees, not only of those who interact directly with the guests but also of
those who provide support services, are critical to the success of a hotel. Ever increasing
employee cost also results in reduction in manpower. Hotels in India in the past had operated
with an average of 2, and are some cases, 3 employees per room as compared to the international
benchmark of 1.5 or less employees per room.

4. Technical Guide on Audit in Hotel Industry

6 and resort to innovative pricing to overcome this problem. (For instance in Goa and Kerala,
monsoon packages are offered at cheaper rates to attract local tourist / corporate travellers for
conferences, etc.)

4.1 Service Charges

The Hotel industry is one of those industries that levy a service charge on the billed amount.
These charges are generally levied on food and beverage bills. Service charges are treated
differently by different Hotels. While some use it to distribute to the staff as part of labour cost
and some for hiring temporary staff for functions, or for breakage of Crockery / Cutlery and
Glassware, etc.

4.2 High Fixed Cost

The proportion of fixed costs to the total costs is normally higher in case of a hotel. This means
that a hotel has to incur certain costs whether or not it has generated any revenue. The need to
reduce the proportion of fixed costs has resulted in an increasing trend towards outsourcing. For
example, many hotels in India get their laundry done through external agencies. Many of the
housekeeping functions, which comprise a chunk of the fixed costs, are also being outsourced.
Abroad, sub-letting of bars and restaurants and even the entire food and beverage function is
already in vogue.

4.3 Contribution factor on revenue from rooms

Revenue from rooms is one of the few revenue streams that have lowest variable costs and,
consequently, provide the highest contribution. The incremental costs on letting out of a room are
generally the cost of washing the linen and replenishing the guest amenities like toiletries.

4.4 Night / Income Audit

The term night audit is widely prevalent in the hotel industry. The term refers to the procedure
under which various revenues are checked at night, i.e., after the end of the normal business
hours. Night audit is a control procedure which is carried out to ensure that revenues for the day,
as also cash / credit card collections, have been correctly recorded, so that records are updated
and ready by the next morning. As most of the hotels now use PMS, the need for night audit has
been shifted to more of income audit done during day time. PMS has ensured that there is an
automatic balancing of revenue posting, cashier closing and guest posting. Hence, of late, night
date change (for running procedure of posting room revenue in PMS) is done by the front office
operating team and income audit is done next day during the day time.

4.5 Time sharing arrangements

Time-sharing is a relatively new concept that offers the right to use, for a set interval each year,
the facilities in a designated hotel/resort, wherein the purchaser pays an initial fixed amount to
acquire the timeshare product and then pays an annual contribution known as maintenance or
management fee.

4.6 High Capital Investment

Hotel industry involves high amount of investment in fixed assets, primarily land. Typically,
nearly 90% of the net worth of a hotel is invested in fixed assets. Further, the gestation period for
hotels is generally longer as compared to other industries.

4.7 Laws / Statutes Applicable to Hotel Industry

Apart from the common laws that are generally applicable to any business entity, such as the
Income-tax Act, 1961, the Companies Act, 1956 and the labour laws,

5 Special Features of Hotel Industry

The technical and operational aspects of a hotel can be discussed under the following broad
heads:

(a) Rooms
(b) Food & Beverages (including purchases)

(c) Foreign Exchange Compliance

(d) Marketing Department Rooms

(a) Rooms

generally constitute the biggest source of revenue for a hotel. Approximately, 50 to 65% of the
gross revenue of a hotel comes from room rent which of course could vary depending on the city
and hotel configuration of banquet business. Normally, contribution from this source of revenue
is more than 70% due to the low variable costs. The various operations relating to rooms
normally are Reservations including revenue management, Front Office including Concierge,
Housekeeping.

Revenue Management

Pricing of Rooms

Room rent generally makes a major contribution to the overall profitability of the hotel and,
therefore, performance statistics of rooms are considered as indicators of the success of the entire
hotel business. Keeping in view the importance of the room rent to the overall profitability of a
hotel, pricing of the rooms is required to be done in a manner that overall revenue can be
maximized by optimizing average room rate and average occupancy.

Average room rent (ARR)

and average occupancy are two of the key indicators for measuring the performance of the rooms
department. Average room rent could be arrived at by dividing the total room revenue for a given
period by the number of room nights actually sold during that period. It is also sometimes
referred to as Average Daily Rate (ADR). Average occupancy is determined by dividing the total
room nights sold during a given period by the room nights available during that period.

Revenue Per Available Room (RevPar)

is being used of late to compare the revenue between hotels. RevPar is computed by dividing
Room revenue by number of rooms available for sale. RevPar is nothing but ADR multiplied by
occupancy percentage. Care is exercised while offering discounts on the standard room rate since
there are chances that it might create a precedent that may bind the hotel to lower rates in future.
While pricing the rooms, rates offered by the competitors are also required to be considered so
that misperception about the segment in which hotel is operating may be avoided.

Housekeepers Occupancy Report (HOR)

The reports on the rooms occupied are based on guest counts carried out by the housekeeping
staff. Normally, such counts are carried out twice a day; once in the morning while cleaning the
room and once in the evening, while making the bed (evening turn down service). HOR is
generated at least once a day. In addition to occupancy status, this report will also include
number of guests (Single/Double etc.), rooms with scanty Baggage.

This report is to ensure that:

there is no unauthorized letting out of a room by the Front Office

the guest has not checked out without settling the bill (for the purpose, due cognizance is
taken of the Scanty Baggage Report).

The housekeeping report, so prepared, is sent to the Front Office where discrepancies, if any, are
reconciled. FO ensures that the HOR is cross-checked with front office occupancy data (as per
PMS), and a Room Discrepancy Report (RDR) prepared. All discrepancies per the RDR are
verified by the Duty Manager, and follow-up action taken to resolve such differences and
documented. Hotels night/day audit procedure verifies that RDR has been prepared, differences
resolved, action recorded and reports signed off by the Duty Manager.

(b) Food and Beverages

Food and Beverages (F&B) are generally considered as the second largest source of revenue for
a hotel and generally contributes 30% 32% of the gross revenue. The F&B department
typically comprises the following sections:

Kitchen

Banqueting

Restaurant(s)

Bar(s)

Room service

Stewarding, and

Stores

The profitability of the F&B department depends on the combination of two factors, i.e., gross
margin (selling price minus cost) and volume. On the one hand, volumes are never fully within
the control of the hotel and on the other hand, selling prices are normally fixed in a manner so as
to be competitive with the other hotels in the same segment operating in the vicinity. Therefore,
profitability of F&B department can be increased mainly by controlling F&B costs. The various
technical aspects relating to the F&B department are discussed hereinafter.

Kitchen

Kitchen is the heart of the F&B operation because food is prepared in entirety in the kitchen and
supplied to the various outlets. With the increasing emphasis on the control of food costs, it
would not be an exaggeration to state that the success or failure of the F&B department is
dependent on the kitchen. A hotel may have more than one kitchen, depending on the size of the
hotel and number of outlets. The kitchen is under the charge of the head chef, who reports to the
F&B Manager. In a large hotel having specialty outlets, the head chef is usually supported by
soups chefs, who are the second in command after the head chef and / or are in charge of the
kitchen of their respective outlets.
Components of Food Preparation

The raw material used for food preparation can be categorized under the following two broad
heads:

(a) Perishables, and

(b) Provisions

Perishables are those items that do not have any shelf life; for example, vegetables, fruits, milk,
fish and meat. Consequently, such items are required to be purchased on a daily basis.
Provisions, on the other hand, have a shelf-life, and can, therefore, be stocked and procured at
periodic intervals.

Control over Raw Material Cost

As already mentioned, the profitability of the F&B department, to a great extent, depends on the
control of the raw material costs, since it is the only major variable cost. Labor cost, which is the
next major head of expenditure in the kitchen, is a fixed cost. Perishables constitute a major
component of the raw material cost, not only by virtue of the sheer physical composition of the
total quantity required, but also because of the tendency for wastage. The key to controlling food
costs, therefore, lies in exercising control over the purchase of perishables. The various methods
usually employed by hotels to control the raw material costs are discussed hereinafter.

Purchase of Raw Materials Annual Rate Contracts

Annual rate contracts are a typical feature of hotel purchases. Such contracts generally cover all
perishable goods and some provisions. Under such arrangements, the supplier agrees to supply
raw materials to the hotel at a fixed price. Therefore, the annual rate contracts have the impact of
fixing the price at which various items of raw material can be purchased. The annual rate
contracts are generally finalized by a Purchase Committee comprising the representatives of the
purchase department, accounts department and administration department. The contracts may
either specify the rate and the overall quantity

(c) Foreign Exchange Compliance

6 Hotels are generally authorized to deal in foreign exchange as a restricted money-changer
especially for accepting foreign currency/ travelers cheques. The authorization is subject to
conditions laid down in this regard and remains valid for a limited period only and the hotel gets
in renewed after that period. The hotel is required to issue encashment certificates to the travelers
in respect of foreign currency/travelers cheques purchased and submit a report to the Authorized
Dealers regarding encashment of foreign currency on a monthly basis.

(d) Sales Department

The sales department of a hotel is responsible for selling the hotel services and building its brand
image, by the use of innovative strategies. These strategies may include, amongst others,
devising off-season packages, holding food festivals, booking of conferences and sponsoring
social events. The hotel industry is a seasonal industry in which highs and lows in business
volumes during specified periods of the year can be predicted. It is the responsibility of the
marketing department to sell the hotel services in a manner that the maximum occupancy is
achieved during the off season also to beat the trend. Each hotel usually has its own sales
department, but in a hotel chain, the sales departments of various properties complement each
other in procuring business. With the constant pressure to perform and achieve targets, the
marketing department may, for example, out of desperation, book conferences at ridiculously
low rate, that do not yield any profits to the hotel or recommend credits that may eventually
become doubtful of recovery.

(B)
Audit Of Educational Institutions

CHAPTER 2

Audit of books of educational institutions like school, college, universities etc. or other such
institutions which are engaged in the educational field is known as audit of educational
institutions. Auditor should check income and expenditure account and balance sheet of such
institutes in order to verify and report the true and fairness of results presented by income
statements and financial position presented by the balance sheet. Generally, the methods and
procedures for vouching and auditing is same even though an auditor of educational institution
should perform following tasks:

1. The auditor should go through the University Act. Trust deeds and should note the rules and
regulations relating to accounts. The governing body may pass resolutions from time to time in
respect to accounts. A copy of minutes books should be made available to him so that he may be
able to confirm whether the decision of the government body have been compiled with.

2. Auditor should obtain a copy of budget or financial statements to study of different heads of
income and expenditure.

3. Auditor should thoroughly assess the strength of internal check.

4. Auditor should vouch the grant-in-aid from the government carefully.

5. Auditor should verify the receipts of monthly fees from students, from counterfoils or carbon
copy of the receipts. He should also see whether cash received has been banked daily or not.

6. Other charges from the students such as examination fees, laboratory fees, fines etc. should be
carefully verified.

7. Any fees received in advance should be properly adjusted.

8. The concession of fees and other charges should be duly authorized by the proper authority.
Any charges becoming irrecoverable should be written off only after proper authority has
recommended.

9. Any grant-in-aid or funds received for a particular purpose must be utilized for the same.
10. The donations and other subscriptions from the various authorities have been accounted for
and acknowledged.

11. The income from property, investment etc., should be properly verified from the vouchers.

12. Auditor should vouch the amount of salaries paid with the Salary Register. Any increment
given to an employee shall be duly sanctioned.

13. The staff provident fund should be verified and it should be seen that it is invested as per the
rules.

14. The establishment expenses must be carefully vouched and it should be seen that capital
expenditure has not been treated as revenue expenditure or vice versa.

15. The payment of scholarship should be verified with the receipt from students and Scholarship
Register.

16. All the assets and liabilities should be properly exhibited in the balance sheet.

17. The stock of equipment, stationary, furniture should be carefully verified.

18. While making payment of staff salaries, income tax should be deducted at source and shall be
duly deposited with the Income Tax Department.

1 Objective and Scope of the Technical Guide

1. The objective of the technical guide is to provide guidance to members to carry

out the internal audit of educational institutions in India. These institutions are
providing education from the primary level to the higher level and depending upon
the level, operate as schools, colleges, universities, and other places of learning.
This technical guide attempts to provide information about the structure of
education in India, the environment in which it operates, the technical and
operational details related to the functioning of educational institutions, and the
internal audit aspects to be kept in mind by the members of the Institute of
Chartered Accountants of India in conducting internal audit of such institutions.

2. The size, structure of management, the governing legislations, manner of

functioning and nature of activities may vary from one educational institution to
another. This technical guide cannot cover all the intricacies that might be involved
in different practical situations. Therefore, the various aspects and principles
enunciated in this guide should be applied mutatis mutandis, exercising professional
judgment.

3. This guide is not intended to dwell on the basic internal audit procedures, which
are common to all types of organizations/industries. It purports to provide insight
into peculiar aspects of the educational sector for internal audit purpose. The guide
also discusses special areas of compliance peculiar to this sector that call for
internal auditors scrutiny.

2 Technical Guide on Internal Audit of Educational Institutions

2.1 Overview of Education in India

Education holds the key to development for any nation. It lays the foundation for a continuous
and equitable growth of any country. In India, at the time of independence, less than one-fifth of
the population was literate. After independence, many efforts were made to provide access to
education to the general public. However, due to lack of educational institutions and teachers as
well as poverty, customs and social barriers, there was not much development in education
sector. As of today, significant progress has been made by the Government to develop and
maintain the education system in the country. From time to time the Government of India has
introduced various measures to provide quality education to all. Today, education in India has
expanded many folds, bringing a significant increase in the schools, universities, colleges,
teaching staff and strength of students. India has made considerable achievement in Green
Revolution, Space Technology, Nuclear Energy, Information Technology, etc. due to the
development of higher education. The success of the Indian education system is nowhere more
visible than in the important positions held by Indian professionals, managers and entrepreneurs
worldwide in cutting edge sectors such as those driven with the support of information
technology, biotechnology and medical sciences.

2.2 Applicability of Accounting Standards issued by ICAI

Overview of Accounting Standards

The accounting principles and practices, in India, are governed, inter alia, by the Accounting
Standards, Guidance Notes, etc., issued from time to time by the Institute of Chartered
Accountants of India (ICAI). The mandatory status of an Accounting Standard implies that while
discharging their attest functions, it will be the duty of the members of the Institute to examine
whether the Accounting Standard is complied with in the presentation of financial statements
covered by their audit. In the event of any deviation from the Accounting Standard, it will be
their duty to make adequate disclosures in their audit reports so that the users of financial
statements may be aware of such deviation. Ensuring compliance with the Accounting Standards
while preparing the financial statements is the responsibility of the management of the enterprise.
Sound accounting principles under accrual basis of accounting, albeit in the context of business,
industrial and commercial enterprises, have been laid down in the Accounting Standards issued
by the Institute of Chartered Accountants of India. With respect to applicability of Accounting
Standards to various types of enterprises of Preface to the Statements of Accounting Standards
states as follows: Accounting Standards are designed to apply to the general purpose financial
statements and other financial reporting, which are subject to the attest function of the members
of the ICAI. Accounting Standards apply in respect of any enterprise (whether organised in
corporate, co-operative9 or other forms) engaged in commercial, industrial or business activities,
irrespective of whether it is profit oriented or it is established for charitable or religious purposes.
Accounting Standards will not, however, apply to enterprises only carrying on the activities
which are not of commercial, industrial or business nature, (e.g., an activity of collecting
donations and giving them to flood affected people). Exclusion of an enterprise from the
applicability of the Accounting Standards would be permissible only if no part of the activity of
such enterprise is commercial, industrial or business in nature. Even if a very small proportion of
the activities of an enterprise is considered to be commercial, industrial or business in nature, the
Accounting Standards would apply to all its activities including those which are not commercial,
industrial or business in nature10. Since in most cases, an educational institution is normally run
for charitable purposes by a society or a trust, unless the circumstances warrant otherwise, the
Accounting Standards would not apply to such educational institution. However, if the
society/trust is also undertaking business activity, the Accounting Standards would apply to all its
activities, including charitable activities. For detailed guidance on these aspects reference may be
made to Guidance Note on Accounting by Schools issued by the Institute of Chartered
Accountants of India.

3 Types of Management in Educational Institutions

The different types of management in educational institutions is as follows:

(a) Government Institutions Government institutions are also known as state institutions or
public institutions. These institutions are run by the Central or State Government or Local
Government bodies like, Municipality Council. These types of institutions are 100% funded and
managed by some level of Government, state or local. In these institutions, the respective state
board syllabus is adopted.

(b) Private Institutions These types of institutions are not run by the Central Government,
State Government, a local authority or any other authority designed or sponsored by the Central
Government, State Government or a local authority.

(c) Private Aided Institutions These types of institutions are in receipt of recurring financial
aid or assistance in the form of maintenance grant from the Central Government, State
Government, a local authority or any other authority designed or sponsored by the Central
Government, State Government, or a local authority. Though, these institutions are privately
managed, they are funded by the government. They are entitled to financial aid only if they are
recognized by the appropriate authorities.
(d) Private Unaided Institutions These institutions do not receive any aid and are entirely
privately managed and privately funded. Private unaided institutions are of two types, recognized
and unrecognized.

(i) Recognized Institutions These are those institutions which are recognized by the appropriate
authority. The appropriate authority is the Central Government or State Government or a local
authority. These institutions have to meet the regulatory requirements of the Central or State
Government.

(ii) Unrecognized Institutions These are those institutions which are not recognized by any
appropriate authority. They are in effect operating in the informal sector of the economy.
Unrecognized institutions can offer only certificate and diploma courses, unlike recognized
institutions, which in appropriate cases, can also be authorized to grant degrees.

4 Stages of Education in India

The present education system in India mainly comprises of primary/elementary education,

secondary education, senior secondary education and higher education. Elementary education
consists of eight years of education. Each of secondary and senior secondary education consists
of two years of education. Higher education in India starts after passing the higher secondary
education or the 12th standard. Graduation courses can take three to five years depending on the
stream. Post graduate courses are, generally, of two to three years of duration.

4.1 School Education System

The Indian education system is based upon 12 years of schooling (10+2), which includes primary
and secondary education. Secondary Schools are affiliated with Central or States boards for
conduct of examination. Most of the private schools as well as many Government schools are
affiliated with the Central Board of Secondary Education (CBSE). All the Indian universities and
other institutions of higher education recognize the various 10+2 qualifications from different
states as well as All India Boards like the CBSE and CISCE.

4.2 Elementary Education

Elementary education is the foundation on which the development of every citizen and the nation
as a whole hinges. According to the Constitution of India, elementary education is a fundamental
right. The Government has made elementary education compulsory and free. The Government
has rolled out many plans to increase the penetration of elementary education such as, Sarva
Siksha Abhiyan (SSA), District Primary Education Program (DPEP), Operation Blackboard, Mid
Day Meal, etc.

4.3 Secondary Education

Secondary Education serves as a link between the elementary and higher education. A significant
feature of India's secondary school system is the emphasis on inclusion of the disadvantaged
sections of the society. Professionals from established institutions are often called to support in
vocational training. Another feature of India's secondary school system is its emphasis on
profession based vocational training to help students attain skills for finding a vocation of his/her
choice. The secondary level of education includes children between the age group of 14-18
years, studying in classes 9-10th leading to higher secondary classes of 11th and 12th. A host of
programmers and organizations that support Secondary Education under the administrative
control of the Union Department of Education are:

(a) National Council of Educational Research and Training (NCERT)

(b) Central Institute of Education Technology (CIET)

(c) Central Board of Secondary Education (CBSE)

(d) National Institute of Open Schooling (NIOS)

(e) Kendriya Vidyalaya Sangathan (KVS)

(f) Navodaya Vidyalaya Samiti (NVS)

(g) Central Tibetan Schools Administration (CTSA)

4.4 Foreign Institutions/Universities

AICTE also regulates the entry and the operations of the foreign educational institutions
imparting technical education in India. Foreign institutions already offering Technical
programmers in India at Diploma, Undergraduate, Postgraduate and Doctoral level directly or
through collaborative arrangements with Indian institutions will have to seek approval from
AICTE before commencement of ensuing academic session. AICTE carries out the necessary
inquiries and inspection of the foreign educational institutions in India and then grants approval
by approving the courses to be offered, the maximum intake of students in the course and the
period of validity of the approval.

4.5 Other Diploma and Certificate Courses

A diploma is a specific academic award usually awarded in professional/vocational courses for

example, Engineering, Pharmacy, Designing, etc. A diploma is lower in rank than a specific
Bachelor's degree of that discipline but equivalent to general degree in that discipline. Diploma
courses are offered by the educational institutions at the undergraduate level and the duration of
their study may vary from 1 to 3 years. Postgraduate level diploma courses are also offered
which are generally of one year duration.

4.6 Distance Education in India

Indian Education system offers distance education to those who cannot join regular schools or
colleges. Not only students, but working professionals are also enrolling for various distance
learning degree or diploma programs in order to enhance their qualifications and skills. National
Institute of Open Schooling offers school education to students all over the country through
distance learning. The Distance Learning Courses

5 Technical and Operational Features

1 Departments and Organizational Structure

The following is an illustrative list of departments in educational institutions:

(a) Principals/Deans/Academic Department

(b) Admission Department

(c) Billing/Fees Collection Department

(d) Examination Department

(e) Hostel Management Department

f) Canteen/Mess Management Department

(g) Transport Management Department

(h) Infirmary Department

(i) Library Management Department

(j) Human Resources Department

(k) Payroll Department

(l) Accounts Department

(m) Administration Department

(n) Purchase /Assets Procurement Department

(o) Inventory Management Department

(p) Estate Management Department

(q) Information Technology Department.

Usually, the activities in most educational institutions fall under two clear cut verticals, i.e.,
academics and administration. The organizational structure is, thus, built around these two
verticals, which may be headed by separate authorities. The organization structure of educational
institution has been enclosed as Appendix

2 Students

There are normally following types of students:

(a) General/Normal/Ordinary Students Those students who do not fall under any of the other
categories mentioned hereunder are considered as general category students.

(b) Concessional Students The educational institutions may allow concession to certain
students based on certain criteria like, sibling concession, staff concession, meritorious students
concession, need based concession, concession for the disabled, armed forces concession,
management concession, etc.

6 Technical Guide on Internal Audit of Educational Institutions

(c) SC/ST/OBC Students This category normally comprises of students that are to be admitted
based on certain quotas fixed by the State or Central Government. Apart from the preference to
the vacancies, such students are also allowed concessions by certain institutions.

(d) Donor/HNI Students Under this category, fall such students whose family members have
been contributing to the development of the infrastructure of the educational institution or fall
under a prospective list of such family members.

(e) Sports Quota Students Under this category are mainly students who are admitted due to
certain statutory regulations

6.1 Admission Procedure

On submission of admission form, birth certificate, transfer certificate, previous academic
records and other necessary documents, a student becomes eligible to appear for an entrance
examination and/or interview. Immediately after a student clears the entrance examination and/or
interview or fulfills the criteria for admission under any other scheme promulgated by the
institution such as, cut-off marks of the qualifying examination, he is required to deposit the
admission fees. Generally, to keep track of the students opting for admission, the educational
institution accepts the admission fees (either directly or through authorised collecting bank) only
after allotting a unique ID in a register maintained for that purpose by the admission department.
This ID is then forwarded to the accounting department/collecting banker for controlling all
accounting entries related to that student. This ID is also forwarded internally to all other
departments such as, the class teachers, sports in charge, hostel in charge, library, logistics, etc.

6.2 Billing Procedure

Once a student has been granted admission and has been allotted an ID, the wards of the student
are intimated the fee to be deposited by them. The fee is normally collected in advance for the
term, which might be monthly, quarterly, half yearly or yearly. Intimation of fee due may be done
in various manners such as, printed fee schedules for that academic term, fee bills, fee cards, etc.
Fee bills are made term wise and contain details of all fees due from that student. Fee Cards are
printed for the entire academic year and are updated term wise for the fees due under various
heads. The detail of fee deposited such as, amount, date and mode of payment are also recorded
in these cards. Some institutions retain these cards as part of their records whereas others allow
the wards of the students to retain them as acknowledgement of the fee deposited by them. A
duplicate card or other record may in such cases be kept by the institution to keep track of fees
due. In case of boarding institutions, the procedure becomes more elaborate and, normally, takes
shape of bills raised in the beginning of the term. These bills contain two types of amounts due.
One is the advance fee due for the following term and the second part consists of the impress to
be deposited for the expenses which may have to be incurred during the following term such as
on uniform, infirmary, housekeeping, etc. A lumpsum amount of the imprest is normally fixed on
the basis of expenses estimated to be incurred during the term. The imprest takes the shape of a
revolving fund and the amount charged in each term bill is calculated to maintain the imprest at
the fixed amount at the beginning of each term. A single imprest account may be maintained for
all expenses or different impress accounts may be maintained for expenses such as infirmary,

6.3 Procedure for Fee Collection

With the rapid advent of technology, most of the large institutions prefer to outsource the
collection and accounting of the fees through their designated bankers. This results in
considerable reduction of risks and documentation on the part of the institution. The collection
may be limited to a single branch of the agent. In such a case, generally the bank opens its
extension counter within the institutions premises to provide dedicated services. However, with
rapid inroads of the foreign and private banks, a new dimension to banking has been added with
constant up gradation of the facilities with use of the latest technology. Now, the concept of
anywhere banking is the in-thing. This facility has revolutionized the concept of the fees
collection through authorized banks. Now institutions of middle to large scale, prefer to appoint
collection banks having branches all over the country with the facility of anywhere banking.
Under this facility, the students/parents may remit the fees at any of the banks branch anywhere
in the country or at the designated branches. The fee is credited to the centralized account of the
institution instantly or after the realization of the cheques/demand draft as the mutually agreed
terms may be. The information as to the remittance is available to the institution in real time.

6.4 Charge Out of Expenses to the Students

As discussed above, a number of expenses are incurred by the institution for the students such as,
cost of uniform, stationery, medical expenses, picnic expenses, housekeeping items, cost of
tokens, etc. In all such cases, the expenses, which can be identified directly to a particular student
account, are charged to that student based on charge slips, which contain the description of such
expenses, the amount of expenses, and the name and ID no. of the students on whose behalf this
expenditure was incurred. The charge slips are also countersigned by the concerned in charge,
under whose authority such expense was incurred. The original bills for expenses incurred
together with the charge slips are forwarded to the accounts section, which debits the account of
the student with that amount. At times, certain recoverable expenses are incurred for example
expenses on picnic for a class. The recoverability of such expenses is worked out by distributing
the cost on to the number of students on whom it was incurred and charging it to their individual
accounts. Sometimes, a lump sum estimated amount is recovered from each student for the
expense incurred on their account. In such cases, the total cost is first debited to the expenditure
account of the institution. Subsequently, the recoveries on that account are credited to the income
account by passing a corresponding debit to the individual accounts of the students, for example,
in case of supply of books to the students, the institution may debit the total cost of the books

6.5 Hostel Facilities

The residential institutions charge fees from the students for providing them residential
accommodation in the premises of the institution. This fee charged is, normally, not demarcated
separately in the fee structure and the coaching, boarding and hostel fee is charged as a
consolidated amount. The residential facilities may be in the premises of the institution or may
be hired near the premises. In case they are hired by the institution, the institution will charge the
fees directly from the students and in turn pay to the lessor of the premises on monthly basis as a
lump sum amount or calculated on per head basis of the students who reside in the
accommodation provided by that lessor. In case the hostel is run in-house, then the appointment
of staff such as, hostel in charge, housekeepers and cleaning staff is required. Infrastructure in the
shape of furniture such as beds, study tables, bedding, linen, etc. will have to be procured. The
residential facility may take shape of a dormitory, twin sharing rooms, etc.

6.6 Canteen/Tuck Shops

The educational institution, normally, allows a tuck shop to operate on its premises to sell
stationery, refreshments, etc., for its students. The tuck shop may be operated by the institution or
may be given on contract/lease to an outside party. Tokens of various denominations are issued
by the institution to the students for making payments to the tuck shop. The accounts of the
students are debited with the value of the tokens so issued. The tuck shop in-charge at the end of
a fixed period, submits the tokens collected by him to the accounts section and collects the
payment against them. The accounts section reconciles the same with its issue records and
destroys the tokens. The students at any time before leaving the institution may return the unused
tokens and get a credit against them in their accounts. The use of tokens facilitates control of the
institution on the tuck shop, as well as ensures that the students do not handle any cash that may
be used for making purchases from any other unauthorized source.

6.7 Library

A library is an integral part of any educational institution. Generally, a qualified librarian, who
might be assisted by helper staff, runs the library. Library books are systemized on two types of
classification Dewey Decimal Classification (DDC) and Universal Decimal Classification
(UDC). DDC is a proprietary system of library classification. This system organizes books on
library shelves in a specific and repeatable order that makes it easy to find any book and return it
to its proper place. UDC is a system of library classification, based on the DDC, but which uses
auxiliary signs to indicate various special aspects of a subject and relationships between subjects.
Library security deposit may be charged separately from the students apart from the caution
money deposit. The institution may follow a policy of making this security deposit a part of the
fees structure and as such make it compulsory for all students. On the other hand, some
institutions allow use of these library facilities only to students who opt to deposit the security
money and become members thereof. Apart from the security deposit, library fees may be
charged along with other fees from the students. Fines are also recovered from the students for
returning the books after the expiry of the loaning period or for damage to books.

6.8 Refund of Caution Money Deposits and Other Fees

The educational institutions collect a fixed amount as caution/security money from the students
at the time of admission. This security is refundable immediately at the time the students leave
the institution. The caution money by its very nature has to be repaid on demand any time the
student takes a transfer from the institution. It should not be considered as income but as a
current liability in the financial statements. Students are entitled to refund of the caution money
deposits as well as any credit balance standing in their favour at the time of leaving the
educational institution. A deduction for any loss or payment due to the institution is made from
the security. Normally, the institutions follow a policy restricting the claim of such fees to a
specific period say up to 3 years from the date of leaving the institution. Such terms and
conditions are printed on the admission receipts, etc.
AUDIT OF INCOME AND EXPENDITURE

CHAPTER 3
1 AUDIT OF PARTNERSHIP FIRM

1.1 Objective

Audit of partnership firm is not compulsory & even the Partnership Act 1932 is silent about this.
But introduction of the Finance Bill 1984, Section 44 AB made it compulsory to get the accounts
audited for those assessee firms who sales turnover exceeds Rs 20 lakhs per year.

It is better to get the accounts audited even if it is not compulsory, because joint ownership of a
firm by two or more persons may lead to friction & dissatisfaction among the partners. In such a
situation an independent auditors report on the accuracy of accounts becomes desirable.

1.2 Advantages / Purpose / Need of Audit of Partnership Firm

1. Auditing the accounts of a partnership firm helps in detecting errors & frauds &
verification of financial statements

2. Disputes, if any between any partners in the matter of accounts can be settled with the
help of audited accounts.

3. Banks & financial institutions lend money to the firms only on the basis of audited
accounts.

4. As per the requirements of section 44 AB of the Finance Bill 1984 audit of accounts of
the firm is compulsory if its gross sales exceed Rs 20 lakhs per year. So for Income Tax
Assessments audited accounts are helpful.

5. Periodical visits & suggestions by the auditor will be helpful in improving the
management of the firm.

6. For settling accounts between partners at the time of admission, death, retirement,
insolvency, insanity, etc audited accounts are accepted by those concerned who have
dealings with the firm.
1.3 Auditors Duty Regarding Audit of Partnership Firm

1. The auditor should get definite instructions in writing as to the work to be performed by
him.

2. It must be clear, whether the work to be performed by him is in the nature of accountancy
or auditing. In case of auditing he should be clarified whether it is Partial Audit or
Complete Audit. In the absence of instruction complete audit is implied. If he does not
conduct complete audit he will be held liable for damages.

3. Sometimes, the auditor is asked to prepare Income Tax Returns on behalf of the firm. In
this case the auditor should report the accounts as prescribed by the Central Board of
Revenue.

4. According to the form prescribed by the Central Board of Revenue, the auditor should
mention

5. The auditor should read the partnership agreement & note the following provisions

6. If there is any doubt about interpretation of the agreement he should consult the clients
solicitor

7. If partners maintain minute book he refer it for any resolution passed regarding the
accounts

8. He should study the internal check system in operation.

9. He should a list of the members & staff with their powers & duties.

10. He should examine the contract entered into by the firm with the third parties.

2 AUDIT OF CO OPERATIVE SOCIETIES

A co operative society can be defined as an association of persons who have voluntarily
joined together to achieve a common economic objective through the formation of a
democratically controlled business organization, making equitable contribution to capital as
required & accepting a fair share of risks & benefits of the undertaking.

Elimination of middlemen & sharing of profits for economic activity are features of this
organization. They are governed by the Co operative Societies Act 1912.

2.1 Objective

It is required by the act that the books of accounts of co operative societies is audited to see
that it is functioning according to its economic objective.

Advantages / Purpose / Need of Audit of Co operative Societies

1. Auditing the accounts of a co operative society helps in detecting errors & frauds &
verification of financial statements

2. Auditing the accounts of a co operative society ensures that no member is holding more
than 20% of the total shares or that the value of shares doesnt exceeds Rs 1000.

3. Periodical visits & suggestions by the auditor will be helpful in improving the
management of the co operative society.

2.2 Auditors Duty Regarding Audit of Co operative Societies

1. The auditor should study the Co operative Societies Act & the Bye Laws of the society
concerned.

2. The auditor should thoroughly examine the membership register in order to ascertain the
number of shares held by each member. He should also check whether the shares held by
any member exceeds prescribed limits ie 20% of the total number of shares or share value
exceeds Rs 1000.
 3. He should assess the internal control system in operation in the society to find out the
strengths & weaknesses of the system.

4. Cash in hand at the end of the year should be counted by the auditor to verify the balance.

5. The auditor should see that reserve has been created with at least 25% of the profits of the
society.

6. The auditor should also whether surplus funds if any, have been invested in approved
securities.

7. The auditor should find out & report whether the objectives for which the society under
audit was formed are being accomplished in the course of its working.

a. Valuation & verification of assets & liabilities by the auditor should be as per the
provisions in the Co operative Societies Act.

2.3 Audit of Income

1. The auditor should vouch cash received on account of share capital with the Registrar of
Members

2. Cash received against sales should be vouched with cash memos, sales account &
invoices issued to customers.

3. Receipt of cash in respect of interest received & repayment of loans advanced by the
society should be vouched with the loan agreements.

2.4 Audit of Expenditure

1. The auditor should vouch capital expenditure with reference to authorization from the
Managing Committee, bills received from parties, enteries in the pass book along with
counterfoils of cheques.
 2. The auditor should pay special attention to the loans given by the society to its members.
The auditor should vouch this item with the help of resolution passed by the managing
committee, cheques issued to members & enteries in cash book.

3. The auditor should verify payments of dividends made to the members of the society.

3 AUDIT OF EDUCATIONAL INSTITUTIONS

3.1 Objective

The audit of educational institutions is essential to see whether it is functioning well. To ensure
that the objectives of the organization are fulfilled. It is a service organization & hence has to
fulfill certain needs under the law.

3.2 Advantages / Purpose / Need of Audit of Educational Institutions

1. Auditing the accounts of an educational institution helps in detecting errors & frauds &
verification of financial statements.

2. To see that the contributions to the provident fund both by the management & the staff
are collected as per directions of the government & is properly invested in approved
securities.

3. To see that the capital & revenue items are properly distinguished.

4. To see if the regulations & policies made are followed properly.

5. Periodical visits & suggestions by the auditor will be helpful in improving the
management of the institution.

3.3 Auditors Duty Regarding Audit of Educational Institutions

1. The auditor should examine the Charter, Trust deed or Regulations etc in the case of
schools or colleges in order to find out the provisions thereof, especially those related to
the system of keeping accounts.
 2. In the case of a university, the auditor should go through the Act of Legislature under
which the institution has been set up & also the rules framed there under.

3. The auditor should also check whether his letter of appointment is in order specially
mentioning the scope of his examination.

4. The auditor should go through the minutes of the meetings of the Managing Committee,
governing body or Executive Council of the institution in order to find out the resolution
regarding the system of maintaining books of accounts, method of operation of bank
accounts, etc.

5. He should thoroughly assess the internal control system in operation in order to confirm
the strengths & weaknesses of the system.

3.4 Audit of Income

1. A fee from students is the main source of income for an educational institution. The
auditor should check students fees register for each term or month depending on the basis
for collection with the respective roll number of students from each class.

2. He should test check enteries in the fees register with reference to tuition fees, library
fees, building fund, etc to see whether each item have been properly computed &
demanded from students.

3. Counterfoils or carbon copies of the receipts issued should be checked along with the
serial number, safe custody of receipt books etc.

4. He should check whether the daily cash receipts are deposited into the bank or not.

5. In case of free scholarship or fees concessions to any student then the auditor should
examine the authorization by a responsible officer & see that it is as per the decision of
the Managing Committee.
 6. He should check late payments of fees along with fines if any with the enteries in the fees
register.

7. Donations, grants from the government & other subscriptions from various authorities
should be vouched by the auditor.

8. Examination fees collected should be checked by referring the notifications from the
university / education board.

9. Fees paid in advance if any should be properly verified.

10. Parking fees paid by the student should be properly verified.

11. Income from property if any should be properly accounted & verified.

12. Investments in the form of shares, securities, bank deposits etc should be physically
verified.

13. If the investments are in the custody of a person or bank then confirmation should be
obtained from them.

14. Income from investments as dividend or interest should be vouched with relevant
vouchers.

15. He should see that the capital & revenue items are properly distinguished.

3.5 Audit of Expenditure

1. The auditor should vouch all expenditures of capital nature with the resolutions of the
Managing Committee authorizing the same, relevant vouchers & enteries in the cash
book.

2. Preliminary expenses should be checked as to the reasonableness of the amount spent. If

an unduly heavy expenditure is spent for any item, he should enquire the reasons.
3. If the expenditure on any item exceeds the budgeted sum, the auditor should check
whether the Managing Committee has duly authorized the same.

4. All the purchases & issue of materials should be properly authorized by a responsible
official.

5. Stock of stationery, equipments, etc should be physically verified by the auditor.

6. The auditor should vouch the amount of salaries paid with the salary register.

7. He should see that the contributions to the provident fund both by the management & the
staff are collected as per directions of the government & is properly invested in approved
securities.
 INTERPRETATION OF LEDGER ACCOUNTS

CHAPTER 4

1 Introduction

One of the most significant analytical procedures is reading, or scanning, the general ledger
account activity. Whether it's done manually or with the assistance of data extraction software,
this analytical procedure will produce significant amounts of substantive evidence.

Many auditors perform this procedure but fail to consider its effect on their audit strategy. After
unusual transactions are investigated and any errors are corrected by proposed journal entries, the
auditor has obtained significant, substantive evidence that relevant assertions for many account
balances are reasonable. Acceptable evidence obtained from this risk assessment procedure,
along with evidence from other risk assessment procedures, may enable the auditor to reduce the
assessed level of risk of material misstatement from a high level and thereby reduce the extent of
evidence desired from detailed tests of balances.

2 Special Purpose Frameworks

The Clarified Auditing Standards in the SAS, Terms of Engagement (AU-C 210), require an
auditor to assess the appropriateness and reasonableness of an entity's applicable reporting
framework. In other words, the auditor must determine that the framework results in a fair
presentation of the entity's financial statements. Once relevant personnel are satisfied with the
applicable reporting framework, an auditor's procedures will be designed to determine that the
principles of the framework have been properly applied through the entity's financial reporting
and internal control systemsthat is, that management's representations and financial statement
assertions are appropriate and reasonable.

For all reporting frameworks, particularly special purpose frameworks, an auditor must have a
thorough knowledge of the applicable accounting principles. For the AICPA's Financial
Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), numerous
resources are available on the AICPA site. (More on this topic is also available in the archives of
my blog.) Interested accountants will be able to register for my six one-hour, free webcasts on
the FRF for SMEs to be presented by AccountingWeb.com later this year.

3 The Procedure

Reading or scanning a general ledger is usually performed by looking for (1) unusual amounts or
postings; (2) transactions or general journal entries greater than the lower limit for individually
significant items; (3) checks or disbursements to be used in support tests; (4) other unusual
matters. The procedure may be performed by reading either a hard copy of the general ledger or
an electronic copy on a monitor, or by using data extraction software such as IDEA, ACL or
Monarch. Excel presentations of general ledger account activity also offer data manipulation
capabilities.

4 The Documentation

Documentation of the procedure should include the parameters of the test, the exceptions the test
revealed and the resolution of the exceptions in a spreadsheet, memo or other working paper.

Using a general ledger analysis worksheet can centralize the documentation of unusual matters
that comes from reading the general ledger and performing analytical procedures and other
auditing procedures. This worksheet can provide documentation of all unusual matters for
control by the in-charge accountant, and can serve as a central source for review by the
engagement leader. In addition, it can eliminate the time and work necessary to prepare
numerous individual account analysis worksheets which otherwise must be indexed, cross-
referenced, initialed and dated by the preparer and reviewed, initialed and dated by a reviewer.

A general ledger analysis worksheet may contain these and other column headings:

1. The account number or location of the unusual item or potential misstatement.

 2. A transaction identifier, either a date and document number or description of the
transaction identifying parties involved.

3. A description of the nature of the transaction or unusual item or matter.

4. The inquiry presented to management or accounting personnel.

5. The name of the person to whom the inquiry is presented.

6. The person's response to the inquiry.

7. The auditor's action, which may include performing additional substantive procedures,
determining that the unusual transaction or matter has been accounted for properly or
explaning why a proposed journal entry is necessary.

The substantive evidence from a general ledger analysis worksheet, when combined with
evidence from other risk assessment procedures, may provide sufficient evidence to assess risk
of material misstatement at some level less than high and enable an auditor to modify the nature,
extent and timing of detailed tests of balances, even on small audits. Other risk assessment
procedures will ordinarily include:

Completing client acceptance and continuance documentation.

Documenting internal controls.

Performing systems walk-through procedures and/or tests of controls.

Completing a planning document.

Suspense Accounts

The Suspense Accounts exist to temporarily hold items that are unknown, or incorrectly coded,
until they can be posted to the correct account. Suspense accounts are reviewed on an
approximately monthly basis and are kept reasonably clear.
During the audit, a review of the two main suspense accounts determined that they are reviewed
and cleared on a monthly basis. The two main suspense accounts are the General Items and
Receipts suspense accounts. General Items may for example consist of Credit Card expense
queries, and it is maintained and reviewed by the Finance Officer and the Chief Accountant. The
Receipts suspense account is maintained by the Exchequer Team Leader and the Senior Finance
Officer. Audit was informed that this account is rarely used, and when items need to be posted to
the account, queries are investigated promptly. Audit review confirmed that the majority of
items are cleared in approximately 30 days. On the occasion that this was not the case, it was
due to Finance awaiting further information on the query. No recommendations have been raised
as a result of our work in this area.

Reliability and Integrity of Transactions and Records

Adequate controls help to ensure that all transactions recorded in feeder systems are transferred
completely and accurately to the main accounting system. The General Ledger system applies
validity tests on input data to ensure that coding is correct. A standard journal containing
incorrect coding was inputted to the system to test the effectiveness of this control, and it was
found that the invalid code was flagged up and effectively prevented from being entered onto the
system.

Audit testing revealed that data and journal information can be submitted twice. However, Audit
was informed by the Principal Accountant and the Team Members that compensating controls are
in place in the form of manual checks to ensure that information is not resubmitted. These
manual checks include the reconciliation process and the review stage when processing journals,
whereby duplication of information and journals will be identified. No issues were identified in
this respect. No recommendations have been raised as a result of our work in this area.

Journals and Manual Adjustments

Journals are input via the uploading of spreadsheets, with the system forcing an audit process to
be followed before the journal is posted to the accounts. A sample of 15 journal entries was
reviewed, from three different journal types. These were General Ledger Journals, Project
Journals and Cash Journals. Budget journals will be tested during the Budgetary Control audit
during 2008/09.

Audit testing found that hard copies with supporting documentation for three of the 15 journals
could not be found. In addition, three of the 12 journals from the Cash journal samples did not
have a signature evidencing that a review had taken place and authorisation given so it was not
possible to establish whether the journal had been input before or after authorisation was
received.

For all of the sample entries, it was found that the initiator was clearly identified on the journal
input form and in most cases, where relevant, journal entries can be traced back to supporting
documentation to confirm that transactions were legitimate. Throughout the audit trail for
journals, reasoning for the transfer could not be evidenced.

In addition, audit review found that there were no documented procedures for the processing of
Journals. Procedures will ensure that different journal types are processed (where applicable) in
a consistent manner. For example, when supporting documentation should be retained on file,
which documents need authorising and by whom, when information can be input and processed,
and that authorisation sheets contain a brief explanation behind the transfer. Two
recommendations have been raised as a result of our work in this area.

Bank Reconciliation

Bank reconciliations are performed on a monthly basis, with supporting documentation being
kept on file. The bank reconciliations take the form of reconciling the bank balance to the
General Ledger, taking into account any unreconciled items.

Bank reconciliations are prepared by the Senior Finance Officer, certified by the Senior Finance
Manager and reviewed and signed by either the Chief Accountant or the Head of Financial
Services.

Audit review confirmed that reconciliations are performed on a monthly basis, and only
identified the October reconciliation as not being completed in a timely manner. As at the 3rd
December, this was still to be reviewed and certified as accurate. This was discussed with the
Senior Finance Officer, and it was confirmed that the system was still to be closed down for the
period, which was planned for approximately five days later, and variances needed to be fully
investigated. This was considered to be reasonable, and therefore no further recommendation
has been raised.

REFERANCE

Agrawal, P. and P. Hancock. Deimante Ltd.: Case study for introductory auditing course. Journal
of Accounting Education 30(3-4): 355-379.

Ahituv, N., J. Halpern and H. Will. 1985. Audit planning: An algorithmic

approach. Contemporary Accounting Research 2(1): 95-110.

AICPA. 1975. Statement on Auditing Standards No. 5: The Meaning of "Present Fairly in
Conformity with Generally Accepted Accounting Principles" in the Independent Auditor's
Report. AICPA.

AICPA. 2008. Audit Sampling Audit Guide. AICPA.

AICPA. 2008. Government Auditing Standards and Circular A-133 Audits - Audit Guide. AICPA.

AICPA. 2008. Government Auditing Standards and Circular A-133 Developments Audit Risk
Alert. AICPA.

AICPA. 2009. Auditing Revenue in Certain Industries - Audit Guide. AICPA.