1. Auditof Provident FundsSession II: The Beginning Presenter: Altaf Noor Ali Chartered Accountant

2. 2nd Session: 11.30 -1pm = 90 min • First day on the field work…what it should be like? • Audit of Bank Accounts • Nature of Receipts and Payments • Audit Objectives and Program • Obtain bank statements and reconciliation • Scanning receipts and payments during the period • Send bank confirmations • Audit of Current Account • Nature of Current Account • Audit Objectives and Program • Deduction of monthly contributions from employees [and salary reconciliations] • Receipts and payments made on behalf of provident fund [final settlements, withdrawals, recoveries of members’ loans, etc] • Reconciliation and adjusting entries [example: return on investments] • Conclusion

3. First day on the field work…what it should be like?

4. Provident Fund Audit: The First Day • Reach early. Bring wpf. Follow-up others… • Get to know your surroundings. Get to know people around you • Review pre-audit meeting minutes • Obtain trial balance [Review chart of accounts, check opening balances] • Obtain ledger [Audit adjustments will be made later] • Scan ledger and have a discussion. Prepare notes • Obtain bank statements • Send bank confirmations • Obtain permission to communicate with legal adviser • Brief audit team, coordinate with your supervisor

5. Provident Fund Audit: Important Features • Audit of p/f is different from other audits, requires knowledge • Cash transactions = None • Physical verification on reporting dates = May be none • Applicability of Accounting and Auditing standards • Transactions may be recorded and routed differently [for final settlement, investments, loans to members] • No accounting manual or formal investment policy • How can auditor add Value [Improve quality of book keeping, prepare system notes] • Go systematically: Document Matters to Follow-up [Write things to do. From last year. For current period]

6. Provident Fund Audit: Quality of Accounting • Quality of Accounting directly affects the progress of audit. • Accountants have different style of recording. Some are brilliant. Most take short-cuts and do not record and enter transactions properly. • Do expect to find incomplete narration, recording, errors, etc. if not pointed in last management letter.

7. Nature of Bank Accounts

8. Provident Fund Audit: Bank A/c: Nature of Receipts • Employee/Employer Contribution • Recovery of Loan installments from Members • Return on Investments [Dividends, tfcs, cfs etc] • Maturity of TFCs and DSCs • Disposal of Investments through Stock Broker • Bank Profit

9. Provident Fund Audit: Bank A/c: Nature of Payments • Final Settlement of Members • Permanent Withdrawals • Loans to Members • Investments made during the year • Bank charges

10. Audit of Bank Accounts

11. Provident Fund Audit: First Procedure • The first step in a p/f audit is to get hold of Bank Ledger Account, Bank Receipt Vouchers and Bank Payment Vouchers. • Obtain bank statement of the period. • Match the balance of bank account with that of bank statement. If they do not match, get a reconciliation. • Prepare proposed entries to be made.

12. Provident Fund Audit: Bank Accounts: Audit Objective • There is proper control over the bank account[s]; appropriate procedures are in place. • All transactions have been properly accounted for. • No transactions are beyond the applicable rules and regulations. • There are no unexplained entries in the bank accounts or bank statement.

13. Provident Fund Audit: Bank Accounts: Audit Program 1 • Any new bank account opened during the year? • Check opening balance of the bank statement. • Obtain bank reconciliation statement. Compare balances and entries. Verify. • Scan ledger account to make sure that there are no unexplained entries in the bank accounts or bank statement.

14. Provident Fund Audit: Bank Accounts: Audit Program 2 • Bank Receipt Vouchers and Bank Payment Vouchers have been recorded and entered in proper accounts. Where corrections were required, they were made through Journal Vouchers. • All vouchers were authorised and supported with proper evidence.

15. Provident Fund Audit: Bank Reconciliation: Audit Program 3 • Receipts: All transactions in bank statement have been properly recorded in Bank Account. [profit relating to the period credited after reporting date] • Receipts: Cheques deposited to the Bank after the reporting date were cleared subsequently. • Payments: Unpresented cheques were cleared. • Debits in Bank Account for adjustments: Payments recorded in the Bank Account. [bank charges]

16. Provident Fund Audit: Some Good Practices • Receipts: Attach bank deposit slips to the vouchers. • Receipts: Route sale of investments through ‘Investment Disposal Account’ • Payments: Route loans to members, permanent withdrawals, and final settlements through respective ‘Control Accounts’.

17. Audit of Current Accounts

18. Provident Fund Audit: Current A/c: Most Important • The Employer maintains an account of p/f in its books. • The debit balance of this account should tie with the credit balance appearing in the books of the p/f….and vice-versa. • Any adjustment made in one account will be required in other account as well.

19. Provident Fund Audit: Current A/c: First Procedure • Obtain from the Employer an account of p/f appearing in its books. • Match its balance with the balance appearing in the books of the p/f. • In case the balance does not match prepare a reconciliation and locate the reason for difference. • Debit balance indicates receivable, credit balance indicates payable. Check clearance.

20. Provident Fund Audit: Current A/c: Nature of Transactions Event 1: Employer remits payroll contribution to p/f Debit = Bank A/c Credit = Employer Current A/c Event 2: Employer makes final payment to a member Debit = Member A/c Credit = Employer Current A/c [Same entry for payments on behalf of p/f e.g. loan, permanent withdrawal] Event 3: For recoveries of member loans Debit = Employer Current A/c Credit = Member Loan A/c Event 4: Dividend by error deposited in employer account Debit = Employer Current A/c Credit = Dividend Income A/c

21. Audit of Provident Funds Conclusion First Learn. Then Apply. First Account. Then Audit. End of Session Two Thank You.