We are pleased to present the First Edition of “Auditing II” for the students of F.Y.BAF, Semester II at the University of Mumbai. This book is prepared according to the Revised Syllabus and the New Paper Pattern applicable from the academic year 2024–25, as per the NEP 2020 guidelines.
This book provides a comprehensive understanding of auditing principles and practices, focusing on essential techniques like test checking, audit sampling, and internal control systems. It offers practical insights into reading ledger accounts and analysing financial records. Detailed coverage of vouching of income and expenditure helps learners ensure accuracy and authenticity of transactions. The section on verification of assets and liabilities strengthens conceptual clarity for real-world audits. Designed for students of commerce, this book bridges theory with practical auditing applications.
Contents –
MODULE – 1
1 Auditing Techniques
1.1 Introduction
1.2 Meaning
1.3 Test Checking vs. Routine Checking
1.4 Features of Test Check
1.5 Factors to be Considered Before Applying Test Check
1.6 When Can Test Checks Be Used?
1.7 Advantages of Test Check
1.8 Disadvantages of Test Check
1.9 Precautions While Applying Test Check
1.10 Audit Sampling
1.10.1 Meaning
1.10.2 Purpose
1.11 Factors in Determining Sample Size
1.12 Sampling Risk
1.12.1 Meaning
1.12.2 Types of Sampling Risk
1.13 Reasons for Sampling Risk
1.14 How to Reduce Sampling Risk?
1.15 Tolerable Error
1.15.1 Meaning
1.15.2 Purpose of Setting Tolerable Error
1.15.3 Factors Influencing Tolerable Error
1.16 Difference Between Tolerable Error and Expected Error
1.17 Methods of Selecting Sample Items
1.18 Evaluation of Sample Results
1.19 Advantage of Statistical Sampling in Auditing
1.20 Procedure of Statistical Sampling in Audit
1.21 Auditor’s Liability in Conducting Audit Based on Sampling
1.22 Internal Control
1.22.1 Meaning and Purpose
1.23 Definition of Internal Control
1.24 Review of Internal Control
1.24.1 Meaning
1.24.2 Steps/Techniques of Reviewing Internal Control
1.24.3 Advantages of Internal Control
1.25 Auditor’s Duties Regarding Internal Control
1.26 Inherent Limitations of Internal Control
1.27 Internal Control for Sales
1.27.1 Internal Control for Cash Sales
1.27.2 Internal Control for Credit Sales
1.28 Internal Control for Debtors
1.29 Internal Controls for Purchases
1.30 Internal Control for Creditors
1.31 Internal Control for Salaries and Wages
1.32 Internal Check Internal Control
1.33 Internal Check vs. Test Check
1.34 Questions
2 Reading of Ledger Account
2.1 Introduction
2.2 Meaning of Ledger Account
2.3 Definition of Ledger Account
2.4 Importance of Ledger Account
2.5 Types of Leader Accounts
2.5.1 Purchases Account
2.5.2 Sales Account
2.5.3 Assets Account
2.5.4 Liabilities Ledger
2.6 Purpose of Reading the Liabilities Ledger
2.6.1 Bills Receivable (B/R) Account
2.6.2 Bills Payable (B/P) Account
2.6.3 Cash Book
2.7 Questions
MODULE – 2
3 Vouching
3.1 Introduction
3.2 Definition
3.3 Objectives of Vouching
3.4 Audit of Income
3.4.1 Revenue from Sales and Services
3.4.2 Rental Income
3.4.3 Interest and Dividends Income
3.4.4 Royalties Income
3.4.5 Recovery of Bad Debts Written Off
3.4.6 Commission Received
3.5 Audit of Expenditure
3.5.1 Purchases
3.5.2 Salaries and Wages
3.5.3 Rent
3.5.4 Insurance Premium
3.5.5 Telephone Expense
3.5.6 Petty Cash Expenses
3.5.7 Advertisement
3.5.8 Travelling Salesman Commission
3.5.9 Freight
3.5.10 Carriage
3.5.11 Customs Duties
3.6 Questions
4 Verification
4.1 Meaning of Verification
4.2 Verification of Plant and Machinery
4.3 Verification of Furniture and Fixtures
4.4 Verification of Accounts Receivable (Debtors)
4.5 Verification of Investments
4.6 Verification of Inventory (Stock)
4.7 Verification of Goodwill
4.8 Verification of Patent Rights
4.9 Verification of Outstanding Expenses
4.10 Verification of Accounts Payable (Creditors)
4.11 Verification of Secured Loans
4.12 Verification of Unsecured Loans
4.13 Verification of Contingent Liabilities
4.14 Verification of Public Deposits
4.15 Questions