Vouching of Loan Received
An auditor has to verify the following documents while auditing loans received.
Documents to be verified:
1. The loan agreement.
2. The sanction ticket issued by the lender.
3. Minutes of the Board Meeting and the Articles of Association in the case of the company
4. Partnership deed in the case of firm.
Role of an Auditor in Vouching Loan received
1. By studying the Articles of Association/partnership deed, the auditor can ensure that the borrowing powers are not exceeded.
2. The value and nature of the security offered by the organization should also be verified.
3. The auditor should verify the repayments made by the company periodically in the form of installments.
4. He should ensure that the payments and repayment towards principal are appropriately accounted for.
5. The cash book should be verified with the counterfoils of receipt.
6. He should verify the amount of interest to be paid and whether the outstanding interest is shown as a liability at the end of the year.
7. He must ensure that the nature of loan, i.e., secured or unsecured is clearly disclosed with the details of security offered, in the Balance sheet.
Vouching of Bills Receivable
If the bills raised by the organization are accepted by the customers/sundry debtors, it is called Bills receivable and the amount will be debited in the Bills Receivable Account and credited in the sundry debtors account.
On verifying the receipt of the amount against the bill, the auditor should examine the bills receivable book, cash book and bank statements.
If any bill is accounted as dishonored, then there is a possibility of misappropriation of funds. If a bill is claimed to be dishonored, the bill should be made available to the auditor. As a honored bill will not be available, the auditor can easily detect any fraud in such cases.
If bills are discounted, the auditor should ensure that they are duly accounted. If discounted bills have not matured on balance sheet date, it shall be disclosed as a foot note to balance sheet and treated as contingent liability.