HarryHarry asked 1 year ago
2 Answers
RaviRavi Staff answered 1 year ago

I understand Q1 is weirdest.
Lets see how we can retain it, they say during first audit , auditor should focus on following Points
1st Knowledge of Business
Explain how it will help in implementing 315 & 330 , Further in Assessing Risk / Planning / Evaluation of Evidence (First para & 3 Points)
2nd Evaluation of Internal Controls
Explain Conventional procedures included just vouching, explain its disadvantages and how internal control evaluation helps and becomes base for next step(2nd Para)
3rd Substantive Procedures
3a. Vouching (Example at end of 3rd Para)
3b. Verification  (How verification is Done ? & Confirmation Procedure 4th Para)
3c. Using Sampling (Why Sampling ? , Where not Applicable ?, Error in Sampling — 3rd Para)
3d. Analytical Procedures (Definition , Example, Helpful to Identify Fluctuations — 5th Para)
Conclusion — Main Points Alone
 
This will help in comprehension & retention of answer

RaviRavi Staff answered 1 year ago

See Below Sequence & Also Video Explaining this Answer
(a) Audit Plan to locate the Abnormal Wastage of Raw Material:
To locate the reasons for the abnormal wastage, the auditor should first of all assess the general requirements as under:
 
Understanding Items
(i) Procure a list of raw materials, showing the names and detailed characteristics of each raw material.
Understanding Purchase / Transportation / Storage
(vii) Examine inventory plans and procedures in report of transportation, storage, efficiency, deterioration, pilferage and whether the same are audited regularly.
Understanding Process
(iv) Obtain reports of Preventive Maintenance Programme of machinery to ensure that the quality of goods manufacture is not of sub-standard nature or leads to high scrap page work.
(v) Assess whether personnel employed are properly trained and working efficiently.
Understanding Quality Control
(vi) See whether quality control techniques have been consistent or have undergone any change.
Understanding Records
(iii) Examine the various records maintained for recording separately the various lots purchased and identification of each lot with actual material consumption and for ascertaining actual wastage figures therein.
Understanding Wastage
(ii) Obtain the standard consumption figures, and ascertain the basis according to which normal wastage figures have been worked out. Examine the break-up of a normal wastage into that in process, storage and handling stages. Also obtain control reports, if any, in respect of manufacturing costs with reference to predetermined standards.
(ix) Obtain a statement showing break up of wastage figures in storage, handling and process for the four months under reference and compare the results of the analysis for each of the four months.
Calculation
(viii) Examine whether the basis adopted for calculating wastage for September is the same as was adopted for the other three months.
 
 
In addition, some specific reasons for abnormal wastage in process may be considered by the auditor are as under:
 
Purchase Related
(i) Examine laboratory reports and inspection reports to find out if raw materials purchased were of a poor quality or were of sub-standard quality. This will be most useful if it is possible to identify the wastage out of each lot that has been purchased.
Transportation / Storage
(v) Abnormal wastage in storage and handling may arise due to the following reasons:
(2) Accidental, theft or fire losses in storage: The auditor should examine the possibility of these for the purpose.
(1) Write offs on account of reconciliation of physical and book inventories: In case of periodical physical inventory taking, such write offs will be reflected only in the month such reconciliation takes place.
(iv) It is possible that the wastage may have occurred because the particular lot out of which issues were made was lying in the store for a long time, leading to deterioration in quality or because of a change in the weather which may have led to the deterioration. Compare the wastage figures.
 
Process Related
(ii) Machine breakdown, power failure, etc. may also result into loss of materials in process. Check the machine utilization statements.
Quality Control
(iii) A high rate of rejections in the finished lots may also be responsible for abnormal wastage; therefore, examine the inspectors’ reports in respect of inspection carried out on the completion of each stage of work or process.
New Production Line
(vi) Examine whether any new production line was taken up during the month in respect of which standard input-output ratio is yet to be set-up.
 
See Below Link — 
 

 

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