Examination of General Ledger & Main Journal | Role of Auditor | Disclosure requirements

Verification of General Ledger

The cash book, purchase book, sales book, sales return book, Purchase returns book are to be totaled periodically and the summary is posted in the general ledger.

The ledger accounts are also adjusted according to the Standard Accounting Principles and as per the legal requirements applicable to the specific concern. These adjustments are done through general ledger.

The ledger balances are classified and grouped and ultimately included in the profit and loss account and Balance Sheet.

Role of an auditor in Verification of General Ledger

Therefore, the auditor should scrutinize the general ledger at the end i.e., only after verifying the subsidiary books like cash book, sales book, purchase books etc. The auditor should also confirm that the standard accounting practices are followed by the concern consistently.

Disclosure Requirements as per Companies Act

If there is any change in the method of accounting for the year under audit, the change in the method of accounting and the effect of such a change in the profit of the year under audit is to be disclosed in the financial statements (as per ASI).

Verification of Main Journal

The adjustment entries and closing entries are passed through journal. A thorough verification of each journal entry is necessary because a crafty entry may entirely change the picture of the financial position of the organization.

Role of an auditor in Verification of Main Journal

Usually, the supporting documents for the journal entry will be the Minutes of the directors meeting, shareholders’ meeting, copies of the correspondence, etc. Most of the documents would be internally generated. Hence, the auditor should obtain confirmation from outside wherever possible.

The outstanding liabilities and prepaid expenses disclosed in the previous year balance sheet are to be adjusted through the journal and the expenses pertaining to the current year but remaining outstanding and expenses that are prepaid during the year are adjusted in the respective ledger accounts through the main journal. Therefore, the auditor should carefully verify these items to ensure that the standard accounting principles and practices are not altered during the year under audit.

Some expenses or income pertaining to the year under audit, may be settled or collected only in the subsequent accounting year. Therefore, these amounts cannot be calculated accurately but can only be estimated roughly. Therefore, the auditor shall ensure that a reasonable basis is followed to estimate such amounts.

Disclosure requirements

If there is any departure from accounting practices or policies or if there is any change in the constantly followed method of accounting, the effect of such change or departure on the profit is to be disclosed in the financial statements.

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