Audit of Clubs – Guidelines to Auditors
1. General Consideration in Club Audit
A club is constituted as a company limited by guarantee. So provisions of Companies Act. 1956 are applicable to audit of clubs. The auditor should study the constitution, memorandum and bye-laws to know the legal status of the club under audit.
b. Minute Book
Minute book of the club should be verified. The financial powers of the secretary should also be checked.
c. Internal Check system
An auditor should evaluate the internal check system in operation of the club.
2. Vouching of Receipts
a. Entrance Fee
Collections on account of entrance fee from the members should be verified with the counterfoils of the receipts issued. Life membership fee should be treated as capital income and spread over a number of years.
b. Subscriptions Received
Subscription received during the year should be vouched with the counterfoils of receipts issued. It should be shown as an income and expenditure account.
c. Advance and Arreas of Subscription
Subscriptions received in advance should be carried forward to subsequent years. Arrears of subscription should be adjusted properly.
d. Dues from Members
The auditor should vouch the dues from members with reference to members register. He should see that proper steps have been initiated to recover the dues from members.
e. Other Receipts
Any special donation or grant if received by the club should be carefully verified. The auditor should see that they are properly utilized.
3. Vouching of Expenses
The expenditure of the club should be vouched as follows.
a. Purchase of Sports Items
The auditor should see that the purchase of sports items has been properly authorized. He should ensure that quotations have been invited and order has been placed on most economical quotations. He should see that proper entries have been made in the stock register.
b. Purchase of Consumable Stores
Payments on account of food stuffs, cigar, cigarette, drinks, etc.. should be verified. Entries for such purchase should be made in relevant stock register. Cash or bank pass book should be verified with the sale of items to calculate gross profit earned on each item.
c. Salary and Other Expenses
The auditor should verify the salary register and compare with the appointment letters issued to staff members. Other expenses incurred by the club should also be verified.
d. Capital vs Revenue
The auditor should see that proper distinction is made between capital and revenue expenditure.
4. Assets and Liabilities
a. Physical Verification of Assets
All the assets of the club should be duly accounted for. They should be physically verified to confirm their existence. All assets should appear in the balance sheet at their true values.
The auditor should ensure that all the liabilities should be shown at their true values in the balance sheet.
Audit of Hotels – Guidelines to Auditors
1. General Consideration in Hotels Audit
The auditor should check whether the hotel is a proprietary concern, or a partnership or a corporate entity. He should examine the partnership deed or the memorandum of association as the case may be. He should note down the special points with regard to maintenance of accounts and provisions for audit.
The auditor should verify the minutes of directors or partners to know about various resolutions passed in the past. From the minutes, he can ascertain the list of authorized persons to take decisions on financial matters.
c. Internal Control System
He should verify the internal control system in respect of
- Billing system
- Service or facilities availed by guests from beauty parlor, health gym, laundry, restaurants, swimming pool, transportation, bar, etc.
- Letting out of banquet hall
- Credit allowed to customers
- Compliance provisions in respect of FERA in realization of bills from foreign guests.
- Cash, cheques, drafts, etc collected from customers and credit card payments.
2. Vouching of Receipts
a. Bills raised to Customers
The auditor should verify the tariff structure maintained by the hotel. If any discount is allowed, it should be within the limits prescribed and sanctioned by proper authority. Accounts of customers should be properly debited for the services rendered to them.
b. Room Sales
A daily report is prepared in connection with the rooms occupied the previous night. The auditor should verify the report register on test check basis and reconcile with the guest register and individual bills raised to customers. He should examine the room charge in the bill with the tariff rate of the occupied rooms.
c. Banquet Sales
Bills raised by the banquet department for arranging marriage or any other function should be verified. He should verify the agreement entered into with the customer for letting out banquet hall. Collections from banquet should be vouched with the cash book and bank pass book.
d. Income from Bars
Bills raised by the bar department should be verified. Entries in the cash book should also be checked.
e. Tax Collection
Collections on account of luxury tax, service tax, expenditure tax, sales tax etc., should be checked. The auditor should see that all these taxes have been properly accounted for and deposited in time in the government exchequer. He should verify the tax register, challans and transfer entries made in the books.
f. Sale of Old Furniture, etc.
Quotations should be invited by the hotel for sale of old furniture, fixture, carpet, equipment, etc. The auditor should examine whether sale was effected for higher quotations. He should see that entries for sale are properly recorded in the books.
3. Vouching of Payments
The auditor should carefully verify the purchases of raw material, consumable stores, crockery, cutlery, utensils, etc. The bills for purchases should be checked. The system of receipt and issue of goods from stores should be examined.
b. Capital vs. Revenue
The auditor should see that proper distinction is made between capital and revenue expenditure. He should see that expenses incurred are supported by vouchers.
c. Salaries and Wages
Payment of salaries and wages should be vouched with the following.
- Appointment letters issued to the staff
- Salaries and wages register
- Calculation of salary and wages
- Annual increment dates
- Entries in passbook and cash book
- Entries in ledgers
d. Other Expenses
Any other expenses such as cost of renovation and decoration should be verified with supporting vouchers.
4. Assets and Liabilities
a. Provision for Depreciation
The auditor should thoroughly study the depreciation policy followed by the hotels. He should ensure that proper amount of depreciation is charged on depreciable assets including bedding, furniture, air conditioners, vehicles, crockery, utensils, cutlery and other gadgets.
b. Physical Verification
The auditor should ensure that the management of the hotels conducts physical verification of assets and stores. Any discrepancy in this regard should be enquired into.
All items of liabilities should appear in the balance sheet at their true values.
Audit of Cinema – Guidelines to Auditors
The auditor should ascertain the legal status of the cinema. Relevant documents such as partnership deed, or memorandum as the case may be should be verified.
2. Evaluation of Internal Control System
The auditor should evaluate the internal control system in respect of the following.
- Sale of tickets
- Unsold tickets
- Advance booking of tickets
- Complementary passes and tickets issued on behalf of distributor
- Deposit of entertainment tax
- Collections from advertisements, hoardings, canteens, parking and others
- Payments made by the cinema
3. Vouching of Receipts
The auditor should:
- Verify that the entry of viewers in cinema hall is allowed through proper tickets which should be serially numbered.
- Ensure that at the end of each show a collection report is prepared.
- Verify the collections with the entries made in the cash book.
- Verify the amount of entertainment tax collected as shown in the report and reconcile it with collection from sale of tickets.
- Examine receipts from advertisements, short films, slides, hoardings, displays etc.
4. Vouching of Payments
The auditor should:
- Verify film hiring charges with reference to agreements entered into with the distributors.
- Examine whether the agreement with the distributor includes publicity expenses or a certain amount is sanctioned by the distributor for this purpose.
- Check the expenditure incurred on repair, maintenance, renovation, decoration, upgradation etc.
- Ensure that proper distinction is made between capital and revenue expenditure.
5. Assets and Liabilities
The auditor should:
- Ensure that depreciation is charged on all depreciable assets such as machinery, plant, projector, generator, air conditioners, furniture, fixtures, buildings, etc.
- See that the management of the cinema conducts physical verification of assets and stores and all facts are recorded.
- See that all liabilities appear at their true values in the balance sheet.