Vouching of Income from & Sale of Investments | Auditor Role
Table of Contents
Vouching of Income from Investments
Some companies would have invested large amounts in shares, securities, deposits and scrips. They may maintain separate investment registers recording the details of each investment made in separate folios.
The details of investment such as Nature of investment, Rate of interest, Due date of interest will be available in the folio for investments, If the investments are in the form of debentures and deposits.
Documents to be verified
An auditor has to verify the following documents while auditing income from investments.
1. Dividend/Interest warrants received.
2. Certificates of tax deducted at source by the payer.
3. Documents showing details of purchase of shares, scrips in the open market (if any).
4. Annual reports of companies in which investments are made.
5. Bank statements.
6. Documents showing the details of the investment that are pledged with the financial institutions against loan.
Role of an Auditor in vouching income from investments
1. The auditor should match the interest received with the details of investments shown in the Investment Register.
2. Purchase of investment during the year should be verified and it should be ensured that the accounting treatment for ex-dividend, cum-dividend, ex-interest, cum-interest is correctly followed.
3. Rate of dividends is to be verified with the Annual reports of the companies in which the investments are made.
4. If the interest, dividends are collected by the bank, then the bank statements are to be verified.
6. The auditor should also ensure that the gross interest/dividend is credited to the account and the tax deducted at source is debited.
7. The auditor should ensure that the tax deducted at source is claimed as credits at the time of Income tax assessment of the organization.
8. If any interest and dividends that are due are not received, the auditor should enquire and find out the reasons for the same.
9. The auditor should ensure that interest and dividends relating to the securities that are pledged by the organization are duly received.
10. If the company under audit holds investments in name of someone else or under blank transfer, the auditor should ensure that the incomes are duly received and accounted.
Vouching Sale of Investments
Usually, investments are sold through brokers. The brokers issue a note giving details about the nature of investment sold, the term of sales, mode of payment etc., It is called the Brokers’ sold note.
Role of an Auditor in vouching sale of investments
1. If the sale proceeds of the sale of investments are received through bank, then bank advice should be verified.
2. The auditor should also find out whether the investments are sold at ex-dividend/interest or cum dividend/interest. He should ensure that the sale proceeds are appropriately bifurcated into capital and revenue.
3. The commission paid/payable to the brokers is to be verified.
4. If the organization has sold quoted shares/stock, the auditor should verify whether the investments are sold at the quoted prices or not.
5. The auditor should examine whether the investments are long-term or short-term investments. He should also ensure that the income tax liabilities relating to capital gain on sale of investments are included in the return of income filed with the Income tax authorities.