Page 185 - CA Inter Audit PARAM

CA Ravi Taori
QNO Audit of Employee Benefit Expense Old Course – (N22M)
AIFS.48.50 Bhaskar CNO - AIFS-P3.080
Explain how you would verify Employee Benefit Expense incurred by a Company.
Answer The auditor shall verify that:
i. Employee benefit expense has been incurred during the period in respect of the personnel
employed by the entity. Employee benefit expense does not include the cost of any
unauthorized personnel.
ii. Employee benefit expenses in respect of all personnel have been fully accounted for.
iii. Employee benefit expenses recognized during the period relates to the current accounting
period only.
iv. Employee benefit expense has been measured/ calculated accurately.
Any adjustments such as tax deduction at source have been correctly reconciled and accounted
for.
v. Employee benefit expense has been fairly allocated between:
— Operating expenses incurred in production activities;
— General and administrative expenses; and
— Cost of personnel relating to any self-constructed assets other than inventory.
Author’s Note:
Answer given by ICAI is in Short, you can alternatively give answer as per BHASKAR Regular Notes which
is taken from ICAI Module.

QNO P&L (Depreciation and Amortisation Expenses)- Old Course --
AIFS.49 Bhaskar CNO - AIFS-P3.100 (M18E/N20E/N23M)
Mention any five attributes to be considered by an auditor while verifying for a depreciation and

amortisation expenses.
Answer ➢ (Policy & Method)
• Obtain the understanding of entity’s accounting policy related to depreciation and
amortisation.
• Obtain an understanding of entity’s process of charging depreciation and amortization.
• Whether the most appropriate depreciation method for each separately depreciable
component has been used.

• Ensure the Company policy for charging depreciation and amortisation is as per the relevant
provisions of Companies Act, applicable accounting standards.
• Whether depreciation and amortisation charges are valid.
• Obtain the list of all the components identified by the management. Ensure the parts
(components) of each item of property, plant and equipment that are to be depreciated
separately has been properly identified.

QNO— Date of Starting Depreciation New Course – (SM25)
AIFS.49.30 Bhaskar CNO - Unique
While verifying depreciation charged to statement of profit and loss account of a company, it is noticed
by auditor that one new machinery was purchased and installed in month of April. The necessary trials
were carried out and machinery was ready for use in April itself. However, owing to lack of orders in the
market, the said machinery was put into actual operation from 1st October. The company has,
accordingly, provided depreciation in its books on this machinery w.e.f. 1st October. Is above recording
of deprecation by company proper in its books?
Answer Depreciation of an asset begins when it is available for use i.e. when it is in the location and condition
necessary for it to be capable of operating in the manner intended by the management. Depreciation on
asset is charged on asset from the date when it is ready for use and not from date of actual usage.

Hence, recording of depreciation by company w.e.f. 1st October is not proper.

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