Scrutiny of Capital and Revenue Expenditures

While scrutinizing Tally data, it is commonly found that many capital expenses are debited to Profit and Loss account to increase expenses and reduce profits. Also, many a times, capital incomes are credited to Profit and Loss account to increase income and to reduce the loss or increase the profits.

Auditor must find these types of transactions and need to get corrective entries passed to show true and fair view of financial statements.

 

Prerequisite

LedgerVision reads voucher narrations to identify probable wrong entries. Hence in absence of narration, it is not even possible to detect such wrong entries.

 

Configurations Required

 

asset related keywords

1.      Audit Materiality Configuration

Auditor must consider Audit Materiality while auditing accounts. How much Capital Expenditure / Income is allowable as revenue by comparing whether that expense / income is material or not to size of Tally company.

For example, Rs 5000/- can be material amount for company having turnover of say Rs. 10 lakhs and profit of Rs 1 Lakh, but for the company of 5 Cr turnover, Rs 5000/- may not be material.

Audit Materiality as per Tally Company can be configured in LedgerVision on “Generic Configuration” page.

 

2.      Asset Related & Asset Exclude Keywords

On Generic Configuration page, Asset Related and Asset Exclude keywords are given. User can alter them as per business requirements. For example, if Tally company is dealing in computers and accessories, then remove computer, laptop, printers, speakers etc. from keywords. This will ensure that LedgerVision will not comment on every purchase and sale entry related to these keywords.

Also if asset exclude keywords are found in narration then those vouchers are skipped as it tells LedgerVision that this voucher is not related to possible purchase or sale.

 

Flow of Detecting Probable Wrong Transactions

1.      Audit Materiality Check

LedgerVision first checks if transaction amount is more than audit materiality amount configured. If transaction amount is within threshold amount, then only that transaction will be considered for scrutiny.

2.      Keyword / Narration Check

  • LedgerVision checks if Voucher Narrations contains configured Asset Related keywords. If any of the keyword is found in narration, then that voucher is selected
  • LedgerVision now checks if excluded keyword is also available in narration. For e.g., if we find “laptop repair” in narration, then this voucher is skipped as it is just a repair of laptop and not buy or sale

If those words are found and posted to Profit and Loss account, then “Probable Purchase or Sale of Assets ” query will be flashed