Demonetization impact on Audit Report for FY 2016-17

By | June 2, 2017
(Last Updated On: June 2, 2017)

 Demonetization impact on Audit Report for FY 2016-17

In one of the historical reforms of the economy of India, Rs 500 and Rs 1,000 notes were banned effective from Tuesday midnight i.e on midnight of 08.11.2016. Lets study demonetization impact on Audit Report .Demonetization impact on Audit Report

Demonetization impact on Audit Report : Notifications of Ministry of Company Affairs

Demonetization -Companies to Disclose in Balance Sheet ; MCA Notification

Demonetization ; Auditor to Make Disclosure in CARO Report

Demonetization impact on Audit Report : Notifications of Govt of India

Before Audit , Auditor needs to have read all the notifications issued by Govt of India  on Demonetization so as to familiarize which transactions were allowed with Rs 500/ Rs 1000 Bank Notes and upto which period.Following is the compilation of Govt of India relevant Notifications.

Demonetization Act 2017 ; Notified -Specified Bank Notes (Cessation of Liabilties) Act 2017

ParticularsDateCircular No
   
Ceasing of bank notes of existing series of denomination of value of Rs.500  and  Rs 1000 (specified bank notes) to be legal tender w.e.f. 9-11-2016

 

8-11-2016NOTIFICATION NO. S.O. 3407(E) [F.NO.10/03/2016-CY.I],

[ Last Amended by S.O. NO. 4086(E) Dated 17.12.2016 ]

Old Notes of Rs 500 and Rs 1000 can be used for Specified Transactions till 15.12.20168-11-2016NOTIFICATION NO. S.O. 3408(E) [F.NO.10/03/2016-CY.I],

[ Last Amended by S.O. NO. 3678 (E) Dated 7.12.2016

 

Rs 2000 Bank Note Notification by Govt of India08.11.2016NOTIFICATION NO.  S.O. 3409(E). [[ Last Amended by S.O. 3417(E)  Dated 9.11.2016]

 

 

Demonetization impact on Audit Report : Notifications of RBI

Auditor needs to have read all the notifications , Circulars issued by RBI , Following are the key Circulars and Notifications

Read FAQs on Withdrawal of Legal Tender Status of the old Bank Notes in the denominations of Rs 500/- and ₹ 1000/- (Updated as on December 22, 2016)

Read : Also All You wanted to know from RBI about Withdrawal of Legal Tender Status of Rs 500 and Rs 1000 Notes

Demonetization impact on Audit Report -Transactions done with old Rs 500 and Rs 1000 Bank Notes

Since old Rs 500 and Rs 1000 Bank notes were allowed to be used till 15.12.2016 for certain transactions amended by Govt from time to time. Auditors needs to check as to how much amount of old currency was used to pay these transactions and sources of those payment. Read Permitted payments with only old Rs 500 till 15.12.2016 + New additions

Demonetization impact on Audit Report : Uniformity

Auditors needs to check that there is uniformity in the transactions done by the Assessee during FY 2016-17 in each and every ledger. It should not happen that Salary is paid in Advance on or before 08.11.2016 and thereafter there is no salary payment to the employees  at all.

Demonetization impact on Audit Report -Cash in Hand

Auditor needs to check the cash in Hand of the Assessee on 08.11.2016 and ensure that all the Cash in Hand in old Currency (of Rs 500 and Rs 1000)  is deposited in the bank account.

Auditor needs to check the Cash in Hand in the hands of the Assessee on 31.12.2016. All the cash in Hand needs to be in New Currency / Currency which is a valid legal tender.

Auditor needs pay special attention to the cash Book of the Assessee during FY 2016-17 . Especially on or before 08.11.2016 and after 09.11.2016 .

 Demonetization impact on Audit Report -Sales

Auditor needs to check that all the sales made on or after 09.11.2016 is in new currency or valid legal tender.

 Demonetization impact on Audit Report – Sundry Creditor:

Auditor needs to be very careful as to how the sundry creditors of the Assessee were paid / cleared on or after 08.11.2016 . Since Old note of Rs 500 and Rs 1000 were not legal tender on or after 09.11.2016 therefore he needs to take confirmations from creditors regarding their closing balance on 31.03.2017 and should check how the transactions for Financial year 2016-17 were cleared between Assessee and Sundry Creditors from the ledgers account obtained from third party

 Demonetization impact on Audit Report – Sundry Debtors:

Since Old note of Rs 500 and Rs 1000 were not legal tender on or after 09.11.2016 therefore he needs to take confirmations from Sundry Debtors regarding their closing balance on 31.03.2017. He also needs to check that all the payments on or after 09.11.2016 were received in New currency or valid legal tender. Since RBI has mandated banks to mention on Deposit Slips separately the amount of deposit in Bank account were made in New currency.

Demonetization impact on Audit Report – Unsecured Loan :

Auditor needs to be very careful as to how payment of unsecured Loan has been cleared after Demonetization decision of Govt of India.

Demonetization impact on Audit Report – Fraud reporting

If any fraud transactions in the books of company / Assessee needs to be reported in the Audit report / CARO audit report

Demonetization impact on Audit Report – Payment of Tax / Penalty

Since the Old notes of Rs 500 and Rs 1000 Could be used for payment of govt taxes and penalty, Auditor needs to ensure how much old currency notes of Rs 500 and Rs 1000 were used to pay tax and penalty.

 

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