Assam HS Skill Subject Accountancy and Auditing common mistakes
Assam HS Skill Subject Accountancy and Auditing · Understand the traps and how to avoid them.
Classifies a capital item as revenue - for example, debits installation charges on new machinery to Wages or Repairs, and credits the sale proceeds of old machinery to Sales.
The candidate goes by the name of the payment instead of applying the benefit-period and earning-capacity tests; installation cost is part of the asset’s cost and disposal proceeds are a capital receipt.
What to do instead
Before posting, ask: Will the benefit extend beyond one accounting period, and does it create, replace or improve an asset? Put asset-related costs in the asset account and route disposals through an asset disposal account, never through Sales.
Passes the journal entry for a credit purchase of goods as Debit Creditor / Credit Purchases.
The candidate memorises “debit the receiver” but does not first name and classify the two accounts; Purchases is an expense and the creditor is a liability.
What to do instead
Write the narration and an account-type table before writing Dr/Cr. For a credit purchase the correct entry is Purchases A/c Dr to Creditor A/c Cr. Check that the entry matches the movement in the relevant asset, liability, income or expense.
Concludes that the accounts are correct merely because the trial balance totals agree, and makes no attempt to find errors of principle, complete omission or compensating errors.
The candidate treats the trial balance as a proof of accuracy, when it only tests the arithmetic equality of debit and credit totals.
What to do instead
After tallying, run a separate error checklist - omission, commission, principle, original entry and compensating errors - and inspect ledgers and subsidiary books. State explicitly in the answer that agreement of the trial balance is not proof that no errors exist.
When starting from the cash book balance, deducts cheques issued but not yet presented and adds deposits not yet credited by the bank.
The candidate memorises a plus/minus list without tracking which record - cash book or bank statement - has already entered the item.
What to do instead
For every reconciling item ask two questions: Is it already in the cash book? Is it already in the bank statement? Adjust only the record that has not yet entered it. Draw a two-column table showing the cash book effect and bank statement effect before calculating.
Charges a full year’s depreciation on an asset purchased or sold midway through the year and ignores depreciation on the disposed asset up to the date of sale.
The candidate applies cost × rate mechanically without checking dates, although depreciation must be matched to the period the asset was available for use.
What to do instead
Maintain an asset register with purchase and sale dates. Calculate depreciation pro-rata from the date the asset is ready for use, and record depreciation on a disposed asset up to the sale date before transferring it to the asset disposal account.
Debits partner’s salary and interest on capital to the Profit and Loss Account instead of the Profit and Loss Appropriation Account, or credits interest on drawings to the Profit and Loss Account.
The candidate treats payments to partners as ordinary business expenses, but under a partnership they are appropriations of profit made according to the agreement.
What to do instead
Prepare the Profit and Loss Account down to net profit, then prepare the appropriation account: debit interest on capital, partner’s salary and share of profit; credit interest on drawings. If there is no agreement, do not allow interest on capital or salary.
States that internal audit is a part of internal check and that a strong internal check allows the auditor to skip substantive testing altogether.
The candidate conflates three related but distinct controls: internal check is segregation within routine transactions, internal audit is independent post-facto appraisal, and internal control is the umbrella system.
What to do instead
Learn and apply a one-line distinction: internal check prevents or detects errors in the routine flow; internal audit reviews the controls; internal control includes both plus the control environment. Use internal control to plan the audit, but still obtain sufficient appropriate audit evidence.
Verifies the existence and ownership of plant by checking only the purchase invoice, and verifies a liability by checking only the supplier’s invoice.
The candidate treats vouching of a transaction as verification of a balance; an invoice proves that a purchase occurred, not that the asset exists now, is owned, or that all liabilities are recorded.
What to do instead
For assets, combine vouching with physical inspection or certificate, title documents, insurance details and a depreciation review. For liabilities, check the invoice, supplier statement, subsequent payment and completeness. Cover existence, ownership, valuation and presentation, not just acquisition.
Issues a clean or unmodified audit opinion when management refuses access to bank confirmations or stock records.
The candidate copies a standard report template without first deciding whether sufficient appropriate audit evidence has been obtained.
What to do instead
Apply a decision rule before drafting: a scope limitation leads to a qualified opinion or disclaimer; a material misstatement leads to a qualified opinion or adverse opinion. Always include a Basis for Opinion paragraph explaining the limitation and its materiality.
Accepts a computer-generated trial balance and ledger as correct without checking the audit trail, user access rights, or whether opening balances were correctly carried forward.
The candidate assumes that accounting software prevents errors, but automated systems can carry wrong master data, unauthorised journals or disabled audit logs.
What to do instead
Test IT controls: unique logins, segregation of duties, audit trail enabled and reviewed, change log, backup and opening-balance reconciliation. Reperform calculations and trace a sample of entries from source documents to the final reports.