Payment of Expenses

Normally, every item of expenditure has to be written off in the year in which it is incurred. But, considering the requirement of AS 10 and AS 26, the expenses relating to tangible and intangible assets can be capitalized if recognition criteria are met. It may be noted that with the issuance of AS 26, “Intangible Assets”, the concept of deferred revenue expenditure is no more in existence. If the provision for outstanding expenses made in a past year turns out to be insufficient and the amount is material, proper disclosure of such a fact should be made in the accounts of the year in which any further amount is charged on that account. This is done either by showing the amount separately in the inner column and explaining its nature or by including it in the Appropriation Section of the Profit and Loss Account.
Only expenses incurred for the purpose or for the benefit of business are chargeable to it. The auditor therefore, should make certain, as far as practicable, that no personal expenses are charged to the business. In the case of a company, as has been stated earlier, personal expenses, if charged, have to be reported, particularly those which are not covered by commercial practices or contractual obligation.
It should be verified that all expenses incurred, whether paid or payable, have been included in the accounts and that where any part of an item of expenses relates to the period that extends beyond the close of the year, a proportionate amount thereof has been adjusted as prepaid expense. Where some of the expenses are found to have been adjusted in a lump-sum specially at the close of the year, these might be fictitious items introduced merely to reduce profits. These, therefore, should receive special attention of the auditor.

(Visited 67 times, 1 visits today)
Share this: