Para 3.20.7 — MSO (Audit)
Original Rule Text
3.20.7 This involves examination of the system of authorisation of transactions and operations and the related procedures and records prescribed for the purpose. It has to be verified whether the powers for initiation of operations and transactions and their approval and execution are clearly delegated in writing by the competent authority and whether an adequate system with necessary checks and balances exists to ensure that the delegated powers are exercised satisfactorily. It should be ensured that the forms and procedures provide for the authorisation and review of transactions prior to their being entered in the accounts and that the forms and procedures are so designed as to include provision for proper authorisation of all operations and transactions with the record of the authorisation serving to establish accountability for the action taken. It has also to be seen that the system provides for procedures to ensure that:
(i) all approved transaction documents serve as source documents for accounting entries; and
(ii) all cash and materials received in the entity are immediately accounted for.
# Analysis of system of accounting
What This Means
This stage involves examining whether the organization has a proper system for authorizing transactions before they happen and recording them properly afterward. The auditor must verify that the power to initiate, approve, and execute transactions is clearly delegated in writing with adequate checks and balances. Forms and procedures should ensure transactions are authorized and reviewed before being entered in accounts, and the authorization record itself should establish accountability. Additionally, all approved documents must serve as source documents for accounting, and all cash and materials received must be immediately accounted for.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Powers for initiating, approving, and executing transactions must be delegated in writing
- 2Adequate checks and balances must exist to ensure delegated powers are exercised properly
- 3Transactions must be authorized and reviewed before being entered in accounts
- 4Authorization records must establish clear accountability for actions taken
- 5All cash and materials received must be immediately accounted for
Practical Example
An auditor examining a government office finds that purchase orders above Rs. 5 lakh are being approved by an Under Secretary, but the delegation of financial powers assigns this authority only to the Joint Secretary. The auditor also discovers that several cash receipts were entered in the cash book 3-4 days after the money was received, violating the requirement for immediate accounting of receipts.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Why must authorization happen before transactions are entered in accounts?▼
What does 'source document for accounting entries' mean?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.