Set the reporting scope
Section 128 of the Companies Act requires accrual accounting and double-entry books. It permits another location in India if the board decides and the company gives the required notice; electronic books are subject to prescribed conditions. Under sections 129 and 133, determine the applicable accounting standards and presentation rules, including the relevant division of Schedule III where it applies. Industry-specific statutory formats can apply. Management closes the books; the auditor decides what evidence is needed.
Seven areas to cover before closing
| Area | Checks |
|---|---|
| Trial balance | Reconcile opening balances and subsidiary ledgers, review suspense and transit balances, and investigate unsupported amounts. A balanced trial balance does not establish completeness. |
| Sales and purchase cut-off | Test both sides of the reporting date using contracts, dispatch and receipt records, and evidence of control or significant risks and rewards as applicable. Reconcile GST returns to revenue with an explained timing and scope bridge. |
| Accruals and provisions | Record expenses for goods and services received, employee obligations and other qualifying liabilities. Distinguish a routine accrual, often estimated with less uncertainty, from a provision for a present obligation with uncertain timing or amount. |
| Prepayments | Expense the portion of insurance, maintenance, subscriptions or other services consumed; retain any qualifying unexpired portion and classify by the applicable current and non-current criteria. |
| Property, plant and equipment | Reconcile the asset register, review useful lives and component depreciation, and assess impairment. Reconcile capital work in progress to the statutory ageing and, when required, completion schedules. |
| Bank and counterparty evidence | Reconcile all relevant bank accounts and investigate outstanding items. The auditor controls external confirmations under SA 505, choosing their extent and alternatives according to risk and evidence. |
| Taxes and disclosures | Reconcile GST and eligible withholding credits, assess current and deferred tax under the applicable framework, and check statutory disclosures including ageing, ratios, promoter holdings and reportable charges. |
Resolve presentation and cut-off issues
Investigate a credit balance in physical cash through the cashbook, count, bank entries and cut-off evidence. It does not by itself create a section 68 tax presumption. Separate genuine supplier advances and customer advances from unrelated payables and receivables where required. A capital advance is not a trade advance; use the applicable Schedule III and accounting framework classification. Use enforceable rights and the relevant offsetting rules, rather than the sign of a ledger balance, to decide presentation.
Reconcile bank ledger and statement balances before deciding whether a borrowing exists. An apparent overdraft caused by an unpresented cheque is not evidence of a bank loan. Review delivery, presentation, enforceable rights and obligations, and the applicable recognition and derecognition rules. Do not automatically clear suspense, inter-branch or transit accounts by posting balancing amounts; trace and classify genuine balances.
Apply Ind AS 115 control criteria or the AS 9 criteria including transfer of significant risks and rewards, as applicable. Delivery terms provide evidence alongside the full contract. Under Incoterms 2020, DAP generally transfers risk at the named destination when goods are at the buyer’s disposal ready for unloading; CIF generally transfers risk when goods are on board at the shipment port even though freight and insurance are arranged to destination. An invoice or an e-way bill is not by itself proof of accounting revenue. Choose a risk-based cut-off sample; there is no universal ten-invoice test.
If goods received in March already belong to the company and the amount is determinable, accrue the inventory or relevant expense and the payable even if the invoice arrives in April. A 28 March receipt and 2 April invoice do not justify two entries for the same purchase. Check consignment, acceptance and ownership terms before recognising the purchase.
Fixed assets and statutory disclosures
Under Schedule II, determine the life of a significant part separately if it differs from the rest of the asset. Document departures from specified useful lives or residual values and support them with technical advice where required. Tax depreciation follows separate tax rules. For companies subject to CARO, paragraph 3(i)(b) addresses management’s physical verification of property, plant and equipment at reasonable intervals and treatment of material discrepancies; it has no 10% PPE rule. The 10% aggregate per inventory class test belongs to paragraph 3(ii)(a). Review title-deed disclosures and prescribed exceptions separately.
Apply the relevant Schedule III project and ageing grids. For example, capital work in progress ageing separates in-progress and temporarily suspended projects, and overdue or over-budget projects require the prescribed completion schedule. For Division I, explain the components of the prescribed ratios and variations of more than 25% from the preceding year, addressing any non-applicable ratio on its facts. Review charges, promoter holdings and other disclosures separately.
Four worked cases
1. Pumps in transit at year end
Apex invoices ₹60 lakh on 29 March 2024 plus assumed applicable GST at 18%, or ₹10.80 lakh, totalling ₹70.80 lakh. Pumps cost ₹42 lakh and arrive on 4 April. Assume the DAP contract transfers control at delivery, payment is unconditionally due on invoicing, and the March tax invoice is valid. At 31 March, debit revenue and credit the contract liability by ₹60 lakh to reverse premature Ind AS revenue; reinstate the ₹42 lakh of inventory and reverse the cost of sales already booked. March profit before tax falls ₹18 lakh. Recognise revenue and release inventory on delivery. If the right to payment is conditional, reassess the receivable and the corresponding contract balance. Separately reconcile the ₹10.80 lakh GST: the CGST invoice and time-of-supply provisions can require March tax even when accounting revenue is April. Do not reverse output tax merely to align the periods.
2. Reclassifying advances and investigating a negative bank ledger
Precision AutoTech shows ₹14.20 crore net payables, made up of ₹16.50 crore payables less ₹2.30 crore supplier advances. Net receivables of ₹28.40 crore are ₹30.10 crore gross receivables less ₹1.70 crore customer advances. Assuming no permitted offset, show the respective advances separately and retain ₹16.50 crore and ₹30.10 crore as the gross trade balances. A bank statement credit of ₹15 lakh less ₹100 lakh of outstanding cheques reconciles to the negative ₹85 lakh ledger. If the cheques were prepared in March but held by the company until April and no payment occurred at year end, reinstate the ₹100 lakh payable and restore the ₹15 lakh bank balance. If delivered before year end, obtain evidence and assess settlement and classification on the actual terms. There is no automatic ₹85 lakh bank borrowing.
3. Significant components missed when a plant was commissioned
Sterling’s ₹10 crore plant was available on 1 April 2021. Assume straight-line depreciation, zero residual value and useful-life evidence available from commissioning. Its ₹3 crore component with a five-year life depreciates by ₹60 lakh annually, and its ₹7 crore component with a twenty-year life by ₹35 lakh. The supported annual charge is ₹95 lakh, compared with about ₹66.67 lakh for a single fifteen-year asset. Using unrounded amounts, the FY 2023–24 charge was short by ₹28.33 lakh, the earlier two years by ₹56.67 lakh, and cumulative depreciation by ₹85 lakh; the corrected carrying amount is ₹715 lakh. For a material prior error under Ind AS 8, restate comparatives or opening balances as required, subject to impracticability. Under AS 5 separately disclose the nature and amount of the prior period item in profit and loss. If useful lives changed on new information rather than an error, assess prospective treatment as an estimate change. These useful lives are assumptions, not prescribed lives for the equipment.
4. Bonus accrual and the actual historical tax deadline
Delta’s payroll calculation for 450 eligible employees gives an assumed ₹48 lakh bonus obligation for FY 2023–24. Debit employee benefits and credit the current bonus liability at 31 March 2024. Test the computation against eligible wages, the allocable surplus and the statutory limits. Separately, section 43B(c) generally permits a qualifying deduction in the year of liability if paid by the applicable section 139(1) return due date. For an AY 2024–25 taxpayer within CBDT Circular 13/2024, that date was extended from 31 October to 15 November 2024. Payment on 25 October qualifies on these assumptions; qualifying payment by 15 November also meets the extended tax date. The historical labour-law payment deadline is a separate test; the ordinary eight-month period from 31 March would end on 30 November, absent special circumstances. At 25.168% under a valid section 115BAA election, the incremental current-year tax effect of a ₹48 lakh deduction is about ₹12.08 lakh, assuming sufficient taxable income. The example does not set the deadline for other periods or regimes.
Final questions before approval
Have you checked whether qualifying micro and small supplier payments breach the written period of at most 45 days or, absent one, the appointed-day limit under the MSMED Act? Review the applicable deduction rule separately: section 43B(h) for the 1961 Act or section 37 for the applicable 2025 Act tax year. The ordinary return due date concession for qualifying bonus does not extend this supplier deadline.
Have you reconciled current tax, advance tax and eligible withholding credits, and tested deferred tax under AS 22 or Ind AS 12? Is each balance supported by evidence and are unresolved reconciling items assessed for materiality? An unfinished bank reconciliation does not prescribe a particular opinion by itself. The auditor evaluates evidence, alternative procedures and the nature and pervasiveness of any unresolved matter.
Sources
- India Code: Companies Act, sections 128, 129, 133 and 143
- India Code: Schedule II, component depreciation
- MCA: Schedule III disclosures
- Companies (Accounting Standards) Rules, 2021
- MCA: Ind AS 115, transfer of control and contract balances
- MCA: Ind AS 8, material prior period errors
- ICC: Incoterms 2020 checklist, shipment and arrival terms
- CBIC: CGST Act, sections 12 and 31
- Companies (Auditor’s Report) Order, 2020
- ICAI: Standards on Auditing, including SA 500, SA 501 and SA 505
- India Code: MSMED Act, supplier payment rules
- Income Tax Department: Income-tax Act, 1961, sections 36 and 43B
- India Code: Income-tax Act, 2025, section 37
- CBDT Circular 13/2024, AY 2024–25 return deadline
- India Code: Payment of Bonus Act, 1965, applicable to the historical example
- Income Tax Department: section 115BAA rate components