Contents

1. Message from the President 3

2. Message from the Vice President 4

3. Message from the Chairman 5

4. Why QCR is Important? 6

5. Sample File 8

6. Frequently Found Discrepancies 150

2
 The President Message
With immense faith in Allah and profound confidence in my Council, Executive
Secretariat, Quality Assurance Board and my members to the Institute, I proudly
say that in these challenging times of today, we have emerged successfully
while facing all types of probabilities owing to this pandemic catastrophe. Our
strategy went very well in its execution, for we relied heavily on online medium
throughout for all operations of the Institute including CPD related activities
for its members uplifting of the advancements in profession and all CPD events
conducted online for members, a major transition ; complete switching from
physical to virtual media due to influx of travel restrictions and frequent lock
down from the last two years.

My Quality Assurance Board under the leadership of its chairman Mr. Sajjad Ahmed, FCMA and its
agile Directorate took to a new strategy to gain the confidence of all the practicing members and
created awareness through persistent invitation for QCR to members and their training webinars
which went very well in making the members confident enough about their Quality Rated Firms
as the Quality Assurance Board gave satisfactory rating to 17 CMA Firms who performed up to the
Quality standards of ICMA International.

This is just the beginning of our journey towards Satisfactory Quality Rating of CMA Firms. We still
have long way to go and now we are pleased to hand over these QAB Guidelines to our practicing
members so that they can make their files at the highest of quality standards bench marked as per
these QAB Guidelines that Our QCR Directorate under the supervision of Quality Assurance Board
has developed with great zeal and passion. This a great accomplishment which we have rendered for
our practicing members. The Quality Assurance Board is continuously striving hard giving direction
to the Quality Assurance Directorate to come up with the best practices of the world and we want
our Institute to reach to the highest level of excellence in Accounting and Auditing standards in
no time. This way we are opening the doors to further enhancement of our Audit Rights and image
building of our CMA Firms.

My special thanks to the Quality Assurance Board, my fellow Council members, the Executive Secretariat
who supported us in this gigantic task and helped us in completing this venture in time.

Zia ul Mustafa Awan, FCMA

President, ICMA

3
 Message from Vice President
It gives me a great pleasure to apprise that the Quality Assurance Board (QAB) has
taken a great initiative to develop these Quality Assurance Guidelines (QAG).

These guidelines are an attempt to guide the practicing members through all the
stages of an audit from planning an audit to assessment of risk and materiality,
analytical reviews, audit programmes and finally the reporting. The QAG has been
prepared on the foundation that the user has the requisite knowledge of the ISA’s
and applicable legislation in Pakistan.

It is pertinent to note that these Quality Assurance Guidelines provide non-authoritative guidance on
ISA’s and should not be considered a directive of the Institute. Further QAG is not an alternate for
reading the ISAs and it’s important that reference to the ISAs themselves should always be made. In
conducting an audit in accordance with ISA’s, the auditor is required to make due compliance with
all the ISAs as applicable in Pakistan that are relevant to the engagement. It is developed keeping in
mind, that the CMA firms using these Quality Assurance Guidelines would customize it to suit their
own needs in accordance with the type and nature of the audit engagement they are working upon.

I am sure that the members would find these Quality Assurance Guidelines certainly useful in gaining
better implementation of the ISA’s and legal requirements in their audit engagements.

In the end I would like to appreciate Mr. Sajjad Ahmed, FCMA, Chairman QAB, and Quality Control
Directorate for their efforts and hard work. I also want to express my gratitude to the members
of the Committee especially formed to prepare these Quality Assurance Guidelines: Mr. Zia-ul-
Mustafa Awan, FCMA, President ICMA International; Mr. Ather Saleem, FCMA, Honorary Treasurer
& Chairman CPD Committee and Mr. Aamir Ijaz Khan, FCMA, Executive Director ICMA International,
for their valuable contributions and dedication as the work of this significance would not have been
possible without their co-operation and untiring support.

Shehzad Ahmed Malik, FCMA

Vice President, Chairman TSPD Committee

Institute of Cost and Management Accountants of Pakistan 4

 Message from the Chairman
With full dedication and support from the Quality Assurance Board (QAB), I humbly
present these Quality Assurance Guidelines (QAG) for the guidance of the practicing
members of ICMA International for conducting their Audits of Financial Statements
at the highest standards of Auditing. While interacting with the practicing members
during the course of our reviews, Quality Assurance Directorate, realized that our
members should always be at the top by referring these guidelines whenever needed.

Quality Assurance Board along with members of National Council (President of ICMAP and others),
advised Quality Assurance Directorate to start working on these guidelines under the supervision of
Quality Assurance Board.

These Quality Assurance Guidelines include a Sample File, Frequently Found Discrepancies and
contain comprehensive guidelines designed to help its stakeholders in performing their duties
and responsibilities. They are designed in such a way that practically it becomes fairly easy for the
practicing members to prepare working paper files for Quality Control Review and therefore, they have
been prepared with full responsibility. They set out the procedures and regulations through which
the practicing members will conduct their day to day operations in Audit of Financial Statements and
also preparing their files according to requirements of QCR. They also contain details on the Audit to
monitoring, reviewing, and seeking to improve its performance in all its areas.

All I would say is, enjoy working on your Quality Assurance working paper files, but kindly before
you start, do read these Guidelines properly. I am confident that by getting Quality Rated our firms
will get more business, as third party Audits go to Quality Rated Firms. It will open the doors of new
opportunities and rights.

My special thanks to the President, Mr. Zia-Ul-Mustafa, FCMA, Vice President & Chairman TSPD
Committee, Mr. Shehzad Ahmad Malik, FCMA, Honorary Treasurer & Chairman CPD, Mr. Ather Saleem,
FCMA and Executive Director Mr. Aamir Ejaz Khan, FCMA for supporting on this venture, the entire
Quality Assurance Board for advising us from time to time at each and every stage of its development
and my agile team who worked with full devotion and zeal to develop these Quality Assurance Guidelines
as it was a team work of Quality Assurance Directorate which was overseen and approved by the Quality
Assurance Board.

Sajjad Ahmed, FCMA

The Chairman
Quality Assurance Board.

5
ICMA International is taking its practicing Members to a New Journey...
Quality Control Review is our essence to progress and prosperity.
ICMA International has 17 CMA Firms Satisfactory Quality Rated.
Quality Assurance Board headed by Chairman QAB and 14 members have given satisfactory rating
to 17 CMA firms in the year 2020-21.
Do you want to be the 18th ? Its fast and easy to join.
All you need to do is...

Easy joining & Processing

QCR program is very easy to join. All you need to do is just send an application form
duly filled in to QCD Directorate and you are registered with ICMA International
Quality Control Review program. Our representative will send you a return mail
confirming your registration and will ask you about your list of clients and the
process will start. We will keep updating you on all the steps that you will need to
undertake to complete your documentation for working paper files.
The process is explained as follows when QCD approaches the CMA Practicing member :-
• As a first step Quality Control Directorate approaches the CMA Practicing firms to introduce and
invite for QCR.
• The CMA practicing firm completes an Audit Engagement form shared by QCR in which their client’s
list is shared for selection by the QCD.
• QCD selects the files for QCR from the provided client’s list.
• QCD then requests for the financial statements of the selected clients for their scrutiny and analysis.
• Final selection of files is done by QCD for files to be selected for QCR.
• The QCD then shares the Audit checklist with the CMA Firm to help the Practicing member complete
the working paper files.
• The prepared working paper file is shared with the reviewer after doing all the necessary checking at QCD.
• The reviewer approves the files for Satisfactory Quality Rating.
• The files is taken to the Board for awarding of satisfactory Quality Rating thereof in its Board Meeting.

17 CMA Firms got Satisfactory Rating by QAB and their names are as under: -
1. Arete Management Consulting (Pvt) Ltd Islamabad
2. Asif Ahmed and Co Islamabad
3. A.R and Co Lahore
4. M. Yousuf and Co Islamabad
5. In Sync Business Solutions Karachi
6. Munawar Associates Lahore
7. Mansoob and Co Karachi
8. Nafees Ahmed and Co Islamabad
9. Pakistan Business Consultants Karachi
10. Riasat Ishtiaq and Co Islamabad
11. Shehzad Malik and Co Islamabad
12. S.M. Naim Mian and Co Lahore
13. Siddiqui and Co Karachi
14. Shazad Adil and Co Islamabad
15. Tariq Mian Ramzan Arshad & Co Islamabad and Lahore
16. Umar Nasir Rashid and Co Islamabad
17. Zahid Farooq and Company Islamabad
Kindly do visit this link: https://www.icmainternational.com/qab_satisfactory_firms.aspx

Institute of Cost and Management Accountants of Pakistan 6

Quality Control Directorate
Quality Control Directorate is formed by ICMA International for the betterment of CMA Practicing
Firms under the guidance and supervision of Quality Assurance Board. This department is responsible
to maintain the quality of CMA Practicing Engagement Firm’s for Audit of Financial Statements. Quality
Control Directorate is quality review department for giving quality rating to CMA Firms which is being
run by a Deputy Director and two Assistants.

Why Quality Rating for CMA Firms?

This is a society where cut throat competition prevails, our destination is tough and difficult to compete
with our competitors and prove ourselves in the eyes of Regulators and the society. Securities and
Exchange Commission of Pakistan’s official are monitoring our progress rigorously and SECP is being
updated regularly. To enhance our rights in the eyes of regulatory bodies we have to follow an approach
of “Do More”.

Quality Control Directorate is carrying out this endeavor for all CMA practicing firms completely free of
cost to help them in elevating their image and share in the market. Our team is very active and agile to
help you for completion of your documents that are required to satisfy QCR requirement so that after
the reviewer remarks, our firms may be awarded with “Satisfactory Quality Rating”.

Achievements
Quality Assurance Board QAB has already awarded Satisfactory Quality Rating to 17 firms and more
are underway.

Benefits
Presently we are providing these services to our valued members free of cost but later on, it may attract
some fees as per approval of competent authority. The aim is to enhance the skills and working of our
Members Firms. Our goal is to attract more business and opportunities for our member firms by having
close liaisons with Regulatory Bodies and other Authorities. There is no doubt that Quality Rated Firms
are going to an edge for getting business and priority will be given to these Quality Rated Firms. Now
the Names of Quality Rated Firms are displayed on ICMA International website prominently so that
they can be approached easily.

Training
QAD conducts trainings which are imparted by its
seasoned practicing members who are learned
trainers to update the practicing members in
completion of their working papers files and
enhance their performance skills.

More
For more details, please visit the following page: -
The following resources, which should be considered as a guide, are available on the Institute’s
website at https://www.icmainternational.com/qab_satisfactory_firms.aspx

• Audit Practices Manual

• ISQC-1 Implementation Guide
• Quality control review checklist for cost audit engagement
• Framework of Quality Control Review (QCR) Program

7
 SAMPLE FILE
ABC & Co
Cost and Management Accountants

INDEX OF THE QUALITY ASSURANCE WORKING PAPER FILE

A Pre-Engagement/Audit Finalization Audit Approach

B Assets
C Owner’s Equity
D Liabilities
E Profit & loss ,Income & Revenue
F Expenses
G Miscellaneous Papers

Institute of Cost and Management Accountants of Pakistan 8

 SAMPLE FILE
ABC & Co
Cost and Management Accountants

Address: …………………….
Phone No: …………………
Email: ……………………….

CLIENT: XYZ (PRIVATE) LIMITED

YEAR / PERIOD ENDED: JUNE 30, 202X
AUDIT FINALISATION

(A)

PARTICULARS FILE REF.

Pre-signing checklist A-1
Audit clearance and conclusion A-2
Letter of Engagement A-3
Acceptance of Engagement letter A-4
Letter of Representation A-5
Audit Materiality A-10
Going Concern A-12
Tests of Sampling A-14
Audit Report A-15
Draft Accounts A-16
Trial Balance A-17
General Ledger A-18
Audited Accounts A-19

9
 ABC & Co
Cost and Management Accountants

Address: …………………….
Phone No: …………………
Email: ……………………….

CLIENT: XYZ (PVT) LIMITED

YEAR/ PERIOD ENDED: June 30, 202X
PRE – SIGNING CHECKLIST

(A-1)

SR.NO PARTICULAR Reference Initials Date

Comments
1 Letter of Engagement A-3
2 Acceptance of Engagement A-4
3 Letter of Representation A-5
4 Audit Planning A-6
5 Internal Audit Function Evaluation A-7
6 Client Overview & Control environment A-8
7 Points forward from previous year A-9
8 Audit Materiality A-10
9 Analytical Procedures performed as Risk Assessment procedure A-11
10 Going Concern A-12
11 Related party Transaction Checklist A-13
12 Test of Sampling A-14
13 Audit Report A-15
14 Draft Accounts A-16
15 Trial Balance A-17
16 General Ledger A-18
17 Audit accounts A-19

................................. ................................

Manager Comments: Partner

Institute of Cost and Management Accountants of Pakistan 10

 AUDIT CONCLUSIONS (A 2)

CLIENT: XYZ (PVT) LTD

YEAR/PERIOD ENDED: 30/06/202X

PLANNING Ref Initials

• The Planning Process, Staff Planning & Time Allocation A-6 Yes
• Internal Audit Function Evaluation A-7 Yes
• Know your client control overview A-8 Yes
• Points Forward from Previous Year A-9 Yes
• Audit Materiality A-10 Yes
• Analytical Performed as Risk Assessment Procedure A-11 Yes

EXECUTION
A-12 Yes
• Going Concern Assessment
• Related Party Transactions Checklist A-13 Yes
• Means of Selecting Items for Testing A-14 Yes
• Sample Audit Programs A-20 Yes
• Lead Schedules A-21 Yes
• Formats of Enquiry and Confirmation A-22 Yes

REPORTING
• Overall Conclusion of Analytical Procedures A-11 Yes
• The Audit Report
A-15 Yes
• Final Review of Financial Statements
A-19 Yes

11
 (A-3)

ABC & Co
Cost and Management Accountants

Date: ……………….
Ref: ………………….
The Chief Executive Office
XYZ (Private) Limited
Address: …...........
…………………………..
………………………….

AUDIT ENGAGEMENT LETTER

Dear Sir

This letter is to document our understanding of the arrangements for the related services described
herein.

Scope of services
ABC & Co. will audit the balance sheet of “XYZ (Private) Limited” (the Company) as at June 30, 202X,
related profit and loss account, cash flow statement and statement of changes in equity together with
the notes forming part thereof, for the period ended 30th June 202x. Our audit will be conducted in
accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our engagement to
conduct the audit is subject to the satisfactory completion of a background investigation on XYZ (Private)
Limited, XYZ (Private) Limited’s key decision makers other key personnel and affiliated companies. Our
audit will include our examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant judgments and estimates
made by management, as well as evaluating the overall financial statement presentation.

An audit includes obtaining an understanding of internal control sufficient to plan the audit and
to determine the nature, timing, and extent of audit procedures to be performed. An audit is not
designed to provide assurance on, or to identify significant deficiencies in, internal control. However,
we are responsible for communicating to the board of directors or others of equivalent authority or
responsibility any significant deficiencies or material weaknesses in internal control over financial
reporting that come to our attention during the course of our engagement.

When conducting an audit on a test basis, ISAs require the auditor to obtain reasonable, but not
absolute, assurance that the financial statements are free of material misstatement, whether caused
by error or fraud. An audit is not a guarantee of the accuracy of the financial statements and is subject
to the inherent risk that errors, fraud, or illegal acts, if they exist, might not be detected. Accordingly, a
material misstatement may remain undetected. Further, an audit is not a special engagement designed
to detect errors or fraud that is immaterial to the financial statements. However, if you wish us to direct
special auditing procedures to particular matters, we would be pleased to work with you to develop a
separate engagement for that purpose.

Institute of Cost and Management Accountants of Pakistan 12

Our overall objective will be the completion of the foregoing audit and, upon its completion and
subject to its findings, the rendering of our report, which will express our opinion on the financial
statements. However, it is possible that because of unexpected circumstances we may determine that
we are unable to complete the audit engagement or that we are unable to or cannot form an opinion.
In those circumstances, we decline to express an opinion or decline to issue a report as a result of
the engagement. If, in our professional judgment, the circumstances require, we may resign from the
engagement prior to completion.

Management Responsibilities
As you are aware, the financial statements are the responsibility of management. Management is
responsible for the data and information set forth therein, as well as for the evaluation of the capability
and integrity of XYZ (Private) Limited’s personnel. Management should discuss with the board of
directors the:

• Appointment, compensation, and oversight of our work as independent auditors. Management should
ensure its responsibility to periodically review all audit and non-audit services that we perform in order
to ensure that these services do not impair our independence with respect to XYZ (Private) Limited. In
addition, professional standards require that we make certain inquiries of the management regarding
its views about the risk of fraud within XYZ (Private) Limited and other matters;
• Adequacy of XYZ (Private) Limited’s internal control over financial reporting and the identification of
any significant deficiencies, including material weaknesses;
• XYZ (Private) Limited’s critical accounting policies and, for the initial selection of or changes
to significant accounting policies or their application, the reasons for the selection or the change;
process used by management in formulating particularly sensitive accounting judgments and
estimates and whether the possibility exists that future events affecting these estimates may differ
markedly from management’s current judgments;
• Basis used by management in determining that uncorrected misstatements, including disclosures
proposed by us, but not recorded by XYZ (Private) Limited, are immaterial, both individually and in
the aggregate, to the financial statements taken as whole. Management should also discuss whether
any of these uncorrected misstatements could potentially cause future financial statements to be
materially misstated.

Management is also responsible for:

• Making all financial records, any documentation of internal control over financial reporting,
and related information available to us during our engagement:
• Ensuring that XYZ (Private) Limited complies with all laws, regulations, contracts, and grants, and for
informing us of any known material violations of such laws, regulations, contracts and grants;
• Establishing and maintaining effective internal control over financial reporting, which includes adequate
accounting records and procedures to safeguard XYZ (Private) Limited’s assets, and
• For informing us of all known significant deficiencies in and changes in internal control over
Financial reporting.
• Informing us of its views on the risk of fraud within XYZ (Private) Limited and its awareness of any
known or suspected fraud and the related corrective action management proposes; adjusting the
financial statements, including disclosures, to correct material misstatements and for affirming to us
in a representation letter that the effects of any uncorrected misstatements aggregated by us during

13
the current engagement, including those pertaining to the latest period presented, are immaterial,
both individually and in the aggregate, to the financial statements taken as a whole;
• Informing us of any subsequent discovery of facts that may have existed at the date of our auditors’
report, which may have affected the financial statements or the related disclosures.

Accordingly, we will require management’s cooperation to complete the audit services. In addition, to
that International Auditing Standards require us to obtain written representations from management
concerning such matters, we will rely upon. XYZ & Co (Private) Limited shall indemnify and hold us
harmless from any liability, damages, fees, expenses and costs (including defence costs) arising from or
relating to misrepresentations by management.

Our responsibilities
We are responsible to determine that certain matters related to the conduct of the audit that come to
our attention are communicated to the board of directors, including :

• Fraud involving senior management and fraud, whether caused by senior management or other
employees, that causes a material misstatement of the financial statements;
• Illegal acts, unless they are clearly inconsequential. During the course of our audit, we will ask
management for specific representations about this. To fulfil our responsibilities, we may need to
consult with XYZ (Private) Limited’s counsel, or counsel of our choosing, about any such illegal acts
that we become aware of. Additional fees, including legal fees, if any, will be billed to XYZ (Private)
Limited. The board of directors agrees to ensure full XYZ (Private) Limited cooperation with any
procedures that we may deem necessary to perform.
• Disagreements with management, reportable events, and other serious difficulties encountered in
performing the audit .
• Various matters related to XYZ (Private) Limited’s accounting policies and financial statements, such
as the basis for our conclusions regarding the reasonableness of significant judgements and estimates
made by management, audit adjustments, uncorrected misstatements and accounting policies.

Use of our reports

The inclusion, publication, or reproduction by XYZ (Private) Limited of our report in documents
containing information in addition to the financial statements and our report thereon may require us
to perform additional procedures to fulfil our professional or legal responsibilities. Accordingly, our
report should not be used for any such purposes without our prior written permission. In addition to
that, to avoid unnecessary delay or misunderstandings, it is important that you give us timely notice of
XYZ (Private) Limited’s intention to issue any such document.

Fees
The fee and out of pocket expenses as mutually agreed shall be billed on completion of audit and shall
be settled within one week of the billing.

Right to terminate services for non-payment

We retain the right to suspend or terminate our service in the event of non-payment. Services will not
be resumed until XYZ (Private) Limited’s account is paid as agreed. If we elect to terminate our services
for non-payment, XYZ (Private) Limited will be obligated to compensate us for all time expended and to
reimburse us for all expenses through the date of termination.

Institute of Cost and Management Accountants of Pakistan 14

Other matters
Audit documentation
The documentation for this service is the property of ABC & Co., and constitutes confidential information.
We have the responsibility to retain the documentation for a period of time sufficient to satisfy any
applicable legal or regulatory requirements for records retention. It may be noted that audit working
papers, files and related documentation pertaining to the audit of XYZ (Private) Limited may be subject
to Quality Control Review by the Institute of Cost and Management Accountants of Pakistan. If this is
required, then we shall provide to them such records without any reference to you.

Dispute resolution
In the unlikely event that differences concerning our services or fees should arise that are not resolved
by mutual agreement, we both recognize that the matter will probably involve complex business or
accounting issues that would be decided most equitably to us both by a judge hearing the evidence
without a jury. Accordingly, XYZ (Private) Limited and ABC & Co. agree to waive any right to a trial by
jury in any action, proceeding or counterclaim arising out of or relating to services and fees for this
engagement.

Authorization
If any portion of this letter is held invalid, it is agreed that such invalidity shall not affect any of the
remaining portions.

Please confirm XYZ (Private) Limited’s acceptance of this letter by signing below and returning one copy
to us. In addition, please provide the signed copies of the letter to XYZ (Private) Limited’s Chief Financial
Officer in order that XYZ (Private) Limited’s Management may acknowledge the terms of this letter.
We appreciate the opportunity to continue to work with XYZ (Private) Limited and assure you that this
engagement will be given our closest attention.

ABC & Co

________________
Name: …………………….
Chief Executive Officer
Agreed and accepted:
XYZ (Private) Limited.
Name: ……………………. Date: ………………………

Chief Executive Officer

Management’s acknowledgement of the agreement

15
 (A-4)

ABC & Co
Cost and Management Accountants

XYZ (Private) Limited

Ph. No……………………
Address: ……………….

Subject: ACCEPTANCE OF ENGAGEMENT LETTER

Respected Sir,

You have requested that we audit the Financial Statements of June 30, 202X which comprise the
balance sheet as at June 30, 202X and the income statement, statement of changes in equity and
cash flow statement for the year then ended, and a summary of significant accounting policies and
other explanatory notes. We are pleased to confirm our acceptance and our understanding of this
engagement utilizing this letter. Our audit will be conducted with the objective of our expressing an
opinion on the financial statements.

We will conduct our audit under International Standards on Auditing.

Those Standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the Financial Statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the Financial Statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the Financial Statements, whether due to
fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the Financial Statements. Because of the test nature and other inherent limitations of
an audit, together with the inherent limitations of any accounting and internal control system, there is
an unavoidable risk that even some material misstatements may remain undiscovered.

In making our risk assessments, we consider internal control relevant to the entity’s preparation of the
financial statements to design audit procedures that are appropriate in the circumstances, but not to
express an opinion on the effectiveness of the entity’s internal control. However, we expect to provide
you with a separate letter concerning any material weaknesses in the design or implementation of
internal control over financial reporting that come to our attention during the audit of the financial
statements.

We remind you that the responsibility for the preparation of financial statements that present fairly
the financial position, financial performance, and cash flows of the company following International
Financial Reporting Standards is that of the management of the company. Our auditors’ report will
explain that management is responsible for the preparation and the fair presentation of the financial
statements under the applicable financial reporting framework and this responsibility includes:

Institute of Cost and Management Accountants of Pakistan 16

• Designing, implementing and maintaining internal control relevant to the preparation of Financial
Statements that are free from misstatement, whether due to fraud or error;
• Selecting and applying appropriate accounting policies; and
• Making accounting estimates that are appropriate in the circumstances.

As part of our audit process, we will request from management written confirmation concerning
representations made to us in connection with the audit.

We look forward to full cooperation from your staff and we trust that they will make available to us
whatever records, documentation, and other information are requested in connection with our audit.

Please sign and return the attached copy of this letter to indicate that it is per your understanding of
the arrangements for our audit of the Financial Statements.

Yours sincerely,
Acknowledged on behalf of XYZ (Private) Limited,

___________________
Chief Executive Officer

17
 (A-5)

ABC & Co.

Cost and Management Accountants
Address: ……………………………
Telephone: ……………………….

REPRESENTATION LETTER

Dear Sir,
AUDIT OF THE FINANCIAL STATEMENTS FOR YEAR ENDED JUNE 30. 202X

This representation letter is provided in connection with your audit of the financial statements of XYZ
(Pvt) Ltd for the year ended June 30, 202X for the purpose of expressing an opinion as to whether
the financial statements are presented fairly, in all material respects, (or give a true and fair view) in
accordance with International Financial Reporting Standards as applicable in Pakistan.

We confirm that (to the best of our knowledge and belief, having made such inquiries as we considered
necessary for the purpose of appropriately informing ourselves):

GENERAL
1. All accounting and financial records of XYZ (Pvt) Ltd have been made available to vou.
2. All transactions undertaken by the XYZ (PVT) Ltd:
i) Have been included in the financial statements;
ii) Were in the normal course of business;
iii) Were at arm’s length.

3. There are no transactions or arrangements involving Directors or Officers except disclosed in Notes
of the financial statements.

All details of related party transactions and related amounts receivable or payable (including sales,
purchases, loans and guarantees) have been correctly recorded in the accounting records and have been
properly disclosed in the XYZ (Pvt) Ltd’s Financial Statements or notes thereto, either where required
by statute, Accounting Standards, or where such disclosure is necessary for the fair presentation of the
XYZ (Pvt) Ltd’s Financial Statements.

4. Nothing has come to our notice that causes us to doubt the reliability of the XYZ (Pvt) Ltd’s Financial
Records,

5. The major accounting policies adopted by the XYZ (Pvt) Ltd are set out in Notes of the Financial
Statements.

6. There were no claims; legal proceeding or other outstanding matters except noted in Financial
Statements.

Institute of Cost and Management Accountants of Pakistan 18

7. No irregularities have come to our attention during the period under the examination and till the
date of approval of the Financial Statements.

8. No significant event having an effect on the financial position of the XYZ (Pvt) Ltd has taken place
since the balance sheet date.

There are no such plans or intentions that may subsequently change the value of any asset or liability
of the XYZ (Pvt) Ltd.

The Financial Statements show a true and fair view of the Profit and Loss Account, and the state of
affairs at the Balance Sheet date.

Our XYZ (Pvt) Ltd is a going concern. Management of the entity has neither intention nor necessity of
liquidating or curtailing the scale of its operations in the foreseeable future.

ASSETS
1) General
The assets shown in the XYZ (Pvt) Ltd.’s books of accounts at June 30, 202X belong to the XYZ (Pvt) Ltd
and were free from any charge.

2) Current Assets
I. Cash and Bank Balances
All cash in hand existed on June 30, 202X was Rs. xxxxx.
The financial statements as at June 30, 202X include bank account comprising Pak Rupee account
amounting to Rs. xxxxxxx.

II. Other Current Assets

On realization in the ordinary course of the XYZ (Pvt) Ltd.’s business, the other current assets in the
balance sheet are expected in the opinion of the directors, to produce at least the amount at which
they are stated.

LIABILITIES
1. General
All material liabilities at the balance sheet date have been taken up in the books of accounts, including
the liability for income received in advance.

PROFIT AND LOSS STATEMENT

The results for the period were not materially affected by:
a. Transactions of a sort not usually undertaken by the XYZ (Pvt) Ltd.
b. Circumstances of an exceptional or non-recurring nature.
c. Charges or credits relating to prior period.
d. Any change in basis of accounting.

DIRECTORS
i) The name of each person who held the position of Director of the XYZ (Pvt) Ltd in the financial
period is as follows: -

19
Name of Directors
• ……………………….
• ………………………

ii) There were no transactions with the directors or parties in which directors are interested except
disclosed in Notes of the financial statements.

CONTIGENCIES AND COMMITMENTS

No Contingency or commitment exists for the XYZ (Pvt) Ltd.

OTHERS
We are not aware of: -

i) Any irregularities involving management or employees who have significant role in this system of
internal accounting control or any irregularities involving other employees which could have a material
effect on the financial statements, or

ii) Any violations or possible violations of laws or regulations whose effect should be considered for
disclosure in the financial statements or as a basis for recording a contingency. There have been no
communications from regulatory agencies concerning non-compliance with or deficiencies in financial
reporting practices that could have a material effect on the financial statements. The XYZ (Pvt) Ltd has
complied with all aspects of contractual agreements that would have a material effect on the financial
statements in the event of non-compliance.

7. The financial statements and appended notes include all disclosures necessary for a fair presentation
of the financial position and results of operations of the XYZ (Pvt) Ltd in accordance with the prescribed
accounting practices and disclosures otherwise required to be included therein by the law and
regulations to which the XYZ (Pvt) Ltd is subjected.

8. No shortages or irregularities were reported to us during the year (whether already settled, or still
under investigation or otherwise unsettled), which have not been disclosed to you. We understand that
testing and sampling procedures are used in your examination, and that these would not necessarily
disclose all shortages and irregularities.

9. Details have been furnished to you about all material contracts that may affect the Financial
Statements for the year ended June 30. 202X or that have become effective since that date.

Chief Executive Director

Institute of Cost and Management Accountants of Pakistan 20

 (A-6)

AUDIT PLANNING

Planning includes identifying audit risk while obtaining the understanding of the business, assessing the
identified risk and responding to audit risks by designing the adequate audit procedures and applying
them to obtain sufficient appropriate audit evidence to bring down the audit risk to an acceptable level.
Planning also includes consideration of materiality and application of analytical procedures. Planning is
a continuous process throughout the engagement.

Planning consists of:

• Developing an overall audit strategy
• Overall Audit Plan to lead to the preparation of detailed audit programme

To develop the above documents, the auditor needs to perform certain initial activities;
• Initial meeting with the client
• Risk assessment procedures
• The Planning Process

I. Developing an overall audit strategy

Audit strategy sets the scope, timing and direction of the audit, and guides the development of the
audit plan.

The statutory scope laid down in the Companies Ordinance, 1984, and Companies Rules, 1985 and the
International Standards on Auditing (ISAs) as applicable in Pakistan.

Ascertain reporting objectives (General purpose or special purpose audit)

The reporting is the statutory requirement under laws applicable in Pakistan. Decide on Timing of the
Audit (Schedule and priority over other assignments). It was agreed with the client that the audit to be
started on Dated……………Decide on Nature and timing of communications required (correspondence
& reports). The audit was started after mutual discussion with the client. Consider significant factors
in directing the engagement team. All significant matters were duly discussed with the engagement
team. Use knowledge acquired from preliminary audit engagement activities. The knowledge was duly
used during the planning.

Staff Planning
Decide nature, timing and extent of human (including experienced members for high risk area and
material locations such as for observation of inventory counts) and other resources needed (such as
computers, travelling etc.).

21
The experienced members are allocated towards working on high risky areas and cash count is duly
observed.

Audit Team:
Engagement team ___________________
Engagement Partner ___________________
Engagement Manager ___________________
Job-in-Charge ___________________
Team members ___________________

CRITICAL AUDIT AREAS / SIGNIFICANT FINANCIAL STATEMENT COMPONENT
Critical audit areas are generally those where judgment is involved and significant estimation is used.
For example, making accounting estimates, fair value, selection and application of accounting policies
etc. The approach to those areas and resulting impact on the financial statements relating to the audit
documented. It also includes consideration of previous years brought forward issues.

Critical Audit Areas/ Objective Management Response Proposed Audit Approach

Significant estimates made
New borrowings with extra-
ordinary terms and conditions
Acquisition of a significant asset
Discontinuation of major suppliers
Discontinuation of a major
customer

Loss of a significant market share

Related party transactions Loan from Directors Verification

Impairment of assets N/A N/A

Institute of Cost and Management Accountants of Pakistan 22

 (A-7)

Internal Audit Function Evaluation

Introduction:
Internal audit function is an appraisal activity established or provided as a service to the entity. Its
functions include, amongst other things, examining, evaluating and monitoring the adequacy and
effectiveness of internal control.

This working paper is relevant when the external auditor has determined, in accordance with ISA
315, that the internal audit function is likely to be relevant to the audit. The internal audit function is
considered relevant when the nature of the internal audit function’s responsibilities and activities are
related to the entity’s financial reporting, and the auditor expects to use the work of the internal auditors
to modify the nature or timing, or reduce the extent, of audit procedures to be performed. However,
the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is
not reduced by the external auditor’s use of the work of the internal auditors.

The objectives of the external auditor, where the entity has an internal audit function that the external
auditor has determined is likely to be relevant to the audit, are:

1. To determine whether, and to what extent, to use specific work of the internal auditors; and
2. If using the specific work of the internal auditors, to determine whether that work is adequate for
the purposes of the audit.

Examples of internal auditor activities we may review to determine the nature, timing, and extent of
procedures are:
Inventory counts at various locations
Fixed asset physicals
Documentation for a new computerized sales and receivables system
We consider how the internal audit function affects the entity’s accounting and internal control systems
and develop an effective audit approach in the following manner.

Approach Documentation
Understand internal audit’s Strategy and Planning Document. We obtain a document for understanding of the
activities internal audit function, to the extent that it operates as part of management’s control
system
Determine whether, and Section 1 of this working paper
to what extent, to use We document what work performed by the internal auditor is relevant and can be used
specific work of the internal for the purposes of our Audit
auditors
Evaluate and test work of Section II of this working paper. When we intend to use specific work of internal audit we
internal auditor document our evaluation and testing of the effectiveness of internal auditor’s work.

Section I—Preliminary assessment of the internal audit function:

When it appears that internal audit is relevant to the external audit of the financial statements in
specific audit areas, we make a preliminary assessment of internal audit by obtaining information
about matters such as:

23
• The objectivity of internal audit function i.e. status and reporting of internal audit function in the entity.
• The due professional care of internal audit, especially whether the work is adequately planned, supervised
and reviewed.
• the technical competence of the internal audit function.
• whether management acts on internal audit’s reports and recommendations and how this is evidenced.

Comments/Preliminary Assessment:
• The internal audit department is independent and it reports to the Board.
• The internal audit work is adequately planned, supervised and reviewed by the audit committee.
• The internal audit department staff is qualified and competent.
• The management acts on internal audit’s reports and recommendations & proper internal controls
have been implemented.
• Minutes of the internal audit committee obtained and seen.

Section II—Evaluate and test the work of internal audit:

When we intend to use specific work of internal audit, we evaluate and test that work to confirm its
adequacy for our purposes.

Evaluate that:
• The work is performed by persons with adequate technical training and proficiency.
• The work of assistants is properly planned, supervised, reviewed and documented.
• Sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached.
• Conclusions are appropriate in the circumstances and reports are consistent with the results of the
work performed.
• Any exceptions or unusual matters disclosed by internal audit are properly resolved by management.

(a) To help understand the internal auditor’s work, including scope, it may be appropriate to coordinate
work with the internal auditors by:
• Holding periodic meetings
• Scheduling our work to coordinate with that of the internal auditors to allow us to monitor the quality of
their work and discuss any issues as they arise.
• Reviewing internal audits reports and the recommendations made from work performed.

Evaluation:
• Yes, the work is performed by persons with adequate technical training and proficiency.
• Yes, the work of assistants is properly planned, supervised, reviewed and documented.
• Yes, the sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions
reached.

Conclusions were found appropriate.

• The unusual matters disclosed by internal audit are properly resolved by management, if any.
• We held meetings with the internal audit personnel as and when required.
• We have duly monitored the work of internal auditor to assess the quality of their work.
• Conclusions are appropriate in the circumstances and reports are consistent with the results of the
work performed.

Institute of Cost and Management Accountants of Pakistan 24

Appropriate recommendations were made by the internal audit function.
(b) Test
We may perform any of the procedures below relating to testing of internal audit that may be considered
given specific client circumstances. Our tests of the internal audit function’s work may include the
following procedures.

• Observe the internal audit function perform audit procedures.

• Re-perform some of the audit procedures previously performed by the internal audit function.
For example, we may test the same controls, transactions or balances as the internal audit function
has tested.
• Perform different audit procedures for example, we may test controls, transactions or
balances other than those the internal audit function tested.
• Examine internal audit’s working papers.
List any other procedures relating to internal audit issues that may be considered given specific
circumstances. Our procedures, and the documentation of those procedures, are to be sufficient to
support our decision to rely on internal auditor’s work.

Sr. # Procedure(s) Done by and Date W/P Ref.

None

Conclusion:
• We have duly observed the internal audit function perform audit procedures.
• We re-performed some of the audit procedures previously performed by the internal audit function
on test basis.
• We performed different audit procedures like test of controls, transactions or balances other than
those the internal audit function tested and discussed with audit committee. We examined the
internal audit’s department’s working papers and found them satisfactory.

25
 (A-8)

CLIENT OVERVIEW
CLIENT HISTORY AND BACKGROUND

Provide a description of relevant client background and its history.

XYZ(Private) Limited was incorporated in Pakistan on Dated: ___________ as a Private limited

company under the Companies Ordinance, 1984 (Repealed with the enactment of the Companies
Act, 2017). The principal activities of the company are providing Products /Services that includes
______________________. The registered office of the company is________________

Client profile

Nature of client business

Number of Branches/offices (if any)
No of Directors
Major shareholders
Chief Executive Officer (Address and telephone number)
Chief Accountant (Address and telephone number)
Head of internal audit (Address and telephone number)
Company Secretary (Address and telephone number)
Legal Advisors (Address and telephone number)
List of related parties and their relationship
Tax Advisor
Major Banks
Organizational Charts, etc.

INTERNAL CONTROL
The process designed, implemented and maintained by those charged with governance, management
and other personnel to provide reasonable assurance about the achievement of an entity’s objectives
with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance
with applicable laws and regulations. The term “controls” refers to any aspects of one or more of the
components of internal control.

CONTROL ENVIRONMENT
• Communication and enforcement of integrity and ethical values.

Consider
1. What are entity’s ethical and behavioural standards?
2. How they are communicated?
3. How they are reinforced in practice?

Institute of Cost and Management Accountants of Pakistan 26

Providing its employees safe & healthy working environment
To conduct business with honesty and integrity
Compliance with all applicable laws and regulations
These standards are communicated to all the employees of the company and statements of ethics
has duly been signed by all the directors and employees of the company.
Ethical and behavioural standards have been implemented strictly by the company.

• Commitment to competence

Consider
1. Management’s consideration of the competence levels for particular jobs.
2. How those levels translate into requisite skills and knowledge?

The management of company is professional in its approach. Committed people are hired for
particular job and their qualification and experience is also considered while hiring them.

• Participation by those charged with governance

Consider
1. Independence from management
2. Their experience and stature
3. The extent of their Competency level and the information they receive, involvement and scrutiny of
their activities
4. The appropriateness of their actions
5. The degree to which difficult questions are raised and pursued with management
6. Their interaction with internal and external auditors

Employees are generally independent of management.

Staff personnel are experienced in their field.
Employees freely discuss their activities with each other and mutually accepted actions are taken.
The management encourages discussion among employees.
The internal and external auditors have access to all employees of the company.

• HUMAN RESOURCE POLICIES AND PRACTICES

Consider
1. Standards for recruiting the individuals, their relevant qualification and experience.
2. Training policies that communicate prospective roles and responsibilities
3. Promotions driven by periodic performance appraisals

Example:
Qualified personnel are recruited as per the needs of the job.
On job training is provided to employees, wherever necessary.
Normally, annual performance appraisals are carried out on annual basis. Yet no employee has
completed a year.

27
 (A-9)

POINTS FORWARD FROM PREVIOUS YEAR

Client: Prepared by: Date:

Sr.No. Schedule Reference Description of issue Action required

Accounting Period: Reviewed by: Date:

Institute of Cost and Management Accountants of Pakistan 28

 (A-10)

AUDIT MATERIALITY
Information is material if it is likely to influence financial statements user’s decisions. The major reason
for thinking about materiality is to try to fine tune the audit for effectiveness and efficiency.

The auditor’s materiality decision is a multi-factor decision involving both quantitative and qualitative
aspects.

Computing Materiality
A number of quantitative approaches may be used by the auditor depending on his professional
judgment; however, two common methods employed are discussed here:

Single Rule Approach

This approach is based on “rule of thumb” and use a single financial variable for computing materiality.
Typically, as a matter of policy, an audit firm would provide three or four such rules and allow the
auditor in an individual audit to choose the most appropriate rule. Depending on his/her assessment of
qualitative factors, an auditor would select the single rule that was judged to be the most appropriate
way to compute materiality for a specific client. Examples of possible common single rules are:

• 5% of pre-tax income
• 1/2 % of total assets
• 1% of equity
• ½% of total revenues

Where an entity’s results are expected to be “normal”, materiality is based on pre-tax income amounts.
However, where the entity incurs losses, has potential going concern problems or the results are in
other ways unusual, materiality may be based on one or more of the other factors referred to above.
For example, if the entity is incurring losses, both before and after tax, the auditor may use total assets
or total revenue, whichever is the greater. The final assessment of reporting materiality is subjective
and depends on the auditor’s perception of, for example, what information is relevant, who the users
of the financial statements are, what decisions the users may make and what would influence those
decisions.

Blend or Average Method

This method typically takes four or five individual rules of thumb and then either weight each rule
according to some proportion or average them (an equal weighing). Presumably, the blending or
averaging process provides an indirect way of considering qualitative factors.

An example of the averaging method would be to take the previously listed four single rules and average
them (give each of them a 25% weight).

29
Hypothetical Case Illustration

In order to illustrate the previous materiality methods, let us assume the following summary financial
statements for ABC Company:
Rs Rs Rs

Balance sheet
Assets Rs 30,000,000
Liabilities 20,000,000
Equity 10,000,000 Rs 30,000,000
Income Statement
Total Revenue Rs 90,000,000
Cost of Merchandise Rs 50,000,000
Rs 40,000,000
Selling & other Expenses Rs 32,000,000
Net Income before Tax Rs 8,000,000
Income Tax Rs 3,000,000
Net income After Tax Rs 5,000,000

This single method involves the auditors selecting one of the four following materiality amounts:

Single Rule: Computation: Materiality Amounts:

5% of pre-Tax income 5% of 8,000,000 400,000
½% of total assets ½% of 30,000,000 150,000
1% of equity 1% of 10,000,000 100,000
½% of revenue ½% of 90,000,000 450,000

The average or Blending method using the single rule previously given would involve the following
computations:

Average Method:
(5% of pre-Tax income+ ½% of total assets+ 1% of equity + ½% of revenue) /4

Computation:
(400,000 +150,000 + 100,000 +450,000) / 4 = Rs. 275,000

Determining Performance Materiality:

Performance materiality is generally based on planning materiality. The extent to which performance
materiality is based on overall materiality is a matter of professional judgement. As discussed earlier,
the auditor would use an amount/rate lower than that arrived at for the overall financial statement
level for account balances.

Furthermore, the rate of performance materiality may also differ in each of the above case depending
upon their significance on financial statements as a whole. Instead of a blanket rate or range of different
rate may be arrived at keeping in view the qualitative aspect of each area.
Conclusion: You can consider any of the above methods because this bench mark should be consistent
with your understanding of the client’s business and your risk assessment criteria.

Institute of Cost and Management Accountants of Pakistan 30

 (A-11)

ANALYTICAL PROCEDURES PERFORMED AS RISK ASSESSMENT PROCEDURES:

Analytical procedures performed as risk assessment procedures may identify aspects of the entity
of which the auditor was unaware and may assist in assessing the risks of material misstatement in
order to provide a basis for designing and implementing responses to the assessed risks. Analytical
procedures performed as risk assessment procedures may include both financial and non-financial
information, for example, the relationship between sales and square footage of selling space or volume
of goods sold.

Analytical procedures may help identify the existence of unusual transactions or events, and amounts,
ratios, and trends that might indicate matters that have audit implications.Unusual or unexpected
relationships that are identified may assist the auditor in identifying risks of material misstatement,
especially risks of material misstatement due to fraud.

Following are the Ratio which we need to consider during the risk assessment:

PROFITABILITY RATIOS

1 Return on assets(ROA) = Net profit/(loss) after tax

Average total assets

2 Return on Capital Employed = Net profit/(loss) after tax

Average total capital employed

3 Earning per share(EPS) = Net profit/(loss) available to equity holder

Number of ordinary shares outstanding

4 Operating Expenses Ratio = Operating expenses

Net Sales

5 Average debt collection period = Months(days) in a year

Debtor turnover

6 Assets turnover = Cost of goods sold

Average total assets

7 Working capital turnover = Cost of goods sold

Net working capital

8 Current Ratio = Current assets

Current liabilities

9 Acid-Test quick ratio = Quick assets

Current liabilities

10 Debt-Equity ratio = Total debt

Shareholders’ equity

31
ANALYTICAL PROCEDURES THAT ASSIST IN ARRIVING AT THE AUDITOR’S OVERALL CONCLUSION IN
AN AUDIT OF FINANCIAL STATEMENTS:
• The conclusions drawn from the results of analytical procedures during the overall review stage of
the audit are intended to corroborate conclusions formed during the audit of individual components
or elements of the financial statements, and assist in arriving at the auditor’s overall conclusion on
whether the financial statements as a whole are free from material misstatements.
• The results of such analytical procedures may identify a previously unrecognized risk of material
misstatement. In such circumstances, ISA 315 (Redrafted) requires the auditor to revise the auditor’s
assessment of the risks of material misstatement and modify the further planned audit procedures
accordingly.
• The analytical procedures performed as part of the auditor’s overall review of the financial statements
are often similar to those that would be used as risk assessment procedures.

INVESTIGATING RESULTS OF ANALYTICAL PROCEDURES:

• Audit evidence relevant to management’s responses may be obtained by considering how those
responses compare with the auditor’s understanding of the entity and its environment, or with
other audit evidence obtained during the course of the audit.
• The need to apply other audit procedures may arise when, for example, management is unable to
provide an explanation, or the explanation is not considered adequate.

Institute of Cost and Management Accountants of Pakistan 32

 (A-12)

GOING CONCERN:
Management’s evaluation of an entity’s ability to continue as a going concern typically is based on
conditions and events that are relevant to an entity’s ability to meet its obligations as they become due
during the assessment period. This evaluation is required each reporting period.

FACTORS DETERMINING THE GOING CONCERN:

ISA 570 outlines three factors that are relevant and which management must take into consideration
when determining whether, or not, an entity can prepare the Financial Statements on the going concern
basis:
• The degree of uncertainty associated with the outcome of an event or condition increases significantly
the further into the future an event or condition or the outcome occurs. For that reason, most
financial reporting frameworks that require an explicit management assessment specify the period
for which management is required to take into account all available information.
• The size and complexity of the entity, the nature and condition of its business and the degree to which
it is affected by external factors affect the judgment regarding the outcome of events or conditions.
• Any judgment about the future is based on information available at the time at which the judgment
is made. Subsequent events may result in outcomes that are inconsistent with judgments that were
reasonable at the time they were made.

Auditors Responsibilities:
The auditor’s responsibility under ISA 570 is to obtain sufficient appropriate audit evidence about the
appropriateness of management’s use of the going concern basis of accounting in the preparation of
the financial statements, and to conclude whether there is a material uncertainty about the entity’s
ability to continue as a going concern.

33
 (A-13)

RELATED PARTY TRANSACTION CHECKLIST:

Sr. No Particulars Yes/No Remarks
1 Have any NPO/Trust being established for the benefits
of employees, officers, trustees of the organization?
2 Are there any major stockholder absorbing large
portion of cooperate expenses?
3 Has the nature of business transacted customers,
supplier, borrower or lender being reviewed for any
undisclosed relationship?
4 Is the disclosure of stockholder listings of closely held
entities being made?
5 Have the principal stockholder being identified?
6 Are there any unusual or large amount transaction
entered into at the time of closure of this reporting
period?
7 Is compliance with IAS 24 and IFRS 8 being ensured?
8 Have all contractual arrangements with related parties
being formalized?
9 Have all prior approval for the related party transaction
10 Has documentation being done in alignment with
Domestic & International transfer pricing guidelines?
11 Does the Entity maintain the register with particulars
of all the contractual or arrangements?
12 Is such register being placed in board and signed by
the Directors present at the Board meeting?
13 Does the Director Report disclose each related party
transaction irrespective of its arm length nature, along
with the justification for entering into same?

Institute of Cost and Management Accountants of Pakistan 34

 (A-14)

MEANS OF SELECTING ITEMS FOR TESTING

Introduction
Auditor is responsible to design and perform audit procedures to obtain sufficient appropriate audit
evidence to be able to draw reasonable conclusions. The auditor forms and expresses his opinion on
the basis of these conclusions.

The nature, timing, and extent of audit procedures are responsive to the auditor’s risk assessments as
per ISAs 315 and 330.

“When designing tests of control and tests of details, the auditor shall determine means of selecting
items for testing that are effective in meeting the purpose of the audit procedure”.

The means available to the auditor for selecting items for testing are (Para A52 of ISA-500):

a) Selecting all items (100 % examination)

b) Selecting specific items; and
c) Audit Sampling

Selecting all items (100 % examination):

• 100 % examination, i.e., selecting all items in a population;
• Analytical procedures, inquiry, general observation, and review;
• General procedures such as reading minutes and contracts;
• Tests in total (also called proofs in total or logic tests) i.e., calculations of reasonableness based on
independently verified data;

Selecting specific items:

• High value or key items. For example, items that are suspicious, unusual, particularly risk- prone or
that have a history of error.
• All item over certain amount.
• Items to obtain information. Such as the nature of the entity or the nature of transactions.

Audit Sampling:
Audit sampling is the application of audit procedures to less than 100% of items such that all sampling
units have a chance of selection to provide a reasonable basis on which to draw conclusions about the
entire population.

Sampling Approaches
“Audit sampling can be applied using either non-statistical or statistical sampling approaches”. (Para A4
of ISA-530)

35
Statistical
This approach has the following characteristics:
i) Random selection of the sample items; and
ii) The use of probability theory to evaluate sample results, including measurement of sampling risk.

Non-Statistical
A sampling approach which does not possess the above characteristics is called non-statistical sampling.

Planning the sample

Consider the following while planning the sample account balances and transactions:
o Materiality and the number of items in the population;
o Inherent risk (of errors arising);
o Relevance and reliability of evidence available through non-sampling procedures; and
o Costs and time involved.

Steps in planning the sample:

1. Determining the objectives of the test;
2. Defining what errors or deviation are being sought;
3. Identifying the population and sampling units; and
4. Deciding the size of the sample.

Determining the objectives of the test:

Auditors need to consider the specific objectives to be achieved and the combination of audit
procedures that is most likely to achieve those objectives. Audit sampling is applicable to both tests of
control and substantive procedures.

Defining what errors or deviation are being sought

The auditors must consider what constitutes an error by referring to the objectives of the test. In test
of control, the test objective is the identification of ‘deviations’ from the laid down control procedures.
In substantive testing, the test objective is the identification of ‘errors or misstatements’ in recorded
transactions or balances. The type of error or deviation expected will be related to the objective of the test.

Identifying the population and sampling units:

Auditors must carefully identify the population and the sampling unit in line with the objective of the
audit test.

Population should be appropriate. When testing for overstatement of creditors, for example, auditors
could define the population as the creditors’ listing. However, when testing for understatement of
creditors, it is inappropriate to use the creditors listing; the appropriate population is subsequent
payments, unpaid invoices, suppliers’ statements and unmatched goods received notes.

Deciding the size of the sample

“The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low
level”. (Para 7 of ISA-530)

Institute of Cost and Management Accountants of Pakistan 36

“The sample size can be determined by the application of statistically-based formula or through the
exercise of professional judgement”. (Para A11 of ISA-530)

Generally, larger the size of the sample, the more it will be representative of a population. Many audit
firms would like to standardize the size of sample based on general and specific risk factors.

The tolerable error or performance materiality is also called ‘precision’. It is the maximum error (or
deviation rate) that can be accepted to conclude that the audit objective has been achieved.

Selecting and testing the sample (Methods)

“The auditor shall select items for the sample in such a way that each sampling unit in the population
has a chance of selection”.

Following are the commonly used methods of obtaining representative samples for audit sampling:

Statistical
o Random Selection;
o Systematic (interval) Selection
o Monetary Unit Sampling (also known as value weighted sampling and is used in conjunction with
systematic selection);

Random number selection:

Every item in a population has the same statistical probability of being selected as every other item.
Random numbers are selected using a computer program or random number tables.

In using random number tables, the auditors must pick a starting point-either by making a ‘blind stab’
or arbitrarily choosing a point to start-and then determine the direction or route (top to bottom, left to
right, etc.) to be used in reading them. The route selected must be followed consistently.

Systematic selection:
This requires the calculation of a uniform sampling interval which is obtained by dividing the
population by the sample size. For example, if 50 sales invoices are to be selected from a population
of 600 invoices every 12th invoice will be selected from a randomly selected starting point (within
the sampling interval).

The following basic steps are used in systematic selection.

i). Select a random starting point from within the population (serial no. or amount).
ii). Determine the necessary sampling interval. The sampling interval identifies the frequency with
which items are selected within the population. It is determined by dividing the number of items
in the population by the necessary sample size.
iii). Add the sampling interval to the random starting point. The item in the population corresponding
to this number is the next item selected.
iv). Add the sampling interval to the total from step 3. The item in the population corresponding to this
number will be the next item selected.
v). Repeat Step 4 until the number of items equal to the necessary sample sizes selected.

37
Monetary Unit Sampling (Value weighted selection)
“In considering the characteristics of the population, the auditor may determine that stratification or
value weighted selection is appropriate”. Para A8 of ISA-530

This systematic selection method uses currency unit values, rather than the items, as the sampling
population. Each individual rupee is given an equal chance of selection. Since these cannot be examined,
the item in which a rupees selected lies (called ‘logical unit’) is tested. In this method, high-value items
have a greater chance of being selected.

Non-Statistical
1. Haphazard Selection;
2. Block Selection

1. Haphazard selection —Haphazard selection is the selection of a sample without following a

structured technique. The auditors must take care to avoid any bias (such as avoiding the first or last
entry on each page of the ledger) particularly conscious bias (such as avoiding difficult-to-locate items).

2. Block selection — consists of the selection ‘end bloc’ of adjacent transactions or items. Block selection is
a technique where the auditor applies procedures to such items that all occur in the same block of time or
sequence. An example of block selection may be testing amounts received from customers in the month of
September. Alternatively, a block of remittance advices received in September may be tested in their entirety.

Example:
Systematic Method of Sample Selection in conjunction with Monetary Unit Sampling
(Value Weighted Selection)

SUBSTANTIVE TESTS OF DETAILS

Client: Period-end
Prepared by: Date:
Objective: Verification of Debtors.
Population: Debtors s 3,000,000/= Sampling Unit:
Account balances Nos. 1500
Tolerable error: Rs. 100,000

Sample Size: 174

Sampling Interval = Population

Sample Size
3,000,000 / 174

= Rs. 17,241.38

The auditor will examine every 17,241st Rupees of debtors.

As a result of tolerable error assessed at Rs. 100,000 the auditor will examine every customer account that
would be material to the financial statements taken as a whole. The explicit advantage of this sampling
method is that it results in larger rupee components of an account balance or class of transactions having
a higher likelihood of selection. In contrast, if the auditor randomly selected 174 customer accounts out of
1,500 for examination, no guarantee exists that the larger rupee accounts would be selected.

Institute of Cost and Management Accountants of Pakistan 38

 (A-15)

ABC & Co
Cost and Management Accountants

INDEPENDENT AUDIT REPORT

TO THE MEMBERS OF
XYZ (PVT) LIMITED

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion
We have audited the annexed financial statements of XYZ (Pvt) Ltd (the Company), which comprise
the statement of financial position as at June 30, 202X and the related statement of comprehensive
income, the statement of changes in equity and the statement of cash flows for the year then ended
and notes to the financial statements, including a summary of significant accounting policies and other
explanatory information, and we state that we have obtained all the information and explanation
which, to the best of our knowledge and belief, were necessary for the purpose of the audit.

In our opinion and to the best of our information and according to the explanations given to us, the
statement of financial position as at June 30, 202X and the related statement of comprehensive
income, the statement of changes in equity and the statement of cash flows with the notes forming
part thereof confirm with the accounting and financial reporting standards as applicable in Pakistan
and give the information required by the Companies Act, 2017 (X IX of 2017), in the manner so required
and respectively give a true and fair view of the state of the Company’s affairs as at June 30, 202X and
of the loss, the changes in equity and its cash for the year then ended.

Basis for Opinion

We conducted our audit in accordance with International Standard; on Auditing (ISAs) as applicable
in Pakistan. Our responsibilities under those standards are further described in the Auditors’
Responsibilities for the Audit of the Financial Statements section of our report. We are independent
of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of
Ethics for Professional Accountants as adopted by the Institute of Cost and Management Accountants
of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the
Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.

Material uncertainty relating to going concern

Without qualifying our opinion, we draw your attention to Notes in the financial statements which
indicates that the Company suffered net profit or loss of Rs xxxxx during the year ended June 30, 202X
and as of that date the company’s current Liabilities exceeded its total assets by the amount of Rs xxxx.
As stated in the Notes, these events or conditions with other matters as set forth in notes indicates
that a material uncertainty exists that may cast significant doubt on the Company ability to continue
as a going concern.

39
Information Other than the Financial Statements and Auditors’ Report Thereon.
Management is responsible for the other information. The other information comprises the Directors’
report under section 226 of the Companies Act, 2017 but does not include the financial statements and
our auditors’ report thereon.

Our opinion on the financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information; we are required to report that fact. We have nothing
to report in this regard.

Responsibilities of Management and Board of Directors for the Financial Statement

Management is responsible for the preparation and fair presentation of the financial statements in
accordance with the accounting and financial reporting standards as applicable in Pakistan and the
requirements of the Companies Act, 2017 (XIX of 2017) and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error .In preparing the financial statements, management is
responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do
so. Board of directors is responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion, Reasonable Assurance is a high level of Assurance, but is not a guarantee
that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements. As part of an audit in accordance
with ISAs as applicable in Pakistan, exercise professional judgment and maintain professional scepticism
throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit.
• Evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is.
• Higher than for one resulting from error, as fraud may involve collision, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.

Institute of Cost and Management Accountants of Pakistan 40

• Conclude on the appropriateness of managements use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or if such disclosure is inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor report. However, future events or conditions may cause the Company to cease to continue
as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
• We communicate with the Board of Directors regarding among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Based on our audit, we further report that in our opinion
a. Proper books of account have been kept by the company as required by the Companies Act,2017(XIX
of 2017);
b. The statement of financial position, the statement of profit or loss and other comprehensive income,
the statement of change in equity and statement of Cash flow together with the notes thereon have
been drawn up in conformity with the Companies Act, 2017 (XIX of 2017) and are in agreement with
the books of account and return;
c. Investment made, expenditure incurred and guarantees extended during the year were for the
purpose of the Company business.
d. No Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

Other matters
Previous years financial statements were audited by ABC &Co, Cost and Management Accountants,
who expressed their opinion, their report dated ………………….

The engagement partner on the audit resulting in this independent auditor report is Name
………………………….

……………………………
Signature
ABC & Co
Cost and Management Accountants
Dated:………………………………….

41
 (A-16)

Paste Draft Management Accounts here please

Institute of Cost and Management Accountants of Pakistan 42

 (A-17)

XYZ (PRIVATE) LIMITED

TRIAL BALANCE
As on June 30, 202X (Not Specific, based on customer data)

Sr Particulars Amount
No.
Dr Cr
1 Capital Xxxxxxx
2 Property, plant& equipment Xxxxxx
3 Cash in hand Xxxxxx
4 Trade Receivables Xxxxx
5 Rent & Rates Xxxxx
6 Insurance charges Xxxxx
7 Repair & maintenance Xxxxx
8 Sales Xxxxxxxx
9 Salaries & Benefits Xxxxx
10 Entertainment Expense Xxxxx
11 Depreciation Expense Xxxxx
12 Travelling &Conveyance Xxxxx
13 Printing & Stationery Xxxx
14 Trade payables Xxxxx
15 Due to related parties Xxxxx
16 Advances, Deposits & prepayments Xxxxx
17 Income tax expense Xxxx
18 Bank balance Xxxxx
19 Creditors, accrued or other liabilities Xxxxx
20 Other receivables Xxxxx
21 Provision for Tax Xxxxx
22 Office Expense Xxxxx
23 Unappropriated profits Xxxxx
24 Consultancy Fee Xxxxx
Total xxxxxxxx Xxxxxxxx

43
 (A-18)

XYZ (Private) Limited

General Ledger
As on June 30, 202X
Capital Account

Particulars Dr Particulars Cr
Opening balance Xxxxx

Balance c/f Xxxxx

Xxxxx Xxxxx
Plant & Equipment Account
Particulars Dr Particulars Cr
Opening Balance Xxxxxx Depreciation expense Xxxxx
Balance c/f Xxxxxx
Xxxxxx Xxxxxx
Cash Account
Particulars Dr Particulars Cr
Opening Balance Xxxxxx
Cash Received Xxxxxx Cash paid Xxxx

Balance c/f Xxxxxx

Xxxxxx Xxxxxx
Trade Receivables Account
Particulars Dr Particulars Cr
Opening Balance Xxxxxx
Cash receivable Xxxxx Cash received Xxxx

Balance c/f Xxxxxx

Xxxxxx Xxxxxx
Rent Expense Account
Particulars Dr Particulars Cr

Rent paid Xxxxxx

Balance p/l Xxxxxx

Xxxxxx Xxxxxx

Institute of Cost and Management Accountants of Pakistan 44

 Insurance Charges Account
Particulars Dr Particulars Cr

Insurance charges Xxxxx Balance p/l Xxxxx

expense

Xxxxx Xxxxxx
Repair & maintenance Account
Particulars Dr Particulars Cr

Repair and maintanance Xxxxx Balance p/l Xxxx

expense

Xxxxx Xxxxx
Sales Account
Particulars Dr Particulars Cr

Current year sales xxxxxx

Balance p/l Xxxxxxx

Xxxxxxx xxxxxxx
Salaries Account
Particulars Dr Particulars Cr

Salary expense Xxxxx

Balance p/l Xxxxx

Xxxxxx Xxxxxx
Entertainment Account
Particulars Dr Particulars Cr

Entertainment Expense Xxxxx

Balance p/l Xxxxxx

Xxxxxx Xxxxxx

45
 Depreciation Account
Particulars Dr Particulars Cr

Depreciation Expense Xxxxx

Balance p/l Xxxx

Xxxxxx Xxxxxx
Travelling &Conveyance Account
Particulars Dr Particulars Cr

Travelling payable Xxxxx Balance p/l Xxxxx

Xxxxxx Xxxxxx
Printing & Stationery Account
Particulars Dr Particulars Cr

EFG Payable Xxxxx

Balance p/l Xxxxxx

Xxxxxx Xxxxxx
Trade payables Account
Particulars Dr Particulars Cr
Opening Balance Xxxxx
Bank Xxxxx Payables Xxxxx

Balance c/f Xxxx

Xxxxxx Xxxxxx
Due to Related Party Account
Particulars Dr Particulars Cr
Opening Balance Xxxxx
Bank Xxxxx Payable to related party Xxxxx

Balance c/f Xxxx

Xxxxxx Xxxxxx
Advance, Deposits & Prepayments Account
Particulars Dr Particulars Cr
Opening Balance Xxxxxx
Bank Xxxxx

Balance c/f Xxxxxx

Xxxxxx Xxxxxx

Institute of Cost and Management Accountants of Pakistan 46

 (A-19)

XYZ (PRIVATE) LIMITED

BALANCE SHEET
AS AT 30 JUNE, 202X

Assets Notes 202X 202X

Non-current Assets
Property, Plant Equipment’s xxxxxx xxxxxx
Long term investment xxxxx xxxxxx
Current assets
Trade receivables xxxxx xxxxx
Advances, Deposits and Prepayments xxxxx xxxxx
Other receivables xxxxx xxxxx
Cash & Bank balances xxxxx xxxxx
Total Assets xxxxxx xxxxxx
Owners’ Equity & Liabilities
Owners’ Equity:
Authorized Capital xxxxxxx xxxxxxx
Paid up or Issued Capital xxxxxxx xxxxxx
Unappropriated Profit / (loss) xxxxxxx xxxxxx
Loan from related party xxxx xxxx
Non-Current liabilities:
Long term loans:
Due to related parties xxxxx xxxxx
Current Liabilities
Creditors, accrued and other liabilities xxxxx xxxxx
Provision for taxation xxxxx xxxxx
Contingencies and commitments - -

(The annexed notes form an integral part of these financial statements)

__________________ ______________
Chief Executive Officer Director

47
 XYZ (PRIVATE) LIMITED
STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE ENDED JUNE 30, 202X

Note 202X 202X

Revenue xxxxxx xxxxxx
Cost of sales/ Services xxxxx xxxxx
Gross Profit xxxxxx xxxxxx

Depreciation Expense xxxxxx xxxxxx

Salaries & benefits xxxxx xxxxx
Rent & Lease expenses xxxxxxx xxxxxx
Printing & Stationery xxxxx xxxxx
Repair &maintenance xxxxx xxxxxx
Entertainment Expense xxxxxx xxxxxx
Travelling & Conveyance xxxxxx xxxxxx
Consultancy Fee xxxxx xxxxx
Other Operating Expenses xxxxx xxxxx
Less: Operating Expenses (xxxxxx) (xxxxxx)
Add: Other income xxxxx xxxxx
Operating Profit or (Loss) Before Taxation XXXXXXX XXXXXXX
Income Tax Expense (xxxxx) (xxxxx)
Profit for the Year XXXXXXX XXXXXXX
Other Comprehensive Income or loss
If any then Add profit or Less Loss - -
________ _________
Total Comprehensive Income or loss for the year XXXXXXXX XXXXXXXXX

The annexed notes form an integral part of these financial statements.

……………………… ………………….
Chief Executive Director

Institute of Cost and Management Accountants of Pakistan 48

 XYZ (PRIVATE) LIMITED
STATEMENT OF CASH FLOWS
FOR THE ENDED JUNE 30, 202X

Notes 202X 202X

Cash flow from operating Activities
Cash generated from operations
Profit / (loss) for the year XXXXX XXXXX
Adjustment of non-cash items:
Depreciation of property and equipment xxxxx xxxxx
XXXXXX XXXXXX
Changes in working Capital:
Decrease/ (increase) in current assets:
Trade Debts Other Receivables xxxxxx xxxxxx
Other receivables xxxx xxxx
Due from related parties xxxxx xxxxx
Increase / (Decrease) in current liabilities:
Creditors, accrued and other liabilities xxxx xxxx
Due to related parties xxxxx xxxxx
Cash generated or (consumed) from operation xxxxx xxxxx
Income tax paid (xxxx) (xxxx)
Net cash from / (used in) Operating activities xxxxx xxxxx
Cash flow from investing activities
None ______ ______

Net cash from / (used in ) investing activities

Cash Flow from Financing activities
Long term loan from directors ______ (xxxx)
Net cash from / (used in) financing activities ______ (xxxx)
Net increase / (decrease) in cash and cash equivalents xxxxxx xxxxxx
Cash and cash equivalent at the beginning of the year (xxxx) (xxxx)

Cash and Cash equivalent at the end of the year xxxxxx xxxxxx

The annexed notes form an integral part of these Financial Statements)

___________________ _________________
Chief Executive Officer Director

49
 XYZ (PRIVATE) LIMITED
STATEMENT OF CHANGE IN EQUITY
FOR THE ENDED JUNE 30, 202X

Share Capital Revenue Reserves Total Equity

Issued, subscribed Accumulated
And paid up Profit/
capital (Loss)

Balance as on June 30, 202X xxxx xxxx xxxxxx XXXXXX XXXXXXX

Profit / (loss) for the year
Ended June 30, 202X - - - XXXXXX XXXXXX
____ ____ ______ ______ _______
Balance as on June 30, 202X xxxxx xxxxx xxxxxxx XXXXXX XXXXXXX

Profit/ (loss) for year ended

June 30, 202 XXXXXXXX XXXXXXX
____ ____ ______ ________ _________
xxxxx xxxxx xxxxxx XXXXXXXX XXXXXXXXX

(The annexed notes form an integral part of these Financial Statements).

_____________ _______________
Chief Executive Director

Please Attach
Notes
to the Accounts.

Institute of Cost and Management Accountants of Pakistan 50

 AUDIT PROGRAMS
(A-20)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: FIXED ASSETS Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr No Particulars Work done Done by Reviewed by

1 Verify the Opening balance of all the
assets from last year balance
2 Verify the additions for assets in
current year
3 Recalculate the depreciation
4 Verify that the movements of
fixed assets are carried out in
accordance with the financial policy
of the company and the accounting
standards adopted.
5 Check the approval of acquisition
for asset or sale from the competent
authority as per Authorized delegation
of financial powers or Board
Resolution.
6 Check the invoice, purchase order,
Good received note and the voucher
thereof and ensure they do match
with each other.
6 Verify the integrity, existence and
accuracy of the accounting balances of
Fixed Assets.
7 Evaluate the reliability and accuracy
of the depreciation calculation
and determine that the method of
depreciation of fixed assets adopted
is as per policy.

51
 (A-20-1)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: INVENTORY Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Observe Physical inventory count,
accounts of all inventory tags and
count sheet used in recording physical
inventory count.
2 Obtain confirmation of inventories at
location outside the entity.
3 Review inventory records, production
records, and purchasing record of
current activities.
4 Examine paid vendors, invoices,
consignment agreement and contract.
5 Examine inventory turnover analysis
6 Determine which method is used for
inventory stock valuation (LIFO, FIFO
and weighted average method) and
recalculate the value.
7 Check the inventory is recorded as per
accounting policy mentioned in notes
to the accounts or otherwise.
7 Evaluate the reliability and accuracy
of the depreciation calculation
and determine that the method of
depreciation of fixed assets adopted
is as per policy.

Institute of Cost and Management Accountants of Pakistan 52

 (A-20-2)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: Non-Current Liabilities Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Prepare schedule for loan outstanding
at the year-end date.
2 Compare opening balance to previous
year papers
3 Test accuracy of analysis.
4 Compare balances to the general
ledger.
5 Trace additions and repayment to
entries in cash book.
6 Compare repayments are in
accordance with loan agreements.
7 Examine the cancelled cheques and
memorandum of satisfaction for loans
repaid.
8 Verify that borrowing limits imposed
by the agreement are not exceeded.
9 Examine signed Board minutes relating
to new borrowings.

53
 (A-20-3)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: CURRENT LIABILITIES Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Prepare the lead schedule of accounts
payables.
2 Verify the opening balance from last
year audited accounts.
3 Verify the accuracy of amounts and
reconcile with the general ledger.
4 Send the confirmation request to the
companies on the vendor list.
5 Collect the confirmation replies and
use the information to make summary
sheet, if there is any difference then
analyse and require explanation from
client.
6 Verify the payment and receipts from
bank statements / cash book.
7 Track down any unusual or large
amount transaction that go without
approval or lacking supporting
documentation.

Institute of Cost and Management Accountants of Pakistan 54

 (A-20-4)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: CAPITAL Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Verify the opening balance from the
last year capital accounts.
2 Determine the internal control over
capital stock .
3 Verify that each owners’ equity
transaction is recorded properly.
4 Verify owner’s equity balances in
financial statements with general
ledger balance.
5 The number of shares outstanding,
the correct valuation of share value
and par value can all be confirmed by
transfer agent in black and white.
6 When the issue is not for cash but for
other consideration e-g the goodwill
and other assets of a business, vouch
the agreement and ensure that all
entries are properly made.
7 Ensure the issue is within the limit
authorized by Memorandum and
Articles.

55
 (A-20-5)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: REVENUE Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Trace total from sale book to general
ledger control account of sales and
account receivables.
2 For the selected period , check totals
of sales book.
3 Test validity and accuracy of sales
invoices.
4 On a test basis compare delivery notes
to sales invoices.
5 Obtain or prepare quantitative
reconciliation of opening inventory,
purchases, sales and closing inventory.
6 Check completeness of revenues other
than from sales by referring to income
producing assets, e-g property or
machinery on lease.
7 Determine that revenue have been
earned. Revenue from sales are
recognized only when the economic
benefit flow to the client.

Institute of Cost and Management Accountants of Pakistan 56

 (A-20-6)

ABC & Co
CLIENT: ______________ File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: INCOME Dated: ……………………........
Checked by: ……………………
YEAR ENDED: June 30, 202X Dated: ……………………........

Sr no Particulars Work done Done by Reviewed by

OBJECTIVE
1 To ensure that income received from
all sources recorded in books of
accounts and disclosed properly in the
financial statements.
AUDIT CHECK
1 Check calculation of interest income
dividend.
2 Check basis of sundry income.
3 Ensure that income from different
sources is properly accounted for and
disclosed in the financial statement.

57
 (A-20-7)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: SALARIES / PAYROLL EXPENSE Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Select a sample of employee from the
payroll record.
2 Verify the appointment letter,
authorization for employment and
agreed rate of pay.
3 Check approval of department head.
4 Check hours worked.
5 Determine final approval before
payroll cheques are issued.
6 Trace posting to appropriate general
ledger account.
7 Compare net pay with cash payments
record
8 Determine each employee signed the
receipt.
9 Check the bank statement for
verification of payment.
10 Attach the snapshots of cheques
issued for salaries.

Institute of Cost and Management Accountants of Pakistan 58

 (A-20-8)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: RENT EXPENSE Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Inspect the lease agreement.
2 Agree the expenses charged with
payments, prepaid expense beginning
and end of the period.
3 Check the receipts for payment of rent
to determine the period for which
payment has been made.
4 Compare with last year and inquire
into unusual difference if any.

(A-20-9)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: UTILITIES Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Vouch with utility bills.
2 Check the last bill paid to ensure
correctness of accruals.
3 Check the subsequent payment.
4 Compare with last year and inquire
into unusual transaction if any.

59
 (A-20-10)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: TRAVELLING EXPENSE Dated: ……………………........
Checked by: ……………………
PERIOD ENDED: June 30, 202X

Sr no Particulars Work done Done by Reviewed by

1 Vouch billing from travel agent.
2 Study company regulation related to
travelling allowances.
3 Inspect board of directors minutes.
4 Study Article of Association to
ascertain whether the directors are
allowed for travelling allowance to
attend board meeting.
5 Ascertain the purpose for which the
directors have travelled.
6 Obtain representation from
management that the travelling
expenses pertain to entity.

Institute of Cost and Management Accountants of Pakistan 60

 LEAD SCHEDULE
(A-21)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED
Prepared by: ………………….
SUBJECT: OPERATING FIXED ASSETS SCHEDULE Dated: ……………………........
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………........

Client Name Opening Activity Closing Balance

Dr Cr

BREAKUP : - -

Cost:

Office Equipment Xxxx - - Xxxx

Computer & Xxxx - - Xxxx
accessories

Total Xxxxx Xxxxx

Accumulated Depreciation
Xxxxx - - Xxxx
Xxxxx - - Xxxx

Total xxxxx Xxxxx

Carrying Value - -

61
 (A-21-1)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED
Prepared by: ………………….
SUBJECT: NON- CURRENT LIABILITIES Dated: ……………………........
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………........

SR. NO PARTICULARS Ref: 202X 202X

Non-Current
Liabilities

Breakup:
Non-Current
Liabilities:
Due to related Xxxxx Xxxxx
Parties
Loans from Trusts
Loans from Banks

Institute of Cost and Management Accountants of Pakistan 62

 (A-21-2)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED
Prepared by: ………………….
SUBJECT: CAPITAL & RESERVES Dated: ……………………........
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………........

SR. NO PARTICULARS Ref: 202X 202X

Breakup:

Equity:
Share Capital Xxxxxx Xxxxxx
Un-appropriated Xxxxxxx Xxxxxxx
Profit /Losses

For Capital
1. Verify the capital amounts from ledger
2. Verify the opening balance from last Audited Account
3. Verify the amounts from the bank statements
4. Ensure the issue is within the limits authorized by memorandum and articles

For Profit /loss Verification

1. Check invoices to confirm sales did occur
2. Direct contact your client’s customers /debtors to confirm transactions and sales.
3. Verify Revenue recognition.
4. Verify completeness of revenue
5. Verify the period/date of invoices

Please Attach Lead Schedules for all Heads of Accounts

63
 FORMAT OF CONFIRMATION
(A-22)

XYZ (PRIVATE) LIMITED

DATED: ………………………
Address: …………………….
Tel: ……………………………
Ref: XYZ PVT LTD.

Dear Sir/Madam:

In connection with the audit of our Financial Statements, please provide direct to our auditors, ABC
& Co, Cost and Management Accountants, Address: …………………………………………………………………., the
balance due to you of Rs xxxxxxxx as at June 30, 202X.
Your prompt attention to this request will be appreciated
Yours truly,

For and on behalf of, XYZ Private Limited

ABC & Co,

Cost and Management Accountants
Address: ………………………………………
Telephone: …

The balance of Rs …………………. is supported by the attached statement, was payable to / Receivable
from us at June 30, 202X.

Date: ………………………. Signature…………………

Title: …………………….

Institute of Cost and Management Accountants of Pakistan 64

 (A-22-1)

Dated: ………………… ABC & Co

Manager. Cost and Management Accountants
Bank Name……………..
………………………………

XYZ (Private) Limited

Dear Sir,

In accordance with your above named customer’s instructions given hereon. Please send Direct
confirmation to us at the below address, as auditors of your customer, the following information
relating to their affairs at your branch as at the close of business on June 30, 202X.

Please state against each item any factors which may limit the completeness of your reply; if there is
nothing to report, state ‘NONE’

It is understood that any replies given are in strict confidence, for the purpose of audit.

BANK ACCOUNTS
Full titles of the accounts together with the account number and balances thereon, including NIL
balances:
a. Where your customers name is the sole name in the title:
b. Where your customers name is joined with that of other parties:
c. Where the account is in a trade name:

Full Title of Type of Account Currency Dr/Cr Balance

Account Account number

NOTES
i. Where the account is subject to any restriction (e.g. a garnishee order or arrestment) or exchange
control considerations (e.g. Blocked account) this information should be stated.
ii. Where the authority upon which you are providing this information does not cover any amounts held
jointly with other parties. Please refer to your customer in order to obtain the requisite authority of
the other parties.

65
1. Full titles and dates of closure of all accounts closed during the period

Full Title of Account Type of Account Account number Date of Closure

2. The separate amounts accrued but not charged or credited as at the above date, of:
a. Interest and
b. Provisional charges (including commitment fee)

Description Period Amount (In Figures) Amount (In Words)

3. The amount of interest charged during the period if not specified separately in the customer
statement of account.

Description Period Amount (In Figures) Amount (In Words)

4. Particulars (i.e. date. Type of document and accounts covered) of any written acknowledgement of
set-off, either by specific letter of setoff, or incorporated in some other document or security.
5. Details of loans, overdrafts, cash credits and facilities, specifying agreed limits and in case of term
loans. date for repayment or review.

DESCRIPTION BALANCE AGREED UNUSED MARKUP/ DATE FOR DESCRIPTION TYPE OF DATE ON
AT LIMITS LIMITS INTEREST REPAYMENT/ OF SECURITY CHARGE WHICH
ABOVE TERMS REVIEW/ CHARGED TO CHARGE
DATE EXPIRY OF THE BANK WAS
FACILITY CREATED

Institute of Cost and Management Accountants of Pakistan 66

6. A) SECURITY: Please furnish following: -
i) Details of any security formally charged to the banks including the date and type of charge. (e.g.
pledge. hypothecation etc.

Type of charge Descriptions security charged to the bank Date on which charge was created

ii) Particulars of any undertaking to assign to the bank any assets.

a) If a security is limited to any borrowing or if there is a prior. equal or subordinate charge, please indicate.
b) Investments, bills of exchange, document of title or other assets held but not charged, please give details.

CONTINGENTS LIABILITY
7. All contingent liabilities.

NATURE CURRENCY OUTSTANDING LIMIT EXPIRY DATE FOR DESCRIPTION TYPE OF DATE ON
AMOUNT OF REPAYMENT/ OF SECURITY CHARGE WHICH
LIMITS REVIEW CHARGED TO CHARGE
THE BANK WAS
CREATED

Total
of bills
discounted
with
recourse
to the
customer
or any
subsidiary
or related
party
of the
customert

67
a) Total of bills discounted for your customer, with recourse:
b) Details of any guarantees, bonds or indemnities given to you by the customer in favour of third parties:
c) Details of any guarantees, bonds or indemnities given to you, on your customer behalf stating where
there is resource to your customer and / or to its holding, parent or any other company within the group:
d) Total of acceptances:
e) Total of forward exchange contracts:
f) Total of outstanding liabilities under documents credits:
g) Others- Please give details.

OTHER INFORMATION
8. A list of other banks, or branches of your bank, where are aware that a relationship has been
established during the period.

Yours truly

ABC & Co DISCLOSURE AUTHORISED

Cost and Management Accountant

Institute of Cost and Management Accountants of Pakistan 68

 B

Fixed Assets
This section contains:

- Tangibles assets
- Intangible assets
- Fixed Assets Schedule

69
 (B)

ABC & Co

Address:…………..
Ph. : ………………………..
Email :……………………..

CLIENT: XYZ (PVT) LIMITED

YEAR/ PERIOD ENDED: June 30, 202X
FIXED ASSETS

PARTICULARS FILE
REF
TANGIBLE NON CURRENT ASSETS

-Conclusion and Summary Sheet B1

INTANGIBLE ASSETS

FIXED ASSETS SCHEDULE B2

Institute of Cost and Management Accountants of Pakistan 70

 (B-1)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: FIXED ASSETS Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

S. NO CONCLUSIONS

On the basis of work done & audit evidences

Obtained , balance of Fixed Assets is Satisfactory for
Audit purposes.

71
 (B-2)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED Prepared by: ………………….
SUBJECT: OPERATING FIXED ASSETS SCHEDULE Dated: ……………………........
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………........

Client Name Opening Activity Closing Balance

Dr Cr

BREAKUP : - -

Cost:

Office Equipment xxxx - - Xxxx

Computer & xxxx - - Xxxx
accessories

Total xxxxx Xxxxx

Accumulated Depreciation
xxxxx - - Xxxx
xxxxx - - Xxxx

Total xxxxx Xxxxx

Carrying Value - -

Institute of Cost and Management Accountants of Pakistan 72

 ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED Address: ………………….
YEAR/ PERIOD ENDED: June 30, 202X Ph: ……………………........
Email: ……………………
CURRENT ASSETS

PARTICULARS FILE REF.

-Conclusion and Summary Sheet B-3
Advances, Deposits ,pre-payments B-4
FINAL SUPPORT SCHEDULES
Account Receivables B-5
Advance payment to Vendor B-6
Due from Related Parties B-7
Balances Confirmation for Auditors B-8
Advance Tax B-9
Advance payment to vendor B-10

73
 (B-3)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED Prepared by: ………………….
SUBJECT: CURRENT ASSETS Dated:: ……………………........
Checked by: ……………………
PERIOD ENDED: June30, 202X

SR. NO CONCLUSIONS

On the basis of work done & Audit evidences obtained , balance of

Current assets is satisfactory for Audit purposes.

Institute of Cost and Management Accountants of Pakistan 74

 (B-4)

ABC & Co
CLIENT: XYZ (PRIVATE) LIMITED File: Ref:
Prepared by: ………………….
AUDIT PROGRAM: ADVANCES, DEPOSITS, PREPAYMENTS Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June 30, 202X

S. NO PARTICULARS WORK DONE DONE BY REVIEWED BY

1 Obtain/ Prepare Schedule
of Advances , Deposits and
Prepayments.
2 Verify Opening Balance from
Last year Audited Accounts.
3 Check any movement above Rs
10,000 (Advances, Prepayments
& Adjustments).
4 Check from Agreements ,
documents details for giving
advances, prepayments.
5 Obtain certificate of advances
to employees.
6 Check whether prepayments
and deposits are properly
authorized by appropriate
person.
7 Check subsequent position/
clearance.
8 Enquire for any unusual
transaction.
9 Check subsidiary ledger or party
ledger.
10 Checking casting.

75
 (B-5)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: Account Receivables Activity Sheet Dated: ……………………………
Checked by: ……………………
Year Ended: June 30, 202X Dated: ……………………………

Client Name Opening Activity Closing Balance

Dr Cr

xxxx Xxxx

BREAKUP of
customer
(Debtor) xxxx Xxxx

A Xxxx Xxxx
B Xxxx Xxxx
C Xxxx Xxxx
D Xxxx Xxxx
E xxxx Xxxx

Institute of Cost and Management Accountants of Pakistan 76

 (B-6)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: ADVANCE PAYMENT TO VENDOR Dated: ……………………………
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………………

Date Numb Memo Debit Credit Balance Work Done

Opening balance xxxxxxx A B C D

Received from A debtor Xxxxxx xxxxxx

Closing Balance
Amount

Amount Xxxxxx
Verified Amount Xxxxxx
% age Verified ….%

Work Done:
A. We have verified opening balance from last audited accounts
B. We have verified the Payments/receipts from bank statements/cash book
C. We have verified casting/recalculations
D. We have verified outstanding balances from ledger/ confirmation

77
 (B-7)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: Due from Related Parties Dated: ……………………………
Checked by: ……………………
Year Ended: June 30, 202x Dated: ……………………………

Client Name Opening Activity Closing Balance

Dr Cr

xxxx Xxxx

BREAKUP :
RST (PVT) LTD xxxx Xxxx
PQR xxxx Xxxx

Institute of Cost and Management Accountants of Pakistan 78

 Debtors Balance Confirmation

(B-8)

XYZ (PRIVATE) LIMITED

DATED: ………………………
Address: …………………….
Tel: ……………………………
Ref: XYZ PVT LTD.

Dear Sir/Madam:
In connection with the audit of our Financial Statements, please provide direct to our auditors, ABC
& Co, Cost and Management Accountants, Address: …………………………………………………………………., the
balance due to you of Rs xxxxxxxx as at June 30, 202X.
Your prompt attention to this request will be appreciated
Yours truly,

For and on behalf of, XYZ Private Limited

...................................................................................................................................................................

ABC & Co,

Cost and Management Accountants
Address: ………………………………………
Telephone: …………………………………

The balance of Rs …………………. is supported by the attached statement, was payable to / Receivable
from us at June 30, 202X.

Date: ………………………. Signature…………………

Title: …………………….

79
 (B-9)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: Advance Tax Dated: ……………………………
Checked by: ……………………
Year Ended: June 30, 202X Dated: ……………………………

Client Name Opening Activity Closing Balance

Dr Cr

xxxx Xxxx

BREAKUP :
Advance Tax xxxx - xxxx
Advance payment xxxx - xxxx

Note:
• Check the balance from last year’s audited accounts.
• Verify the balance from bank statement.
• Verify the amount from general ledger.
• Check approval of payment and voucher
• Check date of payment /period
• Obtain detail of Authorized Signatories for signing cheques and their sample signatures.

Institute of Cost and Management Accountants of Pakistan 80

 (B-10)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: ADVANCE PAYMENT TO VENDOR Dated: ……………………………
Checked by: ……………………
YEAR ENDED: JUNE 30, 202X Dated: ……………………………

Date Numb Memo Debit Credit Balance Work Done

Opening balance xxxxxxx A B C D
Advance payment to Vendor P xxxxxx xxxxxx

Closing Balance
Amount

Amount Xxxxxx
Verified Amount Xxxxxx
% age Verified …..%

Work Done:
A. We have verified opening balance from last audited accounts
B. We have verified the Payments/receipts from bank statements/cash book
C. We have verified casting/recalculations
D. We have verified outstanding balances from ledger/ confirmation

81
 ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

CASH IN BANK AND IN HAND

PARTICULARS FILE REF.

-Conclusion and Summary Sheet B-11
-Audit Programs- Cash & Bank B-12

FINAL SUPPORT SCHEDULES

Cash & Bank Balance B-13

Bank Balance Confirmation B-14
Bank reconciliation B-15
Certificate of Cash in Hand B-16
Cash count B-17

Institute of Cost and Management Accountants of Pakistan 82

 (B-11)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
SUBJECT: CASH & BANK Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X

SR. NO CONCLUSIONS

On the basis of work done audit Evidence obtained , balance of

current assets is satisfactory audit purposes.

83
 (B-12)

ABC & Co
Cost and Management Accountant

CLIENT: XYZ (PRIVATE) LIMITED File: Ref:

Prepared by: ………………….
AUDIT PROGRAM: CASH & BANK BALANCE Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June 30, 202X

S. NO PARTICULARS WORK DONE DONE BY REVIEWED BY

1 Prepare schedule of cash and schedule of bank
wise / account wise balance.
2 Check opening balance from Last year Audited
accounts and ledger.
3 Check corresponding entries in cash and bank
book.
4 Obtain cash certificate as on 30-06-202X.
5 Obtain the certificate of impress accounts with
factory department.
6 Send direct confirmation letter to bank.
7 Check corresponding entries from bank
statement.
8 Check the procedure of bank reconciliation, if
any.
9 Check subsequent clearance of unclear cheques
from statements of next year.
10 Checking first 7 days of cash received & paid.
11 Check last 7 days of cash receipts & payments.
12 Check posting in bank book.
13 Check casting.
14 Compare replies with direct confirmation with
the records.

Institute of Cost and Management Accountants of Pakistan 84

 (B-13)

ABC & Co
Cost and Management Accountants

CLIENT: XYZ (PVT) LIMITED

Prepared by: ………………….
Subject: Cash & Bank Dated: ……………………………
Checked by: ……………………
Year Ended: June 30, 202X

Client Name Opening Activity Closing Balance

Dr Cr

xxxx xxxx Xxxx xxxx

BREAKUP :
Bank
…………………… xxxxx xxxx Xxxx xxxx
Cash in hand xxxx xxxx Xxxx xxxx

85
 (B-14)

ABC & Co
Cost and Management Accountants

Dated: …………………
Manager.
Bank Name……………..
………………………………

XYZ (Private) Limited

Dear Sir,

In accordance with your above named customer’s instructions given hereon. Please send Direct
confirmation to us at the below address, as auditors of your customer, the following information
relating to their affairs at your branch as at the close of business on June 30, 202X.

Please state against each item any factors which may limit the completeness of your reply; if there is
nothing to report, state ‘NONE’

It is understood that any replies given are in strict confidence, for the purpose of audit.

BANK ACCOUNTS
Full titles of the accounts together with the account number and balances thereon, including NIL
balances:

a) Where your customers name is the sole name in the title:

b) Where your customers name is joined with that of other parties:
c) Where the account is in a trade name:

Full Title of Type of Account Account number Currency Dr/Cr Balance

Account

NOTES
iii. Where the account is subject to any restriction (e.g. a garnishee order or arrestment) or exchange
control considerations (e.g. Blocked account) this information should be stated.
iv. Where the authority upon which you are providing this information does not cover any amounts held
jointly with other parties. Please refer to your customer in order to obtain the requisite authority of
the other parties.

Institute of Cost and Management Accountants of Pakistan 86

9. Full titles and dates of closure of all accounts closed during the period

Full Title of Account Type of Account Account number Date of Closure

9. The separate amounts accrued but not charged or credited as at the above date, of:
c. Interest and
d. Provisional charges (including commitment fee)

Description Period Amount (In Amount (In Words)

Figures)

10. The amount of interest charged during the period if not specified separately in the customer
statement of account.

Description Period Amount (In Amount (In Words)

Figures)

11. Particulars (i.e. date. Type of document and accounts covered) of any written acknowledgement of
set-off, either by specific letter of setoff, or incorporated in some other document or security.

12. Details of loans, overdrafts, cash credits and facilities, specifying agreed limits and in case of term
loans. date for repayment or review.

DESCRIPTION BALANCE AGREED UNUSED MARKUP/ DATE FOR DESCRIPTION TYPE OF DATE ON
AT ABOVE LIMITS LIMITS INTEREST REPAYMENT/ OF SECURITY CHARGE WHICH
DATE TERMS REVIEW/ CHARGED TO CHARGE
EXPIRY OF THE BANK WAS
FACILITY CREATED

87
13. A) SECURITY: Please furnish following: -

iii) Details of any security formally charged to the banks including the date and type of charge.
(e.g. pledge. hypothecation etc.

Type of charge Descriptions security charged to the bank Date on which charge was created

Particulars of any undertaking to assign to the bank any assets.

c) If a security is limited to any borrowing or if there is a prior. equal or subordinate charge, please indicate.
d) Investments, bills of exchange, document of title or other assets held but not charged, please give details.

CONTINGENTS LIABILITY

14. All contingent liabilities.

NATURE CURRENCY tOUTSTANDING LIMIT EXPIRY DATE FOR DESCRIPTION TYPE OF DATE ON
AMOUNT OF LIMITS REPAYMENT/ OF SECURITY CHARGE WHICH
REVIEW CHARGED TO CHARGE
THE BANK WAS
CREATED

Total
of bills
discounted
with
recourse
to the
customer
or any
subsidiary
or related
party
of the
customer

Institute of Cost and Management Accountants of Pakistan 88

h) Total of bills discounted for your customer, with recourse:
i) Details of any guarantees, bonds or indemnities given to you by the customer in favour of third parties:
j) Details of any guarantees, bonds or indemnities given to you, on your customer behalf stating where
there is resource to your customer and / or to its holding, parent or any other company within the group:
k) Total of acceptances:
l) Total of forward exchange contracts:
m) Total of outstanding liabilities under documents credits:
n) Others - Please give details.

OTHER INFORMATION
15. A list of other banks, or branches of your bank, where are aware that a relationship has been
established during the period.

Yours truly

ABC & Co DISCLOSURE AUTHORISED

Cost and Management Accountant

89
 (B-15)

ABC & Co
Cost and Management Accountants

XYZ PRIVATE LIMITED

BANK RECONCILIATION STATEMENT
AS ON JUNE 30, 202X

Description Balance sheet A/ C:

Account Number:
Location:
Account Type:
Amount (Rs) Annex
Balance as per Bank statement .….…………………
Direct Debits (Payments) in Bank .….………………… annex “A” (Pl Give reference)
Direct Credit (Deposits) in Bank .….………………… annex “B”
Amounts Deposit and recorded in
but not credited by Bank .….………………… annex “C”
Cheques issued but not presented
& Other payments .….………………… annex “D”
Balance as per General Ledger .….………………… Diff
Reconciliation Agreed

Remarks:(For outstanding matters by the person preparing the reconciliation)

Prepared by: Checked by: Approved by:

…………………… ………………….. ……………………

Institute of Cost and Management Accountants of Pakistan 90

 (B-16)

XYZ (PRIVATE) LIMITED

Date: July 02, 202X

Cash in Hand Certificate

It is to certify that a sum of Rs. XXX (In words: …………………………………………) being Cash in Hand at
Address: ………………. as on June 30, 202X.

Name :…………………………..
Manager Finance & Accounts

91
 (B-17)

CASH COUNT SHEET:

Department: Month:

Description Quantity Amount

Office expense xxxxx
Printing and stationery expense xxxxx
Travelling expense xxxxx

Total Cash counted xxxxx

Cash book balance xxxxxx
Difference 0

Comments:

Prepared by: Date:

Institute of Cost and Management Accountants of Pakistan 92

 C

Owners’ Equity

93
 (C-1)

ABC & Co

CLIENT:

YEAR/ PERIOD ENDED

Owners’ Equity

Particulars File Ref

Conclusions and summary sheet C-2

FINAL SUPPORT SCHEDULE:

Capital & Reserve C-3

Institute of Cost and Management Accountants of Pakistan 94

 (C-2)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: CAPITAL & RESERVES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

S. NO CONCLUSIONS

On the basis of work done & Audit evidences obtained

Balance of Capital & Reserves is satisfactory for Audit purposes

95
 (C-3)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: CAPITAL & RESERVES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June 30, 202X Dated: ……………………………

SR. NO PARTICULARS Ref: 202X 202X

Breakup:

Equity:
Share Capital Xxxxxx Xxxxxx
Un-appropriated Profit /Losses Xxxxxxx Xxxxxxx

1. Verify the capital amounts from ledger

2. Verify the opening balance from last Audited Account
3. Verify the amounts from the bank statements
4. Ensure the issue is within the limits authorized by memorandum and articles

For Profit /loss Verification

1. Check invoices to confirm sales did occur.
2. Direct contact your client’s customers /debtors to confirm transactions and sales.
3. Verify Revenue recognition.
4. Verify completeness of revenue.
5. Verify the period/date of invoices.

Institute of Cost and Management Accountants of Pakistan 96

 D

Non-Current liabilities:
This section contains:
• Lead Schedules
• Balance confirmation

97
 (D-1)

ABC & Co
Cost and management Accountant

CLIENT: XYZ (Pvt) Ltd

YEAR ENDED: 30 June, 202x.
NON CURRENT LIABILITIES

Particulars File Ref

Conclusions and summary sheet D-2

FINAL SUPPORT SCHEDULE:

Due to Related parties D-3

Loan from Directors D-4

Balance Confirmation D-5

Trade payables D-6

Bank Receipts Voucher D-7

Bank payment Voucher D-8

Journal voucher D-9

Cash Payment Voucher D-10

Journal Voucher D-11

Creditor confirmation D-12

Institute of Cost and Management Accountants of Pakistan 98

 (D-2)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: NON-CURRENT LIABILITIES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X

S. NO CONCLUSIONS

On the basis of work done & Audit evidences obtained

The balance of non-current liabilities are satisfactory for
audit purpose.

99
 (D-3)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: DUE TO RELATED PARTIES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X

SR. NO PARTICULARS Ref: 202X 202X

Non-Current Liabilities

Breakup:
Non-Current Liabilities:
Due to related Parties Xxxxx Xxxxx

Note:
Verify the balance from last audited accounts.
Verify the amount from general ledger.
Check the date of maturities, repayment schedules and pattern of repayments
Verify from the bank statements

Institute of Cost and Management Accountants of Pakistan 100

 (D-4)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: DUE TO DIRECTORS Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Client Name Opening Activity Closing Balance

Dr Cr

BREAKUP :

Due to Directors xxxx xxxx xxxxx

UVW Trading xxxx - xxxx

101
 (D-5)

To: EFG Pvt Ltd (Client) (Loan payable)

Cc: Auditor
Subject: Balance Confirmation on June 30, 202X

Balance Confirmed,
Regards,

From: XYZ Pvt Ltd

Sent: Date, Time
To: EFG Pvt Ltd
Subject: Personal Balance Confirmation as on __________.

Dear Sir/Madam,
You are requested to confirm balance loan given to XYZ(Pvt) Ltd Amount Rs __________Outstanding as
on June 30th, 202X. And please keep Auditors email id in CC while confirming balance,
Your earliest response shall be highly appreciated.

Regards,
Manager Finance.

Institute of Cost and Management Accountants of Pakistan 102

 (D-6)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: UVW (PVT) LTD TRADE PAYABLES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Work Done

Opening balance xxxxx A B C D
Received from UVW trading xxxx xxxx
Received from UVW trading xxxx Xxxx
Paid to UVW xxxx Xxxx
Paid to UVW xxxx Xxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified __%

Work Done:
(A) Verify the opening balance from last year audited accounts.
(B) Verify the accuracy of amounts and reconcile with the general ledger.
(C) Collect the confirmation replies and use the information to make summary sheet, if there is any
difference then analyse and require explanation.
(D) Verify the payment and receipts from bank statements / cash book.

103
 (D-7)

XYZ (Pvt) Ltd

Bank Receipt Voucher

Cheque No: 122333444555 Voucher No: 0001

Account No: 0000-123455678
Bank: _____________________________ Voucher Date: June,202X

GL Account Amount in Rupees

Description Dr Cr Class
A/c# 123455678 Xxxxx
UVW trading xxxxx

Total Xxxx xxxx

Description:
Received from UVW trading via Chq # 122333444555
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted By: __________________________ Posted Date: _______________________

Institute of Cost and Management Accountants of Pakistan 104

 (D-8)

XYZ Pvt Ltd

Bank Payment Voucher

Cheque No: 456789 Voucher No: 0002

Account No: 1004-345677
Bank: _____________________________ Voucher Date: July ,202X

GL Account Amount in Rupees

Description Dr Cr Class
UVW trading xxxxx
A/c # 100456789 xxxxx

Total xxxxx xxxxx

Description:
Amount paid to UVW trading Via Chq 100456789
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted By: __________________________ Posted Date: _______________________

Please attach the cheques to show evidence through banks.

105
 (D-9)

XYZ Pvt Ltd

Journal Voucher

Cheque No: 456788 Voucher No: 0003

Account No: 1004-345677
Bank: _____________________________ Voucher Date: July,202X

GL Account Amount in Rupees

Description Dr Cr Class
UVW trading payable xxxxx
A/c 1004-345677 xxxxx

Total xxxxxx xxxxx

Description:
Paid to UVW trading for loan payment Via Chq 456788
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted By: __________________________ Posted Date: _______________________

Institute of Cost and Management Accountants of Pakistan 106

 (D-10)

EFG Pvt Ltd

Cash Payment Voucher

Voucher No: 0004

Voucher Date: January, 202X

GL Account Amount in Rupees

Description Dr Cr Class
XYZ (PVT) LTD Xxxx
Cash xxxx

Total Xxxx xxxx

Description:
Amount paid to HIJ
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted By: __________________________ Posted Date: _______________________

107
 (D-11)

EFG Pvt Ltd

Journal Voucher

Cheque No: ________________________ Voucher No: 0007

Account No: ________________________
Bank: _____________________________ Voucher Date: May,202X

GL Account Amount in Rupees

Description Dr Cr Class
DSQ Pvt LTD Xxxxx
XYZ (PVT) LTD Xxxxx

Total Xxxxx Xxxxx

Description:
Amount is paid to DSQ (PVT) LTD
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted by: __________________________ Posted Date: _______________________

Institute of Cost and Management Accountants of Pakistan 108

 (D-12)

XYZ (PVT) LTD

Date

EFG (Pvt) Ltd

Address:
Ph. No:

Ref: XYZ(Pvt) Ltd.

Dear Sir/Madam:
In connection with the audit of our financial statements, please provide direct to our auditors, ABC
& Co, Cost and Management Accountants, Address: _______________. The balance due to you of Rs
___________ as at June 30, 202X.
Your prompt attention to this request will be appreciated.

Yours Very truly,

For and on behalf of, XYZ (Pv)t Ltd.

__________________________________________________________________________________

ABC & Co,

Cost and Management Accountants,
Address: ________________
Ph: ________________

The balance of Rs ___________________ which is supported by the attached statements, was payable
to/ Receivable from us at June 30,202X.
Date: _____________ _________________
Company
________________
Signature
________________
Title

109
 Current Liabilities
This section contains:
• Liabilities Lead Schedule
• Conclusion
• Bank Payment Vouchers

Institute of Cost and Management Accountants of Pakistan 110

 (D-13)

ABC & Co

CLIENT: XYZ (Pvt) Ltd

YEAR/ PERIOD ENDED:

CURRENT LIABILITIES

Particulars File Ref

Conclusions and summary sheet D-14

FINAL SUPPORT SCHEDULE:

Accounts payables D-15
Trade payable D-16
Bank payment Voucher D-17
Salary payable D-18
Audit fee payable D-19

111
 (D-14)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: CURRENT LIABILITIES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

S. NO CONCLUSIONS

On the basis of work done & audit evidences

Obtained , the balance of current liabilities are satisfactory
For audit purposes.

Institute of Cost and Management Accountants of Pakistan 112

 (D-15)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: ACCOUNTS PAYABLE ACTIVITY SHEET Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

SR. NO PARTICULARS Ref: 202X 202X

Opening Dr Cr
Accounts Payable Activity xxxx xxxxx xxxxxxx

Breakup:
TUV Xxxx Xxxx
ABC & Co xxxx xxxx

113
 (D-16)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: TUV TRADE PAYABLES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Work Done

Opening balance Xxxxxx A B C D
Paid to TUV xxxx xxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified _%

Work Done:
(A) We have verified opening balance from last audited accounts
(B) We have verified the Payments/receipts from bank statements/cash book
(C) We have verified casting/recalculation
(D) We have verified outstanding balances from ledger/ confirmation

Institute of Cost and Management Accountants of Pakistan 114

 (D-17)

XYZ Pvt Ltd

Bank Payment Voucher

Cheque No: 3456775 Voucher No: 0008

Account No: 2345-1234567
Bank: _____________________________ Voucher Date: August,202X

GL Account Amount in Rupees

Description Dr Cr Class
Account payables xxxx
A/c # 1234567 xxxx

Total xxxx xxxx

Description:
Paid to TUV via Chq # 3456775
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted by: __________________________ Posted Date: _______________________

Please attach the cheques to show evidence

through banks.

115
 (D-18)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: SALARY PAYABLE Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Done

Opening balance xxxx A B C D
Salary for June xxxxx xxxxx
Salary for July xxxxxx xxxxxx
Salary for August xxxxx xxxxxxx
Salary for 4 months xxxxxxx xxxxxx
Salary for October xxxxx xxxxxxx
Salary for November xxxxxx xxxxxxx
Salary for December xxxxxx xxxxxx
Salary for January xxxxx xxxxxx
Salary paid for 4 months xxxxxxxx xxxxxx
Salary for March xxxxx xxxxxxx
Salary for April xxxxxx xxxxxx
Salary for May xxxxxx xxxxxxx
Salary for June xxxxxx xxxxxx

Amount

Amount xxx
Verified Amount xxx
% age Verified __%

Work Done:
A. Verify the opening balance from last year audited accounts.
B. Verify the accuracy of amounts and reconcile with the general ledger.
C. Verify the payment and receipts from bank statements / cash book.
D. Track down any unusual or large amount transaction that go without approval or lacking supporting
documentation.

Institute of Cost and Management Accountants of Pakistan 116

 (D-19)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: ABC & Co (Auditor fee payable) Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Done

Opening balance Xxxx A B C D
Paid to ABC & Co xxxx xxxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified _%

Work Done:
(A) We have verified opening balance from last audited accounts
(B) We have verified the Payments/receipts from bank statements/cash book
(C) We have verified casting/recalculation
(D) We have verified outstanding balances from ledger/ confirmation

117
 E

Profit & Loss

Institute of Cost and Management Accountants of Pakistan 118

 (E-1)

ABC & Co

Address:
CLIENT: XYZ (Pvt) Ltd
YEAR/ PERIOD ENDED:

PROFIT AND LOSS ACCOUNT

Particulars File Ref

Conclusions and summary sheet E-2

Audit Programs E-3

FINAL SUPPORT SCHEDULE:

Revenue E-4
Bank payment Voucher E-5
Invoices E-6
Cost of Goods Sold E-7
Journal Voucher E-8
Cash Payment Voucher E-9

119
 (E-2)

ABC & Co

CLIENT: XYZ (PVT) LIMITED File Ref:

Prepared By: ………………….
SUBJECT: INCOME STATEMENT Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

S. NO CONCLUSIONS

On the basis of work done & audit evidences

Obtained the balances of income statement
are satisfactory for audit purpose.

Institute of Cost and Management Accountants of Pakistan 120

 (E-3)

ABC & Co

CLIENT: _______________ File Ref:

Prepared By: ………………….
AUDIT PROGRAM: INCOME Dated: ……………………………
Checked by: ……………………
YEAR ENDED: June 30, 202X Dated: ……………………………

Sr.NO PARTICULARS WORK DONE DONE BY REVIEWED BY

OBJECTIVE
1 To ensure that income received from all sources books of
accounts and disclosed properly in the financial statements.
AUDIT CHECK
1 Check calculation if interest income dividend.
2 Check basis of sundry income.
3 Ensure that income from different sources is properly
accounted for and disclosed in the financial statement.

121
 (E-4)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: REVENUE Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Done

- - - A B C D
AZH trading Xxxx Xxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified __%

Work Done:
A. Trace total from sale book to general ledger control account of sales and account receivables.
B. For the selected period , check totals of sales book.
C. Test validity and accuracy of sales invoices.
D. On a test basis compare delivery notes to sales invoices.

Institute of Cost and Management Accountants of Pakistan 122

 (E-5)

XYZ Pvt Ltd

Bank Payment Voucher

Cheque No: 2345623 Voucher No: 0011

Account No: 1678-987654
Bank: __________________________ Voucher Date: February, 202X

GL Account Amount in Rupees

Description Dr Cr Class
A/c # 987654 xxxx
Account Receivables xxxx

Total xxxx xxxx

Description:
Received from AZH trading
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted by: __________________________ Posted Date: _______________________

123
 (E-6)

XYZ Pvt Ltd

To Invoice Date: February,202X

AZH Trading Invoice No: 001
Customer/Debtor
Address:

Description
S. No Product Description Qty
1 L 5
2 A 7
3 Y 9
4 V 2

Amount in Words:

Total Amount= Rs xxxxxx

Institute of Cost and Management Accountants of Pakistan 124

Cost of Goods Sold

125
 (E-7)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: COST OF GOODS SOLD Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Numb Memo Debit Credit Balance Done

Opening balance xxxxx - A B C D
Purchases Xxxxx
Inventory sold xxxxxx Xxxxxxx

Amount

Amount Xxxx
Verified Amount Xxxx
% age Verified _100_%

Work Done:
A. Verify the beginning inventory from last year audited accounts.
B. Test the details on additions in inventory.
C. Test of ending inventory or inventory count.
D. Apply analytical procedures to calculate cost of goods sold.

Please attached bank

payment vouchers for Purchases

Institute of Cost and Management Accountants of Pakistan 126

 (E-8)

XYZ Pvt Ltd

Journal Voucher

Cheque No: ________________________ Voucher No: 0012

Account No: _______________________
Bank: _____________________________ Voucher Date: September, 202X

GL Account Amount in Rupees

Description Dr Cr Class
Cost of goods sold Xxxx
Office expense Xxxx
UVW trading Xxxx

Total Xxxx xxxxx

Description:
Goods purchased by UVW trading
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted by: __________________________ Posted Date: _______________________

Please Attach Receipts

127
 (E-9)

XYZ Pvt Ltd

Cash Payment Voucher

Voucher No: 0013

Voucher Date: November, 202X

GL Account Amount in Rupees

Description Dr Cr Class
Cost of Goods Sold xxxxxxx
Local Travelling xxxxxxx
Office expenses xxxxxxx
Cash xxxxxxxx

Total Xxxxxxx xxxxx xxxxxxx

Description:
Miscellaneous expenses paid through cash
In Words: ________________________

Prepared Reviewed Approved Payee’s

By By Acknowledgement

Posted by: __________________________ Posted Date: _______________________

Please Attach Receipts

Institute of Cost and Management Accountants of Pakistan 128
 F

Expenses

129
 ABC & Co

CLIENT: XYZ (Pvt) Ltd

YEAR/ PERIOD ENDED:

PROFIT AND LOSS ACCOUNT

Particulars File Ref

Audit Programs F-1

FINAL SUPPORT SCHEDULE:

Admin Expenses F-2
Mobile Charges F-3
Consultancy Fee F-4
Bank Charges F-5
Office Expense F-6
Salary Expense F-7
Salary Slip F-8
Corrior Charges F-9
Printing & Stationery F-10
Expenses Re- Imbursement Request/Advance Adjustment F-11
Repair and Maintenance F-12
Travelling Expense F-13
Audit Fee F-14
Rent Expense F-15
Provision for Taxation calculations F-16
Exchange Gain / loss F-17
Exchange Gain/Loss Working F-18

Institute of Cost and Management Accountants of Pakistan 130

 (F-1)

ABC & Co

CLIENT: ___________________
Prepared By: ………………….
AUDIT PROGRAM: EXPENSES Dated: ……………………………
Checked by: ……………………
Dated: ……………………………

Sr.NO PARTICULARS WORK DONE DONE BY REVIEWED BY

AUDIT OBJECTIVE
1 To assess the adequacy of internal control system in
company.
2 To describe the system for recording administrative
expenses and to access the adequacy of system.
3 To ensure that expenditure is not over/under stated.

AUDIT OBJECTIVE
1 Check expenses are approved by authorized persons.
2 Check cash / bank payment vouchers with supporting
documents.
3 Check vouchers are singed by authorized persons.
4 Check posting in ledgers.
5 Check arithmetical accuracy of expenses like
depreciation or interest charges etc.
6 Check agreements for those expenses which are
subject to the terms of agreements like rent, interest,
insurance premium etc.
7 Check minutes of board of directors meeting for
expenses like directors remuneration.
8 Check bills for expenses like electricity, gas &
telephone etc.
9 See that expenses is essentially incurred for the
purpose of the business.

131
 (F-2)

ABC & Co

CLIENT: ___________________
Prepared By: ………………….
Subject: Admin Expenses Dated: ……………………………
Checked by: ……………………
YEAR ENDED: June 30, 2020 Dated: ……………………………

Head Name Amount

Mobile Charges Xxxx
Consultancy Fees Xxxx
Printing & Stationery Xxxx
Repair & maintenance Xxxx
Traveling Conveyance Xxxxx
Salaries Expense Xxxxx
Rent Expense Xxxx
Office Expense Xxxxx
Total xxxxxxx

Institute of Cost and Management Accountants of Pakistan 132

 (F-3)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: Mobile Charges Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- - - A B C
AZH trading Xxxx Xxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified __%

Work Done:
A. Check expenses are approved by the authorized person.
B. Check cash /bank payment voucher with supporting document.
C. Check vouchers are prepared and approved by different authorized person.
D. Check posting in ledger and confirm with P/L account.

133
 (F-4)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: CONSULTANCY FEE Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- A B C
Consultancy fee payable -EFH & co. xxxx Xxxxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified Xxx

Work Done:
(A) We have verified the Payments/receipts from bank statements/cash book
(B) We have verified casting/recalculation
(C) We have verified from ledger/ confirmation

Institute of Cost and Management Accountants of Pakistan 134

 (F-5)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: BANK CHARGES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- A B C D
Bank charges xxxx Xxxx

Amount

Amount Xxx
Verified Amount Xxx
% age Verified Xxx

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Please attach bank receipt voucher

related to bank charges

135
 (F-6)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: OFFICE EXPENSES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- A B C D
Office expense Xxxx

Amount

Amount Xxxx
Verified Amount Xxxx
% age Verified ___%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Please attach Journal Vouchers and

Receipts related to office expenses.

Institute of Cost and Management Accountants of Pakistan 136

 (F-7)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: SALARY Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- A B C
Salary for the month of July xxxxx
Salary for the month of August xxxxx
Salary for the month of September xxxxx
Salary for the month of October xxxxx
Salary for the month of November xxxxx
Salary for the month of December xxxxx
Salary for the month of January xxxxx
Salary for the month of February xxxxx
Salary for the month of March xxxxx
Salary for the month of April xxxxx
Salary for the month of May xxxxx
Salary for the month of June xxxxx

Amount

Amount xxxxxxx
Verified Amount xxxxxxx
% age Verified __%

Work Done:
(A) Verify the appointment letter, authorization for employment and agreed rate of pay.
(B) Check the bank statement for verification of payment.
(C) Trace posting to appropriate general ledger account

Please attach Journal vouchers related to

salaries and withholding tax on salaries
137
 (F-8)

ABC & Co

XYZ Pvt Ltd

Salary for the month June 202X
__________ Office

S. No Employee Designation NTN/ DOJ Gross Income Other Total Ded Salary
Name CNIC Salary Tax Ded payable
Regular Staff
1
2
3
4
5

Please attached bank payment voucher

related to salaries payable.

Institute of Cost and Management Accountants of Pakistan 138

 (F-9)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: COURIER CHARGES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

- A B C D
-
Courier charges paid via cash xxxx xxxx

Amount

Amount Xxxx
Verified Amount Xxxx
% age Verified __%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Please attached bank payment voucher

related to courier charges.

139
 (F-10)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: Printing & Stationary Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C
-
Printing & stationery items purchased Xxxx
Printing & stationery items purchased xxxx
Printing & stationery items purchased xxxx Xxxxx

Amount

Amount Xxxx
Verified Amount Xxxx
% age Verified 100%

Work Done:
(A) We have verified the Payments/receipts from bank statements/cash book
(B) We have verified casting/recalculation
(C) We have verified outstanding balances from ledger/ confirmation

Institute of Cost and Management Accountants of Pakistan 140

 (F-11)

XYZ (Pv)t Ltd

EXPENSES RE- IMBURSEMENT REQUEST/ADVANCE ADJUSTMENT

Name: Department:

Dated:
Nature of Expenses From To Approved Expenditure
Sample of stationery from Faisalabad xxxxx
Re-imbursement of Fuel expenses xxxxx

Total Expenses Xxxxx

Claimant Signature: _______________ Dated:

Checked by: ____________________ Approved by ________________

Accounts Dept. use only:

Paid:

Comments:

Head of accounts Dept.: ___________________

Please attached the receipts of

Printing & Stationary
141
 (F-12)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: Repairing and Maintenance Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: JUNE30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C D
-
Purchase office appliances(like laptop Xxxx Xxxx
batteries, cartridges etc.).

Amount

Amount Xxxx -
Verified Amount Xxxx -
% age Verified __%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Please attach Journal Vouchers and invoices

related to Repairing and Maintenance.

Institute of Cost and Management Accountants of Pakistan 142

 (F-13)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: Travelling Expenses Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C D
-
Purchase of tickets Mr. Hamza xxxx Xxxx

Amount

Amount Xxxx -
Verified Amount Xxxx -
% age Verified 90%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Please attach Cash Payment vouchers

related to travelling expenses

143
 (F-14)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: AUDIT FEE Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C D
-
Payable Audit fee to ABC & Co xxxx xxxx

Amount

Amount Xxxx -
Verified Amount Xxxx -
% age Verified ___%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

Institute of Cost and Management Accountants of Pakistan 144

 (F-15)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: RENT EXPENSES Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C D
-
Rent payable xxxx xxxx

Amount

Amount Xxxx -
Verified Amount Xxxx -
% age Verified __%

Work Done:
A ) We have verified Occurance
B) We have verified expense related to business
C) We have verified expenses booked in related head
D) We have verified amount Re--casting/Recalculation.

145
 (F-16)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: PROVISION FOR TAXATION CALCULATIONS Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Rs
Profit or (loss) for the period before Taxation xxxxxx
Less Adjustment for previous year loss -
____________
Profit available for Taxation xxxx
____________
_____________
Taxation at _____% xxxx
_____________

Revenue for the period xxxx

_____________

xxxx
_____________

Tax Liability for the period . xxxxx

Institute of Cost and Management Accountants of Pakistan 146

 (F-17)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: EXCHANGE GAIN /LOSS Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Num Memo Debit Credit Balance Done

A B C D
-
Amount received = @ xxxx * Qty of xxxxx xxxxx
currency

Amount

Amount Xxxxx -
Verified Amount Xxxx -
% age Verified __%

Work Done:
(A) We have verified the Payments/receipts from bank statements/cash book
(B) We have verified casting/recalculation
(C) We have verified outstanding balances from ledger/ confirmation

147
 (F-18)

ABC & Co

CLIENT: XYZ (PVT) LIMITED

Prepared By: ………………….
SUBJECT: EXCHANGE GAIN/LOSS WORKING Dated: ……………………………
Checked by: ……………………
PERIOD ENDED: June30, 202X Dated: ……………………………

Booking Receipts
Date FC Amount Rate PKR Date FC Amount Rate PKR

Please Attached Foreign Inward

Remittance Credit Advice (If Any).

Institute of Cost and Management Accountants of Pakistan 148

 G

Miscellaneous Papers
This section contains:
Please Attach all these documents
• Tax return
• Companies Form (Like Form 29)
• Company Incorporation Certificate
• Memorandum of Association
• Articles of Association

149
 FREQUENTLY FOUND DISCREPANCIES

Quality Control Review (QCR)

Below is detail of all discrepancies found while conducting review of Audit files forwarded to QCR
Directorate in respect of Quality Control Review 2020-21 of ICMA International CMA Firms for audit
practice and issuance of audit reports to their clients. CMA Firms are requested to go through this list
in order to avoid such deficiencies in their respective work.

Audit Observations

General points relating to work done

Engagement letter was not dated

The sequence of contents of Auditor Report were not designed according to requirements as per standards

Auditor’s report was not reflecting Auditor’s address

Evaluation of going concern matters were not paid attention to

Audit report was not containing auditor’s opinion

Financial statements were wrongly dated

Sales figures were not matching

Dates of engagement letter, rep letter, Auditor’s report etc. we’re not in sequence to show a proper work
done

Confirmation letters contain figures which may raise concerns over its authenticity

Companies found maintaining large amount of cash and Auditor was found silent on that.

Small portion of samplings were considered

Discount details and its policy were not stated

Withholding tax deducted does not show any payment evidences

Bank reconciliation statements were not attached to avoid raising concerns

Annual return of income tax and sales tax were not provided

Last year audit report was not available

Certificate of collection and deduction of tax is not presented

Legal confirmation addressed to auditor was not present in audit file

Suppliers and debtor/creditor confirmation circularization evidence was not available

Institute of Cost and Management Accountants of Pakistan 150

2- Audit Evidence

Following documents were not found as Audit evidence: -

Planning an Audit, how, nature, timing and extent of audit verification are set

Staff Planning for Audit work, who is assigned on which work

Auditor Quality Review Check list, as to how this is completed

Cash count at period end date for direct verification

Direct verification of cash at bank on the behalf of client

Board Resolution on acquisition and disposal of assets

Invoice of acquisition of non-current assets or if it is reviewed by auditor then at least, auditor must
disclose date of acquisition and Sale of an asset

Evidence of Lease agreement, Rental agreement

Special test of details of large amount expenses like service completion certificate, goods delivery or
inward note, gate pass or satisfaction level check

Reason behind variation in major accounts heads and test of details of major accounts heads movements
and variations

Referencing of file and figures as to how they are build, cross referencing and identification

Appropriate ticks to identify what action was performed and what documents found available

3- Internal Control environment

No evidence was found in file that internal controls were assessed properly as there is no evidence except
generic checklists signed by the auditors

4- Systems understanding of the client not given in the audit working file

For in depth understanding of systems and procedures of client, Engagement partner must understand
systems and procedures, delegation of powers of Authorization, flow of documentation of client. These
evidences were not found in the working papers file.

5- Materiality level not given by the Auditor

Materiality level has not been mentioned by Auditor. Where ever this level was provided no working as
to how this level was assessed was given, accordingly no basis was found in file to check reason of setting
materiality level for an audit. This is a must part of the Audit working paper file.

6- ERP Environment

Controls are not verified about the establishment of effective internal controls of ERP environment of the
client in some audit firms.

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 7- Fixed Assets

Detailed Schedules are linked to lead schedules but evidence of procurement process and receipt of the
Fixed asset are not found in the Audit working paper audit file or any evidence that vouchers are verified
and seen at the transaction level. Further no evidence of physical verification exercise conducted in
presence of Auditor was available in file.

8- Checklists are attached but left empty with signs of engagement partner and supervisor

Checklists are mostly covered by” yes” without any sign of engagement Partner or Authorized supervisor.

9- Inventory

In many instances it is seen that although they have stated that they have done tests of recorded balances
as outlined in the Audit Program, duly signed and checked by their supervisor but the physical count is not
available at a certain cut-off date. This could be at a date other than period end date and reconciled to
period end date.

No evidence of impairment testing in respect of inventory was found, further no reconciliation of inventory
and purchases was available in file to ascertain if there has been any short/excess and how it was treated
by management. No test for quantity reconciliation was available in file also.

10- No Disclosure of items in inventory

There is no disclosure of inventory policy either FIFO or AVG in cases, and no test of NRV was found.

11- Cost of goods sold

There is no evidence of determining cost of goods sold, there is no detail attached of the cost of goods sold
and the cost has been escalated widely. No evidence was found available in this reference.

12- Audit evidence for disclosure of change in Equity

It is noted that when there is a change in equity and structure of shares, the memorandum of association
is not attached, nor resolutions passed to such effect are attached.

13- Unusual Transactions

When there are unusual variances in the Account Head, it is not supported by adequate disclosures and
verification up to transaction level.

14- Referencing are missing

Referencing is must. It is observed that generally references are not given and there is no list of Index
which must be attached on the left side of the file.

15- No disclosure of contingencies

There is no disclosure of contingencies, no contingency was reported in Financial Statement, and no

evidence is found in file if any test is made to assess if there is any likelihood of reporting a contingency
or not. This may be scrutinizing legal and professional expense ledger, circularization to known lawyers of
company, income tax, sales tax and other tax files.

Institute of Cost and Management Accountants of Pakistan 152

16- No disclosure for loan agreements

There is no disclosure of loan agreements with directors, or related parties which should be included in the
working paper file, this will ascertain terms relating to repayment and mark-up etc., along with any class or
priority of loan, reason for non-registering loans and mortgage of any assets against loan.

17- No disclosure for Legal agreements

Disclosure of bills and proceedings in case of legal claims should be shown to the Auditor against the client
to be audited.

18- Accounts Receivable /debtors and other major account headers

Although variances were observed in these accounts and simultaneously invoices were not available in
working paper files or ledger account to check transactions or increase in corresponding accounts. In
some cases, Audit Firm has just given detail of trade debtors check list saying “yes” signed by engagement
partner. Further it is observed that checklists for verifying different heads supported by no audit evidence
but only signed.

19- Director’s Remuneration

Heavy movements have been observed in these accounts and no approvals or resolutions are attached.

20- Presentation and Disclosure Requirements

Board Resolutions and Memorandum of Association, Articles of Association, are not present in the Audit
working papers file in most cases.

21- Disclosure of Number of Employees

The average number of employees is not disclosed as required in fifth schedule of the companies’
ordinance, 1984.

22- Salaries and wages

Salaries and wages shows an increase but no detail of any new hiring or increase in salaries nor any
resolution or appointment letter attached.

23- Calculation of Income tax refundable not present

It is observed that in the Income tax refundable head only checklists are signed but no Audit evidence and
calculation is shown.

24- Loans from Directors and sister concerns

It has been observed that a large amount of variation is found in loan accounts and significant borrowings
without any planning requirements. No evidence is shown whether it has been recovered and paid in
which bank. This needs to be looked into to prove that the firm is a going concern, otherwise it will
tantamount to that the firm is not going concern.

25- Accounts Payable

Accounts payable list is again blank in Analytical procedures, test of controls and test of details and then
signed by Engagement partner in the end of the page.

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 26- Incorporation certificate, Articles of Association or Memorandum of Association to be
attached

No incorporation certificate attached.

27- No Information about Governance, Management, Operations, Flow of Documentation,

included in Audit working file

There is no information for controls, like control environment, Governance, Management operations,
Organization structure, Human Resources, staff turnover, Employee Retention and long term benefits.

28- Audit Evidence to be given up to transaction level

For all heads of Accounts keeping in view the materiality level, all heads of accounts need to be verified
and supported by Audit evidence up to transaction level.

29- Too much gap between management representation and audit report

30- Some Checklists are empty but signed by auditor

31- Auditor is not Independent

Independence is questionable because his firm also give taxation and management consultancy services to
same client.

32- Typo Errors and Miscalculation are found in working file

33- Documents are not signed or stamped or dated

34- Some/All Lead schedules are not prepared

35- Pre/Post working and Audit Report are signed on same date

36- Misrepresentation

Amounts in financial statements and lead schedules are not same

37- Consent to act an Auditor is not provided for

Conclusion
Quality control Review plays a vital role in enhancing the Financial Statements user’s confidence in
the services provided by a firm of Cost and Management Accountants. A robust system of quality
control addresses quality control with respect to engagement performance as well as leadership
responsibilities for quality within the firm, compliance with relevant ethical requirements, acceptance
and continuance of client relationships and specific engagements, human resource and monitoring.
Efforts are underway for CMA firms located in Islamabad, Karachi , Lahore, Faisalabad, Multan,
Gujranwala, Peshawar, Hyderabad and Okara, for provision of extensive trainings through webinars on
zoom or at their respective centres or both to ensure compliance with the requirements of ISQC-1 to
create more awareness till the last CMA practicing firm registered with ICMA International comes into
compliance with the QCR Programme of ICMA International Insha’Allah, through continuous follow ups
with the registered CMA practicing Firms.

Institute of Cost and Management Accountants of Pakistan 154