Audit Program WP Ref.

:
Prepared
(c) Deferred Liabilities by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Deferred Liabilities

Amount in Rs.
Account balances:

Classes of transactions:

S. No. Audit Objectives Assertions Risk Assessment

IR CR CRA
All deferred liabilities on the balance Existence
sheet represent amounts owed by
the entity to tax authorities,
employees or other third parties.
The deferred liabilities represent Rights &
obligations of the entity at the Obligations
balance sheet date.
All deferred liabilities owed by the Completeness
entity and all related expenses that
have accrued at the balance sheet
date have been recorded.

Page 181 of 455

S. No. Audit Objectives Assertions Risk Assessment
IR CR CRA
Deferred Liabilities have been Valuation
included on the balance sheet at
appropriate amounts.
To ensure that deferred liabilities Presentation &
have been presented, classified Disclosure
and disclosed in the financial
statements in accordance with the
requirements of applicable financial
reporting framework i.e.
Companies Ordinance, 1984 and
applicable International Financial
Reporting Standards.

Page 182 of 455

S. No. Audit Procedures Done by W. P. Ref.
Analytical Procedures
1. Compare current year balances with prior year
and ensure reasonableness of changes during
the year.

2. Enquire into and obtain explanations for any

unusual changes during the year.

3. Compare income tax expense to previous year

and assess whether variance is consistent with
change in profits after taking into account any
changes in income tax rates.
Test of Details
1. TEST DEFERRED LIABILITIES
A. Obtain a schedules of all Deferred liabilities
showing beginning and ending balances,
provision payments during the year, and perform
the following:
1. To obtain assurance about the completeness
of the schedule:
1.1 Make inquiries of knowledgeable
management.
2. Test the summarization and trace the ending
balances to the general ledger.
B. For deferred liability regarding gratuity perform
the following procedures
1. Obtain copy of company’s rules and policies
regarding staff gratuity.
2. Verify the last salaries drawn by selected
employees from payroll or salary sheet.
3. Verify the date of appointment from personal
files.
4. Check the calculation of number of years
completed from date of appointment to date
of the balance sheet.
5. Check the calculation of charge of the
gratuity for the year.
6. Verify the payments of the gratuity to staff
retired during the year from the company’s
rule and bank statements.
7. Check other requirements as per IAS 19.
8. For unfunded gratuity schemes, obtain the
latest actuarial valuation from the actuary
and review whether the assumption and data
used in actuarial report are valid and
reasonable.
C. For deferred liability regarding pensions:-

Page 183 of 455

 1. Obtain a copy of company’s rules and
policies regarding pension (whether funded
or unfunded).
2. For funded pension plans, check payment of
contribution of client towards fund according
to the fund’s rules.
3. For unfunded pension plan, verify provisions
for deferred liability in light of actuarial
valuations.
4. Check other requirements as per IAS-19
(revised).
D. For deferred liability regarding taxation:
i) Obtain a deferred tax working schedule from
the client along with related disclosures for
current and prior periods. Match and cross-refer
with the relevant sections of the working paper
file.
ii) Obtain schedule of temporary differences at
balance sheet date along with the supporting
details.
iii) Obtain schedule of tax base of each component
of balance sheet along with working.
iv) Determine and ensure the consistency and
adequacy of method used.
v) Review and test the cumulative temporary
differences as of the balance sheet date.
vi) Review the scheduled reversals of cumulative
temporary differences and determine whether
all identified temporary differences have been
scheduled in a reasonable manner that is
consistent with information obtained in other
audit areas.
vii) Obtain management's representations
regarding scheduled reversals, if appropriate.
viii) Test the computation of deferred tax
liabilities/assets by applying appropriate
provisions of enacted tax law to scheduled
reversals particularly the tax rates applicable at
the time of expected reversals.
ix) Review the client's tax-planning strategies that
affect the recorded amounts of deferred taxes
under the liability method and determine that all
valid strategies that could materially affect
deferred taxes have been identified and
accounted for.
x) If appropriate, obtain management's
representations as to their ability and intent to
implement the strategy if necessary.

Page 184 of 455

 xi) Determine whether deferred tax assets and
liabilities are properly classified as to current or
non-current based upon work performed in
testing the deferred tax provision/credit.
xii) Review and test the cumulative temporary
differences as of the balance sheet date.
E) For Deferred Asset regarding Taxation:
i) Ensure that deferred tax asset recognizing
tax saving is not required to be set up if a
reasonable estimate of turnover/profits for
foreseeable future cannot be made (refer
paragraph 1.4 of ICAP selected opinion No.
1).
ii) Deferred tax asset should not be accounted
for unless it can be ensured with reasonable
surety that future “tax profits” will be available
for realization of such assets and the
management will be able to plan its tax
strategies in a manner to obtain benefit of
such assets. [Note: Such future income
should be enough to cover the future deferred
tax assets (deductible temporary differences)
first and any remaining future income should
be applied to assess the realisability of
deferred tax assets.
1. Calculate taxable and deductible timing
differences.
2. Apply appropriate rate of taxation on total of
reversible timing differences as per IAS 12,
all timing differences whether reversing in
the foreseeable future or not, are required
to be incorporated into the accounts).

Ensure that proper amount has been taken

in profit and loss account by taking
difference of opening and closing balance
of deferred tax liability.
F. Evaluate results of the tests.
2. TEST VALUATION AND PRESENTATION
A. Determine that disclosures have been made in
accordance with requirement of Companies
Ordinance, 1984 and relevant accounting
pronouncements.

Page 185 of 455

Audit Program WP Ref.:
Prepared
(d) Direct Taxation by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Direct Taxation

Amount in Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
All liabilities for income taxes on the Existence
balance sheet represent amounts
owed to income tax authorities.
The income taxes payable on the Rights &
balance sheet represent obligations Obligations
of the entity at the balance sheet
date.
All liabilities for income taxes owed Completeness
by the entity and all income tax
expense that had accrued at the
balance sheet date have been
recorded.
Income taxes payable are included Valuation
on the balance sheet at the
appropriate amounts.

Page 186 of 455

 S. Audit Objectives Assertions Risk Assessment
No.
IR CR CRA
To ensure that liabilities for income Presentation &
tax and the related expense has Disclosure
been presented, classified and
disclosed in the financial statements
in accordance with the requirements
of applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting
Standards.

S. Audit Procedures Done by W. P. Ref.

No.
Analytical Procedures
1. Compare current year balances with prior year and
ensure reasonableness of changes during the year.
2. Enquire into and obtain explanations for any unusual
changes during the year.
3. Compare income tax expense to previous year and
assess whether variance is consistent with change in
profits after taking into account any changes in income
tax rates.
Test of Details
1. DIRECT TAXATION
A. Obtain (or prepare) a movement schedule of
taxation liabilities, showing beginning balance,
activity during the year, and ending balance by tax
jurisdiction and tax years. Agree opening and
closing balances to the general ledger. Test
transactions for the year, and investigate unusual
items.
B. Review status of last years' returns, and examine
related correspondence from tax authorities for
indications that the actual liability may differ
significantly from the amount provided.
C. Obtain list of assessments pending finalisation and
study correspondence in relation to them to
determine the need for any further
provision/reversal.
D. Obtain summary of tax assessment and appellate
order in respect of prior year’s taxes. Re-examine
their current status to ensure that there is no
shortfall in the provision.
E. Update tax position schedule and where tax
matters are complex consult with tax department
and document understanding obtained.

Page 187 of 455

 F. Reconcile the tax payments with the advance tax
and corroborate them with the statements filed
quarterly. On a test basis, verify tax payments with
tax challans, bill of entries etc.
G. Where liabilities have been finalized, verify
appropriate payment or refund. Determine that
adjustments have been made for any difference
between the final liability and the amount
provided, and consider the effect of any such
adjustments on subsequent tax years and taxes
imposed by other jurisdictions.
H. Obtain detailed schedules from client for all
temporary differences along with expenses which
will be disallowed under various sections of the
Income Tax Ordinance, 2001, such as for excess
perquisites, payments subject to withholding tax
deduction but made without deduction of
Withholding tax etc.
I. Obtain calculation of the tax liability identifying all
items constituting the difference between net pre-
tax income and taxable income, and compare
calculation to that of the previous year. Review
calculation to determine that correct tax rates have
been used and that all significant tax matters have
been addressed. Agree with tax returns, if
prepared.
J. If applicable, ensure that any tax losses have
been correctly calculated and appropriately dealt
with.
K. Circularize confirmation to tax consultants and
examine the response.
L. If applicable, consider whether any provisions for
deferred taxes have been appropriately dealt with.
Test calculation of deferred taxes and whether
timing differences have been appropriately
considered.
M. Evaluate results of the tests.
2. TEST ACCOUNTING ESTIMATES FOR BIAS
A. Perform a retrospective review of significant
accounting estimates reflected in the financial
statements of the prior year to determine whether
management judgments and assumptions relating
to the estimates indicate a possible bias on the
part of management.
1. The significant accounting estimates
selected for testing should include those that
are based on highly sensitive assumptions or
are otherwise significantly affected by
judgments made by management.

Page 188 of 455

 2. Consider the results of this retrospective
review in evaluating the current-year
estimates. If we identify a possible bias on
the part of management in making prior-year
accounting estimates, we should evaluate
whether circumstances producing such a
bias represent a risk of a material
misstatement due to fraud.
B. Consider whether differences between estimates
best supported by the audit evidence and the
estimates included in the financial statements,
even if they are individually reasonable, indicate a
possible bias on the part of the entity's
management. If so, reconsider estimates taken as
a whole.

Page 189 of 455

Audit Program WP Ref.:
Prepared
(e) Dividend Payable by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Dividend Payable

Amount in Rs.
Account balances:

Classes of transactions:

S. Audit Objectives
No. Assertions Risk Assessment
IR CR CRA
To ensure that dividend payable
represents established liability as at the Existence,
year end payable to the shareholders of Rights &
the company. Obligations
To ensure that the company’s liability in
respect of dividends has been recorded in Completenes
the books in full. s
To ensure that liability is recorded at the
correct amount. Valuation
To ensure that dividend payable has been
presented, classified and disclosed in the
financial statements in accordance with
the requirements of applicable financial
reporting framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting Presentation
Standards. & Disclosure

Page 190 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Review the percentage of declaration as compared to
previous year.
2. Determine whether the declaration is consistent with the
profits of the company
3. Review movement during the year and ensure that any
unpaid dividends carried forward have been properly
classified as unclaimed dividends.
Test of Details
1. TEST DIVIDEND PAYABLE BALANCES
1. Trace opening balance from general ledger.
2. Obtain a list of members of the company as at the
book closure date.
3. Obtain copy of the board resolution to verify the
rate of the dividend (interim and final) announced.
4. Check that Zakat has been deducted at source and
deposited in the Central Zakat Fund under the
provisions of the Zakat and Ushr Ordinance, 1980.
5. Ensure that the opinion paragraph contained in the
auditors’ report is updated with regard to the
reporting on the matters relating to Zakat and is
properly supported.
5. Check that income tax has been deducted from
dividend under the provisions of the income tax
Ordinance 2001.
6. Ensure that dividend warrants are issued in the
name of registered shareholders or to their order.
7. Check payment of the dividend (i.e. dispatch of the
dividend warrant) has been made within the time
period as required by Sec 251 of the Companies
Ordinance, 1984.
8. Ensure that any unpaid / unclaimed amount of
dividends is adequately disclosed.
9. Ensure that dividends are paid out of profits and no
dividend is paid out of proceeds of sale or disposal
of any immovable property / asset of capital nature.
10. Ensure compliance with Foreign Exchange Act,
1947 including nomination of authorized dealer and
permission from SBP for purchase of foreign
exchange for remittance of dividend to foreign
shareholders.
11. Ensure that amount of dividend payable is being
kept in a separate bank account prior to payment.
11. Agree closing balance with general ledger.
12. Evaluate results of the tests.

Page 191 of 455

2. TEST PRESENTATION OF DIVIDEND PAYABLE
A. Determine that disclosures have been made in
accordance with requirements of the Companies
Ordinance, 1984 and relevant accounting
pronouncements.

Page 192 of 455

Audit Program WP Ref.:
Prepared
(f) Equity by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Equity

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
All the equity accounts on the Existence,
balance sheet are appropriately Rights &
authorized and issued. Obligations
To ensure that all changes to equity Completeness
accounts including transfer to
reserve and dividends have been
accounted for in the books of the
company on a timely basis.
To ensure that all equity accounts Valuation
are stated on the balance sheet at
the appropriate amounts.
To ensure that all equity accounts Presentation &
have been presented, classified and Disclosure
disclosed in the financial statements
in accordance with the requirements
of applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting
Standards.

Page 193 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare current year balances with prior year and
ensure reasonableness of changes during the year.
2. Enquire into and obtain explanations for any
unusual changes during the year.
Test of Details
1. TEST EQUITY BALANCES
A. Obtain a schedule of all equity accounts showing
number of shares authorized, issued, and
outstanding at the beginning and end of the year
and all transactions affecting equity (e.g.,
dividends, retained earnings) occurring during the
year.
1. Test the summarization of the schedule.
2. Trace totals to the general ledger.
3. Check the number of shares and amount of
issued, subscribed and paid up capital from
a) Memorandum of association
b) Form ‘A’
4. Agree changes in authorized or issued shares
to minutes and documents filed with the
SECP.
5. Agree total of balances on the share registers
with the issued capital at the balance sheet
date.
6. Obtain listing of shareholders/pattern of
shareholding from CDC and compare it with
the details available with client to work out the
actual pattern of shareholding.
7. Examine all changes in capital.
7.1 Trace to appropriate authorizations (e.g.,
board minutes, member’s register).
7.2 Agree number of shares and proceeds
from issuance of new shares to cash
receipts and supporting records.
Compute the entries to par value of
outstanding shares and paid in capital.

Page 194 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
7.3 Agree number of shares and value of
redemptions to cash disbursements and
supporting records.
7.4 For shares issued as bonus shares
a) Check board resolution
b) Check member’s register to ensure
that changes have been made in number
of shares of each member.
7.5 Ensure that all receipts are through banking
channels, particularly those from foreign
nationals and trace in bank statement. Match with
“Proceeds Realisation Certificate”, if applicable.
7.6 Ensure compliance with the provision of
Companies (Issue of Capital) Rules, 1996 for:
 Shares issued for cash consideration;
 Bonus issue;
 Issue of share for consideration other than
cash; and
 Right issue of shares.
B. Test entries to paid-up capital other than from the
issuance of securities.
C. Test entries to retained earnings other than from
net income, dividends, and treasury shares.
D. Examine documents supporting treasury shares
transactions during the period. Confirm
outstanding treasury shares.
E. Note changes in Directorships with Register of
Directors and Managers and inspect Form 29 filed
with the Registrar of Companies
F. Examine schedule of shares owned off record and
beneficially by major officers.
G. Evaluate results of the tests.
2. TEST DIVIDENDS AND RETAINED EARNINGS
A. Determine that dividend payment and liability have
been correctly recorded.
1. Review extracts of board minutes for
dividends proposed and paid.
2. Re-compute calculation of dividends and
trace total dividends to earnings statement.
3. Re-compute the liability for dividends.
B. Agree changes in retained earnings (e.g., income,
dividends) to supporting documentation and trace
ending balance to general ledger and equity
accounts.
C. Evaluate results of the tests.

Page 195 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
3. TEST PRESENTATION OF EQUITY
A. Determine that for each class of authorised
shares, the title of issue, par or stated value per
share, and the number of shares authorized,
issued, and outstanding are properly recorded and
disclosed.
B. Determine that authorised shares, paid-in capital,
reserves, and retained earnings are properly
recorded, classified and/or disclosed, as
appropriate.
C. Determine that any shares options, warrants,
rights, or conversion privileges existing at the
balance-sheet date are disclosed properly.
D. Determine that all transactions affecting
shareholders' equity are properly recorded in
conformity with applicable state laws.
4. TEST SHARES OPTIONS
A. Obtain a schedule of options granted, cancelled,
and exercised during the audit period, and options
outstanding, exercisable and available for future
grant at the balance-sheet date.
1. Test the summarization of the schedule.
2. Review descriptions of the shares option
plans and determine that all activity during the
year is in compliance.
3. Agree options granted to board minutes and
to schedule of changes in outstanding shares.
4. Determine that outstanding options are valid.
5. Agree option price of qualified shares options
granted to market source.
6. Determine that compensation expense has
been recorded on nonqualified shares options
when appropriate.
7. Agree options cancelled or expired to
supporting documentation (e.g., employee
termination notice).
8. Evaluate results of the tests.

Page 196 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
5. TEST UNUSUAL ENTRIES RECORDED TO
THE GENERAL LEDGER
A. Investigate journal entries from sources
that are typically not associated with this
account.
1. When selecting items to be tested,
consider (a) our assessment of the
risk of material misstatement due to
fraud, (b) the effectiveness of controls
over the preparation and posting of
journal entries, (c) the entity's financial
reporting process and the nature of
the evidence that can be examined,
(d) the nature and complexity of the
accounts, and (e) the amount and
number of such entries. Because
fraudulent journal entries often are
made at the end of a reporting period,
our testing ordinarily should focus on
the journal entries and other
adjustments made at that time. In
addition, because material
misstatements in financial statements
due to fraud can occur throughout the
period and may involve extensive
efforts to conceal entries at the end of
the reporting period, we should
consider whether there also is a need
to extend the testing of journal entries
to other periods within the period
under audit.
B. Examine related accounting records and
determine whether the selected debit/credit
is valid, appropriate, and authorized.
Determine whether the selected entry was
properly recorded in the correct period and
consider the possible implications of such
journal entries on internal control.

Page 197 of 455

S. Audit Procedures Done by W. P. Ref.
No.
C. Determine whether the entries exhibit
characteristics of inappropriate or
unauthorized journal entries such as (a)
entries made to unrelated, unusual, or
seldom-used accounts or business
segments, (b) entries recorded at the end
of the period or as post-closing entries that
have little or no explanation or description,
(c) entries made either before or during the
preparation of the financial statements that
do not have account numbers, and (d)
entries that contain round numbers or a
consistent ending number.
D. Evaluate the reasonableness of other
adjustments (e.g., entries posted directly to
financial statement drafts, consolidating
adjustments, report combinations, and
reclassifications) made in the preparation
of the financial statements.
6. EVALUATE BUSINESS RATIONALE FOR
SIGNIFICANT UNUSUAL TRANSACTIONS
A. If we become aware of significant
transactions that are outside the normal
course of business or that otherwise
appear to be unusual given our
understanding of the entity and its
environment, perform the following
procedures:
1. Gain an understanding of the
business rationale for such significant
unusual transaction.
2. Consider whether the transactions
involve previously unidentified related
parties or parties that do not have the
substance or the financial strength to
support the transaction without
assistance from the entity we are
auditing.
3. Determine whether that rationale (or
the lack thereof) suggests that the
transactions may have been entered
into to engage in fraudulent financial
reporting.

Page 198 of 455

Audit Program WP Ref.:
Prepared
(g) Liabilities Against Assets by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Liabilities Against Assets

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
To ensure that liability represents
valid claims by lessor against assets Existence,
leased to the entity under finance Rights &
lease arrangements. Obligations
To ensure that the entire liability
against finance lease arrangements
has been accounted for in the books
of the company on a timely basis. Completeness
To ensure that liability is recorded at
the correct amount. Valuation
To ensure that the liability has been
presented, classified and disclosed
in the financial statements in
accordance with the requirements of
applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting Presentation &
Standards. Disclosure

Page 199 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare balances to prior periods and budgets
seeking explanations for unusual items and
significant variances.
2. Review movement during the year in long term
deposits and ensure reasonableness of changes
during the year.
Test of Details
1. TEST LIABILITIES AGAINST ASSETS SUBJECT TO
FINANCE LEASE.
A. Obtain a schedule(s) of Finance and operating
leases (including any that existed at the end of the
prior year, as well as any new leases). For
finance leases, the schedule should show
beginning and ending balances and borrowings
and repayments during the year. For operating
leases, the schedule should show current-year
rent expense.
1. To obtain assurance about the completeness
of the schedule:
1.1 Make inquiries of knowledgeable
management.
1.2 Consider any evidence of additional
leases obtained through examination of
minutes of the board, significant
contracts, confirmations of bank
accounts, support for subsequent cash
disbursements (when testing payables)
or for property additions, and other
documents.
2. Test the summarization and trace the ending
balances (for operating leases, the current-
year amount of rent expense) to the general
ledger.
B. Read the lease agreements (or descriptions
thereof in our permanent files) and determine that
each is accounted for as a capital or an operating
lease, as appropriate. Determine that the leased
property is still in use.

Page 200 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
C. Make a selection of finance leases. Prepare, or
have the client prepare, confirmation requests,
and perform the following:
1. Ascertain that the confirmations request all
information likely to be relevant to our tests
of the leases and related interest balances
(e.g., applicable interest rates, due dates,
the date to which interest has been paid, and
the nature and original value of the property
leased).
2. Mail the request under our control to the
lessor.
3. Send second requests for non-replies.
4. Compare replies to requests. Prepare, or
have the client prepare, reconciliations of
exceptions. Trace reconciling items to
supporting documents.
D. For new lease obtained during the year:
1. Review the lease agreements to ascertain its
nature as to finance or operating lease.
2. Check proper approval of lease transaction.
3. Ensure that only principal portion has been
recorded as liability against assets subject to
finance lease.
4. Review the security documents.
5. Evaluate results of the tests.
2. TEST RENTAL EXPENSE
A For rentals paid during the year check the
following:
1. The amount of lease rentals from lease
amortization schedule.
2. Proper bifurcation of lease rental into principal
portion paid and finance charges paid.

Page 201 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
3. Verify payment from bank statements.
4. Check calculation of financial charges
amortization schedule.
B. For selected parties, circularize confirmation
requests. Match replies to confirmation with
amount given in the schedule.
C. Evaluate results of the tests.
3. TEST VALUATION AND PRESENTATION
A. Check that lease liabilities are properly bifurcated
into current and non-current portions.
B. Determine that disclosures have been made in
accordance with requirement of Companies
Ordinance, 1984 and relevant accounting
pronouncements.

Page 202 of 455

Audit Program WP Ref.:
Prepared
(h) Long Term Debt by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Long Term Debt

Amount in
Rs.
Account balances:
Long term debt

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
All long term debts on the balance Existence,
sheet represent valid claims by Rights &
banks or other third parties. Obligations
To ensure that all goods and
services received by the entity have
been accounted for in the books of
the company on a timely basis. Completeness
To ensure that liability is recorded at
the correct amount. Valuation
To ensure that long term debts have
been presented, classified and
disclosed in the financial statements
in accordance with the requirements
of applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting Presentation &
Standards. Disclosure

Page 203 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare current year balances with prior year and
ensure reasonableness of changes during the year.
2. Enquire into and obtain explanations for any
unusual changes during the year.
Test of Details
1. CONFIRM DEBT
A. Obtain a schedule of notes payable and long-term
debt (including debt outstanding at the end of the
prior year, as well as any new debt) showing
beginning and ending balances and borrowings
and repayments during the year, and perform the
following:
1. To obtain assurance about the completeness
of the schedule:
1.1 Make inquiries of knowledgeable
management.
1.2 Consider any evidence of additional debt
obtained through examination of minutes
of the board, significant contracts,
confirmations of bank accounts, support
for subsequent cash disbursements
(when testing payables), and other
documents.
2. Test the summarization and trace the ending
balances to the general ledger.
B. For each lender (or, in some circumstances,
selected lenders) with which the client had debt
outstanding at the prior year end or during the
current year, prepare, or have the client prepare, a
confirmation request for the amount(s) owed to the
lender, and perform the following:

Page 204 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
1. Ascertain that the confirmation asks for all
information likely to be relevant to our tests of
debt and related interest balances (e.g.,
applicable interest rates, due dates, the date
to which interest has been paid, collateral and
security interests).
2. Mail the requests under our control to a person
within the lending institution who would be
expected to be knowledgeable about the
client's obligations, including any contingent
liabilities, guarantees, letters of credit, security
agreements, or similar matters with which the
lender may be involved.
3. Send second requests for non-replies.
4. Compare replies to requests. Prepare, or have
the client prepare, reconciliations of
exceptions. Trace reconciling items to
supporting documents.
2. TEST ACCRUED INTEREST
A. Obtain a schedule of accrued interest expense
(which may be prepared in connection with the
schedule of debt in Procedure 1 above). Test the
summarization and trace the total or the individual
amounts, as applicable, to the general ledger.
B. Make a selection of debt instruments tested in
Procedure 1 and, for each item selected, perform
the following:
1. Based on the information in the confirmation
concerning the date through which interest
was paid and the applicable interest rate, re-
compute the amount of accrued interest.
2. If the information needed to re-compute the
amount was not confirmed:
2.1 Examine the debt agreement evidencing
the interest rate.
2.2 Obtain and examine cash disbursement
records (usually the paid check)
evidencing the most recent payment of
interest.

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 S. Audit Procedures Done by W. P. Ref.
No.
2.3 Re-compute the amount of accrued
interest.
C. Evaluate results of the tests.
3. TEST INTEREST EXPENSE
A. Calculate overall interest expense on loans for the
year, and compare with recorded interest expense.
4. TEST VALUATION AND PRESENTATION OF DEBT
AND INTEREST ACCOUNTS
A. Determine that the following items, if any, are
properly recorded, classified, and/or disclosed, as
appropriate:
1. Debt owed to related parties.
2. Long-term debt and current portion of long-
term debt.
3. Debt callable by the creditor (e.g., due to loan
covenant violations).
4. Short-term obligations expected to be
refinanced.
5. Capitalized interest (e.g., related to
construction financing).
6. Imputed interest (e.g., when there is no stated
interest rate).
7. Discounts or premiums and related
amortization.
8. Unconditional purchase obligations.
B. Obtain a schedule(s) of amounts due to be repaid
in the next five years under the terms of long-term
debt agreements (including, separately, amounts
due under capitalized leases and/or unconditional
purchase obligations, if any). Test the
summarization of the schedule and re-compute
(possibly on test basis) the amounts.

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S. Audit Procedures Done by W. P. Ref.
No.
C. Read the provisions in loan and debt agreements
(and update descriptions thereof contained in our
permanent files, if applicable) and perform the
following:
1. Ensure that the debt agreement made between
the Company and the lender is adequate and
that:
 It is made on the stamp paper;
 It is duly authorized by the notary public;
 It is signed by both the parties to the
agreement and witnessed;
 Official stamp of both the parties to the
agreement;
 Agreement is not expired during the period
under review;
 The terms and conditions of such loans are
compatible with normal business norms;
 Adequate security is provided by the
Company to the lender;
 The terms and conditions are not vague;
 It is approved by persons authorized by the
Company to do so.
2. If agreement contains security against
mortgaged charges are:
 Recorded in register of mortgages charges
under section 125 of the Companies
Ordinance, 1984; and
 Registered under certificate of registration
of mortgages charges as per section 127 of
the Companies Ordinance, 1984.
3. Test that the client is in compliance with loan
covenants and other significant provisions of
the agreements.
4. If there are any provisions with which the client
is not in compliance, determine whether the
debt should be classified as current. If
enforcement of the provisions has been
waived by the lender, obtain confirmation of
the waiver from the lender.
D. Review refinancing/restructuring agreements
subsequent to the balance sheet date to
determine their effects on balance sheet
classifications or on disclosures.
E. Determine that the accounting policies and
methods of recording debt are appropriate and
applied consistently.

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5. ROLL FORWARD TEST FOR DEBT TESTED PRIOR
TO YEAR END
A. Inquire, and consider any other evidence that
comes to our attention (e.g., in reading the minutes
of the board), as to the existence of any new debt
agreements, or modifications to existing
agreements, in the intervening period from the
interim testing date to the balance-sheet date. Test
any new debt (and related accrued interest) as in
Procedures 1 through 4 of this Program.
1. Evaluate results of the tests.
B. Inquire, and consider any other evidence that
comes to our attention (e.g., in reading the minutes
of the Board), as to the existence of any new debt
agreements, or modifications to existing
agreements, in the intervening period from the
interim testing date to the balance-sheet date. Test
any new debt (and related accrued interest) as in
Procedures 1 through 4 of this Program.
C. Test transactions during the intervening period
between the interim testing date and year end:
1. Obtain reconciliations of the interim debt
balances to the year-end balances:
1.1 Agree new borrowings to cash receipts
journals or to entries in cash accounts.
1.2 Agree payments to cash disbursements
journals or to entries in cash accounts.
1.3 Examine supporting documents to verify
other significant entries.
2. Make a selection of entries in cash
disbursement journals (or those entries
recorded directly in cash accounts that
represent debt payments):
2.1 Determine that the amounts of the
payments are in accordance with the terms
of the debt agreements (e.g., by re-
computing the payments).
2.2 Examine related paid checks or bank
advices (for wire transfers) for evidence of
receipt and deposit by the authorized
payee (i.e. the lender).
3. Evaluate results of the tests.
6. CLIENT SERVICE CONSIDERATIONS
Consider whether we can make useful
recommendations to the client with respect to any of the
following:
A. When debt is retired, the client ensures that a
discharge is received on assets securing the debt.

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7. TEST BALANCES DENOMINATED IN FOREIGN
CURRENCIES
A. Agree the closing exchange rate(s) used to
published records and test the translation
calculations.
8. TEST PRESENTATION OF RELATED-PARTY
BALANCES
A. Inquire and consider available evidence, if any, to
identify all related parties. Obtain a schedule of
related-party balances and determine that all
identified related parties with balances at year end
are included in the schedule. Trace the amounts in
the schedule to the trial balance.
B. Determine that the economic substance of the
related-party balances supports their recording.
C. Evaluate the reasonableness of presentation
and/or footnote disclosures of related-party
balances.
D. Consider requesting positive confirmation of
material balances with related parties.
9. TEST UNUSUAL ENTRIES RECORDED TO THE
GENERAL LEDGER
A. Investigate journal entries from sources that are
typically not associated with this account.
1. When selecting items to be tested, consider
(a) our assessment of the risk of material
misstatement due to fraud, (b) the
effectiveness of controls over the preparation
and posting of journal entries, (c) the entity's
financial reporting process and the nature of
the evidence that can be examined, (d) the
nature and complexity of the accounts, and (e)
the amount and number of such entries.
Because fraudulent journal entries often are
made at the end of a reporting period, our
testing ordinarily should focus on the journal
entries and other adjustments made at that
time. In addition, because material
misstatements in financial statements due to
fraud can occur throughout the period and
may involve extensive efforts to conceal
entries at the end of the reporting period, we
should consider whether there also is a need
to extend the testing of journal entries to other
periods within the period under audit.

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 S. Audit Procedures Done by W. P. Ref.
No.
B. Examine related accounting records and determine
whether the selected debit/credit is valid,
appropriate, and authorized. Determine whether
the selected entry was properly recorded in the
correct period and consider the possible
implications of such journal entries on internal
control.
C. Determine whether the entries exhibit
characteristics of inappropriate or unauthorized
journal entries such as (a) entries made to
unrelated, unusual, or seldom-used accounts or
business segments, (b) entries recorded at the end
of the period or as post-closing entries that have
little or no explanation or description, (c) entries
made either before or during the preparation of the
financial statements that do not have account
numbers, and (d) entries that contain round
numbers or a consistent ending number.
D. Evaluate the reasonableness of other adjustments
(e.g., entries posted directly to financial statement
drafts, consolidating adjustments, report
combinations, and reclassifications) made in the
preparation of the financial statements.
10. EVALUATE BUSINESS RATIONALE FOR
SIGNIFICANT UNUSUAL TRANSACTIONS
A. If we become aware of significant transactions that
are outside the normal course of business or that
otherwise appear to be unusual given our
understanding of the entity and its environment,
perform the following procedures:
B. If we become aware of significant transactions that
are outside the normal course of business or that
otherwise appear to be unusual given our
understanding of the entity and its environment,
perform the following procedures:
1. Gain an understanding of the business
rationale for such significant unusual
transaction.

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S. Audit Procedures Done by W. P. Ref.
No.
2. Consider whether the transactions involve
previously unidentified related parties or
parties that do not have the substance or the
financial strength to support the transaction
without assistance from the entity we are
auditing.
3. Determine whether that rationale (or the lack
thereof) suggests that the transactions may
have been entered into to engage in fraudulent
financial reporting.

Page 211 of 455

Audit Program WP Ref.:
Prepared
(i) Long Term Deposit by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Long Term Deposit

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
To ensure that long term deposits Existence,
represent valid claims by third Rights &
parties. Obligations
To ensure that all deposits received
from customers or other third parties
have been accounted for in the
books of the company on a timely
basis. Completeness
To ensure that long term deposits
are recorded at the correct amount. Valuation
To ensure that long term deposits
have been presented, classified and
disclosed in the financial statements
in accordance with the requirements
of applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting Presentation &
Standards. Disclosure

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 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare balances to prior periods and budgets
seeking explanations for unusual items and
significant variances.
2. Review movement during the year in long term
deposits and ensure reasonableness of changes
during the year.
Test of Details
1. TEST LONG TERM DEPOSIT BALANCES
A. Ascertain the nature of deposits by inquiry or by
reviewing prior year’s working papers
B. Examine the supporting documents of deposits e.
g. contracts with customers etc.
C. Circularize confirmations to selected parties. Match
replies with the amounts shown in general ledger.
D. Check that the amounts of deposits to which Sec
226 of the Companies Ordinance, 1984 applies
have been credited by the client in a separate bank
account as required by that Section.
2. TEST PRESENTATION
A. Determine that disclosures have been made in
accordance with the requirements of the
Companies Ordinance, 1984 and the relevant
accounting pronouncements.

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Audit Program WP Ref.:
Prepared
(j) Payables by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Payables

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
To ensure that payables represent
valid claims by suppliers against Existence,
goods delivered or services Rights &
rendered to the entity. Obligations
To ensure that all goods and
services received by the entity have
been accounted for in the books of
the company. Completeness
To ensure that liability is included on
the balance sheet at the correct
amount. Valuation
To ensure that the liability is
recorded in the appropriate period
and there are not cut off issues. Completeness

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S. Audit Objectives Assertions Risk Assessment
No.
IR CR CRA
To ensure that payables have been
presented, classified and disclosed
in the financial statements in
accordance with the requirements of
applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting Presentation &
Standards. Disclosure

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 S. Audit Procedures Objective Done by W. P. Ref.
No.
Test of Controls
Select purchase transactions over
the period under audit and ensure
the following controls have existed
during the period:
 Purchase orders are approved Only authorized
at an appropriate level. purchases are
made
 Purchase orders are serially All purchase
numbered. orders are
entered into the
records
 Entries are made only on the Credit to
basis of approved Goods accounts
Received Note (GRN). payable
represent goods
actually received
 Suppliers’ invoices are checked Accounts
for calculation and casting by a Payable are
person independent of the recorded at the
purchase department appropriate
amount
 Price charged by the supplier is Accounts
verified for appropriateness, for Payable are
e.g. by agreeing the rates recorded at the
charged to approved price lists appropriate
or quotations. amount
 An independent person Accounts
compares the purchase orders, payable have
goods received notes and been booked at
suppliers invoices for appropriate
consistency. amount and
represent valid
claims by third
party
 Suppliers’ statements are Accounts
obtained and reconciled to Payable are
accounting records on a regular accurately
basis recorded

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 S. Audit Procedures Objective Done by W. P. Ref.
No.
 Entries to Accounts Payable are All entries to
approved at an appropriate Accounts
level payable are
authorized
 Credit notes are checked for Credit Notes
correctness of calculation by a issued are
person independent of the properly
preparer. calculated and
recorded at
appropriate
amount
 Credit notes have been entered Credit Notes are
in the same period to which the recorded in the
purchases relate. appropriate
period
Analytical Procedures
1. Compare trade creditors, purchases and payments to
prior periods and budgets seeking explanations for
unusual items and significant variances.
2. Review monthly movement of trade creditors in
comparison to purchases and payments particularly
around the period end.
3. Analyse the turnover of trade creditor – ratio of creditors
to total operating costs and compare to prior periods
and budgets, seeking explanations for unusual items
and significant variances.
4. Analyze the ratio of purchases in the last month of the
period to total purchases.
5. Review the gross profit margin achieved particularly
around the period end and compare to prior periods
and budgets seeking explanations for any unusual
variance.
6. Review the ratio of individual expense accounts to
sales or other appropriate base.
7. Review the accounts payable, purchases or expense
ledgers to identify whether there are any significant
purchases or expenses towards the period end. Check
that these have been accounted for in the correct
period.
Test of Details
1. TEST PAYABLES
A. Obtain the payables trial balance. Test the
summarization and the reconciliation of the total to
the general ledger. Trace significant reconciling
items, if any, to supporting documents.

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 B. Make a selection of cash disbursements from
subsequent cash disbursement records during an
appropriate period following the date of the
payables trial balance (usually at least one trade
payables cycle, or, if payables are tested at year
end, to the end of field work), and:
1. Trace selected disbursements to receiving
documents, purchase invoices, and/or other
supporting documents.
2. Determine whether those selected
disbursements that indicate a liability as of the
trial balance date are recorded in the trial
balance or the reconciliation to the general
ledger.
C. On or after the date of the test in Step B, make a
selection of unpaid suppliers' invoices and
unmatched receiving reports. Determine whether
those that indicate a liability as of the trial balance
date are recorded in the trial balance or the
reconciliation to the general ledger.
D. Review the year-end accounts payable trial
balance to determine whether significant debits are
included in the account balance. For material debit
balances that are included in the year end balance
consider whether reclassification is appropriate.
E. Evaluate results of the tests.
2. TEST VALUATION AND PRESENTATION OF
PAYABLES
A. Determine that the following balances, if any, are
properly classified:
1. Debit balances in payables.
2. Non-current or non-trade payables.
B. Determine that the following balances, if any, are
properly valued, classified, and/or disclosed, as
appropriate:
1. Old, disputed, or questionable payables.
2. Payables to related parties.
3. Purchase commitments.
3. TEST EARLY CUT-OFF OF PURCHASES
A. Make a selection of purchase invoices recorded in
the ___-day period after year end. Trace the
selected invoices to receiving records. Determine
that the payables were recorded in the correct
period. Evaluate results of the tests.
B. Make a selection of initial records of receipts of
goods or services that occurred in the ___-day
period prior to year end. Trace receiving records to
purchase invoices. Determine that the payables
were recorded in the correct period. Evaluate
results of the tests.
Page 218 of 455
4. TEST LATE CUT-OFF OF DEBIT NOTES
A. Inquire into purchase returns in the ___-day period
after year end. Determine that the debit notes
were recorded in the correct period.
B. Make a selection of debit notes recorded in the
___-day period prior to year end. Trace the debit
notes to shipping records and determine that they
were recorded in the correct period.
C. Identify miscellaneous debits to payables recorded
in the ___-day period prior to year end. Trace the
debits to supporting documents and determine that
they were recorded in the correct period.
D. Evaluate results of the tests.
5. ROLL FORWARD TEST FOR PAYABLES TESTED
PRIOR TO YEAR END
A. Inquire into any significant disputed balances since
the date at which payables were tested under
Procedure 1 (or 4, if performed). Investigate
disputed balances as necessary.
B. Review the trial balance of payables as of year
end. For individual supplier accounts that have
decreased significantly since the interim testing
date, either review subsequent cash disbursement
records for indications of unrecorded liabilities to
such suppliers or obtain statements or unpaid
invoices received by the client from such suppliers.
Determine that any liabilities to such suppliers that
existed at year end were recorded at year end.
Evaluate results of the tests.
C. Perform analytical procedures to test the payables
balance at year end:
1. Consider using the following data, as
applicable, to develop an expectation of the
payables balance at year end: prior period
balances, monthly amounts of purchases,
disbursements, and purchase returns in the
intervening period from the interim testing date
to the balance-sheet date compared to such
monthly amounts in prior years and in the
current year prior to the interim testing date.
2. Determine the threshold needed to identify a
significant difference between the expectation
and the recorded year end payables balance.
3. Compare the expectation to the recorded
balance. If the difference is more than the
threshold, obtain and corroborate explanations
for the difference (e.g., by examining
supporting documents).
4. Evaluate results of the tests.

Page 219 of 455

 D. Test transactions during the intervening period
between the interim testing date and year end:
1. Obtain a reconciliation of the interim payables
balance to the year-end balance:
1.1 Agree purchases totals to purchases
journals.
1.2 Agree disbursements totals to cash
disbursements journals.
1.3 Examine supporting documents to verify
other significant entries.
2. Make a selection of entries to purchases
journals in the intervening period between the
interim testing date and year end:
2.1 Trace the selected entries to supplier
invoices and receiving records.
2.2 Verify additions and extensions on the
invoices.
2.3 Determine that the purchases were
recorded in the correct period.
3. Make a selection of entries in cash
disbursements journals in the intervening
period between the interim testing date and
year end:
3.1 Trace the selected entries to supplier
invoices and receiving records.
3.2 Determine that the disbursements were
recorded in the correct period.
3.3 Agree totals in disbursements journals to
credits in cash accounts.
4. Evaluate results of the tests.
6. TEST PAYABLES OWED TO SELECTED
SUPPLIERS
A. Make a selection of significant suppliers to which
amounts may be payable as of the date of the
payables trial balance. Such suppliers may be
identified through inquiry and/or review of prior
cash disbursements records. (Perform B, if
practicable, or else C)
B. Obtain statements or purchase invoices received
by the client from selected suppliers.
C. If statements from selected suppliers are not
available, prepare, or have the client prepare,
confirmation requests for the amounts owed to the
suppliers and perform the following:
1. Mail the requests under our control.
2. Send second requests for non-replies.
3. Compare replies to requests.

Page 220 of 455

 4. For non-replies, examine subsequent cash
disbursements to the suppliers and/or unpaid
supplier invoices, and receiving records.
Determine that any items representing
liabilities as of the trial balance date are
recorded at that date.
D. Obtain and prepare reconciliations of statements,
invoices, or confirmations obtained in Steps B and
C above to the amounts recorded in the payables
trial balance. Trace reconciling items to
shipping/receiving records, purchase invoices,
debit notes, and other supporting documents, as
applicable.
E. Evaluate results of the tests.
7. TEST PRESENTATION OF RELATED-PARTY
PAYABLES
A. Inquire and consider other available evidence, if
any, to identify all related parties from which
purchases were made during the year. Obtain a
schedule of related-party payables and determine
that all identified related parties to which payables
are owed at year end are included in the schedule.
Trace the amounts in the schedule to the payables
trial balance.
B. Determine that the economic substance of the
related-party payables supports their recording.
C. Evaluate the reasonableness of presentation
and/or footnote disclosures of related-party
payables.
D. Consider requesting positive confirmation of
material balances with related parties.
8. TEST VALUATION OF FOREIGN CURRENCY
PAYABLES
A. Inquire and consider other available evidence, if
any, to identify foreign suppliers from which
purchases were transacted in foreign currencies.
Identify payables to such suppliers. Identify
applicable exchange rates and agree them to an
independent source. Re-compute foreign currency
payable amounts in local currency.
B. Determine the impact of foreign currency hedging
contracts, if any, on the recorded balance of foreign
currency payables.
C. Trace currency translation adjustments to the
general ledger.

Page 221 of 455

9. TEST ACCOUNTING ESTIMATES FOR BIAS
A. Perform a retrospective review of significant
accounting estimates reflected in the financial
statements of the prior year to determine whether
management judgments and assumptions relating
to the estimates indicate a possible bias on the part
of management.
1. The significant accounting estimates selected
for testing should include those that are based
on highly sensitive assumptions or are
otherwise significantly affected by judgments
made by management.
2. Consider the results of this retrospective
review in evaluating the current-year
estimates. If we identify a possible bias on the
part of management in making prior-year
accounting estimates, we should evaluate
whether circumstances producing such a bias
represent a risk of a material misstatement
due to fraud.
B. Consider whether differences between estimates
best supported by the audit evidence and the
estimates included in the financial statements,
even if they are individually reasonable, indicate a
possible bias on the part of the entity's
management. If so, reconsider estimates taken as
a whole.
10. TEST UNUSUAL ENTRIES RECORDED TO THE
GENERAL LEDGER
A. Investigate journal entries from sources that are
typically not associated with this account.

Page 222 of 455

 1. When selecting items to be tested, consider
(a) our assessment of the risk of material
misstatement due to fraud, (b) the
effectiveness of controls over the preparation
and posting of journal entries, (c) the entity's
financial reporting process and the nature of
the evidence that can be examined, (d) the
nature and complexity of the accounts, and (e)
the amount and number of such entries.
Because fraudulent journal entries often are
made at the end of a reporting period, our
testing ordinarily should focus on the journal
entries and other adjustments made at that
time. In addition, because material
misstatements in financial statements due to
fraud can occur throughout the period and
may involve extensive efforts to conceal
entries at the end of the reporting period, we
should consider whether there also is a need
to extend the testing of journal entries to other
periods within the period under audit.
B. Examine related accounting records and determine
whether the selected debit/credit is valid,
appropriate, and authorized. Determine whether
the selected entry was properly recorded in the
correct period and consider the possible
implications of such journal entries on internal
control.
C. Determine whether the entries exhibit
characteristics of inappropriate or unauthorized
journal entries such as (a) entries made to
unrelated, unusual, or seldom-used accounts or
business segments, (b) entries recorded at the end
of the period or as post-closing entries that have
little or no explanation or description, (c) entries
made either before or during the preparation of the
financial statements that do not have account
numbers, and (d) entries that contain round
numbers or a consistent ending number.
D. Evaluate the reasonableness of other adjustments
(e.g., entries posted directly to financial statement
drafts, consolidating adjustments, report
combinations, and reclassifications) made in the
preparation of the financial statements.

Page 223 of 455

11. VALUATE BUSINESS RATIONALE FOR
SIGNIFICANT UNUSUAL TRANSACTIONS
A. If we become aware of significant transactions that
are outside the normal course of business or that
otherwise appear to be unusual given our
understanding of the entity and its environment,
perform the following procedures:

1. Gain an understanding of the business

rationale for such significant unusual
transaction.
2. Consider whether the transactions involve
previously unidentified related parties or
parties that do not have the substance or the
financial strength to support the transaction
without assistance from the entity we are
auditing.
3. Determine whether that rationale (or the lack
thereof) suggests that the transactions may
have been entered into to engage in fraudulent
financial reporting.

Page 224 of 455

Audit Program WP Ref.:
Prepared
(k) Short Term Borrowings by:
Date:
Reviewed
by
Date
Client:
Period:
Subject:  Short Term Borrowings

Amount in
Rs.
Account balances:
Short term borrowings

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
All short term borrowings on the Existence,
balance sheet represent valid claims Rights &
by banks or other third parties. Obligations
To ensure that all short term
borrowings have been accounted for
in the books of the company on a
timely basis. Completeness
To ensure that liability is recorded at
the correct amount. Valuation
To ensure that short term
borrowings have been presented,
classified and disclosed in the
financial statements in accordance
with the requirements of applicable
financial reporting framework i.e.
Companies Ordinance, 1984 and
applicable International Financial Presentation &
Reporting Standards. Disclosure

Page 225 of 455

 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare current year balances with prior year and
ensure reasonableness of changes during the year.
2. Enquire into and obtain explanations for any
unexpected changes.
Test of Details
1. CONFIRM DEBT
A. Obtain a schedule of short term borrowing
(including debt outstanding at the end of the prior
year, as well as any new debt or renewal of debt)
showing beginning and ending balances and
borrowings and repayments during the year, and
perform the following:
1. To obtain assurance about the completeness
of the schedule:
1.1 Make inquiries of knowledgeable
management.
1.2 Consider any evidence of additional
debt obtained through examination of
minutes of the board, significant
contracts, confirmations of bank
accounts, support for subsequent cash
disbursements (when testing payables),
and other documents.
2. Test the summarization and trace the ending
balances to the general ledger.
B. For each lender (or, in some circumstances,
selected lenders) with which the client had debt
outstanding at the prior year end or during the
current year, prepare, or have the client prepare, a
confirmation request for the amount(s) owed to the
lender, and perform the following:
1. Ascertain that the confirmation asks for all
information likely to be relevant to our tests of
debt and related interest balances (e.g.,
applicable interest rates, due dates, the date
to which interest has been paid, collateral and
security interests).
2. Mail the requests under our control to a
person within the lending institution who
would be expected to be knowledgeable
about the client's obligations, including any
contingent liabilities, guarantees, letters of
credit, security agreements, or similar matters
with which the lender may be involved.
3. Send second requests for non-replies.

Page 226 of 455

 4. Compare replies to requests. Prepare, or
have the client prepare, reconciliations of
exceptions. Trace reconciling items to
supporting documents.
C. Evaluate results of the tests.
2. TEST ACCRUED INTEREST
A. Obtain a schedule of accrued interest expense
(which may be prepared in connection with the
schedule of debt in Procedure 1 above). Test the
summarization and trace the total or the individual
amounts, as applicable, to the general ledger.
B. Make a selection of debt instruments tested in
Procedure 1 and, for each item selected, perform
the following:
1. Based on the information in the confirmation
concerning the date through which interest
was paid and the applicable interest rate, re-
compute the amount of accrued interest.
2. If the information needed to re-compute the
amount was not confirmed:
2.1 Examine the debt agreement evidencing
the interest rate.
2.2 Obtain and examine cash disbursement
records (usually the paid check)
evidencing the most recent payment of
interest.
2.3 Re-compute the amount of accrued
interest.
C. Evaluate results of the tests.
3. TEST INTEREST EXPENSE
A. Calculate overall interest expense on loans for the
year, and compare with recorded interest expense.
4. TEST VALUATION AND PRESENTATION OF DEBT
AND INTEREST ACCOUNTS
A. Determine that the following items, if any, are
properly recorded, classified, and/or disclosed, as
appropriate:
1. Debt owed to related parties.
2. Debt callable by the creditor (e.g., due to loan
covenant violations).
3. Short-term obligations expected to be
refinanced.
4. Imputed interest (e.g., when there is no stated
interest rate).
5. Discounts or premiums and related
amortization.
6. Unconditional purchase obligations.

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 B. Read the provisions in loan and debt agreements
(and update descriptions thereof contained in our
permanent files, if applicable) and perform the
following:
1. Test that the client is in compliance with loan
covenants and other significant provisions of
the agreements.
2. If there are any provisions with which the
client is not in compliance, determine whether
the debt should be classified as current. If
enforcement of the provisions has been
waived by the lender, obtain confirmation of
the waiver from the lender.
C. Determine that the accounting policies and
methods of recording debt are appropriate and
applied consistently.
5. ROLL FORWARD TEST FOR DEBT TESTED PRIOR
TO YEAR END
A. Inquire, and consider any other evidence that
comes to our attention (e.g., in reading the minutes
of the board), as to the existence of any new debt
agreements, or modifications to existing
agreements, in the intervening period from the
interim testing date to the balance-sheet date. Test
any new debt (and related accrued interest) as in
Procedures 1 through 4 of this Program.
1. Evaluate results of the tests.
B. Inquire, and consider any other evidence that
comes to our attention (e.g., in reading the minutes
of the Board), as to the existence of any new debt
agreements, or modifications to existing
agreements, in the intervening period from the
interim testing date to the balance-sheet date. Test
any new debt (and related accrued interest) as in
Procedures 1 through 4 of this Program.
1. Agree borrowings to cash receipts journals or
to entries in cash accounts.
1.1 Agree payments to cash disbursements
journals or to entries in cash accounts.
1.2 Examine supporting documents to verify
other significant entries.
2. Make a selection of entries in cash
disbursement journals (or those entries
recorded directly in cash accounts that
represent debt payments):

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 S. Audit Procedures Done by W. P. Ref.
No.
2.1 Determine that the amounts of the
payments are in accordance with the
terms of the debt agreements (e.g., by
re-computing the payments).
2.2 Examine related paid checks or bank
advices (for wire transfers) for evidence
of receipt and deposit by the authorized
payee (i.e. the lender).
3. Evaluate results of the tests.
6. CLIENT SERVICE CONSIDERATIONS
Consider whether we can make useful
recommendations to the client with respect to any of the
following:
A. When debt is retired, the client ensures that a
discharge is received on assets securing the debt.
7. TEST BALANCES DENOMINATED IN FOREIGN
CURRENCIES
A. Agree the closing exchange rate(s) used to
published records and test the translation
calculations.
8. TEST PRESENTATION OF RELATED-PARTY
BALANCES
A. Inquire and consider available evidence, if any, to
identify all related parties. Obtain a schedule of
related-party balances and determine that all
identified related parties with balances at year end
are included in the schedule. Trace the amounts in
the schedule to the trial balance.
B. Determine that the economic substance of the
related-party balances supports their recording.
C. Evaluate the reasonableness of presentation
and/or footnote disclosures of related-party
balances.
D. Consider requesting positive confirmation of
material balances with related parties.

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 S. Audit Procedures Done by W. P. Ref.
No.
9. TEST UNUSUAL ENTRIES RECORDED TO THE
GENERAL LEDGER
A. Investigate journal entries from sources that are
typically not associated with this account.
1. When selecting items to be tested, consider
(a) our assessment of the risk of material
misstatement due to fraud, (b) the
effectiveness of controls over the preparation
and posting of journal entries, (c) the entity's
financial reporting process and the nature of
the evidence that can be examined, (d) the
nature and complexity of the accounts, and
(e) the amount and number of such entries.
Because fraudulent journal entries often are
made at the end of a reporting period, our
testing ordinarily should focus on the journal
entries and other adjustments made at that
time. In addition, because material
misstatements in financial statements due to
fraud can occur throughout the period and
may involve extensive efforts to conceal
entries at the end of the reporting period, we
should consider whether there also is a need
to extend the testing of journal entries to
other periods within the period under audit.
B. Examine related accounting records and determine
whether the selected debit/credit is valid,
appropriate, and authorized. Determine whether
the selected entry was properly recorded in the
correct period and consider the possible
implications of such journal entries on internal
control.
C. Determine whether the entries exhibit
characteristics of inappropriate or unauthorized
journal entries such as (a) entries made to
unrelated, unusual, or seldom-used accounts or
business segments, (b) entries recorded at the end
of the period or as post-closing entries that have
little or no explanation or description, (c) entries
made either before or during the preparation of the
financial statements that do not have account
numbers, and (d) entries that contain round
numbers or a consistent ending number.

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 S. Audit Procedures Done by W. P. Ref.
No.
D. Evaluate the reasonableness of other adjustments
(e.g., entries posted directly to financial statement
drafts, consolidating adjustments, report
combinations, and reclassifications) made in the
preparation of the financial statements.
10. EVALUATE BUSINESS RATIONALE FOR
SIGNIFICANT UNUSUAL TRANSACTIONS
A. If we become aware of significant transactions that
are outside the normal course of business or that
otherwise appear to be unusual given our
understanding of the entity and its environment,
perform the following procedures:
1. Gain an understanding of the business
rationale for such significant unusual
transaction.
2. Consider whether the transactions involve
previously unidentified related parties or
parties that do not have the substance or the
financial strength to support the transaction
without assistance from the entity we are
auditing.
3. Determine whether that rationale (or the lack
thereof) suggests that the transactions may
have been entered into to engage in
fraudulent financial reporting.

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Audit Program WP Ref.:
Prepared
(l) Surplus on Revaluation by:
Date:
Reviewed
by
Date
Client:
Period:
Subject:  Surplus on Revaluation

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Objectives Assertions Risk Assessment

No.
IR CR CRA
Surplus on revaluation represents Existence,
valid gains on revaluation of fixed Rights &
assets. Obligations
To ensure that all transfers to and
from the account have been made
in accordance with the requirements
of applicable financial reporting
framework, i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting
Framework. Completeness
To ensure that the surplus has been
stated on the balance sheet at an
appropriate amount. Valuation

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S. Audit Objectives Assertions Risk Assessment
No.
IR CR CRA
To ensure that Surplus on
Revaluation has been presented,
classified and disclosed in the
financial statements in accordance
with the requirements of applicable
financial reporting framework i.e.
Companies Ordinance, 1984 and
applicable International Financial Presentation &
Reporting Standards. Disclosure

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 S. Audit Procedures Done by W. P. Ref.
No.
Analytical Procedures
1. Compare current year balances with prior year and
ensure reasonableness of changes during the year.
2. Enquire into and obtain explanations for any unusual
changes during the year.
Test of Details
1. TEST SURPLUS BALANCE
A. Obtain a schedule of Revaluation of fixed assets
showing assets wise detail, cost of the assets,
revalued amount, name of valuer.
1. Test the summarization of the schedule.
2. Trace totals to the general ledger.
3. Examine the valuer’s report to ensure the
correctness of revalued amount of the fixed
assets and ensure independence of the
valuer and check appropriateness of
assumptions used by valuer.
4. Check the increase in value of the assets has
been transferred to separate account called
“surplus on revaluation of fixed assets” in
accordance with Section 235 of the
Companies Ordinance, 1984.
5. Check that the surplus on revaluation of the
fixed assets has been applied:
a) Only to the extent actually realized on
disposal of revalued assets.
b) On setting –off any deficit arising from
the revaluation of any other fixed assets
of the company.
6. Check incremental depreciation transferred
from surplus to unappropriated profit /
accumulated loss.
7. Examine the revaluation policy in respect of
property, plant and equipment and ensure
that it is being consistently applied as per
requirements of IAS-16 and IAS-36.

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 8. Ensure that proper disclosures as required
under IASs and the Companies Ordinance,
1984 relating to the following have been made:

 The basis used to revalue the assets;

 Effective date of revaluation;
 Whether an independent valuer was
involved;
 The nature of any indices used to
determine replacement cost; and

The carrying amount of each class of property, plant

and equipment.
9. Obtain a listing of all the assets that have been
revalued , and consider the following:

 Reasons for revaluation;

 The professional competency and
experience of the valuer;
 Significant assumptions made;
 Method used;
 Date and year of revaluation;
 Amount of revaluation; and

Treatment of revaluation surplus / deficit.

10. Obtain copies of revaluation report from the
client in case of revaluation. Perform audit
tests in accordance with ISA-620 “Using the
Work of an Auditor’s Expert”. Have following
considered, while considering the valuation
reports:

 Competence and objectivity of the

expert;
 Scope of the expert’s work; and

11. Check compliance with the requirement of

IAS 12 “Income Taxes (Revised)” in respect
of deferred Tax on surplus on revaluation of
fixed assets.
2. TEST PRESENTATION OF SURPLUS ON
REVALUATION OF FIXED ASSETS
A. Determine that disclosures have been made in
accordance with the requirements of the
Companies Ordinance, 1984 and the relevant
accounting pronouncements.

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III. Profit & Loss A/C

S. Financial Statement Caption Reference No. Page No.

No.
1. Sales
2. Cost of Sales
3. Admin Expense
4. Financial Charges
5. Other Income

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Audit Program WP Ref.:
Prepared
(a) Sales by:
Date:
Reviewed
by
Date
Client:
Period:
Subject:  Sales

Amount in
Rs.
Account balances:

Classes of transactions:

S. Audit Procedures Audit Assertion Done by W. P. Ref.

No. Addressed
TEST OF CONTROLS
1 Make a selection of sales Occurrence
transactions from independent
source records e.g. shipping
records, delivery orders, purchase
orders etc.
2 Test the completeness of source Completeness
records by ensuring their numerical
sequences.
3 For each item selected above: Completeness

(a) Trace it to sales invoice

(b) Agree sales invoice prices to a
price list / agreements.
(c) Determine that the sales was
recorded in the correct period.
(d) Trace sales invoice amount to a
sales journal
(e) Trace sales journal total to the
general ledger
4 Make a selection of recorded sales Completeness
returns and each selected item:

Page 237 of 455

 (a) Trace it to credit notes.
(b) Trace credit notes to goods
receiving documents and
original sales invoices.
(c) Determine that credit notes
were recorded in the correct
period.
5 Check that sales data is input only
once and is subject to validation.
6 Access to sales system is restricted
by user ID and password.
7. Check that prices charged in
accordance with the approved price
list.
8. Check that the quantity discounts
are in accordance with the approved
limits.

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S. Audit Procedures Audit Assertion Done by W. P. Ref.
No. Addressed
ANALYTICAL PROCEDURES
1. Have the client prepare a
comparative monthly analysis of
sales by product line, division or
other business segment, including
gross sales, returns and allowances
and discounts. Verify the clerical
accuracy of the analysis.
2 Perform analytical procedures on Occurrence
sales by developing an expected Completeness
amount of sales based on prior
years figures or current period
economic conditions and then
comparing it with actual amount any
significant differences should be
enquired into and corroborated.
TEST OF DETAILS
1. Have the client reconcile totals for
gross sales and sales deductions to
the general ledger control accounts.
2. Trace selected monthly totals for
sales and sales deductions to the
sales journal or similar record.
Investigate significant differences.
(Scope/Sample: __________.)
3. Select a sample of individual sales
transactions from the sales journal
to determine the propriety of their
recognition during the period.
Scope/Sample:

 Transactions over Rs.

__________ to provide
__________ % coverage,
and/or

Representative sample of
__________ transactions.
4. Verify the sales invoices and check
that the customer name, product
description and quantities and price
are mentioned on the invoice and
compare it with the description of
sales order.

5. Review applicable sales invoices

and shipping documents to
determine the accuracy and validity
Page 239 of 455
 of each selected sales transaction
and sales tax charged thereof, if
applicable.
6. Document the criteria for selection
of sales invoices for verification
purposes and ensure that sample is
representative both for volume and
amount of transaction.
7. Scan the sales journal to check
whether there is any duplication of
sales invoice numbers or gap in the
sequence of invoice numbers to
identify invoices cancelled, if any.
8. Review significant sales returns and
credit memos issued during the
period as well as subsequent to the
balance sheet date to determine
whether they were properly
authorized and recorded in the
proper period.
9. Discuss with appropriate client’s
personnel the existence of
significant uncertainties at the time
of sales, if any, like recoverability,
warranty and other obligations, price
protection agreement or revenue
limitation.
10. 10.1 Make a selection of Completeness
transactions from recorded sales Occurrence
and shipping records for prior and
after period-end and ensure proper
cut-off.
10.2 Judgmentally select _____
shipping transactions each before
and after the physical inventory date
to test the client's inventory cutoff
procedures and controls to be
tested on Firm’s Standard Form.
The items selected should be
selected from the transactions
__________ days before and after
the physical inventory date.
10.3 Using PBC or cutoff
documents, trace cutoff data
recorded before and after the
physical inventory date into the
accounting records to determine if
proper cutoff was obtained.
(Scope/Sample: __________.)
10.4 Scan the sales register and the

Page 240 of 455