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AuditPracticeManual-1-3

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100% found this document useful (1 vote)
38 views60 pages

AuditPracticeManual-1-3

KNOWLEDGE

Uploaded by

450z450x
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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COMPUTATION OF SAMPLE SIZE, SELECTING SAMPLE, ANALYZING RESULTS,

PROJECTING ERRORS/MISSTATEMENTS, AND FORMING CONCLUSION

Computation of sample size:

Population value X Reliability factor


Tolerable error

37,500,000 X 2.3 = 66.344 rounded off to 66


1,300,000

Selecting Sample:

Assume that the sample of Rs. 1,800,000/= (66 in Nos. out of 1095) was selected systematically
from a listing of debtors’ balances that had been tested to and from the sales ledger, and had
been added and agreed in total to the balance on the control account in the general ledger.

Sample Results and Analysis

Replies were received from:

Five large customers and


60 of those sampled.

The accounts of the six customers failing to reply were verified by other tests and found to be
correctly stated.

Sample Error Rs. 30,000/= overstatement (out of 60 replies received)

Error in 5 large customers Rs. 10,000/= Overstatement

No ‘Anomalous’ error detected.

The reported errors were considered qualitatively. Those considered to reflect errors in the
population are detailed as follows:

POPULATION STRATUM & SAMPLE

Recorded Recorded Audited Overstatement


Rs. Rs. Rs. Rs.

Material Items 5,000,000 5,000,000 4,990,000 10,000

Sampled Items 37,500,000 1,800,000 1,770,000 30,000

Page 121 of 455


Projecting Errors

Error in Sample Items X Population


Sample

30,000 X 37,500,000 = Rs. 625,000/=


1,800,000

Conclusion

The entity corrected the Rs. 30,000/= errors found in the sample, but disputed the Rs. 10,000/=
error on the large accounts resulting in a net projected population error (NPPE) of:

NPPR = Projected Error - Corrected Error + Uncorrected Error

Rs. 605,000 = 625,000 - 30,000 + 10,000

This is significantly lower than the tolerable error Rs. 1,300,000/=, so it may be concluded that
the recorded existence of debtors is not materially misstated.

In this worked example, we assumed that no ‘Anomalous Error’ has been detected. However, if
an anomalous error detected, it must be considered while computing NPPE for final conclusion
since any type of material misstatements could result in material misstatement of financial
statements of an entity.

Page 122 of 455


Chapter 15 Sample Audit Programs
The following alphabets have been used to indicate the assertion addressed in a step:

Assertion Alphabet Class of Account Presentation


transaction balances at and
and events period end disclosure
Occurrence O  
Completeness C   
Accuracy A  
Cut off T 
Classification L  
Existence E 
Rights and obligation R  
Valuation V  
Allocation K 
Understandability U 

Page 123 of 455


I. Balance Sheet – Assets

S. Financial Statement Caption Reference No. Page


No. No.
1. Fixed assets (Tangible, intangible and CWIP)
2. Investment Properties
3. Investments
4. Derivatives
5. Long term loans and advances
6. Long term deposits and Prepayments
7. Stores, spares and stock-in-trade
8. Trade debts
9. Advances, Deposits, Prepayments & Other
receivable
10 Cash & Bank Balances

Page 124 of 455


Audit Program WP Ref.:
Prepared
(a) Fixed assets (tangible, intangible & CWIP) by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Fixed assets (tangible, intangible & CWIP)

Amount in Rs.
Account balances:
Tangible fixed assets (owned and leased)
Intangible fixed assets
CWIP

Classes of transactions:
Depreciation
Amortisation
Loss/ gain on disposal
Impairment

S. Audit Objectives Assertions Risk Assessment


No.
IR CR CRA
1. Fixed assets are completely and
accurately recorded CA
2. All recorded fixed assets actually exist. E
3. Fixed assets are recorded at appropriate
values. V
4. Fixed assets recorded are owned by the
client and title is also in the name of
client. R
5. Depreciation /amortisation / impairment
expense and gain/ loss on disposal has
been accurately calculated and
appropriately disclosed. OCATL
6. Fixed assets are presented and all
disclosures have been given in
accordance with the Fourth / Fifth
Schedules of the Companies Ordinance, OCAL
1984 and relevant IASs. RVU

Page 125 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and documenting
the same (if not a documented system
manual has been developed by the client).
A walk through test would be necessary to
confirm the understanding as documented.
Identify the preventive (exercised before
occurrence of transactions and event) and
detective (exercised after occurrence of
transactions and event) controls
established by management to support its
assertions.
2. Check on sample of selected transactions ALL
covering the whole period that all
preventive controls are exercised on all
transactions.
3. Check that proper fixed assets register has ALL
been maintained and entries are made in
the register on prompt and consistent
basis and the same is reconciled with
general ledger and physically verified
assets on periodical basis.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been taken
to avoid recurrence of the same.
5. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation
6. Document the conclusion after performing N/A
test of controls and required level of
assurance from substantive procedures.

Page 126 of 455


Analytical Procedures
1. Assess the appropriateness of U
depreciation/ amortisation method and
rate in view of the flow of economic
benefits and useful life of the assets.
2. Check the reasonableness of depreciation CAL
expense by applying depreciation rate to
closing cost/ carrying value as per the
method adopted
3. Document logical commercial reasons for AU
major additions and disposal made during
the year and check whether the additions
are in accordance with the objects of the
company
4. Compare current year balances and CEA
expense with last year balances and
expenses and ensure that any significant
variation should be properly and logically
reasoned.
Test of Details
1. Obtain movement schedule of tangible CEA
and intangible fixed assets and Capital
work-in-progress both for cost,
accumulated depreciation and
impairment. Check casting and cross
casting of the schedule.
2. Trace opening balances from fixed assets CE
register, general ledger and last year’s
working papers.
3. Make a selection of fixed assets held by CEV
client at year-end and physically inspect
them to ensure that:

(a) Asset is owned and held by client.


(b) Remaining useful life appears to be
correct
(c) No new / further impairment is
needed

Page 127 of 455


4. For selected additions during the current CEV
period:
(a) For purchases in current year, obtain
/ see capital expenditure approvals
and vendor’s invoices.
(b) Ensure that additions to fixed assets
do not include any amount of a
nature of revenue expenditure.
(c) Ensure that where full payment has
not been made for what so ever
reason, asset is recorded at full cost
and balance has been recognized as
liability.
(d) Review the entity’s capitalization
policy and check whether the assets
are recognized as per the criteria laid
by the policy
5. For selected assets disposed of during OAL
the current period:
(a) Obtain / see disposals approval
(b) Examine documents authorizing
disposal.
(c) Examine documents supporting
amounts for which assets were sold
e.g. cash receipts
(d) Calculate gain or loss on disposal of
fixed assts
6. To check depreciation expense: OCAL
(a) Determine the reasonableness of
accounting policy and depreciation
method, rates and their consistency
with prior years.
(b) Check calculation of depreciation of
selected assets.
(c) Assess the reasonableness of
allocation to manufacturing costs,
admin cost etc.
7. Ensure that none of the assets is impaired V
or the recoverable amount of an asset is
not less than its carrying amount. If the
carrying amount of an asset is more than
its recoverable amount, that same should
be reduced to recoverable amount
recognising the reduction as impairment
loss.

Ensure that any subsequent addition


should be depreciated over remaining
useful life and not simply depreciated by
applying the depreciation rate.

Page 128 of 455


8. Inspect evidence of ownership e.g. R
vehicle registration, property documents,
machinery import documents etc.
9. Ascertain the nature of each significant E
intangible asset by inquiry or reviewing
information contained in prior-year’s
working papers.
10. Ensure that all intangible assets fully EVR
comply with the definition (identifiable,
control and flow of economic benefits)
and recognition criteria of the IAS 38 i.e.
(a) Flow of economic benefits to
enterprise is expected in future, and
(b) Cost of the asset may be determined
11. For selected intangibles additions during V
the year: -
(a) Approval in Board meeting
(b) Trace the recorded value to
supporting documents e.g.
independent valuation for purchases
in current year.
(c) Obtain authorization or board
minutes.
12. For selected intangible assets disposed- CEV
off during the year: -
(a) Examine supporting documents (e.g.
cash receipts).
(b) Calculate gain or loss on sale of
assets
13. Determine that client's accounting policies U
for amortization are appropriate and
applied consistently. See that intangible
assets with indefinite life are subject to
impairment review.
14. For additions in leased assets during the CEKR
year, check from lease agreements that
the lease is a finance lease in substance.
15. Ensure that depreciation on leased assets OCV
is calculated on the same rates as for
owned assets.

If there is no reasonable certainty that the


lessee will obtain ownership by the end of
the lease term, the assets should be fully
depreciated over the shorter of the lease
term or its useful life.

Page 129 of 455


16. For selected additions to CWIP during the E
year: -
(a) Check supporting documents like
vendors' invoices, contractor bills,
and other evidences.
(b) Check proper authorization and
approval.
17. For selected transfers to fixed assets K
during the year, check contractor
certificates of completion of project and
proper approval thereof and examine the
stage of completion.
18. For items stuck-up for considerable period V
of time, inquire about its status from the
management. Compute provisions if
required and ask for management
representations.
19. In case of revalued assets ensure that V
 Entire class of assets has been
revalued on periodical basis
 Any asset's revaluation results in
deficit should not be adjusted
against other assets' surplus but
should be immediately charged.
 Depreciation is charged on revalued
amount and remaining useful life
 Revalued amount and incremental
depreciation should be transferred to
other comprehensive income
20. Ensure that closing balances as per our N/A
working paper file are in match with
general ledger.
21. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth Schedule to the
Companies Ordinance, 1984 and the
applicable IASs.

Page 130 of 455


Audit Program WP Ref.:
Prepared
(b) Investment properties by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Investment properties

Amount in
Rs.
Account balances:
Investment properties

Classes of transactions:
Depreciation
Gain/ loss due to change in fair value

S. Audit Objectives Assertion Risk Assessment


No. s
IR CR CRA
1. Investment properties are completely and
accurately recorded CA
2. All recorded investment properties
actually exist. E
3. Investment properties are recorded at
appropriate values. V
4. Investment properties recorded are
owned by the client and title is also in the
name of client. R
5. Depreciation expense / gain /loss due to
change in fair value and gain/ loss on
disposal has been accurately calculated
and appropriately disclosed. OCATL

Page 131 of 455


S. Audit Objectives Assertion Risk Assessment
No. s
IR CR CRA
6. Investment properties and all disclosures
have been given are presented in
accordance with the Fourth Schedule /
Fifth Schedule of the Companies OCAL
Ordinance, 1984 and relevant IASs. RVU

Note: Steps should be carried out on the basis of model (cost or fair value) adopted by the
client.

Page 132 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after occurrence
of transactions and event) controls
established by management to support its
assertions.
2. Check on sample of selected transactions ALL
covering the whole period that all
preventive controls are exercised on all
transactions.
3. Check that proper subsidiary records ALL
have been maintained and entries are
made in the same on prompt and
consistent basis and the same is
reconciled with general ledger. Separately
identifiable assets like lifts, electric
installations and other fixtures etc. should
be physically verified on periodical basis
and any adjustment is accounted for both
in subsidiary records and general ledger.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been
taken to avoid recurrence of the same.
5. Ensure that management does not
override the designed controls by
 Enquiring from the designated staff
person
 Remain skeptical during performing
test of design and test of effective
operation

Page 133 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
6. Document the conclusion after performing N/A
test of controls and required level of
assurance from substantive procedures.
Analytical Procedures
1. Assess the appropriateness of U
depreciation/ amortisation method and
rate in view of the flow of economic
benefits and useful life of the properties.
2. Check the reasonableness of CAL
depreciation expense by applying
depreciation rate to closing cost/ carrying
value.
3. Document logical commercial reasons for AU
major additions and disposal made during
the year and check whether the additions
are in accordance with the objects of the
company.
4. Compare current year balances and CEA
expense with last year balances and
expense and ensure that any significant
variation should be properly and logically
reasoned.
Test of Details
1. Obtain movement schedule of investment CEA
properties both for cost and accumulated
depreciation. Check casting and cross
casting of the schedule.
2. Trace opening balances from investment CE
properties' subsidiary records, general
ledger and last year’s working papers.
3. Ensure that: CEV
(a) Properties are owned and held by
client.
(b) Remaining useful life appears to be
correct
(c) No new / further impairment is
needed

Page 134 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
4. If a client holds property partly held to K
earn rentals or for capital appreciation
and partly held for own use then the
property should be classified as
investment property only if these portions
could be sold separately (or leased out
separately under a finance lease) or if an
insignificant portion is held for own use.
Ensure the compliance with requirement
of IAS 40.
5. Ensure that a property is classified as K
investment property only if its cost may be
determined. Under construction
properties should not be classified as
investment properties.
6. For selected capitalizations during the CEV
current period:

(a) Appropriate approvals and bills/


invoices and certificates.
(b) Ensure that expenditure relating to
an investment property should be
debited to the investment property
when it is probable that future
economic benefits, in excess of the
originally assessed standard of
performance of the existing
investment property, will flow to the
enterprise. All other expenditure
should be recognised as an expense
in the period in which it is incurred. .
7. For any property disposed off during the OAL
current period:

(a) Examine documents authorizing


disposal.
(b) Examine documents supporting
amounts for which sale was affected
e.g. cash receipts
(c) Calculate gain or loss on disposal of
investment properties
8. To check depreciation expense: OCAL

(a) Determine the reasonableness of


accounting policy and depreciation
method, rates and their consistency
with prior years.
(b) Check calculation of depreciation.

Page 135 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
9. Ensure that none of the property is V
impaired or the recoverable amount of
any property is not less than its carrying
amount. If the carrying amount of an
asset is more than its recoverable
amount, that same should be reduced to
recoverable amount recognising the
reduction as impairment loss.
10. Inspect property documents to ensure R
ownership.
11. Ensure that where fair value model has V
been adopted the fair value of investment
property should reflect the actual market
state and circumstances as of the
balance sheet date, not as of either a past
or future date.
Any gain and loss on revaluation is
charged to Profit and Loss.
12. Ensure that valuer's assumptions are V
reasonable.
13. Ensure that there are no restrictions on
the realisability of investment property or
the remittance of income and proceeds of
disposal.
14. Ensure that closing balances as per our N/A
working paper file are in match with
general ledger.
20. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth / Fifth Schedule to
the Companies Ordinance, 1984 and the
IAS 40.

Page 136 of 455


Audit Program WP Ref.:
Prepared
(c) Investments (subsidiaries, associates, and by:
others) Date:
Reviewed
by
Date
Client:
Period:
Subject: Investments (subsidiaries, associates, and others)

Amount in
Rs.
Account balances:
Investments
 In subsidiaries and associates
 Held to maturity
 Available for sale
 At Fair value through Profit and Loss

Classes of transactions:
Dividend
Interest
Gain/ loss on revaluation
Gain/ loss on disposal
Impairment Loss

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. Investments are completely and
accurately recorded. CA
2. All recorded investments actually exist. E
3. All investments are appropriately
valued. V
4. All investments are owned by the client
and title is also in the name of client. R
5. Dividend and interest income, gain/ loss
on revaluation and gain/ loss on
disposal has been accurately
calculated, completely recorded and
appropriately disclosed. OCATL
6. Investments are presented and all
disclosures have been given in
accordance with the Fourth / Fifth
Schedule of the Companies Ordinance, OCAL
1984 and relevant IASs. RVU

Page 137 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after occurrence
of transactions and event) controls
established by management to support
its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check that proper subsidiary records ALL
have been maintained and entries are
made in the same on prompt and
consistent basis after proper approval
and appropriate authorisation.
4. Check on a sample of transactions that CE
detective controls have appropriately
been exercised and in case of any
detection of error/ fraud, proper steps
have been taken to avoid recurrence of
the same.
5. All investments in subsidiaries and Laws and
associates should with the board's Regulation
specific approval and in accordance with
requirements of section 208 of the
Companies Ordinance, 1984.
6. Ensure that management does not
override the designed controls by :

 Enquiring from the designated staff


person

 Remain skeptical during performing


test of design and test of effective
operation
7. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.

Page 138 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.

Analytical Procedures
1. Document logical commercial reasons for AU
major additions and disposal made
during the year
2. Compare current year balances and CEA
income with last year amounts and
ensure that any significant variation
should be properly and logically
reasoned.
Test of Details
1. Obtain a movement schedule of CE
investments (shares, TFCs and PIBs etc)
both for numbers and amounts.
2. Trace the opening balances from the C
general ledger, subsidiary records, and
last year working papers.
3. Trace the carrying value of selected E
investments to supporting documents e.g.

(a) Broker's notes for investments


purchased in the current year, to
confirm date of purchase,
description and number of shares.
(b) Carrying costs in our prior year’s
working papers
4. Check the computation of valuation of V
investments in subsidiaries, joint ventures
and associates is made as per the
accounting policies of the company.
5. Obtain and recompute amortisation OCAL
schedule and check its accuracy for fixed
interest securities whether purchased at
premium or discount.
6. Re-perform the marked to market V
valuation of PIBs and TFCs at year-end to
check the valuation of these securities.
7. Where any lien marked on the U
investments, check the disclosure thereof.
8. Perform cut-off at year-end. T
9. Check redemptions of principal during the EV
year and obtain supports to ascertain the
overdue instalments. Check if such
payments were as per the terms of the
redemption agreement.
10. Check that brokerage expenses are AO
accurately recorded.

Page 139 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
11. For selected shares disposed off during COA
the year:

(a) Examine supporting documents of


investments sold e.g. brokers notes
and cash receipts records.
(b) Confirm the date of disposal,
description, and number of shares.
(c) Calculate the gain or loss on sale of
investment and trace the amount
transferred to the profit and loss
account.
12. Test the casting and cross casting of the CE
schedule.
13. Obtain the schedule of capital gain earned O
/ interest income received during the year
and vouch few transactions on test basis.
14. Check the accrual of interest and CVT
amortization of premium / discount on
fixed income securities with the one
calculated on IRR basis.
15. Ensure that closing balances of N/A
investments in working papers agree with
the general ledger.
16. For investments held by client at period RE
end, perform the following:

(a) Physically inspect selected


securities held by the client.
(b) For selected securities not held by
the client, circularize confirmation
requests to the custodian. Compare
replies to recorded investments.
(c) Ensure that the recoverable amount
is not less that carrying amount, if
yes we will see whether it is
permanent decline, if yes book the
impairment.

Page 140 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
17. For selected investments, compute V
market value as under:
(a) For quoted investments, trace
market value from independent
published quotations.
(b) For unquoted investments, calculate
breakup value of shares from
respective company's financial
statements.
18. Ensure that investments are presented OCAL
and all disclosures have been given in RVU
accordance with the Fourth / Fifth
Schedule of the Companies Ordinance,
1984 and relevant IASs. As per IAS 39 all
investments should be properly classified
in at fair value through Profit and Loss,
available for sale and held to maturity.
Investment Income
19. Obtain a schedule showing opening and CE
closing balances of accrued income and
income earned and received during the
year
20. Trace opening balance of accrued income C
from general ledger/ trial balance.
21 Ensure that accrual of dividend income is RA
made only where AGM is held before
year-yen.
22. Ensure proper accounting treatment of V
bonus share received and right shares
subscribed.
23. Make a selection of accruals and examine E
documents supporting the amounts of
investment income (e.g. rates from
published quotations, dividend warrants).
24. Examine subsequent receipts of income EV
accrued at period-end.
25. Ensure that closing balances of accrued N/A
income in working papers agree with
general ledger.

Page 141 of 455


Audit Program for Derivatives –Test of Details
1. Obtain a movement schedule of derivatives. CE
2. Trace the opening balances from the general C
ledger, subsidiary records, and last year
working papers.
3. Check the computation of valuation of V
derivatives is made as per the accounting
policies of the company.
4. Obtaining evidence corroborating the fair value V
of derivatives measured or disclosed at fair
value and check that the model and
assumptions used in valuation of derivatives is
appropriate.
5. Obtain confirmation of holding from custodian. CR
6. Confirm significant terms with the holder of, or R
counterparty to, the derivative; and inspect
underlying agreements and other forms of
supporting documentation, in paper or
electronic form.
7. Where derivative is designated as a hedging E
instrument, obtain hedge documentation
prepared at inception of hedge and check
whether it meets the criteria of eligible hedging
instrument.
Also check whether the hedge was effective
during the year.
8. Check for existence of embedded derivatives VP
and ensure that the derivative component is
separated from host contract where criteria of
IAS 39 is satisfied.
9. Test the casting and cross casting of the CE
schedule.
10. Ensure that closing balances of investments in N/A
working papers agree with the general ledger.

Page 142 of 455


Audit Program WP Ref.:
Prepared
(d) Long term loans and advances by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Long term loans and advances

Amount in
Rs.
Account balances:
Long term loan and advances
Provision against long term loan and advances

Classes of transactions:
Interest income

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. Long term loans and advances are
completely and accurately recorded CA
2. All recorded long term loans and
advances actually exist. E
3. Long term loans and advances are
recorded at appropriate values and all
bad and doubtful balances have been
provided for/ written off. V
4. Long term loans and advances
recorded are the right of the company. R
5. Long-term loans and advances to
associated undertaking were in Laws &
accordance with legal requirements. Regulation
6. Long term loans and advances are
presented and all disclosures have
been given in accordance with the
Fourth / Fifth Schedule of the
Companies Ordinance, 1984 and OCAL
relevant IASs. RVU

Page 143 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
incurrence of transactions and event) and
detective (exercised after incurrence of
transactions and event) controls
established by management to support
its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check that proper subsidiary records ALL
have been maintained and entries are
made in the same on prompt and
consistent basis and the same is
reconciled with general ledger.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been
taken to avoid recurrence of the same.
5. For sample of disbursements made EV
during the year:

(a) Check approval of appropriate level


of management.
(b) Check that the employee has
fulfilled all formalities necessary
before disbursement of loans.
6. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation
7. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.

Page 144 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Analytical Procedures
1. Compare current year balances and CEA
expense with last year balances and
expenses and ensure that any significant
variation should be properly and logically
reasoned.
Test of Details
1. Obtain a employee-wise movement CE
schedule of principal amount of loans and
advances and interest thereon and trace
the opening balances from the general
ledger, subsidiary records, and last year
working papers. Check casting and cross
casting of the schedule.
2. For disbursements made during the year E
check disbursements of funds with
disbursement register and bank
statement.
3. For a sample of repayments made during EVR
the year:

(a) Ensure that amount and date of


repayment was accordance with
repayment schedule or agreement.
(b) Check receipt of funds with receipt
records and bank statement.
(c) Recovery of interest is in
accordance with the policy (i.e.
along with principal or after
recovery of full principal, as the
case may be).
4. Circularize confirmations to selected CER
parties. Match replies with the amounts
outstanding against each party.
5. Obtain age-analysis of long-term loans VK
and advances and perform the following:

(a) Verify that loans have been


classified in correct categories.
(b) Current maturity has been
appropriately calculated and
separately disclosed.
(b) Consider the value of securities
available against each loan for the
purpose of calculation of provision
for doubtful loans and advances.
6. Check subsequent recovery of loans etc. EV

Page 145 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
7. Ensure that all loans and advances to Laws etc.
associated undertakings are granted after
due compliance with legal requirements.
8. Ensure that none of the loans and V
advances are impaired or the recoverable
amount of a loan or advance is not less
than its carrying amount. If the carrying
amount of a loan/ advance is more than
its recoverable amount, then same
should be reduced to recoverable amount
recognising the reduction as impairment
loss
9. For items stuck-up for considerable V
period of time, inquire about its status
from the management. Compute
provisions if required and ask for
management representations.
10. Ensure that loans and advances should
be measured at amortised cost using the
effective interest rate method.
11. Re-perform calculation of interest income OATE
on test basis:

(a) Verify rate of interest from


agreement/ policy.
(b) Check the number of days for which
interest is to be charged.
(c) Also consider the repayment of
loans
12. Test check loan agreement and legal RU
documents to verify the terms and
conditions of the advances
13. Ensure that closing balances as per our CE
working paper file are in match with
general ledger.
14. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth Schedule to the
Companies Ordinance, 1984 and the
applicable IASs.

Page 146 of 455


Audit Program WP Ref.:
Prepared
(e) Long term deposits and prepayments by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Long term deposits and prepayments

Amount in
Rs.
Account balances:
Long term deposits and prepayments
Provision against long term deposits and prepayments

Classes of transactions:
Impairment Loss

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. Long term deposits and prepayments
are completely and accurately recorded CA
2. All recorded long term deposits and
prepayments actually exist. E
3. Long-term deposits and prepayments
are recorded at appropriate values and
all bad and doubtful balances have
been provided for/ written off. V
4. Long-term deposits and prepayments
recorded are the right of the company. R
5. Long-term deposits and prepayments
are presented and all disclosures have
been given in accordance with the
Fourth / Fifth Schedule of the
Companies Ordinance, 1984 and OCAL
relevant IASs. RVU

Page 147 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after occurrence
of transactions and event) controls
established by management to support
its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check that proper subsidiary records ALL
have been maintained and entries are
made in the same on prompt and
consistent basis and the same is
reconciled with general ledger.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been
taken to avoid recurrence of the same.
5. For sample of deposits and prepayments EV
made during the year:

(a) Ensure the commercial and logical


reason.
(b) Check approval of appropriate level
of management.
6. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation
7. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.

Page 148 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.

Analytical Procedures
1. Compare current year balances and CEA
expense with last year balances and
ensure that any significant variation
should be properly and logically
reasoned.
Test of Details
1. Obtain a party-wise movement schedule CE
of deposits and prepayments and trace
the opening balances from the general
ledger, subsidiary records, and last year
working papers. Check casting and cross
casting of the schedule.
2. For deposits and prepayments made E
during the year check disbursements of
funds with disbursement voucher and
bank statement.
3. For a sample of refund of deposits during EVR
the year: -
(a) Ensure that amount and date of
refund was in accordance with
agreement.
(b) Check receipt of funds with receipt
records and bank statement.
4. Circularize confirmations to selected CER
parties. Match replies with the amounts
outstanding against each party.
5. Obtain age-analysis of long-term deposits VK
and perform the following:-
(a) Verify that deposits have been
classified in correct categories.
(b) Current maturity has been
appropriately identified and
separately disclosed.
6. Check subsequent recovery of deposits EV
and adjustment of prepayments etc.
7. Ensure that none of the deposits or V
prepayments are impaired or the
recoverable amount of same is not less
than its carrying amount. If the carrying
amount of a deposits or prepayments is
more than its recoverable amount, then
same should be reduced to recoverable
amount recognising the reduction as
impairment loss

Page 149 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
8. For items stuck-up for considerable V
period of time, inquire about its status
from the management. Compute
provisions if required and ask for
management representations.
9. Ensure that closing balances as per our CE
working paper file are in match with
general ledger.
10. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth / Fifth Schedule to
the Companies Ordinance, 1984 and the
applicable IASs.

Page 150 of 455


Audit Program WP Ref.:
Prepared
(f) Stores, spares and stock-in-trade by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Stores, spares and stock-in-trade

Amount in
Rs.
Account balances:
Stores
Spares
Raw material
Work-in-process
Finished goods

Classes of transactions:
Provision / Impairment loss
Cost of Sales

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. Stock-in-trade is completely and
accurately recorded CA
2. All recorded stocks-in-trade actually
exist. E
3. Recorded stocks-in-trade are valued
appropriately. V
4. Recorded stock-in-trade are owned by
the client and title is also in the name of
client. R
5. Stock-in-trade are presented and all
disclosures have been given in
accordance with the Fourth / Fifth
Schedule of the Companies Ordinance, OCAL
1984 and relevant IASs. RVU

Page 151 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after occurrence
of transactions and event) controls
established by management to support
its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check that proper inventory listing has ALL
been maintained and entries are made in
the same on prompt and consistent basis
and the same is reconciled with general
ledger and physically verified inventories
on periodical basis at least on annual
basis.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been
taken to avoid recurrence of the same.
5. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation

Page 152 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
6. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.
Analytical Procedures
1. Assess the appropriateness of purchases U
and consumptions method and rate in
view of the flow of economic benefits.
2. Check the reasonableness of CAL
consumption allocated to inventories at
different stages.
3. Document logical commercial reasons for AU
purchases and consumption made during
the year
4. Check the appropriateness of compilation OAL
of overheads and allocation basis of the
same to different products.
5. Compare current year balances and CEA
expense with last year and ensure that
any significant variation should be
properly and logically reasoned.
Test of Details
1. Observe physical counting of inventories CE
carried out by the client at year-end or at
any other date and perform tests of
intervening transactions to ensure
existence and conditions unless
impracticable. Also check on sample
basis some items to ensure reliability.
2. Check that third party inventories are CR
identified and excluded from physical
count.
3. For items owned by client but not ER
physically held, obtain independent
confirmations from custodians.

Page 153 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
4. Obtain final inventory compilation C
schedule and perform the following:
(a) Test casting and calculation of
schedule.
(b) Trace balances to the general
ledger.
(c) Trace quantities from physical stock
take working papers.
(d) Trace prices used to build up the
average cost to purchase invoices.
5. To test check cut-off of inventory, select CO
transactions from purchases, purchase
returns and sales (stock outs) of some
days before and after the year end and
ensure proper recording of transactions
in correct period.
6. Determine that the basis of valuation of V
e.g. FIFO or average cost is appropriate
and followed consistently.
7. Obtain stock card of some items and AC
ensure that cost formula is correctly
applied on receipts and issues.
8. Compare cost of closing stock with its V
NRV by comparing raw material with last
invoice from supplier, WIP with expected
cost to completion and finished goods
with market value less expenses
necessary to make the sale.
9. Obtain aging of inventories and compute V
provision for obsolete, damaged, or slow
moving stocks, if any. Ensure that raw
material of loss making and discontinued
products are adequately provided for.
10. Ensure that stores and spares related to
specific machinery should lie longer than
the machine.
11. Ensure that closing balances as per our N/A
working paper file are in match with
general ledger.
12. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth / Fifth Schedule to
the Companies Ordinance, 1984 and the
applicable IASs.

Page 154 of 455


Audit Program WP Ref.:
Prepared
(g) Advances, Deposits, Prepayments & Other by:
receivables Date:
Reviewed
by
Date
Client:
Period:
Subject: Advances, Deposits, Prepayments & Other receivables

Amount in
Rs.
Account balances:
Advances
Deposits
Prepayments
Other receivables
Provision against advances, deposits, prepayments & other receivables

Classes of transactions:
Payments of advances, deposits, prepayments & other receivable
Refund/ adjustment of advances, deposits, prepayments & other
receivable
Provision for the year against bad and doubtful balances

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. Advances, deposits, prepayments &
other receivables are completely and
accurately recorded CA
2. All recorded advances, deposits,
prepayments & other receivables
actually exist. E
3. Advances, deposits, prepayments &
other receivables are recorded at
appropriate values and all bad and
doubtful balances have been provided
for/ written off. V

Page 155 of 455


S. No. Audit Objectives Assertions Risk Assessment
IR CR CRA
4. Advances, deposits, prepayments &
other receivables recorded are the right
of the company. R
5. Advances to associated undertaking
were in accordance with legal Laws &
requirements. Regulation
6. Advances, deposits, prepayments &
other receivables are presented and all
disclosures have been given in
accordance with the Fourth Schedule of
the Companies Ordinance, 1984 and OCAL
relevant IASs. RVU

Page 156 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after occurrence
of transactions and event) controls
established by management to support
its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check that proper subsidiary records ALL
have been maintained and entries are
made in the same on prompt and
consistent basis and the same is
reconciled with general ledger.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been
taken to avoid recurrence of the same.
5. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation
6. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.

Page 157 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Analytical Procedures
1. Compare current year balances and CEA
expense with last year balances and
expense and ensure that any significant
variation should be properly and logically
reasoned.
Test of Details
1. Obtain a party-wise movement schedule CE
of advances, deposits, prepayments &
other receivables and trace the opening
balances from the general ledger,
subsidiary records, and last year working
papers. Check casting and cross casting
of the schedule.
2. For disbursements made during the year E
check disbursements of funds with
disbursement register and bank
statement.
3. For a sample of repayments made during EVR
the year:

(a) Ensure that amount and date of


repayment was accordance with
repayment schedule or agreement.
(b) Check receipt of funds with receipt
records and bank statement.
4. Inquire about the nature of trade CER
deposits. Corroborate movements in
trade deposits with supporting documents
5. Obtain age-analysis of advances, VK
deposits, prepayments & other
receivables and perform the following:

(a) Verify classification in correct


categories.
(b) Current maturities of advances,
deposits, prepayments, & other
receivables has been appropriately
calculated and separately
disclosed.
(c) Consider the value of securities
available if any, for the purpose of
calculation of provision for doubtful
loans and advances.
6. Check subsequent realizations / EV
adjustments etc.
7. Ensure that all loans and advances to Laws etc.
associated undertakings are granted after
due compliance with legal requirements.

Page 158 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
8. Ensure that none of the advances, V
deposits, prepayments & other
receivables are impaired or the
recoverable amount is not less than its
carrying amount. If the carrying amount is
more than its recoverable amount, then
same should be reduced to recoverable
amount recognising the reduction as
impairment loss
9. For items stuck-up for considerable V
period of time, inquire about its status
from the management. Compute
provisions if required and ask for
management representations.
10. Document the nature of other U
receivables, check the movement with
supporting documents and compute the
amount of provision for doubtful
receivables, if required.
11. For short-term loans and advances to CEV
staff, review company’s policies for
disbursement and recoveries thereof, and
ensure the same with supporting
documents. Verify on a test basis
deductions from advances to staff from
their respective payroll register.
12. Test check loan agreement and legal RU
documents to verify the terms and
conditions of the advances
13. Ensure that closing balances as per our CE
working paper file are in match with
general ledger.
14. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth / Fifth Schedule to
the Companies Ordinance, 1984 and the
applicable IASs.

Page 159 of 455


Audit Program WP Ref.:
Prepared
(h) Trade debts by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Trade debts

Amount in
Rs.
Account balances:
Trade debts

Classes of transactions:
Provision for doubtful debts

S. Audit Objectives Assertions Risk Assessment


No.
IR CR CRA
1. Trade debts are completely and
accurately recorded CA
2. All recorded trade debts actually exist. E
3. Trade debts are appropriately valued. V
4. Trade debts recorded are owned by the
client. R
5. Trade debts are presented and all
disclosures have been given in
accordance with the Fourth / Fifth
Schedule of the Companies Ordinance, OCAL
1984 and relevant IASs. RVU

Page 160 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and documenting
the same (if not a documented system
manual has been developed by the client).
A walk through test would be necessary to
confirm the understanding as
documented. Identify the preventive
(exercised before occurrence of
transactions and event) and detective
(exercised after occurrence of
transactions and event) controls
established by management to support its
assertions.
2. Check on sample of selected transactions ALL
covering the whole period that all
preventive controls are exercised on all
transactions.
3. Check that proper party wise subsidiary ALL
ledger has been maintained and entries
are made in the same on prompt and
consistent basis and the same is
reconciled with general ledger.
4. Check on a sample of transactions that CE
detective controls are appropriately been
exercised and in case of any detection of
error/ fraud, proper steps have been taken
to avoid recurrence of the same.
5. Ensure that management does not
override the designed controls by:

 Enquiring from the designated staff


person
 Remain skeptical during performing
test of design and test of effective
operation
6. Document the conclusion after performing N/A
test of controls and required level of
assurance from substantive procedures.

Page 161 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
Analytical Procedures
1. Assess the appropriateness of discount U
and credit policy in view of the flow of
economic benefits.
2. Check the reasonableness of impairment CAL
expense.
3. Document logical commercial reasons for AU
major balances' additions and deletions
made during the year
4. Compare current year balances and CEA
expense with last year balances and
expenses and ensure that any significant
variation should be properly and logically
reasoned.
Test of Details
1. Obtain a party-wise movement schedule CE
and trace the opening balances from the
general ledger, subsidiary records, and
last year working papers. Check casting
and cross casting of the schedule.
2. Make a selection of customers' balances EVR
using appropriate sampling techniques
and circularize confirmations of selected
parties. Compare replies to requests.
Ensure that reconciling items, if any, are
properly supported and appropriately
adjusted.
3. Check subsequent clearance. ER
4. Inquire into significant disputed balances, V
if any.
5. Obtain a movement schedule of C
allowance for doubtful debts and ensure
completeness.
6. Obtain aging of debtors and ensure that V
no unreasonably delayed balances are
appearing.
7. Ensure the recoverability of the debtors V
considered good. No subsequent event
has raised any doubts about their
recoverability.
8. Assess the reasonableness of methods V
used by management in the business
circumstances of the client to estimate
that the doubtful debts are appropriate
and ensure that the same is applied
consistently.
9. Calculate provision for doubtful debts V
based on age-analysis of debtors.

Page 162 of 455


S. Audit Procedures Objective Done by W. P. Ref.
No.
10. Review documents, supporting E
correspondence and authorization for
selected write-offs during the year. Obtain
board approval for write-offs.
11. Select transactions from sales invoices T
and customer returns notes pertaining to
some days prior to and after year-end and
ensure that they have been recorded in
the correct period.
12. Ensure that closing balances as per our N/A
working paper file are in match with
general ledger.
13. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth / Fifth Schedule to
the Companies Ordinance, 1984 and the
applicable IASs.

Page 163 of 455


Audit Program WP Ref.:
Prepared
(i) Cash and bank balances by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Cash and bank balances

Amount in
Rs.
Account balances:
Cash in hand
Cash at bank- Current
- PLS

Classes of transactions:

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
1. All cash and bank balances are
completely and accurately recorded CA
2. All recorded cash and bank balances
actually exist. E
3. All cash and bank balances are
recorded at appropriate values. V
4. All cash and bank balances recorded
are owned by the client and title is also
in the name of client. R
5. All cash and bank balances are
presented and all disclosures have
been given in accordance with the
Fourth / Fifth Schedule of the
Companies Ordinance, 1984 and OCAL
relevant IASs. RVU

Page 164 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
Test of Controls
1. Assess the reasonableness of design of ALL
system of internal control by enquiring
relevant client personnel and
documenting the same (if not a
documented system manual has been
developed by the client). A walk through
test would be necessary to confirm the
understanding as documented. Identify
the preventive (exercised before
occurrence of transactions and event)
and detective (exercised after
occurrence of transactions and event)
controls established by management to
support its assertions.
2. Check on sample of selected ALL
transactions covering the whole period
that all preventive controls are exercised
on all transactions.
3. Check on a sample of transactions that ALL
detective controls are appropriately
been exercised and in case of any
detection of error/ fraud, proper steps
have been taken to avoid recurrence of
the same.
4. Check that proper bank reconciliations ALL
are prepared, checked and approved.
Long outstanding items are followed up
and proper disposition of such items is
made.
5. Proper segregation of duties between CE
custodian and accounting and
approving personnel exist.
6. Payments vouchers are appropriately ECA
prepared and properly approved by
designated authority.
7. Ensure that management does not
override the designed controls by:

 Enquiring from the designated


staff person
 Remain skeptical during
performing test of design and test
of effective operation
8. Document the conclusion after N/A
performing test of controls and required
level of assurance from substantive
procedures.

Page 165 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.

Analytical Procedures
1. Document logical commercial reasons AU
for new bank accounts opened and
closed during the year.
2. Compare current year balances with last CEA
year balances and ensure that any
significant variation should be properly
and logically reasoned.
Test of Details
1. Attend year-end cash count and deposit E
verification.
2. Circularize direct confirmations to all ER
banks.
3. Trace opening balance in general ledger CE
from last year working papers.
4. Obtain and examine bank CEA
reconciliations ensure the following:

 No long outstanding item should


remain un-followed,
 No revenue nature item should be
appearing
 All deposit made should be
cleared within two days
 No long outstanding cheques of
significant amount are un-
presented; if so then check their
payment voucher and ensure that
no discrepancy is involved.
5. Ensure that all balances etc. reported by CA
bank in replies to bank confirmation
request are included in records of the
client.
6. Ensure that no balances are subject any U
encumbrance, if so then disclosure is
made.
7. Convert FCY accounts into PKR at V
year-end rate.
8. Ensure that all bank accounts are in R
company's name.
9. Ensure that closing balances as per our N/A
working paper file are in match with
general ledger.
10. Determine that disclosures have been OCAL
made in accordance with the RVU
requirements of Fourth Schedule to the
Companies Ordinance, 1984 and the
applicable IASs.

Page 166 of 455


II. Balance Sheet – Liabilities

S. Financial Statement Caption Reference No. Page


No. No.
1. Accrued Expenses
2. Contingencies & Commitments
3. Deferred Liabilities
4. Direct Taxation
5. Dividend Payable
6. Equity
7. Liabilities Against Assets
8. Long Term Debt
9. Long Term Deposit
10. Payables
11. Short Term Borrowings
12. Surplus on Revaluation

Page 167 of 455


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

Amount in
Rs.
Account balances:
Accrued Expenses, Cash and bank balances

Classes of transactions:
Expenses

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
To ensure that accrued expenses
represent valid claims by suppliers Existence,
against 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 on a timely
basis. Completeness
To ensure that liability is recorded
at the correct amount. Valuation
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

Page 168 of 455


S. No. Audit Procedures Objective Done by W. P. Ref.
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 at Only authorized
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 basis Credit to
of approved Goods Received accrued
Notes (GRN). expenses
represent goods
actually received
Entry to accrued expense account All entries to
is authorized at appropriate level Accrued
and supported by appropriate expenses are
calculations. authorized
Suppliers’ invoices are checked for Accrued
calculation and casting by a person expenses are
independent of the purchase recorded in the
department appropriate
amount
Price charged by the supplier is Accrued
verified for appropriateness, for expenses are
e.g. by agreeing the rates charged recorded at the
to approved price lists or appropriate
quotations. amount
An independent person compares Accrued
the purchase orders, goods expenses have
received notes and suppliers been booked at
invoices for consistency. appropriate
amount and
represent valid
claims by third
party
Suppliers’ statements are obtained Accrued
and reconciled to accounting expenses are
records on a regular basis. accurately
recorded

Page 169 of 455


S. No. Audit Procedures Done by W. P. Ref.
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 in Credit Notes are
the same period to which the recorded in an
purchases relate. appropriate
period
Analytical Procedures
1. Compare accrued expenses to prior periods and
budgets seeking explanations for unusual items and
significant variances.
2. Review monthly movement of accrued expenses in
order to identify any inconsistency particularly towards
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. Review the ratio of individual expense accounts to
sales or other appropriate base.
5. Review the accrued expense, 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.

Page 170 of 455


S. No. Audit Procedures Done by W. P. Ref.
Test of Details
1. TEST THE PROPRIETY OF ACCRUED EXPENSE
ACCOUNTING POLICIES AND PROCEDURES
A. Review the information in prior-year working
papers and/or inquire concerning the nature of
each significant accrued expense account and
the policies and procedures used to account for
them.
B. Inquire as to the reasons for significant changes
in accrued expense balances since the prior
year.
C. Determine that the accounting policies and
procedures for identifying when liabilities should
be recorded are appropriate and applied
consistently.
D. In the course of performing the following
procedures in this Program, consider \whether
audit evidence we examine supports our
understanding of accrued expense accounting
policies and procedures and their propriety.
2. TEST ACCRUED EXPENSES BALANCES
A. Perform Procedure 1, Steps B to D, in the Model
Audit Program for Payables. For selected
subsequent cash disbursements or unpaid
invoices that indicate liabilities incurred but not
recorded as accounts payable in the audit period,
ascertain that they were recorded in an
appropriate accrued expense account.
B. Inquire and/or review information in prior-year
working papers concerning the nature of
recorded accrued expenses. Inquire and
consider other available evidence, if any, that
unrecorded or under-recorded liabilities exist.
Consider the following sources of evidence,
among others, as applicable: prior-year balances
of accrued expense accounts; prior and current-
year balances of related expense accounts;
minutes of meetings of the board of directors;
discussions with internal legal counsel;
responses to letters of inquiry to independent
legal counsel; employee benefit plans (e.g.,
pension, medical, vacation, deferred
compensation) and reports from actuaries,
insurance companies, etc.; subsequent payroll
records; significant contracts for services
performed in the audit period.

Page 171 of 455


C. Make a selection of the significant accrued
expenses noted while performing Steps A and B
(including any that appear to exist but are
unrecorded or under-recorded).
1. For selected accruals that are based
primarily on known data (i.e., that are not
accounting estimates), examine documents
supporting the amounts accrued (e.g.,
service contracts or invoices, subsequent
payroll records, property tax statements).
2. For selected accruals that are accounting
estimates (e.g., liabilities for certain
employee benefits plans and legal
contingencies):

2.1 Evaluate the reasonableness of the


methods and assumptions
management used to make the
estimates.
2.2 If management's methods and
assumptions were reasonable, test the
data and assumptions underlying the
estimates, and re-compute the
estimates.
2.3 If management's methods and
assumptions were not reasonable,
develop an independent range of
reasonable estimates and determine
whether management's estimates fall
within that range. (Note: The factors
that might be considered will vary
according to the nature of the
liabilities.)
3. For selected accruals with significant
balances in the prior year that no longer exist
or that have significantly lower balances in
the current year:

3.1 Assess whether the circumstances


requiring the accruals in the prior year
no longer exist or whether they warrant
reductions in the amounts accrued.
3.2 If the accounts consist of only one or
very few transactions (e.g., a prior-year
accrual for a legal liability), trace the
disposition of the liability (or partial
disposition) to supporting documents
(e.g., cancelled checks).
4. Evaluate results of the tests.

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D. Obtain aging analysis of accrued and other
liabilities. For accruals and other liabilities, which
are outstanding for a considerable period, inquire
its reasons for non-clearance, refer them to the
working papers and consider them for
adjustments, if any. Consider impact of tax laws
for old outstanding liabilities.
E. Check subsequent clearance of accrued liabilities
and other liabilities and mention clearance in
terms of percentage.
3. TEST PRESENTATION OF ACCRUED EXPENSES
A. Determine that the following balances, if any, are
properly classified:

1. Debit balances in accrued expenses.


2. Non-current accrued expenses.
B. Determine that the following, if any, are properly
recorded, classified, and/or disclosed, as
appropriate:
1. Accrued expenses owed to related parties.
2. Loss contingencies.
3. Retirement plans.
4. Post retirement health care and life
insurance benefit plans.
5. Property taxes estimated with a substantial
measure of uncertainty.
6. Lease obligations.
4. TEST BALANCES DENOMINATED IN FOREIGN
CURRENCIES
A. Agree the closing exchange rate(s) used to
published records and test the translation
calculations.
5. 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.

Page 173 of 455


S. No. Audit Procedures Done by W. P. Ref.
6. 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.
7. TEST UNUSUAL ENTRIES RECORDED TO THE
GENERAL LEDGER
A. Investigate journal entries from sources that are
typically not associated with this account.

Page 174 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 175 of 455


8. 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 176 of 455


Audit Program WP Ref.:
Prepared
(b) Contingencies & Commitments by:
Date:
Reviewed
by
Date
Client:
Period:
Subject: Contingencies & Commitments

Amount in Rs.
Account balances:

Classes of transactions:

S. No. Audit Objectives Assertions Risk Assessment


IR CR CRA
A. The contingent liabilities disclosed
by the management includes all
contingencies wherein it is not yet
confirmed whether the entity has a
present obligation that could lead to
outflow of economic benefits or the
amounts of which cannot be
measured with sufficient reliability
or the existence of which will be
confirmed only by the occurrence
of one or more uncertain future
events not wholly within the control
of the entity and that these are
adequately classified and
disclosed. Completeness
B. All the future commitments
embodying outflow of economic
benefits against committed
transactions have been identified,
classified and disclosed as
commitments.
C. To ensure that contingencies and
commitments have been disclosed Presentation &
in the financial statements in Disclosure

Page 177 of 455


accordance with the requirements
of applicable financial reporting
framework i.e. Companies
Ordinance, 1984 and applicable
International Financial Reporting
Standards.
Analytical Procedures
1. Review contingencies and commitments
appearing in last year’s accounts and inquire
about the status this year.
2. Compare current year disclosures with last year
and obtain explanations for any significant or
unusual items.
Test of Details
1. CONTINGENCIES AND COMMITMENTS
1. Inquire of and discuss with management the
client’s policies and procedures for identifying,
evaluating, and accounting for contingencies,
including those resulting from litigation and
claims. The inquiry should consider addressing
oral arrangements, such as an oral guarantee for
the debt of others, as well as written
arrangements.
2. Obtain from legal adviser a confirmation and
evaluation of the litigation and claims that existed
at the balance sheet date and during the period
from the balance sheet date to the date the
information is provided to the auditors.
3. Examine documents, including correspondence
and invoices from lawyers, in the client’s
possession concerning litigation, claims and
unasserted claims.
4. Obtain and evaluate letters from legal advisors.
5. Inquire of and discuss with management the
client’s policies and procedures for identifying,
evaluating, and accounting for commitments.
6. Review the results of audit procedures performed
in other accounts.
7. Read the minutes of corporate meetings (e.g.,
shareholders, board of directors, and relevant
committees of the board) held during the period
being examined and through to the date of the
auditor’s report.
8. Read significant contracts, loan agreements,
leases, service guarantees, insurance policies (or
note the lack of insurance), and other applicable
to sales, purchases or lease contracts.

Page 178 of 455


9. Determine, through inquiry and review of sales
and/or lease agreements, polices in effect with
respect to returns, repurchases, and future
allowances applicable to sales or leases.
10. Determine, through inquiry and review of
minutes, contracts/agreements, and bank
confirmations, accounting and operating policies
in effect with respect to interest rate and foreign
currency futures/hedges.
11. Examine bank confirmations for contingent
liabilities, letters of credit, and compensating
balance arrangements.
12. Inquire as to material commitments to complete
sales contracts at a loss.
13. Inquire as to any commitments to repurchase
assets previously sold; purchase quantities in
excess of requirements or at prices in excess of
prevailing market prices; construct or acquire
property, plant, equipment, investments,
investments, intangibles, or other non current
assets.
14. Refer capital commitments relating to long- term
projects from capital work in progress.
15. Refer minutes of meeting of Board of Directors
for potential capital commitments.
16. Refer unfulfilled purchase orders relating to
capital expenditure for potential capital
commitments.
17. Review cost and progress estimation procedures
for long term projects.
18. Where some or all of the expenditure required to
settle a contingent liability is expected to be
reimbursed by another party, ensure that the
reimbursement should be disclosed when, and
only when, it is virtually certain that the
reimbursement will be received if the enterprise
settles the potential obligation.
19. Evaluate the possibility of subsequent events, to
ensure that there is no unrecorded contingency
Tax Contingencies
i) Obtain professional opinion of the tax
consultant of the entity so as to assure the
degree and extent of exposure.
ii) Refer to the tax working papers, particularly
tax position schedule in order to identify
any potential contingent liability.
iii) Obtain from client any reports/details of
sales tax audits/income tax audits.

Page 179 of 455


iv) Obtain from client any notices of
demand/show cause notices served during
the period/subsequent to year-end.
Outstanding Bank guarantees
i) Prepare summary in accordance with the
confirmations received from banks.
ii) Review the bank guarantee
letters/agreements.
iii) Examine returned standard bank
confirmations forms and any other returned
confirmations of bank credit arrangements
for contingent liabilities, letters of credit,
and compensating balance arrangements.
iv) Ascertain whether any bank guarantee also
constitutes/reveals a contingency.
20. Obtain the client’s representation regarding
contingencies & commitments as part of the
financial statement representation letter.

Page 180 of 455

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