AuditPracticeManual-1-3
AuditPracticeManual-1-3
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.
The accounts of the six customers failing to reply were verified by other tests and found to be
correctly stated.
The reported errors were considered qualitatively. Those considered to reflect errors in the
population are detailed as follows:
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:
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.
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
Amount in
Rs.
Account balances:
Investment properties
Classes of transactions:
Depreciation
Gain/ loss due to change in fair value
Note: Steps should be carried out on the basis of model (cost or fair value) adopted by the
client.
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
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.
Amount in
Rs.
Account balances:
Long term loan and advances
Provision against long term loan and advances
Classes of transactions:
Interest income
Amount in
Rs.
Account balances:
Long term deposits and prepayments
Provision against long term deposits and prepayments
Classes of transactions:
Impairment Loss
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
Amount in
Rs.
Account balances:
Stores
Spares
Raw material
Work-in-process
Finished goods
Classes of transactions:
Provision / Impairment loss
Cost of Sales
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
Amount in
Rs.
Account balances:
Trade debts
Classes of transactions:
Provision for doubtful debts
Amount in
Rs.
Account balances:
Cash in hand
Cash at bank- Current
- PLS
Classes of transactions:
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:
Amount in
Rs.
Account balances:
Accrued Expenses, Cash and bank balances
Classes of transactions:
Expenses
Amount in Rs.
Account balances:
Classes of transactions: