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CHARTERED ACCOUNTANTS
OF PAKISTAN
PREFACE
The Institute of Chartered Accountants of Pakistan as member of the International Federation
of Accountants (IFAC) has a professional obligation to implement the standards issued by the
Federation of the International Accounting Standards Committee (IASC).
The Preface to the International Standards on Auditing (ISAs) issued by the IFAC states that
the objective of audit of financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an
identified reporting framework (which would mean accounting standards applicable in
Pakistan).
In order to arrive at a correct audit opinion in an efficient and effective manner, the audit is to
be conducted in accordance with the ISAs and related assurance services and pronouncements
issued by the Council of the Institute.
The manual does not envisage all possible corporate entities or circumstances, for instance
special purpose entities such as banks, airlines, insurance companies, telecommunications and
other utilities etc. may need substantial modifications, even redesigning, to fully conform to
the requisite requirements of ISAs etc.
The Quality Control Review Committee of the Institute hopes that the manual shall be of great
functional utility to its practicing members.
The committee expects the practicing members would follow the Manual in letter and spirit.
The manual shall be updated to incorporate the latest requirements of the ISAs etc.
WORKING PAPERS
The working papers are not definitive but are only sample working papers that need to be
supplemented or amended or modified by the members in accordance with the requirements of
the entity under audit.
ORGANIZATION OF THE MANUAL
Two volumes of the Manual are organized as follows:
Volume 1
Chapter 1:
Describes briefly the salient features of the audit process, including the three
phases of planning, execution and completion.
Chapter 2: Gives the contents of the Audit Planning File. Also included therein is
guidance on evaluation of accounting and internal control systems, the
internal control questionnaires including a guide on the evaluation of general
controls relating to Computerized Information Systems. Further, model audit
programs for a manufacturing entity, duly correlated with possible audit
assertions have also been included.
Volume 2
Chapter 3: Gives the contents of the Audit Execution File. This largely comprises of
the standard working paper schedules that are used to collect audit evidence
on the financial statement components, including lead schedules on such
components, referencing methodology and the possible wordings of the
conclusions.
Chapter 4: Gives the contents of the Completion and Reporting File. Also included
therein is a suggested completion checklist, the disclosure checklist based on
the requirements of the international accounting standards and the
requirements of the Companies Ordinance 1984 developed by the Institute,
the suggested formats of Management Representation letter, Letter to the
Board of Directors, Management Letter etc.
Chapter 5: Gives the contents of the Permanent Audit File.
Chapter 6: Covers Summary of Some ISAs.
CONTENTS
Chapter 1
Audit Process
1.1
1.2
2.2
2.3
2.3.1
2.4
2.4.6
168
2.4.7 List of Authorized Signatories 2-178
2.4.8 Notes of Meeting with Client 2-179
2.4.9 Notes of Review of Correspondence File (if Separately Maintained) 2-185
2.4.10 Points Forward From Previous Year (Refer Points Carried Forward to Next
Year) 2-186
2.5
3.1
3.2
3.3
3.4
Chapter 3
Audit Execution File
General Instructions for Documentation of Audit Execution File 3-1
Exceptions and Control Weaknesses 3-2
Audit Working Paper Guidelines 3-3
Significant Components of Balance Sheet and P & L Account Lead Schedules with
Conclusions 3-5
Chapter 4
Audit Completion & Reporting File
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.12
4.13
4.14
4.15
4.8
4.9
4.10
4.11
5.1
5.2
5.3
5.4
Chapter 5
Permanent Audit File
Formation Information and Regulation 5-2
Minutes of Board Of Directors Meetings Containing Decisions of Permanent Nature
& Minutes of Annual General / Extraordinary Meetings 5-3
Loans & Other Long Term Agreements 5-4
Miscellaneous 5-5
Chapter 6
Summary
of
Some
International
Audit Phase
Documentation
3
4
5.1
The ISA 300 requires that the audit should so plan his work so that the audit is
performed in an effective manner.
5.2
5.3
The extent of planning will vary according to the nature and size of the entity being
audited, the complexity of the audit and the auditors experience and knowledge of the
entitys business.
5.4
5.5
5.6
5.7
5.8
Based on the audit approach developed in the Overall Audit Plan, the auditor should
carry out detailed audit planning leading to the development of the audit programs of
each component of the financial statements containing nature, timing and extent of audit
procedures to be applied to them.
5.9
5.10 An important aspect of detailed planning is the study and evaluation of the internal
control procedures to ascertain the extent to which the internal control systems can be
relied upon for the purposes of the audit. Where the accounting and internal control
systems are considered reasonably reliable (that means when the control risk is assessed
as less than high) and a decision is made to place reliance on such systems and internal
control questionnaires, flow charts or a combination thereof.
5.11 The internal control checklist prepared by the Institute of Chartered
Accountants of
Pakistan; is included in Chapter 2, which can be used for documenting the important
features of the internal control. This checklist is not definitive and may need to be
supplemented, amended or modified according to the need of the audit requirements of
the entity.
5.12 The
overall audit plan, audit programs, time budgets, planning checklist and other
documentation encompassing the planning phase of the audit is to be filed as part of the
Audit Planning File as shown in Chapter 2 of the Manual.
6
6.1
Information regarding audit administration (Chart-4) such as staff, planning, staff time
allocation, formats of confirmations, job/costing recovery etc., is included in Chapter 2.
EXECUTION PHASE
7.1
The auditor, before commencing audit, should review whether based on his knowledge
of the accounting systems and internal control procedures on the basis of which plans
and audit programs were made were valid or they need to be modified.
The detailed steps involved in the execution phase are given in the Flow Chart 5 below.
The evidence accumulated in this is filed in the execution File.
7.2
8
COMPLETION PHASE
8.1
The final phase of the audit comprises of the review working papers and the financial
statements and evaluation of the conclusions that have been reached. The review should
be carried out by a qualified audit manager/partner. However, in the case of sole-
proprietorship concern, it must be ensured that the proprietor carries out a thorough
review of all the working papers.
8.2
Care is to be exercised to ensure that disclosure and completion checklist are prepared
and completed and issues such as subsequent events review, related party transactions
and going concern aspect etc. are considered before audit opinions of the financial
statements is issued.
8.3
Details of the steps involved in the completion phase are given in Flow Chart 6 and
matters to be considered and the documentation to be completed are clarified in Review
and Completion File in Chapter 4.
Dear Sir
You have requested that we audit the balance sheet of as of , and the related
statements of income and cash flows for the year then ending. We are pleased to confirm our
acceptance and our understanding of this engagement by means of this letter. Our audit will be
made with the objective of our expressing an opinion on the financial statements.
We will conduct our audit in accordance with International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation.
Because of the test nature and other inherent limitations of an audit, together with the inherent
limitations of any accounting and internal control system, there is an unavoidable risk that
even some material misstatements may remain undiscovered.
In addition to our report on the financial statements, we expect to provide you with a separate
letter concerning any material weaknesses in accounting and internal control systems which
come to our notice.
We remind you that the responsibility for the preparation of financial statements including
adequate disclosure is that of the management of the company. This includes the maintenance
of adequate accounting records and internal controls, the selection and application of
accounting policies, and the safeguarding of the assets of the company. As part of our audit
process, we will request from management written confirmation concerning representations
made to us in connection with the audit.
We look forward to full cooperation with your staff and we trust that they will make available
to us whatever records, documentation and other information are requested in connection with
our audit. Our fees, which will be billed as work progresses, are based on the time required by
the individuals assigned to the engagement plus out-of-pocket expenses. Individual hourly
rates vary according to the degree of responsibility involved and the experience and skill
required.
We wish to inform you that our working papers files for the audit of the financial statements
of your company would be subject to review by the Institute of Chartered Accountants of
Pakistans Quality Control Review Committee without any further reference to you.
This letter will be effective for future years unless it is terminated, amended or superseded.
Unless we hear from you to the contrary, we will assume your concurrence with the contents
of this letter.
Yours truly
FIRMS
NAME
Name
of
client
_____________________________________________________ Nature of
Client Business ____________________________________________
Major
Locations:
___________________________________________________
Other Information
1
2
3
o Banks
o Legal Advisor
o Tax Advisor etc.
Business Activities
Major Suppliers
Major Competitors
Industry Conditions:
Technological Factors:
AREAS
SIGNIFICANT
FINANCIAL
STATEMENT COMPONENTS
List down the critical audit areas and its impact on the financial statements relating to
2.2.5
AND
control systems sufficient to plan the audit and develop an effective audit
approach. The auditor should use his professional judgment to assess audit
risk and to design audit procedures to ensure it is reduced to an acceptably
low level.
1
The following paragraphs contain guidance on matters relating to risk assessment and
internal control to help members in understanding these concepts based on the
guidance contained in AS-6 and other related guidance to enable them in developing
an efficient and effective audit approach and in complying with the requirements of
AS-6.
Definitions
3.1
Audit Risk means the risk that an auditor gives an inappropriate audit
opinion when the financial statements are materially misstated. Audit risk has
three components: inherent risk, control risk and detection risk.
3.2
3.3
Control risk is the risk that a misstatement that could occur in an account
balance or class of transactions and that could be material individually or when
aggregated with misstatements in other balances or classes, will not be
prevented or detected and corrected on a timely basis by the accounting and
internal control systems.
3.4
Detection risk is the risk that an auditors substantive procedures will not
detect a misstatement that exists in an account balance or class of transactions
that could be material, individually or when aggregated with other balances and
classes.
3.5
3.6
3.7
Internal Control System means all the policies and procedures (internal
controls) adopted by the management of an entity to assist in achieving
managements objective of ensuring, as far as practicable, the orderly and
efficient conduct of its business, including adherence to management policies,
the safeguarding of assets, the prevention and detection of fraud and error, the
accuracy and completeness of the accounting records, and timely preparation of
reliable financial information. The internal control system extends beyond those
matters which relate directly to the functions of the accounting system and
comprises of two components: a) the control environment and the control
procedures.
Control environment means the overall attitude, awareness and actions of directors
and management regarding the internal control system and its importance in the entity.
The control environment has an effect on the effectiveness of the specific control
procedures. A strong control environment, for example, one with the tight budgetary
control and an effective internal audit function, can significantly complement specific
control procedures. However, a strong control environment does not, by itself, ensure
the effectiveness of the internal control system. Factors reflected in the control
environment include:
The function of the board of directors and its committees. Managements
philosophy and operating style. The entitys organizational structure and methods of
assigning authority and
responsibility. Managements control
system including the internal audit function,
personnel policies and procedures and
segregation of duties.
3.8
Control Procedures means those policies and procedures in addition to the control
environment which management has established to achieve the entitys specific
objectives. Specific Control objectives include:
Reporting, reviewing and approving reconciliation. Checking the arithmetical
accuracy of records. Controlling applications and environment of computer
information systems, for
example, by establishing controls over: Changes to computer programs.
Access to data files.
Maintaining and reviewing control accounts and trial balances. Approving and
controlling of documents. Comparing internal data with external sources of
information. Comparing the results of cash, security and inventory counts with
accounting records. Limiting direct physical access to assets and records.
Comparing and analyzing the financial results with budgeted amounts.
4.
In the audit of financial statements, we are only concerned with those policies and
procedures within the accounting and internal control systems that are relevant to the
financial statement assertions. The understanding of relevant aspects of the accounting
and internal control systems, together with inherent and control risk assessments will
help the auditor to:
1
2
3
5.
a.
Identify the type of potential material misstatements that could occur in the
financial statements;
b.
Consider factors that affect the risk of material misstatements; and
c.
Design appropriate audit procedures to minimize risk to an acceptable level.
Therefore, while developing the audit approach, we should consider the preliminary
assessment of control risk (in conjunction with the assessment of inherent risk) to
determine the appropriate detection risk to accept for the financial statement
assertions. Based on such assessment, we should decide on the timing, nature and
6.
6.1
For developing the overall audit plan, we should assess inherent risk at the financial
statement level. For developing audit programs, we should relate such assessment to
material account balances and class of transactions at the assertion level, or assume
that the inherent risk is high.
6.2
6.2.1
6.2.2
7.
Following are the objectives of internal control which relate to the accounting system:
7.1
Transactions are executed in accordance with the managements general and specific
authorizations.
All transactions and other events are promptly recorded in the correct amount, in the
appropriate accounts and in the proper accounting period so as to permit preparation of
reliable financial statements in accordance with acceptable accounting policies.
7.2
7.3
Recorded assets are compared with the existing assets at reasonable intervals and
appropriate action is taken regarding any differences.
Understanding the accounting and internal control systems
8.1
8.2
8.3
Previous periods audit experience, review of the previous years files containing
documentation of the accounting and internal control systems also enhances our
understanding of such systems.
8.4
The procedures, which may be used for obtaining such understanding include:
9.
a.
Major classes of transactions in the entitys operations;
b.
How such transactions are initiated;
c.
Significant accounting records, supporting documents and accounts in the
financial statements; and
d.
The accounting and financial reporting process, from the initiation of
significant transactions and events to their inclusion in the financial statements.
10.
11.
Control Risk
11.1
After obtaining an understanding of the accounting and internal control systems, the
auditor is required to make a preliminary assessment of control risk, at the assertion
level, for each material account balance or class of transactions.
11.2
The control risk for some or all assertions is assessed at a high level when:
The entitys accounting and internal control systems are not effective; or
Evaluating the effectiveness of the entitys accounting and internal
control system would not be efficient.
11.3
The preliminary assessment of control risk for a financial statement assertion should
be high unless the auditor:
Is able to identify internal controls relevant to the assertion
which are likely to prevent or detect and correct a material
statement; and Plans to perform tests of control to support
the assessment.
11.4
We should document:
our understanding of the accounting and internal control system; and
when the control risk is assessed as less than high, the basis for the
conclusions.
11.5
1
2
12.1
such accounting and internal controls are suitably designed and operating effectively.
12.2
12.3
The design of the accounting and internal control systems, that is, whether
they are suitably designed to prevent or detect and correct material
misstatements; and Operation of the internal controls through out the
period under audit.
Tests of controls may include:
Inspection of documents supporting transactions and other events to gain audit
evidence that internal controls have operated properly, for example, verifying that a
transaction has been authorized.
Inquiries about, and observation of, internal controls which leave no audit trail, for
example, determining who actually performs each function and not merely who is
supposed to perform it.
Re-performance of internal controls, for example, reconciliation of bank accounts
to ensure that they were correctly performed by the entity.
12.4
Based on the results of the tests of controls, we should evaluate whether the internal
controls are designed and operating as contemplated in the preliminary assessment of
control risk. If the results of test of controls highlight deviations, the preliminary
assessment of control risk may need to be revised. In such cases, there will be a need
to modify the timing, nature and extent of planned substantive procedures.
12.5
Before the conclusion of the audit, based on the results of substantive procedures and
other audit evidence obtained, we should consider whether the assessment of control
risk is confirmed.
13
2
14.1
14.2
We should consider the assessed levels of inherent and control risks in determining the
timing, nature and extent of substantive procedures required reducing audit risk to an
acceptably low level. In this regard, we should consider:
The nature of substantive procedures, for example, using tests directed toward
independent parties outside the entity rather than the tests directed toward parties
or documentation within the entity, or using tests of details for particular audit
objective in addition to the analytical procedures;
The timing of substantive procedures, for example, performing them at period end
rather than at an earlier date; and
The extent of substantive procedures, for example, using a larger sample size.
14.3
There is inverse relationship between detection risk and the combined level of inherent
and control risks. For example, when inherent and control risks are high, acceptable
detection risk needs to be low to reduce the audit risk to an acceptably low level. On
the other hand, when inherent and control risks are low, we can accept higher detection
risk and still reduce audit risk to an acceptably low level. This inverse relationship is
illustrated below. The shaded areas in the table relate to the detection risk.
Our assessment of
Inherent Risk
14.4
2
15.1
High
Medium
Low
Low
Medium
Higher
Highest
The assessed levels of inherent and control risks cannot be sufficiently low to
eliminate the need for us to perform any substantive procedures. Regardless of the
assessed levels of inherent and control risks, there would invariably be a need to
perform some substantive procedures for material account balances and class of
transactions.
The higher the assessment of inherent and control risk, the more audit evidence would
be required to be obtained from the performance of substantive procedures. When both
inherent and control risks are assessed as high, we need to consider whether
substantive procedures can provide sufficient appropriate audit evidence to reduce
detection risk, and therefore audit risk, to an acceptably low level. When it is
determined that detection risk regarding a financial statement assertion for a material
account balance or class of transactions cannot be reduced to acceptably low level, we
should express a qualified opinion or a disclaimer of opinion.
Audit Risk in the Small Business
We need to obtain the same level of assurance in order to express an unqualified
opinion on the financial statements of both small and large entities. However, many
internal controls which would be relevant to large entities are not practical in the small
businesses. For example, in small business, accounting procedures may be performed
by few persons who may have both operating and custodial responsibilities, and
therefore segregation of duties may be missing or severely limited. Inadequate
segregation of duties may, in some cases, offset by a strong management control
system in which owner/manager supervisory controls exist because of direct personal
knowledge of the entity and involvement in transactions. In circumstances where
segregation of duties is limited and audit evidence of supervisory controls is lacking,
the audit evidence necessary to support the auditors opinion on the financial
statements may have to be obtained entirely through performance of substantive
procedures.
15.2
16.
The following paragraphs provide more guidance for a better understanding of the two
components of internal control system described above, i.e., control environment and
control procedures.
Control Environment
16.1
16.2
16.3
Responsibility
16.3.1 Management is responsible for "setting the tone" for their organization. Management
should foster a control environment that encourages:
The highest levels of integrity and personal and professional standards,
A leadership philosophy and operating style which promote internal control
throughout the organization, and,
An assignment of authority and responsibility.
16.4
16.4.1 Effective human resource policies and procedures enhance an organization's control
environment. These policies and procedures should address hiring, orientation,
o
o
o
o
Administrative Procedures
Employee Handbook
Purchasing Manual
Personnel Memorandum
Make sure that the entity has well-written departmental policies and procedures manual
which addresses its significant activities and unique issues. Employee responsibilities,
limits to authority, performance standards, control procedures, and reporting
relationships should be clear.
Make sure that employees are well acquainted with the organization's policies and
procedures that pertain to their job responsibilities.
Discuss ethical issues with employees. If employees need additional guidance, issue
departmental standards of conduct.
Ask employees to disclose potential conflicts of interest (e.g., ownership interest in
companies doing business or proposing to do business with the department).
Make sure that job descriptions exist and correctly translate desired competence levels
into requisite knowledge, skills, and experience; make sure that hiring practices result
in hiring qualified individuals.
Make sure that the entity has an adequate training program for employees.
Make sure that employee performance evaluations are performed periodically. Good
performances should be valued highly and recognized in a positive manner.
Make sure that appropriate disciplinary action is taken when an employee does not
comply with policies and procedures or behavioral standards.
17.
Control Procedures
17.1
Control procedures means the policies and procedures in addition to the control
environment, which the management has established to achieve the entitys specific
control objectives.
17.2
Control procedures are actions supported by policies and procedures that, when
carried out properly in a timely manner, manage or reduce risks. The
effectiveness of control procedures improved considerably, when there is strong
control environment, a formal system of identification, assessment and
management of major risks, an appropriate system of information and
communication (vertical and horizontal) and an effective system of monitoring by
management. The concepts of risk assessment, information and communication and
monitoring are also described in the later part of this chapter.
17.3
Responsibility
17.3.1 The responsibility for establishing adequate controls to meet the requirements of the
business and the objectives of the internal control outlined above is that of the board of
directors and management. Their responsibility includes identifying the financial and
compliance risks for their operations, and designing, implementing and monitoring
their internal control system.
17.4
17.4.1 Controls can be either preventive or detective. The intent of these controls is different.
Preventive controls attempt to deter or prevent undesirable events from occurring.
They are proactive controls that help to prevent a loss. Examples of preventive
controls are separation of duties, proper authorization, adequate documentation, and
physical control over assets.
17.4.2 Detective controls, on the other hand, attempt to detect undesirable acts. They provide
evidence that a loss has occurred but do not prevent a loss from occurring. Examples
of detective controls are reviews, analyses, variance analyses, reconciliation, physical
inventories, and audits.
17.4.3 Both types of controls are essential to an effective internal control system. From a
quality standpoint, preventive controls are essential because they are proactive and
emphasize quality. However, detective controls play a critical role providing evidence
that the preventive controls are functioning and preventing losses.
17.4.4 Control activities include approvals, authorizations, verifications, reconciliation,
reviews of performance, security of assets, segregation of duties, and controls over
information systems and are further explained as follows:
17.5
17.5.1 Management authorizes employees to perform certain activities and to execute certain
17.6
17.6.1 An employee relates different sets of data to one another, identifies and investigates
differences, and takes corrective action, when necessary.
17.7
17.8.1 Access to equipment, inventories, securities, cash and other assets is restricted;
assets are periodically counted and compared to amounts shown on control
records.
17.9
17.9.1 Duties are segregated among different people to reduce the risk of error or
inappropriate action. Normally, responsibilities for authorizing transactions, recording
transactions (accounting), and handling the related asset (custody) are divided.
17.10 Controls over Information Systems (Preventive and Detective).
17.10.1 Controls over information systems are grouped into two broad categories-general
controls and application controls. General controls commonly include controls over
data center operations, system software acquisition and maintenance, access security,
and application system development and maintenance. Application controls such as
computer matching and edit checks are programmed steps within application
software; they are designed to help ensure the completeness and accuracy of
transaction processing, authorization, and validity. General controls are needed to
support the functioning of application controls; both are needed to ensure complete
and accurate information processing.
17.10.2 Control procedures must be implemented thoughtfully, conscientiously, and
consistently; a procedure will not be useful if performed mechanically without a sharp
continuing focus on conditions to which the policy is directed. Further, it is essential
that unusual conditions identified as a result of performing control procedures are
investigated and appropriate corrective action be taken.
17.14.2
Liquid assets, assets with alternative uses, dangerous assets, vital documents,
critical systems, and confidential information must be safeguarded against
unauthorized acquisition, use, or disposition. Typically, access controls are the
best way to safeguard these assets. Examples of access controls are as follows:
locked door, key pad systems, card key system, badge system, locked filing
cabinet, guard, terminal lock, computer password, menu protection, automatic
call-back for remote access, smart card, and data encryption.
The organizations which have large value capital assets or significant
17.15.1
17.15.2
17.16
The person who requisitions the purchase of goods or services should not be
the person who approves the purchase.
The person who approves the purchase of goods or services should not be
the person who reconciles the monthly financial reports.
The person who approves the purchase of goods or services should not be
able to obtain custody of checks.
The person who maintains and reconciles the accounting records should not
be able to obtain custody of checks.
The person who opens the mail and prepares a listing of checks received
should not be the person who makes the deposit.
The person who opens the mail and prepares a listing of checks received
should not be the person who maintains the accounts receivable records.
Control Procedures-Separation of Duties Examples
17.16.1
The box below identifies some of the potential key (and high risk) transaction
types with guidelines for separating duties.
TRANSACTION
TYPE
WHO INITIATES
WHO
AUTHORIZES
WHO RECORDS
WHO
RECONCILES
CONTROLS
(CUSTODY)
Approves P.O./
Invoice Person B
Accounting Records
Person D
Budget Report
Person C
Receives Goods
Person A or C
Budget Report
Person C
Disburses Check
Person A or C
Payroll
Employees Time
Report
Inventory (3)
Issues Requisition
Person A
1
2
3
Approves Time
Accounting Records
Report & Payroll
Person D
Data Changes Person
A
Approves P.O./
Accounting Records &
Invoice Person B
Department Records
(Issues & Receipts)
Person C
Bank Account/
N/A
Budget Report &
Deposits to Checklist
Person A or C
Budget Report
Review Person B
Distributes Payroll
Checks Person C
Departmental
Receives &
Records to Budget Disburses Goods
Reports & Physical Person A
Counts Person B or C
(1) If the same person authorizes and reconciles, additional monitoring is necessary.
(2) No receipts should be received directly by Person B
(3) Physical counts should not be under the control of persons responsible for custody
or recording.
General Controls: these controls apply to entire information systems and to all
the applications that reside on the systems. These include:
Access Security, Data & Program Security, Physical Security Software
Development & Program Change Controls Data Center Operations
Disaster Recovery
17.17.2
Finally, these controls ensure the adoption of disaster planning to guide the
successful recovery and continuity of networks and computer processing in the
event of a disaster.
17.18
17.18.1
17.18.2
a
b
c
17.18.3
They consist of the mechanisms in place over each separate computer system
that ensures that authorized data is completely and accurately processed. They
are designed to prevent, detect, and correct errors and irregularities as
transactions flow through the business system. They ensure that the
transactions and programs are secured, the systems can resume processing after
some business interruption, all transactions are corrected and accounted for
when errors occur, and the system processes data in an efficient manner.
17.18.4
Electronic Data Interchange, Voice Response, and Expert Systems are types of
applications that may require certain controls in addition to general application
controls.
17.18.5
17.18.6
17.18.7
17.18.8
Output controls ensure that a complete and accurate audit trail of the results of
processing is reported to appropriate individuals for review. Examples of
output controls are listings of master file changes, error listings, distribution
registers, and reviews of output.
17.18.9
If an organization has applications that are critical to its success, then its
personnel must ensure that application controls reduce input, processing, and
output risks to reasonable levels.
17.18.10
17.18.10.1
17.18.10.2
The end-user department becomes responsible for segregation of duties within the
department's information systems environment, backup and recovery procedures,
program development and documentation controls, hardware controls, and access
controls. If a department has end-user information systems that are critical to its
success, then department personnel must ensure that application & general controls
reduce information systems risks to reasonable levels.
Internal Control- integrated framework
Over the years the awareness and focus on internal control has been increasing
for achieving managements objectives of efficiency, effectiveness and
economy. The Committee of Sponsoring Organizations of the National
Commission on Fraudulent Financial Reporting (known as Treadway
Commission) of USA (comprising of five major sponsoring institutions of
The components of control environment and control activities (control procedures) are
largely covered in the guidance contained in the AS-6, which has been described
above. The remaining three components, which have now been included as an integral
part of the internal control system, of risk assessment, information and communication
and monitoring are discussed below.
Risk Assessment
The central theme of internal control is (1) to identify risks to the achievement
of an organization's objectives and (2) to do what is necessary to manage those
risks. Thus, setting goals and objectives is a precondition to internal controls.
If an organization does not have goals and objectives, there is no need for
internal control.
19.1.2
Payroll
Processing-Compensation/ Withholding
Compensation rates and payroll deductions should be
Operations
accurately
19.1.5
Department
Goals and
Objectives
Activities to
Achieve Goals
and Objectives
Activity Level
Goals and
Objectives
There are certain activities which are significant to all departments: budgeting,
purchasing goods and services, hiring employees, evaluating employees,
accounting for vacation/sick leave, and safeguarding property and equipment.
Thus, all departments are expected to have appropriate goals and objectives,
policies and procedures, and internal controls for these activities.
Risk assessment is the identification and analysis of risks associated with the
achievement of operations, financial reporting, and compliance goals and
objectives. This, in turn, forms a basis for determining how those risks should
19.2.2
19.2.3
be managed.
Responsibility: To properly manage their operations, managers need to
determine the level of operations, financial and compliance risk they are
willing to assume. Risk assessment is one of management's responsibilities and
enables management to act proactively in reducing unwanted surprises. Failure
to consciously manage these risks can result in a lack of confidence that
operation, financial and compliance goals will be achieved.
Risk Identification. A risk is anything that could jeopardize the achievement
of an objective. For each of the department's objectives, risks should be
identified. Management could ask the following questions to help to identify
risks:
What could go wrong? How could we fail? What must go right for us
to succeed? Where are we vulnerable? What assets do we need to protect?
Do we have liquid assets or assets with alternative uses? How could
someone steal from the department? How could someone disrupt our
operations? How do we know whether we are achieving our objectives?
On what information do we most rely? On what do we spend the most
money? How do we bill and collect our revenue? What decisions require
the most judgment? What activities are most complex? What activities are
regulated? What is our greatest legal exposure?
19.2.4
Business
Objective
Classification
Risks
Operations (O).
Financial (F)
Compliance (C)
O, F, C
High Risk
Large cash payments (not routed through bank)
Transaction
Major acquisitions
Types
Unusually large transactions Accounting transactions that require
subjective assessment Software Licensing Issues Intellectual Property
Estimation of provisions against inventory or other assets
19.2.7
These are transaction types that deserve a conscious risk review. In evaluating
the potential impact of risk, both quantitative and qualitative costs need to be
addressed.
Qualitative and
Quantitative costs include the cost of property, equipment, inventory,
Quantitative
cash loss, damage and repair costs, cost of defending a lawsuit, etc.
Costs
Qualitative costs can have wide ranging implications to the
entity.
These costs may include:
Loss of reputation due to supply of defective products
Loss of customers and markets
Violation of laws
Default on a project
Bad publicity
Decrease in turn over and business
After risks have been identified, a risk analysis should be performed to prioritize those
risks:
Assess the likelihood (or frequency) of the risk occurring. Estimate the potential
impact if the risk were to occur; consider both quantitative and qualitative costs.
Determine how the risk should be managed; decide what actions are necessary.
19.3.2 Prioritizing helps focus managements attention on managing significant (i.e., risks risks
with reasonable likelihood of occurrence and large potential impacts).
19.4
19.4.1
Listed below are tips to guide a department through its risk assessment:
Make sure the entity and all its major functions have a mission statement and
written goals and objectives. Assess risks at the each financial statement
component level. Assess risks at the activity (or process) level. Make sure that
all risks identified at the component level are addressed in the Business Controls
Worksheet.
20.
20.1
To achieve goals, management needs to effectively balance risks and controls. By
performing this balancing act "reasonable assurance can be attained. As it relates to
financial and compliance goals, being out of balance causes the following problems:
Excessive Risks
Excessive Controls
20.2
In order to achieve a balance between risk and controls, internal controls should be
proactive, value-added, and cost-effective.
21.
21.1
21.2
22.
22.3
Just as control procedures help to ensure that actions to manage risks are
carried out, monitoring helps to ensure that control procedures and other
planned actions to effect internal control are carried out properly and in a
timely manner and that the end result is effective internal control. Ongoing
monitoring activities include various management and supervisory activities
that evaluate and improve the design, execution, and effectiveness of internal
control. Separate evaluations, on the other hand, such as self-assessments and
internal audits, are periodic evaluations of internal control components
resulting in a formal report on internal control. Department employees perform
self-assessments; internal auditors who provide an independent appraisal of
internal control perform internal audits.
22.4
INTERNAL CONTROL
Procedures and processes designed by management to provide
reasonable assurance that organizational objectives are met.
Improve effectiveness management decision making &
efficiency of business process Increase reliability of
accounting information Achieve appropriate compliance with
rules and regulations
1
2
3
o Performance Review
o Information Processing Controls
o Physical Controls
Efficiency or Effectiveness
Management Letter
Affecting the financial reporting or compliance with laws but risk covered
through substantive procedures
2.
Management Letter
1
Affecting financial reporting or compliance with laws & risk cannot be covered
through substantive tests
3.
A. General Accounting
B. Preparation of Financial Statements
III. REVENUE CYCLE
A. Revenue and Receivables
B. Cash Receipts
2-43 2-44
2-45 2-49
2-59 2-65
2-67 2-68
I.
CONTROL
ENVIRONMENT
YES NO N/A
1
2
3
4
a.
clearly written?
b.
actively communicated throughout the entity?
c.
actively monitored?
B. Organization structure
Objective
Definitions of responsibilities and authority assigned to
specific individuals permit identification of whether
persons are acting within the scope of their authority.
Questions-Policies and Procedures
1
2
3
Is the organisation of the entity clearly defined in terms of lines of authority and
responsibility?
Does the entity have a current organisation chart and related materials such as job
descriptions.
Is there adequate computer system documentation?
1.
a.
Adequately plan for staff needs?
b.
Employ sound hiring practices, including
background investigations, where appropriate?
YES NO N/A
1
2
3
D.
Are there regular meetings of the board of directors (or comparable bodies) to set
policies and objective, review the entitys performance and take appropriate action,
and are minutes of such meetings prepared and signed on a timely basis?
Has the entity established planning and reporting systems that set forth managements
plans and the results of actual performance?
Do the planning and reporting system in place:
1
2
a.
b.
4.
5.
a.
b.
Does the entity have established policies for developing and modifying accounting
systems and control procedures?
b.
2
3
4
5
6
1
2
Does management take adequate and timely actions to correct conditions reported by
the internal audit function.
Does the internal audit function follow up on corrective actions taken by management?
a.
Accounting policies and procedures, including selection among alternative
accounting principles are determined in accordance with managements authorization.
b.
Access to the accounting and financial records is limited to minimise
opportunities for errors and irregularities and to provide reasonable protection from
physical hazards.
c.
Accounting entries are initiated and approved in accordance with
managements authorisation.
d.
All accounting entries are appropriately accumulated, classified and
summarised in the accounts.
Does the entity have adequate written statements and explanations of its accounting
policies and procedures?
Are the entitys accounting policies and procedures adequately communicated to
appropriate personnel?
Are there adequate facilities for custody of the general ledger and related records?
Are all journal entries reviewed and approved by designated individuals at appropriate
levels in the organisation?
Are all journal entries adequately explained and supported?
Do all journal entries include indication of approval in accordance with managements
general or specific authorisation?
Do all journal entries include adequate identification of the accounts in which they are
to be recorded?
YES NO N/A
1
2
3
4
Are adequate accounts and records maintained so that adjustments and write-offs made
to account balances do not impair accountability for actual amounts?
Is approval of responsible official required to open new accounts?
Are accounting records updated regularly and on timely basis?
Are correction of entries prohibited except through procedures for journal entries.
a.
The general ledger and related records permit preparation of financial
statements in conformity with approved accounting standards.
b.
Individuals at appropriate levels in the organisation consider sufficient, reliable
information in making the estimates and judgments required for preparation of
financial statements including related disclosures and other externally reported
financial information.
c.
Financial statements including related disclosures are prepared and released in
accordance with managements authorisation.
a.
The types of goods and services to be provided, the manner in which they will
be provided and the customers to which they will be provided are in accordance with
managements authorisation.
b.
The prices and other terms of sale of goods and services are established in
accordance with managements authorisation.
Do policies and procedures for acceptance and approval of sales orders appear clearly
defined and adequately communicated for:
1
2
3
4
a.
b.
c.
d.
2
1
2
3
4
5
4.
1
2
3
a.
b.
c.
d.
e.
Customer?
Description and quantities?
Price?
Other terms of sales?
Credit (account balances limits)?
Are all approved sales orders recorded on appropriate forms which include indication
of proper approval and are subject to:
a.
Pre-numbering?
b.
Accounting for all forms used?
c.
Recording in detail? (For example, listing in a register or log, or copies of all
sales orders issued in file.)
d.
Timely
shipping
communication
or
to
YES NO N/A
persons
who
perform
service
the
function?
Are there appropriate procedures for approval of No charge services and services
performed under a warranty?
Are unfilled sales commitments periodically reviewed?
Credit
Objective
Credit terms and limits are established in accordance with
managements authorisation.
Questions-Control Policies and Procedures
1
2
3
Shipments
Objectives
1
a.
Goods delivered and services provided are based
on orders which have been approved in accordance
with managements authorisation.
b.
Deliveries of goods and rendering of servicesresult in preparation of accurate
and timelybillings.
Are goods shipped or services rendered based on documented sales or work orders
which include indication of approval in accordance with managements authorisation?
Are shipping documents prepared for all shipments?
YES NO N/A
3.
a.
Pre-numbering?
b.
Accounting for all shipping documents issued?
c.
Timely communication to persons who physically perform the shipping
function?
d.
Timely communication to persons who perform the billing function?
e.
Timely communication to persons who perform the inventory control function?
Is access to finished goods and merchandise restricted so that withdrawals of inventory
are based only on properly approved sales orders
Are quantities of goods shipped independently verified?
Are shipping and performance documents reviewed and compared with billings on a
timely basis to determine that all goods shipped or services rendered are billed and
accounted for?
1
2
a.
Sales and such related transactions as commissions and sales taxes are based on
deliveries of goods or rendering of services and recorded at the correct amounts and in
the appropriate period and are properly classified in the accounts.
b.
Sales related deductions and adjustments are made in accordance with
managements authorisation.
Are sales invoices prepared for all shipments of goods or services rendered (including
purchases which are shipped directly to customer)?
YES
NO
N/A
2.
Are billing and invoice preparation functions performed by
persons who are independent of the selling (soliciting and
receiving orders from customers), credit, and cash functions?
3.
4.
5.
6.
a. b.
7.
8.
Does the credit manager review monthly ageing schedules or listings of past due
customer accounts and investigate delinquent accounts and unusual items on a timely
basis?
Is there documentation of review and analysis of accounts receivable balances to
determine valuation allowances (for doubtful accounts) and any specific balances to be
written-off?
Are valuation allowances and write-offs approved by a responsible employee?
B. Cash Receipts
Processing Collections Objectives
1
2
a.
Access to cash receipts and cash receipts records, accounts receivable records,
and billing and shipping records is controlled to prevent or detect, on a timely basis,
the taking of unrecorded cash receipts or the abstraction of recorded cash receipts.
b.
Details transaction and account balance records are reconciled, at reasonable
intervals, with applicable control accounts and bank statements for timely detection
and correction of errors.
Is the mail opened by a person(s) whose duties do not involve any shipping, billing,
accounts receivable detail, general ledger, invoice processing, payroll and cash
disbursement functions?
Are receipts of currency controlled by cash registers and/or pre-numbered cash receipt
forms?
Are each days receipts (by mail and over the counter) except for post-dated items
deposited intact daily?
4
5
Are post-dated items segregated on daily detail listings of remittances to aid in control
of total items received?
Are all employees who handle receipts adequately bonded?
YES NO N/A
Are banks instructed not to cash cheques and other instruments drawn to the order of
the company?
Does company policy prohibit the asking of any accommodation cheques for example,
personal and payroll cheques) out of collections?
Are entries to the cash receipts journal compared with
1
2
a.
b.
9.
Are the comparisons described in item 13 above made by a person(s) whose duties do
not include cash receipts and accounts receivable functions?
Recording Collections
Objectives
All cash receipts recorded are at the correct amount in the period in which received and are
properly classified and summarised.
Question-Control Policies and Procedures
1
Is information captured from remittances (by mail and over the counter) adequate for
accurate posting of credits to individual accounts receivable subsidiary records or to
classifications concerning such other sources as investment income, rents sales of
property or scrape and proceeds of financing?
Are details of daily collections balanced with the total credits to be distributed to
appropriate general ledger accounts and to the total collections for the day before
posting to the subsidiary records?
Do postings of the general ledger control accounts and subsidiary records include the
date on which the remittance was received?
Are posting to the general ledger control accounts made by a person(s) independent of:
1
2
a.
b.
2
3
Objectives
The types of goods, other asset and services to he obtained, the manner in which they are
obtained, the vendors from which they are obtained, the quantities to be obtained and the
prices and other terms are initiated and executed in accordance with management's general or
specific authorization.
Adjustments to vendor accounts and account distributions are made in accordance with
management's general or specific authorization.
Questions-Control Policies and Procedures
1
2
3
4
5
6
7
8
Are all purchases based on requisitions which have been approved in accordance with
management's authorization ?
Are written purchases orders (or other equivalent document) used for all commitments
and do those orders include the vendor description, quantity, price, term and delivery
requirements for the goods or services ordered?
Are all purchase orders, before issuance, approved by specific individuals or classes of
individuals designated by management?
Are all purchase orders pre-numbered?
Is the purchases function independent of receiving, shipping, invoice processing and
cash functions?
Are all purchase orders routinely accounted for?
Is custody of unissued purchases order form adequate to prevent their misuse?
Are open purchase orders periodically reviewed and investigated?
Receiving
Objectives
1 a.
All goods, other assets and services received are accurately accounted for on a
timely basis
2 b.
Only authorized goods, other assets and services are accepted and/or paid for.
YES NO N/A
Questions-Control Policies and Procedures
1
2
3
4
Are all goods received inspected for condition and independently counted, weighed or
measured to provide for comparison with the applicable purchase order?
Is there evidence that all services received are evaluated for quality and completeness?
Are receiving reports prepared promptly for all goods received?
Are receiving reports subjected to the following
1
2
3
a.
b.
c.
Pre-numbering?
Listing in detail?
Accounting for all receiving reports used?
d.
Distribution of copies for timely matching withpurchase orders and vendor's
invoices and ifapplicable, timely maintenance of perpetual inventoryrecords?
5.
3.
4.
5.
NO
N/A
6.
Are all new hires, rates of pay and changes thereto, changes in position, and
separations based on written authorizations in accordance with management's criteria?
Are appropriate written authorization obtained from employees for all payroll
deductions?
Are personnel files maintained for individual employees which include appropriate
written authorizations for rates of pay, payroll deductions?
Are proper leave records maintained for vacations, illness and holidays?
Do employees who perform the payroll processing function receive timely notification
of.
a.
Wage and salary rates resulting from new hires, rate changes, changes in
position, and separations?
b.
Changes in authorized deductions?
YES NO N/A
2.
a.
Time or attendance records for employees paid by
the hour or by salary?
b.
Piecework records for employees whose wages are
based on production?
c.
Adequate detail records of sales for commission
salesmen?
Are accruals for gratuity provided on the based of contractual agreements with the
employees?
Are total production hours used for determination of gross pay reconciled with
production statistics used for cost accounting purposes?
Are piece rate records reconciled with production records?
Are salesmens commission records reconciled with recorded sales?
Are such data as hours worked, piecework and commission sales used to determine
gross pay compared at reasonable intervals with applicable production and sales
records by responsible persons.
2
3
4
5
Disbursement ( Payroll)
Objective
a.
b.
a.
Are adequate security precautions taken?
b.
Does the cash requisition equal the amount of net
pay to he distributed as cash?
c.
Is distribution made by persons independent of
payroll preparation functions?
d.
1
2
a.
Functions are assigned so that no single individual is in a position to both
perpetrate and conceal errors or irregularities in the normal course of his duties.
b.
Access to personnel and payroll records is limited to minimize opportunities
for errors, and irregularities
3
4
5
c.
d.
C.
Preparation of payrolls?
Approval of payrolls?
Cash Disbursements
Assignment of Functions
Objective
Functions are assigned so that no single. individual is in a position to both perpetrate and
conceal errors or irregularities in the normal course of his duties.
Questions-Control Policies and Procedures
1.
1
2
3
4
Is the cash disbursements function performed by persons who are independent of the
following functions:
a.
Purchasing?
b.
Receiving?
c.
Invoice processing?
d.
Shipping?
YES NO N/A
Processing Disbursements
Objectives
1
2
3
4
a.
Disbursements are made only for expenditures incurred in accordance with
management's authorization.
b.
Adjustments to cash. accounts are made only in accordance with management's
authorization.
c.
Disbursements are recorded at correct amounts in the appropriate period and
are properly classified in the accounts.
d.
Access to cash and cash disbursement records is restricted to minimize
opportunities for irregular or erroneous disbursements.
7
8
Are supporting documents for cheques properly canceled and cheque number entered
to avoid duplicate payment?
Are cash funds on an imprest basis and
1
2
3
a.
b.
c.
1
2
3
4
9.
YES NO N/A
10.
a.
Subject to the same review and approval as processed invoices?
b.
Remitted by cheques drawn payable to the order of the custodian of the cash
fund?
1
2
Bank Reconciliations
Objective
Comparison of detail records, control accounts, and bank statements are made at reasonable
intervals for detection and appropriate disposition of errors or irregularities.
Questions-Control Policies and Procedures
1
2
V.
PRODUCTION
(CONVERSION)
CYCLE YES NO
N/A
A.
Objective
All production activity and accounting therefor is
determined in accordance with management's general or
specific authorization.
Questions-Control Policies and Procedures
1
2
3.
Are all releases from storage of raw materials, supplies, and purchased parts inventory
based on approved requisition documents?
Is authority to approve inventory requisitions assigned to responsible employees.
YES NO N/A
1
2
3
4
5
1
2
3
4
9.
Is labor effort (lime, cost or both) reported promptly and recorded in sufficient detail to
be identified with applicable classification such as job orders or allocation to units in
process.
Are transfers of completed units from production to custody of finished goods
inventory based on approved completion reports which authorize such transfer?
Are there adequate procedures for reporting defective unit and scrap resulting from the
production process?
Are perpetual inventory records maintained of both quantities and amounts.
Are the perpetual records of inventory detail:
a.
Controlled by general ledger accounts?
b.
Based on documentation of inventory movement and adjustments which has
been approved in accordance with management's authorization?
c.
Adjusted to periodic physical inventories taken annually or on a cycle basis at
least once a year?
d.
Reconciled with the inventory control accounts at reasonable intervals?
Are there adequate procedures for identifying and reporting excess, slow-moving,
and obsolete inventories?
4.
a.
Include adequate information for recording reductions in the detailed inventory
records, charges to cost of sales, and cross-reference or connection with source
(1)
Permit preparation of statements in conformity with recognize accounting
principles.
(2)
Maintain accountability for costs incurred.
3.
1
2
3
1
2
3
a.
Review to determine that requisitions are completed and approved in
accordance with management's authorization?
b.
Accounting for all requisitions used?
c.
Summarization of requisitions at reasonable intervals for consistent and timely
maintenance of control accounts?
Are burden rates and amounts of overhead applied to production compared at
reasonable intervals with actual overhead costs incurred and updated in accordance
with management's authorization?
Is access to the detailed inventory records and control accounts limited to persons
responsible for their maintenance, and internal audit?
Are the inventory detail records and control accounts adjusted to physical counts at
least annually?
YES NO N/A
1
2
Are the detailed inventory records and control accounts adjusted for reports of excess,
slow-moving, and obsolete inventories in accordance with management's general or
specific authorization?
For standard cost systems:
a.
Are standard rates and volume compared at reasonable intervals with actual
costs and activity and revised accordingly for changes in underlying
conditions?
(For example, comparison of raw material costs with vendors' invoices, standard labor
rates with actual rates, standard material usage and machine hours with product
engineering changes, standard labor hours with time studies, etc.)
b.
Are significant variances investigated and the resulting explanation brought to
management's attention on timely basis?
Inventory Safeguarding
Objectives
1
2
a.
Inventory is protected from unauthorized use or removal.
b.
Access to inventory, property, cost and production records is limited to
designated individuals in accordance with management authority so that unauthorized
dispositions may be prevented or detected within a timely period.
a.
Complete and accurate perpetual records which are
maintained on a timely basis?
b.
Adequate control over physical movement ofinventories (receipts, internal
transfers, andshipments) and accurate recording of cutoffs toprovide timely and
accurate source data formaintaining the perpetual records and clearidentification of
classes of items to be counted?
4.
c.
Sufficient segregation of duties so that errors of
omission or commission are prevented or detected
promptly?
Do detailed written inventory procedures and instructions
exist which have been approved in accordance with
management's authorization before issuance and use?
5.
Do the inventory procedures adequately address the
following matters:
g
h
NO
N/A
physical counts?
m. Investigation and disposition of differences between
physical counts and detailed inventory records?
6.
dispositions of property and equipment (owned and leased) are made in accordance with
management's authorization.
Questions-Control Policies and Procedures
1
2
1
2
1
2
3
Is advance approval in accordance with management's criteria required for all property
and equipment transactions?
Are requests for additions, transfers, major maintenance and repair, retirement and
disposition of property and equipment.
a.
Initiated by designated individuals in accordance with management's
authorization?
b.
Formally documented, including an adequate description of the proposal, its
reasons, and the estimated amount of the transactions?
Are authorizations to execute property and equipment or transactions adequately
documented?
Are procedures adequate for determining that component and services for property and
equipment are received?
Are procedures adequate for determining that all dispositions of property and
equipment have been executed and proceeds, if any, received in accordance with
managements authorization?
Are detailed records maintained for each classes of property and equipment (owned
and leased)?
YES NO N/A
1
2
3
Are general ledger control accounts maintained for the appropriate classes of owned
and leased property and equipment and related depreciation and amortization?
Are the detailed property and equipment records reconciled at reasonable intervals
with the control accounts and differences, if any, investigated and resolved in
accordance with managements authorization ?
Are depreciable and amortizable lives reviewed at reasonable Intervals for adequacy in
relation to use or obsolescence based on actual experience?
Investments
a.
Reporting of the findings to management?
b.
Determination of need for any valuation
allowances?
YES NO N/A
5.
Are detailed investment records reconciled with the general ledger control
accounts, including related income?
Transactions and obligations concerning equity capital are promptly and accurately recorded
and classified in detailed recorded and control accounts.
Questions-Control Policies and Procedures
1
2
Does the general ledger include appropriate control accounts for equity capital?
Are detailed share certificate records reconciled at reasonable intervals with the control
records and the general ledger?
YES
NO
N/A
2.2.6 MATERIALITY
There are two aspects to materiality -Planning materiality, and Reporting materiality.
Planning materiality is concerned with whether a misstatement, or an aggregation of
misstatements, in an underlying financial statement item, account balance or class of
transaction, is likely to result in a material misstatement in the financial statements as a whole.
Auditors use planning materiality to determine which financial statement items, account
balances and transactions to test and which to not test. Financial statement items, account
balances and transactions, which equal or exceed their materiality level are selected for
testing.
LEVEL OF
MATERIALITY LEVEL
AGGREGATION
EVALUATION
Financial
statement level
Account balance
level
Class of
transaction level
Whereas planning materiality is primarily concerned with the judgments of the auditor,
reporting materiality is primarily concerned with the auditor's evaluation of the
judgments of users of financial statements.
Reporting materiality refers to the extent of a misstatement.
Reporting materiality is concerned with whether a misstatement of a financial statement item,
or an aggregation of such misstatements, is likely to affect the judgments of users of financial
statements. It requires an evaluation by the auditor in both the client acceptance/ retention
stage and the opinion formulation stage.
In the client acceptance stage the auditor evaluates whether, if the client is accepted or
retained, the audit risk (the risk of a material misstatement in the audited financial statements)
can be reduced to an acceptable level. In this, the initial audit stage, "a material misstatement"
refers to the level of reporting materiality. Similarly in the final opinion formulation stage, the
auditor evaluates the likelihood of the audited financial statements containing a material
misstatement. Again, this evaluation is based on the level of reporting materiality.
Auditors to assess reporting materiality use the following materiality guidelines:
Pre-tax income 5-10%
X1
X2
X3
X4
NET INCOME
B. PROFITABILITY OF OPERATIONS
GROSS MARGIN PERCENTAGE
OPERATING INCOME PERCENTAGE
EFFECTIVE TAX RATE
NET INCOME PERCENTAGE
EPS
C. FINANCIAL LEVERAGE
DEBT TO EQUITY RATIO
2-73
D. ASSET TURNOVER
RATIO REVENUE TO TOTAL ASSETS
RECEIVABLES TURNOVER RATIO
INVENTORY TURNOVER RATIO
E. LIQUIDITY
WORKING CAPITAL
OPERATING CASH FLOW
CURRENT RATIO
QUICK RATIO
2-74
1.
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2.
2.1
2.2
2.3
2.4
2.5
3.
3.1
3.2
We have reviewed the computer information system of the company and conclude that the risk
involved is low/medium/high. Overall system is functioning satisfactorily, with the exception
of
matters noted on summary of weaknesses identified.
Controls evaluated by:
Reviewed by:
Approved by:
Date:
Date:
Date:
Yes /
No.
RISK
ADDRESSED
HIGH MEDIUM LOW
1.3
1.3.1
1.3.2
1.3.3
1.3.4
1.3.5
1.3.6
MEDIUM
LOW
Yes /
RIS
K No.
ADDRESSED
HIGH MEDIUM LOW
1.6.1 Are there adequate controls over testing conversion implementation and documentation
of new or revised systems to application system ?
1.6.2 Are there controls over changes to application
systems?
1.6.3 Whether controls over acquisition of application
system from 3rd parties exist ?
1.7 Computer Operation Controls
1.7.1 Whether the systems are used for authorised
purpose only ?
1.7.2 Is access to computer operations restricted to authorised
personnel only ?
1.7.3 Are authorised programs used only ?
1.7.4 Are processing errors
timely basis ?
Application Controls
CIS RISK
2.1
2.1.1
2.1.3
2.2
2.1.2
MEDIUM
LOW
2.2.1
2.2.2
2.2.3
2.3
2.3.1
2.3.2
2.3.3
2.4
2.4.1
2.4.2
2.4.3
2.4.4
2.4.5
RISK
ADDRESSED
HIGH MEDIUM LOW
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
Other Control
Is edit list extracted and approved before processing the
transactions?
Is there control over duplicate number of JV & receipt &
payment voucher ?
Does the computer generate the voucher numbers?
In case the computer generates number, make sure they
cannot be changed, otherwise ensure report of missing
numbers.
Are there proper controls in practice regarding use of third
party software such as:
-review application software prior to purchasing, including
functions capacity and controls
-adequate testing of the software and the modification to it
prior to use
-ongoing assessment of the software to meet user
requirements
Are there any provision for offsite processing in the event
of disaster.
Whether account codes not in use are deleted from the
programmes after proper approval ?
MEDIUM
LOW
3.2
3.2.1
CONTINGENCY PLANNING
Are there procedures to ensure continued operation should
a prolonged system failure occur
Ensure:
-backup hardware arranged and tested;
-written emergency and business recovery procedures are
available and tested;
-backup of important data and program files maintained
and for a sufficient period of time;
-copies of files kept in remote storage;
-emergency power supplies available (e.g. UPS)
-regular preventive maintenance; and
-adequate insurance coverage.
The auditor should obtain sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit opinion.
Sufficiency and appropriateness are interrelated and apply to audit evidence obtained
from both tests of control and substantive procedures. Sufficiency is the measure of the
quantity of audit evidence; appropriateness is the measure of the quality of audit
evidence and its relevance to a particular assertion and its reliability. Ordinarily, the
auditor finds it necessary to rely on audit evidence that is persuasive rather than
conclusive and will often seek audit evidence from different sources or of a different
nature to support the same assertion.
1. 3. Financial statement assertions are assertions by management, explicit or
otherwise, that are embodied in the financial statements. They can be categorized
as follows: a) Existence: an asset or a liability exists at a given date; b) Rights and
obligation: an asset or a liability pertains to the entity at a given date; c)
Occurrence: a transaction or event took place which pertains to the entity during
the period; d) Completeness: there are no unrecorded assets, liabilities,
transactions or events, or undisclosed items; e) Valuation: an asset or liability is
recorded at an appropriate carrying value; f) Measurement: a transaction or event is
recorded at the proper amount and revenue or expense is allocated to the proper
period; and
2. g)Presentation and disclosure: an item is disclosed, classified, and described in
accordance with the applicable financial reporting framework.
Tests of control means tests performed to obtain audit evidence about the suitability
of design and effective operation of the accounting and internal control systems.
The aspects of the accounting and internal control systems about which the auditor
would obtain audit evidence are:
Design: the accounting and internal control systems are suitably
designed to prevent and/or detect and correct material
misstatements; and
a)Operation: the systems exist and have operated effectively throughout the
Relevant period.
6.
7.
(a)
(b)
(c)
inspection of tangible assets provides reliable audit evidence with respect to their
existence but not necessarily as to their ownership or value.
Observation
Observation consists of looking at a process or procedure being performed by others,
for example, the observation by the auditor of the counting of inventories by the
entity's personnel or the performance of control procedures that leave no audit trail.
Inquiry and Confirmation
accounting records before year end. In addition, the auditor selects a sample of sales
invoices posted to accounts receivable in the first few days of the month following
balance sheet date. All of the invoices selected should refer to delivery advices having
a reference number after the number noted on balance date.
If the auditor needs evidence as to the validity of accounts receivable the auditor
selects a sample of invoices that have been included in accounts receivable in the last
few days of the financial year. All of the invoices selected should refer to delivery
advices having a reference number before (or including) the number noted on balance
sheet date.
Index
Balance Sheet Equities & Liabilities
Reference No.
Page No.
1.
Share Capital
AA/AP
2-88
2.
Reserves
BB/AP
2-89
3.
CC/AP
2-90
4.
DD/EE/MM/AP
2-91
5.
FF/AP
2-93
6.
Deferred Liabilities
GG/AP
2-94
7.
HH/AP
2-96
8.
JJ/AP
2-97
9.
NN/AP
2-99
10.
PP/AP
2-102
11.
Dividend payable
RR/AP
2-103
12.
SS/AP
2-104
Reference No.
Page No.
A- AP
2-107
2.
B- AP
2-109
3.
C- AP
2-110
4.
Intangible Assets
E- AP
2-111
5.
H- AP
2-113
6.
K- AP
2-114
7.
L- AP
2-117
8.
Deferred Cost
M-AP
2-119
9.
Stock in trade
N/R- AP
2-120
10.
Trade debts
S- AP
2-122
11.
V- AP
2-124
12.
W- AP
2-125
13.
X- AP
2-128
Reference No.
Page No.
1.
Sales/ Receivable
TC 1
2-129
2.
Purchases/Inventory/Accounts payable
TC 2
2-132
Reference No.
Page No.
1.
Sales
PL 1- AP
2-137
2.
Cost of sales
PL 2 - AP
2-139
3.
PL 3&4 AP
2-140
4.
Financial Charges
PL 5 AP
2-141
5.
Other Charges
PL 6 AP
2-142
6.
Other Income
PL 7 AP
2-143
Client Name
Audit Program Share Capital
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Existence
Check the number of shares and amount of
Ownership
authorized share capital from memorandum
of association. If there is any alteration from Completeness
last year, then obtain a copy of board
resolution and altered copy of memorandum
of association. If there is no alteration, then
check the same from our prior years working
papers.
Existence
Ownership
Completeness
Existence
Completeness
Existence
For shares issued for consideration other than
Ownership
cash, check the amount of consideration with
Completeness
supporting documents.
Performed Reference
by
Existence
For shares issued as bonus shares :(a) Check
board resolution. (b) Check members register Ownership
Completeness
to ensure that changes have been made in
number of shares of each member.
Completeness
Completeness
Client Name
Audit Program Reserves
Accounting
Period
Reviewed By:
Date:
Completeness
Ownership
Ownership
Completeness
Presentation/
Disclosure
Client Name
File No.
Audit Program Surplus on
Prepared By:
Reference: CC/AP
Date:
revaluation of
fixed assets
Accounting
Period
Date:
Reviewed By:
Audit
Assertion
Addressed
Completeness
Valuation
Performed byReference
Client Name
File No.
Audit Program Long term loans/
Presentation/
Disclosure
Prepared By:
Reference: DD-EE-MM/AP
Date:
Reviewed By:
Date:
current maturity.
Accounting
Period
Audit
Assertion
Addressed
Completeness
Obligation
Valuation
Existence
Completeness
Obligation
Valuation
Existence
Performed by
Reference
Audit
Assertion
Addressed
Client Name
File No.
Audit Program Liabilities against
Prepared By:
Performed by
Reference
Reference: FF/AP
Date:
assets subject to
finance lease.
Accounting
Period
Reviewed By:
Date:
Audit Assertion Performed Reference
Addressed
by
Completeness
Obligation
Completeness
Existence
Obligation
Completeness
Existence
Valuation
Obligation
Valuation
Existence
Presentation
Valuation
Presentation/
Disclosure
Client Name
Audit Program Deferred liabilities
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Performed byReference
Completeness
Audit
Assertion
Addressed
Performed byReference
Valuation
Client Name
File No.
Audit Program Long term
Prepared By:
Reference: HH/AP
Date:
deposits
Accounting
Period
Reviewed By:
Date:
Completeness
Reference
Client Name
File No. Prepared By:
Reviewed By:
Date:
Borrowings
Rights &
Obligation
Existence Rights
Obligation
Rights &
Obligation
Reference
Client Name
File No.
Audit Program Creditors,
Valuation
Prepared By:
Reference: NN/AP
Date:
accrued and
other liabilities
Accounting
Period
Reviewed By:
Audit
Assertion
Addressed
CREDITORS
1
Date:
Performed by
Reference
Existence
Completeness
Valuation
Completeness
Audit
Assertion
Addressed
Performed by
Reference
Audit
Assertion
Addressed
Performed by
Reference
Client Name
File No.
Audit Program Taxation /
Presentation/
Disclosure
Prepared By:
Reference: PP/AP
Date:
provision for
taxation
Accounting
Period
Reviewed By:
Audit
Assertion
Addressed
Completeness
Date:
Performed by
Reference
Client Name
File No.
Audit Program Dividend payable
Accounting
Period
Reference: RR/AP
Date: Date:
Audit
Assertion
Addressed
Completeness
Valuation
Completeness /
Measurement
Performed Reference
by
Client Name
File No.
Audit Program Contingencies
Prepared By:
Completeness
Reference: SS/AP
Date:
and
Commitments
Accounting
Period
Reviewed By:
Date:
Reference
Reference
Rights &
Obligation
Occurrence
Existence
Existence
Existence
Existence
Client Name
File No.
Audit Program Tangible fixed
Prepared By:
Reference: A/AP
Date:
assets
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Audit
Assertion
Addressed
Performed
by
Reference
Performed
by
Reference
Client Name
File No.
Audit Program Audit Program for
Rights &
Obligation
Prepared By:
Reference: B/AP
Date:
Reviewed By:
Date:
assets subject to
finance lease
(Steps in addition to
those of owned assets)
Accounting
Period
Audit
Assertion
Addressed
Performed by Reference
Valuation
2-109
Client Name
File No.
Audit Program Capital work in
Prepared By:
Reference: C/AP
Date:
progress
Accounting
Period
Reviewed By:
Date:
Existence
Completeness
Client Name
File No.
Audit Program Intangible assets
Accounting
Period
Completeness
Reference: E/AP
Date: Date:
Completeness
Existence
Existence
Completeness
Valuation
Existence
Ownership
Ownership
Valuation
Audit
Performed byReference
Assertion
Addressed
Calculate on a test basis, amortization charge Valuation
for the year and ensure proper amount has been Measurement
charged to Profit & Loss account.
10
Client Name
File No.
Audit Program Un-allocated pre
Accounting
-production
Period
expenditure
Valuation
Reference: H/AP
Date: Date:
Completeness
Client Name
File No.
Audit Program Long Term
Completeness
Reference: K/AP
Prepared By:
Date:
Reviewed By:
Date:
Investments
Accounting
Period
Existence
Obtain a schedule of investments
showing the description and number
of shares, beginning and ending, sales
and purchases during the current
period.
Reference
5.
Valuation
6.
7.
Existence
Reference
8.
9.
10.
Valuation
Presentation/
Disclosure
Audit
Assertion
Addressed
Investment Income
1.
2.
Completeness
Performed by Reference
3.
4.
Measurement
Occurrence
5.
Completeness
Client Name
File No.
Audit Program Long term loans
Prepared By:
Reference: L/AP
Date:
and advances.
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Existence
For disbursements made during the year:(a) Check approval of appropriate level of
management. (b) Check that all
formalities necessary before disbursement
of loans have been fulfilled by the party.
(c) Check disbursements of funds with
disbursement register and bank statement.
Existence
Valuation
Existence
Ownership
Completeness
Performed byReference
Rights &
Obligation
Completeness
Existence
Measurement
Valuation
Audit
Assertion
Addressed
10
Client Name
Completeness
Performed byReference
Reviewed By:
Date:
Audit
Assertion
Addressed
Existence
Valuation
Completeness
Performed by
Reference
Client Name
File No.
Audit Program Store spares &
Prepared By:
Reference: N-R/AP
Date:
Reviewed By:
Audit
Assertion
Addressed
Existence
Ownership
Date:
Performed
by
Reference
Audit
Assertion
Addressed
Performed
by
Reference
Valuation
Client Name
Audit Program Trade debts
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Performed Reference
by
Valuation
Valuation
Ownership
Existence
Valuation
Completeness
Audit
Assertion
Addressed
Completeness
Occurrence
Client Name
Performed byReference
File No.
Audit Program Trade deposits, short-
Prepared By:
Reference: V/AP
Date:
Reviewed By:
Date:
term prepayments,
loans, advances and
other receivables.
Accounting
Period
Audit
Assertion
Addressed
Completeness
Presentation/
Disclosure
Performed Reference
by
Client Name
File No.
Audit Program Short Term
Prepared By:
Reference: W/AP
Date:
Investments
Accounting
Period
Reviewed By:
Date:
Reference
Reference
Reference
Audit Assertion Performed
Addressed
by
Client Name
Audit Program Cash and bank
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Existence
Completeness
Valuation
Ownership
Performed Reference
by
Existence
Valuation
Presentation/
Disclosure
Client Name
File No.
Audit Program Sales/Receivables
Accounting
Period
1.
Reference: TC-1
Tests of Controls
Performed Reference
by
3.
4.
5.
6.
7.
8.
Credit notes for all goods returned Understand and document the
are issued in accordance with the policies related to issuance of
approved policy.
credit notes (e.g. evidence of
return of goods, original
invoices, time periods, within
which credit must be requested
and approval thereof). Make a
selection of credit notes and
ensure that policies have been
implemented.
9.
10.
Client Name
File No.
Audit Program Purchases/Inventory /
Prepared By:
Reference: TC-2
Date:
Accounts Payable
Accounting
Period
Reviewed By:
Date:
Tests of Controls
1.
Performed Reference
by
2.
3.
4.
Examine a selection of
documented listing of goods
received, supplier invoices and
credit notes at, before or after the
end of the accounting period.
Ascertain that the client has
scrutinized and reconciled all
such transactions to ensure
complete and consistent recording
in the appropriate accounting
period.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Client Name
Audit Program Sales
Accounting
Period
Reviewed By:
Date:
Audit
Assertion
Addressed
Perform analytical procedures on sales by
Occurrence
developing an expected amount of sales based Completeness
on prior years figures or current year
economic conditions and then comparing it
with actual amount any significant differences
should be enquired into and corroborated.
Occurrence
Completeness
Performed Reference
by
6.
Completeness
Occurrence
Audit
Assertion
Addressed
7.
8.
Performed Reference
by
Valuation
Measurement
Client Name
File No. Prepared By:
Reviewed By:
Date:
Completeness
Occurrence
Completeness
Completeness
Occurrence
Occurrence
Presentation/
Disclosure
Client Name
File No.
Audit Program General and
Prepared By:
Reviewed By:
Date:
admin expenses /
selling and
distribution
expenses.
Accounting
Period
Audit
Assertion
Addressed
Client Name
File No.
Audit Program Financial charges
Accounting
Period
Perform
ed by
Reference
Reference: PL 5/AP
Date: Date:
Audit
Assertion
Addressed
Performed
by
Reference
Presentation/
Disclosure
2-141
Client Name
File No.
Audit Program Other Charges
Accounting
Period
Reference: PL 6/AP
Prepared By: Reviewed By: Date: Date:
Reference
Client Name
Audit Program Other Income
Accounting
Period
Reviewed By:
Date:
Reference
Once again, the objective of this analytical procedure is to detect any unusual or unexpected
value for the ratio.
2-145
common size analysis is a type of cross-sectional analysis used for comparing the percentage
components of balance sheets and income statements of one entity, or a division of an entity,
with comparable data from one or more other entities/ divisions. This analysis may be used for
either (i) the comparison of a (prospective) client's data with the industry average and/or an
industry competitor or (ii) for the comparison of income statements of different divisions of
the same entity.
When analytical procedures are used as a substantive procedure (or substantive test), and the
application of the procedures does not identify any unusual or unexpected differences, then,
by inference, the results provide evidence in support of management's assertions.
Analytical procedures generally provide less reliable substantive evidence than the other
category of substantive procedures/tests, (tests of detail). The substantive evidence gathered
using analytical procedures is thus generally used to corroborate other substantive evidence
gathered, rather than used as a sole source of evidence.
2-146
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Authorize
d capital
Issued,
Subscribed
& Paid-up
Capital
General
Reserves
Capital
Reserves
Unappropri
ated Profit
& Loss
Surplus on
Revaluatio
n of Fixed
Assets
Redeemab
le Capital
Long Term
Loans
Liabilities
Against
Assets
Subject to
Finance
Lease
Deferred
Liabilities
Long
Terms
Deposits
Rupees
Increase/Decrease
Increase/ Reason fo
Decrease
%
Current
Liabilities
Short Term
Loans
Current
Portion of
Long Term
Loans
Creditors,
Accrued &
Other
Liabilities
Provision
for
Taxation
Proposed
Dividend
Total
Liabilities
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Operating
Fixed
Assets
Capitalwork-inprogress
Intangible
Assets
Long Term
Investment
s
Rupees
Increase/Decrease
Increase/ Reason fo
Decrease
%
Long Term
Loan &
Advances
Long Term
Deposits ,
Prepayme
nts &
Deferred
Cost
Current
Assets
Stores,
Spares &
Loose
Tools
Stock-intrade
Trade
Debts
Short Term
Deposits,
Prepayme
nts &
Other
Receivable
Short Term
Investment
Cash &
Bank
Balances
Total
Assets
Client
Analytical Review - Sales
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Rupees Previous
Period
Rupees
Increase/Decrease
Increase/
Decrease %
Rea
Dec
Export
Local
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Raw
material
consumed
Salaries,
wages and
benefits
Rupees
Increase/Decrease
Increase/ Reason fo
Decrease
%
Stores and
spares
consumed
Packing
material
consumed
Fuel and
power
Rent, rates
and taxes
Insurance
Repairs
and
maintenan
ce
Depreciati
on
Other
manufact
uring
overheads
:
Vehicle
Running &
Maintenan
ce
Telephone
and
postage
Utilities
Printing
and
stationery
Travelling
and
conveyanc
e
Legal and
profession
al
Others
Work in
process :
Opening
stock
Closing
stock
Finished
Goods:
Opening
stock
Closing
stock
Cost of
Goods
Sold
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Directors'
remmuner
ation
Staff
salaries
and
benefits
Rent, rates
and taxes
Insurance
Repairs
and
maintenan
ce
Travelling
and
conveyanc
e
Legal and
profession
al
Vehicle
running
and
maintenan
ce
Rupees
Increase/Decrease
Increase/ Reason fo
Decrease
%
Utilities
Printing
and
stationery
Postage,
telephone
and telex
Fees,
subscriptio
n and
periodicals
Entertainm
ent
Auditors'
remmuner
ation
Advertisem
ent
Charity
and
donation
Depreciati
on
Other
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Rupees Previous
Period
Rupees
Increase/Decrease
Increase/
Decrease %
Rea
Dec
Travelling
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Markup /
interest
on :
-Redeema
ble Capital
-Debenture
-Long
Term
Loans
-Lease
Finance
Rupees
Increase/Decrease
Increase/ Reason fo
Decrease
%
-Short
Term
Borrowings
- Loan
from
Directors &
Associated
Undertakin
g
- Workers'
Profit
Participatio
n Fund
Excise
Duty on
Borrowings
Bank
Charges
and
Commissio
n
Exchange
(Gain) /
Loss
Exchange
Risk Fee
on Foreign
Currency
Loan
Client
File No.
Name
Job Incharge
Reviewed by Manager/Partner
Initial
Date
Account
Code
Ref.
Rupees Current
Period
Rental Income
Scrap sales
Others
Unusual income
Rupees Previous
Period
Rupees
Increase/Decrease
Increase/
Decrease %
Rea
Dec
A. 1. 2. 3. 4. 5. PERFORMAN
6. 7. 8. 9. 10. 11. CE ANALYSIS
12. 13. 14.
Installed
Capacity
Capacity
utilized
Production in
units i.e. Kgs.
metres etc.
Production after
conversion, if
any. Gross Sale
in % -Local
-Export Gross
Profit % to Net
Sales Raw
material
consumption
cost to cost of
Local Gross
goods
manufactured. Sales Gross
Total Sales
Average raw
Export Gross
material
purchase price Sales Gross
Total Sales
per unit.
Gross Profit Net
Average
conversion cost Sales
Consumption
per unit of
Cost Cost of
production
Conversion cost goods
manufactured
without
depreciation per Total Purchase
unit Labour cost Price of Raw
material total
per unit of
production Store units purchased
Conversion Cost
and spares
consumption per unit produced
Conversion Cost
unit of
without
production.
depreciation
Electricity
consumption per units produced
Labour Cost
unit of
units produced
production
Packing material Store & Spares
cost per unit of consumption in
rupees units
production
produced
Electricity
consumption in
rupees units
produced
Packing material
cost units
produced
Y1
Y2
Y3
Y4
Y2
Y3
Y4
FO R M U LA
Y1
15.
Administrative Administration
expenses / unit Expenses units
of production produced
16.
17.
18.
19.
20.
21.
Average selling
rate per unit
-Local
-Export
B.
1.
2.
3.
Finished goods
produced in
units raw
material
consumed in
units 100
Local Sales
Total Units Sold
Export Sales
Total Units Sold
In case of
Textile
PROFITABILI
TY RATIOS
Return on assets Net Profit after
(ROA)
tax Average total
assets
Return on
Net Profit after
Capital
tax Average total
Employed
capital
(ROCE)
employed
Earning per
Net profit
share (EPS)
available to
equity holder
Number of
ordinary shares
outstanding
Reasons for
Fluctuations:
FO R M U LA
Y1
4.
Earning yield
5.
Price Earning
Ratio
Earning per
Share
Market value
per share
Market price as
a Share
Y2
Y3
Y4
6.
7.
Earning per
Share
Operating
Operating
Expenses ratio Expenses
(administrative Net Sales
Expenses ratio)
Administrative Administrative
Expenses ratio Expenses
Net Sales
8.
Selling
Selling
Expenses ratio Expenses
Net Sales
9.
Financial
Financial
Expenses ratio Expenses
Net Sale
C.
1.
ACTIVITY
RATIOS
Inventory
Turnover
ii.
iii.
2.
3.
4.
5.
6.
7.
Raw Material
Turnover
Cost of raw
material used
Avg. raw
material
inventory
Work in process Cost of good
turnover
manufactured
Avg. Work in
process
inventory
Finished goods Cost of good
turnover
sold
Avg. finished
goods inventory
Debtor turnover Credit Sales
Debtors
Average debt
Months (days)
collection period in a year
Debtor turnover
Cost of good
Assets turnover sold
Average total
assets
Fixed assets
Cost of goods
turnover
sold
Average fixed
assets
Current assets Cost of good
turnover
sold
Average current
assets
Working Capital Cost of good
turnover
sold
Net working
capital
FO R M U LA
Y1
D.
LIQUIDITY
RATIOS
1.
Current Ratio
Current assets
Current
liabilities
2.
Acid - Test
quick ratio
Quick assets
Current
liabilities
3.
Creditors
Net credit
purchase
Average
creditors
E.
LEVERAGE /
CAPITAL
STRUCTURE
RATIOS
1.
Debt - Equity
ratio
2.
Equity Turnover
Y2
Y3
Y4
3.
Reasons for
Fluctuations:
2.4 AUDIT ADMINISTRATION & OTHER MATTERS
2.4.1 STAFF PLANNING AND TIME ALLOCATION
CLIENT :
PERIOD OF ACCOUNT :
Staff :
Reviewed by
Approved by
Budget
BUDGET (hours)
Partner
Strategic plan
Detailed planning
Audit program & budget
INTERIM WORK
Manager
ACTUAL (hours)
Sup.
Sr.
S.Sr.
Jr.
Total
Partner
Manager
Sup.
Sr.
S.
BUDGET (hours)
Partner
FINAL WORK
Share capital/dividends
Reserves
Deferred liabilities
Loans
Creditors - ourchases
Outstanding expenses
Taxation
Contingent liabilities
Fixed assets and depreciation
Manager
ACTUAL (hours)
Jr.
Total
Partner
Manager
Sup.
Sr. S.Sr.
Invenstments
Stock and work-in-progress
Trade debtors
Advances, deposits and prepayments
Cash and bank balances
Sales and other income
Manufacturing expenses
Selling and administration expenses
Travelling
Supervision
Reports/Memoranda
Review Memorandum
Standard Schedule for Audit Summary file
General
Conferences with client
COST
FEE
OVER (UNDER) RECOVERY
2.4.2 DAILY TIME CONTROL / STAFF ATTENDANCE SHEET
Rs. 3,000
Rs. 1,800
Rs. 1,200
Rs. 450
Rs. 300
Rs. 240
Rs. 150
The actual fees charged in individual cases will be a matter of agreement between
the member and the client.
This ATR supersedes ATR 14 (revised) issued pursuant to the Council's decision of I6
July 1997.
(136th Meeting of the Council - 29 January 2000)
2.4.4 INSTRUCTIONS FROM CLIENT/ KEY DATES
1.
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
SCHEDULED DATE
FINANCIAL YEAR END TIME TABLE
Annual General Meeting (AGM)
Meeting of Board of Directors (BOD)
Initialed audited accounts
Representation letter
Final draft accounts
First draft account with trial balance
Consolidated financial statements, if applicable
Schedules and documents relating to financial statements
Physical count and verification of.
1 - inventories
2 - investments
3 - cash
- BOD minutes
- Statutory records and corporate files
- Material agreements and documents
3
4
5
- Previous auditors
- Experts
- External or in house legal advisor
REMARKS
In order to commence the annual audit for the year ended______, we shall be grateful if you could provide the following as
earlie st:
Trial balance
1.
2.
Draft financial statements -Balance sheet -Profit & Loss account -Statement of Changes in Equities
-Accounting policy and other detailed notes to the accounts
(If financial statements are available on soft copy, please provide the same)
Property, plant and equipment (PPE) -Detailed movements schedule i.e. additions, deletions & transfers -Profit/Loss
on disposal, showing for each item
description
date of purchase
date of disposal
cost
accumulated depreciation
net book value
proceeds on disposal
profit/loss
Please have available for our inspection the title deeds in respect of any freehold property.
Investment, showing for each item -name or nature -nominal value -book value -market value -income booked for
the year
Inventories
The latest financial statements of investee companies (if any) should be made available for our review.
detailed listing for each category of inventory, showing
reference
description
quantity
unit (ie. kilogram, metre, etc.)
unit price
valuation
1
2
Affiliates balances
Bank balances/overdrafts
Please arrange for all affiliates, including the parent company/head office to confirm their balances with the
company at the balance sheet date direct to ourselves.
-Please complete the attached letter in respect of each bank with which the company has had dealings during the
year, and return it to us, once signed, for us to forward to the banks concerned.
-Bank reconciliations for all current accounts, showingCheques drawn but not yet cleared by bankCheque
numberDate drawnPayeeAmountDate presented (after balance sheet date)
1.
2.
Cash
Please obtain confirmations of balances held by holders of all cash floats and petty cash funds at different
locations (if any).
Payables and accruals -Trade creditors -Bills payable showing
Payee Date of maturity Amount -foreign currency (for foreign bills)
-local currency-Sundry payables, showing nature of the debt-Accruals
Nature (eg. salaries, leave pay, utilities, communications etc.) Period of accrual Basis of
calculation Amount accrued
1.
2.
Loans payable. For all medium and long term loans outstanding, show Source of loan Purpose of loan Original
amount Period of loan Balance outstanding Interest rate Repayment arrangements Security given
Contingent liabilities
-Please list all claims against the company and any current litigation. Please send the attached letter to your legal
advisors.
-List of all letters of guarantee given by banks on behalf of the company, noting the purpose and amount of each.
Profit & Loss account details of classification of each income and expense item including the tax status summary
supported by the last assessment order, tax return, summary of taxes paid and details of appeals if any.
1 Statement of Changes in Equities
Movement schedule of paid-up capital (if any)
Form A
Other details of statutory forms submitted to the registrar of companies
Minutes
The minutes of all board and general meetings held during the year should be made available for our inspection.
If you have any queries regarding the information requested above or any other questions in connection with our forthcoming
audit, please do not hesitate to contact us as soon as possible.
Yours faithfully
-sd/
Chartered Accountants
Note: The
above list is guidance purposes only, the same can be tailored with the requirements/nature of the client
industry
1
2
3
4
5
Dear Sir,
CLIENTS NAME
REQUEST FOR BANK REPORT FOR
AUDIT PURPOSES FOR THE YEAR
ENDED
In accordance with your above-named customer's authorization given below, please provide to us, as
auditors of your customer, information relating to its affairs as at the close of business on
on the white copy of the attached form which should
be returned to us direct. The yellow copy of the form is for your records. With respect to items 3,5 and
11 on the form the information requested should cover the period from to .
Please state under each item in the space provided any factors which may limit the completion of your
reply; if there is nothing to report, state "NONE". Where the space provided is insufficient please use
additional sheets appropriately referenced and stamped and signed by the bank. If you find it necessary
to provide the information in a different format, please return the white copy of the attached form with
your reply.
It is understood that any replies given are in strict confidence, for the purposes of audit.
Page 1 of 4
NAME AND From: BANKS NAME ADDRESS
Dear Sirs NAME OF CUSTOMER: CLIENTS NAME We refer to your letter dated and now return the form
appropriately completed showing balances and other information as at and in the case of items 3,5 and 11, during the
period since . Where we have nothing to report, appropriate notation is given under the relevant item(s).
Yours truly
Date: Bank's stamp & signature INFORMATION REQUESTED
(1) BANK ACCOUNT BALANCES
Please give full titles of ALL accounts whether in rupees or in any other currency together with the account numbers
and balances therein, including NIL balances:
1
2
3
(a) where your customer's name is the sole name in the title;
(b) where your customer's name is joined with that of other parties;
(c) where the account is in a trade name.
TYPE OF ACCOUNT
ACCOUNT NUMBER
CURRENCY
DR/
CR
BALANCE
IN FIGURES
IN WORDS
DESCRIPTION OF SECURITY
CHARGED TO THE BANK
NOTES: (i) Where the account is subject to any restriction (e.g. a garnishee order or
arrestment), or exchange control considerations (e.g. "Blocked account") this
information should be stated:
(ii)
Where the authority upon which you are providing this information does not cover any
accounts held jointly with other parties, please refer to your customer in order to obtain the
requisite authority of the other parties. If this authority is not forthcoming please indicate
Bank's
stamp & signature.
Page 2
of 4 NAME OF CUSTOMER : CLIENTS NAME AS AT
1
2
3
4
5
(2)
In respect of running and term finances under mark up arrangement please give
the following particulars:
(3) Full titles and dates of closure of all accounts closed during the period:
(4) Details of amounts accrued but not charged or credited at the above date; e.g. bank
charges, commitment fees, interest etc:
(5) The amount of interest charged during the period if not specified separately in the
bank statements:
(6)
Particulars ( i.e. date, type of document and accounts covered ) of any written
acknowledgment of set-off, either by specific letter of set-off, or incorporated in some
other document or security.
RELATED
ACCOUNT
NUMBER
DATE OF
AGREEMENT
SALE PRICE
PURCHASE
PRICE
PROMPT
PAYMENT
REBATE
DATE ON WHICH
REPAYMENT PERIOD
PURCHASE PRICE IS AND NUMBER OF
PAYABLE
INSTALLMENTS.
RATE OF
MARK -UP
GROSS
DESCRIPTION
TYPE OF ACCOUNT
NET
ACCOUNT NUMBER
PERIOD
DATE OF CLOSURE
AMOUNT
IN FIGURES
IN WORDS
DESCRIPTION
PERIOD
AMOUNT
IN FIGURES
IN WORDS
(7)
Details of loans, cash credit and other facilities ( other than overdrafts mentioned in
item 1 above), specifying agreed limits and in case of term loans, date for repayment or
renewal:
2
3
(8)
CUSTOMER'S ASSETS HELD AS SECURITY Please give:
(i)
details of any security (other than those mentioned under item 1 and 6 above)
formally charged to the bank, including the date and type of charge (e.g. pledge,
hypothecation etc.):
DESCRIPTION
DESCRIPTION OF
SECURITY CHARGED TO
THE BANK
TYPE OF
CHARGE
DATE ON WHICH
CHARGE WAS
CREATED
Bank's
signature
stamp
&
Page 4 of 4
NAME OF CUSTOMER: CLIENTS NAME AS AT
1 (10) CONTINGENT LIABILITIES All contingent liabilities, viz:
2 (a)
aggregate amounts of bills discounted for your customer, with recourse:
3 (b)
details of any guarantees, bonds or indemnities given to you by the customer in
favour of third parties
4 (c)
details of any guarantees, bonds or indemnities given by you, on your
customer's behalf, stating where there is a recourse to your customer and/or to its
holding, parent or any other company within the group
5 (d)
aggregate amounts of acceptances
6 (e)
aggregate amounts of forward exchange contracts
7 (f)
aggregate amounts of outstanding liabilities under documentary credits
8 (g)
others - please give details
9 (11) OTHER INFORMATION
A list of other banks, or branches of your bank, where you are aware that a
customer/banker relationship has been established during the period:
Bank's
signature
stamp
&
Dear Sirs
CLIENTS NAME
We will shortly be expressing our opinion as to the fairness with which the financial
statements present the financial position of the company on ________ and the results of its
operations for the year then ended. In this connection, we shall be grateful if you would please
inform us directly of any litigation, existing or anticipated, as at the above mentioned date or
arising subsequent thereto, involving the company and your opinion as to the losses that are
likely to arise therefrom.
Yours truly
FIRMS NAME
Authorised by
SAMPLE OF TAX CONSULTANTS CONFIRMATION
Dear Sirs
We are shortly going to express an opinion on the companys accounts for the year ended _______________ and shall
be grateful if you will please directly advise us the position of the companys open ended tax assessments giving a
detailed breakdown of the amounts payable or refundable and likely impact of disputed disallowances of such
assessments.
2-175
SAMPLE OF DEBTORS/CREDITORS CONFIRMATION
Yours faithfully
(________________)
THE BALANCE SHOWN ABOVE IS CORRECT / INCORRECT (Please delete as appropriate)
COMPANY:
________________________
ACCOUNT
________________________
________________________
DATE
2-176
SAMPLE OF FORMAT OF LOAN/LEASE CONFIRMATION
Dear Sirs
REQUEST FOR INFORMATION FOR AUDIT PURPOSES
FOR THE YEAR ENDED ____________________
In accordance with your above-named customers authorisation given below, please provide to us directly as auditors of your
customer, the information relating to its affairs as at the close of business on _________________and for the period from
_____________________ to ___________________.
1
2
3
4
5
6
7
8
Details of all accounts whether in rupees or in any other currency as at _________________stating full title,
account numbers and balance therein including NIL balances.
Details of loans and credit facilities, specifying agreed limits and in case of term loans, dated for repayment or
renewals.
Amounts of interest, commitment fees, service charges etc., charged during the period.
Details of amounts accrued but not charged or credited at the above date: e.g., interest, commitment fees, service
charged etc.
Details of any security formally charged to you, including the date and type of charge (e.g. pledge, hypothecation
etc.). If a security is limited to any borrowing or if there is a prior, equal or subordinate charge, please indicate.
Details of customers assets held as security (other then those mentioned in your response to 5 above) or for other
purposes.
Details of any guarantees, bonds or indemnities given to or by you, stating where there is a recourse to your
customer and/or to its holding, parent or any other company within the group.
Any other information that you consider appropriate for the purposes of the audit.
Please state in respect of each item any factors, which may limit the completion of your reply. If there is nothing to report
state, NONE.
It is understood that any replies given are in strict confidence for the purpose of audit.
Yours truly
For and on behalf of
DISCLOSURE AUTHORISED
For and on behalf of
2-177
Name
Designation
Signature
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
Note : Information shall be used in performing audit procedures (e.g. Test of Controls
& Substantive Testing). If there are no significant changes since previous audit,
this may be transferred to the permanent file.
2.4.8 NOTES OF MEETING WITH CLIENT CLIENT NAME
Name
Designation
Name
CLIENT
REPRESENTATIVES
Designation
CONCLUDING REMARKS
Sign off
Information about Other Auditors/ Co-auditors(if any) Availability of Accounting manuals and any changes Areas
Requiring special attention
Physical Existence Verification
Approx. Va lue
Stock
Cask
Investment
Date
Location(s)
Coordinator(s)
Others
Any significant accounting and audit issues identified during the last audit which are
brought forward
Involvement of internal audit
1
2
3
4
5
a. No. of staff
b. Name of department head
c. Reporting authority
d. Type of reports issued
e. Frequency of reports
Availability of latest cash flows / budgets Actual results to date (comment generally)
Financial restriction placed by debt covenants
Addressed
Dated
Particulars
To
From
Year ended
Date
Reviewed by
Date
S.No.
Schedule
Reference
Description of issue
Note: This schedule would be carried forward to the next year Audit Planning File as
Points Brought Forward From Previous Year.
CLIENT:
PERIOD OF ACCOUNT:
SUBJECT: AUDIT PLANNING CHECKLIST
This checklist should be completed and initialed prior to the partners approval of the audit
plan.
YES/NO/N.A
INITIALS
W
ORKING
AND
P
APER
DATE
RE
FERENCE Terms of Engagement
1
2
3
4
5
6
7
Has the partner or management discussed with client officials their requirement for this years
examination?
If the client is a member of a group, have group audit instructions been received and have
group requirements been given full consideration in developing the plan?
Have the implications of changes in accounting and auditing conventions, laws and regulations
been considered?
Have areas in which client staff, including internal auditors, can make our work more efficient
and effective been considered?
Has an appropriate letter to the client been drafted confirming our current understanding of the
clients requirements, our timetable, and the assistance which client staff will give us?
Has a paragraph regarding Quality Control Review of our working papers files by the Institute
of Chartered Accountants of Pakistan been included in engagement letter?
Is an appropriate up-to-date engagement letter on file?
1
2
3
4
5
2.
In preparing the plan, has due consideration been given to changes in:
1
2
3
4
5
6
7
8
Does the Planning File reflect our current understanding of the clients business?
1 4. If the client use computers for accounting purposes have we considered:
2 (1) The implications for our work?
3 (2) The most effective use of computer audit specialists?
4 (3) The use of CAAT?
Has accounting and internal control system been evaluated and documented in the
following manner:
1
2
Has understanding of Computer Information System (CIS) been obtained and CIS
checklist been filled out?
Have audit programs been prepared for all significant financial statement components
to document the detailed audit procedures, after considering the results of test of
controls?
Have analytical review procedures been applied at planning stage and comments on
the variations since previous period been documented?
Audit Administration & Other Matters
-Points brought forward from previous year Planning File, Overall audit plan,
Detailed audit Plan and planning checklist reviewed and approved by
Partner _______________________ Date __________ Manager ______________________
Date __________
3.1
1
2
Planning file must be completed, reviewed and signed by at least a senior audit staff
before commencement of field work.
The job incharge should ensure that following has been done / completed before
presenting the file for review:
2.1
Total of the lead schedules for each head agrees with the accounts.
2.2
2.2
2.3
2.4
Lead schedules and sub-schedules are initialled and dated by auditor who has
prepared the schedule and carried out the work.
2.5
List of final outstanding points and exceptions with their disposals should be
stated in un-ambiguous terms and cross-referenced to working paper files.
2.6
Audit symbols used must explain the work performed and ensure that
percentage of work completed must be stated for each financial statement
component, which is not fully verified. If sampling procedures used by the
auditor, ensure that steps are properly correlated with the materiality threshold
determined at the planning stage
2.7
A copy of the relevant audit program is to be filed with each significant financial
statement component
Auditor must ensure that observations relating to internal control weaknesses (revealed
during test of controls / cut off procedures) are properly addressed in draft
management letter or internal control memorandum.
YEAR
___________________________________________________
RISK ADDRESSED
The auditor should document matters that are important in providing evidence to support the
audit opinion. This documentation of working papers may be in the form of data stored on
paper, film, electronic media or other media,
2. Purpose.
Audit working papers:
a) Assist in the planning and performance of the audit;
b) Aid in the conduct, supervision and review of the audit work; and
c) Record the audit evidence resulting from the audit wok performed to support the
auditors opinion.
3. Need.
The need of audit working papers is to show that the audit engagement is adequately planned,
executed, the work of the assistants has been properly supervised and that the working papers
support the contents of the opinion.
4. Standardization.
The quantity, type, content and form of working papers will vary with the policy of the firm
and circumstances, depending on the type of audit. A standard form or group of forms cannot
be devised to cover all situations. The auditor must have the capability to devise new or
modify forms to meet situations as they arise. Factors affecting our judgment about the
working papers prepared and their content include:
of
Client
___________________________________
Year
end________________________________________
Page No.
3-30
RR
3-33
SS
DIVIDENDS
3-35
3-5
MAIN INDEX
Name of Client ___________________________________ Year
end________________________________________
AS S ETS
Page No.
A OPERATING ASSETS 3-37 B ASSETS SUBJECT TO FINANCE LEASE 338 C CAPITAL WORK - IN - PROGRESS 3-41 D STORES AND SPARES
HELD FOR CAPITAL 3-43 EXPENDITURE E INTANGIBLE ASSETS 3-45 H
UNALLOCATED PRE - PRODUCTION 3-47 EXPENDITURE K LONG
-TERM INVESTMENTS 3-49 L LONG - TERM LOANS AND ADVANCES 351 M LONG - TERM DEPOSITS, PREPAYMENTS AND 3-53 DEFERRED
COSTS N STORES, SPARES AND LOOSE TOOLS 3-55 R STOCK - IN
-TRADE 3-57 S TRADE DEBTS 3-59 V TRADE DEPOSITS, SHORT TERM
3-61 PREPAYMENTS, LOANS, ADVANCES AND OTHER RECEIVABLES
W MARKETABLE SECURITIES / SHORT -TERM 3-63 INVESTMENTS
X 3-65
MAIN INDEX
3-69
PL
GENERAL AND ADMINISTRATIVE EXPENSES 3-72 PL 4 SELLING AND DISTRIBUTION EXPENSES 3-74
File No.
Reference
Prepared by
Date
Reviewed by
Date
AA
Accounting
Period
Whether placed in File
Reference
SHARE CAPITAL
Audit program
AA
AA/AP
Lead schedule
AA/LS
Supporting Schedules
AA1-19
AA/20
as applicable
List of shareholders alongwith workings.
AA-21
AA-22
AA-23
Initial of Reviewer
File No.
Reference
Prepared by
Date
Reviewed by
Date
AA/LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
AUTHORIS
ED
CAPITAL
Number of
shares
Shares' face
value (per
share)
Total
Authorised
Capital
Types of shares
B/S
B/S
Types of shares
B/S
B/S
- ISSUED,
SUBSCRIBE
D AND PAID
UP
CAPITAL
Number of
shares
Amount
(Total)
Value of each
share
MOVEMEN
T DURING
THE YEAR
Numbers
Beginning of
the year (a)
Issued during
the year
Cash (b)
Kind (c)
Bonus/Right
(d)
(b) + (c) +
(d)= (e)
At the end of
the year a+e
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
BB
Accounting
Period
Whether Placed in File
Reference
BB
Audit program
Lead schedule ( capital and revenues )
BB/AP
BB/LS
Initial of Reviewer
Supporting Schedules
-Revenue reserves
-Capital reserves
-Accumulated Profit/(Loss)
BB-1
BB-2
BB-3
Board Minutes
BB4
BB5
BB10
Reference BB/LS
Date Date
Reference
Capital Reserves
BB-1
BB-2
- General reserve
- dividend equalisation reserve
- other reserve (to be specified)
- unappropriated profit
-Accumulated Profit/(Loss)
BB-3
Total
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matter to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
CC
Other during
year
Period
Whether Placed in File
Reference
SURPLUS ON REVALUATION OF
FIXED ASSETS
Audit program
Lead schedule
Basic information and summary of revaluation
report *
Procedure for release of reserve. Tests including
reconciliation with disposal of assets schedule
CC
CC/AP
CC/LS
CC-21
CC-22
Initial of Reviewer
File No.
Reference
Prepared by
Date
Reviewed by
Date
CC/LS
Accounting
Period
Current Period Rupees
Reference
Previous Period
Rupees
<
><
B/S B/S
>
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-13
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
DD
Accounting
Period
Whether Placed in File
Reference
REDEEMABLE CAPITAL
Audit program
Lead schedule
Supporting Schedules
Confirmations summary, reconciliation and documents
Related information in respect of redeemable capital
Board minutes
Extracts/Copies of agreements
DD
DD/AP
DD/LS
DD1-19
DD-20
DD-21
DD-22
DD-23
Initial of Reviewer
File No.
REFERENCE
DD/LS
Name
Initial
Date
Prepared by
Checked by Job Incharge
Reviewed by Manager / Partner
Account
No.
Ref.
P. T. C.
Musharika
arrangement
T. F. C.
Long term
running finance
under markup
arrangement
Current Period
Rupees
Previous Pe
Rupees
Secured / Unsecured
Opening balance
Instalment due
<
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
> <
Principal amount
Marked up price
Markup
Instalment amount
Number of Instalments
CONCLUSION
1
2
3
In my opinion _________________ of Rs. ______________________ are fairly stated and on a consistent basis with the previous period.
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
EE
> <
> <
EE
Audit program
Lead schedule
Supporting Schedules
Confirmation summary, reconciliation and documents
Related information
Board minutes
Extracts/Copies of agreements
Copies of ledger accounts
(if related parties)
EE/AP
EE/LS
EE1-19
EE-20
EE-21
EE-22
EE-23
EE-24
3-16
File No.
Reference
EE/LS
Name
Prepared by
Date
Initial of Reviewer
Client
L
e
a
d
S
c
h
e
d
u
l
e
:
L
O
N
G
T
E
R
M
L
O
A
N
S
Y
e
a
r
E
n
d
:
Account Ref.
Banking
From
From
director
s
Others
Current
Period
P
revious Period
No.
Companies
subsidiaries
(
including and other
controlled firm
Chief
Executi
ves)
Rupees
R
upees financial
m
a
n
a
g
e
d
i
n
s
t
i
t
u
t
i
o
n
m
o
d
a
r
a
b
a
s
a
n
d
o
t
h
e
r
a
s
s
o
c
i
a
t
e
d
u
n
d
e
r
t
a
k
i
n
g
s
Secured / Unsecured
Opening balance
Obtained / adjusted during the period
Repaid / adjustment / transferred
during the period
<><><><
><
><><><><<>
Current portion shown under current
liabilities
Instalment due
Payable within one year
<><><><
><
><><><><<>
Number of equal instalments
Amount of Instalments
Instalment payment rest
Date of commencement of first
instalment
Foreign Currency
Sub Note :(Securities, priority in payment,Conversion features, recognitionof exchange differences and othermaterial terms)
CONCLUSION
1
2
3
4
Index
Client:
Lead Schedule:
Liabilities against assets subject to
finance lease.
Whether Placed
Initial Reference
in
of File
Reviewer
Reference
Prepared by
Date
Reviewed by
Date
FF
Accounting
Period
File No.
REFERENCE
Name
G
Initial
Date
Prepared by
Checked by Job Incharge
Reviewed by Manager / Partner
Account
No.
Ref.
Opening Balance
<
> <
><
> <
> <
> <
> <
> <
> <
> <
>
<
> <
><
> <
> <
> <
> <
> <
> <
> <
>
Instalment due
Principal amount
Deposit amount
Instalment amount
Instalment payment rest
Number of Instalment
Applicable rate of finance %
Sub note :
Purchase option, executory cost born
by lessor/ lessee, residual value of
assets, financing restriction
Year Ending
CONCLUSION
1
2
3
4
Index
Client:
Lead Schedule: Deferred Liabilities
Whether Placed
Initial Reference
in
of File
Reviewer
DEFERRED LIABILITIES
GG
Audit program GG/AP
Lead schedule GG/LS
Supporting schedules ( gratuity / deferred taxation ) GG-1-19
Actuary's reports.
GG-20
Copies of lease agreements / other agreements GG-21
Board of Directors' approval GG-22
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
GG
File No.
Reference
Prepared by
Date
Reviewed by
Date
GG/LS
Accounting
Period
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and notes of unusual matters
to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the previous period.
Job Supervisor :________________ Date ________________
3-21
Index
Client:
Lead Schedule: Long-term deposits
Whether Placed
Initial Reference
in
of File
Reviewer
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
HH
File No.
Reference
Prepared by
Date
Reviewed by
Date
HH/LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
-Customers
HH-1
-Employees
HH-2
HH3-19
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-23
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
JJ
Accounting
Period
Whether Placed in File
Reference
JJ
JJ/AP
JJ/LS
JJ1-19
JJ-20
JJ-21
JJ-22
JJ-23
Initial of Reviewer
File No.
Reference
Prepared by
Date
Reviewed by
Date
JJ/LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
Secured/Un Secured
-Banking Companies and Financial Institutions
JJ-1
-Subsidiary Companies
JJ-2
-Controlled Firms
JJ-3
-Managed Modarabas
JJ-4
JJ-5
JJ-6
-Others
JJ7-19
* Sub-note
-Rate of interest
-Nature of security
-Un-availed credit facility
-Other material terms
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-25
Index
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-27
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
NN
Accounting
Period
Whether Placed in File
Reference
NN
NN/AP
NN/LS
NN1-19
NN-20
NN-21
NN-22
NN-23
Initial of Reviewer
NN-24
NN-25
NN-26
File No.
Reference NN/LS
Prepared by Date
Reviewed by Date
Accounting
Period
Current Period
Rupees
Reference
CREDITORS
- ACCRUED
LIABILITIE
S
- BILLS
PAYABLE
- ADVANCE
PAYMENTS,
UNEXPIRED
DISCOUNTS
AND
DEFERRED
INCOME
- MARK UP
ACCRUED
ON
SECURED
LOANS
NN-1
NN-2
NN-3
NN-4
NN-5
Previous Period
Rupees
Remarks
- MARK UP
ON EACH
CLASS OF
REDEEMAB
LE
CAPITAL
- MARK UP
NN-6
ACCRUED
ON
UNSECURE
D LOANS
- PROFIT,
RETURN OR
NN-7
MARKUP
ACCRUED
- WORKERS'
PROFIT
NN-8
PARTICIPAT
ION FUND
- WORKERS'
WELFARE
NN-9
FUND
- PAYABLE
TO DEBTOR
- OTHER
LIABILITIE
NN-10
S
- OTHER
NN-11
DEPOSITS
- TRADE
NN-12
CREDITORS
NN-13
ADVANCES
FROM
CUSTOMER
S
- CUSTOM
EXCISE
NN-14
DUTY
PAYABLE
CONTRACT
ORS
NN-15
EARNEST/P
ETENTION
MONEY
- SALES
TAX
NN-16
PAYABLE
- MARK UP
ON
NN-17
RUNNING
FINANCES
- MARK UP
ON TERM
NN-18
FINANCES
DISTRIBUT
ORS
NN-19
SECURITY
DEPOSITS
PAYABLE
ON
NN-20
TERMINATI
ON OF
DEALERSHI
P
- OTHERS
NN-20-25
1
2
3
4
B/S B/S
The audit has been completed in accordance with Audit program.
The working papers demonstrate that adequate work has been undertaken.
The working papers contain sufficient information, details of significant features
and notes of unusual matters to enable us to form an opinion on financial
statements.
In my opinion above amounts are fairly stated and on a consistent basis with
the previous period.
Job Supervisor :________________ Date ________________
Index
Client:
Lead Schedule: Taxation
Whether Placed
Initial Reference
in
of File
Reviewer
TAXATION PP
Audit program PP/AP
Lead schedule PP/LS
Tax position-Year wise
PP-1
Tax
PP-2
Schedule
of tax depreciation
PP-3 Statement
of excess perquisites
PP-4 Statement
of liabilities over 3 years U/s 25(i)
PP-5 Reconciliation of accounting records of tax
payment with the tax record (IT - 30 year wise)
PP-6
Schedule
Summary
PP-8
Summary
of tax assessments
of Appellate orders
PP-9
Confirmation from tax advisor*
PP-10
Test documents is respect of :
-Withholding tax PP-11
-unexplained credits PP-12
-unpaid loans/credits
PP
-13
* Obtain if tax work not handled by the auditing firm
File No.
Reference
Prepared by
Date
Reviewed by
Date
PP
Accounting
Period
3-30
File No.
Reference
Prepared by
Date
Reviewed by
Date
PP / LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
PROVISIONS - CUMULATIVE
Opening balance
Made during the year -Current
-Prior year
Total
PAYMENTS - CUMULATIVE
Opening balance
Made during the year -Current
-Prior year
-Advance
Total
Balance
Represented by:
Tax liability
Tax refundable
PP-1
B/S
B/S
CONCLUSION
1
2
3
4
File No.
Reference
Prepared by
Date
Reviewed by
Date
RR
Accounting
Period
Whether Placed in File
Reference
DIVIDENDS
RR
Audit program
RR-AP
Lead schedule
RR/LS
Supporting Schedules
RR1-19
RR-20
RR-21
RR-22
Initial of Reviewer
Board minutes
RR-23
File No.
Reference RR/LS
Prepared by
Date
Reviewed by
Date
Accounting
Period from
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and notes of unusual matter
to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the previous period.
Job Supervisor :________________ Date ________________
3-34
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
SS
Accounting
Period
Whether Placed in File
Reference
SS
Audit program
Lead schedule
Contingencies
Subsequent review/legal matters/contingent
liabilities
Legal letters and supporting documentation
Bank confirmation contents summary
SS-AP
SS-LS
SS1
Capital commitments
Operating lease-agreements summary
Summary of unexecuted contracts in respect of
capital work in progress
Summary of BOD Meetings - report of
SS-II
SS-12
SS-2
SS-3
SS-4
SS-13
Initial of Reviewer
commitments made
Bonded Stock commitments
SS-14
SS-15
SS-21
SS-22
SS-23
File No.
Prepared by
Reviewed by
Accounting
Reference
Date
Date
SS/LS
Period
Current Period
Reference Rupees
-Contingencies
-Nature of contingencies
SS-1
SS-2
SS-3
SS-4
SS-5
SS-6
SS-7
-Commitments (Revenue/Capital)
SS-11
SS-12
SS-13
-Subsequent Events
SS-21
SS-22
SS-23
Note Note
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-36
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
OPERATING ASSETS
Audit program
Lead schedule
Supporting Schedules
Related information
Additions -vouching schedules
Disposals of assets vouching and linkage with
tax and profit and loss
Depreciation
Insurance - Coverage schedule
Board minutes for major additions/delations
A
A-AP
A/LS
A1-A19
A-21
A-22
A-23
A-24
A-25
A-26
3-37
Initial of Reviewer
Index
Client:
Lead Schedule:
Assets subject to finance Lease
Whether Placed
Initial Reference
in
of File
Reviewer
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
File No. Reference A-B/LS
Prepared by
Depreciation
No.
Cost at Addition/ Disposal/ Capitalization Cost at Accumulated Adjustment Depreciation Accumulated Written down Rate
the Begening Transfer during Transfer duringof unallocated the end of the Depreciation Disposal / for the year Depreciation at value %
of the Year the period the period capital expenditure Year at the Transfer the end of
of year
Land - freehold Land - leasehold Building on freehold land Building on leasehold land Plant and Machinery Electric Installation & Equipment Office Equipment
Furniture and Fixture Vehicle
Under lease : Plant & Machinery Equipment Vehicle
CONCLUSION
1
2
3
4
Preceding Period
Depreciation for the perios has been
accumulated as under
Cost
administration
of
goods manufactured
File No.
REFERENCE
A/LS1
Name
Date
Prepared by
Reviewed by Manager / Partner
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
C
C-AP
C/LS
C1-C19
C-20
C-21
C-22
C-23
C-24
C-25
Initial of Reviewer
File No.
Reference
Prepared by
Date
Reviewed by
Date
C / LS
Accounting
Period
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and notes of unusual matters
to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the previous period.
Job Supervisor :________________ Date ________________
3-42
Index
File No.
Prepared by
Reviewed by
Accounting
Reference
Date
Date
D / LS
Period
Current Period
Reference Rupees
Stores
D-1
Spares
D-2
D-3
Others
Provision regarding 6(B) and 6(F) of 4th schedule
i.e. basis of valuation and for the opinion of directors
it the value of current assets (stores and spares) is
less than the amount at which they are stated in the
financial statement.
D4-19
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-44
Index
Client:
Lead Schedule: Intangible Assets
Whether Placed
Initial Reference
in
of File
Reviewer
INTANGIBLE ASSETS E
Audit program E-AP
Lead schedule E/LS
Supporting Schedules E1-19
Third party documents E-20
Extracts/copies of Agreements E-21
Patent documents E-22
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
3-45
File No.
Prepared by
Reviewed by
Accounting
Reference
Date
Date
E / LS
Period
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-46
Index
3-47
File No.
Reference
Prepared by
Date
Reviewed by
Date
H / LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-48
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
K
K-AP
K/LS
K-1-19
K-21
K-22
K-23
K-24
K-25
Initial of Reviewer
3-49
File No.
Prepared by
Reference
Date
Reviewed by
Date
K/LS
Accounting
Period from
Current Period
Reference Rupees
- In Subsidiary Companies
K-1
- In Controlled Firms
K-2
- In Managed Modarabas
K-3
K-4
- In Listed Companies
K-5
- Modarba
- In Unlisted Companies
K-6
- Modarba
- In Immoveable Properties
K-7
- In Redeemable Capital
K-8
K-9
K-10
- Others
K-11
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matter to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-50
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period from
Whether Placed in File
Reference
L
L-AP
L/LS
Supporting schedules
L1-L19
Related information
L-20
L-21
L-22
L-23
Initial of Reviewer
3-51
Client:
Lead Schedule:
Long Term Loans and Advances
Current Period
Pr
evious Period Reference Rupees
Rupees
(Considered good or Doubtful)
- Subsidiary Companies L-1
- Controlled Firms L-2
- Managed Modarabas L-3
- Other Associated Undertakings L-4
- Provision regarding 4(A) (ii), (iii), 4(B), 4(C), 4(D),
4(E), 4(F), and 4(G) of 4th schedule is required
File No.
Prepared by
Reference
Date
Reviewed by
Date
L / LS
Accounting
Period
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-52
Index
Client:
Lead Schedule:
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
Audit program
M-AP
Lead schedule
M/LS
Supporting Schedules
M1-19
M-20
Copies of Documents/Summary
M-21
3-53
Lead Schedule:
Initial of
Reviewer
Deferred costs
File No.
Prepared by
Reference
Date
Reviewed by
Date
M / LS
Accounting
Period
Current Period Previous Period Rupees RupeesReference
M-1M-2
a) Long Term Deposits b) Long Term Prepayments c)
Deferred Costs
M-3M-4M-5M-6M-7M-8 ( ) ( )
B/S
B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
3-54
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Audit program
N-AP
Lead schedule
N/LS
Supporting Schedules
N1-19
N-20
N-21
N-22
Obsolescence review
N-23
Cutoffs tests
N-24
Initial of Reviewer
3-55
File No.
Reference
N / LS
Prepared by Date
Reviewed by Date
Accounting
Period
Schedule Current Period Rupees
Reference
In hand :
-Stores
(includes
Rs___ (19_:
Rs __)
intransit)
-Spares
(inlcudesRs__
_ (19_: Rs __)
intransit)
-Loose Tools
--do-Others --do-
Previous Period
Rupees
N-1
N-2
N-3
N-4
Total
In transit
-Stores
N-5
-Spares
N-6
-Loose Tools
N-7
-Others
N-8
N-10
N-11
N-12
N-13
N-14
N-15
N-16
N-17
N-18
N-18
N-19
()
()
schedule i.e.
basis of
valuation and
for the
opinion of
directions
regarding
value of
stores, spares
and loose
tools which
is less than
that stated in
financial
statements
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
Audit program
R-AP
Lead schedule
R/LS
Initial of Reviewer
Supporting Schedules
R1-R19
R-20
R-21
R-22
Obsolescence review
R-23
Cut-offs
R-24
3-57
File No.
Reference
Prepared by
Date
Reviewed by
Date
R / LS
Accounting
Period
Reference
- Raw Material
and component
R-1
- Packing
Material
R-2
-Work in Process
R-3
-Finished Goods
R-4
- Waste stock
R-5
- Stock-in-Bond
R-6
-Stock-in-transit
R-7
- Other stocks
(to be specified)
R-8
Provision
regained 6(B)
and 6(F) of 4th
schedule i.e.
basis of
valuation and
direction opinion
regarding value
of stock-in-trade
which is less
than that stated
in
financial
statements
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3
4
The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period from
Whether Placed in File
Reference
TRADE DEBTS
Audit program
S-AP
Lead schedule
S/LS
Supporting Schedules
S1-S18
S-19
Confirmations
S-20
S-22
S-23
S-24
Initial of Reviewer
3-59
File No.
Reference:
Prepared by
Date
Reviewed by
Date
S/LS
Accounting
Period
Client:
Lead Schedule: Trade Debts
Considered Doubtful
)
()
i - specific
C
urrent year Prior
ii- general
1- Due from:
D
i
r
e
c
t
o
r
s
_
_
_
_
_
_
_
_
_
_
_
_
_
P
r
o
v
i
s
i
o
n
r
e
g
a
r
d
i
n
g
6
(
C
)
a
n
d
6
(
F
)
o
f
4
t
h
s
c
h
e
d
u
l
e
i
.
e
.
C
hief executives _____________ director's opinion regarding value of trade debts which
M
anaging agents _____________ is less then that stated in financial statements and the
Other executives
_____________ maximum aggregated amount due from directors / chief executive / managing agents / executives /
2
- Due from associated undertakings / controlled firms /
managed
A
ssociated undertakings _____________ modarbas.
C
o
n
t
r
o
l
l
e
d
f
i
r
m
s
_
_
_
_
_
_
_
_
_
_
_
_
_
M
a
n
a
g
e
d
m
o
d
a
r
b
a
_
_
_
_
_
_
_
_
_
_
_
_
_
Maximum amount
held at any, time
during the year
calculated by reference
to month end balances.
(i)
above_____________
B/S B/S
CONCLUSION
1
2
3
4
Index
Client:
Lead Schedule:
Trade Deposits,Short-Term
Prepayments/ Loans,Advances and
Other Receivables
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
Audit program
V-AP
Lead Schedule
V/LS
Supporting Schedules
V1-V19
Confirmations
V-20
V-21
Client:
Lead Schedule:
Initial of
Reviewer
Trade Deposits,Short-Term
Prepayments/ Loans,Advances and
Other Receivables
File No.
Reference
Prepared by
Date
Reviewed by
Date
V/LS
Accounting
Period from
Current Period Rupees Previous Period Rupees
Reference
Deposits
V-1
Prepayments
V-2
Loans
V-3
Staff
Executives
Chief Executive
Considered good and bad
Advances
Considered good and bad
V-4
V-5
Tax Refunds
Others
PP-1
V-6
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matter to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
Client:
Lead Schedule:
Marketable Securities/Short-term
Investments
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Audit program
W-AP
Lead schedule
W/LS
Supporting Schedules
W1-19
W-20
Valuation Tests
W-21
W-22
B/S B/S
Initial of Reviewer
Client:
Lead Schedule:
Marketable Securities/Short-term
Investments
File No.
Reference
Prepared by
Date
Reviewed by
Date
W / LS
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
W-1
W-2
W-3
W-4
W-5
W-6
W-7
W-8
W-9
W-10
- Others
-Provision regarding 6(D) relating, to provision
(3(B), 3(C), 3(D), 3(E) and 3(F) in the 4th
schedule is regimed
W-12
W-11
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
Whether Placed in File
Reference
Audit program
X-AP
Lead schedule
X/LS
X1-19
Bank confirmations
X-20
X-21
X-22
X-23
X-24
Initial of Reviewer
File No.
Reference
Prepared by
Date
Reviewed by
Date
X/LS
Accounting
Period
Schedule
Reference
-Cash in
Hand
X-1
-Cash in
Transit
X-2
-Cash at
Bank (i) on
deposit
account
(ii) on
current
account
(iii) other
accounts
a) In
Current
Accounts
Local
Currency
Statistics
Confirmed
Physically
Verified
Remarks
Amount
X-3
Foreign
Currency
X-4
b) In
Deposit
Accounts
Local
Currency
Foreign
Currency
X-5
X-6
Balances in
hand
(i) Cash
(ii)
Cheques
Balances in
transit
Total
B/S B/S
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
PL-1
Accounting
Period
Whether Placed in File
Reference
Initial of Reviewer
SALES
Audit program
PL1-AP
Lead Sehedule
PL-1/LS
Monthly analysis
Related information
Sales cut - off
Test of Control- Sales
Quantitative reconciliation
Significant Customers (80/20) 20 percent customers
(in numbers who contribute 80 percent sales)
File No.
Reference PL1/LS
Prepared by Date
Reviewed by Date
Accounting
Period
Schedule
Current Period
Previous Period
Reference
Rupees
Rupees
Increase/
Increase/
Reasons for
(decrease)
(decrease)
variation
Amount
Sales
-Exports
-Local
-Export
Quota
-Waste
Less:Commissio
n to sole
selling
agent and
to
-Other
Selling
Agent
-Discount
-Sales Tax
-Export
Duty
-Brokerage
-Brokerage
and
discount
Net sales
Amount %
P/L P/L
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
PL2
Accounting
Period from
File No.
Reference PL2/LS1
Prepared by
Date
Reviewed by
Date
Accounting
Period
Current Period Rupees Previous Period Rupees
Reference
-Work in Process
Opening
Closing
R-3
-Finished Goods
Opening
Closing
-Excise Duty
R-4
P/L P/L
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
File No.
Reference PL2/LS2
Prepared by
Date
Reviewed by
Date
Accounting
Period
Purchases
Closing
R-1
Stock
- Stores
and
Spares N
Consume
d
- Fuel and
Power
- Salaries,
Increase/
(decrease)
Rupees
- Raw &
Packing
Material
Consume
d
Opening
Stock
Previous Period
Reference
Rupees
Amount
Statistic Vouched Amount
Globally Verified
Wages
and Staff
Welfare
bonus,
contributi
on
to
provident
and other
funds
- Rent,
Rates,
and Taxes
Insurance
- Repairs
and
Maintena
nce
- Patents,
Copyright
s, Trade
Marks,
Designs
Royalties
and
Technical
Fees
Amortizat
ion of
Research
and
Develop
ment
Costs
- Vehicle
Running
and
Maintena
nce
Telephon
e, Telex
and
Postage
Travellin
g and
Conveyan
ce
- Printing
and
Stationery
- Utilities,
Rates and
Taxes
Depreciat
ion
- Other
expense
(to be
specified)
Communi
cations
Entertain
ment
Total
Index
Client:
Lead Schedule:
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
Period
PL3
Client:
Lead Schedule:
File No.
Reference PL3/LS
Prepared by
Date
Reviewed by
Date
Accounting
Period from
Reference
Increase/
(decrease)
Amount
Increase/
(decrease) %
In case of donations w
spouse has interest in
directors their intere
and addresses of all d
- Directors
Remuneration
- Salaries
pages and
Benefits
- Rent, Rates,
and Taxes
- Vehicle
Running and
Maintenance
- Printing and
Stationery
- Telephone,
Telex and
Postage
- Fees and
Subscriptions
- Travelling
and
Conveyance &
entertainment
- Legal and
Professional
- Auditors'
Remuneration
Audit Fee
Other Services
Out of Pocket
Expenses
Advertisement
& Sales
promotions
Entertainment
- Charities and
Donations
names and
addresses of
the
donees and of
directors
including their
spouses and
children
interested is
required IF (--)
of 4th
schedule
- Depreciation
method of
Depreciation
- Others
- Insurance
- Repairs &
maintenance
- Bad debts
written off trade
- others
- Provision for
doubtful debts
- trade
- others
- Research &
development
cost included
in bad debts
due by:
- Directors
chief
executive,
managing
agent &
executive
- Associative
undertakings
P/L P/L
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
Client:
Lead Schedule:
Selling and Distribution
Expenses
Current Period
P
revious Period Reference
Rupees
Rupees
-Ocean Freight
-Local Freight and Octroi
-Forwarding Expenses
-Export Development Surcharge
-Bank Charges
-Others
File No.
Reference PL4/LS
Prepared by
Date
Reviewed by
Date
Accounting
Period from
P/L P/L
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and notes of unusual matters
to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the previous period.
Job Supervisor :________________ Date ________________
3-75
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
PL5
Period from
File No.
Prepared by
Reference PL5 / LS
Date
Reviewed by Date
Accounting
Period
Schedule Current Period Rupees Previous Period Rupees Reasons for Major variation
Reference
DD
EE
FF
JJ
JJ
JJ
Mark-up on
- Term finance
- Running finance
Other (to be specified)
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
PL6
Period
File No. Reference PL6/LS
Prepared by Date
Reviewed by Date
Accounting Period
Schedule Current Period Rupees Previous Period Rupees Reasons for Major variation
Reference
I &W
Exchange loss
Others (specify)
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2
3
4
The working papers demonstrate that adequate work has been undertaken.
The working papers contain sufficient information, details of significant features and
notes of unusual matters to enable us to form an opinion on financial statements.
In my opinion above amounts are fairly stated and on a consistent basis with the
previous period.
Job Supervisor :________________ Date ________________
Index
File No.
Reference
Prepared by
Date
Reviewed by
Date
Accounting
PL7
Period
File No.
Reference PL7/LS
Prepared by
Date
Reviewed by
Date
Accounting
Period
Schedule Current Period Rupees Previous Period Rupees Reasons for Major variation
Reference
PARTICULARS
K/W
Interest Income
I&W
class of capital
Income from Modarabas or modarba certificates
Scrap sale
Miscellaneous
P/L P/L
CONCLUSION
1
2
3
File No.
Reference
Prepared by
Date
Reviewed by
Date
PL8
Accounting
Period
File No.
Reference PL8/LS
Prepared by
Date
Reviewed by
Date
Accounting
Period
CONCLUSION
1 The audit has been completed in accordance with Audit program.
2 The working papers demonstrate that adequate work has been undertaken.
3 The working papers contain sufficient information, details of significant features and notes of unusual matters
to enable us to form an opinion on financial statements.
4 In my opinion above amounts are fairly stated and on a consistent basis with the previous period.
Job Supervisor :________________ Date ________________
Each section of this checklist should be completed by the supervising senior/manager at the end of each phase of the
audit, prior to partners review.
1
2
Has all the work been planned before the start of detailed audit procedures and properly documented in the
planning file?
Has the continuing accuracy of the accounting and internal control systems been confirmed by walk-through
procedures or other means? Have the necessary observations and conclusions been documented?
1 3. Is all the audit work executed & documented in the Execution File, including:
2 (1) Audit programs that are initialed, dated, and cross-referenced with each audit step performed during
the course of the audit?
3 (2) Lead schedules are completed and conclusions are drawn on each financial statement component?
4 (3) Lead schedules are properly supported by the evidence gathered during the course of the audit?
Ensure that they are properly referenced and cross-referenced with supporting schedules.
Has the work of each audit staff been reviewed in detail by the supervisory staff?
4
5
6
7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Have all matters raised in the last internal control memorandum / management letter been resolved / followed
up and the clients action recorded?
Has a management letter detailing weaknesses of accounting and internal control systems in respect of the
current visit been drafted? Have clients comments been recorded?
Have new client services opportunities, resulting from internal control matters, arising during the audit been
identified and highlighted?
Have all important matters been documented in the Audit Execution File, including identified auditing and
reporting problems which may arise during final audit visit?
Have confirmations relating to banks, lawyers, debtors/creditors etc. been obtained? If not, is the summary of
the same documented in the execution file & other alternative procedures been applied?
Has final draft / initialled accounts been referenced to the working papers and documented in the Completion
& Reporting File?
Have the workings of cash flow statement been documented and properly referenced with final accounts?
Has accounts completion checklist been filled out before issuing initialled accounts to the client?
Has partner review notes & queries been properly disposed off?
Have all significant matters relating to audit and other areas of assignment been documented in the summary
review memorandum?
Have analytical review procedures were followed at overall review stage and comments on the same been
documented?
Has a representation-letter been drafted based on the firms latest standard letter?
Has letter to the board of directors been issued to the management including areas, which needs to be
communicated to/approved by the board of directors?
Has matters of important nature that needs to be considered in the next audit are properly documented in the
points carried forward to next year?
Has an appropriate financial statements disclosure checklist been completed?
Have subsequent event review checklist been filled out covering evaluation of all possible post balance sheet
event up to the date of the auditors report?
Has going concern checklist been filled out to ensure that going concern assumption is appropriate?
Have all adjustments been entered into the books of account to make them agree with the draft financial
statements?
Has review by the second partner been carried out (in case of large clients or as per firms policy) and proper
evidence of the same is documented in the completion and reporting file?
Have all related party transactions (e.g., transactions with directors and associated undertaking) been
identified and effect of these transactions has considered?
YES/NO/N.A.
INITIAL &
DATE
Date: ___________________
Date: ___________________
_______________
AUDITORS'REPORT:
S-No.DESCRIPTION FINAL DRAFT
1
Para (b)(i):
If there is any change in accounting policy (ies) Para should be
amended by stating except for the changes as stated in note (s)
_____ with which we concur.
4Statement in para (C) of the auditors' report should be drafted appropriately after
confirming whether there is profit/loss for the period, from the profit and loss
account (i.e. Profit/Loss after tax)
5Ensure that para (d) of auditors' report regarding zakat is drafted after confirming
whether there was any zakat deductible. If it has been deducted ensure that it has
been deposited in the Central Zakat Fund.
6
If the accounts are for more or less than 12 months then ensure that
the auditors' report uses the word "period instead of "year.
7
Ensure that audit report is printed on firm letterhead.
FINANCIAL STATEMENTS:
S. No.
to the accounts.
3
If the figures in the accounts are rupees in thousands then ensure that
this is reflected in the headings.
Ensure that totals of assets and liabilities in the balance sheet are in
agreement.
Ensure that last year's figures appearing in the accounts are traced
from last years signed accounts except where they have been
rearranged.
10
Ensure that the statement i.e 'The annexed notes form an integral
part of these accounts." appears in the balance sheet and profit and
loss account
11
Ensure that all the carry forwards and brought forwards are in
agreement Ensure no rounding errors exist between brought
forwards and carry forwards.
12
Ensure that if the company is subject to any other ordinance or regulations disclosures
required by these have also been made. Examples of such disclosures are Investment
Advisers Rules, 1971 or SBP's prudential regulations.
13
Ensure that balance sheet, profit and loss account, statement of changes in financial
position (cash flow statement) and last page of notes to the accounts bears
Check casting of all the totals and sub totals. Check all spellings and grammar.
15
16
Ensure that the Closing Stock figures in Cost of Sales agrees with Stock on balance
sheet. (Except for Items in transit).
17
18
Ensure that change in provisions appearing on the Balance Sheet reconciles with the
amounts reflected in the Profit and Loss Account.
19
20
Year ended
Prepared by:
Date
Reviewed by
Date
Observations/Notes
Disposal
Name of client:
Year ended
Prepared by:
Date
Reviewed by
Date
Following are the examples of items that may be reported in the Summary Review
Memorandum for the review of the partner:
Major Accounting or Auditing Issues
Provisions
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Authorize
d capital
Issued,
Subscribed
& Paid-up
Capital
General
Reserves
Capital
Reserves
Unappropri
ated Profit
& Loss
Surplus on
Revaluatio
n of Fixed
Assets
Redeemab
le Capital
Increase/Decrease
Rupees
Increase/ Reason fo
Decrease
%
Long Term
Loans
Liabilities
Against
Assets
Subject to
Finance
Lease
Deferred
Liabilities
Long
Terms
Deposits
Current
Liabilities
Short Term
Loans
Current
Portion of
Long Term
Loans
Creditors,
Accrued &
Other
Liabilities
Provision
for
Taxation
Proposed
Dividend
Total
Liabilities
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Increase/Decrease
Rupees
Increase/ Reason fo
Decrease
%
Operating
Fixed
Assets
Capitalwork-inprogress
Intangible
Assets
Long Term
Investment
s
Long Term
Loan &
Advances
Long Term
Deposits ,
Prepayme
nts &
Deferred
Cost
Current
Assets
Stores,
Spares &
Loose
Tools
Stock-intrade
Trade
Debts
Short Term
Deposits,
Prepayme
nts &
Other
Receivable
Short Term
Investment
Cash &
Bank
Balances
Total
Assets
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Previous Period
Rupees
Increase/Decrease
Rupees
Export
Local
File No.
Name
Initial
Date
Increase/
Decrease %
Rea
Dec
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Raw
material
consumed
Salaries,
wages and
benefits
Stores and
spares
consumed
Packing
material
consumed
Fuel and
power
Rent, rates
and taxes
Insurance
Repairs
and
maintenan
ce
Depreciati
on
Other
manufact
uring
overheads
:
Vehicle
Running &
Maintenan
ce
Telephone
and
postage
Utilities
Printing
and
stationery
Travelling
and
conveyanc
e
Legal and
profession
Increase/Decrease
Rupees
Increase/ Reason fo
Decrease
%
al
Others
Work in
process :
Opening
stock
Closing
stock
Finished
Goods:
Opening
stock
Closing
stock
Cost of
Goods
Sold
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Directors'
remmuner
ation
Staff
salaries
and
benefits
Rent, rates
and taxes
Insurance
Repairs
and
Increase/Decrease
Rupees
Increase/ Reason fo
Decrease
%
maintenan
ce
Travelling
and
conveyanc
e
Legal and
profession
al
Vehicle
running
and
maintenan
ce
Utilities
Printing
and
stationery
Postage,
telephone
and telex
Fees,
subscriptio
n and
periodicals
Entertainm
ent
Auditors'
remmuner
ation
Advertisem
ent
Charity
and
donation
Depreciati
on
Other
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Previous Period
Rupees
Increase/Decrease
Rupees
Increase/
Decrease %
Rea
Dec
Travelling
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Markup /
interest
on :
Increase/Decrease
Rupees
Increase/ Reason fo
Decrease
%
-Redeema
ble Capital
-Debenture
-Long
Term
Loans
-Lease
Finance
-Short
Term
Borrowings
- Loan
from
Directors &
Associated
Undertakin
g
- Workers'
Profit
Participatio
n Fund
Excise
Duty on
Borrowings
Bank
Charges
and
Commissio
n
Exchange
(Gain) /
Loss
Exchange
Risk Fee
on Foreign
Currency
Loan
Client
File No.
Name
Initial
Date
Prepared by
Checked by
Year End :
Job Incharge
Reviewed by Manager/Partner
Account
Code
Ref.
Current Period
Rupees
Rental Income
Scrap sales
Others
Unusual income
Previous Period
Rupees
Increase/Decrease
Rupees
Increase/
Decrease %
Rea
Dec
A. 1. 2. 3. 4. 5. PERFORMAN
6. 7. 8. 9. 10. 11. CE ANALYSIS
12. 13. 14.
Installed
Capacity
Capacity
utilized
Production in
units i.e. Kgs.
metres etc.
Production after
conversion, if
any. Gross Sale
in % -Local
-Export Gross
Profit % to Net
Sales Raw
material
consumption
cost to cost of
Local Gross
goods
manufactured. Sales Gross
Total Sales
Average raw
Export Gross
material
purchase price Sales Gross
Total Sales
per unit.
Gross Profit Net
Average
conversion cost Sales
Consumption
per unit of
Cost Cost of
production
Conversion cost goods
manufactured
without
depreciation per Total Purchase
unit Labour cost Price of Raw
material total
per unit of
production Store units purchased
Conversion Cost
and spares
consumption per unit produced
Conversion Cost
unit of
without
production.
depreciation
Electricity
consumption per units produced
Labour Cost
unit of
units produced
production
Packing material Store & Spares
cost per unit of consumption in
rupees units
production
produced
Electricity
consumption in
rupees units
produced
Packing material
cost units
produced
Y1
Y2
Y3
Y4
Y2
Y3
Y4
FO R M U LA
15.
Y1
Administrative Administration
expenses / unit Expenses units
of production produced
16.
17.
18.
19.
20.
21.
Average selling
rate per unit
-Local
-Export
B.
1.
2.
3.
Finished goods
produced in
units raw
material
consumed in
units 100
Local Sales
Total Units Sold
Export Sales
Total Units Sold
In case of
Textile
PROFITABILI
TY RATIOS
Return on assets Net Profit after
(ROA)
tax Average total
assets
Return on
Net Profit after
Capital
tax Average total
Employed
capital
(ROCE)
employed
Earning per
Net profit
share (EPS)
available to
equity holder
Number of
ordinary shares
outstanding
Reasons for
Fluctuations:
FO R M U LA
Y1
4.
Earning yield
Earning per
Share
Y2
Y3
Y4
5.
6.
7.
Market value
per share
Price Earning Market price as
Ratio
a Share
Earning per
Share
Operating
Operating
Expenses ratio Expenses
(administrative Net Sales
Expenses ratio)
Administrative Administrative
Exp enses ratio Expenses
Net Sales
8.
Selling
Selling
Expenses ratio Expenses
Net Sales
9.
Financial
Financial
Expenses ratio Expenses
Net Sale
C.
1.
I
ii.
iii.
2.
3.
4.
5.
6.
7.
ACTIVITY
RATIOS
Inventory
Turnover
Raw Material
Turnover
Cost of raw
material used
Avg. raw
material
inventory
Work in process Cost of good
turnover
manufactured
Avg. Work in
process
inventory
Finished goods Cost of good
turnover
sold
Avg. finished
goods inventory
Debtor turnover Credit Sales
Debtors
Average debt
Months (days)
collection period in a year
Debtor turnover
Cost of good
Assets turnover sold
Average total
assets
Fixed assets
Cost of goods
turnover
sold
Average fixed
assets
Current assets Cost of good
turnover
sold
Average current
assets
Working Capital Cost of good
turnover
sold
Net working
capital
FO R M U LA
Y1
D.
LIQUIDITY
RATIOS
1.
Current Ratio
Current assets
Current
liabilities
2.
Acid - Test
quick ratio
Quick assets
Current
liabilities
3.
Creditors
Net credit
purchase
Average
creditors
E.
LEVERAGE /
CAPITAL
STRUCTURE
RATIOS
1.
Debt - Equity
ratio
2.
Equity Turnover
Y2
Y3
Y4
3.
Reasons for
Fluctuations:
Disposal
to the corroboration of evidence relating to both subsequent events and the appropriateness of
the going concern assumption.
SUGGESTED MANAGEMENT REPRESENTATION LETTER
3
1
2
accounts and allowances is sufficient to provide for any losses which may be sustained
on realisation of the receivables.
Inventories at (balance sheet date) in the aggregate amount of Rs ___________ are
stated at the lower of cost or market, cost being determined on the basis of (LIFO,
first-in-firstout, or other basis) and consistently with the prior year, and due provision
was made to reduce all slow-moving, obsolete, or unusable inventories to their
estimated useful or scrap values. Inventory quantities at were determined from the
companys inventory records, which have been adjusted on the basis of physical
inventories taken by competent employees at (date of physical inventory count or
various times during the year). Liability, if unpaid, for all items included in inventories
is recorded at (balance sheet date) and all quantities billed to customers at that date are
excluded from the inventory balances. Inventories comprise the whole of the
companys stocks, wherever situated and that stocks held on behalf of other parties
have been excluded.
All liabilities of the company which we are aware are included in the financial
statements at (balance sheet date). There are no other material liabilities or gain or loss
contingencies that are required to be accrued or disclosed and no unasserted claims or
assessments which must be disclosed.
Commitments for future purchases are for quantities not in excess of the anticipated
requirements and at prices which will not result in loss. Provision has been made for
any material loss to be sustained in the fulfillment of, or from inability to fulfill, any
sales commitments.
The financial statements and appended notes include all disclosures necessary for a
fair presentation of the financial position and results of operations of the company in
accordance with prescribed accounting practices, and disclosures otherwise required to
be included therein by the laws and regulations to which the company is subject. The
following have been properly recorded or disclosed in the financial statements (if
none, include under a separate caption having the introduction there are no
.):
a)
b)
c)
d)
e)
10.
No matters or occurrences have come to our attention up to the present time which
would materially affect the financial statements and related disclosures for the year
ended (balance sheet date) or, although not affecting such financial statements or
disclosures, have caused or are likely to cause any material change, adverse or
.. (Senior Executive
Officer)
(Senior Financial
Officer)
Date:..
Note: Representation letter must be dated same as the date of audit report. (AS 22 Para
13)
Representation letter ordinarily be signed by senior executive officer and senior
financial officer. (AS 22 Para 14)
(Name
of
Auditor) sd/
the
State that it discusses only weaknesses in internal control which have come to the
auditors attention as a result of the audit and that other weaknesses in internal control
may exist;
The significance of findings relating to the accounting and internal control systems may
change with the passage of time. Suggestions from previous years audits which have not been
adopted, if any, should normally be repeated or referred to.
[For other guidance please refer International Auditing Practice Statement (IAPS 7)]
Consequences/Risk
Recommendation
Management Response
(Management response should include agreed implementation) Note: This schedule would be
carried forward to the next year Audit Planning File as Points Brought Forward From
Previous Year.
Year ended
Date
Reviewed by
Date
S.No.
Schedule
Reference
Description of issue
2. B.
Non-adjustable events: (Only disclose if material) Have under noted possible events
been discussed with clients officials and disclosed in accounts in compliance with
IAS-10?
D.
E.
Review the minutes of meetings since the year-end of directors, shareholders and
appropriate key committees.
F.
Obtain and read any post year-end management accounts and inquire the significant
variances, if any.
G.
Consider whether the going concern assumption in relation to whole or a part of the
enterprise is appropriate.
Note:
Apart from above, also consider above events upto the signing of audit report but
before its issuance and events discovered after financial statement are issued or when
there is any change in financial statements after it is issued.
CLIENT:
YEAR END:
4.15 GOING CONCERN REVIEW CHECKLIST
1. Have the following points been discussed with client and observed during the
Yes/ No/ N.A.
course of audit? A. Indication for Company may not be able to pay its debts:
Yes=Alarming Point
-Substantial operating losses in excess of owner equity. -Heavy dependence on
(Write brief note in
short-term finances for long-term needs. -Working capital deficiency. -Adverse key separate sheet)
financial ratios. -Low liquidity ratios. -Net liability or net current liability position.
-Under capitalization. -Arrears or discontinuance of dividends. -Default in
complying with the terms of loan agreements. -Excessive obsolete stock. -Inability to
pay creditors on due date. -Long overdue debtors and excessive bad debts.
-Deterioration in the relationship with bankers and inability to obtain finances or
essential new product development or other essential investments. -Continuous use
of fixed assets. B.i. Indications for company about the continuation of business &
lead inability of paying debts (Internal Problems): -Loss of key management or
staff without replacement. -Increasing stock level.
4-34
-Work stoppage and other labour difficulties
-Shortages of important supplies
-Substantial dependence on success of particular project.
-Excessive reliance on new products.
-Uneconomic commitments.
-In case of any legal proceeding, if decided against the Company, liability can not
be met.
B.ii.
(External Problems) -Non compliance with capital or other statutory requirements.
-Loss of key patents.
-Loss of key or major market, franchise, license or principal supplier.
-Undue influence of market dominant competitors.
-Political risk.
-Pending legal proceedings against the entity that may, if successful result in
judgments that could not be met.
-Frequent financial failure of enterprise of same industry.
2.
4-35
CLIENT_________________________________________________________________
INDEX
1
2
3
4
Updation Date
FILE
REF.
D E S C R I PTI O N
DATE
5.1 5.1.1
5.1.2
5.1.3
5.1.4
5.1.5
FILE
REF.
5.2.
5.2.1
5.2.2
5.2.3
D E S C R I PTI O N
DATE
Minutes
Other
FILE
REF.
5.3.
5.3.2 Other
D E S C R I PTI O N
DATE
FILE D E S C R I P T I O N
REF.
5.4.
DATE
Miscellaneous
Page
1.AS 1 Objective and General Principles Governing an Audit of Financial Statements 6-2
2. AS 2
3.
6-3
6-4
6-6
6-9
6-13
7.
8. AS 12 Analytical Procedures
9. AS 13 Auditors Report on Financial Statements
6-15
6-17
6-18
6-19
6-20
6-22
6-23
6-24
6-26
6-27
6-28 The
objective of
an audit of
financial
statements
is to enable
the auditor
to express
an a
opinion
whether the
financial
statements
are
prepared, in
all material
respects, in
accordance
with an
identified
financial
reporting
framework.
The auditor should comply with the Code of Ethics for Professional Accountants issued by
the International Federation of Accountants.
Ethical principles governing the auditors professional responsibilities are:
1 Independence;
2 Integrity;
3 Objectivity;
4 Professional competence and due care;
5 Confidentiality
6 Professional behaviour; and
7 Technical standards
The auditor should conduct an audit in accordance with ISAs. These contain basic principles
and essential procedures together with related guidance in the form of explanatory and other
material.
The term of Scope of an audit refers to the audit procedures deemed necessary in the
circumstances to achieve the objective of the audit. The procedures required to conduct an
audit in accordance with ISAs should be determined by the auditor having regard to the
requirements of ISAs, relevant professional bodies, legislation, regulations and, where
appropriate, the terms of the audit engagement and reporting requirements.
An audit in accordance with ISAs is designed to provide reasonable assurance that the
financial statements taken as a whole are free from material misstatement. Reasonable
assurance is a concept relating to the accumulation of the audit evidence necessary for the
auditor to conclude that there are no material misstatements in the financial statements taken
as a whole. Reasonable assurance relates the whole audit process.
However, there are inherent limitations in an audit that affect the auditors ability to detect
material misstatement. These limitations result from factors such as:
1
2
of collusion).
The fact that most evidence is persuasive rather than conclusive.
While the auditor responsible for forming and expressing an opinion on the financial
statements, the responsibility for preparing and presenting the financial statements is that of
the management of the entity. The audit of the financial statements does not relieve
management of its responsibilities.
The auditor and the client should agree on the terms of engagement.
It is in the interest of both client and auditor that the auditor sends an engagement letter,
preferably before the commencement of the engagement, to help in avoiding
misunderstanding with respect to the engagement.
The engagement letter documents and confirms the auditors acceptance of the appointment,
the objective and scope of the audit, the extent of auditors responsibilities to the client and the
form of any reports.
The agreed terms should be recorded in an audit engagement letter or other suitable
form of contract.
The engagement letter should be sent before the commencement of the engagement,
the purpose being to document and confirm the auditors acceptance of the
appointment, the objective and scope of the audit, the extent of the auditors
responsibilities to the client and the form of any reports.
Consideration should be given to a situation where revised terms of engagement are
required.
Where the terms of engagement are changed the auditor and the client should agree on
the new terms.
On recurring audits, the auditor should consider whether circumstances require the
terms of the engagements to b revised and whether there is a need to remind the client
of the existing terns of the engagements.
An auditor who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should consider the
appropriateness of doing so.
The auditor should plan the audit work so that the audit will be performed in an effective
manner.
1
2
3
4
Planning means developing a general strategy and a detail approach for the expected
nature, timing and extent of the audit.
Adequate planning ensures that appropriate attention is devoted to important areas of
the audit, potential problems are identified and the work is completed expeditiously,
planning also assists in proper assignment of work to assistants and in coordination of
work done by other auditors and experts.
The extent of planning will depend on the size of the entity, the complexity of the audit
and the auditors experience with the entity. However some form of planning should be
prepared for all assignments.
An overall audit plan describing the scope and conduct of the audit should be
developed and documented, after considering the following:
-
Number of locations
Involvement of experts
1
2
The senior manager or partner in charge should approve the audit plan.
The overall audit plan and audit program should be revised as necessary during the
course of the audit.
An audit program setting out the nature, timing and extent of planned audit procedures to
beimplemented should be developed and documented. It is a means to control and record the
proper execution of the work. A standard audit program may be developed by the firm to form
the basis, but it should be modified according to the requirements of a specific audit
engagement. The following points may be taken into account while preparing an audit
program:
The person performing the procedures and the person reviewing the work
should sign the audit program.
The auditor should obtain an understanding of the accounting and internal control systems,
sufficient to plan the audit and develop an effective audit approach. The auditor should use
professional judgement to assess audit risk and to design audit procedures to ensure it is
reduced to an acceptably low level.
The auditor performs a walk-through test, that is, tracing a few transactions through
the accounting system to confirm their understanding of the accounting and internal
control system.
Audit Risk has three components: Inherent risk, Control risk and Detection risk.
Inherent Risk
When developing the audit plan, the inherent risk should be assessed at the financial
statements level. When developing the audit program, the auditor should relate such
assessment to material account balances and classes of transactions.
To assess inherent risk, the auditor uses professional judgement to evaluate numerous
factors, examples of which are:
Control Risk
The preliminary assessment of control risk is the process of evaluating the
effectiveness of an entitys accounting and internal control systems in preventing or
detecting and correcting material misstatements.
The auditor should document in the working papers the understanding obtained of the
entitys accounting and internal control systems and the assessment of control risk.
Tests of controls may include:
Based on the results of the tests of control, the auditor should evaluate whether the
internal controls are designed and operating as contemplated in the preliminary
assessment of control risk.
The auditor should consider whether the internal controls were in throughout the
period.
Detection Risk
The level of detection risk relates directly to the auditors substantive procedures. The
higher the assessment of inherent and control risk, the more audit evidence the auditor
should obtain from the performance of substantive procedures.
When the auditor determines that detection risk regarding a financial statement
assertion for a material account balance or class of transactions cannot be reduced to
an acceptable level, the auditor should express a qualified opinion or a disclaimer of
opinion.
Regardless of the assessed levels of inherent and control list the auditor should
perform some substantive procedures for material account balances or classes of
transaction.
The higher the assessment of inherent and control risk, the more audit evidence the
auditor should obtain from the performance of substantive procedures.
1 The auditor should obtain an understanding of the accounting system sufficient
to identify and understand:
Major classes of transactions in the entitys operation;
How such transactions are initiated;
2 Significant accounting records, supporting documents and accounts in the
3 financial statements; and
The accounting and financial reporting process, from the initiation of
significant transactions and other events to their inclusion in the financial
statements
Many internal controls, which would be relevant to large entities, are not practical in
small businesses. For example, segregation of duties may be missing or limited. In this
instance if audit evidence of supervisory controls is lacking, the audit evidence
necessary to support the auditors opinion on the financial statements may have to be
obtained entirely through the performance of substantive procedures.
The audit firm should implement quality control policies and procedures designed to ensure
that all audits are conducted in accordance with ISAs. The objectives of quality control
policies will incorporate the following:
Professional Requirements
Skills and Competence
Assignment
Delegation
Consultation
Acceptance & Retention of clients
Monitoring
The firms general quality control policies and procedures should be communicated to its
personnel in a manner that provides reasonable assurance that the policies and procedures are
understood and implemented.
Professional Requirements
Personnel in the firm should adhere to the principles of independence, integrity, objectivity,
confidentiality and professional behaviour.
Obtain from personnel written representations on an annual basis in respect of nonexistence of prohibited relationships and prohibited investments. A list of clients may
be prepared each year to allow staff to determine their independence.
Assign responsibility for obtaining representations and reviewing independence
compliance files for completeness to a person with appropriate authority.
Assignment
Audit work is to be assigned to personnel who have the degree of technical training and
proficiency required in the circumstances.
1
2
3
Prepare time budgets for audits to determine manpower requirements and to schedule
audit work.
Give appropriate consideration to both continuity and rotation when deploying staff to
assignments.
Consider the experience and training of the audit personnel in relation to the
complexity or other requirements of the audit.
Delegation
There is to be sufficient direction, supervision and review of work at all levels to provide
reasonable assurance that the work performed meets the appropriate standards of quality.
Assign responsibility for planning an audit. Involve appropriate personnel assigned to
the audit in the planning process.
Develop background information or review information obtained from prior audits and
update for changed circumstances.
Prepare audit programs for various areas of audit interest.
Determine manpower requirements and estimated time to complete the audit.
Consider current economic conditions affecting the client or its industry and their
potential effect on the conduct of the audit.
Develop guidelines for form and content of working papers.
Utilise standardised forms, checklists and questionnaires to the extent appropriate to
assist in the performance of audits.
Provide on-the-job training during performance of audits discuss with assistants the
relationship of the work they are performing to the audit as a whole
Encourage personnel to train and develop subordinates.
Consultation
Whenever necessary, consultation within or outside the firm is to occur with those who have
appropriate expertise.
Inform personnel of the firms consultation policies and procedures.
Specify areas requiring consultation because of the nature or complexity of the subject
matter.
Maintain or provide access to adequate reference libraries and other authoritative
sources.
Maintain consultation arrangements with other firms and individuals where necessary
to supplement firms resources.
Maintain subject files containing the result of consultation for reference and research
purposes.
Designate specialists for particular industries.
Monitoring
The continued adequacy and operational effectiveness of quality control policies and
procedures are to be monitored.
Determine objectives and prepare instructions and review programs for use in
conducting monitoring activities.
Provide guidelines for the extent of work and criteria for selection of engagements for
review.
Establish the frequency and timing of monitoring activities.
Review and test compliance with firms general quality control policies and
procedures.
Provide for reporting findings to appropriate management levels, for monitoring
actions taken or planned and for overall review of the firms quality control system.
Determine need for modification of quality control policies and procedures in view of
results of monitoring activities and other relevant matters.
The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
1
2
Audit evidence is the information obtained by the auditor in arriving at the conclusions
on which the audit opinion is based.
Sufficient appropriate audit evidence depends on:
-Nature and level of inherent risk -Nature of accounting and internal control
systems -Materiality of item examined -Experienced gained during previous
audits -Source and reliability of information available -Results of audit
procedures including fraud or error which may have been
found
1. Reliability of audit evidence can be assessed as follows:
2. -External audit evidence is more reliable than that generated internally -Internal
audit evidence is more reliable when the accounting and internal control systems
are effective -Audit evidence obtained directly by the auditor is more reliable than
that obtained from the company -Audit evidence in the form of documents and
written representations is more reliable than oral representations
If the auditor is unable to obtain sufficient appropriate audit evidence in the case of a
material item, a qualified opinion or disclaimer of opinion should be expressed.
The auditor obtains audit evidence by one or more of the following methods:
-Inspection: Examining records, documents or tangible assets -Observation:
Looking at a process or procedure being performed by others -Inquiry and
Confirmation: Inquiring consists of seeking information from
knowledgeable persons inside or outside the entity. Conformation consist of
the response to an enquiry to corroborate information contained in the
accounting records
-Computation: Checking the arithmetical accuracy of
source documents or performing independent
calculations -Analytical procedures: analysis of
significant ratios and trends
When inventory is material to the financial statements, the auditor should obtain
sufficient appropriate audit evidence regarding its existence and condition by
attendance at physical inventory counting unless impracticable. If unable to attend
the physical inventory count on the date planned due to unforeseen circumstances,
the auditor should take or observe some physical counts on an alternative date and,
when necessary, perform tests of intervening transactions.
To obtain assurance that managements procedures are adequately implemented; the auditor
would observe employees procedures and perform test counts. When performing counts, the
auditor would test both the completeness and accuracy of the count records by tracing items
selected from those records to the physical inventory and items selected from the physical
inventory to the count records.
The auditor would also consider cut off procedures including details of the movement of
inventory just prior to, during and after the count so that the accounting for such movements
can be checked at a later date.
Where inventory is under the custody and control of a third party, the auditor would ordinarily
obtain direct confirmation from the third party as to the quantities and condition of inventory
held on behalf of the entity.
Confirmation of Accounts Receivable
When the accounts receivable are material to the financial statements and when it is
reasonable to expect debtors to respond, the auditor should plan to obtain direct confirmation
of accounts receivable or individual entries in an account balance.
Direct confirmation provides reliable audit evidence as to the existence of debtors and the
accuracy of their recorded balances. However, it does not ordinarily provide evidence as to the
collectibility of balances or as to the existence of unrecorded receivable balances.
When it is expected that debtors will not respond, the auditor should plan to perform
alternative procedures, for example, subsequent receipts.
Inquiry regarding litigation and claims
The auditor should carry out procedures in order to become aware of any litigation and claims
involving the entity which may have a material effect on the financial statements.
Such procedures include:
-Make appropriate inquiries of management including obtaining representations
-Review board minutes and correspondence with the lawyers
-Examine legal expense accounts
When litigation or claims have been identified or when the auditor believes they may exist,
the auditor should seek direct communication with the entitys lawyers. The reply should be
sent directly to the auditor.
The auditor should document matters, which are important in providing evidence to support
the audit opinion, and evidence that the audit was carried out in accordance with ISAs.
2
3
4
5
6
Documentation means the working papers prepared by and for, or obtained and
retained by the auditor in connection with the performance of the audit. The auditor
should prepare working papers, which are sufficiently complete and detailed to provide
an overall understanding of the audit.
1. The following are the objectives of working papers: -Assist in the planning and
performance of the audit -Assist in the supervision and review of the audit work
-Record the audit evidence resulting from the audit work performed to support the
2. auditors opinion.
Working papers should include the auditors reasoning on all significant matters,
which require the exercise of judgment, together with the auditors conclusion thereon.
The use of standardised working papers, for example, checklists, specimen letters, may
improve the efficiency with which such working papers are prepared and reviewed.
They facilitate the delegation of work while providing a means to control its quality.
To improve efficiency, the auditor may utilise schedules, analyses and other
documentation prepared by the company. In such cases the auditor would need to be
satisfied that those working papers have been properly prepared.
The working papers should include indications of the work undertaken for particular
sections.
Working Papers ordinarily include the following: -Engagement letter. -Evidence of the
planning process and audit programs. -Information concerning the legal and
organisational structure of the company -Evidence of the auditors understanding of
the accounting and internal control
systems. -Evidence of inherent and control risk assessments. -Extracts or
copies of important legal documents, agreements and minutes.
-Evidence of the auditors consideration of the work of internal auditing and
conclusions reached. -Analyses of significant ratios and trends. -Analyses of
transactions and balances. -Record of nature, timing and extent of the audit procedures
performed and the
results thereof. -Evidence that the work performed by assistants was supervised and
reviewed. -An indication as to who performed the audit procedures and when they were
performed.-Copies of communication with other auditors, experts and third parties.Management letter.-Representation letter.-Conclusions drawn from the audit evidence
obtained.-Copies of the financial statements and auditors report.-Working papers should
In the case of recurring audits, there could be two types of audit files. One is the
permanent audit file that is updated with new information of continuing importance,
and the other is the current audit file which contains information relating primarily to
the audit of a single period.
The auditor should adopt appropriate procedures for maintaining the confidentiality
and safe custody of the working papers.
The auditor should apply analytical procedures at the planning and overall review stages of
the audit.
Analytical procedures means the analysis of significant ratios and trends including the
resulting investigation of fluctuations and relationships that are inconsistent with other
relevant information or deviate from predicted amounts.
1. Examples of analytical procedures include:
2. -Reviewing comparable information for prior periods-Anticipating budgets and
forecasts-Reviewing comparable information for other entities in industry
Analytical procedures can be applied to financial information, e.g. gross margin
percentages and non financial information such as comparing payroll costs to the
number of employees
The objectives of performing analytical procedures are as follows:
-To assist the auditor in planning the nature, timing and extent of other audit
procedures, understanding the business and identifying areas of potential risk.
-Used as substantive procedures when their use is more effective or efficient than
tests of details in reducing detection risk for specific financial statement
assertions.
-Used for overall review of the financial statements in the final review stage of the
audit, to conclude whether the financial statements as a whole are consistent
with the auditors knowledge of the business.
1
2
3
The auditor should apply analytical procedures at the planning stage to assist in
understanding the business and in identifying areas of potential risk.
1. The extent of reliance that the auditor places on the results of analytical
procedures depends on the following factors: -Materiality of the items involved.
-Other audit procedures directed towards the same audit objectives. -Accuracy with
which the expected results of analytical procedures can be predicted.
2. - Assessment of inherent and control risks. If controls are effective, greater
reliance could be placed on the reliability of the information.
It may be efficient to use analytical data prepared by the company, provided that the
auditor is satisfied that such data is properly prepared.
When analytical procedures identify significant fluctuations or relationships that are
inconsistent with other relevant information, the auditor should investigate and obtain
adequate explanations and appropriate corroborative evidence.
The auditor should review and assess the conclusions drawn from the audit evidence
obtained as the basis for the expression of an opinion on the financial statements.
1
2
6
7
The auditors report should contain a clear written expression of opinion on the
financial statements taken as a whole
The auditors report should state clearly the auditors opinion as to whether the
financial statements give a true and fair view or are presented fairly, in all material
respects in accordance with the financial reporting framework and, where appropriate,
whether the financial statements comply with statutory requirements.
A qualified opinion should be expressed when the auditor concludes that an
unqualified opinion cannot be expressed but that the effect of any disagreement with
management, or limitation on scope is not so material and pervasive as to require an
adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as
being except for the effects of the matter to which the qualification relates.
A disclaimer of opinion should be expressed when the possible effect of a limitation on
scope is so material and pervasive that the auditor has not been able to obtain sufficient
appropriate audit evidence and accordingly is unable to express an opinion on the
financial statements.
An adverse opinion should be expressed when the effect of a disagreement is so
material and pervasive to the financial statements that the auditor concludes that a
qualification of the report is not adequate to disclose the misleading or incomplete
nature of the financial statements.
Whenever the auditor expresses an opinion that is other than unqualified, a clear
description of all the substantive reasons should be included in the report and, unless
impracticable, a quantification of the possible effects on the financial statements.
Where there is a limitation on the scope of the auditors work that requires expression
of a qualified opinion or a disclaimer of opinion, the auditors report should describe
the limitation and indicate the possible adjustments to the financial statements that
might have been determined to be necessary had the limitation not existed.
The auditor may disagree with management about matters such as the acceptability of
accounting policies selected, the method of their application, or the adequacy of
disclosures in the financial statements. If such disagreements are material to the
financial statements, the auditor should express a qualified or an adverse opinion.
In certain circumstances, an auditors report may be modified by adding an emphasis
of matter paragraph to highlight the matter affecting the financial statements, which is
included in a note to the financial statements that discusses the matter more
extensively. The addition of such an emphasis of matter paragraph does not affect the
auditors opinion.
The auditor should perform audit procedures designed to obtain sufficient appropriate audit
evidence regarding the identification and disclosure by management of related party
transactions that are material to the financial statements.
The auditor should review information provided by the directors and management
identifying the names of all known related parties and should perform the
following procedures in respect of the completeness of this information:
-Review prior years working papers for names of known related parties -Review
the entitys procedures for identification of related parties -Inquire as to the
affiliation of directors and officers with other entities -Review shareholder records
to determine the names of principal shareholders or,
if appropriate, obtain a listing of principal shareholders from the share
register -Review minutes of the meetings of shareholders and the board of
directors and other relevant statutory records such as the register of
directors interests -Inquire of other auditors currently involved in the
audit, or predecessor auditors, as to their knowledge of additional related
parties
When obtaining an understanding of the accounting and internal control systems and
making a preliminary assessment of control risk, the auditor should consider the
adequacy of control procedures over the authorisation and recording of related party
transactions.
During the course of the audit, the auditor needs to be alert for transactions that appear
unusual in the circumstances and may indicate the existence of previously unidentified
related parties.
Examples include:
-
the financial statements is not adequate, the auditor should modify the audit report
accordingly.
When designing audit procedures, the auditor should determine appropriate means for
selecting items for testing so as to gather audit evidence to meet the objectives of audit test.
Audit sampling (Sampling) involves the application of audit procedures to less than 100%
of items within an account balance or class of transactions such that all sampling units have a
chance of selection. This will enable the auditor to obtain and evaluate audit evidence about
some characteristic of the items selected in order to form or assist in forming a conclusion
concerning the population from which the sample is drawn. Audit sampling can use either a
statistical or non-statistical approach.
When performing substantive test of details, audit sampling and other means of selecting
items for testing and gathering audit evidence may be used to verify one or more assertions
about a financial statement amount (for example, the existence of accounts receivable), or to
make an independent estimate of some amount (for example, the value of obsolete
inventories).
Selecting Items for Testing to Gather Audit Evidence
When designing audit procedures, the auditor should determine appropriate means of selecting
items for testing. The means available to the auditor are:
1. Selecting all items (100% examination)
The auditor may decide that it will be most appropriate to examine the entire
population of items that make up an account balance or class of transactions. 100%
examination is in unlikely in the case of test of control; however, it is more common
for substantive procedures. For example 100% examination may be appropriate when
population constitutes a small number of large value items, when both inherent and
control risks are high and other means do not provide sufficient appropriate audit
evidence, or when the repetitive nature of a calculation or other process performed by
a computer information system makes a 100% examination cost effective.
2. Selecting specific items
The auditor may decide to select specific items from a population based on such factor
as knowledge of the client business, preliminary assessment of inherent and control
risk, and the characteristics of the population being tested. The judgmental selection of
specific items is subject to non-sampling risk.
3. Audit Sampling
The auditor may decide to apply audit sampling to an account balance or class of
transactions. Audit sampling can be applied using either non-statistical or statistical
sampling methods.
The auditor should select items for the sample with the expectation that all sampling units in
the population have a chance of selection.
The principal methods for selecting samples are the use of random number tables or computer
programs, systematic selection and haphazard selection.
The auditor should perform audit procedures appropriate to the particular test objective on
each item selected.
The auditor should consider the sample results, the nature and cause of any errors identified,
and their possible effect on the particular test objective and on other areas of the audit.
For substantive procedures, the auditor should project monetary errors found in the sample to
the population, and should consider the effect of the projected error on the particular test
objective and on other areas of the audit.
The auditor should evaluate the sample results to determine whether the preliminary
assessment of the relevant characteristic of the population is confirmed or needs to be revised.
The auditor should consider the effect of subsequent events on the financial statements and on
the auditors report.
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The auditor should perform procedures designed to obtain sufficient evidence that all
events up to the date of the auditors report that may require adjustment of, or
disclosure in, the financial statements have been identified.
The procedures to identify events that may require adjustment, should be performed as
near as practicable to the date of the audit report, include:
-Reviewing procedures management has established to ensure that subsequent events
are identified
-Reading minutes of the meetings of shareholders and the board of directors held after
the balance sheet date
-Reading the companys latest available financial statements, including budgets, cash
flows and other related reports
-Inquiring or extending previous oral or written inquiries, of the companys lawyers
concerning litigation and claims
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The current status of items that were accounted for on the basis of preliminary or
inconclusive data
Whether new commitments, borrowings or guarantees have been entered into
Whether sales of assets have occurred or are planned
Whether the issue of new shares or an agreement to merge or liquidate has been made
or is planned
Whether there have been any developments regarding risk areas and contingencies
When the auditor becomes aware of events which materially affect the financial
statements, the auditor should consider whether such events are properly accounted for
and adequately disclosed in the financial statements
When planning and performing audit procedures and in evaluating the results thereof, the
auditor should consider the appropriateness of the going concern assumption underlying the
The entitys continuance as a going concern for the foreseeable future, generally a
period not to exceed one year after period end, is assumed in the preparation of
financial statements in the absence of information to the contrary.
The auditor should consider the risk that the going concern assumption may no longer
be appropriate
Indications of the same include:
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The auditor should carry out procedures to resolve doubt over the companys ability to
continue in operation for the foreseeable future.
Such procedures include:
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analyse and discuss cash flow, profit and other relevant forecasts
review events after the period end
analyse and discuss the latest interim financial statements
review terms of loan agreements and ensure none have been breached
refer to minutes of directors and shareholders meetings
inquire of the entitys lawyer regarding litigation and claims
confirm the existence, legality and enforceability of arrangements to provide or
maintain financial support with related and third parties and assess the financial
ability of such parties to provide additional funds
The auditor should consider materiality and its relationship with audit risk when conducting
an audit.
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For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence
that:
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The opening balances do not contain misstatements that materially affect the current
periods financial statements
The prior periods closing balances have been correctly brought forward to the current
period
Appropriate accounting policies are consistently applied
The auditor may be able to obtain sufficient evidence regarding the opening balances
by reviewing the predecessor auditors working papers.
If the prior periods financial statements were not audited, other procedures must be
adopted:
-Stock: attending a physical stock-take and reconciling it back to the opening
inventory quantities, testing valuation of opening inventory and testing gross profit
and cut-off.
-Fixed assets: investments, long term debts: examining the records underlying the
opening balances.
-Debtors/Creditors: receipts and payments during the period will verify the existence
of the opening balance
If after performing procedures, the auditor is unable to obtain sufficient appropriate
audit evidence concerning opening balances, the auditors report should include
qualified opinion or disclaimer of opinion as appropriate.
If the effect of the misstatement is not properly accounted for and adequately
disclosed, the auditor should express a qualified or an adverse opinion, as appropriate.
If the current periods accounting policies have not been consistently appliedin relation
to opening balances and if the changes has not been properly accounted for and
adequately disclosed, the auditor should express a qualified opinion or an adverse
opinion, as appropriate.
However, if a modification regarding the prior periods financial statements, the
auditor should modify the current auditors report accordingly.
In performing an audit of financial statements, the auditor should obtain knowledge of the
clients business sufficient to understand the events, transactions and the practices that, in the
auditors judgement, may have a significant effect on the financial statements or audit report.
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The auditor should ensure that assistants assigned to an audit engagement obtain
sufficient knowledge of the business to enable them to carry out the audit work
delegated to them.
To make effective use of knowledge about the business, the auditor should consider
how it affects the financial statements taken as a whole and whether the assertions in
the financial statements are consistent with the auditors knowledge of the business.