Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions

Cash physically exists and is owned by the Existence or occurrence Rights

company as of the balance sheet date. and obligations

Existence or occurrence
Cash receipts and cash disbursements are recorded
Completeness Valuation
correctly as to account, amount, and period.
or allocation

Existence or occurrence
Cash balances include funds at all locations, funds
Completeness Presentation
with custodians and deposits in transit.
and disclosure

Cash is properly classified and presented in the

Rights and obligations
financial statements, and adequate disclosures are
Presentation and disclosure
made with respect to restricted cash.

Audit programme:
Performed By

1. Explain significant fluctuations in the amounts in cash balances

from the prior year.

2. Prepare or obtain from the client a listing of all cash accounts open
as of the balance-sheet date or opened and closed during the period
under audit, showing (a) account number and type, (b) custodian, and
(c) balance per the general ledger.

3. Request that the client prepare bank confirmation forms for

bank/custodian accounts used during the period under audit (including
accounts closed as of the balance sheet date). Maintain control of the
bank confirmation forms and mail directly to the bank/custodian.

4. Ask the client to request copies of the daily bank statements

(including all supporting documents) for a period of 5 days
subsequent to the balance-sheet date to be mailed by the bank directly
to the auditor.
5. Prepare or obtain an analysis of savings accounts, certificates of
deposit, and other interest-bearing accounts showing (a) name of
institution, (b) interest rate, (c) maturity date, (d) balances at the
beginning of the period, (e) activity during the period, (f) balances at
the end of the period, and (g) interest income and related accruals, and
perform the following:

a. Trace book balances, interest income, and interest accrued to the

general ledger.
b. Compare balances and interest rate per passbooks and certificates
of deposit to returned confirmation forms.

c. Test the arithmetical accuracy of the analysis.

d. Recalculate interest earned and evaluate results for reasonableness.

6. Prepare or obtain a schedule of bank payment orders for a period

of 5 days before and after the balance sheet date, showing the (a)
name of disbursing bank, (b) payment order or transfer number, (c)
amount of transfer, (d) date transferred out per books, (e) date
transferred out per bank, (f) name of receiving bank, (g) date
transferred in per books, and (h) date transferred in per bank, and
perform the following:

a. Review the cash receipts and cash disbursements journal, bank

statements, and journal entries for 5 days before and after the balance
sheet date and determine whether they are all included in the schedule
of bank payment orders.

b. Determine if all receipts and disbursements per books are recorded

in the correct period.
c. Investigate any disbursements with bank statement dates that
precede the dates per books.
d. Determine whether the number of days’ lag between bank
statement dates and dates per books appears reasonable and
investigate any unusual delays.

7. If bank statements are not requested and/or not received directly

by the auditor, obtain the bank statement for the month subsequent to
the balance-sheet date and perform the following:

a. Test the arithmetical accuracy of the bank statement.

b. Compare bank payment orders listed in the bank statement to the
totals per the client’s records.
c. Foot client’s copies of deposits slips and compare them to totals
show per the bank statement.
d. Inspect the bank statement for alterations.

8. Determine which petty cash funds should be counted and perform

the following:

a. Count petty cash funds in the presence of a client representative.

b. Summarize cash counted by denomination. Include other items

such as coins and other stamps.

c. Reconcile the balance per the custodian to the general ledger.

d. At the conclusion of the count, return all items to the custodian and
ask for a signed receipt.

9. Ascertain that the requests for bank confirmations and

confirmations with other custodians have been received, signed, and
all questions have been answered. Follow up on all comments and
missing information.
10. Review the confirmations received from the banks or other
financial institutions and determine whether any of the following
exists:
a. Accounts are subject to withdrawal restrictions, minimum balance
requirements, or compensating balances.

b. Guarantees, letters of credit, or contingent liabilities.

c. Arrangements for related parties, such as guarantees.

d. Commitments and contingencies.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:

Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.
Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions

Audit Program for Accounts Receivable and Sales

Existence or occurrence Rights
valid transactions, and include all authentic
and obligations Completeness
obligations of third parties to the entity.

Billings are for the correct amount and uncollectible

accounts are promptly identified and provided for. Existence or occurrence
The allowance for uncollectible accounts is Valuation or allocation
adequate.

Receivables are properly classified in the balance

sheet between current and noncurrent assets and
disclosures are adequate with respect to assigned, Presentation and disclosure
pledged, unbilled, discounted and related-party
receivables.

Audit programme:
performed By

1. Perform the following analytical procedures for accounts

receivable and investigate any significant fluctuations or deviations
from the expected balances:

a. Compare the current year’s account balances with the prior year’s
account balances for gross receivables; allowance for doubtful
accounts; bad debts; and sales returns and allowances.

b. Compare monthly sales by product line for the current year with
monthly sales for the prior year and the first few months subsequent
to year end.

c. Compare monthly sales returns and allowances and credit memos

for the current year with those of the prior year and the first few
months subsequent to year end.
d. Compare the aging categories (e.g., 0-30 days; 31-60 days, etc.) of
the current year’s accounts receivable with the prior year’s and/or
industry data.

e. Compute the following ratios for the current year and compare
with the prior year’s:
(1) Accounts receivable turnover.
(2) Days sales in accounts receivable.
(3) Ratio of allowance for uncollectible accounts to gross accounts
receivable and credit sales.
(4) Ratio of write-offs to credit sales.
(5) Ratio of sales returns and allowances to credit sales.

(6) Ratio of customer discounts to credit sales.

(7) Ratio of gross profit to credit sales, in total and by major product
or division.

2. Prepare or obtain from the client an aged trial balance of trade

accounts receivable and perform the following:

a. Test the arithmetical accuracy of the aged trial balance and the
aging categories therein.

b. Reconcile the total balance to the general ledger control account

balance.

c. Note and investigate any unusual entries.

d. Summarize the total of credit balances and make appropriate

reclassification entry, if material.

e. On a selective basis, trace individual account balances in the aged

trial balance to individual subsidiary ledgers and vice versa.

f. Determine which accounts receivable should be confirmed (for

example, all individually significant items and judgmentally or
randomly selected items from the remaining balance).

3. Select customer accounts from the aged trial balance for

confirmation procedures and perform the following:
a. Arrange for confirmation requests to be signed by the client and
mailed directly by the auditor. Maintain control over the confirmation
process at all times.
b. Trace balances included in individual confirmation requests to
subsidiary accounts.
c. Mail confirmation requests using envelopes with the auditor’s
return address.

d. If the client requests exemption from confirmation for any

accounts selected by the auditor, obtain and document satisfactory
explanations, and determine necessity for alternative procedures.

e. Obtain new addresses for confirmation requests returned by the

post office as undeliverable, and re-send. If the number of
confirmation requests returned by the post office is high, determine
how the client updates customer information and how statements are
delivered to customers with incorrect addresses.

f. Send second requests for positive confirmations on which there is

no reply and consider registered or certified mail for second requests.

4. Process the confirmation replies and summarize the results of

confirmation procedures as follows:

a. For positive confirmation requests to which no reply was received

and accounts exempted from confirmation at the client’s request,
perform alternative procedures for those customers by examining cash
receipts subsequent to the confirmation date. If no cash has been
received, examine sales invoices and corresponding shipping
documents.

b. Indicate the total accounts and balances confirmed without

exceptions, confirmations reconciled, and non-replies or exempted
accounts with alternative procedures performed.

5. For accounts receivable confirmed on a date other than the

balance-sheet date, prepare or obtain from the client an analysis of
transactions (e.g., cash receipts, sales) between the confirmation date
and the balance-sheet date, and perform the following:

a. Trace the balance as of the confirmation date to the aged trial

balance.
b. Trace cash received per the analysis to the cash receipts journal
and/or bank statements.
c. Trace sales/revenue amounts per the analysis to the sales/revenue
journal.
d. Determine the reasonableness and propriety of any other
reconciling items.

e. Trace the ending balance per the analysis to the trial balance as of
the balance-sheet date.

f. Scan the accounts receivable and sales activity during the period
from the interim date to the balance-sheet date and investigate any
unusual activity.

6. Determine whether any accounts or notes receivable have been

pledged, assigned, or discounted.

7. Determine whether any accounts or notes receivable are owed by

employees or related parties and, if so, perform the following:

a. Determine the nature and purpose of the transaction that resulted in

the receivable balance.

b. Determine whether transactions were properly executed and

approved by an official of the company or the board of directors.

c. Consider obtaining positive confirmation requests of such

balances.

d. Evaluate the collectibility of the balances outstanding.

8. For notes and accounts receivable with maturities greater than one
year, perform the following:

a. Evaluate if the principal and interest payments will be collected in

accordance with their contractual terms.
b. If either interest or principal payments will not be collected in
accordance with their contractual terms, determine whether an
allowance for credit loss has been computed.

9. Test the adequacy of the allowance for uncollectible accounts, as

follows:

a. Review subsequent cash collections of account balances.

b. Review accounts written off during the period.

c. Determine if write-offs have been properly authorized and examine
related supporting documentation.

d. Ask the client if there are any collection problems with accounts
receivable currently classified as current assets. If so, consider
whether such accounts should be reclassified to noncurrent assets.
Determine the client’s plans for collection and the probability that
these efforts will be successful.

e. Perform and review ratio analyses for relationships such as (1)

accounts receivable turnover, (2) allowance for uncollectible accounts
to accounts receivable, (3) allowance for uncollectible accounts to
sales, and (4) accounts written off to sales.

f. Review post-balance-sheet transactions related to receivables,

particularly for discounts taken, credits allowed, and accounts written
off, and determine whether any adjustments should be made as of the
balance-sheet date.

10. Perform the following sales cutoff procedures and ascertain that
receivables are recorded in the proper accounting period:

a. From the population of shipping documents, trace the last few

shipments of the year to the sales journal and determine that they were
properly included in accounts receivable as of the balance-sheet date.

b. From the population of shipping documents, trace the first few

shipments subsequent to year-end to the sales journal and determine
that they were properly excluded from accounts receivable as of the
balance-sheet date.

c. Using the sales journal, trace the last few sales entries of the year
from the sales journal to the shipping documents and determine that
they were properly included in accounts receivable as of the balance-
sheet date.

d. Using the sales journal, trace the first few sales entries subsequent
to year-end from the sales journal to the shipping documents and
determine that they were properly excluded from accounts receivable
as of the balance-sheet date.

11. If the auditor is concerned about the risk of fraud, audit

procedures such as the following should be considered in addition to
the ones listed above:
a. Expand the number of accounts receivable confirmations and
pursue all non-replies and discrepancies.

b. Confirm amounts written off that appear unusual, such as write-

offs of balances due from continuing customers.

c. Compare sales price to list price.

d. Ascertain that shipped merchandise actually arrived at the

customer’s location and that the merchandise was not shipped to a
warehouse or location controlled by the client.

e. Ascertain that shipping documents and invoices are pre-numbered

sequentially and accounted for.

f. Examine original documents for sales invoices and shipping

documents and be alert for possible alterations.

g. Telephone customers directly and confirm items such as: unusual

payment terms, sales returns, credit memos, side agreements,
merchandise receipt date, or other concerns.
h. Review customer complaints and look for unusual trends

j. Look for evidence of salespeople trying to meet or exceed sales

goals in order to achieve quotas or increase their commissions or
bonuses.

k. Agree daily cash receipts detail to the bank statements and

investigate unusual lags.

12. If disclosures about fair value are required, or the entity chooses to
provide voluntary fair value information, perform the following:

a. Obtain information about the fair values of accounts receivable and

notes receivable and determine that the valuation principles are being
consistently applied under IAS.

b. Determine that the fair value amounts are supported by the

underlying documentation.

c. Determine that the method of estimation and significant

assumptions used are properly disclosed.
Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:

Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.
Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions

Property and equipment reflected in the balance

Existence or occurrence Rights
sheet physically exist and the entity has legal title or
and obligations
similar rights of ownership to them.

Property and equipment include those that are

purchased, contributed, constructed in-house or by
Completeness
third parties, and leases meeting the criteria for
finance leases.

Property and equipment additions are recorded

Existence or occurrence
correctly as to account, amount, and period. Capital
Completeness
items are identified and distinguished from repairs
Rights and obligations
and maintenance expense items.

Retirements, trade-ins, and idle property and Existence or occurrence

equipment are promptly identified and recorded Completeness
correctly as to account, amount, and period. Rights and obligations

Depreciation calculations are made and allocated Valuation or allocation

using proper estimated useful lives and methods.

Property and equipment that are idle or held for

resale are identified and classified separately from
property and equipment currently used in Valuation or allocation
operations. The net carrying value of property and Presentation and disclosure
equipment is expected to be recoverable in the
ordinary course of business.

Property and equipment and related depreciation are

appropriately presented in the financial statements
and adequate disclosures made of (1) the basis of
valuation, (2) major classes of property and
Presentation and disclosure
equipment, (3) depreciation methods, (4) amounts
of capitalized leases, (5) capitalized interest, and (6)
property and equipment that are pledged or subject
to liens.

Audit programme:
 performed By

1. Obtain an understanding of the client’s policies and procedures

with respect to capitalization and depreciation methods used.

2. Prepare or obtain from the client a summary of fixed assets and

related depreciation showing the following information:

a. Classification of major classes of property such as land, buildings,

furniture and fixtures, machinery and equipment, leasehold
improvements, construction in progress, and leased property under
capital leases.
b. Asset balances at the beginning of the year.

c. Asset additions during the year

d. Retirements and disposals during the year

e. Other changes during the year (e.g., transfers, reclassifications )

f. Asset balances at the end of the year

g. Depreciation methods and estimated depreciable lives

h. Accumulated depreciation balance at the beginning of the year

i. Current-year additions to accumulated depreciation accounts

j. Current-year reductions of the accumulated depreciation accounts

k. Other current-year changes to the accumulated depreciation

accounts, (e.g., transfers, reclassifications)

l. Accumulated depreciation balance at the end of the year

3. Trace balances at the beginning of the year for asset balances and
accumulated depreciation balances per the summary schedule of
property and equipment in Step 2 above to ending balances per the
prior years’ working papers.
4. Obtain from the client or prepare a listing of all property additions
for the current period in support of the asset additions balance in Step
2c above, showing (a) description of the asset, (b) whether the item is
new or used, (c) date the asset was acquired or placed in service, (d)
cost of the asset, (e) estimated depreciable useful life, and (f)
reference number such as vendor invoice date, check number,
purchase contract, etc., and perform the following procedures for
selected asset additions:

a. Determine if the assets capitalized are in accordance with the

entity’s capitalization policy.

b. Determine if the acquisition was properly authorized by reference

to the minutes of meetings of the Representative Governing Board,
capital expenditures budget, or other sources.

c. Substantiate the asset’s cost by examining supporting

documentation such as vendor invoices, purchase contracts, work
orders and job status reports (for construction in progress), deeds (for
real property), or certificates of ownership.

d. For significant property acquisitions, consider inspecting the asset.

e. For property additions that represent revaluations of fixed assets,

determine whether (1) the revaluation was made in accordance with
the decision of the government and (2) the calculations were made in
accordance with IAS 16.

f. If interest on borrowed funds is capitalized and included in the

carrying value of fixed assets, as allowed by IAS 23, perform the
following: • Recompute the amount of interest capitalized. •
Determine whether the amount of interest capitalized is limited to the
portion of total interest incurred that could have been avoided if the
asset had not been acquired.

5. Prepare or obtain from the client a listing of all property

retirements and disposals for the year in support of the total balance in
Step 2d above, showing (a) description of the asset retired or disposed
of, (b) date sold or disposed of, (c) date the asset was initially
acquired, (d) asset cost, (e) accumulated depreciation, (f) net carrying
amount, (g) cash or consideration received, (h) net gain or loss. Select
asset disposals for testing and perform the following procedures:
a. Determine if the disposition of the asset was properly authorized
by reference to such sources as minutes of meetings of the
Representative Governing Board.
b. Inquire if any of the sales of the fixed assets were in connection
with sale/leaseback transactions. If yes, determine the proper
accounting treatment.
c. Determine if depreciation was calculated correctly through the date
of disposal.

d. Trace the asset cost and the acquisition date to the prior-period
workpapers or property records.

e. Substantiate cash or consideration received by examining

remittance advices, bank deposit tickets, bills of sale, notes executed,
etc.

f. Recompute gain or loss on disposal and agree the amount to the

expense/revenue account.

g. Scan revenue accounts for significant proceeds from the sale of

assets.

6. Review and test depreciation calculations as follows:

a. Review depreciation methods and depreciable lives used and

determine if they are in accordance with IAS and consistently used.
Ask the client about any changes in methods and procedures since the
prior period.

b. Perform analytical procedures of provision for depreciation for the

current period by comparing it to the prior period, taking into
consideration estimated useful lives. If material, recompute
depreciation expense for individually significant items on a test basis.

c. Scan the detailed asset listing to determine if the useful lives are
reasonable, and if depreciation methods are in accordance with IAS.

d. Reconcile provision for depreciation as shown in the summary of

property and equipment in Item 2 above to the general ledger.
7. If repairs and maintenance expense account balances are material,
scan the general ledger activity and examine supporting
documentation on a test basis to determine whether the amounts
should have been capitalized.

8. Obtain from the client, or prepare, a summary of all leases in force,

and perform the following procedures to determine if the leases
should be capitalized based on criteria in IAS 17:

a. Examine new lease agreements and amendments to existing leases

and determine whether they are properly accounted for in accordance
with IAS 17 (i.e., finance leases, operating leases, etc.), giving
adequate consideration to the following:

(1) Review the reasonableness of the interest rate used to discount the
lease obligation.

(2) Determine whether the client properly considered noncapitalizable

costs, such as taxes, insurance, and maintenance in computing the
amount of lease cost capitalized.

(3) Review the reasonableness of the method and period for

amortization of capitalized leases.

(4) Test lease payments.

(5) Test the computations of current maturities.

b. Consider obtaining confirmations from the lessor of pertinent

details of significant lease agreements, including compliance with
restrictive covenants.

9. Using information obtained in the above procedures and based on

inquiry of the client, ascertain the following:

a. Whether assets that are fully depreciated remain in service or have

been retired from service.

b. Whether the net carrying values of property and equipment are

recoverable in the ordinary course of business, and whether the
remaining useful lives of the assets are reasonable.
c. Whether property and equipment is idle or held for sale and, if so,
whether such assets are identified and classified separately from
property and equipment currently used in operations.

d. Whether any property and equipment is pledged or subject to liens

or encumbrances.
e. Whether property and equipment and related depreciation are
appropriately presented in the financial statements with adequate
disclosures.

10. Perform the following analytical procedures for property and

equipment and investigate any significant fluctuations or deviations
from the expected balances:

a. Compare the current year’s account balances with the prior year’s
account balances.
b. Compare the details of actual capital expenditures with the capital
budget.

11. Evaluate whether any events or changes in circumstances have

occurred indicating that the carrying amount of assets may not be
recoverable and whether an impairment loss should be recognized in
accordance with IAS 36, Impairment of Assets.:

a. Consider the existence of conditions such as the following which

may indicate that an asset has been impaired:

(1) A significant decrease in the market value of the asset, particularly

in the case of assets held for sale or expected to be sold in the near
future.

(2) A significant change in the extent or manner in which an asset is

used or a physical change in an asset, such as a significant decline in
the use of certain machinery and equipment or physical damage to an
asset.

(3) A significant adverse change in legal factors or in the business

climate that could affect the value of an asset or an adverse action or
assessment by a regulator.

(4) An accumulation of costs significantly in excess of the amount

originally expected to acquire or construct an asset.

(5) A current period operating or cash flow loss combined with a

history of operating or cash flow losses.
(6) A projection or forecast that demonstrates continuing losses
associated with an asset used for the purpose of producing revenue.

b. Determine if an impairment loss should be recognized (an

impairment loss should be recognized if the carrying amount of an
asset exceeds estimated future cash flows undiscounted and without
interest charges).

c. If an impairment loss should be recognized, test the calculation of

the loss as follows:

(1) Determine that the impairment loss is measured as the amount by

which the carrying amount of the asset exceeds its fair value.

(2) Test the fair value by vouching to quoted market prices, if

available, or by reviewing the valuation techniques used by
management.
(3) If the fair value is based on the present value of estimated future
cash flows, test for mathematical accuracy and ensure that the
assumptions used in the present value calculation are reasonable.

12. If the auditor is concerned about the risk of fraud, audit

procedures such as the following should be considered in addition to
the ones listed above:

a. Physically inspect significant assets and major additions, and agree

serial numbers with invoices or other supporting documents.

b. Carefully scrutinize appraisals and engineering reports that seem

out of line with reasonable expectations, and challenge the underlying
assumptions.
c. When vouching fixed asset additions, accept only original invoices,
purchase orders, receiving reports, or similar supporting
documentation.

d. Confirm selected fixed asset additions directly with the vendor.

e. Review journal entries made to property accounts.

f. For self-constructed assets, examine supporting documents for

labor, materials, capitalized interest, and other direct and indirect costs
included in the capitalized asset.
g. Perform extensive depreciation calculations.

h. Examine miscellaneous cash receipts records and other income

accounts for evidence of proceeds from fixed asset disposals.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:

Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.
Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions

Accounts payable reflected in the balance sheet

Existence or occurrence
represent authentic obligations of the entity and
Completeness Rights
include unprocessed invoices and liabilities for
and obligations
goods and services received but not billed.

Accounts payable amounts agree with invoices or Existence or occurrence Rights

other supporting documents and are recorded and obligations Valuation or
correctly as to account and period. allocation

Accounts payable are properly classified as current

liabilities; significant debit balances are re-
classified to other assets; and adequate disclosures
Presentation and disclosure
are made for related-party accounts payable,
payables with specified payment terms, and assets
pledged as collateral on accounts payable.

Audit programme:
performed By

1. Prepare or obtain from the client a listing of trade accounts payable

as of the balance-sheet date and perform the following procedures:

a. Test the arithmetical accuracy of the listing and reconcile the total
balance to the general ledger.

b. Review the listing for large debit balances and determine their
nature. Consider confirming such balances with the vendors and, if
amounts are material, reclassifying them to other assets.

c. Review the listing for related-party transactions and, if amounts are

material, segregate from trade accounts payable to related-party
accounts payable in the financial statements.
d. Review the accounts payable listing for past due amounts and
discuss old and disputed balances with the client. Inquire about any
assets pledged to secure the payment of these balances.

2. Consider confirming accounts payable as of the balance-sheet date.

If confirmation procedures are deemed necessary, perform the
following:

a. Identify the major suppliers of goods or services to which

confirmation requests should be sent. If the client objects to sending
confirmation requests to any of these vendors, determine the validity
and reasonableness of the client’s objection and perform alternative
procedures.

b. Maintain control of and mail the confirmation requests.

c. When confirmation replies are received, prepare a worksheet

summarizing the results. The worksheet should show (1) vendor
name, (2) balance per books, (3) balance per confirmation received,
(4) difference, and (5) explanation of difference such as payment in
transit, shipment in transit, discount taken, unrecorded liability.

d. Perform alternative procedures on confirmation requests not

returned, such as (1) examining unpaid vendor invoices and receiving
reports and (2) vouching subsequent payment of the liability.

3. Perform a search for unrecorded liabilities covering the period

from the balance-sheet date to the completion of fieldwork as follows:

a. Review the cash disbursements journal for all payments over a pre-
established monetary amount and examine the supporting
documentation for such disbursements (e.g., vendor’s invoice). If the
goods or services were received prior to the balance-sheet date,
determine if the liability is properly recorded as of the balance-sheet
date. If the goods or services were received subsequent to the balance-
sheet date, determine if the related amount is properly excluded from
accounts payable as of the balance-sheet date.

b. Obtain from the client the files for all unprocessed invoices and
vendor statements as of the date of fieldwork and, for all invoice
amounts over a pre-established monetary amount, determine whether
the invoice amount is properly included or excluded from accounts
payable as of the balance sheet date.
c. Obtain from the client the files for all receiving reports unmatched
with vendor invoices and determine whether the goods or services
were received as of the balance-sheet date. If so, determine if the
liability is recorded. If a vendor’s invoice has not been received, refer
to the client’s purchase order, prior invoices for similar items, or
consider calling the vendor.

d. Ask the client’s accounting personnel about their knowledge of

unrecorded liabilities.

e. Scan the trade accounts payable listing as of the end of the current
period and compare it to the listing of the prior period. Determine
whether any individually significant items were included in the prior
period but not in the current period. Investigate whether any of these
items should be included in accounts payable as of the balance-sheet
date.

f. Perform the receiving cutoff tests noted in the audit program for
“Inventories and Cost of Sales” and determine that the liability for the
merchandise is recorded in the proper period

4. Ask the client about any amounts included in trade accounts

payable that have specified payment terms. Consider reclassifying
such liabilities to notes payable and, if they are non-interest-bearing,
consider whether the amounts should be shown at their discounted
present value in the financial statements.

5. Ask the client’s accounting personnel about any assets that are
pledged as collateral on accounts payable and, if so, determine if
adequate disclosure is made in the financial statements.

6. Determine that credit memos received from vendors after the

balance-sheet date have been recorded in the proper period.

7. Perform the following analytical procedures for accounts payable

and investigate any significant fluctuations or deviations from the
expected balances:

a. Compare the current year’s account balances with the prior year’s
account balances for gross payables and purchase discounts.
b. Compute the following ratios for the current year and compare
with the prior year’s ratios:
(1) Accounts payable turnover.
(2) Days outstanding in accounts payable.

(3) Ratio of accounts payable to current liabilities.

(4) Ratio of purchase returns and allowances to purchases.

8. If the auditor is concerned about the risk of fraud, audit procedures

such as the following should be considered in addition to the ones
listed above:

a. Send blank confirmations to vendors requesting them to furnish

information about all outstanding invoices and other pertinent items
such as payment terms, payment histories, etc. Include new vendors
and accounts with small or zero balances.

b. Match vendor names and addresses per invoices with master

vendor list.
c. Search for unusual or large year-end transactions and adjustments,
e.g., transactions not containing normal processing initials, not going
through normal processes, or not having normal supporting
documentation.
e. Review vendor files for unusual items, such as manual and not
customized forms; different delivery addresses; and vendors that have
multiple addresses.

f. Examine disbursements made for items that do not require delivery

of goods.

g. Examine supporting documents for payments for amounts just

under the threshold required for approval.

9. If disclosures about fair values are required, or the entity chooses

to provide voluntary fair value information, perform the following:

a. Obtain information about the fair value of accounts payable and

determine that the valuation principles are being consistently applied
under IAS.

b. Determine that the fair value amounts are supported by the

underlying documentation.
c. Determine that the method of estimation and significant
assumptions used are properly disclosed.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:

Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.
Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions

Recorded debt obligations include all notes payable, Existence or occurrence

long-term debt, finance lease obligations, and other Completeness
debt equivalents. Rights and obligations

Existence or occurrence
Debt obligations and related expenses are
Completeness
authorized and recorded correctly as to account,
Rights and obligations
amount, and period.
valuation or allocation

Debt obligations are properly classified in the

balance-sheet between current and noncurrent
Presentation and disclosure
liabilities, and adequate disclosures are made in
accordance with IAS

Audit programme:
performed By

1. Prepare or obtain from the client an analysis of notes payable,

long-term debt, finance lease obligations, other financing
arrangements (e.g., line of credit), and related interest, including (a)
issue date, (b) maturity date, (c) face amount, (d) interest rate, (e)
collateral, (f) principal balance at the beginning of the period, (g)
current-period additions and payments, (h) principal balance at the
end of the period, (i) accrued interest and unamortized
premium/discount at the beginning of the period, (j) current-period
expense and payments, and (k) accrued interest and unamortized
premium/discount at the end of the period, and perform the following:

a. Test the arithmetical accuracy of the analysis and trace balances to

the general ledger.

b. Determine if debt incurred in the current period was authorized by

the appropriate person(s).
c. Mail requests for confirmation for (1) debt with outstanding
balances as of the balance sheet date and (2) all debts retired during
the year. Confirm the following information: terms of the debt,
restrictive covenants, and other pertinent conditions. Compare
amounts and information shown per the confirmation replies to the
amounts and information shown per the analysis obtained in step 1.

d. Obtain copies of new debt agreements, and review terms,

conditions, and restrictive covenants.
c. Asset additions during the year

d. Retirements and disposals during the year

e. Test the reasonableness of interest expense, amortization of debt
discount/premium, and related accrued interest.

f. Consider the need to impute interest on non-interest bearing notes.

g. Determine if any assets are pledged in connection with the debt

obligations
h. Examine debt agreements for guarantees, including related-party
guarantees.

2. Prepare or obtain from the client a summary of all leases in force.

For all finance leases identified, determine that the related obligations
are properly recorded in accordance with IAS 17. (Coordinate this
procedure with the procedures performed in the audit program for
Fixed Assets.)

3. Review compliance with restrictive covenants and determine effect

on and disclosures required in financial statements. In connection with
this review, consider performing procedures such as the following:

a. Carefully evaluate potential audit adjustments and how they would

affect loan covenant provisions.

b. Obtain specific written management representations regarding

known covenant violations and any communications with lenders
regarding violations or waivers during the year

c. Consider obtaining an opinion from the entity’s attorney regarding

technical covenant violations.

d. Read loan amendments that management represents as constituting

waivers of covenant violations.
e. Obtain written confirmation from lenders regarding (1) waivers of
loan covenant violations and/or (2) the lender’s lack of knowledge of
any violations or intents to call the debt.
f. Evaluate all waivers carefully and assess whether the lender has
truly waived its right to call the debt.

4. Prepare or obtain from the client (and test) a schedule the

maturities of long-term debt for each of the five years following the
balance-sheet date.

5. Determine whether disclosures of long-term debt and finance

leases including terms, interest rates, maturities, and collateral are
properly made in the financial statements.

6. Perform the following analytical procedures for debt obligations

and investigate any significant fluctuations or deviations from the
expected balances:

a. Compare the current year’s account balances with the prior year’s
account balances for notes payable, long-term debt, finance lease
obligations, interest expense, and accrued interest.

b. Compute the following ratios and relationships for the current year
and compare with the prior year’s data:

(1) Debt to assets ratio.

(2) Debt to equity ratio.

(3) Average debt outstanding.

(4) Average interest rate.

7. If disclosures about fair value are required (IAS 32 and 39),

perform the following:

a. Obtain information about the fair values of financial liabilities

(notes payable and long-term debt) and determine that fair value
amounts are supported by reasonable underlying documentation.

b. Determine that the method of estimation and significant

assumptions used are properly disclosed in the notes to the financial
statements.
8. For extinguishments of liabilities, determine that a liability has
been derecognized only if either of the following conditions is met:

a. The debtor pays the creditor and is relieved of its obligations for
the liability. This includes (a) the transfer of cash, other financial
assets, goods, or services or (b) the debtor’s reacquisition of its
outstanding debt securities, whether the securities are canceled or held
as treasury bonds

b. The debtor is legally released from being the primary obligor under
the liability, either judicially or by the creditor.

9. If the auditor is concerned about the risk of fraud, audit procedures

such as the following should be considered in addition to the ones
listed above:

a. Perform search of public records.

b. Vouch and trace loan proceeds and debt payments.

c. Insist on inspecting original supporting documents rather than

copies.

10. Obtain, document and test information for required disclosures in

the financial statements, including the following:

a. Interest rates, maturities, restrictive covenants, and other

significant features of the debt obligations. b.
Discounts and premiums reported as direct deductions from or
additions to the face amounts of the debt. c. The combined
aggregate amounts of debt maturities for each of the five years
following the balance-sheet date. d. Appropriate disclosures for
finance lease obligations. e. Nature and amount of collateral, liens,
and security agreements.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:
Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.
Audit Objectives and Financial statements Assertions:

Financial Statement
Audit Objectives
Assertions
Accrued liabilities reflected in the balance sheet
Completeness Existence or
include costs and expenses authorized, incurred, and
occurrence Rights and
for which benefit has been received as of the
obligations
balance-sheet date.

The basis and method of accrual are reasonable and

Valuation or allocation
consistent with the prior period.

Accrued liabilities are properly classified in the

balance sheet and adequate disclosures made in Presentation and disclosure
accordance with IAS.

Audit programme:
performed By

1. Perform analytical review procedures as follows:

a. Compare current-period liability amounts to prior-period balances

and investigate unusual fluctuations.

b. Compare actual amounts to budgeted amounts.

c. Review general ledger account activity and investigate any entries

that appear unusual.

2. Perform the following procedures regarding accrued payroll:

a. Compare amounts accrued as of the balance-sheet date to

subsequent payments made.

b. Trace amounts accrued in payroll records as of the balance-sheet

date to amounts recorded in the general ledger.

c. Compare wages and payroll taxes per the payroll tax returns to the
general ledger.
d. Review compensation agreements for potential additional
liabilities.

3. If the accumulated but unused annual leave is material to the

overall financial statements, perform the following procedures:

a. Examine client policy, personnel manuals, or other supporting

documentation (e.g., union contracts) to determine the related policies.

b. On a test basis, recompute the client’s calculation of accumulated

but unused annual leave and determine overall reasonableness of the
accrual recorded as of the balance-sheet date.

4. If amounts owed to employees for other benefits (use of flats,

vehicles, etc.) is material to the overall financial statements, perform
the following:

a. Obtain from the client and review a copy of the agreement that
specifies the nature, amount and timing of benefits that the employee
will receive.

b. On a test basis, recompute the client’s calculation of other benefits

owed to employees and determine the overall reasonableness of the
accrual recorded as of the balance sheet date.

5. If deferred income and other deferred credits are material to the

overall financial statements, perform the following procedures:

a. Obtain an understanding of the nature of the account and the

client’s policy and method of accounting.

b. Test computations of the current year activity (i.e., additions and

reductions) by examining supporting documents or by applying
analytical procedures to related revenue and expense accounts.

c. Determine if the method of amortization is consistent with the prior

year

d. Determine if the deferred credit balance at the balance-sheet date is

reasonable.
6. Perform the following procedures regarding income taxes payable

a. Obtain or prepare a schedule reconciling pretax accounting income

to taxable income, identifying separately: • Permanent differences •
Timing differences originating and/or reversing during the year.

a. Compare the current year’s account balances with the prior year’s
account balances for notes payable, long-term debt, finance lease
obligations, interest expense, and accrued interest.

b. Recompute the client’s calculation of income tax currently

payable, using the current tax rate times the amount of taxable income
determined in the schedule obtained in step (a) and compare to the
client’s tax statement. Confirm current tax payable with the tax
office.

c. Obtain or prepare a schedule calculating the tax provision for the

year (income taxes currently payable + required adjustments to the
deferred tax account) in accordance with IAS 12.

7. For liabilities denominated in a foreign currency, verify that related

Mongolian taxes (required to be paid when a liability is settled in a
foreign currency) have also been accured.

8. If the auditor is concerned about the risk of fraud, audit procedures

such as the following should be considered in addition to the ones
listed above:

a. Search for large or abnormal year-end adjustments.

b. Confirm accrued liabilities with outside third parties.

c. Perform detail analyses of expense accruals and trace and vouch

activity in the account.

d. Analyze historical trends in accruals and related expense accounts

e. For payroll, perform the following: (1)
Observe payroll distributions. (2) Scrutinize
payroll records for employees with little or no deductions from their
payroll. (3) Review personnel files for
compensation rates. (4) Test payroll calculations and
deductions. (5) Confirm amounts paid to employees
who are at remote locations working without direct supervision.
(6) Examine payroll disbursements subsequent to year-end
and compare with accrued payroll at the balance-sheet date. (7)
Scrutinize the payroll registers for unusual items such as: names of
former employees; duplicate names, duplicate addresses; unusual pay
rates; unusual number of hours worked; for two different people.

10. If other accrued liabilities are material to the overall financial

statements, perform the following:

a. Review the client’s calculation of the accrual and determine the

reasonableness of basis, method, and amount of accrual.

b. Compare accrual amount to payments made subsequent to the

balance-sheet date, if applicable, for reasonableness.

c. Reconcile amounts accrued in the current period to the related

expense general ledger control account.

11. Based on the results of the search for unrecorded liabilities,

determine if any additional accruals should be made as of the balance-
sheet date.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in th

Performed by : Date :
Reviewed and approved by : Date :

Conclusions:

Comments:
workpaper
reference
on that the objectives listed in this audit program have been achieved.