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Checklist for Various Heads of Audit Working Paper File

Checklist for Various Heads of Audit Working Paper File

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Checklist for Various Heads of Audit Working Paper File
Checklist for Various Heads of Audit Working Paper File

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Published by: sialkotia on Jul 27, 2009
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06/24/2013

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1.GENERAL:....................................................................................... .......................2 2.FINANCIAL STATEMENTS:....................................................................... ................3 3.ZAKAT:............

................................................................................... ....................4 4.SHARE CAPITAL:................................................................................................... ..5 5.RESERVES - Capital and Revenue:...................................................... ...................6 6.SPECIFIC RESERVES:.................................................................................... ..........7 7.LONG TERM LOANS SECURED:...................................................................... .........8 8.LONG TERM LOANS UNSECURED: (Loan from directors and related parties).........10 9.LIABILITES AGAINST ASSETS SUBJECT TO FINANCE LEASE:...................................12 10.LONG TERM DEPOSITS:................................................................................ ........14 11.DEFERRED LIABILITIES:.................................................................................. ......15 12.SHORT TERM BORROWINGS:................................................... ............................16 13.TRADE AND OTHER PAYABLES:.............................................. ..............................18 14.PROVISION FOR TAXATION:.......................................................................... ........20 15.CONTINGENCIES AND COMMITEMNTS:....................................... .........................21 16.PROPERTY, PLANT AND EQUIPMENT (PPE):..................................... .....................22 17.INVESTMENT PROPERTY:....................................................................... ...............24 18.TRADE DEBTS:...................................................................................... ...............25 19.INVESTMENT IN RELATED PARTIES AND OTHER LONG-TERM INVESTMENTS:.......26 20.LONG TERM LOANS AND ADVANCES:....................................................... ............27 21.LONG TERM DEPOSITS:................................................................................ ........28 22.STORES, SPARES AND LOOSE TOOLS:................................................................. .29 23.STOCK IN TRADE:............................................................................................... ..31 24.LOANS AND ADVANCES:....................................................... ...............................33 25.TRADE DEPOSITS AND SHORT TERM PREPAYMENTS:...........................................34 26.OTHER RECEIVABLES:.............................................................................. ............35 27.INVESTMENTS:............................................................................................... ......36 28.CASH AND BANK BALANCE:................................................................... ..............37 29.SALES/REVENUE (All types):........................................................... .....................38 30.COST OF SALES, ADMIN EXPENSES, SELLING & OTHER EXPENSES:.....................39 31.OTHER INCOME:.................................................................... ..............................41 32.FINANCIAL CHARGES:...................................................................... ....................42 33.RELATED PARTY TRANSACTION:.................................................................. .........43 34.GOING CONCERN ASSUMPTION:........................................................ ..................44 35.SUBEQUENT EVENTS:.................................................................... ......................45 36.EARNINGS PER SHARE (“EPS”)............................................. ...............................46 37.DISCLOSURE ON CAPACITY INSTALLED & ACTUAL CAPACITY. REMUNERATION OF DIRECTORS, CHIEF EXECUTIVE & EXECUTIVES:.................................... .........48 38.FINANCIAL INSTRUMENT DISCLOSURE:..................................................... ...........49 39.SEGMENT REPORTING:........................................................................................ .50 40.DISCLOSURE OF OTHER ITEMS:.................................................. .........................51 41.CODE OF CORPORATE GOVERNANCE FILE:...................................... ....................52 42.DIRECTORS REPORT:...................................................................................... ......53 43.FILES TO BE MAINTAINED:..................................................... ..............................54

Audit work paper checklist
Below checklist/methodology for various sections is prepared for preliminary guidance and does not cover any specific transaction coming during the course of audit or all transactions/ nature of transactions. You may consult with your relevant senior, supervisor, manager and partner in case of any thing taken care under this checklist/methodology. Further this list is only for guidance and you have apply you own mind and judgment also to perform audit work logically and with professional skepticism. 1. GENERAL: o Figures in the lead sheet, all working papers, financial statements (Signed/Published) should be tally with each other relevant working papers. o Write in trick marks the comprehensive work which you have actually performed. The audit work performed should be specific which includes the name and No. of documents actually checked. What was the purpose of checking and what was the results etc rather than a general statement o Check presentation and disclosure should be as per IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions o Objective of audit procedures performed, strategy and Conclusion should be documented o Where the samples has been selected on judgment basis then the importance should be given to significant/high value items o Document what audit procedures has been performed on the accuracy of opening balances. Consult from the relevant Auditing standard o In the over all file I have mentioned that the samples will be selected on the basis of CMA or ACL sampling technique but in some special cases you have to apply your own judgment for the selection of samples and when you exercise this judgment then you are required to document the reason. o It is advised that no. of samples selected through CMA/ACL sampling should be increased in order to avoid the revision of audit working papers in case of revision of materiality at the final stage of audit o There should not be netting off of expense with income and assets with liabilities without legal enforceable right of off setting.

2. FINANCIAL STATEMENTS: Balance sheet o Check presentation and disclosures should be as per IAS-1, applicable IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions Profit and Loss account o Check presentation and disclosures should be as per IAS-1, applicable IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions Cash Flow Statement o Working of cash flow is required to be prepared in respect of significant balances o Check presentation and disclosures should be as per IAS-1, applicable IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions Statement of changes in equity o Check presentation and disclosures should be as per IAS-1, applicable IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions Notes to the accounts o Check presentation and disclosures should be as per IAS-1, applicable IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions.

3. ZAKAT: o Obtain annual zakat return filed with the authorities for the deduction and payment of zakat as deductible under Zakat and Ushar Ordinance 1980. Refer/cross refer and document the audit work performed on this account balance.

4. SHARE CAPITAL: o Obtain/Prepare a Movement summery of share capital during the period. o Obtain certified to be true copy of latest annual return of the Company (Form –A) and refer and identify the no of shares as at the close of the year. If Latest certified to be true copy is not available then acknowledgement receipt of filing that form A with SECP should also be obtained. Details of no of shares in the said form A should be referred and cross referred with relevant audit work paper and above movement summary prepared in AS2 file. o In case of increase in paid up share capital; during the period under audit obtain Form 3 (Return of Allotment) and circular us 86(3) (in case of Private Limited Companies). Also obtain all legal documents in case of right issue and bonus issue (Minutes of BOD, Minutes of AGM, Approval letter from stock exchange and SECP in case of listed companies and other documents) and refer and cross refer each other and also with relevant audit work papers. o In case of increase in authorized share capital during the year obtain Form 7 (Increase in Authorized share capital) and refer and cross refer. Also obtain minutes of BOD authorizing the increase of authorized share capital and also obtain Copy of amended Memorandum and articles of association. Refer and cross refer all these documents with each other o Certified to be true copy of latest Form 29 or form with acknowledgement receipt should be obtained in respect of our appointment and also in respect of directors of the company. o Check presentation and disclosure should be as per IASs/IFRSs and Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions.

5. RESERVES - Capital and Revenue: o o o o o Obtain/prepare a Movement summary during the period Identify changes during the period Check legal compliance in respect of allocation/transfer to reserves Check legal compliance in respect of disbursement/transfer from reserves Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions.

6. SPECIFIC RESERVES: (Revaluation of fixed assets, Capital Redemption Reserve, Takaful Reseve) o Obtain/prepare a Movement summary during the period o Identify changes during the period o Check term sheet/facility/circular/legal requirement for the creation of that specific reserve o Prepare working for the current year transfer to that specific reserve as per regulation. o o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation specifically to be followed for such transactions.

7. LONG TERM LOANS SECURED: o Obtain schedule of all loans o Obtain/prepare Movement summary showing individual loans and identify further loans disbursed/obtained and paid/adjusted during the period. Bank control sheet could be used from AS2 documents to perform audit work on loans o Confirm and match with repayment schedules and loan agreements the amount of current maturity and amount paid during the year. The amount due but not paid should come under over due installments and grouped under current maturity but disclosed separately in the financial statements. o Prepare Direct balance confirmations on 100% basis to banks or financial institutions, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the amount mentioned in company ledger o In case of difference between amount confirmed and as per ledger obtain reconciliation o Reconciling items are required to be checked on 100% basis from bank statements of subsequent period etc and it should be documented o Amounts/figures of contingencies and commitments (i.e. Letters of guarantee, performance bonds, bid bonds, performance guarantees, Letters or credit, bill of exchange discounting, counter guarantee any other documentary credit or contingencies and commitments) should be highlighted at the time of receiving of confirmation and a separate work paper should be prepared where those should be recorded and referred and cross referred with the head of contingencies and commitments o There should be no unexplained/un-referred figure on any bank confirmation o As an alternative audit procedures, where you were unable to obtain bank confirmations there must be a bank statement. If there is no bank statements also in special cases then obtain loan statement etc as a third party document. o Obtain Copy of duly signed loan agreements for loans obtained during the period and refer with that specific loan, prepare extracts of agreement and check terms and conditions for the purpose of providing disclosure. o In respect of loans coming from previous year re-check copies of loan agreements and confirm whether the disclosures are as per loan agreement

o Special skepticism is required while reading the loan agreement and consider whether any restrictions has been placed through that agreement on the entity attaching to this loan, also analyze the covenants attached with that facility o Prepare work paper to test the company’s compliance with debt covenants o Obtain repayment schedule which should be checked to be in line with loan agreement o Obtain/review minutes of the meeting of BOD for approval of borrowings o Review minutes of the meeting carefully to identify that there may be some loan arrangement in process which should come under contingencies etc o Enquire whether the company is in the process of obtaining some loan as at balance sheet date and obtain documentation in support of their answer. o If the company is in the process of loan negotiation then review relevant file and analyze the nature of transaction and its recognition as per IFRS/IAS criteria o Check any limitations mentioned in the borrowing power clause of Memorandum and Articles of Association in respect of borrowings of the Company o Check security document in respect of individual loan facility or confirm the amount of security through Search Report or some other documentation o Certified to be true copy of Form 10 or form with acknowledgment receipt should also be obtained and examined for the purpose of verification of amount of registered charge. o Memorandum of satisfaction in case of full settlement of loans and Form 17 should be obtained and checked for the release of charge o Apply CMA sampling technique/ACL on transaction of loan paid during the period and verify the transaction selected at least up to bank statement level o Loans disbursed/new loans obtained during the year should be verified on 100% basis up to bank statement level along with other documentation mention in various points of this section o Obtain details of facilities approved but not utilized as at balance sheet date o Obtain Movement summary of markup accrued during the year o Identify mark up accrued and mark up paid during the year o Apply CMA sampling/ACL on mark up accrued and mark up paid during the period. Verify transaction selected through sampling technique. o In case of payment of mark up the payment should be verified at least up to bank statement level o In case of accrual of mark up obtain calculation of mark up for selected samples and check that calculation with reference to mark up rate mentioned in the loan agreement and other documentations. Match markup with repayment schedule o If the rate is based on KIBOR/Libor/any other basis then check that base rate and calculation of mark up rate etc and match with calculation o In case of any change in agreement terms and conditions or mark up rate you must obtain that relevant document containing such changes o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

8. LONG TERM LOANS UNSECURED: (Loan from directors and related parties) o Obtain schedule of all loans o Obtain/prepare Movement summary showing individual loans and identify further loans disbursed/obtained and paid/adjusted during the period. o Confirm and match with repayment schedules and loan agreements the amount of current maturity and amount paid during the year. The amount due but not paid should come under over due installments and grouped under current maturity but disclosed separately in the financial statements. o Prepare direct balance confirmations on 100% basis and Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the amount mentioned in company ledger o In case of difference between amount confirmed and as per ledger obtain reconciliation o Reconciling items are required to be checked on 100% basis from bank statements of subsequent period etc and it should be documented o Obtain Copy of duly signed loan agreements and refer with that specific loan, prepare extracts of agreement and check terms and conditions for the purpose of providing disclosure. o In respect of loans coming from previous year re-check copies of loan agreements and confirm whether the disclosures are as per loan agreement o Special skepticism is required while reading the loan agreement and consider whether any restrictions has been placed through that agreement on the entity attaching to this loan, also analyze the covenants attached with that facility o Prepare work paper to test the company’s compliance with debt covenants o Obtain repayment schedule which should be checked to be in line with loan agreement o Obtain/review minutes of the meeting of BOD for approval of borrowings o Review minutes of the meeting carefully to identify that there may be some loan arrangement in process which should come under contingencies etc

o Enquire whether the company is in the process of obtaining some loan as at balance sheet date and obtain documentation in support of their answer. o If the company is in the process of loan negotiation then review relevant file and analyze the nature of transaction and its recognition as per IFRS/IAS criteria o Check any limitations mentioned in the borrowing power clause of Memorandum and Articles of Association in respect of borrowings of the Company o Apply CMA sampling technique/ACL on transaction of loan paid during the period and verify the transaction selected at least up to bank statement level o Loans disbursed/new loans obtained during the year should be verified on 100% basis up to bank statement level along with other documentation mention in various points of this section o Obtain Movement summary of markup accrued during the year o Identify mark up accrued and mark up paid during the year o Apply CMA sampling/ACL on mark up accrued and mark up paid during the period. Verify transaction selected through sampling technique. o In case of payment of mark up the payment should be verified at least up to bank statement level o In case of accrual of mark up obtain calculation of mark up for selected samples and check that calculation with reference to mark up rate mentioned in the loan agreement and other documentations. Match markup with repayment schedule o If the rate is based on KIBOR/Libor/any other basis then check that base rate and calculation of mark up rate etc and match with calculation o In case of any change in agreement terms and conditions or mark up rate you must obtain that relevant document containing such changes o Check compliance of para 43 & 47 of IAS 39 “Financial Instruments-Recognition and Measurement”. o If the company is not compliant with para 43 & 47 of IAS 39 “Financial InstrumentsRecognition and Measurement” then consider modification of you audit report with consultation of Engagement Manger and Partner o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

9. LIABILITES AGAINST ASSETS SUBJECT TO FINANCE LEASE: o Obtain schedule of all leases o Obtain/prepare Movement summary showing individual leases and identify leases obtained and paid/adjusted during the period o Confirm and match with repayment schedules and lease agreements the amount of current maturity and amount paid during the year. The amount due but not paid should come under over due installments and grouped under current maturity but disclosed separately in the financial statements. o Lease control sheet could be used to perform audit work and should be dully filled out. o Prepare Direct balance confirmations on 100% basis to banks or financial institutions, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the amount mentioned in company ledger o In case of difference between amount confirmed and as per ledger obtain reconciliation o Reconciling items are required to be checked on 100% basis from bank statements/other source of subsequent period etc and it should be documented o Amounts/figures of contingencies and commitments should be highlighted at the time of receiving of confirmation and a separate work paper should be prepared where those should be recorded and referred and cross referred with the head of contingencies and commitments o There should be no unexplained/un-referred figure on any lease confirmation o Obtain Copy of duly signed lease agreements for leases obtained during the period and refer with that specific lease, prepare extracts of agreement and check terms and conditions for the purpose of providing disclosure.

o In respect of leases coming from previous year re-check copies of lease agreements and confirm whether the disclosures are as per lease agreement o Special skepticism is required while reading the lease agreement and consider whether any restrictions has been placed through that agreement on the entity attaching to this lease, also analyze the covenants attached with that facility o Prepare work paper to test the company’s compliance with debt covenants o Obtain repayment schedule which should be checked to be in line with lease agreement o Obtain/review minutes of the meeting of BOD for approval of leases obtained o Review minutes of the meeting carefully to identify that there may be some lease arrangement in process which should come under contingencies etc o Enquire whether the company is in the process of obtaining some lease as at balance sheet date and obtain documentation in support of their answer. o If the company is in the process of lease negotiation then review relevant file and analyze the nature of transaction and its recognition as per IFRS/IAS criteria o Check any limitations mentioned in the borrowing power clause of Memorandum and Articles of Association in respect of borrowings of the Company o Check security document in respect of individual lease facility or confirm the amount of security through Search Report or some other documentation o Certified to be true copy of Form 10 wherever applicable or form with acknowledgment receipt should also be obtained and examined for the purpose of verification of amount of registered charge. o Final Settlement Letter from financial institutions and its clearance should be checked or Memorandum of satisfaction in case of full settlement of loans and Form 17 if applicable should be obtained and checked for the release of charge o Apply CMA sampling technique/ACL on transaction of lease installments paid during the period and verify the transaction selected at least up to bank statement level o Loans disbursed/new leases obtained during the year should be verified on 100% basis up to bank statement level along with other documentation mention in various points of this section o Obtain Movement summary of markup accrued during the year o Identify mark up accrued and mark up paid during the year. o Apply CMA sampling/ACL on mark up accrued and mark up paid during the period. Verify transaction selected through sampling technique. o In case of payment of mark up the payment should be verified at least up to bank statement level o In case of accrual of mark up obtain calculation of mark up for selected samples and check that calculation with reference to mark up rate mentioned in the agreement and other documentations. Match markup with repayment schedule o If the rate is based on KIBOR/Libor/any other basis then check that base rate and calculation of mark up rate etc and match with calculation o Check presentation and disclosure should be as per IAS-17 “Leases”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

10.LONG TERM DEPOSITS: o Obtain Movement summery during the period o Identify amount further deposited during the period and refunded/adjusted during the year o Verify further deposits with supporting documents including bank statements etc and match with relevant agreement/document for which the said deposit has been made and analyze the nature of transaction and any covenant attached thereto o Verify deposit adjusted/refunded during the year with supporting documents o Check amount of current portion to calculated as per the repayment schedule/repayment terms o Check whether the said deposits has been kept under separate bank account as required under Section 226 of the companies ordinance 1984 o Obtain and trace figures of long term security deposits from the source documents i.e. agreements, contracts and bank statements etc. o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

11.DEFERRED LIABILITIES: STAFF GRATUITY o Obtain Movement summery during the period o Trace figures with Valuation report from Actuaries o Document the basis used in the actuarial valuation and the basis of our reliance on the report of actuary and the expertise of actuary o Check presentation and disclosure should be as per IAS-19 “ Employee benefits”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions DEFERRED TAXATION o Obtain Calculation of provision for deferred taxation and check its clerical accuracy and basis used in the calculation. o Calculation of provision for deferred taxation should be performed by tax consultant or tax department of the company and should be on the letter head dully signed and stamped o Document the basis used in the calculation of provision for deferred taxation and the basis of our reliance on that calculation an on the expertise of that relevant expert. o Obtain reconciliation/relationship between tax expense and accounting profit and check its accuracy based on the components of data o Check presentation and disclosure should be as per IAS-12 “Taxation”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

12.SHORT TERM BORROWINGS: o Obtain schedule of all loans o Obtain/prepare facility wise Movement summary showing individual loans and identify further loans disbursed/obtained and paid/adjusted during the period. Bank control sheet could be used from AS2 documents to perform audit work on loans o Prepare Direct balance confirmations on 100% basis to banks or financial institutions, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the amount mentioned in company ledger o In case of difference between amount confirmed and as per ledger obtain reconciliations o Reconciling items are required to be checked on 100% basis from bank statements of subsequent period etc and it should be documented o Amounts/figures of contingencies and commitments (i.e. Letters of guarantee, performance bonds, bid bonds, performance guarantees, Letters or credit, bill of exchange discounting, counter guarantee any other documentary credit or contingencies and commitments) should be highlighted at the time of receiving of confirmation and a separate work paper should be prepared where those should be recorded and referred and cross referred with the head of contingencies and commitments o There should be no unexplained/un-referred figure on any bank confirmation

o As an alternative audit procedures, where you were unable to obtain bank confirmations there must be a bank statement. If there is no bank statements also in special cases then obtain loan statement etc as a third party document. o Obtain Copy of duly signed loan facility/loan agreements for loans obtained during the period and refer with that specific loan, prepare extracts of agreement and check terms and conditions for the purpose of providing disclosure. o In respect of loans coming from previous year re-check copies of facility letters/loan agreements and confirm whether the disclosures are as per loan agreement o Special skepticism is required while reading the loan agreement and consider whether any restrictions has been placed through that agreement on the entity attaching to this loan, also analyze the covenants attached with that facility o Prepare work paper to test the company’s compliance with debt covenants o Obtain/review minutes of the meeting of BOD for approval of borrowings o Review minutes of the meeting carefully to identify that there may be some loan arrangement in process which should come under contingencies etc o Enquire whether the company is in the process of obtaining some loan as at balance sheet date and obtain documentation in support of their answer. o If the company is in the process of loan negotiation then review relevant file and analyze the nature of transaction and its recognition as per IFRS/IAS criteria o Check any limitations mentioned in the borrowing power clause of Memorandum and Articles of Association in respect of borrowings of the Company o Check security document in respect of individual loan facility or confirm the amount of security through Search Report or some other documentation o Certified to be true copy of Form 10 or form with acknowledgment receipt should also be obtained and examined for the purpose of verification of amount of registered charge. o Memorandum of satisfaction in case of full settlement of loans and Form 17 should be obtained and checked for the release of charge o Apply CMA sampling technique/ACL on transaction of loan disbursed/received during the period and verify the transaction selected at least up to bank statement level o Apply CMA sampling technique/ACL on transaction of loan paid during the period and verify the transaction selected at least up to bank statement level o Loans disbursed/new loans obtained during the year should be verified on 100% basis up to bank statement level along with other documentation mention in various points of this section o Obtain details of facilities approved but not utilized as at balance sheet date o Obtain Movement summary of markup accrued during the year o Identify mark up accrued and mark up paid during the year o Apply CMA sampling/ACL on mark up accrued and mark up paid during the period. Verify transaction selected through sampling technique. o In case of payment of mark up the payment should be verified at least up to bank statement level o In case of accrual of mark up obtain calculation of mark up for selected samples and check that calculation with reference to mark up rate mentioned in the facility letter/loan agreement and other documentations.

o If the rate is based on KIBOR/Libor/any other basis then check that base rate and calculation of mark up rate etc and match with calculation o In case of any change in agreement terms and conditions or mark up rate you must obtain that relevant document containing such changes o Obtain facility renewal letter in case of renewal of facility o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

13.TRADE AND OTHER PAYABLES: o Obtain detailed break down of various heads appearing in the head of trade and other payables CREDITORS: o Obtain schedule or details of creditors o Apply CMA sampling/ACL sampling technique to select samples for circulation o Prepare Direct balance confirmations of the selected samples, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Use Creditors control summary sheet from AS2 document manager to perform audit work on creditors o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the balance as per company o Trade and other payables of long-term and short term should be analzed with professional skepticism and judgment. All payables in the normal course of business shall be separated from the other types of payables and correctly disclosed, there is a possibility that the client may wrongly classify to improve its current ratio or debt equity ratio etc o For all retention money/security deposits obtain copies of agreements/contracts and trace figures from there o For all unclaimed dividends check whether these are kept in a separate bank accouter or not?

o Obtain details of withholding tax and verify with the tax payment chalans or tax deducted at source certificates o For all accrued expenses confirm the data/basis of accrual and also check its subsequent position o In case of difference between amount confirmed and as per ledger obtain reconciliations o Reconciling items are required to be checked on 100% basis from bank statements of subsequent period etc and it should be documented o If the confirmation is not received then Perform other audit procedures named subsequent clearance test and check each individual payment under each creditor and verify up to bank statement level o Translate creditors in foreign currency into Pak Rupee and recognize any gain/loss on such translation o Perform other audit procedures named checking through invoices for the balance which was not cleared subsequently. o Obtain age analysis of creditors and perform and document audit procedures to determine whether the age analysis provided was correct and what conclusion you have drawn from this test/analysis. o Transaction with related parties should be separated and bifurcation by name is required in respect of balance payable to individual related party. o Obtain amount of maximum aggregate balance at the end of any month during the period for disclosure purpose o Transactions with related parties should be at arms’ length standard (on commercial terms and conditions). The said fact should be disclosed in this head or any other place where you have made verification of related party transaction. There should be working paper with support that the transactions will related party were on arms length. PROVIDENT FUND: o Obtain/prepare Movement summery of Provident fund payable including working of provision for the period, payments made during the period and check clerical accuracy and reasonableness of provision and for payments check up to bank statement level. o Obtain audited financial statements of provident fund and cross check the figure of provident fund payable with the relevant figure in the audited financial statements. o Also document evidence of zakat deduction against payments of provident fund o Check there is no violation of the requirements of sec 226 and 227 of Companies Ordinance, 1984 regarding payment of provident fund, if such then consult with the engagement manger to consider the modification of audit report WPPF & WWF o Obtain/prepare Movement summery of WPPF & WWF Payable including working of provision for the period, payments made during the period and check clerical accuracy and reasonableness of provision and for payments check up to bank statement level. SALES TAX PAYABLE

o Obtain/prepare Movement summery of sales tax Payable and compare/refer/cross refer the total sales and total purchases on the basis of which sales tax has been calculated with the figures of sales and purchases in the profit and loss section OTHERS o Obtain/Prepare movement summary of each head of account under trade and other payables and verify movements during the period based on CMA sampling results and materiality. o Unrecorded liability test is required to be performed under this head. o Working paper in respect of early and late cut off procedures is required to be performed under this head or purchases head.

14.PROVISION FOR TAXATION: o Obtain Calculation of provision for taxation and check its clerical accuracy and basis used in the calculation. o Calculation of provision for taxation should be performed by tax consultant or tax department of the company and should be on the letter head dully signed and stamped o Document the basis used in the calculation of provision for deferred taxation and the basis of our reliance on that calculation an on the expertise of that relevant expert. o Obtain copy of latest assessment order for check the figures of accumulated assessed losses to be used for the determination of provision for taxation o Obtain response of circulation from Tax Consultant and analyze the information provided by the client in respect of pending legal cases. Determine the reasonableness of the outcome reported by tax consultant on pending cases and check whether liability is required to be recognized or some disclosure as contingency and commitment is needed. o Obtain reconciliation/relationship between tax expense and accounting profit and check its accuracy based on the components of data o Check presentation and disclosure should be as per IAS-12 “ Taxation”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

15.CONTINGENCIES AND COMMITEMNTS: o Trace and Check the status of contingencies and commitments disclosed in the previous year audited financial statements o Obtain the letters from legal advisors of the company as disclosed in the financial statements or otherwise found during verification of legal and professional charges etc and find the status of contingencies and commitments as at date of balance sheet. o Discuss each contingency and commitment with the management of the company and review supporting documents to draw a conclusion whether the figures qualify for recognition as liability/assets or contingency liability/contingent assets etc o Check bank confirmation received for all banks to find out figures of some contingencies and commitments o Obtain construction contract where the company has capital work in progress and check how much amount has been committed for capital expenditure in the respect and refer with the relevant construction contract o Document audit procedures performed to identify and report contingencies and commitments o Obtain operating lease agreement to find out commitments for the future periods as at balance sheet date o For letters of credit check LC files and document what you have checked and what audit procedures you have performed o For Letters of guarantee if not confirmed obtain letters of guarantee as an alternative audit procedure and refer ad cross refer the figures

o For performance bonds, bid bonds etc check the facility document o For such letter/agreement it is necessary that they have not been expired as at the date of balance sheet and are in the name of the company under audit o Check tax consultant confirmation/letter to determine contingencies and commitments relevant to tax matters o There must be sufficient appropriate audit evidence of each figure of contingencies and commitments o For other contingencies and commitments check records/information/documentation and determine that the said transaction meets the criteria to be recognized as contingencies and commitments.

16.PROPERTY, PLANT AND EQUIPMENT (PPE): o Obtain fixed assets schedule and check the clerical accuracy of this schedule. o Check whether the classification of Property, plant and equipments under various head is appropriate? o Identify additions/revaluation and disposal/transfer/adjustment during the period o If the company has purchased some constructed building which also included land then bifurcation is required to be made between land and building and value of both land and building should be disclosed separately in the financial statements o Fixed assets schedule should show the cost, accumulated depreciation and depreciation of transfer/disposal etc. o If there is a change in accounting estimate due to change in the depreciation rate then proper disclosure is required in the financial statements and on the other hand some expert opinion and Board approval is also required for such a change. o Apply CMA sampling/ACL sampling technique to find out transactions to be tested in respect of additions/revaluation and disposal/transfer/adjustment during the period o If the no. of transactions in additions are not more than you may verify on 100% basis o Verify transactions in respect of additions selected in CMA/ACL sampling technique with supporting evidence with professional skepticism and also check the recognition according to capital and revenue nature

o In case of revaluation of PPE check the date of revaluation report and ensure that surplus on revaluation of PPE is incorporated correctly in the financial statements o Disclosure is required to be made in respect of the name of the valuer and the date of valuation and the basis of valuation o Disclosure is also required in respect of “Had there been no revaluation then the cost of the revalued assets would be”. o Trace and document evidence of the fixed assets additions during the year with the physical stock count file o Additions and disposals should be traced from the fixed assets register o Check whether the fixed assets register is being maintained as per TR-6 and is up to date. o Verify samples selected for disposals/transfer with the supporting documents etc o Prepare PPE disposal schedule with full particulars required under Fourth and Fifth Schedule to the Companies Ordinance 1984 o Prepare SAP in respect of depreciation and determine the level of substantive audit procedures o Perform substantive audit procedures on the balances selected for further investigation in view of SAP. This includes detailed calculation of deprecation charge o Document what audit procedures has been performed to identify impairment of PPE and what conclusion has been drawn on the basis of such test/audit procedures. Document why the impairment has been charged or not charged. Obtain representation from the management of the Company is any impairment condition exists but the management has not charged this impairment and analyze the reasonableness of this representation in view of the relevant legal pronouncements and interpretations. o Discuss and Document the reasonableness of the basis used for the Calculation and allocation of depreciation to cost of sales and admin expenses o Discuss and documents detail of insurance cover against fixed assets o For Capital Work in Progress (CWIP) identify additions and disposal/transfer during the period and apply CMA/ACL sampling technique and verify with supporting evidence o Obtain certificate of installation to check the transfer from CWIP to fixed assets and check the date of available for use to facilitate calculation of depreciation charge o Verify additions with supporting evidence. The cost sheet should be thoroughly securitized that whether the costs capitalized meet the criteria of being capitalized o Due care and professional skepticism is required to verify the figure of CWIP. You must go through the LC File and other documents and take notes on you working paper and determine the nature of transaction eligible to be recognized as PPE o Refer with stores and spares movement where the stores has been capitalized from the stores and spares o Obtain/prepare calculation of borrowing cost capitalized, check calculation, document the work done prepare proper disclosure for borrowing cost

o Any other balance included in PPE (i.e. Advance for purchase of PPE) should be thoroughly analyzed to check whether it meets the criteria to be recognized as PPE. o Any stores specifically held for capital expenditure should be classified under PPE o It should be disclosed that stores may include some store of such nature which may be capitalized in the PPE in the future but now are not distinguishable now. o Where there are trial run losses/revenue, un-allocated capital expenditures then take care that all the administrative nature expenses should become part of administrative expense instead of un-allocated expenses. o Check presentation and disclosure should be as per IAS-16 “Property, Plant and Equipment”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

17.INVESTMENT PROPERTY: o Obtain/prepare summary/movement schedule o Identify additions and disposal/transfer during the period o Based on the sample size apply CMA /ACL technique to select transactions for verification o Prepare SAP in respect of depreciation and determine the level of substantive audit procedures o Perform substantive audit procedures on the balances selected for further investigation in view of SAP. This includes detailed calculation of deprecation charge o Check disclosure required as per IAS 41 “Investment Property” o Check presentation and disclosure should be as per IAS-16 “Property, Plant and Equipment”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

18.TRADE DEBTS: o Obtain schedule or details of debtors o Apply CMA sampling/ACL sampling technique to select samples for circulation o Prepare Direct balance confirmations of the selected samples, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Use Debtors control summary sheet from AS2 document manager to perform audit work on creditors o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the balance as per company

o In case of difference between amount confirmed and as per ledger obtain reconciliations o Reconciling items are required to be checked on 100% basis o If the confirmation is not received then Perform other audit procedures named subsequent clearance test and check each individual receipt under each debtor and verify up to bank statement level o Perform other audit procedures named checking through invoices for the balance which was not cleared subsequently. o Obtain age analysis of Debtors and perform and document audit procedures to determine whether the age analysis provided was correct and what conclusion you have drawn from this test/analysis. Whether any provision is required for doubtful receivables based on the age analysis performed o Transaction with related parties should be separated and bifurcation by name is required in respect of balance receivable to individual related party. o Obtain amount of maximum aggregate balance at the end of any month during the period for disclosure purpose o Ensure that receivable from related parties fall under the normal course of business and appropriately disclosed. If the said debtors do not fall under normal course of business then check disclosures and compliance of the Company with Section 208 of the Companies Ordinance 1984. o Translate debtors in foreign currency into Pak Rupee and recognize any gain/loss on such translation o Working paper in respect of early and late cut off procedures is required to be performed under this head or sales head. o Transactions with related parties should be at arms’ length standard (on commercial terms and conditions). The said fact should be disclosed in this head or any other place where you have made verification of related party transaction. There should be working paper with support that the transactions with related party were on arms’ length. 19.INVESTMENT IN RELATED PARTIES AND OTHER LONG-TERM INVESTMENTS: o Obtain/prepare summary/movement schedule of investment in each associate o Obtain, file, refer and cross-refer the latest audited financial statements of each associate as at the balance sheet date o Obtain proof of no of shares held either trace from the physical count file or obtain CDC confirmation and refer and cross refer. o Obtain approval of the BOD for investments during the year o Calculate value of investment under equity method by adding accumulated post acquisition profit and deducting dividend in the initial cost of investment. o Obtain market rates as at the valuation date from Internet or Newspapers and determine market value, compare that market value with the value of investment under equity method and determine whether there is any impairment in the value of investment or not. If there is any impairment then charge that impairment. o Check presentation and disclosure should be as per IAS 28 “Investment in Associates”, Fourth Schedule (in case of listed companies) and fifth Schedule (in

case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

20.LONG TERM LOANS AND ADVANCES: o Obtain details of loans and advances and select samples on the basis of CMA sampling then obtain balance confirmations from selected sample employees. o Obtain/prepare movement summary of each individual loan and advances o Identify further loans advanced and received/adjusted during the year. o Verify loans advanced during the year from bank statements, loan agreements, company policy, entitlement of the employee as per company policy in case of loan to employee o Obtain/prepare repayment schedules matched with the loan agreement o Calculate and trace figure of current maturity with respect to repayment schedule and show current portion in the current assets o In case of loans and advances to executive of the Company movement is required to be presented in the financial statements in case of listed companies. o Verify advances received/adjusted during the year from the said salary statement or bank statement

o Bifurcation is required to be made in respect of secured and unsecured loans and advance o Ensure that there are no loans and advances given to any director of the company in contravention of Companies Ordinance 1984. o Obtain age analysis of loans and advances and determine whether any provision is required to be made against doubtful loans and advances, also document what audit work has been performed to check the accuracy of age analysis and if provision is made then what procedures has been performed to check the adequacy of the provision. Documentation of all this should be in the working paper file o In case of interest free loans and advances ensure whether those loans and advance has been accounted for on amortized cost as per IAS-39 o In case of interest bearing loans and advances ensure whether interest has been correctly accrued and recognized o Ensure that in case of loans and advances to related parties fall under the normal course of business and appropriately disclosed. If the said loans and advances do not fall under normal course of business then check disclosure and compliance of the Company with Section 208 of the Companies Ordinance 1984. o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

21.LONG TERM DEPOSITS: o Obtain/prepare breakup of long term deposits along with the movement summary o Identify further deposited and refunded/adjusted during the year. o Verify further deposit during the year on selected samples from the source document i.e Rent agreement in case of deposit against rented building, godown etc. Demand notice for security deposit against electric, telephone, gas installation etc. Lease agreement for lease key money or any other source document for that specific deposit. Trace from bank statements also. o Verify refunds/adjustments during the year from bank statements and refund voucher etc o Identify figure of current maturity and show current portion in the current assets o Check on case to case basis whether any provision is required against any doubtful deposit?

o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

22.STORES, SPARES AND LOOSE TOOLS: o Obtain valuation of stores and spares o Quantitative reconciliation should be obtained and traced with relevant records/document/information etc. o Check clerical accuracy of the stores and spares valuation as per company policy o Select samples through CMA/ACL sampling to check the accuracy of valuation and method of valuation if the no. of stores, spares and loose tools items are huge in volume. o The selected samples must contain the samples which has been selected during the annual physical count o In the valuation working there should be evidence of quantity traced from physical count file

o In the physical count working papers there should be documentation of the method of measurement/count used for different types of stores, spares and loose tools. o Document method of valuation, what documents have been checked and how you come to the conclusion i.e. what calculation has been performed what information/documents has been checked o Obtain/prepare department wise monthly and total consumption of stores and spares bifurcated between capital and revenue nature and refer and cross refer the figure of stores capitalized with the fixed assets addition section o Obtain age analysis of stores, spares and loose tools and determine any provision required to be made in respect of obsolete and slow moving inventory. o Document and conclude that whether the provision is required to be made on the basis of age analysis. Where such provision has been made document and conclude whether that provision is adequate o Obtain Cost vs NRV analysis and determine the value of stores, spares and loose tools to be disclosed on the basis of lower of cost or NRV o Disclose the value of stores, spares and loose tools pledge with various financial institutions as at balance sheet date against borrowings. o Working paper in respect of early and late cut off procedures on stores, spares and loose tools is required to be performed under this head or purchases head. o If you are going to verify purchases of stores, spares and loose tools under this head then apply ACL/CMA sampling and verify transactions of stores, spares and loose tools purchases from supporting documents. The work done should be meaningful rather than giving general statements. o If you are going to verify transfers/returns/adjustments of stores, spares and loose tools under this head then select samples for testing through ACL/CMA sampling technique for the selection of samples o Document what audit work has been performed on the opening quantity and value, quantity and value of purchases, quantity and value of consumption/adjustment/return/transfer and closing quantity and value. o In case of stores, spares and loose tools in transit obtain details of stores, spares and loose tools in transit and verify with the supporting documents. In case of stores, spares and loose tools in transit check whether its classification is correct or not and also check LC files etc. o In case of stores, spares and loose tools in custom bond/bonded warehouse check custom/warehouse documents for the quantity and also check value is as per company policy. o If some stores, spares and loose tools is held with vendor then directly circularize and obtain confirmation of stores, spares and loose tools from vendor and also check vendor agreement o Calculation of rate per unit used in the valuation of stores, spares and loose tools should be calculated and work performed should be documented. o Check presentation and disclosure should be as per IAS 2 “Inventories”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

23.STOCK IN TRADE: o Obtain valuation of stock in trade o Quantitative reconciliation should be obtained and traced with relevant records/document/information etc. o Check clerical accuracy of the stock valuation as per company policy o Select samples through CMA/ACL sampling to check the accuracy of valuation and method of valuation if the no. of stock items are huge in volume o The selected samples must contain the samples which has been selected during the annual physical count

o In the valuation working there should be evidence of quantity traced from physical count file o In the physical count working papers there should be documentation of the method of measurement/count used for different types of stocks o Document method of valuation, what documents have been checked and how you come to the conclusion i.e. what calculation has been performed what information/documents has been checked o Obtain/prepare department wise monthly and total consumption of stock and refer and cross refer the figure of consumptions appearing the cost of sales section o Obtain age analysis of all stock in trade and determine any provision required to be made in respect of obsolete and slow moving inventory. o Document and conclude that whether the provision is required to be made on the basis of age analysis or any other basis. Where such provision has been made, also document and conclude whether that provision is adequate o Obtain Cost vs NRV analysis and determine the value of stock to be disclosed on the basis of lower of cost or NRV o Disclose the value of stock in trade pledge with various financial institutions as at balance sheet date against borrowings o Working paper in respect of early and late cut off procedures on stock in trade is required to be performed under this head or purchases head. o If you are going to verify purchases of stock in trade under this head then apply ACL/CMA sampling and verify transactions of stock in trade purchases from supporting documents. The work done should be meaningful rather than giving general statements. o If you are going to verify transfers/returns/adjustments of stock in trade under this head then select samples for testing through ACL/CMA sampling technique for the selection of samples o Document what audit work has been performed on the opening quantity and value, quantity and value of purchases, quantity and value of consumption/adjustment/return/transfer and closing quantity and value. o In case of stock in transit obtain details of stock in transit and verify with the supporting documents. In case of Raw material in transit check whether its classification is correct or not and also check LC files etc. In case of Finished goods in transit check whether it is as per company policy also check delivery documents and other documentation to verify the nature and classification. o In case of stock in custom bond/bonded warehouse check custom/warehouse documents for the quantity and also check value is as per company policy. o If some stock is held with vendor then directly circularize and obtain confirmation of stock from vendor and also check vendor agreement o Calculation of rate per unit used in the valuation of different stocks (i.e. Raw material, Work in process, finished goods, waste etc) should be calculated and work performed should be documented. o Check presentation and disclosure should be as per IAS 2 “Inventories”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

24.LOANS AND ADVANCES: o Obtain detail of loans and advances and select samples on the basis of CMA sampling then obtain balance confirmations from selected sample of loans and advances o Obtain/prepare movement summary of each individual loan and advances o Identify further loans advanced and received/adjusted during the year.

o Verify loans advanced during the year from bank statements, loan agreements, company policy, entitlement of the employee as per company policy in case of loan to employee o Verify advanced during the year from bank statements and company policy in case of advance for expenses o In case of loans and advances to related parties including executives of the Company disclose separately o Verify advances received/adjusted during the year from bank statements and in case of employees from salary statements o Bifurcation is required to be made in respect of secured and unsecured loans and advance o Ensure that there are no loans and advances given to any director of the company in contravention of Companies Ordinance 1984. o Determine whether any provision is required to be made against doubtful loans and advances, also document what audit work has been performed and what conclusion has been drawn o the adequacy of provision for doubtful receivables o In case of interest bearing loans and advances ensure whether interest has been correctly accrued and recognized o In case of advance tax or tax deducted at source check status of those advances from the tax consultant and also verify through audit procedures. Check tax payment challans and tax deduction certificates o In case of advances to suppliers and contractors you must check nature of those advances and classify advances to contractors as long term advances. There is a possibility that the company may wrongly classify (intentionally or un intentionally) advances of long term nature in the short term advances in order to show favorable current ratio o You must analyze the purpose and nature of advances with professional skepticism and also check agreements/contracts of relevant advances and recognize and classify as per approved financial reporting framework. o Ensure that in case of loans and advances to related parties those loans and advances fall under the normal course of business and appropriately disclosed. If the said loans and advances do not fall under normal course of business then check disclosure and compliance of the Company with Section 208 of the Companies Ordinance 1984. o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

25.TRADE DEPOSITS AND SHORT TERM PREPAYMENTS: o Obtain/prepare breakup of deposits along with the movement summary o Identify further deposited and refunded/adjusted during the year. o Verify further deposit during the year on selected samples from the source document i.e Rent agreement in case of deposit against rented building, godown etc. Trace from bank statements also.

o Verify refunds/adjustments during the year from bank statements and refund voucher etc o Identify figure of current maturity and show current portion in the current assets o Check on case to case basis whether any provision is required against any doubtful deposit? o Deposits to related parties should be disclosed separately o Where there are prepaid insurance/rent etc. then you must obtain schedule which show how much amount was paid, how much has been expired (charged to profit and loss account of the current and previous years) and how much has been left. In case of prepaid insurance you much obtain insurance policy and check the period covered under that insurance policy and check whether the allocation to expense and prepaid is correct or not? o For electricity and gas you must check the bills duly paid or accrued o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

26.OTHER RECEIVABLES: o Obtain detail of other receivables and disclose secured and unsecured and from related parties and others separately o Obtain/prepare movement summary of each individual other receivables o Ensure that in case of other receivables to related parties fall under the normal course of business and appropriately disclosed. If the said other receivables do not

o o o o o o o o

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fall under normal course of business then check disclosure and compliance of the Company with Section 208 of the Companies Ordinance 1984. Identify further other receivables made and received/adjusted during the year. Verify other receivables made during the year from bank statements, agreements etc. Verify advances received/adjusted during the year from bank statements and in case of employees from salary statements Ensure that there are no other receivables given to any director of the company in contravention of Companies Ordinance 1984. Determine whether any provision is required to be made against doubtful receivables also document what audit work has been performed and what conclusion has been drawn o the adequacy of provision for doubtful receivables In case of interest bearing other receivables ensure whether interest has been correctly accrued and recognized In case of tax refunds check from refund vouchers, copies of cheque received and trace from bank statements In case of other receivables you must check nature of those receivables. There is a possibility that the company may wrongly classify (intentionally or un intentionally) receivables of long term nature in the short term receivables in order to show favorable current ratio You must analyze the purpose and nature of other receivables with professional skepticism and also check agreements/contracts of relevant receivables and recognize and classify as per approved financial reporting framework. In case of insurance claim receivable check documentation in respect of the acceptance of insurance claim and the status of claim Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

27.INVESTMENTS: o Obtain/prepare summary/movement schedule of each investments o Obtain proof of no of shares held either trace from the physical count file or obtain CDC confirmation and refer and cross refer. o Calculate and verify cost of investment up to bank statement level o Obtain approval of the BOD for investments during the year.

o Obtain market rates as at the valuation date from Internet or Newspapers and determine market value, compare that market value with the cost of investment and determine whether there is any impairment in the value of investment or not. If there is any impairment then charge that impairment. o In case of fixed deposit certificate trace existence of certificates from the physical count file and check terms and conditions and recognize as per approved financial reporting framework. o Check presentation and disclosure should be as per IAS 39, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

28.CASH AND BANK BALANCE: o Obtain certificate of cash in hand and compare with physical cash count sheet o Obtain schedule of all bank accounts/bank balances o Use bank control sheet to perform substantive procedures on cash and bank balances

o Prepare Direct balance confirmations on 100% basis to banks or financial institutions, get it signed by the authorized signatories, Circularize under our control. o File copies of confirmation send in the file o If confirmation is not received within reasonable time (5-10 days) then send a reminder under our control of the same confirmation by clearly marking “Friendly Reminder”. You can send more reminders also if the reply is not received in response of friendly reminder. o Prepare confirmation control summary to keep track record of confirmation sent, response received and pending o For all confirmations received check the amount confirmed match with the amount mentioned in company ledger o In case of difference between amount confirmed and as per ledger obtain reconciliation o Reconciling items are required to be checked on 100% basis from bank statements of subsequent period etc and it should be documented o Amounts/figures of contingencies and commitments if any (i.e. Letters of guarantee, performance bonds, bid bonds, performance guarantees, Letters or credit, bill of exchange discounting, counter guarantee any other documentary credit or contingencies and commitments) should be highlighted at the time of receiving of confirmation and a separate work paper should be prepared where those should be recorded and referred and cross referred with the head of contingencies and commitments o There should be no unexplained/un-referred figure on any bank confirmation o As an alternative audit procedures, where you were unable to obtain bank confirmations there must be a bank statement. If there is no bank statement also in special cases then obtain ledger and check the materiality of the figures involved o Obtain/review minutes of the meeting of BOD for approval of new bank accounts opened during the year and bank accounts closed during the year o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS) specifically to be observed for such transactions.

29.SALES/REVENUE (All types): o Obtain detail of sales/Revenue (i.e. dispatch advice wise/invoice wise/other source document in case of revenue other than sales i.e. Mark up in case of banks and Modarabas etc) for the year and apply CMA sampling/ACL sampling technique to select samples for performing substantive procedures

o Prepare SAP in respect of sales/Revenue o Samples form sales to related parties should also be selected and identified o Each sample should be verified with due care and professional skepticism as there may be chances of over invoicing, under invoicing, off the record sales, wrong application of revenue recognition policy. Ensure whether revenue recognition is as per company policy and approved financial reporting framework. o Also obtain sale agreements with some of the major parties and compare terms in conditions in sale agreement match with the sales invoice. o Document Revenue recognition policy, management understanding and compliance with revenue recognition policy etc o Obtain/prepare movement from sales tax return and it should be matched with figure of various sales and purchases. If this is not matching then obtain/.prepare reconciliation and verify reconciling items on 100% basis. o Any sales tax, discount, commission in each sale transaction should also be verified from relevant sale agreements/agreements with commission agents. o Only Sales tax, discount and commission which forms part of sales tax invoice only will be deductible form revenue/sales and all other ancillary expenses will be grouped under selling expenses rather then direct deduction from sales. If such presentation is not followed then consult with your engagement manager and partner. o Check presentation and disclosure should be as per IFRS 1 “presentation of financial statements””, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

30.COST OF SALES, ADMIN EXPENSES, SELLING & OTHER EXPENSES: o Obtain schedule of various expenses coming under the head of cost of sales o Prepare SAP and identify on which expenses substantive procedures are required to be performed

o Substantive procedures are required to be performed on Legal and professional charges (100% basis to identify any litigation or contingency, repairs and maintenance (i.e plant & Mach., Building, Vehicles etc.) to identify correct recognition of capital and revenue expenses and salaries and wages irrespective of the items selected through SAP o Irrespective of your selection for Substantive procedures through SAP, Substantive procedures must be performed on the purchases of Raw Material and Stores etc. with others selected for Substantive procedures through SAP. Obtain ledger of purchases of these items, apply CMA Sampling/ACL sampling technique and perform verification procedures on them o Purchase agreements should be obtained for major parties and terms and conditions from those agreements should be traced in the samples selected for verification. o If movement summary of stocks and stores is not prepared under the section of stock in trade and stores section then prepare that summary and reconcile with Quantitative data and figures appearing in various section o Any stores consumption (Capital and Revenue) should be identified in the movement summary of stores and spares and referred and cross referred with relevant sections o All opening and closing balances of inventories should be cross referred with stock in trade and stores and spares section. o All figures of cost used in the valuation of stock in trade should be referred and cross referred with the section of stock in trade where these costs has been used for the calculation of per unit cost of goods manufactured or sold etc. o Purchases of various items should be referred and cross referred with movement of sales tax return prepared under the section of sales. If the figures are not matching then reconciliation must be obtained and reconciling items should be verified on 100% basis. o Employee benefits should be identified and separately disclosed in narrative form in the note o Obtain list of people joined and left during the year along with their basic & gross salary, date of joining & leaving and calculate salary of people joined during the year and left during the year. SAP is required to be performed on salaries and wages, which should be prepared from obtaining previous year audited figures as opening balance and then add salaries of people joined during the year and deduct salaries of people left during the year, through this working you will get expected figure of salaries and wages and then compare that figure with the figure recorded by the client. On this basis of SAP you will get variance which needs to be analyzed in the view of threshold and then you have to decide on which portion further investigation is required to be done. Where the variance is due to some salaries increase then it should be supported with the relevant management approval o Substantive procedures are also required to be performed on selected samples of salaries and wages through checking their personnel files and details appearing in their contract should be match with the salaries and wages sheet, further if there is some loan to employee then the same should be traced with the personal file of that employee (relates to the section of loan and advances to employees) o In case of royalty obtain royalty agreement and check whether the figure so royalty is matched with that agreement.

o Where there is some allocation of expenses to or from group then you must obtain that specific approval of the management for that allocation and support your verification and analysis with that specific approval. o Where there are rent expenses then obtain rent agreements and prepare SAP in view of that rent agreement instead of vouching, however if you have concluded that some further investigation is required to be done based on the variance beyond threshold then you must go upto bank statement level in the verification of rent expenses payment. o In case of deprecation and amortization, if working has not been performed in those relevant sections then it should be performed under this section and should be referred and cross referred with each other. o Fro auditors remuneration detailed disclosure is required as per 4 th schedule (in case of listed companies) and 5th schedule (in case of other companies). Take care of specific requirement of above mentioned schedules in case of joint audit. o In any expense where agreement has been made then you must obtain the copy of that agreement and analyze those expenses in view of that specific agreement o Where there are insurance/rent expenses coming through the incurrence of prepaid then you must obtain schedule which show how much amount was paid, how much has been expired (charged to profit and loss account of the current and previous year) and how much has been left. In case of prepaid insurance you much obtain insurance policy and check the period covered under that insurance policy and check whether the allocation to expense and prepaid is correct or not? o For electricity and gas you must check the bills duly paid or accrued o For provision for doubtful receivables, provision for obsolete and slow moving stock check the working for the adequacy of the provision and refer and cross refer with the relevant sections of stock in trade and trade debts etc. o In case of foreign exchange gain/loss there must be calculation supported with exchange rates on the samples selected for verification o Provision for WWF, WPPF and any other specific provision there should be working in the relevant head if not then required to be performed here and referred and cross referred. o Check presentation and disclosure should be as per IFRS 1 “presentation of financial statements””, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

31.OTHER INCOME:

o This should be bifurcated between income from financial assets and income corm non-financial assets respectively o There should be proper working paper for each figure of other income.

32.FINANCIAL CHARGES:

o Obtain details of financial charges identifying relevant to long term loans-secured, long term loans-unsecured, Liabilities against assets subject to finance lease, short term loans-secured, short term loans-un-secured, interest on WPPF, PF etc. o Any capitalization of borrowing cost must be disclosed separately and referred and cross-referred with the section of PPE and there should be proper working in this section if not done under the section of PPE o For verification of financial charges those must be referred and cross-referred with repayment schedules (in case of long term loans and leases), Mark up rates from facility letter/agreements etc. If KIBOR or LIBOR rate has been used as base rate due to structure of interest rate then the said KIBOR or LIBOR rate must be verified from prevailing rate sheets or site from where those rates are available o Check accrual of finance cost is as per agreements/facility letters etc.

33.RELATED PARTY TRANSACTION:

o There must be working on verification of related party transaction. Working is also required with respect to arms’ length pricing o Also complete Form 2410 of AS2 checklist in respect of related party transaction o Check presentation and disclosure should be as per IAS-24 “Related Parties””, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

34.GOING CONCERN ASSUMPTION:

o Also complete Form 2360 of AS2 checklist in respect of going concern assumption.

35.SUBEQUENT EVENTS: o Complete subsequent event checklist before the issuance of auditors’ report

o Procedures performed and Conclusion must be documented in respect of subsequent events.

36.EARNINGS PER SHARE (“EPS”) -in case of listed companies and other companies going to present this disclosure:

o There must be working of basic and diluted EPS as per IAS-33 “Earnings per share” o Check presentation and disclosure should be as per IAS-33 “Earnings per share”, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

37.DISCLOSURE ON CAPACITY INSTALLED & ACTUAL CAPACITY. REMUNERATION OF DIRECTORS, CHIEF EXECUTIVE & EXECUTIVES: In case of listed companies and other companies going to present this disclosure: o There must be supporting of the information disclosed in these notes. Unsupported disclosures will not be accepted o Check presentation and disclosure should be as per Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

38.FINANCIAL INSTRUMENT DISCLOSURE: o There must be working of this disclosure for the calculation of financial assets and financial liabilities o On balance sheet gap and off balance sheet gap disclosure is required o Check presentation and disclosure should be as per IAS-32 and IAS-39.

39.SEGMENT REPORTING: In case of listed companies and other companies going to present this disclosure: o There must be working on segment reporting. o Check presentation and disclosure should be as per IAS-14 “Segment Reporting””, Fourth Schedule (in case of listed companies) and fifth Schedule (in case of other companies) or any regulation (IFRS/IAS/IFRIC etc) specifically required to be observed for such transactions.

40.DISCLOSURE OF OTHER ITEMS: NON-CASH TRANSACTIONS, DIVIDEND, DATE OF AUTHORIZATION FOR ISSUE AND RECLASSIFICATION AND REARRANGEMENT: o There must be working and adequate disclosure of above disclosures.

41.CODE OF CORPORATE GOVERNANCE FILE: (in case of listed companies only) o Obtain checklist required to be filled for the compliance of code of corporate governance, fill it and get signed by the clients’ authorized personnel (i.e the person who are responsible for signing the financial statements). Obtain important documents on the letter heads dully singed off by the authorized personnel of the company instead of taking copies from the financial statements (I have seen in the last year files that our staff has filed photocopies of vision and mission statements from the published financial statements). o There must be a “statement of compliance with code of corporate governance” on the letter head duly singed by the persons who are authorized to sign the financial statements of Company and this should be as per the Companies ordinance 1984.

42.DIRECTORS REPORT: Directors’ report must be as per the requirements of Companies ordinance 1984.

43.FILES TO BE MAINTAINED: There must be the following separate files for every client: o o o o o Audit working paper files Permanent file EQAR file Correspondence file (It is being maintained at office) Code of corporate governance file (in case of listed companies)

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