SIEMENS

AUDIT REPORT
2019
Ingenuity for life

Abstract
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion.

Group 1



Contents

Topic Page Number

Independent auditor’s report 2

5 high-audit risk-areas using financial ratios from the 8

balance sheet

5 low-risk areas from the profit and loss account 11

Audit Programs of the 5 high-risk areas of the balance 13

sheet

Audit Programs of the 5 low-risk areas from the profit and 24

loss account

Conclusion: Detailed reasons of adding or omitting 40

substantive test/ procedures

pg. 1



INDEPENDENT AUDITOR’S REPORT

To the members of Siemens (Pakistan) Engineering Co. Ltd.

Review Report on the Statement of Compliance contained in the repealed Listed Companies

(Code of Corporate Governance) Regulations, 2017 and the Listed Companies (Code of

Corporate Governance) Regulations, 2019.

OPINION

We have audited the annexed financial statements of SEIMENS, which comprises of balance sheet

of as at September 30, 2019 and related profit and loss account, cash flow statement and statement

of changes in equity for the year then ended and notes to the financial statements, including summary

of significant accounting policies and other explanatory information and we state that we have

obtained all the information and explanations which, to the best of our knowledge and belief, were

necessary for the purposes of our audit.

In our opinion and to the best of our information and according to the explanations given to us, the

balance sheet, profit and loss account, cash flow statement and statement of changes in equity

together with the notes forming part thereof conform with approved accounting standards as

applicable in Pakistan and the Companies Act, 2017, in the manner so required and respectively

pg. 2



give a true and fair view of the state of the company’s affairs as at September 30, 2019 and of the

profit, its cash flows and changes in equity for the period then ended.

BASIS OF OPINION

We conducted our audit in accordance with the International Standards on Auditing (ISAs) as

applicable in Pakistan. Our responsibilities under those standards are further disclosed in Auditor’s

Responsibilities for the audit of the Financial Statements section of our report. We were independent

of the company in accordance with the International Ethics Standards Board for Accountants’ Code

of Ethics for Professional Accountants as adopted by the relevant institute (the Code) and we have

fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

RESPONSIBILITIES OF MANAGEMENT AND BOARD OF DIRECTORS FOR THE

FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with the International financial Reporting Standards for Small and Medium-Sized

Entities (IFRS for SMEs)’ issued by IASB and the requirements of the Companies Act, 2017, and

for such internal control as the management determine is necessary to enable the preparation of

financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s

ability to continue as going concern, as applicable, matters related to going concern and using the

going concern basis of accounting unless management either intends to liquidate the Company or

cease operations, or has no realistic alternative but to do so. Boards of directors are responsible for

overseeing the Company’s financial reporting process.

pg. 3



AUDITOR’S RESPONSIBILITY FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatements, whether due to fraud or error, and to issue an auditor’s report

that includes an opinion. Reasonable level of assurances a high level of assurance, but is not

guaranteed that an audit conducted in accordance with ISAs will always detect a material

misstatement when it exists.

Misstatement can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatements of the financial statements, whether due to

fraud of error, design and perform audit procedures responsive to those risks, and obtain audit

evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not

detecting a material misstatement resulting from fraud is higher than for one resulting from error,

as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override

of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Company internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the management.

pg. 4



• Conclude on the appropriateness of management’s use of the going concern basis of accounting

and, based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the company’s ability to continue as a going concern.

If we conclude that a material uncertainty exists, we are required to draw our attention in our

auditor’s report to the related disclosures in the financial statements or, if such disclosures are

inadequate, to modify our opinion. Our conclusions are based on the audit evidence up to the dates

of our auditor’s report.

pg. 5



REPORT ON THE AUDIT OF FINANCIAL STATEMENTS

Based on our audit, we further report that in our opinion:

a) Proper books of account have been kept by the Company as required by the Companies Act, 2017

(XIX of 2017);

b) The statement of financial position, the statement of profit or loss, the statement of other

comprehensive income, the statement of changes in equity and the statement of cash flows together

with the notes thereon have been drawn up in conformity with the Companies Act, 2017 (XIX of

2017) and are in agreement with the books of account and returns;

c) Investments made, expenditure incurred and guarantees extended during the year were for the

purpose of the Company’s business; and

d) Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was

deducted by the Company and deposited in the Central Zakat Fund established under Section 7 of

that Ordinance.

The engagement partner on the audit resulting in this independent auditors’ report is Sir Zeeshan

Haider. Based on our review, nothing has come to our attention which causes us to believe that the

Statement of Compliance does not appropriately reflect the Company’s compliance, in all material

respects, with the requirements contained in the Codes as applicable to the Company for the year

ended 30 September 2019.

Group 1 Section E

Date: 3rd June, 2020

pg. 6



5 HIGH-AUDIT RISK-AREAS USING FINANCIAL RATIOS FROM THE

BALANCE SHEET

1. Retention money:

Decreasing from 84% (2018) to 64.37% (2019)

The decrease in retention ratio is due to following reason:

o Trade creditors including retention money has decreased. And the long term

retention money from the liabilities of the Afghanistan operations has reduced to

zero.

2. Interest cover ratio:

Decreasing from 28.98% (2018) to 6.01% (2019)

o Despite lower sales volume and an overall increase in cost of doing business on

account of inflation and interest rates hikes, the Company posted healthy operating

profit (9% of sales) and profit before tax (7% of sales) which also includes an

exchange gain of Rs 708 million.

3. Contract asset:

Decreasing from 27.32% (2018) to 17.35% (2019)

The significant decrease in contract asset is mainly due to:

o The Invoicing on high value projects in current year as per the completion of

respective performance related milestones.

4. Return on equity:

Decreasing from 20.06% (2018) to 11.85% (2019)

pg. 7



The company’s return on equity decreased due to the following reasons:

o Sales decreased by 15% mainly due to stiff competition with limited opportunities

in the market resulting from unfavorable macroeconomic indicators in the Country

and major projects completion in Afghanistan last year.

o Despite lower sales volume and an overall increase in cost of doing business on

account of inflation and interest rates hikes, the Company posted healthy operating

profit (9% of sales) and profit before tax (7% of sales) which also includes an

exchange gain of Rs 708 million.

5. Contract liabilities:

Increasing from 12.87% (2018) to 19.91% (2019)

The contract liability increased because of:

o The unsecured contract liabilities from a related party as per the contractual payment

term have increased.

6. Cash and bank balance:

Decreasing from 8.84% (2018) to 3.81% (2019)

Cash and bank balance decreases due to:

o The security deposits from vendors kept in a special account maintained by the

company with a scheduled bank has decreased from Rs.1231561000 to

Rs.409480000.

7. Contract executed outside Pakistan:

Decreasing from Rs.3415066 (2018) to Rs.1360682 (2019)

The contract executed outside Pakistan has decreased due to:

pg. 8



o The decrease in sale by 15% is mainly due to stiff competition with limited

opportunities in the market resulting from unfavorable macroeconomic indicators

in the Country and major projects completion in Afghanistan last year.

8. Operating cycle:

Increasing from 57days to 135days

pg. 9



5 LOW-RISK AREAS FROM THE PROFIT AND LOSS ACCOUNT

1. Marketing & Selling Expenses:

Marketing and selling expense is a low risk area considering the fact that if we look at the

statement of profit and loss account, and compare the values of 2018 and 2019, these

expenses decreased from 753,896 to 737,527 which is a slightly noticeable change

2. General Administrative Expenses:

General Administrative Expenses is a low risk area considering the fact that if we look at

the statement of profit and loss account, and compare the values of 2018 and 2019, these

expenses increased from 222,208 to 267,103 which is a slightly noticeable change.

3. Financial Income:

Financial is a low risk area considering the fact that company might have invested less and

in addition to this, they have forwarded less loans to less people and therefore they have less

financial income.

4. Income Tax:

Income Tax Expenses is a low risk area considering the fact that if we look at the statement

of profit and loss account, and compare the values of 2018 and 2019, the income tax has

reduced from 1,159,220 to 709,468 which is a noticeable change.

5. Operating Expense:

pg. 10



Operating Expenses is a low risk area considering the fact that if we look at the statement

of profit and loss account, and compare the values of 2018 and 2019, which reduced from

166,096 to 89,329 which is a noticeable change.

pg. 11



AUDIT PROGRAMS OF THE 5 HIGH-RISK AREAS OF THE BALANCE

SHEET

1. Trade Receivables:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that all transactions Ø This is the highest account of the balance
in regards to trade receivables sheet with the total percentage of 55.33 of
pertain to Siemens the total assets.
Corporation.
Ø We will select some random entries and
for that we can ask for some
documentation that would eventually tell
us that the certain entry is relevant. For
example, we can ask for any agreement
between the client and the Siemen’s
Company. This agreement can in be any
form like a mail or a paper agreement. But
the paper document is always considered
to be more accurate than a single mail.

Ø We can contact the clients directly and can

ask about the payables in their books to
Siemen’s company. It would help us in
auditing. And show that the assets are in
fact of the company and they can put them
in their accounts receivables.

Ø We can also see from the transactions that

how much transactions occurred and out
of that how many of them have been
already paid for. This would make it clear
to us that how much of the remaining
amount we are going to receive.

Completeness All deals and trades been made Ø In trade receivables there are receivables
by the company within a from related parties and also form other
specific period have been put parties who are not related to the company
into the trade receivables itself. In addition to this there are also
account. some chance of money which is not going
to be recovered which is considered
doubtful. So, to check the completeness

pg. 12



we can see the balance sheet entries for the
trade receivables and can see have an idea
whether all of these things have been
catered with or anything is missing.

Accuracy The amounts that have been Ø We can check random entries form the
stated in the trade receivables account and ask for the supportive
are accurate and is free from document that this particular item was
any understatement or sold or why is there this particular amount
overstatement recognized as trade receivable.

Ø We can also ask the client by contacting

them directly to tell us about the fact that
how much they owe to company. It would
help us recognize the accuracy of all the
transactions shown in the account.

Ø When there is option given to the clients

to do business on the credit terms then
obviously there would be some kind of
interest being used in the company policy.
So we can check whether the entries of the
account have been adjusted in accordance
with those rules or not.

Cut-Off To ensure that all the Ø Cut off test can be performed by going
transaction and events which over some sample transaction to verify the
took place in regards to the transactions are recorded in the relevant
trade receivables account of period.
Siemens Corp have been
recorded in the correct Ø For trade receivables we can always look
accounting period at the agreement where there is a specific
date mentioned about the payment.

Ø We can also ask about the date of payment

directly to the client so make sure that the
agreement being shown is not a fake one
and there is no manipulation of
information.

Classification To ensure that the trades done Ø We can look at the abnormal entries. If
by the company have been trade receivable is being credited then ask
properly classified and that the management for the reason and for
those specific amounts have supporting documents.
been recorded in the correct
accounts.

pg. 13



Ø We have to make sure that the bad debts
accounts entries are not present in the
same account. Bad debts are of only debt.
In trade receivables there is no debt it is
just receivable. So we can ask
management to provide us with data of
bad debt account and can check whether
both the accounts have been recorded
separately or not.

Ø We have to check the entries in the contra

account receivable account.

2. Contract Assets:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that all transactions Ø This is the high risk account as the total
in regards to contract assets percentage of this account is 15.39%.
pertain to Siemens
Corporation. Ø We will select some random entries and
for that we can ask for some
documentation that would eventually tell
us that the certain entry is relevant. For
example, we can ask for any agreement
between the client and the Siemen’s
Company. This agreement can in be any
form like a mail or a paper agreement. But
the paper document is always considered
to be more accurate than a single mail.

Ø We can contact the clients directly and can

ask about the contract assets about the
company. They would tell us about the
contract liabilities but in the end we can
have an idea about the occurrence of the
agreement between the two parties. We
would be able to know that the certain
entry can be classified as the assets of the
company because the company has the
right to the items they delivered or
anything which is being constructed by
the company.

Ø We can also see from the transactions that

how much of the contracts have been

pg. 14


Completeness All contracts been made by the Ø We can check that all the contracts about
company within a specific
period have been put into the
contract assets account.
Accuracy The amounts that have been Ø We can check random entries form the
stated in the contract assets are account and ask for the supportive
accurate and is free from any
understatement
overstatement
made and how much of the project is
actually being completed. This will
eventually help us to understand that
which amount is going to be put in the
account. If the projects have been
completed in the same year then there
would be no entries in this account as the
projects have been paid for and there is no
more need to put them as contract assets.
So we can ask management about the
completion of the projects to see whether
the entries are good enough or there is
some problem regarding the entries in the
account.
the projects have been put into the related
account. For this we can ask the
management to provide us with all the
project deals in the particular year. In
addition to this we can also ask the
engineering department about all the
projects which were done in the year to
confirm that the management is not
providing us any manipulated data.
Ø There are some contract assets which are
considered doubtful and there is a chance
that the related party of the agreement
would not pay for the specific contract. So
we have to check whether that aspect of
the contact assets has been adjusted
already or not.
document that this particular service or
or project is being done and why is it being
written as contract asset? If it has already
been completed, then there is no need for
the entry in this account and we will have
to adjust it.
Ø We can also ask the client by contacting
them directly to tell us about the fact that
how much they owe to company. It would
help us recognize the accuracy of all the
transactions shown in the account.
pg. 15


Cut-Off To ensure that all the Ø Cut off test can be performed by going
transaction and events which over some sample transaction to verify the
took place in regards to the transactions are recorded in the relevant
contract assets account of period.
Siemens Corp have been
recorded in the correct Ø For contract assets we can always look at
accounting period the agreement with the specific dates
about the completion of the project. If the
dates of completion are in the same year
as those of the contracts then these values
must not be there in the end of year.

Ø We can ask about the date of completion

of any project or service directly to the
clients. They would tell us when is the
money due. So we can compare the
information shared to us by the
management and given to us by the clients
to see that there is no manipulation of the
information by the management itself.

Ø We can also inquire directly to the

engineering department about the ongoing
projects and the completed projects during
the year so that we can have a fair idea
about the period in which the specific
entry is going to make or even if there is
no entry required in the specific period.

Classification To ensure that the agreements

and deals made by the Ø We have to make sure that the bad debts
company have been properly accounts entries are not present in the
classified and that those same account as it also has a portion of
specific amounts have been doubtful values. Bad debts are of only
recorded in the correct debt. And we have to see that the account
accounts. for bad debt is a separate one and all the
entries have been put here of only doubtful
money which is not to recover by us
because pf any contract.

3. Trade Payables:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that all transactions
in regards to trade payables

pg. 16



pertain to Siemens Ø Existence is a verification process
Corporation. used to authenticate if the payables
figures genuinely exist at the year-
end. There are some occasions in
which the payables balance may be
higher than what is presented in the
ledger.
Ø There may be some balances that are
not payable by the client and hence
can be verified by sending
confirmations to vendors.
Ø The charge to creditor’s accounts has
shown a material decrease of 1016
million in 2019, we can verify it with
the records and documents to see for
the amounts paid by the company and
additional liabilities taken for the
purpose of incorporating more stock
in trade.
Ø The sub-account for trade payables
i.e. staff retirement benefits was a key
audit matter for Siemens in fiscal year
2019.
Completeness All deals been made by the Ø Completeness is the verification of
company within a specific accounts payables balances and
period have been put into the checking if the general ledger
trade payables account. balances are complete according to
real payables listings.
Ø Obtain samples for vendors and
inspect documentation to check that
the correct figures are posted in the
system. This procedure leads to
knowing the process of client’s
payables posting process

Ø Sending direct confirmations to

creditors to verify the amounts owed
by the client to their vendors. This is a
third party confirmation which is a
highly relied procedure for the
auditor.

Accuracy The amounts that have been Ø Verification of accuracy is to find if

stated in the trade payables are the totals extracted from individual
accurate and is free from any balances are performed precisely.
understatement or Recalculations procedures are carried
overstatement out to audit this assertion.

pg. 17


Presentation To ensure that all the
transaction and events have
been properly disclosed
Ø Compare current year’s opening
balances to the previous year’s
audited accounts closing balances to
verify that the current year’s accounts
are initiated with correct figures
Ø The company incorporated trade
payables mainly for purchases
relating to stock in trade.
Ø As far as the fiscal year 2019 is
concerned, the stock in trade
decreased by only 9 million whereas
the amount payable to creditors
decreased by 1016 million. We will be
looking into the accuracy of purchases
and creditor’s account.
Ø We can also look for conversion rates
for inventory as the company may
have imported some of the raw
material.
Ø The sub-account for trade payables
i.e. staff retirement benefits was a key
audit matter for Siemens in fiscal year
2019.
Ø We will be recalculating the staff
retirement benefit liability by looking
for the validity of assumptions such as
discount rate used, expected increase
rate in benefits and salary.
Ø The company has used projected unit-
credit method for actuarial valuation.
We would also be looking for the
accuracy of this method.
Ø Recalculate the breakup balances of
individual vendors to verify the total
figures are correctly calculated.
Ø Presentation in accounts payables
means that if there are any unusual
figures in the accounts payables, then
they should be presented in the notes
to the financial statements to support
them further by a narration
Ø The creditor’s account and staff
retirement benefit liability have
materially decreased, to verify this we
pg. 18

Classification To ensure that the payables
according to deals made by the
company have been properly
classified and that those
specific amounts have been
recorded in the correct
accounts.
4. Reserves:
Assertion Audit Objective
Occurrence To ensure that any transaction
related to Reserves took place
in Siemens Corporation.
Completeness Ensuring that each and every
transaction related to
Reserves has been recorded
regularly by the Siemens
Corporation.
can check whether the transactions are
appropriately aggregated in the
relevant accounts and will check the
supporting documents to examine
relevant disclosures.
Ø Classification is the verification of a
class of accounts payables. Auditors
need to see if payables balances are
perfectly classified in payables
subclasses and debits and credits are
accurately applied.
Ø Look for abnormal transactions i.e.
there was a 131.2 million re-
measurement gain and benefits
amounting to 52 million were paid off.
Audit Procedure
Ø Check the beginning value of
Reserves and the ending value of
reserves to know how this account has
changed during the year.
Ø Also check the amount of Revenue
that has been generated through
general reserves and Retirement
benefit obligations in the Siemens
Corporation to ensure the balance of
revenues in Reserves account.
Ø Compare the ledger and the
documents related to Reserves to
point out any kind of discrepancy.
Ø Check how accumulated profits of
revenue part of Reserves has
increased during the audit period.
Ø Also check whether the loss on
defined benefit obligations were
recorded regularly.
Ø Check the change in the balance of
Re-measurement loss on DBO to see
pg. 19

Accuracy To check that the recorded
amount of Reserves are free
from any kind of
misstatement.
Cut-Off Making sure that transactions
related to Reserves that took
place in Siemens Corp were
recorded in the correct
accounting period
Classification To assess whether the
transactions related to
Reserves have been properly
classified and recorded in the
respective sub-accounts.
Presentation To ensure that Reserves for
Siemens Corporation have
been described and classified
in the Balance Sheet
Statement, followed by
relevant disclosures
how this sub-account has affected the
balance of Reserves during Audit the
year.
Ø Confirm the balance of Reserves by
checking that the mentioned number
of ordinary shares were bought back
by the Siemens Corporation or not.
Ø Auditor Can review the Shareholding
information of Siemens Corporation
to verify the number of shares bought
back.
Ø Check whether the buying of shares
and accumulated profits were
recognized and recorded in the correct
accounting period.
Ø Review the defined benefit obligation
plan of the Siemens Corporation to
check whether the transactions have
been recorded according to the correct
accounting period or not.
Ø Review the ordinary shares and
treasury shares information to check
whether these are recorded in their
respective sub-accounts.
Ø Loss on defined benefit obligations
have decreased while the accumulated
profits has increased during the audit
period, so verify the transactions from
the supporting documents to see
whether these were recorded in the
relevant sub-accounts.
pg. 20


5. Contract Liability:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that each reported Ø Check the beginning and ending
transaction related to balance of Contract Liability to see the
Contract Liabilities took changes took place in this account.
place in Siemens Ø Also check the amount of advances
Corporation. received from customers either related
parties or others to ensure the balance
of Contract Liabilities at the end of
Audit period.
Ø Compare the relevant ledger account
and the supporting documents related
to Contract Liabilities to point out any
kind of discrepancy.

Completeness Ensuring that each and every Ø Verify each transaction that took place
transaction related to either from related parties or other
Contract Liabilities has been parties and see how Siemens
recorded regularly by the Corporation has received advances
Siemens Corporation. during the audit period.
Ø Also check the change in refund
liabilities to see how this sub-account
has affected the contract liabilities for
Siemens Corporation.
Ø Pick a random sample of different
transactions related to Contract
Liabilities to ensure that the
transactions have been recorded
regularly.

Accuracy To check that the recorded Ø Confirm Contract Liabilities by

amount of Contract contacting the customers directly and
Liabilities are free from any ask for the confirmation of the
kind of misstatement. advances that is still receivable from
the Siemens Corporation.
Ø Review the receipts of advances or
bank statements to check what amount
has been collected as advances from
the customers and of what portion of
this amount is still unearned revenue
for the Siemens Corporation and
check the amounts were recorded in
the general ledger of the Corporation.

pg. 21

Cut-Off Making sure that transactions
related to Reserves that took
place in Siemens Corp were
recorded in the correct
accounting period
Ø Check whether the advances received
from customers were recorded in the
correct accounting period.
Ø Review the memos that were issued in
return of the advances received during
the audit period to see whether the
issuance and the circumstances to the
issuance was recorded in the correct
accounting period.
Ø Also check the advances received
after the audit period to see whether it
relates to the ones received before the
audit period.

Classification To assess whether the Ø Review the advances received from

transactions related to related parties to check whether the
Contract Liabilities have been advances received from the related
properly classified and party should be recorded as contract
recorded in the respective liabilities or by some other account
sub-accounts. like wages or a reduction in accounts
receivables.
Presentation To ensure that Contract Ø Advances from non- related parties
Liabilities for Siemens have increased significantly at the end
Corporation have been of audit period as compared to the
described and classified in the previous year, so check whether the
Balance Sheet Statement, transactions from related parties and
followed by relevant non-related parties were recorded in
disclosures the relevant accounts and consider the
verification of supporting documents
to ensure that these are presented
accurately.

pg. 22


AUDIT PROGRAMS OF THE 5 LOW-RISK AREAS FROM THE PROFIT
AND LOSS ACCOUNT
1. Marketing & Selling Expenses
Assertion Audit Objective
Occurrence To ensure that all
transactions in regards to
Marketing & Cost of Sales
pertain to Siemens
Corporation.
Completeness All expenses that have been
incurred by the company
within a specific period have
been recorded in the
Marketing & Selling
Expenses.
Accuracy The amounts that have been
stated in the Marketing &
Audit Procedure
Examine the year end invoices
to ascertain that all expenses
that have been recorded are
pertaining to the company.
(Inspection)
We can also check the payroll
transaction against the subhead
of Salaries in Marketing &
Selling Expenses to ensure
that the recorded amount
pertains to the company.
We can also select a sample of
entries from general ledger
and match it with the relevant
supporting documents and
invoices.
Vouching
Different Sub-heads of the
Marketing and Selling
expenses like salaries etc have
been properly accounted for.
Employ the use of substantive
testing to assure that
terminated employees are not
still on the company’s payroll.
Select an expense from the
account of Marketing &
Selling expense account and
trace its back to general ledger
Verify by affirming the
recorded amounts with
pg. 23
Selling expenses are
accurate and is free from any
understatement or
overstatement
documents or an underlying
relative account.
For the purpose of Rent, rates
and taxes we can confirm by
assessing whether suitable
market rates have been
applied.

Travelling & Conveyance

Cut-Off To ensure that all the
transaction and events which
took place in regards to the
Marketing & Selling
expense account of Siemens
Corp have been recorded in
the correct accounting
period
account represents an increase,
we can assess it by checking
the conversion rate, if any
foreign travelling was made.
We can assess that any prepaid
expenses have been properly
accounted for.
We can also employ the use of
some of the sample
transactions in relations to the
Marketing & Selling Expense
account to ascertain that they
have been recorded in the
relevant account period

Select the last five transactions

of the closing period of any
account in M&S expense
account and ascertain that they
have been accounted and
recorded in the correct time
period.
Classification To assess and ensure that Assess that in the Marketing
costs and expenses incurred and Selling expense account
in the Marketing and Selling cost has been fairly allocated
expense account for Siemens in between the subaccounts
Corp have been properly (Cost accounts related to
classified and that those Selling and Marketing) of the
specific amounts have been M&S expense account,
recorded in the correct
accounts. Select a sample of M&S
expense invoices and ensure
they are also recorded in their
contra asset accounts. eg
Salaries and employee welfare
Expense against cash
Presentation Marketing & Selling Exp for The account for Low on Trade
Siemens Corp have been allowance has increased
described and classified in significantly, we’ll check its

pg. 24



the Profit Loss and supporting documents to
statement, followed by examine relevant disclosures.
relevant disclosures

2. General Administrative Expenses:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that all
transactions in regards to
G&AE pertain to Siemens
Corporation.
Examine the year end invoices
to ascertain that all expenses
that have been recorded are
pertaining to the company.
(Inspection)

We can also check the

company transactions against
the subhead of costs in G&AE
to ensure that the recorded
amount pertains to the
company.

We can also select a sample of

entries from general ledger and
match it with the relevant
supporting documents and
invoices.

Vouch the selected

transactions to the supplier’s
invoices to ensure transactions
recorded are based on the
supplier’s invoices.

Trace the sales invoices to the

pending orders and goods sold
notes (receiving reports) to
ensure that the goods had been
received when the sale was
recorded and their respective
expenses have been recorded
fairly.
Completeness All relevant G&AE that Different Sub-heads for the
have been incurred by the G&AE like Wages,
company within a specific Depreciation, etc. have been
period have been recorded in properly accounted for.
the G&AE.
Employ the use of substantive
testing to assure that
terminated employees are not

pg. 25


Accuracy The amounts that have been
stated in the G&AE account
are accurate and is free from
any understatement or
overstatement
Cut-Off To ensure that all the
transaction and events which
took place in regards to the
G&AE of Siemens Corp
have been recorded in the
correct accounting period
still on the company’s payroll
to fairly calculate wage
expense.
Select a expense sample on
expenses from the account of
G&AE and trace its back to
general ledger
Verify by affirming the
recorded amounts with
documents or an underlying
relative account.
For the purpose expenses we
can confirm by assessing
whether suitable market rates
have been applied.
Review the transaction detail
reports for each expense and
sale account to confirm that
the expense and sales totals on
the income statement report
are accurate compared to the
ledger activity.
View the detail level in the
ledger for the individual
transactions posted in the
period to confirm that they
were recorded properly.
Check the dates on the
expenses and sales to be sure
that they apply to the period in
question, and manually verify
the calculations by adding
them up yourself, to ensure
that the recorded totals are
correct.
We can assess that any prepaid
expenses have been properly
accounted for in expense
calculation for G&AE.
We can also employ the use of
some of the sample
transactions in relations to the
Marketing & Selling Expense
pg. 26

Classification To assess and ensure that
costs and expenses incurred
in the account for Siemens
Corp have been properly
classified and that those
specific amounts have been
recorded in the correct
accounts.
Presentation G&AE for Siemens Corp
have been described and
classified in the Profit Loss
account to ascertain that they
have been recorded in the
relevant account period
Select the last five transactions
of the closing period of any
account and run transaction-
level reports for the accounts
so that you can view the
details to confirm that the
summary report figures are
accurate. Each transaction-
level report shows you what
has posted to the account.
Compare the transactions in
the ledger to the hard copy
files, such as invoices or check
stubs that support the journal
entries, to confirm that they
were posted correctly.
Check the dates on the
expenses and sales to be sure
that they apply to the period in
question, and manually verify
the calculations by adding
them up yourself, to ensure
that the recorded totals are
correct and that they were
recorded in correct accounting
period.
Assess that in G&AE account
cost has been fairly allocated
in between the subaccounts
(cost accounts related to sales
and profit) of the G&AE
account.
Take a sample and view the
detail level in the ledger for
the individual transactions
posted in the period to confirm
that they were recorded
properly.
Periodic Internal Audits
• Controls by regulation
pg. 27


and statement, followed by • Public procurement act and
relevant disclosures rules
• Financial procedure act and
rules
• Requisition, purchase order,
goods
received note
• Asset (Store) records are
maintained
up to date including the cots
being
disclosed
• All supporting documents
needs to be
properly maintained
• Newspaper for advertisement
or
notice published
• Invoices (in original)
• Contract documents

The account for G&AE has

deceased following the
decrease in profit for the
current year. As G&AE
calculation is directly linked
with profits of company we’ll
check its supporting
documents to examine relevant
disclosures.

pg. 28



3. Financial Income:

Assertion Audit Objective Audit Procedure

Occurrence To ensure that all
transactions in regards to
Financial Income pertain to
Siemens Corporation.
Examine the year end invoices
to ascertain that all income
that have been recorded are
pertaining to the company.
(Inspection)

Internal audit

Officer assigned responsibility

for
regularity

Reporting requirements of the

deposits

We can also select a sample of

entries from general ledger and
match it with the relevant
supporting documents and
invoices.

Internal audit review

• Controls by regulation
• Public procurement act and
rules
• Financial procedure act and
rules
• Income tax act and rules
• Maintenance of proper
contract documents
Completeness All relevant incomes that Different Sub-heads for the
have been earned by the received incomes like rent,
company within a specific payrolls etc have been
period have been recorded in properly accounted for.
the financial income
account. Trace the invoices to the
incomes transactions in
general ledger

Accuracy The amounts that have been Verify by affirming the

stated in the income account
are accurate, correct and is
free from any
understatement or
overstatement.
recorded amounts with
documents or an underlying
relative account.

pg. 29


Cut-Off To ensure that all the
transaction and events which
took place in regards to the
income account of Siemens
Corp have been recorded in
the correct accounting
period
For the purpose of rent, rates
we can confirm by assessing
whether suitable market rates
have been applied.
Review the transaction detail
reports for each income in
operations account to confirm
that the income totals on the
income statement report are
accurate compared to the
ledger activity.
View the detail level in the
ledger for the individual
transactions posted in the
period to confirm that they
were recorded properly.
Check the dates on the
incomes and revenues to be
sure that they apply to the
period in question, and
manually verify the
calculations by adding them
up yourself, to ensure that the
recorded totals are correct.
We can assess that any prepaid
incomes like for rent earned
have been properly accounted
for in calculation.
We can also employ the use of
some of the sample
transactions in relations to the
income account to ascertain
that they have been recorded
in the relevant account period
Select the last five transactions
of the closing period of any
account and run transaction-
level reports for the accounts
so that you can view the
details to confirm that the
summary report figures are
accurate. Each transaction-
level report shows you what
has posted to the account.
pg. 30

Classification To assess and ensure that
operating costs and incomes
incurred in the account for
Siemens Corp have been
properly classified and that
those specific amounts have
been recorded in the correct
accounts.
Presentation Financial Income for
Siemens Corp have been
described and classified in
the Profit Loss and
statement, followed by
relevant disclosures
Compare the transactions in
the ledger to the hard copy
files, such as invoices or check
stubs that support the journal
entries, to confirm that they
were posted correctly.
Check the dates on the
incomes to be sure that they
apply to the period in question,
and manually verify the
calculations by adding them
up yourself, to ensure that the
recorded totals are correct and
that they were recorded in
correct accounting period.
Assess that in incomes account
has been fairly allocated in
between the subaccounts
(Earning accounts related to
income) of the income
account.
Take a sample and view the
detail level in the ledger for
the individual transactions
posted in the period to confirm
that they were recorded
properly.
The account for Financial
Income has deceased
following the decrease in
profit for the current year. As
Operating expense is directly
linked with income and
operations costs of company
we will check its supporting
documents to examine relevant
disclosures.
pg. 31
4. Income Tax:
Assertion Audit Objective
Occurrence To ensure that all
transactions in regards to
Income Tax pertain to
Siemens Corporation.
Audit Procedure
Examine the year end invoices
to ascertain that all income
that have been recorded are
pertaining to the company.
(Inspection)

We can also check the

company transactions against
the subhead of sales in income
tax to ensure that the recorded
amount pertains to the
company.

We can also select a sample of

entries from general ledger
and match it with the relevant
supporting documents and
invoices.

Vouch the selected

transactions to the supplier’s
invoices to ensure transactions
recorded are based on the
supplier’s invoices.

Trace the sales invoices to the

pending orders and goods sold
notes (receiving reports) to
ensure that the goods had been
received when the sale was
recorded
Completeness All relevant taxes that have Different Sub-heads for the
been incurred by the income tax like salaries, sales,
company within a specific etc. have been properly
period have been recorded in accounted for.
the income tax.
Employ the use of substantive
testing to assure that
terminated employees are not
still on the company’s payroll.

Select a tax sample on income

from the account of income
tax and trace its back to
general ledger

pg. 32


Accuracy The amounts that have been
stated in the income tax
account are accurate and is
free from any
understatement or
overstatement
Cut-Off To ensure that all the
transaction and events which
took place in regards to the
income tax account of
Siemens Corp have been
recorded in the correct
accounting period
Verify by affirming the
recorded amounts with
documents or an underlying
relative account.
For the purpose taxes we can
confirm by assessing whether
suitable market rates have
been applied.
Review the transaction detail
reports for each expense and
sale account to confirm that
the expense and sales totals on
the income statement report
are accurate compared to the
ledger activity.
View the detail level in the
ledger for the individual
transactions posted in the
period to confirm that they
were recorded properly.
Check the dates on the
expenses and sales to be sure
that they apply to the period in
question, and manually verify
the calculations by adding
them up yourself, to ensure
that the recorded totals are
correct.
We can assess that any prepaid
expenses have been properly
accounted for in income
calculation for tax.
We can also employ the use of
some of the sample
transactions in relations to the
Marketing & Selling Expense
account to ascertain that they
have been recorded in the
relevant account period
Select the last five transactions
of the closing period of any
account and run transaction-
level reports for the accounts
so that you can view the
pg. 33

Classification To assess and ensure that
costs and tax incurred in the
account for Siemens Corp
have been properly
classified and that those
specific amounts have been
recorded in the correct
accounts.
Presentation Income Tax for Siemens
Corp have been described
and classified in the Profit
Loss and statement,
followed by relevant
disclosures
details to confirm that the
summary report figures are
accurate. Each transaction-
level report shows you what
has posted to the account.
Compare the transactions in
the ledger to the hard copy
files, such as invoices or check
stubs that support the journal
entries, to confirm that they
were posted correctly.
Check the dates on the
expenses and sales to be sure
that they apply to the period in
question, and manually verify
the calculations by adding
them up yourself, to ensure
that the recorded totals are
correct and that they were
recorded in correct accounting
period.
Assess that in Income Tax
account cost has been fairly
allocated in between the
subaccounts (cost accounts
related to sales and profit) of
the Income tax account.
Take a sample and view the
detail level in the ledger for
the individual transactions
posted in the period to confirm
that they were recorded
properly.
The account for income tax
has deceased following the
decrease in profit for the
current year. As income tax
calculation is directly linked
with profits of company we’ll
check its supporting
documents to examine relevant
disclosures.
pg. 34

5. Operating Expenses:
Assertion Audit Objective
Occurrence To ensure that all
transactions in regards to
Operating Expenses pertain
to Siemens Corporation.
Completeness All relevant taxes that have
been incurred by the
company within a specific
period have been recorded in
the operating expense
account.
Audit Procedure
Examine the year end invoices
to ascertain that all income
that have been recorded are
pertaining to the company.
(Inspection)
We can also check the
company transactions against
the subhead of sales in income
tax to ensure that the recorded
amount pertains to the
company.
We can also select a sample of
entries from general ledger
and match it with the relevant
supporting documents and
invoices.
Vouch the selected
transactions to the supplier’s
invoices to ensure transactions
recorded are based on the
supplier’s invoices.
Trace the sales invoices to the
pending orders and goods sold
notes (receiving reports) to
ensure that the goods had been
received when the sale was
recorded
Different Sub-heads for the
operating expenses like
supplies, payrolls, rent etc
have been properly accounted
for.
Employ the use of substantive
testing to assure that
terminated employees are not
still on the company’s payroll.
pg. 35

Accuracy The amounts that have been
stated in the operating
expenses account are
accurate, correct and is free
from any understatement or
overstatement.
Select a sample of goods
received notes (receiving
reports).
Trace the selected goods
received notes to purchase
orders and supplier invoices.
Trace the invoices to the
expense transactions in general
ledger
All credit side expenses (or
negative expenses)
transactions in the general
ledger should be examined to
see whether there are unusual
transactions that could be the
result of error or fraud.
Verify by affirming the
recorded amounts with
documents or an underlying
relative account.
For the purpose of rent, rates
and taxes we can confirm by
assessing whether suitable
market rates have been
applied.
Review the transaction detail
reports for each expense in
operations account to confirm
that the expense totals on the
income statement report are
accurate compared to the
ledger activity.
View the detail level in the
ledger for the individual
transactions posted in the
period to confirm that they
were recorded properly.
Check the dates on the
expenses and sales to be sure
that they apply to the period in
pg. 36

Cut-Off To ensure that all the
transaction and events which
took place in regards to the
operating expense account
of Siemens Corp have been
recorded in the correct
accounting period
Classification To assess and ensure that
operating costs and expenses
incurred in the account for
Siemens Corp have been
properly classified and that
question, and manually verify
the calculations by adding
them up yourself, to ensure
that the recorded totals are
correct.
We can assess that any prepaid
expenses like for supplies have
been properly accounted for in
tax calculation.
We can also employ the use of
some of the sample
transactions in relations to the
Operating Expense account to
ascertain that they have been
recorded in the relevant
account period
Select the last five transactions
of the closing period of any
account and run transaction-
level reports for the accounts
so that you can view the
details to confirm that the
summary report figures are
accurate. Each transaction-
level report shows you what
has posted to the account.
Compare the transactions in
the ledger to the hard copy
files, such as invoices or check
stubs that support the journal
entries, to confirm that they
were posted correctly.
Check the dates on the
expenses to be sure that they
apply to the period in question,
and manually verify the
calculations by adding them
up yourself, to ensure that the
recorded totals are correct and
that they were recorded in
correct accounting period.
Assess that in Operating Tax
account cost has been fairly
allocated in between the
subaccounts (Cost accounts
pg. 37

those specific amounts have
been recorded in the correct
accounts.
Presentation Operating Expenses for
Siemens Corp have been
described and classified in
the Profit Loss and
statement, followed by
relevant disclosures
related to Operations) of the
Operating Expense account.
Take a sample and view the
detail level in the ledger for
the individual transactions
posted in the period to confirm
that they were recorded
properly.
The account for Operating
Expense has deceased
following the decrease in
profit for the current year. As
Operating expense is directly
linked with operations and
operations costs of company
we will check its supporting
documents to examine relevant
disclosures.
pg. 38


CONCLUSION: REASONS OF ADDING OR OMITTING SUBSTANTIVE

TEST

Substantive tests

Where it was decided to be necessary, whether through previous assessment of the systems or

through testing of the control environment that adequate controls are not implemented, the auditors

decided to perform several direct substantive tests.

The objective of these tests is:

1. To determine whether occurred some significant losses

2. To contribute for the complete appraisal for the whole control environment in the institution

Results from this provided:

Assurance for the management that no significant losses happened for the institution as a result of

the weak control environment, or proofs for the management that the weak control environment

brought to significant losses and hence recommends to the management to undertake appropriate

activities. The objective of the substantive tests was to assess the adequacy and the completeness of

the results, and not the working of the controls. For example, the check whether detailed regulations

for procurements have been implemented for specific procurements. Hence, the more tests are

detailed, the more time they need for realization and bigger number of samples for achieving of

same level of assurance. However, errors that are discovered through substantive tests are more

important, because mostly they show loss for the institution, than errors discovered through control

tests that show that controls are not functioning properly – but not that an error occurred.

pg. 39



Audit Procedures

The audit evidence generated by the planned audit procedures was sufficient and appropriate to

support and corroborate, or to contradict, the management’s assertions in respect of specific classes

of transactions, account balances or disclosures in the financial statements.

There were audit procedures which required physical checks of the items. So we did not take them

into account and we ignored them as we were doing work on the annual report and could apply only

those audit procedures which can be done through annual report and do not require any physical

checkups.

Audit procedures that were used to obtain audit evidence were various and were often applied in

combination above. They included observation, confirmation, recalculation, reperformance and

analytical procedures, in addition to inquiry, as the latter does not normally provide sufficient audit

evidence on its own.

However, audit evidence obtained was only useful in reducing to an acceptably low level the risk

that the auditors could express an inappropriate opinion when the financial statements were

materially misstated and, therefore, allowed the auditors to draw reasonable conclusions, when it

was sufficient and appropriate to the circumstances.

In fact, out of the various procedures that were performed by auditors, some were more suited to

verify certain assertions in respect of specific classes of transactions, account balances and

disclosures, while they did not produce relevant results in respect of the other assertions relating to

the same financial statements items. In many cases a single type of procedure may not verify an

assertion relating to an item and a combination of procedures will be needed to that affect:

pg. 40



Inspection Inspecting certain documents provided direct

audit evidence of the existence of an asset,

for instance a expense like a rent or wages

where the document itself constitutes the

expense.

Observation However observation provided evidence that

was only limited to the point in time when it

took place and could not be physically done.

External confirmation Could not be physically done with third

parties as only had access to the report

Recalculation Could not be physically done as only had

access to the report

Reperformance Independent execution done by the auditors

of procedures or controls that were originally

performed as part of Siemen’s internal

control

Analytical procedures It involved evaluations of financial

information through analysis of plausible

relationships among both financial and non-

financial data

Inquiry Consisted of seeking both financial and non-

financial information of knowledgeable

persons within or outside the entity

pg. 41



pg. 42