INTERNAL AUDIT ENGAGEMENT FOR RASLAG CORP.

AUDIT PROGRAM AND PROCEDURE - PREPAYMENTS & INPUT TAXES

AUDIAUDIT ACTIVITY: FINANCIAL AUDIT

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PARTICULARS AUDIT REMARKS

A. AUDIT SCOPE:

The audit will cover financial transactions for the period June
2022 to May 2023. In particular, the audit will cover review of the
following Prepayments & Input taxes accounts:

● Prepaid expenses
● Prepaid insurance
● Prepaid real property tax
● Prepaid business permit
● Prepaid business permit - Raslag 1
● Prepaid business permit - Raslag 2
● Input VAT (includes 2021 Input Vat for Importation)
● Input VAT - Raslag 3 (includes 2021 Input Vat for Importation)
● Deferred input VAT

B. AUDIT OBJECTIVES:

1. Ensure that prepayments and Input VAT recorded actually exist

and represent valid transactions.

2. Confirm that all relevant prepayments and all eligible Input VAT
transactions are included in the financial statements.

3. Verify the accuracy of prepayment amounts and Input VAT

calculations.
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PARTICULARS AUDIT REMARKS

4. Ensure that prepayments are properly authorized in accordance

with the company's policies.

5. Confirm that prepayments and Input VAT are recorded in the

correct accounting period.

6. Confirm that prepayments and Input VAT are appropriately

presented and disclosed in the financial statements and BIR
returns.

7. Compliance with the VAT returns and filing are consistent and
made with respect to tax laws and regulations. (Limited only to
selected samples)

C. AUDIT RISKS:

1. Inherent Risk:

The inherent risk associated with prepayments involves the

nature of the account and the industry, while for input VAT it is
influenced by the complexity of applicable tax regulations.

2. Control Risk:

Control risk relates to the risk that the client's internal controls
may not effectively prevent or detect material misstatements in
prepayment and input tax accounts.

3. Detection Risk:

This is the risk that auditors may fail to detect material

misstatements during the audit.

4. Existence and Completeness Risk:

The risk that prepayments recorded in the financial statements

may not actually exist and not recorded in the financial
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PARTICULARS AUDIT REMARKS

statements.

5. Valuation Risk:

The risk that prepayments are not accurately valued. This may
include concerns about the appropriateness of the methods used
to estimate prepayment values, such as the allocation of
prepayments over time.

6. Presentation and Disclosure Risk:

The risk that Input VAT is not properly presented and disclosed in
the financial statements and BIR Returns. This may include
concerns about the adequacy of disclosures related to the nature
and terms of input VAT.

7. Management Override of Controls:

The risk that management could intentionally manipulate

prepayment balances to misstate financial results.

8. Input Tax Credit Eligibility Risk:

The risk that the entity may not be eligible for certain input tax
credits, or that there are restrictions on claiming input tax credits
that are not properly considered.

9. Documentation and Support Risk:

The risk that there is inadequate documentation or support for

the input taxes claimed and recorded prepayments.

10. Reconciliation Risk:

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PARTICULARS AUDIT REMARKS

The risk that there may be discrepancies or errors in the

reconciliation between the general ledger and supporting
schedules related to prepayments and input taxes.

D. AUDIT PROCEDURES:

D.1 Preliminary Assessments:

1. Gain an understanding of the client's internal controls related to

prepayments and Input Vat.

● Make discussions and inquire with management and

accounting staff involved. This includes review of
authorization process for prepayments, policies or
guidelines for recording, monitoring prepayments and
documentation procedures.

● Request and review documents like schedule of accounts,

summary of purchases and other related documents to
support the accounts.

D.2 Understand Applicable Tax Laws

1. Gain a thorough understanding of the tax laws and regulations

related to input tax in the jurisdiction where the business
operates. This includes knowing the eligibility criteria for claiming
input tax credits.

● Through review of Company’s Articles of Incorporation,

Certificate of Registration from BIR, other Government
registrations, if any, and familiarization with the nature of
the Company through management interviews.

Confirm that the business is eligible to claim input tax credits on

the specific purchases.
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PARTICULARS AUDIT REMARKS

2. ● This involves checking whether the purchases are for

business purposes and whether the suppliers are
registered for tax purposes. Through management
interview/Inquiry and checking of related supporting
documents like the sales invoices and official receipts.

Verify that input tax claims are made within the prescribed time
limits set by tax authorities.

● Compare the date recorded in the General Journal and

date in the source documents.

3.

D.3 Review of Documentation and Supports

1. Examine the documentation supporting prepayments. This

includes invoices, contracts, purchase orders, and other relevant
agreements.

● Request the management documentations to support the

records in the general ledger and schedules, check
whether the vouchers are correct and completed.

Examine purchase invoices and supporting documentation for

evidence of input tax.

● Verify that the invoices are valid, accurate, and meet the
2.
criteria for claiming input tax credits by checking the
details on the Official receipt and Sales invoices. (Limited
only to selected samples)

D.4 Accuracy and Completeness of Documentations:

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PARTICULARS AUDIT REMARKS

1. Trace prepayments recorded in the financial

statements/Schedules back to the source documents to ensure
the accuracy of the amounts and appropriate recording. Made
recalculation based on the amount indicated in the source
documents like the contract, sales invoices and official receipts.

Confirm that there is adequate documentation to support each

input tax claim. Check the vouchers are complete with proper
2. supporting documents, this includes invoices, receipts, and other
relevant documents and make a recalculation of input tax based
on the source documents. (Limited only to selected samples)

Verify that prepayments are recognized in the correct accounting

period. Ensure that the timing of recognizing prepayments aligns
with the matching principle. Check the schedule of the accounts
and the source documents, verify if the records in the general
3. journal are in accordance with prepared schedules and it was
properly expense in the correct accounting period.

Recalculate the amounts of prepayments to ensure accurate

computation and proper allocation of expenses.

Reconcile the input tax recorded in the accounting records to the

amounts reported in the tax returns. Ensure that any differences
are properly documented and explained. Check the amount
4.
recognized in the general ledger and compare it to the source
documents and the summary of purchases which is an
attachment to the VAT returns submitted to the BIR. (Limited
only to selected samples)
5.