3: Audit of Investments 3.3: Audit Of Investments PURPOSE :
#To ensure that purchases and disposals of
investments are properly authorized, recorded and accounted.
#To ensure that investments are properly
valued and disclosed in the financial statements. Audit Procedures - Investment Obtain a listing of investments held by the company Existence at the year end.
Ascertain the nature of the investments
Example: subsidiaries, associates, joint ventures, and Occurrence other investments.
Sight minutes of the board and shareholders for
authorization for the purchase and disposal of Completeness investments.
For quoted shares, vouch purchases / sales to brokers
buy / sell transaction notes to ensure that the number Existence of shares bought / sold, the share price, commissions Completeness and other charges are taken up correctly For quoted shares, vouch to the Central Depository Systems (CDS) statements to confirm the date and Existence number of shares purchased / sold and the number of Completeness shares held as at year end
For unquoted shares, vouch purchases / sales to
purchase / sale agreements for the number of shares Existence purchased / sold, the purchases / sales price, the Completeness terms and conditions for payments.
Ensure payments / proceeds for the purchases / sales Completeness
are properly accounted for and recorded in the books Accuracy
Ensure that dividends or interests have been received Rights/Obligations
and properly accounted for in the books Accuracy
Ensure proper disclosure of investments in the Classification /
financial statements understandability Audit Of Loans Audit of Loans OBJECTIVES :
To ensure that loans are properly
recorded, represent valid claims and are properly disclosed in the financial statement Audit Procedures - Loans Obtain a list of outstanding loans, hire-purchase (HP) and lease balances or other credit facilities, where Rights / Obligations relevant
Obtain direct confirmation for loans or credit Completeness
facilities outstanding with the financial institutions
Review management and board minutes for approval
Rights / Obligations to take up the loans and credit facilities
Review the loan agreements to ensure compliance
with terms and conditions with regard to repayments Existence and interest servicing Check drawdown of loans during the period, if the loans are released based on periodic intervals instead Occurrence of in a lump sum
Check repayments during the period to ensure that
Obligations they are in accordance with the loan agreements
Check calculation of interest expense, where
Accuracy appropriate
Ensure proper disclosure of the loans or credit Classification /
facilities in the financial statements Understandability 3.4: Audit Of Trade Receivables And Payables Audit Of Trade Receivable PURPOSE:
To ensure that trade receivables are
properly recorded and genuine
To ascertain whether trade receivables
are recoverable Audit Procedures Trade Receivable Obtain an aging listing of trade receivable (debtors) --- balances
Test balances and aging by comparing amounts to Existence /
sales invoices and the debtors subsidiary ledgers Occurrence
Select samples of trade debtors accounts for
Existence / Valuation confirmation and reconcile differences that arise
Review aging listing for recoverability of long
outstanding balances and check payment history of Valuation / Accuracy trade debtors for the period under review Consider write off of bad and doubtful debts by discussing with client on their recoverability. Note Valuation cases that are under legal action and ascertain the status of the legal action
Check subsequent payments by trade debtors after
Existence year end
Carry out a year end cut-off test to determine
whether sales and debtors balances are recorded Completeness correctly and accurately in the proper accounting Cut-off period
Identity and quantity trade debtors accounts with
credit balances at year-end and consider re- Valuation classifying the credit balances to trade payables Review credit notes issued subsequent to year-end Valuation and ensure that the credits given are not in respect of Cut-off sales transactions for the year under review
Ensure that trade receivables are properly disclosed Classification /
in the financial statements Understandability Audit Of Trade Payables PURPOSE:
To ensure that trade payables are
properly recorded and genuine Audit Procedures Trade Payables Obtain an aging listing of trade payables (creditors) --- balances
Test balances and aging by comparing amounts to Existence
suppliers invoices, statements and creditors ledgers Occurance
Select samples of trade creditors for confirmation and
Existence reconcile differences that arise
Check subsequent payments by creditors after year
Existence end Carry out a year end cut-off test to determine whether purchases and creditors balances are Completeness recorded correctly and accurately in the proper accounting period
Review suppliers invoices, credit notes and debit Completeness
notes received after year end for omission of Valuation liabilities or over-statement of purchases, where Rights/Obligations relevant Cut-off
Identify and quantity trade creditors accounts with
debit balances at year-end and consider reclassifying Valuation the debit balances to trade receivables
Ensure that trade payables are properly disclosed in Classification /
the financial statements Understandability 3.5: Audit of Inventories Audit Of Inventories PURPOSE :
To ensure that inventories and work in progress
are stated at the lower of cost and net reliable value
To ensure that the basis of evaluation for
inventories properly and consistently applied
To ascertain physical existence of inventories
balances as at year end and ensure that inventories are properly disclosed in the financial statement Audit Procedures - Inventories Arrange with client to attend physical court of Existence inventories, if the inventory balance is material
Obtain an aging listing of inventories as at year end,
Existence showing quantities and valuation. Check against Accuracy inventory cards, ledgers and ensure correct casting
Check the bases of valuation of inventories as FIFO, Valuation
standard cost for raw materials. Accuracy Where standard casting is used, review the variance accounts to ascertain the reasons for unusual Valuation variances
Review write-down for obsolete, slow moving and
damaged inventories, based on physical court Valuation observations and from review of the aging listing inventories
Check reconciliation of inventory control accounts
with inventory subsidiary accounts at the date of Existence physical count and ate year end, ensuring differences Valuation between the physical quantities and the book balances have properly accounted for Carry out a net realizable value (NRV) test to ensure that inventories are stated at the lower of cost or NRV Valuation for value
Perform a cut-off test for purchases and sales by
reviewing purchase orders, goods received notes, Completeness sales invoices, debit notes, credit notes and other Cut-off relevant documents which control the movement of inventories
Ensure that inventories and work in progress are
Classification properly categorized, described in the financial Understandability statements