a) Obtain or prepare a lead schedule of provision for gratuity.

i) Check arithmetical accuracy ofthe schedule
ii) Trace last year’s balance with last year’s working paper me.
b) Study company rules and regulations relating to gratuin benefit.
c) Obtain a list of employees with date of joining to ensure that on those with stipulated number of years’ service are considered.
d) Check basic salary
e) Compute the gratuity due on the basis of number of years worked.
f) Reconcile gratuity payable at beginning of year, gratuity provison for year, gratuity paid to employees who have left during the  and balance at end of year.
g) Check journal entry for the provision.
h) Compare gratuity expense and provision for gratuity at year with:
i) Budget
ii)Previous year and investigate unusual variances
i) Determine that gratuity expense and provision for has been correctly presented and disclosed in the further statements.


1. Check that the company has established a Workers’ Participation
Fund as soon as the accounts for the year in which the establishment of funds becomes applicable, but not later than nine months after the close of the year.

2. Check that the company has paid to the Fund not later than nine months after the close of relevant accounting year five percent of profit for the year

3. Re – computer the above five- percent on the basis of audited accounts.
4. Ensure that a Board of Trustee has been constituted consisting of
following trustees, namely:
(a) Two persons elected by the workers of the company from management themselves and.
(b) Two persons nominated by the management of the company of whom at least one shall be a person from the accounts branch of the company.

5. If the company utilizes the amount of Fund, ensure that the company pays to the Fund interest at the rate of 2.5% above the bank rate or 75% of the rate at which dividend is declared on its ordinary shares whichever is higher. The interest on the Fund should accrue on and from the first day of the year next succeeding the year in which the scheme becomes applicable to the company.

6. When the company does not wish to utilize the amount available to
it, interest as set out above is payable by the company for the period
between the date for allocation of any amount to the Fund and the
date of its investment in outside securities.
7. If, at any time, after the establishment of the Fund, the company
raises additional capital, otherwise than through the issue of bonus
shares, ensure that first opinion has been given to the Fund to convert
any amount available to the company as aforesaid, into ordinary
equity capital upto a ‘ceiling of 20% of the paid up capital of the
company or 50% of the additional capital, whichever is less.
8. Ensure that the amount of Fund which, the company has requested to be utilized for investment is invested by the Board for the purchase of anyone of the following securities.

(a) ICP Mutual Fund Certificate
(b) NITs
(c) Government securities including Defense and Postal Saving Certificates.
(d) Any other securities approved for the purpose by the Federal Government.
9. Check proper distribution of benefits to workers as follows:

(a) The number of available units is divided into three parts for the three categories of workers mentioned below that a worker in the first of those categories gets four units for each units that a worker in the second of those categories gets or for each one unit
that a worker in the last of these categories gets:


1. . Workers drawings average monthly wages not exceeding Rs.1,800
2. Workers drawing average monthly wages exceeding Rs. 1,800 but not exceeding Rs. 2,200.
3. Workers drawing average monthly wages exceeding Rs. 2,200 but not exceeding Rs. 3,000.
(b) The average monthly wages is rounded upto the nearest 0 Rs.I0
(c) The number of units available to each category of workers is divided equally among all the workers in the category t determine the share of each worker of the category. 10. Ensure that 100% of the annual income of the Fund, including capital gains realized, is distributed each year to workers proportion to their unit of entitlement.

11. Check that a worker who voluntarily leaves the employment of company or whose services are terminated is paid 100 per cent of net asset value of the units standing in his name.

12. Ensure that a worker, in the event of his retirement or his nomina beneficiary, in the event of worker’s death (from whatsoever ca while in the employment of the company, receives 100% of the assets value of the units outstanding in the worker’s n irrespective of the period of employmerit.

13. Verify that the net asset value of a unity the total net assets of the Fund namely, market value of the securities, cash and other assets resulting from the investment, capital accretion thereto and all income of every kind arising therefrom are divided by the number of units in the Fund.

14. Ensure that the net asset value of the entire Fund is computer dronce every year and each worker’s unit entitlement is determined at the same time. Additional units are given to the workers according to the amount they voluntarily contribute to the Fund.

15. Verify the net asset value of the Fund at the close of the accounting year as follows:
i) For list securities, the last reported sale price on stock exchange should be used and ::or unlisted securities breakup value should be used.
ii) Securities purchased and awaiting payment against delivery should be included as assets of the Fund.
iii) Securities sold but not delivered pending receipts of the proceeds should be excluded and account adjusted.
iv) Cash in hand and with banks are to be valued at face amounts.
16. Where a worker voluntarily chooses to contribute a part of his wages, cash bonus, dividend or interest to the Fund, for each unit of contribution he should receive credit for 1 – V4 units.


1. Verify that the employers and employee contributions have been
received per the provident fund rules.
2. Study significant activities on the plan for the period and the effect of any changes relating to rules, and its membership and terms and conditions.
3. On a test.basis, check benefit paid
4. Test investment income
5. Test administrative expenses
6. Check that investments have been made in accordance with investment policy.
7. Verify valuation of plan assets.
a) In the case of marketable securities fair value is -usually market value because this is considered the most useful measure of the securities at the report date and of the investment performance
for the period.
b) Securities that have a fixed redemption value and that have been acquired to match the obligation of the plan, or the specific parts thereof, may be carried at amounts based on their ultimate redemption value assuming a constant rate of return to maturity.
8. Determine that following disclosures have been made:
a) Assets at the end of the period suitably classified
b) Basis of valuation of assets
c) Details of any single investment exceeding either 5% of the net assets available for benefits or 5% of any class or type of security.
d) Details of any investment in the employer entity
e) Liabilities of the Fund
f) Employer contribution
g) Employee contribution
h) Investment income
i) Other income
j) Benefits paid or.payable
k) Administrative expenses
j) Profit and loss on disposal of investment and changes in the value of investments.
m) Accounting policies including funding policies.

Posted on November 3, 2015 in Verification (Substantive Procedures)

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