1. Keep in mind volatility of the construction industries. In boom periods the entities may be confronted with excessive construction work and consequent inadequate working capital, In recession, entities may be subject to going concern problem.
2. Ascertain general level of competence of management.
3. Discuss with management future prospects.
4. Ascertain accounting and internal control system.
5. Assess inherent and control risk and set materiality level.
6. Obtain a list of contracts awarded during the year and a list of incomplete contracts end of last year.
7. Verify major contract accounts
8. Check contract price with signed contracts.
9. Ensure that variations in contract work, claims and incentive payments are recognized only to the extent that is probable that they will result in revenues and they re capable of being reliably measured.
10. Ensure that contract costs comprise costs that relate directly to the specific contract and costs that are attributable to the contract activity in general and can be allocated to contract. Selling and administrative costs should not be allocated to contracts.
11. If the outcome of the contract can be estimated reliably, contract
revenues and contract costs should be recognized by reference to stage of completion of the contract activity at the balance sheet date.
12. Determine how the stage of completion has been estimated. The two acceptable ways are:
a) The proportion that contract costs incurred to date bear to the
estimated total cost
b) Surveys of work performed.

13. Ensure that when stage of completion is determined by reference to the contract costs to date, only those contract costs that reflect work performed are included in costs incurred to date.
14. If the outcome of the contract cannot be estimated reliably, revenues should be recognized only to the extent of contract costs incurred that it is probable will be recoverable and contract costs should be recognized as an expense.
15. Ensure that in case ofa contract it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized in full.
16. Reviews reasonableness of estimated further costs.
17. Verify estimated future costs with subsequent events to date of audit report.
18. Ensure that the changes in estimates are recorded in the year of
change and in future years if they affect future years.
19. Ensure that presentation and disclosure is in accordance with IAS 11.



1. On a test basis compare entries in the cash book with the receipts issued.
2. Vouch receipts with supporting documents.
3. Obtain information about monthly fee, admission fee, transport, despot and other charges.
4. Check castings of the cashbook.
5. Carry out analytical procedures for the income on the basis of
number of students enrolled during the year.
6. Obtain list of students and test a sample of fees.


1. Compare expenditure’ from previous year and budget. Investigate unusual items.
2. Compare moth to month expenses and inquire into unusual fluctuations.
3. Review items that seem unusual.
4. Test cast the payment side of the cash book.
5. Review purchases to ascertain that the expenditure was of type expected to be incurred in a school.
6. Check payments from supporting documents.
7. Check salaries with the appointment letters.
8. Vouch petty cash payment with supporting documents.

Fixed assets

1. Obtain a list of fixed assets.
2. Vouch additions.
3. Check entries for disposals.
4. Carry out physical check of fixed assets.
5. Re compute depreciation


1. On a test basis check purchases from authorized suppliers’ invoices.
2. Obtain till rolls for selected days and compare the amount with amount banked.
3. Check closing inventory offood items.
4. Check salaries and wages with appointment letters.
5. Compare gross profit percentage with gross profit earned on certain billings by comparing the selling price with cost of food items. Inquire into causes for unusual differences.
6. Compute percentage of wages to sales, current year Vs last year.
7. Tabulate month to month expenditure and investigate unusual fluctuations.


1. Obtain engagement letter
2. Obtain a copy of constitution
3. Verify that the funds have been used for the purpose that the donors have donated
4. Observe procedures for collection of cash

Donation boxes should be opened in the presence of responsible officials
• All cash received should be deposited in the bank daily tact
• Collections boxes should be serially numbered
• Where practicable receipts should be sent to donors

5. Count cash
6. Check bank reconciliation
7. Verify Government grants and check whether such grants have been used for the purpose for which grants have been received.


1. Verify expenditure on food and beverages, salaries and wages, cleaning, maintenance of properties, waste disposal, utilities, and local taxes.
2. Obtain understanding of the business including its internal controls.
3. Perform tests of control s to determine nature, timing and extent of substantive procedures.
4. Apply analytical procedures where relationships are expected to exists.
5. Trace source documents, for example, purchase orders, payroll sheets, through the system to day books and ledgers.
6. Search for unrecorded liabilities l;>yverifying subsequent payments.
7. Carry out cut off tests for food invoices received just before year end


Area requiring closer i.ntemal controls

1. Evaluate management process to minimize:

− Over ordering
− Health and safety. regulations (sale of sub standard food items)
− Analysis of gross profit on various categories of products Frequent inventory counts.
− Pilferage is difficult to controls Measures to minimize stock outs
−Control over direct purchases by super markets. Central ordering system is preferable
− Integrity of staff and management
− Experienced staff
−Sales price decisions to be centralized.

Posted on November 4, 2015 in Audit of Specialized Industries

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