1. Select a sample of investment owned by the client (Completeness)
2. Calculate expected income and compare with recorded income. (Completeness)
3. Re compute income with reference to supporting documents. (Accuracy and Completeness)
4. If dividends on ordinary shares are declared from pre acquisition profits, ensure that such dividend are deducted from cost of investments. However, if it is difficult to identify the amount of dividends as to whether declared out of pre acquisitions or post
acquisition profits, the total amount can be taken to income unless they clearly represent recovery of a part of cost of investments. 5. Trace cash received to bank statement. (Occurrence, accuracy)
6. Determine that investment income has been recorded correctly as to account, amount and period. (Classification, cut-off, accuracy)
7. Compare investment income with prior year and budgeted figures. (Completeness)
8. Determine the investment income is presented and disclosed in accordance with IFRS and in compliance with statutory regulations. (presentation and disclosure,
1. Study terms of relevant agreement. (Occurrence)
2. Ensure that cash has been received or there is a reasonabl probability that it will be realized through account receivable. (Occurrence)
3. Trace royalty received to bank book. (Accuracy, completeness)
4. Determine that all income that is earned has been recognized. (Completeness)
5. Determine that royalty has been recorded correctly as to acco amount and period. (Accuracy, classification, cut-off)
6. Compare royalty income with prior year and budgeted figures
7. Check that policy of income recognition has been appropriately disclosed. (Presentation and disclosure)
8. Determine the royalty income is presented and disclosed in accordance with IFRS and in compliance with statutory regulations.
1. Select suppliers’ invoices and test for validity and accuracy:
(a) Check prices with purchase order
(b) Compare units billed with goods received notes
(c) Check arithmetical accuracy
(d) Verify account classification (Occurrence, classification, accuracy)
2. Trace suppliers’ in voices to purchases day book (Accuracy)
3. For selected periods, recomputed totals of purchase day book. (Accuracy)
4. Check postings from purchases day book to general ledger account. (Accuracy)
5. Select goods received notes issued during last week of accounting year and verify that related purchases have also been entered in the purchases day book of same accounting period. (Cut-off, completeness)
6. Select suppliers’ invoices recorded during last week of accounting year and first week of subsequent year and match with goods ‘received notes (Occurrence, cut-off
7. Determine that appropriate policy has been used for recognition of purchases (Cut-off, occurrence
8. Carry out analytical procedures:
(a) Obtain or prepare a quantitative reconciliation setting out opening inventory, purchases, closing inventory and sales.
(b) Review month-to-month tabulation of purchases and inquire for unusual fluctuations
(c) Compute anticipated purchases by multiplying number of units purchased with standard purchase prices. (Completeness and accura)
9. Inspect financial statements to verify that appropriate disclosures has been made including related party disclosures and accounting policy recognizing purchases.
OPERATING AND OTHER EXPENSES
1. Obtain cash payments journal for the selected period And carry out following tests.
( a) Trace totals to appropriate expense control accounts.
( b) Test arithmetic accuracy of cash payments journal
( c) Check correct classification.
2. Vouch expenses with supporting documents
( a) Check that invoices have been prepared in the name of the company.
( b) Trace to expense records.
( c) Check accounts allocation
( d) Test arithmetical accuracy (Occurrence, cut-off)
3. Carry out cut off procedures
( a) Examine subsequent payments betweenthe balance sheet date and the date of completion of field work.
( b) Examine expense invoices recorded after year end (cut-off)
4. Carry out analytical procedures
(a) Compare month to month expenses and investigate reasons for unusual fluctuations
(b) Compare individual expenses with last year and budget and investigate unusual variances. (Completeness, accuracy)
5. Check that presentation and disclosures are in accordance with IFRS and the local regulations.
The auditor is primarily concerned to ensure that payroll is not overstated by inclusion of non existent employees or inflated payroll rates and hours. The reason is that if an employee is excluded from payroll or his pay is erroneously computed less than his dues, he would himself claim his correct pay.
The secondary consideration is to ensure that payroll is not understated by excluding certain employees or using incorrect rates or pay. I) Select a sample of employee from the payroll record:
Verify appointment letters, authorization for employment and agreed rates of pay.
Check approval of department head Check hours worked
Recompute gross pay and payroll deductions.
2) Select a summary of payroll summaries:
• Check additions of payroll summary
• Determine final approval of payroll summary before payrol cheques are issued.
• Trace postings to appropriate general ledger accounts.
• Check allocation of payroll to cost of sales and operati = expenses
• Compare net pay with cash payments record
• Compare summary of total hours per time records or time she with total hours per payroll summary.
3) Attend a pay-out of wages
• Make a surprise visit at the time when payroll disbursem ready for distribution.
• Take control over envelopes to be distributed.
• Before distribution, compare each worker’s pay with the pay record.
4 Ensure that a cheque or envelope exists for each employee per the payroll record.
• Return the payroll cheques or envelopes to the person responsible for distribution of payroll.
• Observe distribution ensuring that each employee gets only one envelope and no employee presents himself twice.
• Request the client to assign an independent person to identify workers.
• In case of doubt, ask for the identity of the worker.
• Determine that each employee signs the receipt.
• Ask the employee to count the pay in the presence of the auditor.
• Prepare a list of unclaimed wages.
• Seal the unclaimed wages in an envelope
• Release the sealed envelope to the person responsible for distribution of payroll
• As and when the employees request the unclaimed wages, the auditor should be notified and the release of envelope of a particular employee upon proper identification.
4) Trace amount of accrued payroll taxes to tax returns
5) Review year end cut off
6) Carry out analytical procedures.
Obtain or prepare a monthly comparison of payroll and inquire reasons for significant fluctuations. Compare payroll costs with last year and budgets and obtain explanations for major variations.
7) Determine the payroll costs have been properly presented and disclosed in the financial statements.