1. Verify relevant agreements.

2. Check compliance with Articles of Association.

3. Inspect Board and shareholders‘ minutes.

4. Re compute remuneration based on profits.

5. Verify supporting documents for reimbursed expenses.

6. Check that following have been separately disclosed.

The aggregate amount charged in the financial statements in respect of the directors, chief executive, managing agents and executives by the company as fees, remuneration, allowances,
commission, perquisites or benefits or in any other form or manner and for any services rendered, and shall give full particulars of such aggregate amounts, separately for the directors, chief executive, managing agents, and executive together with the number of such directors and executives under appropriate heads such as:

i) Fees
ii) Managerial remuneration
iii) Remuneration or commission based on net profit or turnover
iv) Reimbursable expenses which are in the nature of a perquisite or benefits.

v) Pension, gratuity, company’s contribution to provident, superannuating and other staff funds, compensation for loss of office and in connection with retirement from office

vi) Commission indicating the nature thereof and the basis on which such commission is payable.

vii) Other perquisites and benefits in cash or in kind stating their nature, and where practicable, their approximate money values.

viii) the amounts, if material, by which any item shown above are affected by any change in accounting policy, The amount paid to each individual referred to above should also be shown separately.

B. Contributions to Workers’ Profit Participation Fund

a) Re – compute the five- percent contribution.
b) Reconcile opening balance, contributions due, payments made and balance, end of period.
c) Check that following disclosures have been made
a) The amount allocated for the year. (where the required allocation has not been made fully, the reason for not doing so and the amount which should have been allocated to be disclosed. )
b) The amount which remained available to the company for its business operations/ utilized by the company
c) Amount of interest paid or credited for the amount utilized for its own operations at the prescribed rate.
d) Amount of the fund utilized for investment
C). Rent expense
a) Inspect the lease.
b) Agree the expenses charged with payments, prepaid expenses beginning and end of period.
c) Check receipts for payment of rent to determine the period for which payment has been made.
d) Compare with last year and inquire into unusual differences if any.

D. Salesmen commission

(a) Ascertain agreement for payment of commission.
(b) Recompute commission expense.
(c) Relate commission expense with sales (compare with last year’s expense and budget.)
(d) Check subsequent payments
(e) Ensure adequacy of accrued commission payable.

E. Utilities

a) Vouch with utility bills
b) Check the last bill paid to ensure correctness of accruals
c) Check subsequent payments
d) Compare with last year and inquire into unusual differences if any.

F. Traveling expenses

a) Vouch billings from traveling agents.
b) Study company “regulations regarding payment of traveling allowances.
c) Inspect board of directors minutes
d) Study Articles of association to ascertain whether directors are allowed traveling expenses to attend board meetings.
e) Ascertain purpose for which the directors have traveled.
f) Obtain representation from management that the traveling expenses pertain to entity.

G. Insurance premium

a) Obtain or prepare a schedule of insurance polices setting out details of policy, amount covered, number of policy, maturi_dates, annual premiums, and date of payment of premium.
b) Inspect policy or cover note
c) Inspect renewal receipt
d) Compute prepaid insurance.

H. Postage and courier

a) Examine courier company billings
b) Trace payments to cash books.
c) Where franking machine is used, inspect receipt issued by the post office for the payments made.

I. Research expense

a) Vouch payments with supporting documents
b) Study Board minutes
c) Check that following details have been disclosed.

The extent of research and development costs recognized as an expense in the period. The useful lives and amortization rates used to amortize development costs.

J. Errors

a) Ensure that prior period items include mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, frauds and oversights.
b) Verify supporting documents for correction of error
c) Determine that the amount of correction of prior period error is either:
i) Reported by adjusting the openings balance of retained earnings and comparative information is restated; or ii)Included in the determination of net profit or loss for the current period. Comparative information should be presented as reported in the financial statements of prior period. Additional pro forma information prepared as in (i) above should be presented.

d) Check appropriate disclosure:

Where prior year adjustment is reported by adjusting the opening balance of retained earnings, following information should be disclosed.
i) The nature of fundamental error
ii) The amount of correction of fundamental error for the current period and for each prior period presented.
iii) The amount of the correction of fundamental errors relating to periods prior to those included in the comparative information.
iv) The fact that comparative information has been restated for correction of fundamental errors or that it is impracticable to do so. Where the prior period adjustment is included in the determination of net profit or loss for the current period, following information should be disclosed.

i) The nature of error.
ii) The amount of correction recognized in the net profit or loss for the current period. .
iii) The amount of the correction included in each period for which pro forma information is presented and the amount of the correction relating to periods prior to those included in the pro forma information. If it is impracticable to present pro forma information, this fact should be disclosed.

K. Extraordinary items

a) Determine that items classified as extraordinary items arise from events or transactions that are clearly distinct from ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly.

b) Verify supporting documents.
c) Check appropriate disclosures of extraordinary items.
• Net profit or loss for the period should be disclosed on the face of income statement as profit or loss from ordinary activities and extraordinary items. The nature and the amount of each extraordinary item should be separately disclosed.
d) Where items have not been classified as extraordinary items but are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise are disclosed separately.

L. Donations

a) Verify receipts
b) Where any director or his spouse has interest in the donee, check that the name of such directors, their interest in the donee and the names and addresses of all donees have been disclosed .

 I. Professional fee

a) Examine lawyers and accountants invoices
Check that following disclosures have been made as regard auditor’s remuneration:
• Remuneration for services rendered as auditors
• Remuneration for services rendered in any other capacity and stating nature of such services
• In the case of joint auditors, above information to be disclosed for each of the joint auditors.
• Current tax expense
• Check receipts for the payments
• Trace the payment to cash book
• Check posting to provision for income tax account rouch all payments
• Check in detail tax computation
• Ensure that legal and professional charges show nature of work done.
• ‘Verify allowable and disallowable entertainment charges view list of donations
• Verify analysis of general expenses

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

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