STOCK SENT ON CONSIGNMENT Auditing Help

a) Ascertain units and cost of goods sent on consignment from the advice sent to consignee
b) Inspect the advice received from the consignee for the goods on hand at year-end.
c) Ensure that abnormal losses have been excluded from the cost of
inventory.
d) Verify the unit cost of inventory. The cost should include all expenses incurred by the consignee and the consignor upto the time the goods are received by the consignee.

P. PETTY CASH PAYMENTS

a) Select —– petty cash summaries and carry out following tests:
i) Check approval for payments
ii) Ensure that the payments have been made for the purpose of the business of the client
iii) Check account allocation
iv) Count petty cash
v) Trace the reimbursement from cash book.
vi) Check totals of the petty cash summary
vii) Check vouchers with petty cash summary

Q. CONTINGENT LIABILITIES

Contingent liabilities include:
• Guarantees given by the company
• Bills receivable discounted and not matured
• Liabilities for penalties
• Pending lawsuits

Procedures

1. Inspect minutes of the directors
2. Examine correspondence with company lawyers
3. Obtain written representation for the contingent liabilities

R. REDEEMABLE CAPITAL

Redeemable capital includes finance obtained on the basis of musharaka certificates, term finance certificates (TFC), or any other security or obligation .not based on interest, other than the ordinary shares of the company, representing an instrument or a certificate of specified denominations, called the face value or nominal value, evidencing investment of the holder in the capital of the company on terms and conditions of the agreement for the issue of such instrument or certificate or such other certificate or instruments as the Federal Government may be notification specify for, this purpose.
A company may buy public offer or upon terms and conditions contained in agreement in writing, issue to one or more scheduled banks, financial institutions or such other persons as are specified by the Federal Government any instrument in the nature of redeemable capital whether in cash or in specie or against any promise, guaranteed, undertaking or indemnity issued to or in favour of or for the benefit of the company.

1. Basic work will be carried out when redeemable capital is issued and in the year when it is redeemed. Obtain or prepare a schedule of the redeemable capital a) Check arithmetical accuracy of the schedule
b) Trace total to general ledger and balance sheet
c) Check last year’s figures with last year’s working papers

2. Inspect following documents for the term of issue
a) Articles of association
b) Shareholders’ approval
c) Borrowing restrictions imposed by other lenders
d) Directors minutes
e) Agreement with redeemable capital holders
– Inspect register of redeemable capital
– Study arrangements for sharing profit and loss
– Trace proceeds of issue to bank book

S. PATENTS AND TRADE MARKS

Patent is a document conferring for securing a right. Trademark is a word or mark identifying a manufacturer.
a) Verify letters of patents issued by the patent office
b) Where patent has been purchased check legal assignment transferring ownership.
c) Check amortization of cost over the economic useful life or remaining life whichever is shorter
d) Verify costs incurred with supporting documents
e) Vouch annual renewal fee
f) Ensure that only design and registration fee are capitalized. Annual renewal fee should be charged to profit and loss.

T. BILLS RECEIVABLE

a) Check subsequent collection.
b) Inspect bills receivable on hand at end of year.
c) Verify bank confirmation for bills held by bank.
d) Consider provision for doubtful debt relating to bills which have been renegotiated or replaced by another bill
e) Determine that bills discounted have been shown as conting
liability

U. BILLS PAYABLE

a) Check subsequent clearance
b) If bills are still outstanding vouch with clients records of bill transactions.
c) If the bill covers liability, the liability should not be reflected the accounts.

V. ACCRUED LIABILITIES

a) Check subsequent payments
b) Perform analytical procedures
c) Test computation of accrued liabilities by reference to related documents such as commission rates, tax rates, and annual rent.
d) Assertion that all accrued liabilities have been recorded.
e) For estimated liabilities such as warranties determine reasonableness of the basis of estimate.

W. DIVIDENDS

a) Obtain or prepare a schedule of dividend paid or payable.
b) Check arithmetical accuracy of the schedule.
c) Check total to profit and loss appropriation.
d) Trace movements from change in equity statement.
e) Check dividend rate with the minutes of general meeting of shareholders.
f) Determine that dividend does not exceed the amount recommended by the directors.
g) Check total amount of dividend by reference to paid up capital.
h) Determine that the-dividends are paid only out of profits.
i) For interim dividend determine that:
i) Articles of association empower declaration of interim dividend.
ii) The Board has authorized declaration of interim dividend in its meeting.
iii) Interim financial statements have been prepared to ascertain rate of dividend.
Ensure that no dividends are paid by the entity in respect of any shares except to the registered holder of such share or to his order or his bankers or to a financial institution nominated _by him for the purpose.
Determine that the dividend has been paid within 45 days of the declaration in case of a listed company and within 30 days in the
case of any other company.

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

Share the Story

Back to Top
Share This