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Date initial circularisation letter despatched . . . . . . . . . . . . . . . . . .
Percentage reply on initial circularisation . . . . . . . . . . . . . . . . . . %
Date of follow up letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3520
8 BANK AND CASH BALANCES
HASTINGS & WARWICK
Sch. Ref.
CLIENT . . . . . . . . . . . . . . . . . . . . . . . . PREPARED BY . . . . . . . . . . . . DATE . . . . . . .
PERIOD . . . . . . . . . . . . . . . . . . . . . . . . REVIEWED BY . . . . . . . . . . . . DATE . . . . . . .
(Audit senior in charge)
AUDIT AREA BANK AND CASH REVIEWED BY . . . . . . . . . . . . DATE . . . . . . .
(Manager)
The purpose of the auditing procedures set out in this section of the program is to obtain
reasonable assurance that bank and cash balances are not materially overstated.
Work
performed
by
Ref. to
supporting
working paper
RELIANCE ON INTERNAL CONTROL PROCEDURES
1. Where we have placed reliance on the clients internal control procedures, test that the
controls on which we are relying have been complied with, and record the details of such
tests in the working papers.
TESTS OF DETAIL
CONFIRMING BANK BALANCES
Note: Normally, bank balances should be confirmed at the balance sheet date. An interim
date should not be chosen for confirmation unless the manager responsible for the audit
expressly permits this.
2. Obtain or prepare a list of all bank accounts that were open at any time during the year.
Send out requests for confirmation to the banks concerned at least one week before the
confirmation date. (Use the firms standard confirmation request letter and ensure that
the client has authorised the banks to divulge the required information to us.)
3. Obtain, and retain, a copy of the clients bank reconciliations as at the confirmation date.
Test the reconciliations as follows:
(A) Check the casts of the reconciliations and agree the balances with the general
ledger (or where appropriate with the cash books) and with bank statements.
(B) Obtain bank statements for a sufficient period (usually ten working days)
immediately subsequent to the confirmation date. (If there are any suspicious
circumstances, obtain these statements direct from the bank.)
(1) Test for understatement of outstanding cheques and other items which decrease
the cash book balance. Select from payments recorded by the bank in the
subsequent period and comparing these with the payment records to ensure that
they were recorded in the correct accounting period. Compare the cheques
recorded prior to the confirmation date with the reconciliation.
(2) Check for overstatement any unbanked receipts and other items which increase
the balance at the bank. Do this by selecting from the list of unbanked receipts
and comparing with paying-in slips and with bank statements. Investigate the
reasons for any delay in banking receipts.
(3) Test for worthless cheques deposited to cover shortages by scrutinising the
bank statements for dishonoured cheques in the first ten working days after the
year end.
4. Agree bank certificates with the balances shown on the reconciliations as being due to or
from the banks. Also check that all other information given on the certificates agrees
with the clients records and is properly reflected in the accounts.
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3521
WINDOW DRESSING
5. Test for window dressing by reviewing material payments and receipts in the last month
of the year and for a sufficient period immediately after the balance sheet date.
SETTING-OFF OF BALANCES
6. Ensure that:
(A) A legal right of set-off exists where bank balances have been set-off.
(B) The client has made all known material set-offs in the accounts.
CONFIRMING CASH BALANCES
7. Obtain or prepare a list of all petty cash funds, undeposited receipts, unclaimed wages
and other items. Include, where appropriate, negotiable instruments, title deeds, share
certificates, etc. Agree this list with the general ledger accounts or other appropriate
records.
8. Where cash balances are material, count them (on the date chosen for the confirmation
of bank balances) as follows:
(A) Count and list notes, coins and cheques, vouchers and any negotiable
instruments. Control all funds and other items to ensure that there can be no
substitution. Carry out the count in the presence of the custodian of the funds
and do not, at any time, assume sole custody of these funds. Where there is a
significant difference between the book records and the count, consult the
clients officials immediately.
(B) In respect of cheques:
(1) Ensure that these have been entered correctly in the receipt records. If they
have not yet been entered, obtain a copy of the client's paying-in slip which
records them and, subsequently, check that they have been properly recorded.
(2) Check that these items are lodged in the bank promptly. Also check that there
are no undeposited receipts on hand at the date of our count.
(3) Where cashed cheques are part of petty cash funds, ensure that these are
controlled, that they are not post-dated and that they are banked promptly.
Review with an appropriate official of the client any cheques which are for a
relatively large amount or are signed by the custodian or are in any way
suspicious.
(C) In respect of vouchers:
(1) Inspect these for approval, for authenticity and for date.
(2) Check that the vouchers have been recorded in the cash fund records. If they
have not been recorded, prepare a list of the items in sufficient detail to enable
this check to be carried out at a subsequent date.
(3) Examine the cash fund records to ensure that those vouchers that have been
used to support a cash fund balance do not also support previous payments.
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3522
9 TRADE PAYABLES AND ACCRUED EXPENSES
HASTINGS & WARWICK
Sch. Ref.
CLIENT . . . . . . . . . . . . . . . . . . . . . . . . PREPARED BY . . . . . . . . . . . . DATE . . . . . . .
PERIOD . . . . . . . . . . . . . . . . . . . . . . . . REVIEWED BY . . . . . . . . . . . . DATE . . . . . . .
(Audit senior in charge)
AUDIT AREA TRADE PAYABLES REVIEWED BY . . . . . . . . . . . . DATE . . . . . . .
(Manager)
The purpose of the auditing procedures set out in this section of the program is to obtain
reasonable assurance that payables, accrued expenses and provisions are not materially
understated.
Work
performed
by
Ref. to
supporting
working paper
RELIANCE ON INTERNAL CONTROL AND INTERNAL AUDIT PROCEDURES
1. Where we have placed reliance on the clients internal control or internal audit
procedures:
(A) List the internal control or internal audit procedures that we consider are essential
to the system of internal control or internal audit.
(B) State whether each procedure is, or is not, documented in writing.
(C) Test that the controls have been complied with, and record the details of our tests
in the working papers.
TESTS OF DETAIL
Note: Where the client keeps book records of inventory, trade payables should be confirmed
at the date of the physical count.
TESTING TRADE PAYABLES FOR COMPLETENESS
Confirmation date
2. Obtain a list of accounts payables at the confirmation date and apply the following
procedures:
(A) Agree or reconcile the total of the list with the general ledger account(s).
(B) Cast the list.
(C) Establish whether or not the list appears reasonable by reviewing it for payables
which are obviously misstated, or which, clearly, have been omitted (eg by
comparing the list with the balances at the beginning of the period and with the
general ledger debit sample).
3. Test the subsidiary records of trade payables (normally the payables ledger or a listing of
unpaid invoices) for understatement or omission of amounts due to suppliers at the
confirmation date. Do this by selecting suppliers for confirmation as follows:
(A) Determine the length of the average trade payable cycle by dividing the larger of
the trade payable balances at the most recent month end or at the preceding year
end (or the estimated current year-end balance if it is expected to be significantly
larger) by the average monthly payments to trade payables.
(B) Select suppliers accounts for confirmation by selecting a CMA sample for a
period of two trade payable cycles (or three months if longer) prior to the
examination date from either:
(1) The cash payment records; or
(2) The general ledger debits (ie in purchase and expense accounts).
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3523
Note: 1. The sampling interval we use to select suppliers in 3(B) above should be the
sampling interval for the detailed testing of trade payables.
2. The period defined in 3(B) above should end not more than one month before
the confirmation date and should not begin before the current audit period.
3. We should review the list of suppliers selected in 3(B) above to ascertain
whether we have failed to select for confirmation any suppliers with whom the
client conducts substantial business. We should consider whether we wish to
include these suppliers in our sample for confirmation at the confirmation date. If
we do so we should exclude from our evaluation procedure any errors we
discover that relate to these suppliers.
4. For the period we used in 3(B) above, do one of the following:
(A) If we have sampled from the cash payment records, determine the total payments
made in the period to each supplier we have selected.
(B) If we have sampled from the ledger debits, determine the total purchases made in
the period from each supplier we have selected.
5. Request each supplier selected in 3(B) above to confirm his balance in writing. If we
receive no reply send second requests or apply other procedures (eg telex or telephone
calls made under our control) that might be expected to produce a direct reply from the
supplier.
Note: 1. The optimum date for despatching a written confirmation request will be
shortly before the confirmation date.
2. We will not need to confirm directly liability accounts such as rentals, public
utilities, payroll deductions, etc if we can reasonably estimate the maximum
unrecorded liability.
6. (A) Reconcile each reply that we receive with the subsidiary records of trade payables
and investigate any differences by examining supporting documents, direct
contact with the supplier or other appropriate means.
(B) Where we are unable to obtain a direct reply from the supplier, either:
(1) Obtain a payable statement from the client, scrutinise it for evidence of
alteration, and reconcile the balance at the examination date as in (A) above; or
(2) If a statement is not available, examine purchase invoices and documents
supporting cash payments to that supplier for a period of one trade payable
cycle following the confirmation date to determine the adequacy of the liability
recorded at that date. Sample also the debit entries to the payables account
and establish their validity by examining paid cheques, credit notes or other
relevant evidence. Agree the opening balance on the account with the list of
payables at the previous year end and test the casts of the account.
Note: For the purpose of 6 above, our reconciliation with supporting documentation will
include selecting purchase items on a judgement basis and tracing them to the
goods received records and the inventory records.
7. Complete part A of the evaluation schedule for trade payables. Consider whether the
extent of the errors we discover necessitates our extending the confirmation procedures.
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3524
Following up an interim confirmation of payables
Note: If trade payables have been confirmed at the balance sheet date omit procedures
8 to 10.
8. Test debit entries to the trade payables recorded between the confirmation date and the
balance sheet date as follows:
(A) Select items from the cash payments records and examine supporting documents
(including each related cancelled cheque) to determine whether a liability
recorded at the confirmation date has been satisfied.
(B) Trace the selected items to the credits in the subsidiary records of trade payables.
(C) Review the level of purchase returns and allowances. If they are material, select
a sample of purchase returns and allowances from the debit entries to the
payables control account and ensure that they are both valid and recorded in the
correct accounting period by comparing them with supporting evidence (eg
goods returned records, inspection reports, correspondence with suppliers and the
relevant purchase invoice).
9. Review and summarise the movements on the payables control account from the
confirmation date to the balance sheet date, and establish the reasons for any unusual
movements.
10. Compare the individual balances which we selected for confirmation at the
confirmation date with the corresponding balances at the balance sheet date, and
investigate any major differences.
Balance sheet date
11. Select a CMA sample of items from the cash payments records for one trade payable
cycle, or (if shorter) the period between the balance sheet date and the approximate date
of completion of fieldwork. The sampling interval we use should be the sampling
interval for the detailed testing of trade payables.
12. Where the completion of fieldwork occurs later than one trade payable cycle from the
balance sheet date, select all further top stratum payments until the date of completion
of fieldwork.
Note: Where our reporting deadline follows closely on the year end, we will normally
confirm trade payables at an interim date to allow ourselves a sufficient period
to adequately test post-confirmation date payments. This procedure will
compensate for the restricted period between the balance sheet date and the date
of completion of fieldwork.
13. Test the items selected in 11 and 12 above with supporting documents and determine
whether those payments that satisfied a liability at the balance sheet date satisfied a
recorded liability at that same date.
14. Test for understatement of credit purchases in the period immediately preceding the
year end by selecting items on a judgement basis from the purchase and expense records
for the first few weeks after the year end, and ensuring that those purchases and
expenses which relate to the period before the year end were accrued as liabilities at the
year end.
15. Enquire whether any old, disputed or questionable liabilities (either recorded or
unrecorded) exist, and investigate as we deem appropriate.
16. Review the level of trade payables and its relationship to purchases. Compare with the
previous year and investigate any significant changes in the composition of the trade
payables between the opening balance and the balance at the balance sheet date.
Record the results of the investigation in a working paper.
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3525
17. Evaluate the errors we discover during our work. If the revised monetary precision is
unacceptable, apply any or all of the following procedures:
(A) Extend the confirmation at the balance sheet date.
(B) Extend the tests conducted in 8 to 14 above.
(C) Request the client to re-check the recorded liabilities at the balance sheet date.
(D) Request the client to record an acceptable adjustment based on the estimated
population error in the evaluation for trade payables.
18. Review unpaid suppliers invoices and unmatched receiving reports shortly before the
completion of fieldwork. Identify any items that represent unrecorded liabilities at the
balance sheet date.
TESTING ACCRUED EXPENSES AND PROVISIONS
19. Test for omission and other understatement of accrued liabilities and provisions. Do
this by examining documentation and by checking calculations to ensure that adequate
(but not excessive) provision has been made for the items listed in (A) to (J) below.
Where there is no independent evidence available concerning the amount of an accrued
expense, test the debits to the accrual accounts by comparing with internal evidence of
validity and with paid cheques, etc.
(A) Periodic payments (eg rent, utilities, insurance, etc)
(B) Accrued salaries, wages and employers social security contributions.
(C) Accumulated holiday pay.
(D) Accrued commissions and bonuses.
(E) Payroll deductions (eg PAYE, NI, and retirement benefit contributions.)
(F) Professional charges.
(G) Directors remuneration.
(H) Royalties and similar charges.
(I) Further expenditure for completed work and after-sales service (eg warranties.)
(J) VAT.
20. In addition, test for omission of other accrued expenses and provisions, by comparing
with accrued expenses and provisions in previous years, by comparing with expenses
incurred during the year, by making enquiry, and by other appropriate methods.
RESERVATION OF TITLE
21. (A) Use the information obtained from 9 above and step 5(C) of the AP for income and
expenses purchases, to ensure for the selected suppliers that the year-end liability
for goods purchased subject to reservation of title is not understated.
(B) Test the items comprising the disclosed secured liability for overstatement.
(C) Review the tax correspondence to ensure that it is appropriate for the tax
computation to be prepared on the commercial basis. If it is not, and if the legal
basis applies, seek advice from the tax department.
Note: The commercial basis of the contract is that the goods are treated as purchases
in the accounts of the purchasing company and as sales in the accounts of the
selling company. The legal basis means that the relevant goods are not treated
as either a sale or a purchase until the buyer has paid for them.
(D) Record in the working papers the work we have done and the enquiries we made.
APPENDIX 3 AUDIT PROGRAMS
Accountancy Tuition Centre (International Holdings) Ltd 2005 3526
REVIEWING THE CLASSIFICATION OF BALANCES
22. Examine the listing of liabilities at the balance sheet date, and reclassify debit balances,
non-current balances and inter-group balances where appropriate.
SETTING-OFF OF BALANCES
23. Ensure that:
(A) A legal right of set-off exists where receivable and payable balances have been set
off.
(B) The client has made all known material set-offs in the financial statements.